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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, 2024
OR
☐ 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 23, 2024, there were 1,355,574,275 shares of the registrant's common stock, par value $0.01 per share, outstanding.
KEURIG DR PEPPER INC.
FORM 10-Q
TABLE OF CONTENTS
KEURIG DR PEPPER INC.
FORM 10-Q
MASTER GLOSSARY
| | | | | | | | |
| Term | | Definition |
| Annual Report | | Annual Report on Form 10-K for the year ended December 31, 2023 |
| AOCI | | Accumulated other comprehensive income or loss |
| | |
| Athletic Brewing | | Athletic Brewing Holding Company, LLC, an equity method investment of KDP |
| | |
| Board | | The Board of Directors of KDP |
| | |
| bps | | Basis points |
| | |
| CEO | | Chief Executive Officer |
| Chobani | | FHU US Holdings LLC, an equity method investment of KDP |
| Circana | | Circana, Inc., a market information provider |
| 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 as of July 9, 2018 |
| DSD | | Direct Store Delivery, KDP’s route-to-market 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 |
| | |
| | |
| FX | | Foreign exchange |
| | |
| | |
| JAB | | JAB Holding Company S.a.r.l. and affiliates |
| KDP | | Keurig Dr Pepper Inc. |
| | |
| Keurig | | Keurig Green Mountain, Inc., a wholly-owned subsidiary of KDP, and the brand of our brewers |
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| LRB | | Liquid refreshment beverages |
| Notes | | Collectively, the Company's senior unsecured notes |
| Nutrabolt | | Woodbolt Holdings LLC, d/b/a Nutrabolt, an equity method investment of KDP |
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| Revolving Credit Agreement | | KDP’s $4 billion revolving credit agreement, which was executed in February 2022 |
| RSU | | Restricted share unit |
| RTD | | Ready to drink |
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| Tractor | | Tractor Beverages, Inc., an equity method investment of KDP |
| 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. |
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| Vita Coco | | The Vita Coco Company, Inc. |
| WD | | Warehouse Direct, KDP’s route-to-market whereby finished beverages are shipped to retailer warehouses, and then delivered by the retailer through its own delivery system to its stores |
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements (Unaudited)
KEURIG DR PEPPER INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
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| | | | First Quarter |
| (in millions, except per share data) | | | | | 2024 | | 2023 |
| Net sales | | | | | $ | 3,468 | | | $ | 3,353 | |
| Cost of sales | | | | | 1,528 | | | 1,609 | |
| Gross profit | | | | | 1,940 | | | 1,744 | |
| Selling, general and administrative expenses | | | | | 1,176 | | | 1,165 | |
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| Other operating income, net | | | | | (1) | | | (5) | |
| Income from operations | | | | | 765 | | | 584 | |
| Interest expense, net | | | | | 178 | | | 23 | |
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| Other income, net | | | | | (7) | | | (20) | |
| Income before provision for income taxes | | | | | 594 | | | 581 | |
| Provision for income taxes | | | | | 140 | | | 114 | |
| Net income | | | | | $ | 454 | | | $ | 467 | |
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| Earnings per common share: | | | | | | | |
| Basic | | | | | $ | 0.33 | | | $ | 0.33 | |
| Diluted | | | | | 0.33 | | | 0.33 | |
| Weighted average common shares outstanding: | | | | | | | |
| Basic | | | | | 1,380.7 | | | 1,406.2 | |
| Diluted | | | | | 1,387.7 | | | 1,417.0 | |
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)
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| | | | First Quarter |
| (in millions) | | | | | 2024 | | 2023 |
| Net income | | | | | $ | 454 | | | $ | 467 | |
| Other comprehensive (loss) income: | | | | | | | |
| Foreign currency translation adjustments | | | | | (56) | | | 108 | |
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Net change in cash flow hedges, net of tax of $0 and $21, respectively | | | | | (2) | | | (82) | |
| Total other comprehensive (loss) income | | | | | (58) | | | 26 | |
| Comprehensive income | | | | | $ | 396 | | | $ | 493 | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
KEURIG DR PEPPER INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED) | | | | | | | | | | | | | | |
| | | March 31, | | December 31, |
| (in millions, except share and per share data) | | 2024 | | 2023 |
| Assets |
| Current assets: | | | | |
| Cash and cash equivalents | | $ | 317 | | | $ | 267 | |
| Trade accounts receivable, net | | 1,311 | | | 1,368 | |
| Inventories | | 1,204 | | | 1,142 | |
| Prepaid expenses and other current assets | | 735 | | | 598 | |
| Total current assets | | 3,567 | | | 3,375 | |
| Property, plant and equipment, net | | 2,695 | | | 2,699 | |
| Investments in unconsolidated affiliates | | 1,438 | | | 1,387 | |
| Goodwill | | 20,163 | | | 20,202 | |
| Other intangible assets, net | | 23,251 | | | 23,287 | |
| Other non-current assets | | 1,128 | | | 1,149 | |
| Deferred tax assets | | 44 | | | 31 | |
| Total assets | | $ | 52,286 | | | $ | 52,130 | |
| Liabilities and Stockholders' Equity |
| Current liabilities: | | | | |
| Accounts payable | | $ | 3,187 | | | $ | 3,597 | |
| Accrued expenses | | 1,169 | | | 1,242 | |
| Structured payables | | 111 | | | 117 | |
| Short-term borrowings and current portion of long-term obligations | | 1,908 | | | 3,246 | |
| Other current liabilities | | 629 | | | 714 | |
| Total current liabilities | | 7,004 | | | 8,916 | |
| Long-term obligations | | 12,929 | | | 9,945 | |
| Deferred tax liabilities | | 5,784 | | | 5,760 | |
| Other non-current liabilities | | 1,916 | | | 1,833 | |
| Total liabilities | | 27,633 | | | 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, 1,355,571,438 and 1,390,446,043 shares issued and outstanding as of March 31, 2024 and December 31, 2023, respectively | | 14 | | | 14 | |
| Additional paid-in capital | | 19,661 | | | 20,788 | |
| Retained earnings | | 4,721 | | | 4,559 | |
| Accumulated other comprehensive income | | 257 | | | 315 | |
| Total stockholders' equity | | 24,653 | | | 25,676 | |
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| Total liabilities and stockholders’ equity | | $ | 52,286 | | | $ | 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 Quarter |
| (in millions) | 2024 | | 2023 |
| Operating activities: | | | |
| Net income | $ | 454 | | | $ | 467 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | |
| Depreciation expense | 101 | | | 107 | |
| Amortization of intangibles | 33 | | | 34 | |
| Other amortization expense | 36 | | | 45 | |
| Provision for sales returns | 14 | | | 10 | |
| Deferred income taxes | 21 | | | — | |
| Employee stock-based compensation expense | 28 | | | 29 | |
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| Loss (gain) on disposal of property, plant and equipment | 1 | | | (5) | |
| Unrealized loss (gain) on foreign currency | 8 | | | (2) | |
| Unrealized loss (gain) on derivatives | 10 | | | (95) | |
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| Equity in earnings of unconsolidated affiliates | (7) | | | (9) | |
| Earned equity | (45) | | | (2) | |
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| Other, net | 3 | | | (2) | |
| Changes in assets and liabilities: | | | |
| Trade accounts receivable | 42 | | | 28 | |
| Inventories | (65) | | | (74) | |
| Income taxes receivable and payables, net | (10) | | | 60 | |
| Other current and non-current assets | (136) | | | (151) | |
| Accounts payable and accrued expenses | (398) | | | (391) | |
| Other current and non-current liabilities | (5) | | | 22 | |
| Net change in operating assets and liabilities | (572) | | | (506) | |
| Net cash provided by operating activities | 85 | | | 71 | |
| Investing activities: | | | |
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| Purchases of property, plant and equipment | (158) | | | (62) | |
| Proceeds from sales of property, plant and equipment | — | | | 7 | |
| Purchases of intangibles | (31) | | | (51) | |
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| Investments in unconsolidated affiliates | (6) | | | — | |
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| Other, net | 2 | | | 1 | |
| Net cash used in investing activities | $ | (193) | | | $ | (105) | |
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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 Quarter |
| (in millions) | 2024 | | 2023 |
| Financing activities: | | | |
Proceeds from issuance of Notes | $ | 3,000 | | | $ | — | |
Repayments of Notes | (1,150) | | | — | |
| Net (repayment) issuance of commercial paper | (188) | | | 265 | |
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| Proceeds from structured payables | 23 | | | 34 | |
| Repayments of structured payables | (30) | | | (32) | |
| Cash dividends paid | (299) | | | (281) | |
| Repurchases of common stock | (1,105) | | | (231) | |
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| Tax withholdings related to net share settlements | (41) | | | (31) | |
| Payments on finance leases | (31) | | | (24) | |
| Other, net | (21) | | | (3) | |
| Net cash provided by (used in) financing activities | 158 | | | (303) | |
| Cash and cash equivalents: | | | |
| Net change from operating, investing and financing activities | 50 | | | (337) | |
| Effect of exchange rate changes | — | | | 6 | |
| Beginning balance | 267 | | | 535 | |
| Ending balance | $ | 317 | | | $ | 204 | |
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| Supplemental cash flow disclosures of non-cash investing activities: | | | |
| Capital expenditures included in accounts payable and accrued expenses | $ | 189 | | | $ | 222 | |
| Earned equity | 45 | | | 2 | |
| Transaction costs included in accounts payable and accrued expenses | 1 | | | 8 | |
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| Supplemental cash flow disclosures of non-cash financing activities: | | | |
| Dividends declared but not yet paid | 292 | | | 282 | |
| Accrued excise tax on net share repurchases | 14 | | | 1 | |
| Supplemental cash flow disclosures: | | | |
| Cash paid for interest | 24 | | | 39 | |
| Cash paid for income taxes | 26 | | | 49 | |
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)
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| | Common Stock Issued | | Additional
Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Income | | 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 income | — | | | — | | | — | | | — | | | (58) | | | (58) | |
Dividends declared, $0.215 per share | — | | | — | | | — | | | (292) | | | — | | | (292) | |
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| 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 | |
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| | 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 | |
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| Net income | — | | | — | | | — | | | 467 | | | — | | | 467 | | | — | | | 467 | |
| Other comprehensive income | — | | | — | | | — | | | — | | | 26 | | | 26 | | | | | 26 | |
Dividends declared, $0.20 per share | — | | | — | | | — | | | (282) | | | — | | | (282) | | | — | | | (282) | |
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| 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 | |
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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 "first quarter" indicate the quarterly periods ended March 31, 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.
RECLASSIFICATIONS
We reclassified amounts in the Financing Activities section of the unaudited condensed consolidated Statement of Cash Flows for the first quarter of 2023 in order to conform to current year presentation, as maturities for the Company’s commercial paper program in both periods are 90 days or less.
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| (in millions) | | Prior Presentation | | First Quarter of 2023 |
| Net (repayment) issuance of commercial paper | | Proceeds from issuance of commercial paper | | $ | 3,523 | |
| Net (repayment) issuance of commercial paper | | Repayments of commercial paper | | (3,258) | |
2. Long-term Obligations and Borrowing Arrangements
The following table summarizes our long-term obligations:
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| (in millions) | March 31, 2024 | | December 31, 2023 |
Notes | $ | 12,929 | | | $ | 11,095 | |
| Less: current portion of long-term obligations | — | | | (1,150) | |
| Long-term obligations | $ | 12,929 | | | $ | 9,945 | |
KEURIG DR PEPPER INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, CONTINUED)
The following table summarizes our short-term borrowings and current portion of long-term obligations:
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| (in millions) | March 31, 2024 | | December 31, 2023 |
| Commercial paper notes | $ | 1,908 | | | $ | 2,096 | |
| Current portion of long-term obligations | — | | | 1,150 | |
| Short-term borrowings and current portion of long-term obligations | $ | 1,908 | | | $ | 3,246 | |
SENIOR UNSECURED NOTES
Our Notes consisted of the following:
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| (in millions, except %) | | Maturity Date | | Rate | | March 31, 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) | | (164) | | | (148) | |
| Carrying amount | | | | | | $ | 12,929 | | | $ | 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:
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| (in millions) | | Maturity Date | | Capacity | | March 31, 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 March 31, 2024.
As of March 31, 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:
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| | | First Quarter |
| (in millions, except %) | | | | | 2024 | | 2023 |
| Weighted average commercial paper borrowings | | | | | $ | 2,430 | | | $ | 506 | |
| Weighted average borrowing rates | | | | | 5.62 | % | | 4.86 | % |
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, $57 million of which was utilized as of March 31, 2024 and $93 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 $12,085 million and $10,486 million as of March 31, 2024 and December 31, 2023, respectively.
3. Goodwill and Other Intangible Assets
GOODWILL
Changes in the carrying amount of goodwill by reportable segment are as follows:
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| (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 | |
| Foreign currency translation | — | | | — | | | (39) | | | | | (39) | |
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| Balance as of March 31, 2024 | $ | 8,714 | | | $ | 8,622 | | | $ | 2,827 | | | | | $ | 20,163 | |
KEURIG DR PEPPER INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, CONTINUED)
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, 2024 | | December 31, 2023 |
Brands(1) | $ | 19,443 | | | $ | 19,476 | |
| Trade names | 2,478 | | | 2,478 | |
| | | |
Distribution rights(2) | 186 | | | 155 | |
| Total | $ | 22,107 | | | $ | 22,109 | |
(1)The change in brands with indefinite lives was primarily driven by foreign currency translation of $33 million during the first quarter of 2024.
(2)The change in distribution rights with indefinite lives was primarily driven by acquired distribution rights related to Electrolit of $31 million.
The net carrying amounts of intangible assets other than goodwill with definite lives are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2024 | | December 31, 2023 |
| (in millions) | Gross Amount | | Accumulated Amortization | | Net Amount | | Gross Amount | | Accumulated Amortization | | Net Amount |
| Acquired technology | $ | 1,146 | | | $ | (567) | | | $ | 579 | | | $ | 1,146 | | | $ | (548) | | | $ | 598 | |
| Customer relationships | 638 | | | (245) | | | 393 | | | 638 | | | (236) | | | 402 | |
| Contractual arrangements | 146 | | | (15) | | | 131 | | | 146 | | | (13) | | | 133 | |
| Trade names | 126 | | | (116) | | | 10 | | | 126 | | | (114) | | | 12 | |
| Brands | 51 | | | (27) | | | 24 | | | 51 | | | (25) | | | 26 | |
| Distribution rights | 29 | | | (22) | | | 7 | | | 29 | | | (22) | | | 7 | |
| | | | | | | | | | | |
| Total | $ | 2,136 | | | $ | (992) | | | $ | 1,144 | | | $ | 2,136 | | | $ | (958) | | | $ | 1,178 | |
Amortization expense for intangible assets with definite lives was as follows:
| | | | | | | | | | | | | | | |
| | | | First Quarter |
| (in millions) | | | | | 2024 | | 2023 |
| Amortization expense | | | | | $ | 33 | | | $ | 34 | |
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.
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.
KEURIG DR PEPPER INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, CONTINUED)
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 March 31, 2024, economic interest rate derivative instruments have maturities ranging from April 2024 to July 2043.
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 March 31, 2024, these FX contracts have maturities ranging from April 2024 to February 2025.
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 March 31, 2024, these FX contracts have maturities ranging from April 2024 to June 2025.
KEURIG DR PEPPER INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, CONTINUED)
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 March 31, 2024, these commodity contracts have maturities ranging from April 2024 to January 2026.
NOTIONAL AMOUNTS OF DERIVATIVE INSTRUMENTS
The following table presents the notional amounts of our outstanding derivative instruments by type:
| | | | | | | | | | | |
| (in millions) | March 31, 2024 | | December 31, 2023 |
| Interest rate contracts | | | |
| Forward starting swaps, not designated as hedging instruments | $ | 1,700 | | | $ | 1,700 | |
| | | |
| | | |
| | | |
| Swaptions, not designated as hedging instruments | 1,350 | | | 3,200 | |
| FX contracts | | | |
| Forward contracts, not designated as hedging instruments | 575 | | | 710 | |
| Forward contracts, designated as cash flow hedges | 449 | | | 425 | |
Commodity contracts, not designated as hedging instruments(1) | 467 | | | 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.
KEURIG DR PEPPER INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, CONTINUED)
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 | | March 31, 2024 | | December 31, 2023 |
| Assets: | | | | | |
| | | | | |
| FX contracts | Prepaid expenses and other current assets | | $ | 4 | | | $ | 5 | |
| Commodity contracts | Prepaid expenses and other current assets | | 16 | | | 9 | |
| | | | | |
| FX contracts | Other non-current assets | | 2 | | | — | |
| Commodity contracts | Other non-current assets | | — | | | 3 | |
| | | | | |
| Liabilities: | | | | | |
| Interest rate contracts | Other current liabilities | | 2 | | | 80 | |
| FX contracts | Other current liabilities | | 1 | | | 3 | |
| Commodity contracts | Other current liabilities | | 47 | | | 53 | |
| Interest rate contracts | Other non-current liabilities | | 298 | | | 186 | |
| FX contracts | Other non-current liabilities | | — | | | 4 | |
| Commodity contracts | Other non-current liabilities | | 2 | | | 11 | |
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 | | March 31, 2024 | | December 31, 2023 |
| Assets: | | | | | |
| FX contracts | Prepaid expenses and other current assets | | $ | 2 | | | $ | 1 | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Liabilities: | | | | | |
| FX contracts | Other current liabilities | | 13 | | | 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.
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | First Quarter |
| (in millions) | Income Statement Location | | | | | | 2024 | | 2023 |
| Interest rate contracts | Interest expense, net | | | | | | $ | 26 | | | $ | (96) | |
| | | | | | | | | |
| FX contracts | Cost of sales | | | | | | (1) | | | 1 | |
| FX contracts | Other income, net | | | | | | (6) | | | — | |
| Commodity contracts | Cost of sales | | | | | | 15 | | | (15) | |
| Commodity contracts | SG&A expenses | | | | | | (12) | | | 14 | |
| | | | | | | | | |
KEURIG DR PEPPER INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, CONTINUED)
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:
| | | | | | | | | | | | | | | | | | | | | |
| | | | | First Quarter |
| (in millions) | Income Statement Location | | | | | | 2024 | | 2023 |
| Interest rate contracts | Interest expense, net | | | | | | $ | (2) | | | $ | (68) | |
| FX contracts | Cost of sales | | | | | | — | | | (1) | |
We expect to reclassify approximately $13 million of pre-tax net gains and $10 million of pre-tax net losses from AOCI into net income during the next twelve months related to interest rate contracts and FX contracts, respectively.
5. Leases
The following table presents the components of lease cost:
| | | | | | | | | | | | | | | |
| | | | First Quarter |
| (in millions) | | | | | 2024 | | 2023 |
| Operating lease cost | | | | | $ | 42 | | | $ | 39 | |
| Finance lease cost | | | | | | | |
| Amortization of right-of-use assets | | | | | 30 | | | 22 | |
| Interest on lease liabilities | | | | | 7 | | | 6 | |
Variable lease cost(1) | | | | | 10 | | | 10 | |
| Short-term lease cost | | | | | 1 | | | — | |
| | | | | | | |
| Total lease cost | | | | | $ | 90 | | | $ | 77 | |
(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 Quarter |
| (in millions) | 2024 | | 2023 |
| Cash paid for amounts included in the measurement of lease liabilities: | | | |
| Operating cash flows from operating leases | $ | 39 | | | $ | 36 | |
| Operating cash flows from finance leases | 7 | | | 6 | |
| Financing cash flows from finance leases | 31 | | | 24 | |
| Right-of-use assets obtained in exchange for lease obligations: | | | |
| Operating leases | 15 | | | 38 | |
| Finance leases | 26 | | | 17 | |
The following table presents information about our weighted average discount rate and remaining lease term:
| | | | | | | | | | | |
| March 31, 2024 | | December 31, 2023 |
| Weighted average discount rate | | | |
| Operating leases | 5.3 | % | | 5.3 | % |
| Finance leases | 3.9 | % | | 3.9 | % |
| Weighted average remaining lease term | | | |
| Operating leases | 10 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 March 31, 2024 were as follows:
| | | | | | | | | | | |
| (in millions) | Operating Leases | | Finance Leases |
| Remainder of 2024 | $ | 107 | | | $ | 98 | |
| 2025 | 152 | | | 128 | |
| 2026 | 139 | | | 165 | |
| 2027 | 115 | | | 76 | |
| 2028 | 90 | | | 65 | |
| 2029 | 85 | | | 58 | |
| Thereafter | 454 | | | 274 | |
| Total future minimum lease payments | 1,142 | | | 864 | |
| Less: imputed interest | (250) | | | (143) | |
| Present value of minimum lease payments | $ | 892 | | | $ | 721 | |
SIGNIFICANT LEASES THAT HAVE NOT YET COMMENCED
As of March 31, 2024, we have entered into leases that have not yet commenced with estimated aggregated future lease payments of approximately $197 million. These leases are expected to commence between the third quarter of 2024 through 2027, with initial lease terms ranging from 5 years to 10 years.
6. 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:
| | | | | | | | | | | | | | | |
| | | | First Quarter |
| (in millions) | | | | | 2024 | | 2023 |
| Segment Results – Net sales | | | | | | | |
| U.S. Refreshment Beverages | | | | | $ | 2,093 | | | $ | 2,007 | |
| U.S. Coffee | | | | | 911 | | | 931 | |
| International | | | | | 464 | | | 415 | |
| Net sales | | | | | $ | 3,468 | | | $ | 3,353 | |
| | | | | | | |
| Segment Results – Income from operations | | | | | | | |
| U.S. Refreshment Beverages | | | | | $ | 615 | | | $ | 490 | |
| U.S. Coffee | | | | | 248 | | | 232 | |
| International | | | | | 112 | | | 80 | |
| Unallocated corporate costs | | | | | (210) | | | (218) | |
| Income from operations | | | | | $ | 765 | | | $ | 584 | |
7. 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 upon delivery to the customer. 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.
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 first quarter of 2024: | | | | | | | |
LRB | $ | 2,062 | | | $ | 4 | | | $ | 299 | | | $ | 2,365 | |
| K-Cup pods | — | | | 747 | | | 115 | | | 862 | |
| Appliances | — | | | 128 | | | 13 | | | 141 | |
| Other | 31 | | | 32 | | | 37 | | | 100 | |
| Net sales | $ | 2,093 | | | $ | 911 | | | $ | 464 | | | $ | 3,468 | |
| | | | | | | |
| For the first quarter of 2023: | | | | | | | |
LRB | $ | 1,970 | | | $ | — | | | $ | 253 | | | $ | 2,223 | |
| K-Cup pods | — | | | 771 | | | 117 | | | 888 | |
| Appliances | — | | | 125 | | | 12 | | | 137 | |
| Other | 37 | | | 35 | | | 33 | | | 105 | |
| Net sales | $ | 2,007 | | | $ | 931 | | | $ | 415 | | | $ | 3,353 | |
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)
8. Earnings Per Share
The following table presents basic and diluted EPS and shares outstanding.
| | | | | | | | | | | | | | | |
| | | | First Quarter |
| (in millions, except per share data) | | | | | 2024 | | 2023 |
| Net income | | | | | $ | 454 | | | $ | 467 | |
| | | | | | | |
| Weighted average common shares outstanding | | | | | 1,380.7 | | | 1,406.2 | |
| Dilutive effect of stock-based awards | | | | | 7.0 | | | 10.8 | |
| Weighted average common shares outstanding and common stock equivalents | | | | | 1,387.7 | | | 1,417.0 | |
| | | | | | | |
| Basic EPS | | | | | $ | 0.33 | | | $ | 0.33 | |
| Diluted EPS | | | | | 0.33 | | | 0.33 | |
| | | | | | | |
| Anti-dilutive shares excluded from the diluted weighted average shares outstanding calculation | | | | | 2.1 | | | 1.0 | |
9. Stock-Based Compensation
The components of stock-based compensation expense are presented below:
| | | | | | | | | | | | | | | |
| | | First Quarter |
| (in millions) | | | | | 2024 | | 2023 |
| Total stock-based compensation expense | | | | | $ | 28 | | | $ | 29 | |
| Income tax benefit | | | | | (4) | | | (5) | |
| Stock-based compensation expense, net of tax | | | | | $ | 24 | | | $ | 24 | |
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 | 3,903,657 | | | 26.22 | | | | | |
| Vested and released | (4,475,912) | | | 26.37 | | | | | 131 | |
| Forfeited | (134,802) | | | 31.50 | | | | | |
| Outstanding as of March 31, 2024 | 15,041,763 | | | $ | 29.48 | | | 2.4 | | $ | 461 | |
As of March 31, 2024, there was $233 million of unrecognized compensation cost related to unvested RSUs that is expected to be recognized over a weighted average period of 3.5 years.
KEURIG DR PEPPER INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, CONTINUED)
10. Investments
The following table summarizes our investments in unconsolidated affiliates:
| | | | | | | | | | | |
| March 31, | | December 31, |
| (in millions) | 2024 | | 2023 |
Nutrabolt(1) | $ | 1,014 | | | $ | 960 | |
| Chobani | 307 | | | 307 | |
| Tractor | 42 | | | 44 | |
| Athletic Brewing | 50 | | | 50 | |
| | | |
| | | |
| Beverage startup companies | 5 | | | 5 | |
| Other | 20 | | | 21 | |
| Investments in unconsolidated affiliates | $ | 1,438 | | | $ | 1,387 | |
(1)We hold a 33.6% interest on an as-converted basis in Nutrabolt, consisting of 30.8% in Class A preferred shares acquired through our December 2022 investment, which are treated as in-substance common stock, and 2.8% in Class B common shares earned through the achievement of certain milestones included in our distribution agreement with Nutrabolt.
11. Income Taxes
Our effective tax rates were as follows:
| | | | | | | | | | | | | | | | | | |
| | | | First Quarter |
| | | | | | 2024 | | 2023 |
| Effective tax rate | | | | | | 23.6 | % | | 19.6 | % |
The change in the effective tax rate was largely driven by a shift in the mix of income from lower tax jurisdictions to higher tax jurisdictions and the unfavorable comparison to the prior year tax benefit received from favorable adjustments upon foreign tax return filing.
12. 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 first quarter of 2024: | | | | | | | |
| Beginning balance | $ | 202 | | | $ | (14) | | | $ | 127 | | | $ | 315 | |
| Other comprehensive loss | (56) | | | — | | | — | | | (56) | |
| Amounts reclassified from AOCI | — | | | — | | | (2) | | | (2) | |
| Total other comprehensive loss | (56) | | | — | | | (2) | | | (58) | |
| Balance as of March 31, 2024 | $ | 146 | | | $ | (14) | | | $ | 125 | | | $ | 257 | |
| | | | | | | |
| For the first quarter of 2023: | | | | | | | |
| Beginning balance | $ | (86) | | | $ | (10) | | | $ | 225 | | | $ | 129 | |
| Other comprehensive income (loss) | 108 | | | — | | | (30) | | | 78 | |
| Amounts reclassified from AOCI | — | | | — | | | (52) | | | (52) | |
| Total other comprehensive income (loss) | 108 | | | — | | | (82) | | | 26 | |
| Balance as of March 31, 2023 | $ | 22 | | | $ | (10) | | | $ | 143 | | | $ | 155 | |
KEURIG DR PEPPER INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, CONTINUED)
The following table presents the amount of (gains) losses reclassified from AOCI into the unaudited Condensed Consolidated Statements of Income:
| | | | | | | | | | | | | | | | | | | | | |
| | | | | First Quarter |
| (in millions) | Income Statement Caption | | | | | | 2024 | | 2023 |
| Cash Flow Hedges: | | | | | | | | | |
Interest rate contracts(1) | Interest expense | | | | | | $ | (2) | | | $ | (68) | |
| | | | | | | | | |
| | | | | | | | | |
| Income tax expense | | | | | | | — | | | 16 | |
| Total, net of tax | | | | | | | $ | (2) | | | $ | (52) | |
(1)Amounts reclassified from AOCI into interest expense during the first quarter of 2023 include the realized gains associated with the termination of forward starting swaps designated as cash flow hedges of approximately $66 million.
13. 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) | 2024 | | 2023 |
| Inventories: | | | |
| Raw materials | $ | 414 | | | $ | 409 | |
| Work-in-progress | 11 | | | 12 | |
| Finished goods | 806 | | | 742 | |
| Total | 1,231 | | | 1,163 | |
| Allowance for excess and obsolete inventories | (27) | | | (21) | |
| Total Inventories | $ | 1,204 | | | $ | 1,142 | |
| Prepaid expenses and other current assets: | | | |
| Other receivables | $ | 123 | | | $ | 135 | |
| Prepaid income taxes | 212 | | | 196 | |
| Customer incentive programs | 109 | | | 24 | |
| Derivative instruments | 22 | | | 15 | |
| Prepaid marketing | 30 | | | 20 | |
| Spare parts | 115 | | | 111 | |
| | | |
| Income tax receivable | 15 | | | 16 | |
| Other | 109 | | | 81 | |
| Total prepaid expenses and other current assets | $ | |
