Keurig Dr Pepper Inc. - Quarter Report: 2022 March (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED March 31, 2022

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO

Commission file number 001-33829

Keurig Dr Pepper Inc.

(Exact name of registrant as specified in its charter)


Delaware						98-0517725
(State or other jurisdiction of incorporation or organization)						(I.R.S. employer identification number)

53 South Avenue

Burlington, Massachusetts

01803

(Address of principal executive offices)

(781) 418-7000

(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol

Name of each exchange on which registered

Common stock

KDP

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer", "accelerated filer", "smaller reporting company", and "emerging growth company" in Rule 12b-2 of the Securities Exchange Act of 1934.

Large Accelerated Filer ☒ Accelerated Filer ☐ Non-Accelerated Filer ☐ Smaller Reporting Company ☐ Emerging Growth Company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes ☐ No ☒

As of April 26, 2022, there were 1,418,546,832 shares of the registrant's common stock, par value $0.01 per share, outstanding.

KEURIG DR PEPPER INC.

FORM 10-Q

TABLE OF CONTENTS


				Page
Part I.	Financial Information
	Item 1.	Financial Statements (Unaudited)
		Condensed Consolidated Statements of Income		1
		Condensed Consolidated Statements of Comprehensive Income		2
		Condensed Consolidated Balance Sheets		3
		Condensed Consolidated Statements of Cash Flows		4
		Condensed Consolidated Statements of Changes in Stockholders' Equity		6
		Notes to Condensed Consolidated Financial Statements		7
		1	General	7
		2	Long-Term Obligations and Borrowing Arrangements	8
		3	Goodwill and Other Intangible Assets	10
		4	Derivatives	11
		5	Leases	15
		6	Segments	16
		7	Earnings Per Share	17
		8	Stock-Based Compensation	17
		9	Restructuring and Integration Costs	18
		10	Revenue Recognition	19
		11	Income Taxes	19
		12	Investments in Unconsolidated Affiliates	20
		13	Accumulated Other Comprehensive Income (Loss)	20
		14	Other Financial Information	21
		15	Commitments and Contingencies	22
		16	Transactions with Variable Interest Entities	24

		17	Subsequent Events	25
	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations		26
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk		41
	Item 4.	Controls and Procedures		42

Part II.	Other Information
	Item 1.	Legal Proceedings		42
	Item 1A.	Risk Factors		42
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		42
	Item 6.	Exhibits		43

s-i

KEURIG DR PEPPER INC.

MASTER GLOSSARY


Term						Definition


2019 KDP Term Loan						$2 billion aggregate principal amount, with the ability to make voluntary and mandatory prepayments, which was originally due on February 8, 2023 and was fully repaid in 2021
2021 364-Day Credit Agreement						The Company's $1,500 million credit agreement, which was entered into on March 26, 2021 and was terminated on February 23, 2022
2022 Revolving Credit Agreement						KDP’s $4 billion revolving credit agreement, which was executed in February 2022 and replaced the 2021 364-Day Credit Agreement and the KDP Revolver
A Shoc						A Shoc Beverage LLC, an equity method investment of KDP, or Adrenaline Shoc energy drinks
ABC						The American Bottling Company, a wholly-owned subsidiary of KDP
ABI						Anheuser-Busch InBev SA/NV, the majority owner of Bedford with a 70% interest
Annual Report						Annual Report on Form 10-K for the year ended December 31, 2021
AOCI						Accumulated other comprehensive income or loss
ASU						Accounting Standards Update
Bedford						Bedford Systems, LLC, an equity method investment of KDP and the maker of Drinkworks
BodyArmor						BA Sports Nutrition, LLC, a former equity method investment of KDP
bps						basis points
CARES Act						U.S. Coronavirus Aid, Relief and Economic Security Act
CSD						Carbonated soft drink
DIO						Days inventory outstanding
DPO						Days of payables outstanding
DPS						Dr Pepper Snapple Group, Inc.
DPS Merger						The combination of the business operations of Keurig and DPS that was consummated on July 9, 2018 through a reverse merger transaction, whereby a wholly-owned special purpose merger subsidiary of DPS merged with and into the direct parent of Keurig
DSD						Direct Store Delivery, the operating segment whereby finished beverages are delivered directly to retailers
DSO						Days sales outstanding
EPS						Earnings per share
Exchange Act						Securities Exchange Act of 1934, as amended
FFS						Fountain Foodservice, an operating segment of KDP which serves the fountain channel, such as restaurants
FASB						Financial Accounting Standards Board
FX						Foreign exchange

Goldman						Goldman Sachs & Co. LLC
IRi						Information Resources, Inc.

KDP						Keurig Dr Pepper Inc.

KDP Revolver						The Company's $2,400 million revolving credit facility, which was entered into on February 28, 2018 and terminated on February 23, 2022.
Keurig						Keurig Green Mountain, Inc., a wholly-owned subsidiary of KDP, and the brand of our brewers
LIBOR						London Interbank Offered Rate

NCB						Non-carbonated beverage
Notes						Collectively, the Company's senior unsecured notes

PET						Polyethylene terephthalate, which is used to make the Company's plastic bottles
Proposition 65						The State of California's Safe Drinking Water and Toxic Enforcement Act of 1986
RSU						Restricted share unit
RTD						Ready to drink
RVG						Residual value guarantee
SEC						Securities and Exchange Commission
SG&A						Selling, general and administrative
SOFR						Secured Overnight Financing Rate
U.S. GAAP						Accounting principles generally accepted in the U.S.
Veyron SPEs						Special purpose entities with the same sponsor, Veyron Global
VIE						Variable interest entity
Vita Coco						The Vita Coco Company, Inc.
WD						Warehouse Direct, the operating segment whereby finished beverages are shipped to retailer warehouses, and then delivered by the retailer through its own delivery system to its stores

s-ii

Table of Contents

PART I - FINANCIAL INFORMATION

ITEM 1.Financial Statements (Unaudited)

KEURIG DR PEPPER INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)


	First Quarter
(in millions, except per share data)		2022		2021
Net sales		$	3,078	$	2,902
Cost of sales		1,428		1,302
Gross profit		1,650		1,600
Selling, general and administrative expenses		1,018		961
Gain on litigation settlement		(299)		—
Other operating income, net		(35)		(1)
Income from operations		966		640
Interest expense		188		140
Loss on early extinguishment of debt		48		105
Gain on sale of equity method investment		(50)		—
Impairment of investments and note receivable		6		—
Other expense (income), net		9		(3)
Income before provision for income taxes		765		398
Provision for income taxes		180		73
Net income including non-controlling interest		585		325
Less: Net loss attributable to non-controlling interest		—		—
Net income attributable to KDP		$	585	$	325

Earnings per common share:
Basic		$	0.41	$	0.23
Diluted		0.41		0.23
Weighted average common shares outstanding:
Basic		1,418.2		1,409.2
Diluted		1,429.7		1,425.6

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

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KEURIG DR PEPPER INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)


	First Quarter
(in millions)		2022		2021
Net income including non-controlling interest		$	585	$	325
Other comprehensive income
Foreign currency translation adjustments		99		16

Net change in cash flow hedges, net of tax of $48 and $22, respectively		142		71
Total other comprehensive income		241		87
Comprehensive income including non-controlling interest		826		412
Less: Comprehensive income attributable to non-controlling interest		—		—
Comprehensive income attributable to KDP		$	826	$	412

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

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KEURIG DR PEPPER INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)


	March 31,		December 31,
(in millions, except share and per share data)	2022		2021
Assets
Current assets:
Cash and cash equivalents	$	592	$	567
Restricted cash and cash equivalents	2		1
Trade accounts receivable, net	1,214		1,148
Inventories	1,045		894
Prepaid expenses and other current assets	637		447
Total current assets	3,490		3,057
Property, plant and equipment, net	2,436		2,494
Investments in unconsolidated affiliates	29		30
Goodwill	20,243		20,182
Other intangible assets, net	23,889		23,856
Other non-current assets	1,119		937
Deferred tax assets	38		42
Total assets	$	51,244	$	50,598
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	4,510	$	4,316
Accrued expenses	1,028		1,110
Structured payables	143		142
Short-term borrowings and current portion of long-term obligations	—		304
Other current liabilities	767		613
Total current liabilities	6,448		6,485
Long-term obligations	11,584		11,578
Deferred tax liabilities	6,054		5,986
Other non-current liabilities	1,647		1,577
Total liabilities	25,733		25,626
Commitments and contingencies
Stockholders' equity:
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, 1,418,462,239 and 1,418,119,197 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively	14		14
Additional paid-in capital	21,764		21,785
Retained earnings	3,518		3,199
Accumulated other comprehensive income (loss)	215		(26)
Total stockholders' equity	25,511		24,972
Non-controlling interest	—		—
Total equity	25,511		24,972
Total liabilities and equity	$	51,244	$	50,598

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

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KEURIG DR PEPPER INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)


	First Quarter
(in millions)	2022		2021
Operating activities:
Net income attributable to KDP	$	585	$	325
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation expense	106		102
Amortization of intangibles	34		33
Other amortization expense	42		40
Provision for sales returns	12		19
Deferred income taxes	8		11
Employee stock-based compensation expense	(15)		25
Loss on early extinguishment of debt	48		105

Gain on sale of equity method investment	(50)		—
Gain on disposal of property, plant and equipment	(38)		(1)
Unrealized gain on foreign currency	(11)		(10)
Unrealized gain on derivatives	—		(41)
Equity in loss of unconsolidated affiliates	3		—
Impairment on investments and note receivable of unconsolidated affiliate	6		—
Other, net	13		15
Changes in assets and liabilities:
Trade accounts receivable	(73)		(37)
Inventories	(147)		(77)
Income taxes receivable and payables, net	135		25
Other current and non-current assets	(284)		(295)
Accounts payable and accrued expenses	151		121
Other current and non-current liabilities	138		186
Net change in operating assets and liabilities	(80)		(77)
Net cash provided by operating activities	663		546
Investing activities:


Proceeds from sale of investment in unconsolidated affiliates	50		—
Purchases of property, plant and equipment	(109)		(95)
Proceeds from sales of property, plant and equipment	78		7
Purchases of intangibles	(10)		(12)
Issuance of related party note receivable	(6)		—
Investments in unconsolidated affiliates	(3)		—
Other, net	3		1
Net cash provided by (used in) investing activities	$	3	$	(99)

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

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KEURIG DR PEPPER INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED, CONTINUED)


	First Quarter
(in millions)	2022		2021
Financing activities:
Proceeds from issuance of Notes	$	—	$	2,150
Repayments of Notes	(201)		(1,845)
Proceeds from issuance of commercial paper	—		120
Repayments of commercial paper	(149)		(120)




Repayments of 2019 KDP Term Loan	—		(425)
Proceeds from structured payables	38		35
Repayments of structured payables	(37)		(41)
Cash dividends paid	(265)		(192)
Proceeds from issuance of common stock	—		140
Tax withholdings related to net share settlements	(5)		(125)
Payments on finance leases	(20)		(15)
Other, net	(5)		(37)
Net cash used in financing activities	(644)		(355)
Cash, cash equivalents, and restricted cash and cash equivalents:
Net change from operating, investing and financing activities	22		92
Effect of exchange rate changes	4		2
Beginning balance	568		255
Ending balance	$	594	$	349

Supplemental cash flow disclosures of non-cash investing activities:
Capital expenditures included in accounts payable and accrued expenses	$	139	$	259


Supplemental cash flow disclosures of non-cash financing activities:
Dividends declared but not yet paid	266		232
Supplemental cash flow disclosures:
Cash paid for interest	27		29
Cash paid for income taxes	37		31

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

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KEURIG DR PEPPER INC.

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY

(UNAUDITED)


	Common Stock Issued			Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total Stockholders' Equity		Non-controlling Interest		Total Equity
(in millions, except per share data)	Shares	Amount
Balance as of January 1, 2022	1,418.1	$	14	$	21,785	$	3,199	$	(26)	$	24,972	$	—	$	24,972
Net income	—	—		—		585		—		585		—		585
Other comprehensive income	—	—		—		—		241		241		—		241
Dividends declared, $0.1875 per share	—	—		—		(266)		—		(266)		—		(266)

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


	Common Stock Issued			Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total Stockholders' Equity		Non-controlling Interest		Total Equity
(in millions, except per share data)	Shares	Amount
Balance as of January 1, 2021	1,407.3	$	14	$	21,677	$	2,061	$	77	$	23,829	$	1	$	23,830

Net income	—	—		—		325		—		325		—		325
Other comprehensive loss	—	—		—		—		87		87		—		87
Dividends declared, $0.15 per share	—	—		—		(212)		—		(212)		—		(212)

Issuance of common stock	4.3	—		140		—		—		140		—		140
Shares issued under stock-based compensation plans and other	5.7	—		—		—		—		—		—		—
Tax withholdings related to net share settlements	—	—		(125)		—		—		(125)		—		(125)
Stock-based compensation and stock options exercised	—	—		26		—		—		26		—		26
Balance as of March 31, 2021	1,417.3	$	14	$	21,718	$	2,174	$	164	$	24,070	$	1	$	24,071

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

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KEURIG DR PEPPER INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. General

ORGANIZATION

References in this Quarterly Report on Form 10-Q to "KDP" or "the Company" refer to Keurig Dr Pepper Inc. and all entities included in the unaudited condensed consolidated financial statements. Definitions of terms used in this Quarterly Report on Form 10-Q are included within the Master Glossary.

This Quarterly Report on Form 10-Q refers to some of KDP's owned or licensed trademarks, trade names and service marks, which are referred to as the Company's brands. All of the product names included herein are either KDP registered trademarks or those of the Company's licensors.

BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. GAAP for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete consolidated financial statements. In the opinion of management, all adjustments, consisting principally of normal recurring adjustments, considered necessary for a fair presentation have been included. 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 "first quarter" indicate the Company's quarterly periods ended March 31, 2022 and 2021.

PRINCIPLES OF CONSOLIDATION

KDP consolidates all wholly owned subsidiaries.

The Company consolidates investments in companies in which it holds the majority interest. In these cases, the third party equity interest is referred to as non-controlling interest. Non-controlling interest is presented as a separate component within equity in the unaudited Condensed Consolidated Balance Sheets, and net income attributable to the non-controlling interest is presented separately in the unaudited Condensed Consolidated Statements of Income.

The Company would be required to consolidate VIEs for which KDP has been determined to be the primary beneficiary. To determine if KDP is the primary beneficiary, the Company assesses whether it has the power to direct the significant activities of the VIE and the obligation to absorb losses or receive benefits from the VIE that may be significant to the VIE. The Company has determined that it is not the primary beneficiary of any VIEs. However, future events may require the Company to consolidate VIEs if the Company becomes the primary beneficiary.

The Company uses the equity method to account for investments in companies if the investment provides KDP with the ability to exercise significant influence over operating and financial policies of the investee. Consolidated net income includes KDP's proportionate share of the net income or loss of these companies. Judgment regarding the level of influence over each equity method investment includes considering key factors such as ownership interest, representation on the board of directors or similar governing body, participation in policy-making decisions and material intercompany transactions.

KDP eliminates from its financial results all intercompany transactions between entities included in the unaudited condensed consolidated financial statements.

USE OF ESTIMATES

The process of preparing KDP's unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires the use of estimates and judgments that affect reported amounts. These estimates and judgments are based on historical experience, future expectations and other factors and assumptions the Company believes to be reasonable under the circumstances. These estimates and judgments are reviewed on an ongoing basis and are revised when necessary. Changes in estimates are recorded in the period of change. Actual amounts may differ from these estimates.

SIGNIFICANT ACCOUNTING POLICY CHANGES

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.

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KEURIG DR PEPPER INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, CONTINUED)

RECLASSIFICATIONS

KDP reclassified amounts in the unaudited condensed consolidated financial statements for the first quarter of 2021 in order to conform to current year presentation, as follows:

Statement of Cash Flows

(in millions)

First Quarter

Current Presentation

Prior Presentation

2021

Proceeds from issuance of commercial paper

Net payment of commercial paper

120

Repayments of commercial paper

Net payment of commercial paper

(120)

Statement of Changes in Stockholders’ Equity

(in millions)

First Quarter

Current Presentation

Prior Presentation

2021

Tax withholdings related to net share settlements

Stock-based compensation and stock options exercised

(125)

Stock-based compensation and stock options exercised

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)	First Quarter 2021
Segment Results – Income from operations	Current Presentation		Prior Presentation
Coffee Systems	$	368	$	336
Packaged Beverages	179		175
Beverage Concentrates	238		238
Latin America Beverages	22		22
Unallocated corporate costs	(167)		(131)
Income from operations	$	640	$	640

2. Long-term Obligations and Borrowing Arrangements

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


(in millions)	March 31, 2022		December 31, 2021
Notes	$	11,584	$	11,733
Less: current portion of long-term obligations	—		(155)
Long-term obligations	$	11,584	$	11,578

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


(in millions)	March 31, 2022		December 31, 2021
Commercial paper notes	$	—	$	149
Current portion of long-term obligations	—		155
Short-term borrowings and current portion of long-term obligations	$	—	$	304

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KEURIG DR PEPPER INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, CONTINUED)

SENIOR UNSECURED NOTES

The Company's Notes consisted of the following:


(in millions, except %)
Issuance	Maturity Date	Rate	March 31, 2022		December 31, 2021
2023 Merger Notes(3)	May 25, 2023	4.057%	$	1,000	$	1,000
2023 Notes	December 15, 2023	3.130%	500		500
2024 Notes	March 15, 2024	0.750%	1,150		1,150
2025 Merger Notes(3)	May 25, 2025	4.417%	1,000		1,000
2025 Notes	November 15, 2025	3.400%	500		500
2026 Notes	September 15, 2026	2.550%	400		400
2027 Notes	June 15, 2027	3.430%	500		500
2028 Merger Notes(3)	May 25, 2028	4.597%	2,000		2,000
2030 Notes	May 1, 2030	3.200%	750		750
2031 Notes	March 15, 2031	2.250%	500		500
2038 Notes(1)	May 1, 2038	7.450%	—		125
2038 Merger Notes(3)	May 25, 2038	4.985%	500		500
2045 Notes	November 15, 2045	4.500%	550		550
2046 Notes	December 15, 2046	4.420%	400		400
2048 Merger Notes(3)	May 25, 2048	5.085%	750		750
2050 Notes	May 1, 2050	3.800%	750		750
2051 Notes	March 15, 2051	3.350%	500		500
Principal amount			11,750		11,875
Adjustment from principal amount to carrying amount(2)			(166)		(142)
Carrying amount			$	11,584	$	11,733

(1)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.

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

(3)Subsequent to March 31, 2022, KDP undertook a strategic refinancing and issued approximately $3 billion of Notes. The proceeds from the issuance were used to voluntarily prepay and retire several tranches of our existing Notes. Refer to Note 17 for additional information.

VARIABLE-RATE BORROWING ARRANGEMENTS

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

(in millions)

March 31, 2022

December 31, 2021

Issuance

Maturity Date

Capacity

Carrying Value

2022 Revolving Credit Agreement(1)

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 March 31, 2022.

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 2022 Revolving Credit Agreement provides for a $4 billion revolving credit facility, including a letter of credit sub-facility in an aggregate principal amount of up to $200 million. The Company incurred approximately $4 million in deferred financing fees related to the issuance. The 2022 Revolving Credit Agreement will mature in February 2027.

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.

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KEURIG DR PEPPER INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, CONTINUED)

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 March 31, 2022, 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 borrowings under its commercial paper program:


	First Quarter
(in millions, except %)		2022			2021
Weighted average commercial paper borrowings		$	45		$	22
Weighted average borrowing rates		0.30		%	0.18		%

Letter of Credit Facility

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 March 31, 2022 and $54 million of which remains available for use.

FAIR VALUE DISCLOSURES

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

The fair values of KDP's Notes are based on current market rates available to KDP and are considered Level 2 within the fair value hierarchy. The difference between the fair value and the carrying value represents the theoretical net premium or discount that would be paid or received to retire all the Notes and related unamortized costs to be incurred at such date. The fair value of KDP's Notes was $11,868 million and $13,078 million as of March 31, 2022 and December 31, 2021, respectively.

3. Goodwill and Other Intangible Assets

GOODWILL

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
Balance as of January 1, 2022	$	9,800	$	5,319	$	4,539	$	524	$	20,182
Foreign currency translation	31		8		5		17		61

Balance as of March 31, 2022	$	9,831	$	5,327	$	4,544	$	541	$	20,243

INTANGIBLE ASSETS OTHER THAN GOODWILL

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


(in millions)	March 31, 2022		December 31, 2021
Brands(1)	$	19,920	$	19,865
Trade names	2,480		2,480
Contractual arrangements	123		123
Distribution rights(2)	95		85
Total	$	22,618	$	22,553

(1)The increase of $55 million in brands with indefinite lives was due to foreign currency translation during the first quarter of 2022.

(2)The Company executed three agreements to acquire distribution rights during the first quarter of 2022, which resulted in an increase of approximately $10 million.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, CONTINUED)

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


	March 31, 2022						December 31, 2021
(in millions)	Gross Amount		Accumulated Amortization		Net Amount		Gross Amount		Accumulated Amortization		Net Amount
Acquired technology	$	1,146	$	(419)	$	727	$	1,146	$	(401)	$	745
Customer relationships	639		(178)		461		638		(169)		469
Trade names	128		(90)		38		128		(86)		42
Contractual arrangements	24		(8)		16		24		(8)		16
Brands	22		(10)		12		21		(8)		13
Distribution rights	30		(13)		17		29		(11)		18

Total	$	1,989	$	(718)	$	1,271	$	1,986	$	(683)	$	1,303

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


	First Quarter
(in millions)		2022		2021
Amortization expense		$	34	$	33

Amortization expense of these intangible assets over the remainder of 2022 and the next five years is expected to be as follows:


	Remainder of 2022		For the Years Ending December 31,
(in millions)	Remainder of 2022		2023		2024		2025		2026		2027
Expected amortization expense	$	101	$	132	$	124	$	110	$	105	$	91

IMPAIRMENT TESTING

KDP conducts impairment tests on goodwill and all indefinite lived intangible assets annually, or more frequently if circumstances indicate that the carrying amount of an asset may not be recoverable. The Company performed an analysis as of March 31, 2022 to ensure that there were no triggering events which occurred during the quarter. As a result of this analysis, management did not identify any indications that the carrying amount of any goodwill or any intangible assets may not be recoverable.

4. Derivatives

KDP is exposed to market risks arising from adverse changes in interest rates, commodity prices, and FX rates. KDP manages these risks through a variety of strategies, including the use of interest rate contracts, FX forward contracts, commodity forward, future, swap and option contracts and supplier pricing agreements. KDP does not hold or issue derivative financial instruments for trading or speculative purposes.

KDP formally designates and accounts for certain foreign exchange forward contracts and interest rate contracts that meet established accounting criteria under U.S. GAAP as cash flow hedges. For such contracts, the effective portion of the gain or loss on the derivative instruments is recorded, net of applicable taxes, in AOCI. When net income is affected by the variability of the underlying transaction, the applicable offsetting amount of the gain or loss from the derivative instrument deferred in AOCI is reclassified to net income. Cash flows from derivative instruments designated in a qualifying hedging relationship are classified in the same category as the cash flows from the hedged items. If a cash flow hedge were to cease to qualify for hedge accounting, or were terminated, the derivatives would continue to be carried on the balance sheet at fair value until settled, and hedge accounting would be discontinued prospectively. If the underlying hedged transaction ceases to exist, any associated amounts reported in AOCI would be reclassified to earnings at that time.

For derivatives that are not designated or for which the designated hedging relationship is discontinued, the gain or loss on the instrument is recognized in earnings in the period of change.

The Company has exposure to credit losses from derivative instruments in an asset position in the event of nonperformance by the counterparties to the agreements. Historically, the Company has not experienced material credit losses as a result of counterparty nonperformance. 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.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, CONTINUED)

INTEREST RATES

Economic Hedges

KDP is exposed to interest rate risk related to its borrowing arrangements and obligations. The Company enters into interest rate swaps to provide predictability in the Company's overall cost structure and to manage the balance of fixed-rate and variable-rate debt. KDP primarily enters into receive-fixed, pay-variable and receive-variable, pay-fixed swaps and swaption contracts. A natural hedging relationship exists in which changes in the fair value of the instruments act as an economic offset to changes in the fair value of the underlying items. Changes in the fair value of these instruments are recorded in earnings throughout the term of the derivative instrument and are reported in interest expense in the unaudited Condensed Consolidated Statements of Income. As of March 31, 2022, economic interest rate derivative instruments have maturities ranging from January 2027 to April 2032.

Cash Flow Hedges

In order to hedge the variability in cash flows from interest rate changes associated with the Company’s planned future issuances of long-term debt, during the first quarter of 2021, the Company entered into forward starting swaps and designated them as cash flow hedges. The forward starting swaps are planned to be unwound at the issuance of long-term debt. As of March 31, 2022, the forward starting swaps have mandatory termination dates ranging from June 2022 to May 2025.

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.

Economic Hedges

During the first quarter of 2022 and 2021, KDP held FX forward contracts to economically manage the balance sheet exposures resulting from changes in the FX exchange rates described above. The intent of these FX contracts is to minimize the impact of FX risk associated with balance sheet positions not in local currency. In these cases, a hedging relationship exists in which changes in the fair value of the instruments act as an economic offset to changes in the fair value of the underlying items. 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 March 31, 2022, these FX contracts have maturities ranging from April 2022 to September 2024.

Cash Flow Hedges

KDP designates certain FX forward contracts related to inventory purchases of the Canadian and Mexican businesses as cash flow hedges in order to manage the exposures resulting from changes in the FX rates described above. The intent of these FX contracts is to provide predictability in the Company's overall cost structure. As of March 31, 2022, these FX contracts have maturities ranging from April 2022 to August 2023.

COMMODITIES

Economic Hedges

KDP centrally manages the exposure to volatility in the prices of certain commodities used in its production process and transportation through various derivative contracts. During the first quarter of 2022 and 2021, the Company held forward, future, swap and option contracts that economically hedged certain of its risks. In these cases, a hedging relationship exists in which changes in the fair value of the instruments act as an economic offset to changes in the fair value of the underlying items. 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 March 31, 2022, these commodity contracts have maturities ranging from April 2022 to November 2023.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, CONTINUED)

NOTIONAL AMOUNTS OF DERIVATIVE INSTRUMENTS

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


(in millions)	March 31, 2022		December 31, 2021
Interest rate contracts
Forward starting swaps, designated as cash flow hedges	$	2,500	$	2,500

Receive-fixed, pay-variable interest rate swaps, not designated as hedging instruments	1,900		400

FX contracts
Forward contracts, not designated as hedging instruments	481		463
Forward contracts, designated as cash flow hedges	462		385
Commodity contracts, not designated as hedging instruments	483		529

FAIR VALUE OF DERIVATIVE INSTRUMENTS

The fair values of commodity contracts, interest rate contracts and FX forward contracts are determined based on inputs that are readily available in public markets or can be derived from information available in publicly quoted markets. The fair value of commodity contracts are valued using the market approach based on observable market transactions, primarily underlying commodities futures or physical index prices, at the reporting date. Interest rate contracts are valued using models based primarily on readily observable market parameters, such as LIBOR or SOFR forward rates, for all substantial terms of the Company's contracts and credit risk of the counterparties. The fair value of FX forward contracts are valued using quoted forward FX prices at the reporting date. Therefore, the Company has categorized these contracts as Level 2.

Not Designated as Hedging Instruments

The following table summarizes the location of the fair value of the Company's derivative instruments which are not designated as hedging instruments within the unaudited Condensed Consolidated Balance Sheets. All such instruments are considered level 2 within the fair value hierarchy.


(in millions)	Balance Sheet Location	March 31, 2022		December 31, 2021
Assets:
Interest rate contracts	Prepaid expenses and other current assets	$	—	$	2
FX contracts	Prepaid expenses and other current assets	—		3
Commodity contracts	Prepaid expenses and other current assets	204		133


Commodity contracts	Other non-current assets	—		2

Liabilities:
Interest rate contracts	Other current liabilities	$	6	$	—
FX contracts	Other current liabilities	4		2
Commodity contracts	Other current liabilities	14		28
Interest rate contracts	Other non-current liabilities	68		5
FX contracts	Other non-current liabilities	17		9
Commodity contracts	Other non-current liabilities	—		1

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, CONTINUED)

Designated as Hedging Instruments

The following table summarizes the location of the fair value of the Company's derivative instruments which are designated as hedging instruments within the unaudited Condensed Consolidated Balance Sheets. All such instruments are designated level 2 within the fair value hierarchy.


(in millions)	Balance Sheet Location	March 31, 2022		December 31, 2021
Assets:
FX contracts	Prepaid expenses and other current assets	$	1	$	6
FX contracts	Other non-current assets	—		1
Interest rate contracts	Prepaid expenses and other current assets	12		—
Interest rate contracts	Other non-current assets	$	59	$	—

Liabilities:
FX contracts	Other current liabilities	$	7	$	1

Interest rate contracts	Other current liabilities	—		8
Interest rate contracts	Other non-current liabilities	10		128

IMPACT OF DERIVATIVE INSTRUMENTS NOT DESIGNATED AS HEDGING INSTRUMENTS

The following table presents the amount of (gains) losses, net, recognized in the unaudited Condensed Consolidated Statements of Income related to derivative instruments not designated as hedging instruments under U.S. GAAP during the periods presented. Amounts include both realized and unrealized gains and losses.


		First Quarter
(in millions)	Income Statement Location		2022		2021
Interest rate contracts	Interest expense		$	67	$	(8)
FX contracts	Cost of sales		5		4
FX contracts	Other expense (income), net		8		5
Commodity contracts	Cost of sales		(97)		(17)
Commodity contracts	SG&A expenses		(37)		(29)

IMPACT OF CASH FLOW HEDGES

The following table presents the amount of 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:


		First Quarter
(in millions)	Income Statement Location		2022		2021
Interest rate contracts	Interest expense		$	—	$	—
FX contracts	Cost of sales		3		5

KDP expects to reclassify approximately $5 million of pre-tax net losses from AOCI into net income during the next twelve months related to its FX contracts. KDP expects to reclassify $5 million of pre-tax net gains from AOCI into net income during the next twelve months related to its interest rate contracts.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, CONTINUED)

5. Leases

The following table presents the components of lease cost:


	First Quarter
(in millions)		2022		2021
Operating lease cost		$	32	$	30
Finance lease cost
Amortization of right-of-use assets		18		13
Interest on lease liabilities		6		3
Variable lease cost(1)		9		8


Total lease cost		$	65	$	54

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

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


	First Quarter
(in millions)	2022		2021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	29	$	28
Operating cash flows from finance leases	6		3
Financing cash flows from finance leases	20		15
Right-of-use assets obtained in exchange for lease obligations:
Operating leases	168		208
Finance leases	23		89

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


	March 31, 2022		December 31, 2021
Weighted average discount rate
Operating leases	4.3	%	4.3	%
Finance leases	3.5	%	3.6	%
Weighted average remaining lease term
Operating leases	11 years		12 years
Finance leases	10 years		10 years

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


(in millions)	Operating Leases		Finance Leases
Remainder of 2022	$	82	$	83
2023	119		109
2024	113		103
2025	106		98
2026	97		133
2027	79		51
Thereafter	448		256
Total future minimum lease payments	1,044		833
Less: imputed interest	(222)		(131)
Present value of minimum lease payments	$	822	$	702

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, CONTINUED)

SIGNIFICANT LEASES THAT HAVE NOT YET COMMENCED

As of March 31, 2022, the Company has entered into leases that have not yet commenced with estimated aggregated future lease payments of approximately $186 million. These leases are expected to commence in 2022 and 2023, with initial lease terms ranging from 5 years to 7 years.

ASSET SALE-LEASEBACK TRANSACTION

On March 31, 2022, the Company closed on an asset sale-leaseback transaction with Veyron SPEs on one manufacturing property and one distribution property. The Company received proceeds of approximately $77 million, net of selling costs for the properties, which had a carrying value of $39 million, and resulted in an approximately $38 million gain on the sale transaction. The leaseback is accounted for as an operating lease.

The initial term of the leaseback is 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. The leaseback has a RVG. Refer to Note 16 for additional information about the RVG associated with the asset sale-leaseback transaction.

6. Segments

The Company's reportable segments consist of the following:

•The Coffee Systems segment reflects sales in the U.S. and Canada of the manufacture and distribution of finished goods relating to the Company's 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. and Canada. Most of the brands in this segment are carbonated soft drink brands. Our FFS operating segment is aggregated with our Branded Concentrates operating segment into our Beverage Concentrates reportable segment due to similar economic characteristics and similarities in the nature of the product sold.

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

Segment results are based on management reports. Net sales and income from operations are the significant financial measures used to assess the operating performance of the Company's operating segments. Intersegment sales are recorded at cost and are eliminated in the unaudited Condensed Consolidated Statements of Income. “Unallocated corporate costs” are excluded from the Company's measurement of segment performance and include unrealized commodity derivative gains and losses, and certain general corporate expenses.

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.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, CONTINUED)

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


	First Quarter
(in millions)		2022		2021
Segment Results – Net sales
Coffee Systems		$	1,093	$	1,142
Packaged Beverages		1,480		1,307
Beverage Concentrates		359		328
Latin America Beverages		146		125
Net sales		$	3,078	$	2,902

Segment Results – Income from operations
Coffee Systems		$	268	$	368
Packaged Beverages		486		179
Beverage Concentrates		244		238
Latin America Beverages		25		22
Unallocated corporate costs		(57)		(167)
Income from operations		$	966	$	640

7. Earnings Per Share

The following table presents the Company's basic and diluted EPS and shares outstanding. Anti-dilutive stock-based awards excluded from the calculations of diluted EPS were immaterial during the periods presented.


	First Quarter
(in millions, except per share data)		2022		2021
Net income attributable to KDP		$	585	$	325

Weighted average common shares outstanding		1,418.2		1,409.2
Dilutive effect of stock-based awards		11.5		16.4
Weighted average common shares outstanding and common stock equivalents		1,429.7		1,425.6

Basic EPS		$	0.41	$	0.23
Diluted EPS		0.41		0.23

8. Stock-Based Compensation

Stock-based compensation expense is recorded in SG&A expenses in the unaudited Condensed Consolidated Statements of Income. The components of stock-based compensation expense are presented below:


	First Quarter
(in millions)		2022		2021
Total stock-based compensation expense(1)		$	(15)	$	25
Income tax expense (benefit)		4		(4)
Stock-based compensation expense, net of tax		$	(11)	$	21

(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.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, CONTINUED)

RESTRICTED SHARE UNITS

The table below summarizes RSU activity:


	RSUs	Weighted Average Grant Date Fair Value		Weighted Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value (in millions)
Outstanding as of December 31, 2021	18,808,491	$	25.74	2.2	$	693
Granted	2,804,755	38.62
Vested and released	(574,816)	22.77			21
Forfeited	(296,255)	26.15
Outstanding as of March 31, 2022	20,742,175	$	27.55	2.2	$	786

As of March 31, 2022, there was $257 million of unrecognized compensation cost related to unvested RSUs that is expected to be recognized over a weighted average period of 3.5 years.

9. 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. GAAP.

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 $826 million, primarily consisting of professional fees related to the integration and transformation and costs associated with severance and employee terminations, through March 31, 2022. Restructuring and integration charges on the DPS Integration Program were as follows:


	First Quarter
(in millions)		2022		2021
Restructuring and integration charges		$	36	$	43

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	6
Cash payments	(9)

Balance as of March 31, 2022	$	16

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, CONTINUED)

10. 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 first quarter of 2022:
CSD(1)	$	—	$	704	$	354	$	100	$	1,158
NCB(1)	—		672		2		46		720
K-Cup pods(2)	855		—		—		—		855
Appliances	178		—		—		—		178
Other	60		104		3		—		167
Net sales	$	1,093	$	1,480	$	359	$	146	$	3,078

For the first quarter of 2021:
CSD(1)	$	—	$	624	$	323	$	87	$	1,034
NCB(1)	—		581		3		38		622
K-Cup pods(2)	903		—		—		—		903
Appliances	174		—		—		—		174
Other	65		102		2		—		169
Net sales	$	1,142	$	1,307	$	328	$	125	$	2,902

(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.

11. Income Taxes

The Company’s effective tax rates were as follows:


	First Quarter
(in millions)		2022		2021
Effective tax rate		23.5	%	18.3	%

For the first quarter of 2022, the provision for income taxes was higher than the first quarter of 2021, which was primarily driven by the unfavorable comparison to the tax benefit received from excess tax deductions that were generated from the vesting of RSUs during the first quarter of 2021, partially offset by the Company’s incremental income in low tax jurisdictions during the first quarter of 2022.

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(UNAUDITED, CONTINUED)

12. Investments

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


(in millions)	Ownership Interest		March 31, 2022		December 31, 2021
Bedford	30.0	%	—		—
Dyla LLC	12.4	%	12		12
Force Holdings LLC(1)	33.3	%	4		5
Beverage startup companies(2)	(various)		8		8
Other	(various)		5		5
Investments in unconsolidated affiliates			$	29	$	30

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

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

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 $8 million of the Company’s responsibility under this credit agreement has been funded as of March 31, 2022. The Company recorded impairment losses related to this credit agreement of $6 million in the first quarter 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.

13. Accumulated Other Comprehensive Income (Loss)

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


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












For the first quarter of 2022:
Beginning balance	$	81	$	(4)	$	(103)	$	(26)
Other comprehensive income	99		—		140		239
Amounts reclassified from AOCI	—		—		2		2
Other comprehensive income, net	99		—		142		241
Balance as of March 31, 2022	$	180	$	(4)	$	39	$	215

For the first quarter of 2021:
Beginning balance	$	95	$	(4)	$	(14)	$	77
Other comprehensive income	16		—		68		84
Amounts reclassified from AOCI	—		—		3		3
Other comprehensive income, net	16		—		71		87
Balance as of March 31, 2021	$	111	$	(4)	$	57	$	164

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KEURIG DR PEPPER INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, CONTINUED)

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


		First Quarter
(in millions)	Income Statement Caption		2022		2021
Cash Flow Hedges:
Interest rate contracts	Interest expense		$	—	$	—
FX contracts	Cost of sales		3		5
Total			3		5
Income tax benefit			(1)		(2)
Total, net of tax			$	2	$	3

14. Other Financial Information

SELECTED BALANCE SHEET INFORMATION

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


	March 31,		December 31,
(in millions)	2022		2021
Inventories:
Raw materials	$	363	$	330
Work-in-progress	8		6
Finished goods	701		577
Total	1,072		913
Allowance for excess and obsolete inventories	(27)		(19)
Total Inventories	$	1,045	$	894
Prepaid expenses and other current assets:
Other receivables	$	128	$	112
Customer incentive programs	103		21
Derivative instruments	217		144
Prepaid marketing	20		12
Spare parts	74		72

Income tax receivable	16		14
Other	79		72
Total prepaid expenses and other current assets	$	637	$	447
Other non-current assets:
Operating lease right-of-use assets	$	809	$	673
Customer incentive programs	58		59
Derivative instruments	59		3

Equity securities(1)	50		58
Equity securities without readily determinable fair values	1		1


Other	142		143
Total other non-current assets	$	1,119	$	937

(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. 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.

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KEURIG DR PEPPER INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, CONTINUED)


	March 31,		December 31,
(in millions)	2022		2021
Accrued expenses:
Customer rebates & incentives	$	353	$	446
Accrued compensation	152		227
Insurance reserve	39		33
Accrued interest	138		55
Accrued professional fees	16		19
Other accrued expenses	330		330
Total accrued expenses	$	1,028	$	1,110
Other current liabilities:
Dividends payable	$	266	$	265
Income taxes payable	282		144
Operating lease liability	87		76
Finance lease liability	87		79
Derivative instruments	31		39

Other	14		10
Total other current liabilities	$	767	$	613
Other non-current liabilities:
Operating lease liability	735		608
Finance lease liability	615		621
Pension and post-retirement liability	$	41	$	40
Insurance reserves	67		75


Derivative instruments	95		143
Deferred compensation liability	38		43
Other	56		47
Total other non-current liabilities	$	1,647	$	1,577

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. Suppliers can sell one or more of KDP's payment obligations at their sole discretion and the rights and obligations of KDP to its suppliers are not impacted. KDP has no economic interest in a supplier’s decision to enter into these agreements and no direct financial relationship with the financial institutions. KDP's obligations to its suppliers, including amounts due and scheduled payment terms, are not impacted. KDP has been informed by the third party administrators that as of March 31, 2022 and December 31, 2021, $3,409 million and $3,194 million, respectively, of KDP's outstanding payment obligations were voluntarily elected by the supplier and sold to financial institutions.

15. Commitments and Contingencies

KDP is occasionally subject to litigation or other legal proceedings. 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 March 31, 2022 and December 31, 2021, the Company had litigation reserves of $11 million and $14 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. The Company does not believe that the outcome of these, or any other, pending legal matters, individually or collectively, will have a material adverse effect on the results of operations, financial condition or liquidity of KDP.

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KEURIG DR PEPPER INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, CONTINUED)

ANTITRUST LITIGATION

In February 2014, TreeHouse Foods, Inc. and certain affiliated entities filed suit against KDP’s wholly-owned subsidiary, Keurig, in the U.S. District Court for the Southern District of New York (“SDNY”) (TreeHouse Foods, Inc. et al. v. Green Mountain Coffee Roasters, Inc. et al.). The TreeHouse complaint asserted claims under the federal antitrust laws and various state laws, contending that Keurig had monopolized alleged markets for single serve coffee brewers and single serve coffee pods. The TreeHouse complaint sought treble monetary damages, declaratory relief, injunctive relief and attorneys’ fees. In March 2014, JBR, Inc. filed suit against Keurig in the U.S. District Court for the Eastern District of California (JBR, Inc. v. Keurig Green Mountain, Inc.). The claims asserted and relief sought in the JBR complaint were substantially similar to the claims asserted and relief sought in the TreeHouse complaint.

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. In June 2014, these various actions, including the TreeHouse and JBR suits, were transferred to a single judicial district for coordinated pre-trial proceedings (the “Multidistrict Antitrust Litigation”). A consolidated putative class action complaint by direct purchaser plaintiffs was filed in July 2014. In January 2019, McLane Company, Inc. filed suit against Keurig (McLane Company, Inc. v. Keurig Green Mountain, Inc.) in the SDNY asserting similar claims and was also transferred into the Multidistrict Antitrust Litigation. These actions are now pending in the SDNY (In re: Keurig Green Mountain Single-Serve Coffee Antitrust Litigation). Discovery in the Multidistrict Antitrust Litigation concluded in 2021, with plaintiffs collectively claiming more than $5 billion of monetary damages. Keurig strongly disputes the merits of the claims and the calculation of damages. As a result, Keurig has fully briefed a summary judgment motion that, if successful, would end the cases entirely. Keurig has also fully briefed other significant motions, including challenges to the validity of plaintiffs’ damages calculations. Keurig is also pursuing its opposition to direct purchaser plaintiffs’ motion for class certification.

In July 2021, BJ’s Wholesale Club, Inc. filed suit against Keurig (BJ’s Wholesale Club, Inc. v. Keurig Green Mountain, Inc.) in the U.S. District Court for the Eastern District of New York (“EDNY”) asserting similar claims and also was transferred into the Multidistrict Antitrust Litigation. In August 2021, Winn-Dixie Stores, Inc. and Bi-Lo Holding LLC filed suit against Keurig (Winn-Dixie Stores, Inc. et al. v. Keurig Green Mountain, Inc. et al.) in the EDNY asserting similar claims and was also transferred into the Multidistrict Antitrust Litigation. These cases remain in the early stages of discovery.

A number of putative class actions asserting similar claims and seeking similar relief were previously filed on behalf of purported indirect purchasers of Keurig’s products. In July 2020, Keurig reached an agreement with the putative indirect purchaser class plaintiffs in the Multidistrict Antitrust Litigation to settle the claims asserted for $31 million. The settlement class consists of individuals and entities in the United States that purchased, from persons other than Keurig and not for purposes of resale, Keurig manufactured or licensed single serve beverage portion packs during the applicable class period (beginning in September 2010 for most states). The court granted preliminary approval of the settlement in December 2020, and the Company paid the settlement amount in January 2021. In June 2021, the Court granted final approval of the settlement, entered final judgment, and dismissed the indirect purchasers’ claims.

Separate from the U.S. actions described above, a statement of claim was filed in September 2014 against Keurig and Keurig Canada Inc. in Ontario, Canada, by Club Coffee L.P., a Canadian manufacturer of single serve beverage pods, asserting a breach of competition law and false and misleading statements by Keurig. To date, this plaintiff has not taken substantive action to prosecute its claims.

KDP intends to vigorously defend the remaining lawsuits described above. At this time, the Company is unable to predict the outcome of these lawsuits, the potential loss or range of loss, if any, associated with the resolution of these lawsuits or any potential effect they may have on the Company or its operations. Accordingly, the Company has not accrued for a loss contingency. 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 has filed its appeal brief, and the Company intends to continue vigorously defending itself in this action. However, the Company believes that the likelihood that it will incur a material loss in connection with the CERT litigation is remote and accordingly, no loss contingency has been recorded.

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KEURIG DR PEPPER INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, CONTINUED)

16. Transactions with Variable Interest Entities

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.

LEASING ARRANGEMENTS

As of March 31, 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. Each lease has a RVG based on a percentage of Veyron SPEs’s purchase price; however, the Company concluded it was not probable that the Company will owe an amount at the end of each individual lease term, as the fair values of the properties are not expected to fall below the RVGs at the end of each individual lease term. As such, the Company recorded each lease obligation excluding the associated RVG. The aggregate maximum undiscounted RVG associated with the leasing arrangements as of March 31, 2022 and December 31, 2021 were $602 million and $549 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 March 31, 2022 and December 31, 2021.


(in millions)	March 31, 2022(1)		December 31, 2021(2)
Current assets	$	21	$	19
Non-current assets	357		312
Current liabilities	18		13
Non-current liabilities	369		323

(1)The leasing agreements included as of March 31, 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.

LICENSING ARRANGEMENT

ABC, a wholly-owned subsidiary of KDP, has provided a guarantee in connection with its distribution agreement with the Veyron SPEs to be paid only in the event the Veyron SPEs sell specific distribution rights and the value of those distribution rights does not exceed $142 million, which is the maximum undiscounted amount that KDP could pay under the guarantee. 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 March 31, 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 March 31, 2022, KDP had $106 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. Such fixed service fee payments began on January 1, 2021.

Fixed service fees over the next five years are expected to be as follows:


	Remainder of 2022		For the Years Ending December 31,
(in millions)	Remainder of 2022		2023		2024		2025		2026		2027
Fixed service fees	$	6	$	8	$	8	$	8	$	8	$	8

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KEURIG DR PEPPER INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, CONTINUED)

17. Subsequent Events

On April 22, 2022, KDP undertook a strategic refinancing and issued $3 billion aggregate face value of Notes, consisting of $1,000 million of 2029 Notes, $850 million of 2032 Notes, and $1,150 million of 2052 Notes. The discount associated with these notes was approximately $16 million, and KDP incurred approximately $23 million of debt issuance costs.

In association with the aforementioned issuance of Notes, KDP unwound approximately $1,500 million of notional amount of the Company’s forward starting swaps, which were designated as cash flow hedges. 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. As of April 28, 2022, KDP had $1,000 million of notional amount of forward starting swaps outstanding, which continue to be designated as cash flow hedges.

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 following table presents KDP’s revised schedule of Notes maturities after the aforementioned transactions:


(in millions, except %)
Issuance	Maturity Date	Rate	April 28, 2022		March 31, 2022
2023 Merger Notes	May 25, 2023	4.057%	$	—	$	1,000
2023 Notes	December 15, 2023	3.130%	500		500
2024 Notes	March 15, 2024	0.750%	1,150		1,150
2025 Merger Notes	May 25, 2025	4.417%	529		1,000
2025 Notes	November 15, 2025	3.400%	500		500
2026 Notes	September 15, 2026	2.550%	400		400
2027 Notes	June 15, 2027	3.430%	500		500
2028 Merger Notes	May 25, 2028	4.597%	1,112		2,000
2029 Notes	April 15, 2029	3.950%	1,000		—
2030 Notes	May 1, 2030	3.200%	750		750
2031 Notes	March 15, 2031	2.250%	500		500
2032 Notes	April 15, 2032	4.050%	850		—

2038 Merger Notes	May 25, 2038	4.985%	211		500
2045 Notes	November 15, 2045	4.500%	550		550
2046 Notes	December 15, 2046	4.420%	400		400
2048 Merger Notes	May 25, 2048	5.085%	391		750
2050 Notes	May 1, 2050	3.800%	750		750
2051 Notes	March 15, 2051	3.350%	500		500
2052 Notes	April 15, 2052	4.500%	1,150		—
Principal amount			$	11,743	$	11,750

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ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with our audited consolidated financial statements and notes thereto in our Annual Report.

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act, including, in particular, statements about the impact of the global COVID-19 pandemic, inflation, future events, future financial performance, plans, strategies, expectations, prospects, competitive environment, regulation, labor matters, supply chain issues and availability of raw materials. Forward-looking statements include all statements that are not historical facts and can be identified by the use of forward-looking terminology such as “outlook,” “guidance,” “anticipate,” “expect,” “believe,” “could,” “estimate,” “feel,” “forecast,” “intend,” “may,” “plan,” “potential,” “project,” “should,” “target,” “will,” “would,” and similar words, phrases or expressions and variations or negatives of these words in this Quarterly Report on Form 10-Q. We have based these forward-looking statements on our current views with respect to future events and financial performance. Our actual financial performance could differ materially from those projected in the forward-looking statements due to the inherent uncertainty of estimates, forecasts and projections, and our financial performance may be better or worse than anticipated. Given these uncertainties, you should not put undue reliance on any forward-looking statements. All of the forward-looking statements are qualified in their entirety by reference to the factors discussed under "Risk Factors" in Part I, Item 1A of our Annual Report, as well as our subsequent filings with the SEC. Forward-looking statements represent our estimates and assumptions only as of the date that they were made. We do not undertake any duty to update the forward-looking statements, and the estimates and assumptions associated with them, after the date of this Quarterly Report on Form 10-Q, except to the extent required by applicable securities laws.

This Quarterly Report on Form 10-Q contains the names of some of our owned or licensed trademarks, trade names and service marks, which we refer to as our brands. All of the product names included in this Quarterly Report on Form 10-Q are either our registered trademarks or those of our licensors.

OVERVIEW

KDP is a leading beverage company in North America, with a diverse portfolio of flavored (non-cola) CSDs, NCBs, including water (enhanced and flavored), ready-to-drink tea and coffee, juice, juice drinks, mixers and specialty coffee, and is a leading producer of innovative single serve brewing systems. With a wide range of hot and cold beverages that meet virtually any consumer need, KDP key brands include Keurig, Dr Pepper, Canada Dry, Snapple, Bai, Mott's, Core, Green Mountain and The Original Donut Shop. KDP has some of the most recognized beverage brands in North America, with significant consumer awareness levels and long histories that evoke strong emotional connections with consumers. KDP offers more than 125 owned, licensed, and partner brands, including the top ten best-selling coffee brands and Dr Pepper as a leading flavored CSD in the U.S., according to IRi, which are available nearly everywhere people shop and consume beverages.

KDP operates as an integrated brand owner, manufacturer and distributor. We believe our integrated business model strengthens our route-to-market and provides opportunities for net sales and profit growth through the alignment of the economic interests of our brand ownership and our manufacturing and distribution businesses through both our DSD and our WD systems. KDP markets and sells its products to retailers, including supermarkets, mass merchandisers, club stores, e-commerce retailers, office superstores, vending machines, grocery and drug stores, and convenience stores; to restaurants, hotel chains, office product and coffee distributors, and partner brand owners; and directly to consumers through its websites. Our integrated business model enables us to be more flexible and responsive to the changing needs of our large retail customers and allows us to more fully leverage our scale and reduce costs by creating greater geographic manufacturing and distribution coverage.

Our 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 our 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 our own brands and third-party brands, through both the DSD and WD systems.

•The Beverage Concentrates segment reflects sales of our branded concentrates and syrup to third-party bottlers primarily in the U.S. and Canada. Most of the brands in this segment are carbonated soft drink brands.

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

COMPARABLE RESULTS OF OPERATIONS

Management believes that there are certain non-GAAP financial measures that allow management to evaluate our results, trends and ongoing performance on a comparable basis. In order to derive the adjusted financial information, we adjust certain financial statement captions and metrics prepared under U.S. GAAP for certain items affecting comparability and the impact of foreign currency. See Non-GAAP Financial Measures for further information.

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EXECUTIVE SUMMARY

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

As Reported, in millions (except EPS)

As Adjusted, in millions (except EPS)

Key Events During and Subsequent to the First Quarter of 2022

During the first quarter of 2022, we made net repayments of our Notes, our commercial paper and our other credit agreements of $350 million, which includes a make-whole premium on our 2038 Notes of $76 million.

In January 2022, we agreed to and received a $350 million settlement payment from BodyArmor. Refer to Note 12 of the Notes to our Unaudited Condensed Consolidated Financial Statements for further information.

In February 2022, we terminated our 2021 364-Day Credit Agreement and our KDP Revolver and entered into the 2022 Revolving Credit Agreement. Refer to Note 2 of the Notes to our Unaudited Condensed Consolidated Financial Statements for further information.

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. Refer to Note 17 of the Notes to our Unaudited Condensed Consolidated Financial Statements for further information.

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Uncertainties and Trends Affecting Our Business

We believe the North American beverage market is influenced by certain key trends and uncertainties. Refer to Item 1A, "Risk Factors", of our Annual Report, for more information about risks and uncertainties facing us.

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 quarter 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 throughout 2022.

As a result of these inflationary pressures, we have increased the pricing on a number of our products. Consequently, we may incur a reduction of volume or net sales, which, combined with the inflationary pressures, could impact our margins and operating results.

Refer to Note 4 of the Notes to our Unaudited Condensed Consolidated Financial Statements for our discussion of how we manage our exposure to commodity risk.

Impact of COVID-19 on our Financial Statements

The following table sets forth our reconciliation of significant COVID-19-related expenses. Employee compensation expense and employee protection costs, which impact our SG&A expenses and cost of sales, are included as the COVID-19 item affecting comparability and are excluded in our Adjusted financial measures. In addition, reported amounts under U.S. GAAP also include additional costs, not included as the COVID-19 item affecting comparability, as presented in tables below.



	Items Affecting Comparability(1)
(in millions)	Employee Compensation Expense(2)		Employee Protection Costs(3)		Total














For the first quarter of 2022:
Coffee Systems	$	1	$	2	$	3
Packaged Beverages	1		1		2
Beverage Concentrates	—		—		—
Latin America Beverages	—		—		—
Total	$	2	$	3	$	5

For the first quarter of 2021:
Coffee Systems	$	1	$	9	$	10
Packaged Beverages	3		2		5
Beverage Concentrates	—		—		—
Latin America Beverages	—		1		1
Total	$	4	$	12	$	16

(1)Employee compensation expense and employee protection costs are both included as the COVID-19 items affecting comparability in the reconciliation of our Adjusted Non-GAAP financial measures.

(2)Amounts include pay for temporary employees, including the associated taxes, as well as incremental benefits provided to frontline workers such as extended sick leave, in order to maintain essential operations during the COVID-19 pandemic.

(3)Includes costs associated with personal protective equipment, temperature scans, cleaning and other sanitization services. Impacts both cost of sales and SG&A expenses.

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RESULTS OF OPERATIONS

We eliminate from our financial results all intercompany transactions between entities included in our consolidated financial statements and the intercompany transactions with our equity method investees.

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

Consolidated Operations

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


	First Quarter						Dollar		Percentage
($ in millions, except per share amounts)	2022			2021			Change		Change
Net sales	$	3,078		$	2,902		$	176	6.1	%
Cost of sales	1,428			1,302			126		9.7
Gross profit	1,650			1,600			50		3.1
Selling, general and administrative expenses	1,018			961			57		5.9
Gain on litigation settlement	(299)			—			(299)		NM
Other operating income, net	(35)			(1)			(34)		NM
Income from operations	966			640			326		50.9
Interest expense	188			140			48		34.3
Loss on early extinguishment of debt	48			105			(57)		NM
Gain on sale of equity method investment	(50)			—			(50)		NM
Impairment of investments and note receivable	6			—			6		NM
Other expense (income), net	9			(3)			12		NM
Income before provision for income taxes	765			398			367		92.2
Provision for income taxes	180			73			107		146.6
Net income including non-controlling interest	585			325			260		80.0
Less: Net loss attributable to non-controlling interest	—			—			—		NM
Net income attributable to KDP	$	585		$	325		260		80.0

Earnings per common share:
Basic	$	0.41		$	0.23		$	0.18	78.3	%
Diluted	0.41			0.23			0.18		78.3

Gross margin	53.6		%	55.1		%			(150) bps
Operating margin	31.4		%	22.1		%			930 bps
Effective tax rate	23.5		%	18.3		%			520 bps

Sales Volume. The following table provides the percentage increase in sales volumes compared to the prior year period:


	Percentage Change
K-Cup pods	(5.2)	%
Brewers	(5.2)
CSDs	3.8
NCBs	(0.4)

Net Sales. Net sales increased $176 million, or 6.1%, to $3,078 million for the first quarter of 2022 compared to $2,902 million in the prior year period. This performance reflected favorable net price realization of 6.3% across all segments, slightly offset by reduced volume/mix of 0.2%, as expected reductions in our Coffee Systems segment more than offset volume gains in our other segments.

Gross Profit. Gross profit increased $50 million, or 3.1%, to $1,650 million for the first quarter of 2022 compared to $1,600 million in the prior year period. This performance primarily reflected strong growth in net sales and a favorable change in unrealized commodity mark-to-market impacts. These benefits were partially offset by higher manufacturing costs driven by broad-based inflation. Gross margin decreased 150 bps versus the year ago period to 53.6%.

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Selling, General and Administrative Expenses. SG&A expenses increased $57 million, or 5.9%, to $1,018 million for the first quarter of 2022 compared to $961 million in the prior year period. The increase was driven by higher logistics costs, driven by both inflation and product mix. 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.

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. 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 $34 million for the first quarter 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.

Income from Operations. Income from operations increased $326 million, or 50.9%, to $966 million for the first quarter of 2022 compared to $640 million in the prior year period, primarily driven by the gain on the litigation settlement and the gain related to our strategic asset investment program. Operating margin increased 930 bps versus the year ago period to 31.4%.

Interest Expense. Interest expense increased $48 million, or 34.3%, to $188 million for the first quarter of 2022 compared to $140 million for the prior year period. This change was primarily driven by unfavorable unrealized mark-to-market losses of $79 million on interest rate contracts, which was partially offset by reduced interest expense on our senior unsecured notes as a result of our 2021 strategic refinancing and continued deleveraging.

Loss on Early Extinguishment of Debt. Loss on early extinguishment of debt reflected a favorable change of $57 million, with a loss of $48 million during the first quarter of 2022 related to our early repayment of the 2038 Notes and our replacement of the KDP Revolver and the 2021 364-Day Credit Agreement with the 2022 Revolving Credit Agreement, 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. Gain on sale of equity method investment reflects the portion of the settlement payment from BodyArmor which was allocated to the satisfaction of the holdback amount owed to us in association with the sale of our equity interest in BodyArmor in 2021. Refer to Note 12 of the Notes to our Unaudited Condensed Consolidated Financial Statements for further information.

Impairment of Investments and Note Receivable. Impairment on investments and note receivable reflected an impairment charge of $6 million in the first 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.

Effective Tax Rate. The effective tax rate increased 520 bps to 23.5% for the first quarter of 2022, compared to 18.3% in the prior year period, primarily driven by the unfavorable comparison to the tax benefit received from excess tax deductions that were generated from the vesting of RSUs during the first quarter of 2021, partially offset by our incremental income in low tax jurisdictions during the first quarter of 2022.

Net Income Attributable to KDP. Net income attributable to KDP increased $260 million, or 80.0%, to $585 million for the first quarter of 2022 as compared to $325 million in the prior year period, driven by the gain on the sale of our investment in BodyArmor, higher income from operations, and the favorable comparison to the loss on early extinguishment of debt in the first quarter of 2022, partially offset by the increase in our effective tax rate and increased interest expense.

Diluted EPS. Diluted EPS increased 78.3% to $0.41 per diluted share as compared to $0.23 in the prior year period.

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Results of Operations by Segment

The following tables provide net sales and income from operations for our reportable segments for the first quarter 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. GAAP.


(in millions)	First Quarter
Net sales	2022		2021
Coffee Systems	$	1,093	$	1,142
Packaged Beverages	1,480		1,307
Beverage Concentrates	359		328
Latin America Beverages	146		125
Total net sales	$	3,078	$	2,902

Income from operations
Coffee Systems	$	268	$	368
Packaged Beverages	486		179
Beverage Concentrates	244		238
Latin America Beverages	25		22
Unallocated corporate costs	(57)		(167)
Total income from operations	$	966	$	640

COFFEE SYSTEMS

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


	First Quarter						Dollar		Percent
(in millions)	2022			2021			Change		Change
Net sales	$	1,093		$	1,142		$	(49)	(4.3)	%
Income from operations	268			368			(100)		(27.2)
Operating margin	24.5		%	32.2		%			(770) bps

Sales Volume. K-Cup pod volume declined 5.2%, driven by the unfavorable comparison to growth of 13.7% in the prior year period and continued capacity constraints, as we prioritized production to rebuild inventory. Brewer volume decreased 5.2% in the first quarter of 2022, driven by the unfavorable comparison to significant brewer shipment growth of 61.4% in the prior year period.

Net Sales. Net sales decreased 4.3% to $1,093 million for the first quarter of 2022 compared to $1,142 million in the prior year period, driven by volume/mix declines of 7.5%, partially offset by favorable net price realization of 3.2%.

Income from Operations. Income from operations decreased $100 million, or 27.2%, to $268 million for the first quarter of 2022, compared to $368 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, primarily on owned and licensed pods, productivity, and reduced costs related to COVID-19. Operating margin declined 770 bps versus the year ago period to 24.5%.

PACKAGED BEVERAGES

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


	First Quarter						Dollar		Percent
(in millions)	2022			2021			Change		Change
Net sales	$	1,480		$	1,307		$	173	13.2	%
Income from operations	486			179			307		171.5
Operating margin	32.8		%	13.7		%			NM

Sales Volume. Sales volume for the first quarter of 2022 increased 3.1% compared to the prior year period, due primarily to strength in CSDs, Motts, Snapple, Core and Polar, which was partially offset by reductions in contract manufacturing.

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Net Sales. Net sales increased 13.2% to $1,480 million in the first quarter of 2022, compared to $1,307 million in the prior year period, driven by favorable net price realization of 8.3% and volume/mix growth of 4.9%.

Income from Operations. Income from operations increased $307 million, or 171.5%, to $486 million for the first quarter of 2022 compared to $179 million for the prior year period, driven by the gain on the settlement of litigation with BodyArmor of $271 million and the benefits of net sales growth, asset sale-leaseback activity in the current period 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.

BEVERAGE CONCENTRATES

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


	First Quarter						Dollar		Percent
(in millions)	2022			2021			Change		Change
Net sales	$	359		$	328		$	31	9.5	%
Income from operations	244			238			6		2.5
Operating margin	68.0		%	72.6		%			(460) bps

Sales Volume. Sales volume for the first quarter of 2022 increased 1.9% compared to the prior year period, reflecting improving trends in our fountain foodservice component of the business, which services restaurants and hospitality, driven by increasing levels of consumer mobility during the first quarter of 2022 compared to the year-ago period.

Net Sales. Net sales increased 9.5% to $359 million in the first quarter of 2022, compared to $328 million in the prior year period, reflecting higher net price realization of 7.6% and volume/mix growth of 1.9%.

Income from Operations. Income from operations increased $6 million, or 2.5%, to $244 million for the first quarter of 2022 compared to $238 million in the prior year period. This performance reflected the impact of net sales growth, partially offset by the impacts of broad-based inflation, higher marketing expense, and costs associated with productivity initiatives. Operating margin decreased 460 bps versus the year ago period to 68.0%.

LATIN AMERICA BEVERAGES

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


	First Quarter						Dollar		Percent
(in millions)	2022			2021			Change		Change
Net sales	$	146		$	125		$	21	16.8	%
Income from operations	25			22			3		13.6
Operating margin	17.1		%	17.6		%			(50) bps

Sales Volume. Sales volume for the first quarter of 2022 as compared to the prior year period increased 5.4%, driven by improving consumer mobility.

Net Sales. Net sales grew 16.8% to $146 million for the first quarter of 2022, compared to $125 million in the prior year period, reflecting favorable net price realization of 9.6% and volume/mix growth of 8.0%, slightly offset by unfavorable FX translation of 0.8%,

Income from Operations. Income from operations increased $3 million, or 13.6%, to $25 million for the first quarter of 2022 compared to $22 million in the prior year period, driven by higher net price realization and favorable volume/mix, partially offset by the impacts of broad-based inflation and higher marketing expense. Operating margin decreased 50 bps versus the year ago period to 17.1%.

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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 first quarter 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. GAAP. The non-GAAP financial measures presented may differ from similarly titled non-GAAP financial measures presented by other companies, and other companies may not define these non-GAAP financial measures in the same way. The non-GAAP financial measures are not substitutes for their comparable U.S. GAAP financial measures, such as income from operations, net income, diluted EPS or other measures prescribed by U.S. GAAP, and there are limitations to using non-GAAP financial measures. We use these non-GAAP financial measures, in addition to U.S. GAAP financial measures, to evaluate our operating and financial performance and to compare such performance to that of prior periods and to the performance of our competitors. Additionally, we use these non-GAAP financial measures in making operational and financial decisions and in our budgeting and planning process. We believe that providing these non-GAAP financial measures to investors helps investors evaluate our operating performance, profitability and business trends in a way that is consistent with how management evaluates such performance and consistent with guidance previously provided by us. The non-GAAP measures are defined as follows:

Adjusted: Defined as certain financial statement captions and metrics adjusted for certain items affecting comparability.

Items affecting comparability: Defined as certain items that are excluded for comparison to prior year periods, adjusted for the tax impact as applicable. Tax impact is determined based upon an approximate rate for each item. 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 and do not have an offsetting risk reflected within the financial results; (ii) the amortization associated with definite-lived intangible assets; (iii) the amortization of the deferred financing costs associated with the DPS Merger; (iv) the amortization of the fair value adjustment of the senior unsecured notes obtained as a result of the DPS Merger; (v) stock compensation expense and the associated windfall tax benefit attributable to the matching awards made to employees who made an initial investment in KDP; (vi) non-cash changes in deferred tax liabilities related to goodwill and other intangible assets as a result of tax rate or apportionment changes; and (vii) other certain items that are excluded for comparison purposes to prior year periods.

For the first quarter of 2022, the other certain items excluded for comparison purposes include (i) restructuring and integration expenses related to significant business combinations; (ii) productivity expenses; (iii) costs related to significant non-routine legal matters; (iv) the loss on early extinguishment of debt related to the redemption of debt; (v) incremental costs to our operations related to risks associated with the COVID-19 pandemic; (vi) the gain on the sale of our investment in BodyArmor as a result of the settlement of the associated holdback liability; (vii) the gain on the settlement of our prior litigation with BodyArmor, excluding recoveries of previously incurred litigation expenses which were included in our adjusted results and (viii) losses recognized with respect to our equity method investment in Bedford as a result of funding our share of their wind-down costs.

For the first quarter of 2021, the other certain items excluded for comparison purposes include (i) restructuring and integration expenses related to significant business combinations; (ii) productivity expenses; (iii) costs related to significant non-routine legal matters; (iv) the loss on early extinguishment of debt related to the redemption of debt; (v) incremental costs to our operations related to risks associated with the COVID-19 pandemic; and (vi) gains from insurance recoveries related to the February 2019 organized malware attack on our business operation networks in the Coffee Systems segment.

Costs related to significant non-routine legal matters relate to the antitrust litigation. Incremental costs to our operations related to risks associated with the COVID-19 pandemic include incremental expenses incurred to either maintain the health and safety of our front-line employees or temporarily increase compensation to such employees to ensure essential operations continue during the pandemic. We believe removing these costs reflects how management views our business results on a consistent basis. See Impact of COVID-19 on our Financial Statements for further information.

Constant currency adjusted: 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 first quarter 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.

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KEURIG DR PEPPER INC.

RECONCILIATION OF CERTAIN REPORTED ITEMS TO CERTAIN NON-GAAP ADJUSTED ITEMS

(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 (expense) income, net		Income from operations		Operating margin
For the First Quarter of 2022
Reported	$	1,428	$	1,650	53.6	%	$	1,018	$	(299)	$	(35)	$	966	31.4	%
Items Affecting Comparability:
Mark to market	59		(59)				26		—		—		(85)
Amortization of intangibles	—		—				(34)		—		—		34


Stock compensation	—		—				7		—		—		(7)
Restructuring and integration costs	—		—				(33)		—		(3)		36
Productivity	(28)		28				(22)		—		—		50



Non-routine legal matters	—		—				(4)		—		—		4
COVID-19	(4)		4				(1)		—		—		5
Gain on litigation	—		—				—		271		—		(271)




Adjusted	$	1,455	$	1,623	52.7	%	$	957	$	(28)	$	(38)	$	732	23.8	%
Impact of foreign currency					—	%									—	%
Constant currency adjusted					52.7	%									23.8	%

For the First Quarter of 2021
Reported	$	1,302	$	1,600	55.1	%	$	961	$	—	$	(1)	$	640	22.1	%
Items Affecting Comparability:
Mark to market	9		(9)				29		—		—		(38)
Amortization of intangibles	—		—				(33)		—		—		33


Stock compensation	—		—				(6)		—		—		6
Restructuring and integration costs	—		—				(43)		—		—		43
Productivity	(8)		8				(25)		—		—		33



Non-routine legal matters	—		—				(10)		—		—		10
COVID-19	(12)		12				(4)		—		—		16



Malware incident	—		—				2		—		—		(2)

Adjusted	$	1,291	$	1,611	55.5	%	$	871	$	—	$	(1)	$	741	25.5	%

Refer to page 36 for reconciliations of reported net sales to constant currency net sales and adjusted income from operations to constant currency adjusted income from operations.

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KEURIG DR PEPPER INC.

RECONCILIATION OF CERTAIN REPORTED ITEMS TO CERTAIN NON-GAAP ADJUSTED ITEMS

(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 (income) expense, 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 Quarter of 2022
Reported	$	188		$	48	$	(50)	$	6	$	9	$	765	$	180	23.5	%	$	585		$	0.41
Items Affecting Comparability:
Mark to market	(71)			—		—		—		(3)		(11)		(2)				(9)			(0.01)
Amortization of intangibles	—			—		—		—		—		34		9				25			0.02
Amortization of deferred financing costs	(1)			—		—		—		—		1		—				1			—
Amortization of fair value debt adjustment	(5)			—		—		—		—		5		1				4			—
Stock compensation	—			—		—		—		—		(7)		(1)				(6)			—
Restructuring and integration costs	—			—		—		—		—		36		9				27			0.02
Productivity	—			—		—		—		—		50		12				38			0.03

Impairment of investment	—			—		—		(6)				6		—				6			—
Loss on early extinguishment of debt	—			(48)		—		—		—		48		11				37			0.03
Non-routine legal matters	—			—		—		—		—		4		1				3			—
COVID-19	—			—		—		—		—		5		1				4			—
Gain on litigation	—			—		—		—		—		(271)		(68)				(203)			(0.14)
Gain on sale of equity-method investment	—			—		50		—		—		(50)		(12)				(38)			(0.03)



Adjusted	$	111		$	—	$	—	$	—	$	6	$	615	$	141	22.9	%	$	474		$	0.33
Impact of foreign currency																—	%
Constant currency adjusted																22.9	%

For the First Quarter of 2021
Reported	$	140		$	105	$	—	$	—	$	(3)	$	398	$	73	18.3	%	$	325		$	0.23
Items Affecting Comparability:
Mark to market	8			—		—		—		—		(46)		(11)				(35)			(0.02)
Amortization of intangibles	—			—		—		—		—		33		8				25			0.02
Amortization of deferred financing costs	(3)			—		—		—		—		3		—				3			—
Amortization of fair value of debt adjustment	(6)			—		—		—		—		6		2				4			—
Stock compensation	—			—		—		—		—		6		12				(6)			—
Restructuring and integration costs	—			—		—		—		—		43		11				32			0.02
Productivity	—			—		—		—		—		33		8				25			0.02


Loss on early extinguishment of debt	—			(105)		—		—		—		105		25				80			0.06
Non-routine legal matters	—			—		—		—		—		10		2				8			0.01
COVID-19	—			—		—		—		—		16		4				12			0.01



Malware incident	—			—		—		—		—		(2)		—				(2)			—

Adjusted	$	139		$	—	$	—	$	—	$	(3)	$	605	$	134	22.1	%	$	471		$	0.33

Change - adjusted	(20.1)		%															0.6		%	—		%
Impact of foreign currency	—		%															0.2		%	—		%
Change - constant currency adjusted	(20.1)		%															0.8		%	—		%

Diluted earnings per common share may not foot due to rounding.

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KEURIG DR PEPPER INC.

RECONCILIATION OF CERTAIN REPORTED SEGMENT MEASURES

TO CERTAIN NON-GAAP ADJUSTED AND CURRENCY NEUTRAL ADJUSTED SEGMENT MEASURES

(Unaudited)


(in millions)	Reported		Items Affecting Comparability		Adjusted
For the first quarter of 2022:
Income from operations
Coffee Systems	$	268	$	51	$	319
Packaged Beverages	486		(251)		235
Beverage Concentrates	244		3		247
Latin America Beverages	25		1		26
Unallocated corporate costs	(57)		(38)		(95)
Total income from operations	$	966	$	(234)	$	732

For the first quarter of 2021:
Income from operations
Coffee Systems	$	368	$	53	$	421
Packaged Beverages	179		22		201
Beverage Concentrates	238		1		239
Latin America Beverages	22		1		23
Unallocated corporate costs	(167)		24		(143)
Total income from operations	$	640	$	101	$	741


	Reported		Impact of Foreign Currency		Constant Currency
For the first quarter of 2022:
Net sales
Coffee Systems	(4.3)	%	—	%	(4.3)	%
Packaged Beverages	13.2		—		13.2
Beverage Concentrates	9.5		—		9.5
Latin America Beverages	16.8		0.8		17.6
Total net sales	6.1		—		6.1


	Adjusted		Impact of Foreign Currency		Constant Currency Adjusted
For the first quarter of 2022:
Income from operations
Coffee Systems	(24.2)	%	—	%	(24.2)	%
Packaged Beverages	16.9		—		16.9
Beverage Concentrates	3.3		—		3.3
Latin America Beverages	13.0		—		13.0
Total income from operations	(1.2)		—		(1.2)


	Reported		Items Affecting Comparability		Adjusted		Impact of Foreign Currency		Constant Currency Adjusted
For the first quarter of 2022:
Operating margin
Coffee Systems	24.5	%	4.7	%	29.2	%	—	%	29.2	%
Packaged Beverages	32.8		(16.9)		15.9		—		15.9
Beverage Concentrates	68.0		0.8		68.8		—		68.8
Latin America Beverages	17.1		0.7		17.8		(0.1)		17.7
Total operating margin	31.4		(7.6)		23.8		—		23.8

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CONSTANT CURRENCY ADJUSTED RESULTS OF OPERATIONS

The following discussion of our results 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

Consolidated Operations

Constant Currency Net Sales. Constant currency net sales increased 6.1% in the first quarter of 2022 compared to the prior year period, driven by favorable net price realization of 6.3%, partially offset by lower volume/mix of 0.2%.

Constant Currency Adjusted Income from Operations. Constant currency adjusted income from operations decreased 1.2% 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 a $38 million gain on an asset sale-leaseback transaction related to our strategic asset investment program, the benefit of productivity, a $28 million recovery of litigation expenses included in our gain on litigation settlement with BodyArmor, and $28 million of the impact of the change in our accounting policy related to the recognition of forfeitures for our stock awards not associated with matching awards made to employees who made an initial investment in KDP.

Constant Currency Adjusted Interest Expense. Constant currency adjusted interest expense decreased 20.1% compared to the prior year period, driven by reduced interest expense on our senior unsecured notes as a result of our 2021 strategic refinancing and continued deleveraging.

Constant Currency Adjusted Effective Tax Rate. The constant currency adjusted effective tax rate was 22.9% for the first quarter of 2022 compared to 22.1% for the prior year period, primarily driven by the unfavorable comparison to the tax benefit received from excess tax deductions that were generated from the vesting of RSUs during the first quarter of 2021, partially offset by our incremental income in low tax jurisdictions during the first quarter of 2022.

Constant Currency Adjusted Net Income Attributable to KDP. Constant currency adjusted net income attributable to KDP increased 0.8% compared to the prior year period, as lower interest expense was partially offset by the decline in income from operations and the increase in our effective tax rate.

Constant Currency Adjusted Diluted EPS. Constant currency adjusted diluted EPS was even with the prior year period.

Results of Operations by Segment

Coffee Systems

Constant currency net sales decreased 4.3%, driven by unfavorable volume/mix of 7.5%, which was partially offset by higher net price realization of 3.2%.

Constant currency adjusted income from operations for the first quarter of 2022 decreased 24.2% compared to the prior year period, driven by increased costs due to the impacts of broad-based inflation and volume/mix declines as we prioritized production to rebuild inventory levels. These decreases were partially offset by the benefit of pricing actions, primarily on owned and licensed pods, and the benefit of productivity.

Packaged Beverages

Constant currency net sales increased 13.2%, reflecting favorable net price realization of 8.3% and volume/mix growth of 4.9%.

Constant currency adjusted income from operations for the first quarter of 2022 increased 16.9% compared to the prior year period, driven primarily by the impact of net sales growth, the benefit of asset sale-leaseback activity in the current period relating to our strategic asset initiative, and the benefit of productivity. These increases were partially offset by the impacts of broad-based inflation.

Beverage Concentrates

Constant currency net sales increased 9.5%, reflecting higher net price realization of 7.6% and volume/mix growth of 1.9%.

Constant currency adjusted income from operations for the first quarter of 2022 increased 3.3% compared to the prior year period. This performance reflected the impact of net sales growth, partially offset by the impacts of broad-based inflation and higher marketing expense.

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Latin America Beverages

Constant currency net sales increased 17.6%, driven by favorable net price realization of 9.6% and volume/mix growth of 8.0%.

Constant currency adjusted income from operations for the first quarter of 2022 increased 13.0% compared to the prior year period, driven by higher net price realization and favorable volume/mix, partially offset by broad-based inflation and higher marketing expense.

CRITICAL ACCOUNTING ESTIMATES

The process of preparing our consolidated financial statements in conformity with U.S. GAAP requires the use of estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses. Critical accounting estimates are both fundamental to the portrayal of a company’s financial condition and results and require difficult, subjective or complex estimates and assessments. These estimates and judgments are based on historical experience, future expectations and other factors and assumptions we believe to be reasonable under the circumstances. The most significant estimates and judgments are reviewed on an ongoing basis and revised when necessary. These critical accounting estimates are discussed in greater detail in Part II, Item 7 of our Annual Report.

LIQUIDITY AND CAPITAL RESOURCES

Overview

We believe our financial condition and liquidity remain strong. 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 quarter of 2022 and 2021:

Cash, cash equivalents, restricted cash and restricted cash equivalents increased $26 million from December 31, 2021 to March 31, 2022 primarily as a result of proceeds from the cash settlement with BodyArmor, which was used to continue to de-lever.

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 $214 million and $216 million as of March 31, 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. As part of this transaction, we additionally unwound approximately $1.5 billion of our outstanding designated forward starting swaps and received cash proceeds of approximately $125 million. Refer to Note 17 of the Notes to our Unaudited Condensed Consolidated Financial Statements for further information about the 2022 strategic refinancing initiative.

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Principal Sources of Capital Resources

Our principal sources of liquidity are our existing cash and cash equivalents, cash generated from our operations and borrowing capacity currently available under our 2022 Revolving Credit Agreement. Additionally, we have an uncommitted commercial paper program where we can issue unsecured commercial paper notes on a private placement basis. Based on our current and anticipated level of operations, we believe that our operating cash flows will be sufficient to meet our anticipated obligations for the next twelve months. To the extent that our operating cash flows are not sufficient to meet our liquidity needs, we may utilize cash on hand or amounts available under our financing arrangements, if necessary.

Sources of Liquidity - Operations

Net cash provided by operating activities increased $117 million for the first quarter of 2022, as compared to the first quarter 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

Our cash conversion cycle is defined as DIO and DSO less DPO. The calculation of each component of the cash conversion cycle is provided below:


Component						Calculation (on a trailing twelve month basis)
DIO						(Average inventory divided by cost of sales) * Number of days in the period
DSO						(Accounts receivable divided by net sales) * Number of days in the period
DPO						(Accounts payable * Number of days in the period) divided by cost of sales and SG&A expenses

The following table summarizes our cash conversion cycle:


	March 31,
	2022	2021
DIO	60	55
DSO	34	33
DPO	164	154
Cash conversion cycle	(70)	(66)

Accounts Payable Program

As part of our ongoing efforts to improve our cash flow and related liquidity, we work with our suppliers to optimize our terms and conditions, which include the extension of payment terms. Excluding our suppliers who require cash at date of purchase or sale, our current payment terms with our suppliers generally range from 10 to 360 days. We also entered into agreements with third party administrators to allow participating suppliers to track payment obligations from us, and if voluntarily elected by the supplier, sell payment obligations from us to financial institutions. Suppliers can sell one or more of our payment obligations at their sole discretion and our rights and obligations to our suppliers are not impacted. We have 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. 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 March 31, 2022 and December 31, 2021, $3,409 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 $876 million and $698 million for the first quarter of 2022 and 2021, respectively.

Impact of the CARES Act

Beginning in the second quarter of 2020, we deferred payments of employer-related payroll taxes as allowed under the CARES Act. Payment of at least 50% of the deferred amount was due on January 3, 2022, with the remainder due by January 3, 2023. We deferred a total of $59 million in such payments since the CARES Act was implemented, and we timely paid approximately $30 million as of January 3, 2022.

Sources of Liquidity - Financing

In February 2022, we terminated our 2021 364-Day Credit Agreement and our KDP Revolver and replaced them with the 2022 Revolving Credit Agreement, which provides for a $4 billion revolving credit facility.

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Refer to Note 2 of the Notes to our Unaudited Condensed Consolidated Financial Statements for management's discussion of our financing arrangements.

We also have an active shelf registration statement, filed with the SEC on August 27, 2019, 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 of Directors.

Principal Uses of Capital Resources

Over the past several years, our principal uses of our capital resources were deleveraging, providing shareholder return to our investors through regular quarterly dividends, and investing in KDP to capture market share and drive growth through innovation and routes to market.

Now that we have met our post-merger goals, we plan to invest in inorganic value creation through M&A, including portfolio expansion, distribution scale, geographic expansion, and new capabilities. In addition to M&A, we may consider share repurchases and special dividends to our investors. Our Board of Directors 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.

Deleveraging and Other Debt Repayments

During the first quarter of 2022, we made debt repayments of $350 million, which includes the redemption and retirement of the remainder of our 2038 Notes.

Regular Quarterly Dividends

For the first quarter of 2022, we have declared total dividends of $0.1875 per share.

Capital Expenditures

We are investing in state-of-the-art manufacturing and warehousing facilities, including expansive investments in facilities in Newbridge, Ireland; Spartanburg, South Carolina; 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 $109 million and $95 million for the first quarter 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 quarter of 2022 and 2021 primarily related to the manufacturing and warehousing facilities discussed above. Capital expenditures included in accounts payable and accrued expenses were $139 million and $259 million for the first quarter of 2022 and 2021, respectively, which primarily related to these investments.

Purchases of Intangible Assets

We have invested in the expansion of our DSD network through transactions with strategic independent bottlers to ensure competitive distribution scale for our brands. These transactions are generally accounted for as an asset acquisition, as the majority of the transaction price represents the reacquisition of our distribution rights. Purchases of intangible assets were $10 million and $12 million for the first quarter of 2022 and 2021, respectively.

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Uncertainties and Trends Affecting Liquidity

Disruptions in global financial and credit markets, including those caused by the ongoing COVID-19 pandemic and Russia’s invasion of Ukraine, may impact our ability to manage normal commercial relationships with our customers, suppliers and creditors. These disruptions could have a negative impact on the ability of our customers to timely pay their obligations to us, thus reducing our cash flow, or the ability of our vendors to timely supply materials.

Customer and consumer demand for our products may also be impacted by the risk factors discussed under "Risk Factors" in Part 1, Item 1A of our Annual Report, as well as subsequent filings with the SEC, that could have a material effect on production, delivery and consumption of our products, which could result in a reduction in our sales volume.

SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION

The Notes are fully and unconditionally guaranteed by certain of our direct and indirect subsidiaries (the "Guarantors"), as defined in the indentures governing the Notes. The Guarantors are 100% owned either directly or indirectly by us and jointly and severally guarantee, subject to the release provisions described below, our obligations under the Notes. None of our subsidiaries organized outside of the U.S., immaterial subsidiaries used for charitable purposes, any of the subsidiaries held by Maple Parent Holdings Corp. prior to the DPS Merger or any of the subsidiaries acquired after the DPS Merger (collectively, the "Non-Guarantors") guarantee the Notes. The subsidiary guarantees with respect to the Notes are subject to release upon the occurrence of certain events, including the sale of all or substantially all of a subsidiary's assets, the release of the subsidiary's guarantee of our other indebtedness, our exercise of the legal defeasance option with respect to the Notes and the discharge of our obligations under the applicable indenture.

The following schedules present the summarized financial information for Keurig Dr Pepper Inc. (the “Parent”) and the Guarantors on a combined basis after intercompany eliminations; the Parent and the Guarantors' amounts due from and amounts due to Non-Guarantors are disclosed separately. The consolidating schedules are provided in accordance with the reporting requirements of Rule 13-01 under SEC Regulation S-X for the issuer and guarantor subsidiaries.

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


(in millions)	For the First Quarter of 2022
Net sales	$	1,822

Income from operations	678
Net income attributable to KDP	585


(in millions)	March 31, 2022		December 31, 2021
Current assets	$	1,910	$	1,594
Non-current assets	44,303		43,972
Total assets(1)	$	46,213	$	45,566

Current liabilities	$	3,681	$	3,470
Non-current liabilities	17,021		17,125
Total liabilities(2)	$	20,702	$	20,595

(1)Includes $173 million and $209 million of intercompany receivables due to the Parent and Guarantors from the Non-Guarantors as of March 31, 2022 and December 31, 2021, respectively.

(2)Includes $43 million and $40 million of intercompany payables due to the Non-Guarantors from the Parent and Guarantors as of March 31, 2022 and December 31, 2021, respectively.

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes to the disclosures on market risk made in our Annual Report.

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ITEM 4. Controls and Procedures

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

Based on evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) of the Exchange Act) our management, including our Chief Executive Officer and Chief Financial Officer, has concluded that, as of March 31, 2022, our disclosure controls and procedures are effective to (i) provide reasonable assurance that information required to be disclosed in the Exchange Act filings is recorded, processed, summarized and reported within the time periods specified by the SEC's rules and forms, and (ii) ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act are accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

No change in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) occurred during the quarter ended March 31, 2022 that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

ITEM 1. Legal Proceedings

We are occasionally subject to litigation or other legal proceedings relating to our business. See Note 15 of the Notes to our Unaudited Condensed Consolidated Financial Statements for more information related to commitments and contingencies, which is incorporated herein by reference.

BODYARMOR LITIGATION

On March 6, 2019, ABC, a subsidiary of KDP, filed suit against BodyArmor and Mike Repole in the Superior Court for the State of Delaware. The complaint asserted claims for breach of contract and promissory estoppel against BodyArmor and asserted a claim for tortious interference against Mr. Repole, in each case in connection with BodyArmor's attempted early termination of the distribution contract between BodyArmor and ABC. The complaint sought monetary damages relating to lost distribution revenues, disgorgement of profits, liquidated and punitive damages, attorneys' fees and costs. ABC filed an amended complaint which added Coca-Cola as a defendant to the suit and asserted a claim for tortious interference against Coca-Cola. In December 2020, the court dismissed the individual claim against Mr. Repole, but ABC's claims against BodyArmor and Coca-Cola continued. In December 2021, the Court granted summary judgment to ABC on its breach of contract claim against BodyArmor, finding, as a matter of law, that BodyArmor’s termination constituted a breach of the distribution agreement.

In January 2022, KDP agreed to a $350 million payment from BodyArmor for a full settlement of all of the claims under the existing 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.

ITEM 1A. Risk Factors

There have been no material changes from the risk factors set forth in Part I, Item 1A in our Annual Report.

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

On October 1, 2021, our Board of Directors authorized a share repurchase program of up to $4 billion of our outstanding common stock, enabling us to opportunistically return value to shareholders. The $4 billion authorization is effective for four years, beginning on January 1, 2022 and expiring on December 31, 2025, and does not require the purchase of any minimum number of shares. We did not repurchase any shares under this program during the first quarter of 2022.

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ITEM 6. Exhibits


10.1			Letter Agreement by and between the Company and Robert J. Gamgort dated April 5, 2022 (filed as Exhibit 10.1 to the Company's Current Report on Form 8-K (filed on April 5, 2022) and incorporated herein by reference).
31.1*			Certification of Chief Executive Officer of Keurig Dr Pepper Inc. pursuant to Rule 13a-14(a) or 15d-14(a) promulgated under the Exchange Act.
31.2*			Certification of Chief Financial Officer of Keurig Dr Pepper Inc. pursuant to Rule 13a-14(a) or 15d-14(a) promulgated under the Exchange Act.
32.1**			Certification of Chief Executive Officer of Keurig Dr Pepper Inc. pursuant to Rule 13a-14(b) or 15d-14(b) promulgated under the Exchange Act, and Section 1350 of Chapter 63 of Title 18 of the United States Code.
32.2**			Certification of Chief Financial Officer of Keurig Dr Pepper Inc. pursuant to Rule 13a-14(b) or 15d-14(b) promulgated under the Exchange Act, and Section 1350 of Chapter 63 of Title 18 of the United States Code.
101*			The following financial information from Keurig Dr Pepper Inc.'s Quarterly Report on Form 10-Q for the quarter ended March 31, 2022, formatted in Inline XBRL: (i) Condensed Consolidated Statements of Income, (ii) Condensed Consolidated Statements of Comprehensive Income, (iii) Condensed Consolidated Balance Sheets, (iv) Condensed Consolidated Statements of Cash Flows, (v) Condensed Consolidated Statement of Changes in Stockholders' Equity, and (vi) the Notes to Condensed Consolidated Financial Statements. The Instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
104*			The cover page from this Quarterly Report on Form 10-Q, formatted as Inline XBRL.

* Filed herewith.

** Furnished herewith.

++ Indicates a management contract or compensatory plan or arrangement.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	Keurig Dr Pepper Inc.
	By:	/s/ Ozan Dokmecioglu

	Name:	Ozan Dokmecioglu
	Title:	Chief Financial Officer & President, International
		(Principal Financial Officer)
Date: April 28, 2022