filings.toolsItem 1. Financial Statements (Unaudited)
109K characters. Original on sec.gov ·
Item 1. Financial Statements (Unaudited)
KEURIG DR PEPPER INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
| Third Quarter | First Nine Months | ||||||||||||||||||||||
| (in millions, except per share data) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| Net sales | $ | 3,891 | $ | 3,805 | $ | 11,281 | $ | 10,947 | |||||||||||||||
| Cost of sales | 1,751 | 1,694 | 5,029 | 5,051 | |||||||||||||||||||
| Gross profit | 2,140 | 2,111 | 6,252 | 5,896 | |||||||||||||||||||
| Selling, general and administrative expenses | 1,245 | 1,217 | 3,716 | 3,654 | |||||||||||||||||||
| Impairment of intangible assets | — | 2 | — | 2 | |||||||||||||||||||
| Other operating (income) expense, net | (7) | (4) | 8 | (9) | |||||||||||||||||||
| Income from operations | 902 | 896 | 2,528 | 2,249 | |||||||||||||||||||
| Interest expense, net | 106 | 237 | 488 | 432 | |||||||||||||||||||
| Other income, net | (6) | (5) | (28) | (41) | |||||||||||||||||||
| Income before provision for income taxes | 802 | 664 | 2,068 | 1,858 | |||||||||||||||||||
| Provision for income taxes | 186 | 146 | 483 | 370 | |||||||||||||||||||
| Net income | $ | 616 | $ | 518 | $ | 1,585 | $ | 1,488 | |||||||||||||||
| Earnings per common share: | |||||||||||||||||||||||
| Basic | $ | 0.45 | $ | 0.37 | $ | 1.16 | $ | 1.06 | |||||||||||||||
| Diluted | 0.45 | 0.37 | 1.16 | 1.05 | |||||||||||||||||||
| Weighted average common shares outstanding: | |||||||||||||||||||||||
| Basic | 1,356.2 | 1,397.4 | 1,364.2 | 1,401.3 | |||||||||||||||||||
| Diluted | 1,361.9 | 1,406.2 | 1,370.4 | 1,410.8 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
KEURIG DR PEPPER INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
| Third Quarter | First Nine Months | ||||||||||||||||||||||
| (in millions) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| Net income | $ | 616 | $ | 518 | $ | 1,585 | $ | 1,488 | |||||||||||||||
| Other comprehensive (loss) income: | |||||||||||||||||||||||
| Foreign currency translation adjustments | (69) | (135) | (326) | 132 | |||||||||||||||||||
| Net change in cash flow hedges, net of tax of $2, $—, $3 and $24, respectively | 6 | 9 | 25 | (90) | |||||||||||||||||||
| Total other comprehensive (loss) income | (63) | (126) | (301) | 42 | |||||||||||||||||||
| Comprehensive income | $ | 553 | $ | 392 | $ | 1,284 | $ | 1,530 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
KEURIG DR PEPPER INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
| September 30, | December 31, | |||||||||||||
| (in millions, except share and per share data) | 2024 | 2023 | ||||||||||||
| Assets | ||||||||||||||
| Current assets: | ||||||||||||||
| Cash and cash equivalents | $ | 552 | $ | 267 | ||||||||||
| Restricted cash and restricted cash equivalents | 8 | — | ||||||||||||
| Trade accounts receivable, net | 1,448 | 1,368 | ||||||||||||
| Inventories | 1,351 | 1,142 | ||||||||||||
| Prepaid expenses and other current assets | 743 | 598 | ||||||||||||
| Total current assets | 4,102 | 3,375 | ||||||||||||
| Property, plant, and equipment, net | 2,794 | 2,699 | ||||||||||||
| Investments in unconsolidated affiliates | 1,492 | 1,387 | ||||||||||||
| Goodwill | 20,078 | 20,202 | ||||||||||||
| Other intangible assets, net | 23,072 | 23,287 | ||||||||||||
| Other non-current assets | 1,139 | 1,149 | ||||||||||||
| Deferred tax assets | 41 | 31 | ||||||||||||
| Total assets | $ | 52,718 | $ | 52,130 | ||||||||||
| Liabilities and Stockholders' Equity | ||||||||||||||
| Current liabilities: | ||||||||||||||
| Accounts payable | $ | 3,133 | $ | 3,597 | ||||||||||
| Accrued expenses | 1,288 | 1,242 | ||||||||||||
| Structured payables | 70 | 117 | ||||||||||||
| Short-term borrowings and current portion of long-term obligations | 2,472 | 3,246 | ||||||||||||
| Other current liabilities | 736 | 714 | ||||||||||||
| Total current liabilities | 7,699 | 8,916 | ||||||||||||
| Long-term obligations | 12,413 | 9,945 | ||||||||||||
| Deferred tax liabilities | 5,736 | 5,760 | ||||||||||||
| Other non-current liabilities | 1,901 | 1,833 | ||||||||||||
| Total liabilities | 27,749 | 26,454 | ||||||||||||
| 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, 1,356,443,009 and 1,390,446,043 shares issued and outstanding as of September 30, 2024 and December 31, 2023, respectively | 14 | 14 | ||||||||||||
| Additional paid-in capital | 19,692 | 20,788 | ||||||||||||
| Retained earnings | 5,249 | 4,559 | ||||||||||||
| Accumulated other comprehensive income | 14 | 315 | ||||||||||||
| Total stockholders' equity | 24,969 | 25,676 | ||||||||||||
| Total liabilities and stockholders’ equity | $ | 52,718 | $ | 52,130 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
KEURIG DR PEPPER INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| First Nine Months | |||||||||||
| (in millions) | 2024 | 2023 | |||||||||
| Operating activities: | |||||||||||
| Net income | $ | 1,585 | $ | 1,488 | |||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Depreciation expense | 310 | 299 | |||||||||
| Amortization of intangibles | 100 | 103 | |||||||||
| Other amortization expense | 140 | 136 | |||||||||
| Provision for sales returns | 50 | 42 | |||||||||
| Deferred income taxes | 21 | (22) | |||||||||
| Employee stock-based compensation expense | 76 | 86 | |||||||||
| Loss (gain) on disposal of property, plant and equipment | 19 | (3) | |||||||||
| Unrealized loss (gain) on foreign currency | 14 | (4) | |||||||||
| Unrealized loss on derivatives | 23 | 44 | |||||||||
| Settlements of interest rate contracts | — | 54 | |||||||||
| Equity in earnings of unconsolidated affiliates | (22) | (24) | |||||||||
| Earned equity from distribution arrangements | (64) | (2) | |||||||||
| Impairment of intangible assets | — | 2 | |||||||||
| Other, net | 9 | (3) | |||||||||
| Changes in assets and liabilities: | |||||||||||
| Trade accounts receivable | (148) | 170 | |||||||||
| Inventories | (220) | (31) | |||||||||
| Income taxes receivable and payables, net | (7) | (39) | |||||||||
| Other current and non-current assets | (204) | (159) | |||||||||
| Accounts payable and accrued expenses | (275) | (1,155) | |||||||||
| Other current and non-current liabilities | (37) | 50 | |||||||||
| Net change in operating assets and liabilities | (891) | (1,164) | |||||||||
| Net cash provided by operating activities | 1,370 | 1,032 | |||||||||
| Investing activities: | |||||||||||
| Acquisitions of businesses | (85) | — | |||||||||
| Purchases of property, plant and equipment | (398) | (271) | |||||||||
| Proceeds from sales of property, plant and equipment | 1 | 9 | |||||||||
| Purchases of intangibles | (49) | (55) | |||||||||
| Investments in unconsolidated affiliates | (7) | (308) | |||||||||
| Other, net | — | 2 | |||||||||
| Net cash used in investing activities | $ | (538) | $ | (623) | |||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
KEURIG DR PEPPER INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
**(**UNAUDITED, CONTINUED)
| First Nine Months | |||||||||||
| (in millions) | 2024 | 2023 | |||||||||
| Financing activities: | |||||||||||
| Proceeds from issuance of Notes | $ | 3,000 | $ | — | |||||||
| Repayments of Notes | (1,150) | — | |||||||||
| Net (repayment) issuance of commercial paper | (153) | 750 | |||||||||
| Proceeds from structured payables | 39 | 91 | |||||||||
| Repayments of structured payables | (89) | (105) | |||||||||
| Cash dividends paid | (883) | (842) | |||||||||
| Repurchases of common stock | (1,105) | (457) | |||||||||
| Tax withholdings related to net share settlements | (58) | (57) | |||||||||
| Payments on finance leases | (83) | (74) | |||||||||
| Other, net | (22) | (3) | |||||||||
| Net cash used in financing activities | (504) | (697) | |||||||||
| Cash, cash equivalents, restricted cash, and restricted cash equivalents: | |||||||||||
| Net change from operating, investing and financing activities | 328 | (288) | |||||||||
| Effect of exchange rate changes | (35) | 13 | |||||||||
| Beginning balance | 267 | 535 | |||||||||
| Ending balance | $ | 560 | $ | 260 | |||||||
| Supplemental cash flow disclosures of non-cash investing activities: | |||||||||||
| Capital expenditures included in accounts payable and accrued expenses | $ | 164 | $ | 196 | |||||||
| Earned equity from distribution arrangements | 64 | 2 | |||||||||
| Equity received in exchange for modification of related party contract | 19 | — | |||||||||
| Acquisitions of businesses | 18 | — | |||||||||
| Transaction costs included in accounts payable and accrued expenses | — | 13 | |||||||||
| Supplemental cash flow disclosures of non-cash financing activities: | |||||||||||
| Dividends declared but not yet paid | 311 | 300 | |||||||||
| Accrued excise tax on net share repurchases | 14 | 3 | |||||||||
| Supplemental cash flow disclosures: | |||||||||||
| Cash paid for interest | 308 | 255 | |||||||||
| Cash paid for income taxes | 246 | 413 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
KEURIG DR PEPPER INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
| Common Stock Issued | Additional Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Total Stockholders' Equity | |||||||||||||||||||||||||||||||
| (in millions, except per share data) | Shares | Amount | |||||||||||||||||||||||||||||||||
| Balance as of January 1, 2024 | 1,390.4 | $ | 14 | $ | 20,788 | $ | 4,559 | $ | 315 | $ | 25,676 | ||||||||||||||||||||||||
| Net income | — | — | — | 454 | — | 454 | |||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | — | (58) | (58) | |||||||||||||||||||||||||||||
| Dividends declared, $0.215 per share | — | — | — | (292) | — | (292) | |||||||||||||||||||||||||||||
| Repurchases of common stock, inclusive of excise tax obligation | (38.0) | — | (1,114) | — | — | (1,114) | |||||||||||||||||||||||||||||
| Shares issued under employee stock-based compensation plans and other | 3.2 | — | — | — | — | — | |||||||||||||||||||||||||||||
| Tax withholdings related to net share settlements | — | — | (41) | — | — | (41) | |||||||||||||||||||||||||||||
| Stock-based compensation and stock options exercised | — | — | 28 | — | — | 28 | |||||||||||||||||||||||||||||
| Balance as of March 31, 2024 | 1,355.6 | $ | 14 | $ | 19,661 | $ | 4,721 | $ | 257 | $ | 24,653 | ||||||||||||||||||||||||
| Net income | — | — | — | 515 | — | 515 | |||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | — | (180) | (180) | |||||||||||||||||||||||||||||
| Dividends declared, $0.215 per share | — | — | — | (292) | — | (292) | |||||||||||||||||||||||||||||
| Shares issued under employee stock-based compensation plans and other | 0.2 | — | — | — | — | — | |||||||||||||||||||||||||||||
| Tax withholdings related to net share settlements | — | — | (2) | — | — | (2) | |||||||||||||||||||||||||||||
| Stock-based compensation and stock options exercised | — | — | 24 | — | — | 24 | |||||||||||||||||||||||||||||
| Balance as of June 30, 2024 | 1,355.8 | $ | 14 | $ | 19,683 | $ | 4,944 | $ | 77 | $ | 24,718 | ||||||||||||||||||||||||
| Net income | — | — | — | 616 | — | 616 | |||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | — | (63) | (63) | |||||||||||||||||||||||||||||
| Dividends declared, $0.23 per share | — | — | — | (311) | — | (311) | |||||||||||||||||||||||||||||
| Shares issued under employee stock-based compensation plans and other | 0.6 | — | — | — | — | — | |||||||||||||||||||||||||||||
| Tax withholdings related to net share settlements | — | — | (15) | — | — | (15) | |||||||||||||||||||||||||||||
| Stock-based compensation and stock options exercised | — | — | 24 | — | — | 24 | |||||||||||||||||||||||||||||
| Balance as of September 30, 2024 | 1,356.4 | $ | 14 | $ | 19,692 | $ | 5,249 | $ | 14 | $ | 24,969 |
| 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, 2023 | 1,408.4 | $ | 14 | $ | 21,444 | $ | 3,539 | $ | 129 | $ | 25,126 | $ | (1) | $ | 25,125 | ||||||||||||||||||||||||||||||||
| Net income | — | — | — | 467 | — | 467 | — | 467 | |||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | 26 | 26 | 26 | ||||||||||||||||||||||||||||||||||||||||
| Dividends declared, $0.20 per share | — | — | — | (282) | — | (282) | — | (282) | |||||||||||||||||||||||||||||||||||||||
| Repurchases of common stock, inclusive of excise tax obligation | (6.6) | — | (232) | — | — | (232) | — | (232) | |||||||||||||||||||||||||||||||||||||||
| Shares issued under employee stock-based compensation plans and other | 1.9 | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Tax withholdings related to net share settlements | — | — | (31) | — | — | (31) | — | (31) | |||||||||||||||||||||||||||||||||||||||
| Stock-based compensation and stock options exercised | — | — | 29 | — | — | 29 | — | 29 | |||||||||||||||||||||||||||||||||||||||
| Balance as of March 31, 2023 | 1,403.7 | $ | 14 | $ | 21,210 | $ | 3,724 | $ | 155 | $ | 25,103 | $ | (1) | $ | 25,102 | ||||||||||||||||||||||||||||||||
| Net income | — | — | — | 503 | — | 503 | — | 503 | |||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | 142 | 142 | — | 142 | |||||||||||||||||||||||||||||||||||||||
| Dividends declared, $0.20 per share | — | — | — | (279) | — | (279) | — | (279) | |||||||||||||||||||||||||||||||||||||||
| Repurchases of common stock, inclusive of excise tax obligation | (7.0) | — | (229) | — | — | (229) | — | (229) | |||||||||||||||||||||||||||||||||||||||
| Shares issued under employee stock-based compensation plans and other | 0.2 | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Tax withholdings related to net share settlements | — | — | (1) | — | — | (1) | — | (1) | |||||||||||||||||||||||||||||||||||||||
| Stock-based compensation and stock options exercised | — | — | 29 | — | — | 29 | — | 29 | |||||||||||||||||||||||||||||||||||||||
| Balance as of June 30, 2023 | 1,396.9 | $ | 14 | $ | 21,009 | $ | 3,948 | $ | 297 | $ | 25,268 | $ | (1) | $ | 25,267 | ||||||||||||||||||||||||||||||||
| Net income | — | — | — | 518 | — | 518 | — | 518 | |||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | — | (126) | (126) | — | (126) | |||||||||||||||||||||||||||||||||||||||
| Dividends declared, $0.215 per share | — | — | — | (300) | — | (300) | — | (300) | |||||||||||||||||||||||||||||||||||||||
| Repurchases of common stock, inclusive of excise tax obligation | — | — | 1 | — | — | 1 | — | 1 | |||||||||||||||||||||||||||||||||||||||
| Shares issued under employee stock-based compensation plans and other | 1.4 | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Tax withholdings related to net share settlements | — | — | (25) | — | — | (25) | — | (25) | |||||||||||||||||||||||||||||||||||||||
| Stock-based compensation and stock options exercised | — | — | 29 | — | — | 29 | — | 29 | |||||||||||||||||||||||||||||||||||||||
| Non-controlling interest surrender of shares | — | — | — | (1) | — | (1) | 1 | — | |||||||||||||||||||||||||||||||||||||||
| Balance as of September 30, 2023 | 1,398.3 | $ | 14 | $ | 21,014 | $ | 4,165 | $ | 171 | $ | 25,364 | $ | — | $ | 25,364 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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", "the Company", "we", or "our", refer to Keurig Dr Pepper Inc. and all wholly-owned subsidiaries 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 our owned or licensed trademarks, trade names and service marks, which are referred to as our brands. All of the product names included herein are either KDP registered trademarks or those of our 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 our consolidated financial statements and accompanying notes included in our Annual Report.
References to the "third quarter" indicate the quarterly periods ended September 30, 2024 and 2023.
USE OF ESTIMATES
The process of preparing our 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 we believe 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.
2. Long-term Obligations and Borrowing Arrangements
The following table summarizes our long-term obligations:
| (in millions) | September 30, 2024 | December 31, 2023 | |||||||||
| Notes | $ | 12,942 | $ | 11,095 | |||||||
| Less: current portion of long-term obligations | (529) | (1,150) | |||||||||
| Long-term obligations | $ | 12,413 | $ | 9,945 |
The following table summarizes our short-term borrowings and current portion of long-term obligations:
| (in millions) | September 30, 2024 | December 31, 2023 | |||||||||
| Commercial paper notes | $ | 1,943 | $ | 2,096 | |||||||
| Current portion of long-term obligations | 529 | 1,150 | |||||||||
| Short-term borrowings and current portion of long-term obligations | $ | 2,472 | $ | 3,246 |
KEURIG DR PEPPER INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, CONTINUED)
SENIOR UNSECURED NOTES
Our Notes consisted of the following:
| (in millions, except %) | Maturity Date | Rate | September 30, 2024 | December 31, 2023 | ||||||||||||||||||||||
| 2024 Notes | March 15, 2024 | 0.750% | $ | — | $ | 1,150 | ||||||||||||||||||||
| 2025 Merger Notes | May 25, 2025 | 4.417% | 529 | 529 | ||||||||||||||||||||||
| 2025 Notes | November 15, 2025 | 3.400% | 500 | 500 | ||||||||||||||||||||||
| 2026 Notes | September 15, 2026 | 2.550% | 400 | 400 | ||||||||||||||||||||||
| 2027-B Notes | March 15, 2027 | Floating(2) | 350 | — | ||||||||||||||||||||||
| 2027-C Notes | March 15, 2027 | 5.100% | 750 | — | ||||||||||||||||||||||
| 2027 Notes | June 15, 2027 | 3.430% | 500 | 500 | ||||||||||||||||||||||
| 2028 Merger Notes | May 25, 2028 | 4.597% | 1,112 | 1,112 | ||||||||||||||||||||||
| 2029-B Notes | March 15, 2029 | 5.050% | 750 | — | ||||||||||||||||||||||
| 2029 Notes | April 15, 2029 | 3.950% | 1,000 | 1,000 | ||||||||||||||||||||||
| 2030 Notes | May 1, 2030 | 3.200% | 750 | 750 | ||||||||||||||||||||||
| 2031 Notes | March 15, 2031 | 2.250% | 500 | 500 | ||||||||||||||||||||||
| 2031-B Notes | March 15, 2031 | 5.200% | 500 | — | ||||||||||||||||||||||
| 2032 Notes | April 15, 2032 | 4.050% | 850 | 850 | ||||||||||||||||||||||
| 2034 Notes | March 15, 2034 | 5.300% | 650 | — | ||||||||||||||||||||||
| 2038 Merger Notes | May 25, 2038 | 4.985% | 211 | 211 | ||||||||||||||||||||||
| 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 | 391 | ||||||||||||||||||||||
| 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 | 1,150 | ||||||||||||||||||||||
| Principal amount | 13,093 | 11,243 | ||||||||||||||||||||||||
| Adjustment from principal amount to carrying amount(1) | (151) | (148) | ||||||||||||||||||||||||
| Carrying amount | $ | 12,942 | $ | 11,095 |
(1)The carrying amount includes unamortized discounts, debt issuance costs and fair value adjustments related to the DPS Merger.
(2)The 2027-B Notes bear interest at a rate equal to Compounded SOFR (as defined in the respective indenture) plus 0.88% per annum, and the rate is reassessed quarterly.
On March 7, 2024, we completed the issuance of the 2027-B Notes, the 2027-C Notes, the 2029-B Notes, the 2031-B Notes, and the 2034 Notes, with an aggregate principal amount of $3 billion. The discount associated with these notes was approximately $5 million, and the Company incurred $16 million in debt issuance costs. The proceeds from the issuance were used for our share repurchase program, to repay outstanding commercial paper, and to repay the 2024 Notes at maturity, with the remainder intended for general corporate purposes.
KEURIG DR PEPPER INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, CONTINUED)
VARIABLE-RATE BORROWING ARRANGEMENTS
Revolving Credit Agreement
The following table summarizes information about the Revolving Credit Agreement:
| Amounts Outstanding | ||||||||||||||||||||||||||
| (in millions) | Maturity Date | Capacity | September 30, 2024 | December 31, 2023 | ||||||||||||||||||||||
| Revolving Credit Agreement(1) | February 23, 2027 | $ | 4,000 | $ | — | $ | — |
(1)The Revolving Credit Agreement has $200 million letters of credit available, none of which were utilized as of September 30, 2024.
As of September 30, 2024, KDP was in compliance with its minimum interest coverage ratio relating to the Revolving Credit Agreement.
Commercial Paper Program
The following table provides information about our weighted average borrowings under our commercial paper program:
| Third Quarter | First Nine Months | ||||||||||||||||||||||
| (in millions, except %) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| Weighted average commercial paper borrowings | $ | 2,163 | $ | 1,495 | $ | 2,299 | $ | 1,061 | |||||||||||||||
| Weighted average borrowing rates | 5.50 | % | 5.49 | % | 5.57 | % | 5.31 | % |
Letter of Credit Facility
In addition to the portion of the 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, $74 million of which was utilized as of September 30, 2024 and $76 million of which remains available for use.
FAIR VALUE DISCLOSURES
The fair value of our commercial paper approximates the carrying value and is considered Level 2 within the fair value hierarchy.
The fair values of our Notes are based on current market rates available to us 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 our Notes was $12,531 million and $10,486 million as of September 30, 2024 and December 31, 2023, respectively.
3. Acquisition
KALIL ACQUISITION
Overview and Purchase Price
On May 30, 2024, we entered into an agreement with Kalil, under which we agreed to acquire all of Kalil’s production, sales, and distribution assets for total consideration of $103 million, subject to certain adjustments outlined in the agreement. Kalil is an independent bottler with bottling and distribution rights in Arizona to key KDP brands, including Canada Dry, 7UP, A&W, Snapple, and Core Hydration. On August 9, 2024, we completed the Kalil Acquisition, and approximately $8 million of cash was held back and placed in escrow.
KEURIG DR PEPPER INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, CONTINUED)
Allocation of Consideration Exchanged
Our preliminary allocation of consideration exchanged to the net tangible and intangible assets acquired and liabilities assumed in the Kalil Acquisition is based on estimated fair values as of August 9, 2024. The following is a summary of the preliminary allocation of consideration exchanged to the estimated fair values of assets acquired and liabilities assumed in the Kalil Acquisition as of September 30, 2024:
| (in millions) | Fair Value | |||||||||||||
| Inventory(1) | $ | 10 | ||||||||||||
| Property, plant, and equipment(2) | 45 | |||||||||||||
| Other intangible assets | 38 | |||||||||||||
| Goodwill | 10 | |||||||||||||
| Total consideration exchanged | 103 | |||||||||||||
| Less: Holdback placed in Escrow(3) | (8) | |||||||||||||
| Acquisition of business | $ | 95 |
(1)As of September 30, 2024, we accrued the $10 million as a payable to Kalil, which is included as a non-cash investing activity within the supplemental cash flow disclosures of the unaudited condensed consolidated statement of cash flows for the first nine months of 2024.
(2)We preliminarily valued real property using the cost approach and land using the sales comparison approach, a form of the market approach. We preliminarily valued personal property using a combination of the cost approach and the sales comparison approach.
(3)The amount held in escrow is included within the Restricted cash and restricted cash equivalents line of the unaudited condensed consolidated balance sheet as of September 30, 2024 and is considered a non-cash investing activity within the supplemental cash flow disclosures of the unaudited condensed consolidated statement of cash flows for the first nine months of 2024.
The Kalil Acquisition preliminarily resulted in $10 million of goodwill. The preliminary goodwill to be recognized is primarily attributable to the assembled workforce. The goodwill created in the Kalil Acquisition is expected to be deductible for tax purposes.
4. Goodwill and Other Intangible Assets
GOODWILL
Changes in the carrying amount of goodwill by reportable segment are as follows:
| (in millions) | U.S. Refreshment Beverages | U.S. Coffee | International | Total | |||||||||||||||||||||||||
| Balance as of January 1, 2024 | $ | 8,714 | $ | 8,622 | $ | 2,866 | $ | 20,202 | |||||||||||||||||||||
| Acquisitions(1) | 10 | — | — | 10 | |||||||||||||||||||||||||
| Foreign currency translation | — | — | (134) | (134) | |||||||||||||||||||||||||
| Balance as of September 30, 2024 | $ | 8,724 | $ | 8,622 | $ | 2,732 | $ | 20,078 |
(1)Acquisition activity during the first nine months of 2024 represents the goodwill recorded as a result of the Kalil Acquisition. Refer to Note 3 for additional information.
INTANGIBLE ASSETS OTHER THAN GOODWILL
The net carrying amounts of intangible assets other than goodwill with indefinite lives are as follows:
| (in millions) | September 30, 2024 | December 31, 2023 | |||||||||
| Brands(1) | $ | 19,280 | $ | 19,476 | |||||||
| Trade names | 2,479 | 2,478 | |||||||||
| Distribution rights(2) | 229 | 155 | |||||||||
| Total | $ | 21,988 | $ | 22,109 |
(1)The change in brands with indefinite lives was driven by unfavorable foreign currency translation impacts of $196 million during the first nine months of 2024.
(2)The change in distribution rights with indefinite lives was primarily driven by acquired distribution rights related to Electrolit of $49 million.
KEURIG DR PEPPER INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, CONTINUED)
The net carrying amounts of intangible assets other than goodwill with definite lives are as follows:
| September 30, 2024 | December 31, 2023 | ||||||||||||||||||||||||||||||||||
| (in millions) | Gross Amount | Accumulated Amortization | Net Amount | Gross Amount | Accumulated Amortization | Net Amount | |||||||||||||||||||||||||||||
| Acquired technology | $ | 1,146 | $ | (603) | $ | 543 | $ | 1,146 | $ | (548) | $ | 598 | |||||||||||||||||||||||
| Customer relationships | 645 | (261) | 384 | 638 | (236) | 402 | |||||||||||||||||||||||||||||
| Contractual arrangements | 145 | (19) | 126 | 146 | (13) | 133 | |||||||||||||||||||||||||||||
| Trade names | 126 | (122) | 4 | 126 | (114) | 12 | |||||||||||||||||||||||||||||
| Brands | 51 | (30) | 21 | 51 | (25) | 26 | |||||||||||||||||||||||||||||
| Distribution rights | 29 | (23) | 6 | 29 | (22) | 7 | |||||||||||||||||||||||||||||
| Total | $ | 2,142 | $ | (1,058) | $ | 1,084 | $ | 2,136 | $ | (958) | $ | 1,178 |
Amortization expense for intangible assets with definite lives was as follows:
| Third Quarter | First Nine Months | ||||||||||||||||||||||
| (in millions) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| Amortization expense | $ | 33 | $ | 34 | $ | 100 | $ | 103 |
5. 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.
We formally designate and account 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.
We have exposure to credit losses from derivative instruments in an asset position in the event of nonperformance by the counterparties to the agreements. Historically, we have not experienced material credit losses as a result of counterparty nonperformance. We select and periodically review counterparties based on credit ratings, limit our exposure to a single counterparty under defined guidelines, and monitor the market position of the programs upon execution of a hedging transaction and at least on a quarterly basis.
INTEREST RATES
Economic Hedges
We are exposed to interest rate risk related to our borrowing arrangements and obligations. We enter into interest rate contracts to provide predictability in our overall cost structure and to manage the balance of fixed-rate and variable-rate debt. We primarily enter 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 generally reported in interest expense in the unaudited Condensed Consolidated Statements of Income. As of September 30, 2024, economic interest rate derivative instruments have maturities ranging from December 2024 to July 2043.
KEURIG DR PEPPER INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, CONTINUED)
Cash Flow Hedges
As of December 31, 2023, we had $500 million of notional amount of forward starting swaps which had been de-designated and terminated; however, as the forecasted debt transaction was still considered probable, the fair value of the instruments as of the de-designation remained within AOCI. In March 2024, the forecasted debt transaction took place with the issuance of the 2034 Notes, and the fair value of the instruments began amortizing to Interest expense, net over the term of the 2034 Notes.
FOREIGN EXCHANGE
We are exposed to foreign exchange risk in our international subsidiaries or with certain counterparties in foreign jurisdictions, which may transact in currencies that are different from the functional currencies of our legal entities. Additionally, the balance sheets of our Canadian and Mexican businesses are subject to exposure from movements in exchange rates.
Economic Hedges
We hold FX forward contracts to economically manage the balance sheet exposures resulting from changes in the FX 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 September 30, 2024, these FX contracts have maturities ranging from October 2024 to September 2026.
Cash Flow Hedges
We designate certain FX forward contracts as cash flow hedges in order to manage the exposures resulting from changes in the FX rates described above. These designated FX forward contracts relate to forecasted inventory purchases in U.S. dollars of our Canadian and Mexican businesses. The intent of these FX contracts is to provide predictability in the Company's overall cost structure. As of September 30, 2024, these FX contracts have maturities ranging from October 2024 to December 2025.
COMMODITIES
Economic Hedges
We centrally manage the exposure to volatility in the prices of certain commodities used in our production process and transportation through various derivative contracts. We generally hold some combination of future, swap and option contracts that economically hedge certain of our 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 or as an offset to certain costs of production. 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 our reportable segments are affected by the completion of the underlying transaction, at which time the gain or loss is reflected as a component of the respective segment's income from operations. As of September 30, 2024, these commodity contracts have maturities ranging from October 2024 to July 2026.
KEURIG DR PEPPER INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, CONTINUED)
NOTIONAL AMOUNTS OF DERIVATIVE INSTRUMENTS
The following table presents the notional amounts of our outstanding derivative instruments by type:
| (in millions) | September 30, 2024 | December 31, 2023 | |||||||||
| Interest rate contracts | |||||||||||
| Forward starting swaps, not designated as hedging instruments | $ | 2,200 | $ | 1,700 | |||||||
| Swaptions, not designated as hedging instruments | 1,350 | 3,200 | |||||||||
| FX contracts | |||||||||||
| Forward contracts, not designated as hedging instruments | 599 | 710 | |||||||||
| Forward contracts, designated as cash flow hedges | 544 | 425 | |||||||||
| Commodity contracts, not designated as hedging instruments(1) | 458 | 500 |
(1)Notional value for commodity contracts is calculated as the expected volume times strike price per unit on a gross basis.
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 SOFR forward rates, for all substantial terms of our 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, we have categorized these contracts as Level 2.
Not Designated as Hedging Instruments
The following table summarizes the location of the fair value of our 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 | September 30, 2024 | December 31, 2023 | ||||||||||||||
| Assets: | |||||||||||||||||
| FX contracts | Prepaid expenses and other current assets | $ | 1 | $ | 5 | ||||||||||||
| Commodity contracts | Prepaid expenses and other current assets | 16 | 9 | ||||||||||||||
| Commodity contracts | Other non-current assets | 3 | 3 | ||||||||||||||
| Liabilities: | |||||||||||||||||
| Interest rate contracts | Other current liabilities | 33 | 80 | ||||||||||||||
| FX contracts | Other current liabilities | 2 | 3 | ||||||||||||||
| Commodity contracts | Other current liabilities | 75 | 53 | ||||||||||||||
| Interest rate contracts | Other non-current liabilities | 245 | 186 | ||||||||||||||
| FX contracts | Other non-current liabilities | 1 | 4 | ||||||||||||||
| Commodity contracts | Other non-current liabilities | 5 | 11 |
KEURIG DR PEPPER INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, CONTINUED)
Designated as Hedging Instruments
The following table summarizes the location of the fair value of our 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 | September 30, 2024 | December 31, 2023 | ||||||||||||||
| Assets: | |||||||||||||||||
| FX contracts | Prepaid expenses and other current assets | $ | 16 | $ | 1 | ||||||||||||
| FX contracts | Other non-current assets | 4 | — | ||||||||||||||
| Liabilities: | |||||||||||||||||
| FX contracts | Other current liabilities | 2 | 14 | ||||||||||||||
| FX contracts | Other non-current liabilities | 1 | — | ||||||||||||||
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.
| Income Statement Location | Third Quarter | First Nine Months | |||||||||||||||||||||||||||
| (in millions) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||||||||
| Interest rate contracts | Interest expense, net | $ | (66) | $ | 104 | $ | (14) | $ | 49 | ||||||||||||||||||||
| FX contracts | Cost of sales | (2) | (4) | (4) | (4) | ||||||||||||||||||||||||
| FX contracts | Other income, net | 6 | (6) | (2) | (1) | ||||||||||||||||||||||||
| Commodity contracts | Cost of sales | 7 | (7) | 29 | 2 | ||||||||||||||||||||||||
| Commodity contracts | SG&A expenses | 20 | (20) | 11 | (2) | ||||||||||||||||||||||||
IMPACT OF CASH FLOW HEDGES
The following table presents the amount of (gains) losses, net, reclassified from AOCI into the unaudited Condensed Consolidated Statements of Income related to derivative instruments designated as cash flow hedging instruments during the periods presented:
| Income Statement Location | Third Quarter | First Nine Months | |||||||||||||||||||||||||||
| (in millions) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||||||||
| Interest rate contracts | Interest expense, net | $ | (3) | $ | (2) | $ | (9) | $ | (72) | ||||||||||||||||||||
| FX contracts | Cost of sales | (1) | 4 | 1 | (1) |
We expect to reclassify approximately $13 million and $16 million of pre-tax net gains from AOCI into net income during the next twelve months related to interest rate contracts and FX contracts, respectively.
KEURIG DR PEPPER INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, CONTINUED)
6. Leases
The following table presents the components of lease cost:
| Third Quarter | First Nine Months | ||||||||||||||||||||||
| (in millions) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| Operating lease cost | $ | 42 | $ | 40 | $ | 127 | $ | 118 | |||||||||||||||
| Finance lease cost | |||||||||||||||||||||||
| Amortization of right-of-use assets | 33 | 21 | 93 | 60 | |||||||||||||||||||
| Interest on lease liabilities | 8 | 6 | 22 | 18 | |||||||||||||||||||
| Variable lease cost(1) | 9 | 10 | 29 | 30 | |||||||||||||||||||
| Short-term lease cost | 1 | 1 | 2 | 1 | |||||||||||||||||||
| Sublease income | (1) | — | (1) | — | |||||||||||||||||||
| Total lease cost | $ | 92 | $ | 78 | $ | 272 | $ | 227 |
(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 our leases:
| First Nine Months | |||||||||||
| (in millions) | 2024 | 2023 | |||||||||
| Cash paid for amounts included in the measurement of lease liabilities: | |||||||||||
| Operating cash flows from operating leases | $ | 121 | $ | 110 | |||||||
| Operating cash flows from finance leases | 22 | 18 | |||||||||
| Financing cash flows from finance leases | 83 | 74 | |||||||||
| Right-of-use assets obtained in exchange for lease obligations: | |||||||||||
| Operating leases | 60 | 78 | |||||||||
| Finance leases | 128 | 75 |
The following table presents information about our weighted average discount rate and remaining lease term:
| September 30, 2024 | December 31, 2023 | ||||||||||
| Weighted average discount rate | |||||||||||
| Operating leases | 5.3 | % | 5.3 | % | |||||||
| Finance leases | 4.4 | % | 3.9 | % | |||||||
| Weighted average remaining lease term | |||||||||||
| Operating leases | 9 years | 10 years | |||||||||
| Finance leases | 9 years | 9 years |
KEURIG DR PEPPER INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, CONTINUED)
Future minimum lease payments for non-cancellable leases that have commenced and are reflected on the unaudited Condensed Consolidated Balance Sheets as of September 30, 2024 were as follows:
| (in millions) | Operating Leases | Finance Leases | |||||||||
| Remainder of 2024 | $ | 28 | $ | 36 | |||||||
| 2025 | 161 | 145 | |||||||||
| 2026 | 149 | 182 | |||||||||
| 2027 | 126 | 92 | |||||||||
| 2028 | 97 | 81 | |||||||||
| 2029 | 91 | 78 | |||||||||
| Thereafter | 460 | 313 | |||||||||
| Total future minimum lease payments | 1,112 | 927 | |||||||||
| Less: imputed interest | (233) | (160) | |||||||||
| Present value of minimum lease payments | $ | 879 | $ | 767 |
SIGNIFICANT LEASES THAT HAVE NOT YET COMMENCED
As of September 30, 2024, we have entered into leases that have not yet commenced with estimated aggregated future lease payments of approximately $227 million. These leases are expected to commence between the fourth quarter of 2024 through 2027, with initial lease terms ranging from 5 years to 11 years.
7. Segments
Our operating and reportable segments consist of the following:
-
The U.S. Refreshment Beverages segment reflects sales in the U.S. from the manufacture and distribution of branded concentrates, syrup, and finished beverages, including the sales of our own brands and third-party brands, to third-party bottlers, distributors, and retailers.
-
The U.S. Coffee segment reflects sales in the U.S. from the manufacture and distribution of finished goods relating to our K-Cup pods, single-serve brewers and accessories, and other coffee products to partners, retailers, and directly to consumers through the Keurig.com website.
-
The International segment reflects sales in international markets, including the following:
◦Sales in Canada, Mexico, the Caribbean, and other international markets from the manufacture and distribution of branded concentrates, syrup, and finished beverages, including sales of our own brands and third-party brands, to third-party bottlers, distributors, and retailers.
◦Sales in Canada from the manufacture and distribution of finished goods relating to our single-serve brewers, K-Cup pods, and other coffee products.
Segment results are based on management reports. Net sales and income from operations are the significant financial measures used to assess the operating performance of our 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 our measurement of segment performance and include unrealized commodity derivative gains and losses, and certain general corporate expenses.
KEURIG DR PEPPER INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, CONTINUED)
Information about our operations by reportable segment is as follows:
| Third Quarter | First Nine Months | ||||||||||||||||||||||
| (in millions) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| Segment Results – Net sales | |||||||||||||||||||||||
| U.S. Refreshment Beverages | $ | 2,390 | $ | 2,270 | $ | 6,890 | $ | 6,607 | |||||||||||||||
| U.S. Coffee | 976 | 1,012 | 2,837 | 2,913 | |||||||||||||||||||
| International | 525 | 523 | 1,554 | 1,427 | |||||||||||||||||||
| Net sales | $ | 3,891 | $ | 3,805 | $ | 11,281 | $ | 10,947 | |||||||||||||||
| Segment Results – Income from operations | |||||||||||||||||||||||
| U.S. Refreshment Beverages | $ | 722 | $ | 676 | $ | 2,054 | $ | 1,795 | |||||||||||||||
| U.S. Coffee | 254 | 293 | 730 | 775 | |||||||||||||||||||
| International | 157 | 139 | 419 | 331 | |||||||||||||||||||
| Unallocated corporate costs | (231) | (212) | (675) | (652) | |||||||||||||||||||
| Income from operations | $ | 902 | $ | 896 | $ | 2,528 | $ | 2,249 |
8. Revenue Recognition
We recognize revenue when obligations under the terms of a contract with the customer are satisfied. Branded product sales, which include LRB, K-Cup pods and appliances, occur once control is transferred. Revenue is measured as the amount of consideration that we expect to receive in exchange for transferring goods. The amount of consideration we receive, and revenue we recognize, varies with changes in customer incentives that we offer our customers and end consumers. Sales taxes and other similar taxes are excluded from revenue. Costs associated with shipping and handling activities, such as merchandising, are included in SG&A expenses as revenue is recognized.
KEURIG DR PEPPER INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, CONTINUED)
The following table disaggregates our revenue by product portfolio and by reportable segment:
| (in millions) | U.S. Refreshment Beverages | U.S. Coffee | International | Total | |||||||||||||||||||
| For the third quarter of 2024: | |||||||||||||||||||||||
| LRB | $ | 2,351 | $ | 12 | $ | 348 | $ | 2,711 | |||||||||||||||
| K-Cup pods | — | 733 | 126 | 859 | |||||||||||||||||||
| Appliances | — | 203 | 19 | 222 | |||||||||||||||||||
| Other | 39 | 28 | 32 | 99 | |||||||||||||||||||
| Net sales | $ | 2,390 | $ | 976 | $ | 525 | $ | 3,891 | |||||||||||||||
| For the third quarter of 2023: | |||||||||||||||||||||||
| LRB | $ | 2,232 | $ | — | $ | 348 | $ | 2,580 | |||||||||||||||
| K-Cup pods | — | 769 | 120 | 889 | |||||||||||||||||||
| Appliances | — | 211 | 20 | 231 | |||||||||||||||||||
| Other | 38 | 32 | 35 | 105 | |||||||||||||||||||
| Net sales | $ | 2,270 | $ | 1,012 | $ | 523 | $ | 3,805 | |||||||||||||||
| For the first nine months of 2024: | |||||||||||||||||||||||
| LRB | $ | 6,785 | $ | 26 | $ | 1,041 | $ | 7,852 | |||||||||||||||
| K-Cup pods | — | 2,225 | 359 | 2,584 | |||||||||||||||||||
| Appliances | — | 496 | 49 | 545 | |||||||||||||||||||
| Other | 105 | 90 | 105 | 300 | |||||||||||||||||||
| Net sales | $ | 6,890 | $ | 2,837 | $ | 1,554 | $ | 11,281 | |||||||||||||||
| For the first nine months of 2023: | |||||||||||||||||||||||
| LRB | $ | 6,498 | $ | — | $ | 932 | $ | 7,430 | |||||||||||||||
| K-Cup pods | — | 2,301 | 345 | 2,646 | |||||||||||||||||||
| Appliances | — | 512 | 46 | 558 | |||||||||||||||||||
| Other | 109 | 100 | 104 | 313 | |||||||||||||||||||
| Net sales | $ | 6,607 | $ | 2,913 | $ | 1,427 | $ | 10,947 |
LRB represents net sales of owned, licensed, and partner brands within our portfolio and includes branded concentrates, syrup, and finished beverages, including contract manufacturing of our branded products for our bottlers and distributors. K-Cup pods represents net sales from owned, licensed, and partner brands and private label owners. Net sales for partner brands and private label owners are contractual and long-term in nature.
KEURIG DR PEPPER INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, CONTINUED)
9. Earnings Per Share
The following table presents basic and diluted EPS and shares outstanding:
| Third Quarter | First Nine Months | ||||||||||||||||||||||
| (in millions, except per share data) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| Net income | $ | 616 | $ | 518 | $ | 1,585 | $ | 1,488 | |||||||||||||||
| Weighted average common shares outstanding | 1,356.2 | 1,397.4 | 1,364.2 | 1,401.3 | |||||||||||||||||||
| Dilutive effect of stock-based awards | 5.7 | 8.8 | 6.2 | 9.5 | |||||||||||||||||||
| Weighted average common shares outstanding and common stock equivalents | 1,361.9 | 1,406.2 | 1,370.4 | 1,410.8 | |||||||||||||||||||
| Basic EPS | $ | 0.45 | $ | 0.37 | $ | 1.16 | $ | 1.06 | |||||||||||||||
| Diluted EPS | 0.45 | 0.37 | 1.16 | 1.05 | |||||||||||||||||||
| Anti-dilutive shares excluded from the diluted weighted average shares outstanding calculation | 0.8 | 1.0 | 0.8 | 1.0 |
10. Stock-Based Compensation
The components of stock-based compensation expense are presented below:
| Third Quarter | First Nine Months | ||||||||||||||||||||||
| (in millions) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| Total stock-based compensation expense | $ | 24 | $ | 29 | $ | 76 | $ | 86 | |||||||||||||||
| Income tax benefit | (4) | (5) | (12) | (14) | |||||||||||||||||||
| Stock-based compensation expense, net of tax | $ | 20 | $ | 24 | $ | 64 | $ | 72 |
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, 2023 | 15,748,820 | $ | 29.42 | 1.7 | $ | 525 | |||||||||||||||||
| Granted | 4,248,100 | 26.63 | |||||||||||||||||||||
| Vested and released | (5,829,906) | 26.67 | 178 | ||||||||||||||||||||
| Forfeited | (1,251,163) | 29.23 | |||||||||||||||||||||
| Outstanding as of September 30, 2024 | 12,915,851 | $ | 29.77 | 2.2 | $ | 484 |
As of September 30, 2024, there was $187 million of unrecognized compensation cost related to unvested RSUs that is expected to be recognized over a weighted average period of 3.3 years.
KEURIG DR PEPPER INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, CONTINUED)
11. Investments
The following table summarizes our investments in unconsolidated affiliates:
| September 30, | December 31, | ||||||||||
| (in millions) | 2024 | 2023 | |||||||||
| Nutrabolt(1) | $ | 1,054 | $ | 960 | |||||||
| Chobani | 309 | 307 | |||||||||
| Tractor(2) | 58 | 44 | |||||||||
| Athletic Brewing | 47 | 50 | |||||||||
| Beverage startup companies | 5 | 5 | |||||||||
| Other | 19 | 21 | |||||||||
| Investments in unconsolidated affiliates | $ | 1,492 | $ | 1,387 |
(1)We hold a 35.0% interest on an as-converted basis in Nutrabolt, consisting of 31.4% in Class A preferred shares acquired through our December 2022 investment, which are treated as in-substance common stock, and 3.6% in Class B common shares earned through the achievement of certain milestones included in our distribution agreement with Nutrabolt.
(2)In May 2024, we modified our sales agent contract with Tractor. In exchange, we received additional equity interests, raising our total interest to 23.0% as of September 30, 2024.
12. Income Taxes
Our effective tax rates were as follows:
| Third Quarter | First Nine Months | |||||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||||||
| Effective tax rate | 23.2 | % | 22.0 | % | 23.4 | % | 19.9 | % |
For the first nine months of 2024, the change in our effective tax rate was driven by the unfavorable comparison to the prior year tax benefit received from a non-cash adjustment and a shift in the mix of income from lower tax jurisdictions to higher tax jurisdictions.
KEURIG DR PEPPER INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, CONTINUED)
13. Accumulated Other Comprehensive Income
The following table provides a summary of changes in AOCI, net of taxes:
| (in millions) | Foreign Currency Translation Adjustments | Pension and Post-Retirement Benefit Liabilities | Cash Flow Hedges | Accumulated Other Comprehensive Income | |||||||||||||||||||
| For the third quarter of 2024: | |||||||||||||||||||||||
| Beginning balance | $ | (55) | $ | (14) | $ | 146 | $ | 77 | |||||||||||||||
| Other comprehensive (loss) income | (69) | (1) | 10 | (60) | |||||||||||||||||||
| Amounts reclassified from AOCI | — | 1 | (4) | (3) | |||||||||||||||||||
| Total other comprehensive (loss) income | (69) | — | 6 | (63) | |||||||||||||||||||
| Balance as of September 30, 2024 | $ | (124) | $ | (14) | $ | 152 | $ | 14 | |||||||||||||||
| For the third quarter of 2023: | |||||||||||||||||||||||
| Beginning balance | $ | 181 | $ | (10) | $ | 126 | $ | 297 | |||||||||||||||
| Other comprehensive (loss) income | (135) | — | 7 | (128) | |||||||||||||||||||
| Amounts reclassified from AOCI | — | — | 2 | 2 | |||||||||||||||||||
| Total other comprehensive (loss) income | (135) | — | 9 | (126) | |||||||||||||||||||
| Balance as of September 30, 2023 | $ | 46 | $ | (10) | $ | 135 | $ | 171 | |||||||||||||||
| For the first nine months of 2024: | |||||||||||||||||||||||
| Beginning balance | $ | 202 | $ | (14) | $ | 127 | $ | 315 | |||||||||||||||
| Other comprehensive (loss) income | (326) | (1) | 32 | (295) | |||||||||||||||||||
| Amounts reclassified from AOCI | — | 1 | (7) | (6) | |||||||||||||||||||
| Total other comprehensive (loss) income | (326) | — | 25 | (301) | |||||||||||||||||||
| Balance as of September 30, 2024 | $ | (124) | $ | (14) | $ | 152 | $ | 14 | |||||||||||||||
| For the first nine months of 2023: | |||||||||||||||||||||||
| Beginning balance | $ | (86) | $ | (10) | $ | 225 | $ | 129 | |||||||||||||||
| Other comprehensive income (loss) | 132 | — | (34) | 98 | |||||||||||||||||||
| Amounts reclassified from AOCI | — | — | (56) | (56) | |||||||||||||||||||
| Total other comprehensive income (loss) | 132 | — | (90) | 42 | |||||||||||||||||||
| Balance as of September 30, 2023 | $ | 46 | $ | (10) | $ | 135 | $ | 171 |
The following table presents the amount of (gains) losses reclassified from AOCI into the unaudited Condensed Consolidated Statements of Income:
| Income Statement Caption | Third Quarter | First Nine Months | |||||||||||||||||||||||||||
| (in millions) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||||||||
| Pension and PRMB liabilities | SG&A expenses | $ | 1 | $ | — | $ | 1 | $ | — | ||||||||||||||||||||
| Income tax benefit | — | — | — | — | |||||||||||||||||||||||||
| Total, net of tax | 1 | — | 1 | — | |||||||||||||||||||||||||
| Cash Flow Hedges: | |||||||||||||||||||||||||||||
| Interest rate contracts(1) | Interest expense | $ | (3) | $ | (2) | $ | (9) | $ | (72) | ||||||||||||||||||||
| FX contracts | Cost of sales | (1) | 4 | 1 | (1) | ||||||||||||||||||||||||
| Total | (4) | 2 | (8) | (73) | |||||||||||||||||||||||||
| Income tax expense | — | — | 1 | 17 | |||||||||||||||||||||||||
| Total, net of tax | $ | (4) | $ | 2 | $ | (7) | $ | (56) |
(1)Amounts reclassified from AOCI into interest expense during the first nine months of 2023 include the realized gains associated with the termination of forward starting swaps designated as cash flow hedges of approximately $66 million.
KEURIG DR PEPPER INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, CONTINUED)
14. Other Financial Information
SELECTED BALANCE SHEET INFORMATION
The tables below provide selected financial information from the unaudited Condensed Consolidated Balance Sheets:
| September 30, | December 31, | ||||||||||
| (in millions) | 2024 | 2023 | |||||||||
| Inventories: | |||||||||||
| Raw materials | $ | 536 | $ | 409 | |||||||
| Work-in-progress | 10 | 12 | |||||||||
| Finished goods | 826 | 742 | |||||||||
| Total | 1,372 | 1,163 | |||||||||
| Allowance for excess and obsolete inventories | (21) | (21) | |||||||||
| Total Inventories | $ | 1,351 | $ | 1,142 | |||||||
| Prepaid expenses and other current assets: | |||||||||||
| Other receivables | $ | 152 | $ | 135 | |||||||
| Prepaid income taxes | 240 | 196 | |||||||||
| Customer incentive programs | 49 | 24 | |||||||||
| Derivative instruments | 33 | 15 | |||||||||
| Prepaid marketing | 24 | 20 | |||||||||
| Spare parts | 124 | 111 | |||||||||
| Income tax receivable | 16 | 16 | |||||||||
| Other | 105 | 81 | |||||||||
| Total prepaid expenses and other current assets | $ | 743 | $ | 598 | |||||||
| Other non-current assets: | |||||||||||
| Operating lease right-of-use assets | $ | 841 | $ | 876 | |||||||
| Customer incentive programs | 47 | 45 | |||||||||
| Derivative instruments | 7 | 3 | |||||||||
| Equity securities | 76 | 69 | |||||||||
| Other | 168 | 156 | |||||||||
| Total other non-current assets | $ | 1,139 | $ | 1,149 |
Equity Securities
Fair values of equity securities are determined using quoted market prices from daily exchange traded markets, based on the closing price as of the balance sheet date, and are classified as Level 1. Unrealized mark-to-market gains and losses are recorded to Other income, net. The following table presents the amount of unrealized mark-to-market (gains) losses, net, on our equity securities recognized in the unaudited Condensed Consolidated Statements of Income related to these securities during the periods presented.
| Third Quarter | First Nine Months | ||||||||||||||||||||||
| (in millions) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| Unrealized mark-to-market (gains) losses | |||||||||||||||||||||||
| Vita Coco | $ | (1) | $ | 1 | $ | (4) | $ | (16) | |||||||||||||||
| Rabbi trust | (2) | 1 | (4) | (3) |
KEURIG DR PEPPER INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, CONTINUED)
| September 30, | December 31, | ||||||||||
| (in millions) | 2024 | 2023 | |||||||||
| Accrued expenses: | |||||||||||
| Accrued customer trade | $ | 374 | $ | 477 | |||||||
| Accrued compensation | 198 | 208 | |||||||||
| Insurance reserve | 66 | 50 | |||||||||
| Accrued interest | 152 | 72 | |||||||||
| Other accrued expenses | 498 | 435 | |||||||||
| Total accrued expenses | $ | 1,288 | $ | 1,242 | |||||||
| Other current liabilities: | |||||||||||
| Dividends payable | $ | 311 | $ | 299 | |||||||
| Income taxes payable | 65 | 29 | |||||||||
| Operating lease liability | 121 | 114 | |||||||||
| Finance lease liability | 112 | 106 | |||||||||
| Derivative instruments | 112 | 150 | |||||||||
| Other | 15 | 16 | |||||||||
| Total other current liabilities | $ | 736 | $ | 714 | |||||||
| Other non-current liabilities: | |||||||||||
| Operating lease liability | $ | 758 | $ | 793 | |||||||
| Finance lease liability | 655 | 620 | |||||||||
| Pension and post-retirement liability | 31 | 35 | |||||||||
| Insurance reserves | 90 | 85 | |||||||||
| Derivative instruments | 252 | 201 | |||||||||
| Deferred compensation liability | 33 | 32 | |||||||||
| Other | 82 | 67 | |||||||||
| Total other non-current liabilities | $ | 1,901 | $ | 1,833 |
Accounts Payable
We have agreements with third party administrators which allow participating suppliers to track our payment obligations, and, if voluntarily elected by the supplier, to sell our payment obligations 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, including amounts due and scheduled payment terms, are not impacted. We have no economic interest in a supplier’s decision to enter into these agreements and no direct financial relationship with the financial institutions. Outstanding obligations confirmed as valid included in accounts payable as of September 30, 2024 and December 31, 2023 were $1,786 million and $2,389 million, respectively.
KEURIG DR PEPPER INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, CONTINUED)
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. We had litigation reserves of $2 million and $12 million, respectively, as of September 30, 2024 and December 31, 2023. We have 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. We do not believe that the outcome of these, or any other, pending legal matters, individually or collectively, will have a material adverse effect on our results of operations, financial condition, or liquidity.
ANTITRUST LITIGATION
In February 2014, TreeHouse Foods, Inc. and certain affiliated entities filed suit against KDP’s wholly-owned subsidiary, Keurig (formerly known as Green Mountain Coffee Roasters, Inc.), 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 the months that followed, a number of additional actions, including claims from another coffee manufacturer (JBR, Inc.), as well as putative class actions on behalf of direct and indirect purchasers of Keurig’s products, were filed in various federal district courts, asserting claims and seeking relief substantially similar to the claims asserted and relief sought in the TreeHouse complaint. Additional similar actions were filed by individual direct purchasers (including McLane Company, Inc., BJ’s Wholesale Club, Inc., Winn-Dixie Stores Inc. and Bi-Lo Holding LLC) in 2019 and in 2021. All of these actions were transferred to the SDNY for coordinated pre-trial proceedings (In re: Keurig Green Mountain Single-Serve Coffee Antitrust Litigation) (the “Multidistrict Antitrust Litigation”).
In July 2020, Keurig reached an agreement with one of the plaintiff groups in the Multidistrict Antitrust Litigation, the putative indirect purchaser class, to settle the claims asserted for $31 million. The settlement class consisted 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 settlement was approved and paid, and the indirect purchasers’ claims have been dismissed.
Discovery in all remaining matters pending in the Multidistrict Antitrust Litigation is concluded, with the 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 summary judgment motions 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. Certain of Keurig’s motions and opposition have been pending in the SDNY since 2021, with others pending since 2023.
Keurig intends to continue vigorously defending the remaining lawsuits. At this time, we are 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 us or our results of operations. Accordingly, we have not accrued for a loss contingency. Additionally, as the timelines in these cases may be beyond our control, we can provide no assurance as to whether or when there will be material developments in these matters.
16. Restructuring
RESTRUCTURING PROGRAMS
2023 CEO Succession and Associated Realignment
In 2023, we began to enact several organization movements to ensure succession plans, to reinforce enterprise capabilities to support growth, and to control costs. A key component of the program was the appointment of Tim Cofer as Chief Operating Officer, effective November 6, 2023, with Mr. Cofer succeeding Robert Gamgort as our CEO during the second quarter of 2024. We are also realigning our executive and operating leadership structure to enable faster decision making and to better support various strategic initiatives. The program is expected to incur charges of approximately $55 million, primarily driven by severance costs, which are expected to be incurred through 2024, and the sign-on bonus for Mr. Cofer.
KEURIG DR PEPPER INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, CONTINUED)
2024 Network Optimization
In March 2024, we announced a restructuring program designed to more effectively and efficiently meet the needs of consumers and customers. The program initially included the closure of our manufacturing facility in Williston, Vermont, with operations and employees relocating to other existing manufacturing locations. The relocation began during the second quarter of 2024 and was completed in the third quarter of 2024. In July 2024, we also announced the closure of our Windsor, Virginia manufacturing facility, which is expected to begin in the first quarter of 2025. Our restructuring program also encompasses other costs intended to optimize our manufacturing and distribution footprint throughout our operations.
The restructuring program is expected to incur pre-tax restructuring charges in an estimated range of $125 million to $145 million, primarily comprised of asset related costs, through the second quarter of 2025.
RESTRUCTURING CHARGES
Restructuring and integration expenses for the defined programs during the periods presented were as follows:
| Third Quarter | First Nine Months | ||||||||||||||||||||||
| (in millions) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| 2023 CEO Succession and Associated Realignment | $ | 3 | $ | 25 | $ | 16 | $ | 25 | |||||||||||||||
| 2024 Network Optimization | 24 | — | 45 | — | |||||||||||||||||||
RESTRUCTURING LIABILITIES
Restructuring liabilities that qualify as exit and disposal costs under U.S. GAAP are included in accounts payable and accrued expenses on the unaudited condensed consolidated financial statements. Restructuring liabilities, primarily consisting of workforce reduction costs, were as follows:
| (in millions) | Restructuring Liabilities | ||||||||||||||||||||||
| Balance as of January 1, 2024 | $ | 27 | |||||||||||||||||||||
| Charges to expense | 11 | ||||||||||||||||||||||
| Cash payments | (11) | ||||||||||||||||||||||
| Balance as of September 30, 2024 | $ | 27 |
17. Transactions with Related Parties
REPURCHASE OF KDP COMMON STOCK
In March 2024, JAB BevCo B.V., a subsidiary of JAB, sold 100 million shares of KDP’s common stock through an underwritten secondary offering. In connection with this offering, we repurchased 35 million shares at the per-share price paid by the underwriter, for a total of $1,012 million, which was effected under our existing share repurchase program.
18. Subsequent Event
On October 23, 2024, we entered into a definitive agreement with GHOST, and certain other parties named therein, to acquire a controlling interest in GHOST. Under the terms of the agreement, we will initially purchase a 60% stake in GHOST for aggregate consideration of $990 million and, upon the closing of that transaction, we will enter into a subsequent agreement with GHOST, which will require the remaining equityholders of GHOST to sell their resulting 40% stake in GHOST to us in 2028. The transaction is subject to customary closing conditions.
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