kdp-20240630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2024

☐ 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 July 23, 2024, there were 1,356,086,377 shares of the registrant's common stock, par value $0.01 per share, outstanding.

KEURIG DR PEPPER INC.

FORM 10-Q

TABLE OF CONTENTS


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

		15	Restructuring	25
		16	Transactions with Related Parties	25

	Item 2	Management's Discussion and Analysis of Financial Condition and Results of Operations		26
	Item 3	Quantitative and Qualitative Disclosures About Market Risk		40
	Item 4	Controls and Procedures		40

Part II	Other Information
	Item 1	Legal Proceedings		41
	Item 1A	Risk Factors		41
	Item 2	Unregistered Sales of Equity Securities and Use of Proceeds		41
	Item 5	Other Information		41
	Item 6	Exhibits		42

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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

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


Revolving Credit Agreement						KDP’s $4 billion revolving credit agreement, which was executed in February 2022
RSU						Restricted share unit
RTD						Ready to drink

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.


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

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Table of Contents

PART I - FINANCIAL INFORMATION

ITEM 1. Financial Statements (Unaudited)

KEURIG DR PEPPER INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)


	Second Quarter				First Six Months
(in millions, except per share data)	2024		2023		2024		2023
Net sales	$	3,922	$	3,789	$	7,390	$	7,142
Cost of sales	1,750		1,748		3,278		3,357
Gross profit	2,172		2,041		4,112		3,785
Selling, general and administrative expenses	1,295		1,272		2,471		2,437


Other operating expense (income), net	16		—		15		(5)
Income from operations	861		769		1,626		1,353
Interest expense, net	204		172		382		195



Other income, net	(15)		(16)		(22)		(36)
Income before provision for income taxes	672		613		1,266		1,194
Provision for income taxes	157		110		297		224
Net income	$	515	$	503	$	969	$	970

Earnings per common share:
Basic	$	0.38	$	0.36	$	0.71	$	0.69
Diluted	0.38		0.36		0.70		0.69
Weighted average common shares outstanding:
Basic	1,355.6		1,400.3		1,368.2		1,403.2
Diluted	1,361.2		1,409.1		1,374.4		1,413.1

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

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KEURIG DR PEPPER INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)


	Second Quarter				First Six Months
(in millions)	2024		2023		2024		2023
Net income	$	515	$	503	$	969	$	970
Other comprehensive (loss) income:
Foreign currency translation adjustments	(201)		159		(257)		267

Net change in cash flow hedges, net of tax of $1, $3, $1 and $24, respectively	21		(17)		19		(99)
Total other comprehensive (loss) income	(180)		142		(238)		168
Comprehensive income	$	335	$	645	$	731	$	1,138

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

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KEURIG DR PEPPER INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)


	June 30,		December 31,
(in millions, except share and per share data)	2024		2023
Assets
Current assets:
Cash and cash equivalents	$	438	$	267
Trade accounts receivable, net	1,390		1,368
Inventories	1,252		1,142
Prepaid expenses and other current assets	739		598
Total current assets	3,819		3,375
Property, plant, and equipment, net	2,680		2,699
Investments in unconsolidated affiliates	1,468		1,387
Goodwill	20,081		20,202
Other intangible assets, net	23,108		23,287
Other non-current assets	1,144		1,149
Deferred tax assets	44		31
Total assets	$	52,344	$	52,130
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	3,099	$	3,597
Accrued expenses	1,302		1,242
Structured payables	91		117
Short-term borrowings and current portion of long-term obligations	2,399		3,246
Other current liabilities	618		714
Total current liabilities	7,509		8,916
Long-term obligations	12,406		9,945
Deferred tax liabilities	5,746		5,760
Other non-current liabilities	1,965		1,833
Total liabilities	27,626		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, 1,355,763,506 and 1,390,446,043 shares issued and outstanding as of June 30, 2024 and December 31, 2023, respectively	14		14
Additional paid-in capital	19,683		20,788
Retained earnings	4,944		4,559
Accumulated other comprehensive income	77		315
Total stockholders' equity	24,718		25,676


Total liabilities and stockholders’ equity	$	52,344	$	52,130

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

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KEURIG DR PEPPER INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)


	First Six Months
(in millions)	2024		2023
Operating activities:
Net income	$	969	$	970
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation expense	207		201
Amortization of intangibles	67		69
Other amortization expense	101		91
Provision for sales returns	29		26
Deferred income taxes	17		(26)
Employee stock-based compensation expense	52		57



Loss (gain) on disposal of property, plant and equipment	18		(2)
Unrealized loss (gain) on foreign currency	16		(13)
Unrealized loss (gain) on derivatives	36		(31)

Equity in earnings of unconsolidated affiliates	(17)		(14)
Earned equity from distribution arrangements	(45)		(2)


Other, net	5		(7)
Changes in assets and liabilities:
Trade accounts receivable	(67)		162
Inventories	(119)		(61)
Income taxes receivable and payables, net	(34)		(70)
Other current and non-current assets	(180)		(147)
Accounts payable and accrued expenses	(314)		(762)
Other current and non-current liabilities	1		11
Net change in operating assets and liabilities	(713)		(867)
Net cash provided by operating activities	742		452
Investing activities:



Purchases of property, plant and equipment	(273)		(149)
Proceeds from sales of property, plant and equipment	1		8
Purchases of intangibles	(49)		(55)

Investments in unconsolidated affiliates	(7)		(8)

Other, net	(1)		1
Net cash used in investing activities	$	(329)	$	(203)

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

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KEURIG DR PEPPER INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED, CONTINUED)


	First Six 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	(226)		589






Proceeds from structured payables	31		61
Repayments of structured payables	(60)		(72)
Cash dividends paid	(591)		(563)
Repurchases of common stock	(1,105)		(457)

Tax withholdings related to net share settlements	(43)		(32)
Payments on finance leases	(56)		(49)
Other, net	(22)		—
Net cash used in financing activities	(222)		(523)
Cash and cash equivalents:
Net change from operating, investing and financing activities	191		(274)
Effect of exchange rate changes	(20)		17
Beginning balance	267		535
Ending balance	$	438	$	278

Supplemental cash flow disclosures of non-cash investing activities:
Capital expenditures included in accounts payable and accrued expenses	$	173	$	214
Earned equity from distribution arrangements	45		2
Equity received in exchange for modification of related party contract	19		—
Transaction costs included in accounts payable and accrued expenses	—		6


Supplemental cash flow disclosures of non-cash financing activities:
Dividends declared but not yet paid	292		279
Accrued excise tax on net share repurchases	14		4
Supplemental cash flow disclosures:
Cash paid for interest	211		231
Cash paid for income taxes	205		319

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

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KEURIG DR PEPPER INC.

CONDENSED CONSOLIDATED STATEMENTS OF 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

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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

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

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

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KEURIG DR PEPPER INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. General

ORGANIZATION

References in this Quarterly Report on Form 10-Q to "KDP", "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 "second quarter" indicate the quarterly periods ended June 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.

RECLASSIFICATIONS

We reclassified amounts in the Financing Activities section of the unaudited condensed consolidated Statement of Cash Flows for the first six months 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.

(in millions)

Prior Presentation

First Six Months of 2023

Net (repayment) issuance of commercial paper

Proceeds from issuance of commercial paper

18,187

Net (repayment) issuance of commercial paper

Repayments of commercial paper

(17,598)

2. Long-term Obligations and Borrowing Arrangements

The following table summarizes our long-term obligations:


(in millions)	June 30, 2024		December 31, 2023
Notes	$	12,935	$	11,095
Less: current portion of long-term obligations	(529)		(1,150)
Long-term obligations	$	12,406	$	9,945

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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:


(in millions)	June 30, 2024		December 31, 2023
Commercial paper notes	$	1,870	$	2,096
Current portion of long-term obligations	529		1,150
Short-term borrowings and current portion of long-term obligations	$	2,399	$	3,246

SENIOR UNSECURED NOTES

Our Notes consisted of the following:


(in millions, except %)	Maturity Date	Rate	June 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)			(158)		(148)
Carrying amount			$	12,935	$	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.

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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		June 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 June 30, 2024.

As of June 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:


	Second Quarter						First Six Months
(in millions, except %)	2024			2023			2024			2023
Weighted average commercial paper borrowings	$	2,305		$	1,174		$	2,381		$	840
Weighted average borrowing rates	5.59		%	5.25		%	5.61		%	5.14		%

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, $56 million of which was utilized as of June 30, 2024 and $94 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 $12,027 million and $10,486 million as of June 30, 2024 and December 31, 2023, respectively.

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KEURIG DR PEPPER INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, CONTINUED)

3. 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
Foreign currency translation	—		—		(121)		(121)

Balance as of June 30, 2024	$	8,714	$	8,622	$	2,745	$	20,081

INTANGIBLE ASSETS OTHER THAN GOODWILL

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


(in millions)	June 30, 2024		December 31, 2023
Brands(1)	$	19,321	$	19,476
Trade names	2,478		2,478

Distribution rights(2)	200		155
Total	$	21,999	$	22,109

(1)The change in brands with indefinite lives was driven by foreign currency translation of $155 million during the first six 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.

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


	June 30, 2024						December 31, 2023
(in millions)	Gross Amount		Accumulated Amortization		Net Amount		Gross Amount		Accumulated Amortization		Net Amount
Acquired technology	$	1,146	$	(585)	$	561	$	1,146	$	(548)	$	598
Customer relationships	637		(253)		384		638		(236)		402
Contractual arrangements	145		(16)		129		146		(13)		133
Trade names	126		(119)		7		126		(114)		12
Brands	51		(29)		22		51		(25)		26
Distribution rights	29		(23)		6		29		(22)		7

Total	$	2,134	$	(1,025)	$	1,109	$	2,136	$	(958)	$	1,178

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


	Second Quarter				First Six Months
(in millions)	2024		2023		2024		2023
Amortization expense	$	34	$	35	$	67	$	69

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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.

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 June 30, 2024, economic interest rate derivative instruments have maturities ranging from September 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.

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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 June 30, 2024, these FX contracts have maturities ranging from July 2024 to March 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 June 30, 2024, these FX contracts have maturities ranging from July 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 June 30, 2024, these commodity contracts have maturities ranging from July 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)	June 30, 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	850		3,200
FX contracts
Forward contracts, not designated as hedging instruments	513		710
Forward contracts, designated as cash flow hedges	561		425
Commodity contracts, not designated as hedging instruments(1)	494		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.

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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	June 30, 2024		December 31, 2023
Assets:

FX contracts	Prepaid expenses and other current assets	$	7	$	5
Commodity contracts	Prepaid expenses and other current assets	22		9


Commodity contracts	Other non-current assets	3		3

Liabilities:
Interest rate contracts	Other current liabilities	11		80
FX contracts	Other current liabilities	1		3
Commodity contracts	Other current liabilities	50		53
Interest rate contracts	Other non-current liabilities	322		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	June 30, 2024		December 31, 2023
Assets:
FX contracts	Prepaid expenses and other current assets	$	10	$	1
FX contracts	Other non-current assets	2		—



Liabilities:
FX contracts	Other current liabilities	2		14

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	Second Quarter				First Six Months
(in millions)		2024		2023		2024		2023
Interest rate contracts	Interest expense, net	$	26	$	41	$	52	$	(55)

FX contracts	Cost of sales	(1)		(1)		(2)		—
FX contracts	Other income, net	(2)		5		(8)		5
Commodity contracts	Cost of sales	7		24		22		9
Commodity contracts	SG&A expenses	3		4		(9)		18

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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	Second Quarter				First Six Months
(in millions)		2024		2023		2024		2023
Interest rate contracts	Interest expense, net	$	(4)	$	(2)	$	(6)	$	(70)
FX contracts	Cost of sales	2		(4)		2		(5)

We expect to reclassify approximately $13 million and $7 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.

5. Leases

The following table presents the components of lease cost:


	Second Quarter				First Six Months
(in millions)	2024		2023		2024		2023
Operating lease cost	$	43	$	39	$	85	$	78
Finance lease cost
Amortization of right-of-use assets	30		17		60		39
Interest on lease liabilities	7		6		14		12
Variable lease cost(1)	10		10		20		20
Short-term lease cost	—		—		1		—

Total lease cost	$	90	$	72	$	180	$	149

(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 Six Months
(in millions)	2024		2023
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	80	$	73
Operating cash flows from finance leases	14		12
Financing cash flows from finance leases	56		49
Right-of-use assets obtained in exchange for lease obligations:
Operating leases	44		42
Finance leases	53		36

The following table presents information about our weighted average discount rate and remaining lease term:


	June 30, 2024		December 31, 2023
Weighted average discount rate
Operating leases	5.3	%	5.3	%
Finance leases	4.2	%	3.9	%
Weighted average remaining lease term
Operating leases	9 years		10 years
Finance leases	9 years		9 years

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Future minimum lease payments for non-cancellable leases that have commenced and are reflected on the unaudited Condensed Consolidated Balance Sheets as of June 30, 2024 were as follows:


(in millions)	Operating Leases		Finance Leases
Remainder of 2024	$	67	$	67
2025	158		133
2026	146		170
2027	123		80
2028	94		69
2029	88		61
Thereafter	456		288
Total future minimum lease payments	1,132		868
Less: imputed interest	(242)		(147)
Present value of minimum lease payments	$	890	$	721

SIGNIFICANT LEASES THAT HAVE NOT YET COMMENCED

As of June 30, 2024, we have entered into leases that have not yet commenced with estimated aggregated future lease payments of approximately $238 million. These leases are expected to commence between the third quarter of 2024 through 2027, with initial lease terms ranging from 1 year 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.

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Information about our operations by reportable segment is as follows:


	Second Quarter				First Six Months
(in millions)	2024		2023		2024		2023
Segment Results – Net sales
U.S. Refreshment Beverages	$	2,407	$	2,330	$	4,500	$	4,337
U.S. Coffee	950		970		1,861		1,901
International	565		489		1,029		904
Net sales	$	3,922	$	3,789	$	7,390	$	7,142

Segment Results – Income from operations
U.S. Refreshment Beverages	$	717	$	629	$	1,332	$	1,119
U.S. Coffee	228		250		476		482
International	150		112		262		192
Unallocated corporate costs	(234)		(222)		(444)		(440)
Income from operations	$	861	$	769	$	1,626	$	1,353

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. 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.

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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 second quarter of 2024:
LRB	$	2,372	$	10	$	394	$	2,776
K-Cup pods	—		745		118		863
Appliances