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What changed in Keurig Dr Pepper's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Keurig Dr Pepper's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+454 added−490 removedSource: 10-K (2024-02-22) vs 10-K (2023-02-23)

Top changes in Keurig Dr Pepper's 2023 10-K

454 paragraphs added · 490 removed · 288 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

77 edited+18 added−39 removed22 unchanged
Biggest changeHealth and Well-Being We are committed to providing a balanced portfolio of beverage options and the resources consumers need to make informed choices for positive hydration, including an expansion of our product offerings that deliver nutritional and functional benefits, as well as reducing sugar and calories.
Biggest changeWe continue to focus on supporting regenerative agriculture and conservation in our supply chains, as well as advancing inclusion and improving livelihoods for the people in KDP’s upstream supply chain. 8 Table of Contents Health and Well-Being We are committed to providing a balanced portfolio of beverage options and the resources consumers need to make informed choices.
Our Keurig single serve brewers are aimed at changing the way consumers prepare and enjoy coffee and other beverages both at home and away from home in places such as offices, restaurants, cafeterias, convenience stores and hotels.
Our Keurig single serve brewers are aimed at changing the way consumers prepare and enjoy coffee and other beverages both at home and away from home in places such as offices, hotels, restaurants, cafeterias, and convenience stores.
Our Intellectual Property Trademarks and Patents We possess a variety of intellectual property rights that are important to our business. We rely on a combination of trademarks, copyrights, patents and trade secrets to safeguard our proprietary rights, including our brands, our technologies, and ingredient and production formulas for our products.
Intellectual Property Trademarks and Patents We possess a variety of intellectual property rights that are important to our business. We rely on a combination of trademarks, copyrights, patents, and trade secrets to safeguard our proprietary rights, including our brands, our technologies, and ingredient and production formulas for our products.
End-use Consumers We have a robust e-commerce platform at www.keurig.com where end-use consumers can purchase brewers, accessories, K-Cup pods and other coffee products such as bagged traditional coffee and cold brew. OUR COMPETITORS The beverage industry is highly competitive and continues to evolve in response to changing consumer preferences.
End-use Consumers We have a robust e-commerce platform at www.keurig.com where end-use consumers can purchase brewers, accessories, K-Cup pods, and other coffee products, such as bagged traditional coffee and cold brew. COMPETITORS The beverage industry is highly competitive and continues to evolve in response to changing consumer preferences.
Away from Home Channel Participants We distribute brewers, accessories and K-Cup pods (owned, licensed, and partner brands) to away from home channel participants, which include restaurants, hotel chains, and office coffee distributors.
Away from Home Channel Participants We distribute brewers, accessories, and K-Cup pods (owned, licensed, and partner brands) to away from home channel participants, which include office coffee distributors and hotel chains.
Partners We have differentiated ourselves and the Keurig brand through our ability to create and sustain partnerships with other leading coffee, tea and beverage brand companies through multi-year licensing and manufacturing agreements that best suit each brand's interests and strengths. Typically, we manufacture pods on behalf of our partners, who in turn sell them to retailers.
Partners We have differentiated ourselves and the Keurig brand through our ability to create and sustain partnerships with other leading coffee, tea, and beverage brand companies through multi-year licensing and manufacturing agreements that best suit each brand's interests and strengths. Typically, we manufacture K-Cup pods on behalf of our partners, who in turn sell them to retailers.
Flexible and scalable route-to-market network, with unique e-commerce expertise. We have strategically-located distribution capabilities, which enables us to better align our operations with our customers and our channels, ensure our products are available to meet consumer demand, reduce transportation costs and have greater control over the timing and coordination of new product launches.
Flexible and scalable route-to-market network, with unique e-commerce expertise. We have strategically-located distribution capabilities, which enable us to better align our operations with our customers and our sales channels, to ensure our products are available to meet consumer demand, to reduce transportation costs, and to have greater control over the timing and coordination of new product launches.
We regularly launch new brewers with new features and benefits, technological advances, sustainable attributes, and changes in aesthetics to provide a variety of options to suit individual consumer preferences. We also continuously innovate and renovate our portfolio of K-cup pods, CSDs and NCBs to provide an expansive array of flavors.
We regularly launch new brewers with new features and benefits, technological advances, sustainable attributes, and changes in aesthetics to provide a variety of options to suit individual consumer preferences. We also continuously innovate and renovate our portfolio of K-Cup pods and beverages to provide an expansive array of flavors.
We have public goals and programs to both increase operational efficiency and to replenish water through conservation and restoration projects with conservation organizations in communities where we operate that have high water risk. We report non-financial data annually on our water stewardship efforts to CDP Water.
We have public goals and programs to both increase operational efficiency and to replenish water through conservation and restoration projects with conservation organizations in communities where we operate that have high water risk based on our periodic assessments. We report non-financial data annually on our water stewardship efforts to CDP Water.
We use IRi data as our primary management tool to track market performance because it has broad and deep data coverage, is based on consumer transactions at retailers, and is reported to us monthly. IRi data provides measurement and analysis of marketplace trends such as market share, retail pricing, promotional activity and distribution across various channels, retailers and geographies.
We use Circana data as our primary management tool to track market performance because it has broad and deep data coverage, is based on consumer transactions at retailers, and is reported to us weekly. Circana data provides measurement and analysis of marketplace trends such as market share, retail pricing, promotional activity, and distribution across various channels, retailers, and geographies.
For CSDs and NCBs, we license various trademarks from third parties, which generally allow us to manufacture and distribute certain products or brands throughout the U.S. and/or Canada and Mexico. For example, we license trademarks for Sunkist soda, Stewart's, Rose's and Margaritaville from third parties.
We license various trademarks from third parties, which generally allow us to manufacture and distribute certain products or brands throughout the U.S. and/or Canada and Mexico. For example, we license trademarks for Sunkist soda, Rose's, and Margaritaville from third parties.
For CSDs and NCBs in emerging and fast growing categories where we may not currently have a brand presence, we license various trademarks from third party partners, which generally allow us to manufacture and distribute certain products or brands throughout the U.S., Canada or Mexico. These partners view us as a distributor with strong route-to-market resources to grow their brands.
For beverages in emerging and fast growing categories where we may not currently have a brand presence, we license various trademarks from third party partners, which generally allow us to sell and distribute certain products or brands throughout the U.S., Canada, or Mexico. These partners view us as a distributor with strong route-to-market resources to grow their brands.
We generally believe that these agreements can be renegotiated on terms satisfactory to us as they expire and that we have good relationships with our employees and their representative organizations. Our compensation programs are designed to ensure that we attract and retain the right talent.
We generally believe that these agreements can be renegotiated on terms satisfactory to us as they expire and that we have good relationships with our employees and any representative organizations for our unionized employees. Our compensation programs are designed to ensure that we attract and retain the right talent.
Although we believe that this independent source is reliable, we have not verified the accuracy or completeness of this data or any assumptions underlying such data. IRi is a marketing information provider, primarily serving consumer packaged goods manufacturers and retailers.
Although we believe that this independent source is reliable, we have not verified the accuracy or completeness of this data or any assumptions underlying such data. Circana is a market information provider, primarily serving consumer packaged goods manufacturers and retailers.
We purchase green coffee through outside brokers. We also develop and pursue direct relationships with farms, estates, cooperatives, and cooperative groups in order to support our broader traceability and sustainable supply chain initiatives. Energy and transportation costs.
Green Coffee We develop and pursue direct relationships with farms, estates, cooperatives, cooperative groups, and exporters in order to purchase green coffee and to support our broader traceability and sustainable supply chain initiatives. We also purchase green coffee through outside brokers.
Beverage concentrates are also manufactured into syrup, which is shipped to fountain customers, such as fast food restaurants, who mix the syrup with water and carbonation to create a finished beverage at the point of sale to consumers. Dr Pepper represents most of our fountain channel volume.
Beverage concentrates are also manufactured into syrup, which is shipped to fountain customers, such as fast food restaurants, who mix the syrup with water and carbonation to create a finished beverage at the point of sale to consumers. Dr Pepper represents most of our fountain channel volume. We manufacture and distribute finished beverages of our own beverage brands.
Measured categories provided to us by IRi include K-Cup pods, CSDs, including energy drinks and carbonated waters, and NCBs, including RTD teas and coffee, single-serve and multi-serve juice and juice drinks, sports drinks, still waters and non-alcoholic mixers. IRi also provides data on other food items such as apple sauce.
Measured categories provided to us by Circana include K-Cup pods, carbonated soft drinks, RTD teas and coffee, single serve and multi-serve juice and juice drinks, sports drinks, energy drinks, still waters, carbonated waters, and non-alcoholic mixers. Circana also provides data on other food items such as apple sauce.
In addition to ingredients and packaging costs, we are significantly impacted by changes in fuel costs, which can also fluctuate substantially, due to the large truck fleet we operate in our distribution operations and the energy costs consumed in the production process. The fuel costs associated with our distribution operations are reflected within our SG&A expenses.
Energy and Transportation Costs In addition to ingredients and packaging costs, we are significantly impacted by changes in fuel costs, which can also fluctuate substantially, due to the large truck fleet we operate in our distribution operations (reflected within SG&A expenses) and the energy costs consumed in the production process (reflected within cost of sales).
MARKET AND INDUSTRY DATA The market and industry data in this Annual Report on Form 10-K is from IRi, an independent industry source, and is based on retail dollar sales and sales volumes in 2022.
MARKET AND INDUSTRY DATA The market and industry data in this Annual Report on Form 10-K is from Circana, an independent industry source, and is based on retail dollar sales and sales volumes in 2023.
The intent of the contracts and agreements is to provide a certain level of predictability in our operating margins and our overall cost structure, while remaining in what we believe to be a competitive cost position. Ingredients and materials, excluding green coffee .
The intent of the contracts and agreements is to provide a certain level of predictability in our operating margins and our overall cost structure, while remaining in what we believe to be a competitive cost position.
Of these, a majority are utility patents and the remainder are design patents. We view these patents as valuable assets but we do not view any single patent as critical to our success. We also have pending patent applications associated with Keurig brewers and K-Cup pod technology. We take steps that we believe are appropriate to protect such innovation.
Of these, a majority are utility patents and the remainder are design patents. We view these patents as valuable assets but we do not view any single patent as critical to our success. We also have pending patent applications associated with Keurig brewers and K-Cup pod technology.
We actively manage transportation of our products using our fleet (owned and leased) of approximately 6,700 vehicles in the U.S. and 1,600 in Mexico, as well as third party logistics providers. With our Keurig.com website, we have a leading e-commerce platform which provides us insights and expertise in the e-commerce channel.
We actively manage transportation of our products using our fleet (owned and leased) of approximately 6,900 vehicles in the U.S. and 2,000 in Mexico, as well as third party logistics providers. With our Keurig.com website, we have a leading direct-to-consumer e-commerce platform which provides us insights and expertise in the e-commerce channel.
We have been able to translate those insights and experience into our cold business as the number of fulfillment options that are better suited economically for beverages has evolved, leading to growth in the e-commerce channel. High-performing team driving better, faster decisions, enabled by technology.
We have been able to translate those insights and experiences to our cold business as the number of fulfillment options that are better suited economically for beverages has evolved, leading to growth in the e-commerce channel. High-performing team driving better, faster decisions, enabled by technology. We believe that our team and the culture we have created are a competitive advantage.
For example, our products and their manufacturing, labeling, marketing and sale in the U.S. are subject to various aspects of the Federal Food, Drug, and Cosmetic Act, the Federal Trade Commission Act, the Robinson-Patman Act, the Clayton Act, the Sherman Act, the Lanham Act, state consumer protection laws and state warning and labeling laws, such as Proposition 65.
For example, our products and their manufacturing, labeling, marketing and sale in the U.S. are subject to various aspects of the Federal Food, Drug, and Cosmetic Act, the Federal Trade Commission Act, the Robinson-Patman Act, the Clayton Act, the Sherman Act, the Lanham Act, state consumer protection laws, and state warning and labeling laws, such as the state of California’s Safe Drinking Water and Toxic Enforcement Act of 1986.
To refine our understanding of challenges for our high water-risk sites, we assess each site in the context of the surrounding watershed, the local water issues and other local entities’ interest and perspective on those issues.
To refine our understanding of challenges for our high water-risk sites, we assess each site in the context of the surrounding watershed, the local water issues and other local entities’ interest and perspective on those issues. We last conducted a water risk assessment of our operations and supply chain in 2021.
Many of our brands enjoy high levels of consumer awareness, preference and loyalty rooted in their rich heritage. This portfolio provides our retailers, bottlers and distributors, and other customers with a wide variety of products to meet consumers' needs and provides us with a platform for growth and profitability.
We own a diverse portfolio of well-known beverage brands. Many of our brands enjoy high levels of consumer awareness, preference, and loyalty rooted in their rich heritage. This portfolio provides our customers with a wide variety of products to meet consumers' needs and provides us with a platform for growth and profitability.
IRi data we present in this report is from IRi service, which compiles data based on scanner transactions in key retail channels, including grocery stores, mass merchandisers (including Walmart), club stores (excluding Costco), drug chains, convenience stores and gas stations.
Circana data we present in this report is compiled from scanner transactions in key retail channels, including grocery stores, mass merchandisers (including Walmart), club stores (excluding Costco), drug chains, convenience stores, and gas stations.
Under many of our supply arrangements for these raw materials, the price we pay fluctuates along with certain changes in underlying commodities costs, such as aluminum in the case of cans and ends, natural gas in the case of glass bottles, resin in the case of pods, PET bottles and caps, corn in the case of sweeteners and pulp in the case of paperboard packaging. 5 Table of Contents Green coffee.
Additionally, under many of our supply arrangements for these raw materials, the price we pay fluctuates along with certain changes in indirect commodity costs, such as aluminum in the case of cans and ends, natural gas in the case of glass bottles, resin in the case of K-Cup pods, PET bottles and caps, corn in the case of sweeteners, and pulp in the case of paperboard packaging.
Our highly efficient business model, both from a cost and a cash perspective, gives us optionality to invest internally and look outside for acquisitions or other options to continue to drive growth and create value. PRODUCTS AND DISTRIBUTION We are a leading integrated brand owner, manufacturer, and distributor of non-alcoholic beverages in the U.S., Canada, Mexico and the Caribbean.
Our highly efficient business model, both from a cost and a cash perspective, gives us optionality to invest internally and pursue investments, partnerships, acquisitions, or other opportunities to continue to drive growth and create value. 1 Table of Contents OUR PRODUCTS AND OPERATING STRUCTURE We are a leading integrated brand owner, manufacturer, and distributor of beverages in the U.S., Canada, Mexico and the Caribbean.
Generally, we are able to sell these brands to our away from home channel participants and end-use consumers. We also have agreements for manufacturing, distributing, and selling K-Cup pods for tea under brands such as Celestial Seasonings, Lipton and Tazo.
Generally, we are able to sell these brands to our away from home channel participants and directly to consumers through our website at www.keurig.com. We also have agreements for manufacturing, distributing, and selling K-Cup pods for tea under brands such as Celestial Seasonings and Bigelow.
KDP was created through the combination of the business operations of Keurig, a leading producer of innovative single serve brewing systems and specialty coffee in the U.S. and Canada, and DPS, a company built over time through a series of strategic acquisitions that brought together iconic beverage brands in North America such as Dr Pepper, Snapple, 7UP, Canada Dry, Mott's, A&W and the Peñafiel business in Mexico.
KDP was created on July 9, 2018, through the combination of the business operations of Keurig, a leading producer of innovative single serve brewing systems and specialty coffee in the U.S. and Canada, and DPS, a company built over time through a series of strategic acquisitions that brought together iconic beverage brands in North America.
Our Corporate Responsibility Report, which is issued annually, is available on our website at www.keurigdrpepper.com. Environment Circular Economy Sustainable packaging is a top priority for us, and we continue to innovate for circular solutions across our portfolio.
Our Corporate Responsibility Report, which is issued annually, is available on our website at www.keurigdrpepper.com. Environment Circular Economy Sustainable packaging is a top priority for us, and we continue to innovate for circular solutions across our portfolio. We aim to reduce the use of unnecessary materials and offer packaging that is compatible with recycling, reuse, and composting systems.
Our total package of benefits is designed to support the physical, mental, and financial health of our employees, and we currently provide access to medical, dental, vision, life insurance and retirement benefits, as well as disability benefits, and assistance with major life activities such as adoption, childbirth, and eldercare, among other benefits.
Our total package of benefits is designed to support the physical, mental, and financial health of our employees, and we currently provide access to medical, dental, vision, life insurance, retirement benefits,and disability benefits, as well as assistance with major life activities such as adoption, childbirth, and eldercare, among other benefits. 6 Table of Contents Our Culture Together with our employees, we created a set of core values that are a unifying force for our team and are the cornerstone of KDP's culture.
We also have a small number of employees in Europe and Asia. Our collective bargaining agreements generally address working conditions, as well as wage rates and benefits, and expire over varying terms over the next several years.
In Canada, we have approximately 1,400 employees, with approximately 500 covered by union collective bargaining agreements. We also have approximately 200 employees in Europe and Asia. Our collective bargaining agreements generally address working conditions, as well as wage rates and benefits, and expire over varying terms over the next several years.
Licensing Arrangements We license various trade names from our partners in order to manufacture K-Cup pods. Although these licenses vary in length and other terms, they generally are long-term, cover the entire U.S. and/or Canada and generally include an upfront payment to the partner in order to use their trade names to manufacture and/or distribute the K-Cup pods.
Although these licenses vary in length and other terms, they generally are long-term, cover the entire U.S. and/or Canada, and may include royalty payments, upfront payments, or some combination of the two, to the partner in order to use their trade names to manufacture and/or distribute the K-Cup pods.
OUR MATERIAL RESOURCES Our Raw Materials The principal raw materials we use in our business, which we commonly refer to as ingredients and materials, represent approximately 55% of our cost of sales and include green coffee, PET bottles and caps, including both virgin and rPET, aluminum cans and ends, sweeteners, paper products, K-Cup pod packaging materials, fruit, glass bottles and enclosures, juices, teas, water, CO 2 , and other ingredients.
Although these companies offer competing brands in categories we participate in, many are also our partners or customers, as they purchase beverage concentrates or K-Cup pods directly from us. 4 Table of Contents MATERIAL RESOURCES Raw Materials The principal raw materials we use in our business, which we commonly refer to as ingredients and materials, represent approximately 55% of our cost of sales and include green coffee, water, aluminum cans and ends, PET bottles and caps, including both virgin and rPET, CO 2 , sweeteners, paper products, K-Cup pod packaging materials, fruit, glass bottles and enclosures, cocoa, teas, juices, and other ingredients.
These brands give us exposure in certain markets to fast growing segments of the beverage industry with minimal capital investment. We sell our Packaged Beverages products through our DSD and our WD systems, both of which include sales to all major retail channels. In 2022, Walmart was the Packaged Beverages segment's largest customer.
These brands can also give us exposure in certain markets to fast growing segments of the beverage industry in a capital-efficient manner. We sell finished beverages through our DSD and our WD systems, both of which include sales to all major retail channels.
We contribute to the circular economy via our public goals to convert our packaging to be recyclable or compostable and to use more post-consumer recycled content across our packaging portfolio, including plastics. Improving packaging solutions for product quality, consumer use, recoverability and reuse requires collaboration of all parties along the value chain.
We also aim to use more post-consumer recycled content across our packaging portfolio. Improving packaging solutions for product quality, consumer use, recoverability, and reuse requires collaboration of all parties along the value chain.
We have dramatically transformed our portfolio over the past decade, offering a low- or no-calorie option for virtually every full-calorie brand in our portfolio, and we have also added smaller portion-size offerings.
Over the past few years, we have expanded our product offerings that deliver nutritional and functional benefits, as well as reducing sugar and calories. We have transformed our portfolio over the past decade, offering a low- or no-calorie option for virtually every full-calorie brand in our portfolio, and we have also added smaller portion-size offerings.
These agreements prohibit bottlers and distributors from selling the licensed products outside their exclusive territory and selling any imitative products in that territory.
These bottlers may be affiliated with Coca-Cola or with PepsiCo, or they may be independent. These agreements prohibit bottlers and distributors from selling the licensed products outside their exclusive territory and from selling any imitative products in that territory.
We also produce and sell K-Cup pods for cocoa, including through a licensing agreement for the Swiss Miss brand, and hot apple cider, including under our own brand, Mott's.
We also produce and sell K-Cup pods for cocoa, including through a licensing agreement for the Swiss Miss brand, and hot apple cider, including under our own brand, Mott's. Our U.S. Coffee segment manufactures K-Cup pods using freshly roasted and ground coffee as well as tea, cocoa, and other products.
OUR STRENGTHS AND STRATEGY Our scalable business model provides a platform for future growth, focused on: Strong, balanced portfolio of leading, consumer-preferred brands with proven ability to expand via innovation, renovation and partnerships. We own a diverse portfolio of well-known CSD, coffee and NCB brands.
Today, we trade on Nasdaq under the symbol KDP, and we are a member of the Nasdaq 100 Index. OUR STRENGTHS AND STRATEGY Our scalable business model provides a platform for future growth, focused on: Strong, balanced portfolio of leading, consumer-preferred brands with proven ability to expand via innovation, renovation and partnerships.
Our portfolio of strong brands, operational scale and experience in the beverage industry has enabled us to maintain strong relationships with major retailers in the U.S., Canada and Mexico. In 2022, our largest retailer was Walmart, representing approximately 16% of our consolidated net sales.
Retailers purchase finished beverages, K-Cup pods, appliances, and accessories directly from us. Our portfolio of strong brands, operational scale and experience in the beverage industry has enabled us to maintain strong relationships with major retailers throughout the U.S., Canada, and Mexico. Our largest retailer, Walmart, represented approximately 17% of our consolidated net sales in 2023.
We drive growth in our business by a combination of innovating and renovating our portfolio of owned brands and partnerships with other leading beverage brands. We have a robust innovation program, which is designed to meet consumers' changing flavor and beverage preferences and to grow the number of households using our single serve brewers.
We drive growth in our business through investments in innovation, renovation, and marketing to support our portfolio of owned brands and partnerships with other leading beverage brands. We have a robust innovation program, which is designed to meet consumers' changing flavor and beverage preferences and to grow our share of beverage occasions.
Sales of brewers and related accessories are generally higher during the second half of the year due to the holiday shopping season. GOVERNMENTAL REGULATIONS ON OUR BUSINESS In the normal course of our business, we are subject to a variety of federal, state and local laws and regulations in the countries in which we do business.
GOVERNMENTAL REGULATIONS ON OUR BUSINESS In the normal course of our business, we are subject to a variety of federal, state, and local laws and regulations in the countries in which we do business.
As part of this process, we established executive-level governance, including participation by our Chairman and CEO, as well as a Diversity and Inclusion leadership team, comprised of committed leaders from across KDP to help set priorities and lead two-way dialogue throughout the organization, and launched our Employee Resource Groups, among other initiatives. 7 Table of Contents Global Employee Snapshot as of December 31, 2022 U.S.
To focus our efforts on diversity and inclusion at KDP, we have established executive-level governance, including participation by our CEO, as well as a Diversity and Inclusion leadership team, comprised of committed leaders from across KDP to help set priorities and lead two-way dialogue throughout the organization, including in our Employee Resource Groups.
Certain cities and municipalities within the U.S. have also passed various taxes on the distribution of sugar-sweetened and diet beverages, which are at different stages of enactment. In Canada, Mexico and the European Union, the manufacturing, distribution, marketing and sale of many of our products are also subject to similar statutes and regulations.
Certain cities and municipalities within the U.S. have also passed various taxes on the distribution of sugar-sweetened and diet beverages, which are at different stages of enactment.
The data presented is based upon The NPD/Consumer Tracking Service for Coffeemakers in the U.S. and represents the twelve month period ended December 31, 2022. 10 Table of Contents
Our market share data for our brewers is also based on information provided by Circana. The data presented is based upon Circana’s Consumer Tracking Service for Coffeemakers in the U.S. and represents the twelve month period ended December 31, 2023. 9 Table of Contents
As of December 31, 2022, our portfolio of partner brands included, but was not limited to, evian water, Polar Beverages seltzer water, Vita Coco coconut water, A Shoc energy drinks, and Peet's RTD Coffee.
As of December 31, 2023, our portfolio of partner brands included, but was not limited to, C4 energy drinks, evian water, Vita Coco coconut water, Polar Beverages seltzer water, Accelerator energy drinks, La Colombe shelf-stable RTD coffee, and Peet's RTD coffee. SEASONALITY The beverage market is subject to some seasonal variations.
Regulations apply to many aspects of our business, including our products and their ingredients, manufacturing, safety, labeling, transportation, recycling, advertising and sale.
Regulations in the U.S., as well as jurisdictions including Canada, Mexico, and the European Union, apply to many aspects of our business, including our products and their ingredients, manufacturing, safety, labeling, transportation, packaging, advertising, and sale.
We manufacture and sell 100% of the K-Cup pods of the following brands to retailers, away from home channel participants and end-use consumers: Green Mountain Coffee Roasters, The Original Donut Shop, McCafé, Van Houtte, and REVV.
We manufacture approximately 80% of the pods in the single serve format in the U.S. on a dollar share basis. 2 Table of Contents We manufacture and sell 100% of the K-Cup pods of certain brands, including Green Mountain Coffee Roasters, The Original Donut Shop, and McCafé, to retailers, away from home channel participants, and end-use consumers.
We manufacture and sell K-Cup pods for the following brands to our partners, who in turn sell them to retailers: Starbucks, Dunkin', Folgers, Tim Hortons, Peet's, Maxwell House, Eight O’Clock, Newman’s Own Organics, Caribou Coffee, Community Coffee, Intelligensia, and BLK & Bold, as well as private label arrangements.
We also manufacture K-Cup pods for our partner brands, who in turn sell them to retailers and consumers. Our partner brands include Starbucks, Dunkin', Folgers, Peet's, Newman’s Own Organics, Caribou Coffee, and Community Coffee, among others. We also participate in private label manufacturing arrangements.
We aim to responsibly source manufactured products by prioritizing and engaging key suppliers to implement and maintain effective social and environmental management systems in their own operations.
We are committed to responsibly sourcing coffee, cocoa, and other priority crops, relying on third-party certification or verification programs to foster social, environmental and economic protections. We aim to responsibly source manufactured products by prioritizing and engaging key suppliers to implement and maintain effective social and environmental management systems in their own operations.
Although these licenses vary in length and other terms, they generally are long-term, cover the entire U.S. and/or Canada and Mexico, and generally require a payment from the partner if the licensing agreement is terminated.
Although these licenses vary in length and other terms, they generally are long-term and require a payment from the partner if the licensing agreement is terminated. In some instances, we make investments in these companies, which may include a path to acquire the company.
Then push beyond the expected. • Think Bold. Challenge the usual. Dare to try something new. • Be Fearless and Fair. Tell the truth with courage. Listen and act with respect.
These core values are: • Team First. Win together. Be the kind of person you want on your team. • Deliver Big. Achieve our commitments. Then push beyond the expected. • Think Bold. Challenge the usual. Dare to try something new. • Be Fearless and Fair. Tell the truth with courage. Listen and act with respect.
Fountain agreements for bottlers generally are not exclusive for a territory, but do restrict bottlers from carrying imitative product in the territory. 4 Table of Contents Certain NCB brands, such as Snapple, Bai, Core, Yoo-Hoo, Mistic and Nantucket Nectars are licensed for distribution in various territories to bottlers and a number of smaller distributors such as beer wholesalers, wine and spirit distributors, independent distributors and retail brokers.
Certain other brands, such as Snapple, Bai, and Core, are licensed for distribution in various territories to bottlers and a number of smaller distributors such as beer wholesalers, wine and spirit distributors, independent distributors, and retail brokers.
We carefully select our coffee beans and appropriately roast the coffees to optimize their taste and flavor differences. We engineer and design most of our single serve brewers and utilize third-party contract manufacturers located in various countries in Asia for brewer appliance manufacturing. We distribute our brewers using third-party distributors, retail partners and through our website at www.keurig.com.
We offer high-quality, responsibly sourced coffee, including certified single-origin, organic, flavored, limited edition, and proprietary blends. We carefully select our coffee beans and roast them to optimize their taste and flavor differences. We engineer and design most of our single serve brewers and utilize third-party contract manufacturers located in various countries in Asia for brewer appliance manufacturing.
In the U.S., we have approximately 22,100 employees, of which approximately 5,300 employees are covered by union collective bargaining agreements. In Mexico, we have approximately 4,500 employees, of which approximately 3,000 are covered by union collective bargaining agreements. In Canada, we have approximately 1,400 employees, with approximately 500 covered by union collective bargaining agreements.
HUMAN CAPITAL RESOURCES Our Employees We have approximately 28,100 employees, primarily located in North America. In the U.S., we have approximately 21,700 employees, of which approximately 5,000 employees are covered by union collective bargaining agreements. In Mexico, we have approximately 4,800 employees, of which approximately 3,600 are covered by union collective bargaining agreements.
Employee Snapshot as of December 31, 2022 SEASONALITY OF OUR BUSINESS The beverage market is subject to some seasonal variations. Our cold beverage sales are generally higher during the warmer months, while hot beverage sales are generally higher during the cooler months. Overall beverage sales can also be influenced by the timing of holidays and weather fluctuations.
Our cold beverage sales are generally higher during the warmer months, while hot beverage sales are generally higher during the cooler months. Overall beverage sales can also be influenced by the timing of holidays and weather fluctuations. Sales of brewers and related accessories are generally higher during the second half of the year due to the holiday shopping season.
Bottlers and Distributors In the U.S. and Canada, we generally grant licenses for CSD brands and packages to bottlers for specific geographic areas that are exclusive and long-term, and they have historically been perpetual in many cases. These bottlers may be affiliated with Coca-Cola, with PepsiCo, or may be independent.
Net sales to Walmart are included in all reportable segments. Bottlers and Distributors In the U.S. and Canada, we generally grant manufacturing and distribution licenses for our carbonated soft drinks to bottlers for specific geographic areas that are exclusive and long-term, and they have historically been perpetual in many cases.
Expansion of Keurig system household adoption enables sales of specialty coffee and a variety of other specialty beverages in K-Cup pods (including hot and iced teas, hot cocoa and other beverages) for use with Keurig brewers. We also offer traditional whole bean and ground coffee in other package types, including bags, fractional packages and cans.
We create value by developing and selling our Keurig single serve brewers and by expanding Keurig brewer household adoption, which enables sales of specialty coffee and a variety of other specialty beverages in K-Cup pods (including hot and iced teas, hot cocoa, and other beverages) for use with Keurig brewers.
KDP measures Lost Time Incident Rate, a reliable indication of Total Recordable Injuries Rate severity, and uses a risk reduction process that thoroughly analyzes injuries and near misses. Diversity and Inclusion In 2020, we began to focus on accelerating our work in the area of diversity and inclusion, and we made significant progress, despite the pandemic.
KDP measures Lost Time Incident Rate, a reliable indication of Total Recordable Injuries Rate severity, and uses a risk reduction process that thoroughly analyzes injuries and near misses. Diversity and Inclusion Innovative ideas come from a diverse workforce, and KDP is committed to both.
KDP has some of the most recognized beverage brands in North America, with significant consumer awareness levels and long histories that evoke strong emotional connections with consumers.
We have some of the most recognized beverage brands in North America, with significant consumer awareness levels and long histories that evoke strong emotional connections with consumers. We offer more than 125 owned, licensed, and partner brands, available nearly everywhere people shop and consume beverages through our sales and distribution network.
We have a portfolio of brands with the ability to satisfy every consumer need, anytime and anywhere – hot or cold, at home or on-the-go, at work or at play. 1 Table of Contents The following presents highlights of our major owned and licensed brands as of December 31, 2022: Category Major Brands North America Market Position CSDs Dr Pepper #1 in its flavor category and #2 overall flavored CSD in the U.S.
We have a portfolio of brands with the ability to satisfy every consumer need, anytime and anywhere – hot or cold, at home or on-the-go, at work, or at play. Operating and Reportable Segments As of December 31, 2023, our operating structure consists of three operating and reportable segments: U.S. Refreshment Beverages, U.S. Coffee, and International.
With a wide range of hot and cold beverages that meet virtually any consumer need, KDP key brands include Keurig, Dr Pepper, Canada Dry, Snapple, Mott's, Clamato, Core, Green Mountain Coffee Roasters and The Original Donut Shop.
KDP has a broad portfolio of iconic beverage brands, including Dr Pepper, Canada Dry, Green Mountain Coffee Roasters, Snapple, Mott's, The Original Donut Shop, Clamato, and Core Hydration, as well as the Keurig brewing system.
In 2022, we launched our updated KDP Product Facts website, found at www.kdpproductfacts.com, which contains important nutrition, certification, and allergen information to empower consumers to make informed decisions and find products that meet their needs. 9 Table of Contents OTHER INFORMATION Our website address is www.keurigdrpepper.com. Information on our website is not incorporated by reference in this document.
Our KDP Product Facts website, found at www.kdpproductfacts.com, contains important nutrition, certification, and allergen information to empower consumers to make informed decisions and find products that meet their needs. To advance our transparency and rigor around our marketing practices and standards, we published a new Responsible Marketing Policy for the U.S. in 2023.
OUR BUSINESS OPERATIONS As of December 31, 2022, our operating structure consists of four reportable segments: Coffee Systems, Packaged Beverages, Beverage Concentrates, and Latin America Beverages. Segment financial data, including financial information about foreign and domestic operations, is included in Note 7 of the Notes to our Consolidated Financial Statements.
Segment financial data, including financial information about foreign and domestic operations, is included in Note 7 of the Notes to our Consolidated Financial Statements. U.S. Refreshment Beverages Our U.S. Refreshment Beverages segment is a brand owner, manufacturer, and distributor of liquid refreshment beverages, or LRBs, in the U.S.
ITEM 1. BUSINESS OUR COMPANY Keurig Dr Pepper Inc. is a leading beverage company in North America, with a diverse portfolio of flavored CSDs, NCBs, including water (enhanced and flavored), RTD tea and coffee, juice, juice drinks, mixers and specialty coffee, and is a leading producer of innovative single serve brewing systems.
ITEM 1. BUSINESS OUR COMPANY Keurig Dr Pepper Inc. is a leading beverage company in North America that manufactures, markets, distributes and sells hot and cold beverages and single serve brewing systems.
The following represents a list of our major competitors: Competitor Categories Coca-Cola CSDs, NCBs, RTD Coffee The J.M. Smucker Company Packaged Coffee The Kraft Heinz Company Packaged Coffee Nestlé S.A.
Our primary competitors include Coca-Cola, PepsiCo, Starbucks Corporation, The J.M. Smucker Company, The Kraft Heinz Company, and Nestlé S.A.
OUR CUSTOMERS We primarily serve the following types of customers: Retailers Retailers include supermarkets, hypermarkets, mass merchandisers, club stores, e-commerce retailers, office superstores, vending machines, fountains, grocery and drug stores, convenience stores and other small outlets. Retailers purchase finished beverages, K-Cup pods, appliances and accessories directly from us.
We also entered into a long-term agreement with Grupo PiSA to sell, distribute and merchandise Electrolit, a premium hydration beverage, across the U.S, beginning in early 2024. 3 Table of Contents CUSTOMERS We primarily serve the following types of customers: Retailers Retailers include supermarkets, hypermarkets, mass merchandisers, club stores, e-commerce retailers, office superstores, vending machines, fountains, grocery and drug stores, convenience stores, and other small outlets.
Additionally, in order to maximize the size and scale of our manufacturing and distribution operations, we also distribute packaged beverages for our partner brands and manufacture packaged beverages for other third parties in the U.S. and Canada. The larger CSD brands in this segment include Dr Pepper, Canada Dry, A&W, 7UP, Sunkist, Squirt, Big Red, RC Cola, and Vernors.
Additionally, in order to maximize the size and scale of our manufacturing and distribution operations, we also distribute finished beverages for our partner brands and manufacture finished beverages for other third parties, including partners and private labels. We partner with other brands seeking effective route-to-market capabilities, including national selling and distribution scale.
In Mexico, the government has encouraged the beverage industry to comply voluntarily with collection and recycling programs for plastic materials, and we are in compliance with these programs. 8 Table of Contents CORPORATE RESPONSIBILITY We are committed to acting responsibly, and our ambition is to ensure our beverages make a positive impact with every drink. Drink Well.
We expect that legislation or regulations like those described above will continue to be proposed in the future at local, state and federal levels, both in the U.S. and elsewhere. 7 Table of Contents CORPORATE RESPONSIBILITY We are committed to acting responsibly, and our ambition is to ensure our beverages make a positive impact with every drink. Drink Well.
Coffee Systems Our Coffee Systems segment is primarily a producer of innovative single serve brewers and specialty coffee in the U.S. and Canada. Our Coffee Systems segment manufactures over 80% of the pods in the single-serve K-Cup pod format in the U.S., on a dollar share basis.
Coffee segment is primarily a brand owner, manufacturer, and distributor of innovative single serve brewers, specialty coffee (including hot and iced varieties), and RTD coffee in the U.S.
We currently offer a portfolio of more than 125 owned, licensed, partner and private label brands, including the top ten best-selling coffee brands in the U.S. based on IRi. 2 Table of Contents PRODUCT AND PACKAGE INNOVATION We are focused on a robust innovation pipeline within our portfolio of products to build household penetration of our business.
Key K-Cup pod brands include Van Houtte, Tim Hortons, and McCafé, as well as other partner and private label brands. Product Innovation and New Partnerships We are focused on a robust innovation pipeline within our portfolio of products to build household penetration of our business.
Key brands include Dr Pepper, Canada Dry, Schweppes, Crush, A&W, Sunkist, 7UP, SunDrop, Squirt, Big Red, Hawaiian Punch and RC Cola. 3 Table of Contents Beverage concentrates are shipped to third party bottlers, as well as to our own manufacturing systems, who combine them with carbonation, water, sweeteners and other ingredients, package the combined product in aluminum cans, PET bottles, and glass bottles, and sell them as a packaged beverage to retailers and, ultimately, the end consumer.
Beverage concentrates, which are highly concentrated proprietary flavors, are combined with carbonation, water, sweeteners, and other ingredients, packaged in aluminum cans, PET bottles, and glass bottles, and sold as a packaged beverage to retailers and, ultimately, the end consumer.
ESG is embedded in the way that we do business at KDP, ensuring that we make a positive impact in our environment and communities. Highly efficient business model, driving significant cash flow and investments.
Our holistic ESG strategy is positioned to drive tangible and scalable solutions in service of doing more and better for our people, our environment and our communities. Highly efficient business model, driving significant cash flow and investments.
Various states, provinces and other authorities require deposits, eco-taxes, extended producer responsibility laws, or fees on certain products or packaging. Similar legislation or regulations may be proposed in the future at local, state and federal levels, both in the U.S. and elsewhere.
Various countries, states, provinces, and other authorities have enacted eco-taxes, extended producer responsibility laws, deposit or reuse/refill mandates, fees on certain products or packaging, restrictions or bans on the use of certain types of packaging, including single-use plastics, and regulations on PFAS, and other chemicals of concern.
Removed
KDP offers more than 125 owned, licensed and partner brands, including the top ten best-selling coffee brands and Dr Pepper as a leading flavored CSD in the U.S. according to IRi, available nearly everywhere people shop and consume beverages.
Added
When we approach our customers, we do so as a modern beverage company, strengthened through our use of data and technology. Bold ESG commitments and collaborations making positive impacts. We have worked diligently to embed conscious and responsible business practices into the foundation of our company.
Removed
The DPS Merger was consummated on July 9, 2018, at which time DPS changed its name to Keurig Dr Pepper Inc. and began trading on the NYSE under the symbol "KDP". Today, we trade on Nasdaq under the symbol KDP, and we are a member of the Nasdaq 100 Index.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeIf any of these third-party service providers or vendors do not perform effectively, or if we fail to adequately monitor their performance (including compliance with service level agreements or regulatory or legal requirements), we may have to incur additional costs to correct errors made by such service providers, our reputation could be harmed or we could be subject to litigation, claims, legal or regulatory proceedings, inquiries or investigations.
Biggest changeIf any of these third-party service providers or vendors do not perform effectively, or if we fail to adequately monitor their performance (including compliance with service level agreements or regulatory or legal requirements), we may experience business disruption, systems performance degradation, processing inefficiencies or other systems disruptions, the loss of or damage to intellectual property or sensitive data through security breaches or otherwise, incorrect or adverse effects on financial reporting, litigation, claims, legal or regulatory proceedings, inquiries or investigations, fines or penalties, remediation costs, damage to our reputation, a negative impact on employee morale or the loss of current or potential customers, all of which can adversely affect our business.
In addition, in order to ensure a continuous supply of high-quality raw materials, some of our inventory purchase obligations include long-term purchase commitments for certain strategic raw materials. The timing of these may not always coincide with the period in which we need the supplies to fulfill customer demand.
In order to ensure a continuous supply of high-quality raw materials, some of our inventory purchase obligations include long-term purchase commitments for certain strategic raw materials; the timing of these may not always coincide with the period in which we need the supplies to fulfill customer demand.
If we or these third-party commercial partners fail to adopt or adhere to adequate information security practices, or fail to comply with their respective online policies, or in the event of a breach of our networks, our users’ data and customer information may be improperly accessed, used or disclosed.
Our users’ data and customer information may be improperly accessed, used or disclosed if these third-party commercial partners fail to adopt or adhere to adequate information security practices, or fail to comply with their respective online policies, or in the event of a breach of our networks.
U.S. and international laws and regulations could adversely affect our business. Our products are subject to a variety of federal, state and local laws and regulations in the U.S., Canada, Mexico and other countries in which we conduct business.
U.S. and international laws and regulations could adversely affect our business. We are subject to a variety of federal, state and local laws and regulations in the U.S., Canada, Mexico and other countries in which we conduct business.
These laws and regulations apply to many aspects of our business including the manufacture, safety, sourcing, labeling, storing, transportation, marketing, advertising, distribution and sale of our products. Other laws and regulations that may impact our business relate to competition, the environment, relations with distributors and retailers, employment, privacy, health and trade practices.
These laws and regulations apply to many aspects of our business, including the manufacture, safety, sourcing, labeling, storing, transportation, marketing, advertising, distribution, pricing and sale of our products. Other laws and regulations that may impact our business relate to competition and antitrust, the environment, relations with distributors and retailers, employment, privacy, health, and trade practices.
The loss of strategic partners could also adversely impact our future profitability and growth, awareness of Keurig brewers, our ability to attract additional branded or private label parties to do business with us or our ability to attract new consumers to buy Keurig brewers.
The loss of strategic partners could also adversely impact our future profitability and growth, awareness of Keurig brewers, our ability to attract additional brands or private label parties to do business with us or our ability to attract new consumers to buy Keurig brewers.
Consumers’ preferences continually evolve due to a variety of factors, including changing demographics of the population, social trends, changes in consumer lifestyles and consumption patterns, concerns or perceptions regarding the health effects of products, concerns regarding the location of origin or source of ingredients and products, changes in consumers' spending habits, negative publicity, economic downturn or other factors.
Consumers’ preferences continually evolve due to a variety of factors, including changing demographics of the population, social trends, changes in consumer lifestyles and consumption patterns, concerns or perceptions regarding the health effects or environmental impact of our products or packaging, concerns regarding the location of origin or source of ingredients and products, changes in consumers' spending habits, negative publicity, economic downturn, or other factors.
The quality of the coffee we seek tends to trade on a negotiated basis at a premium above the “C” price of coffee. This premium depends upon the supply and demand at the time of purchase, and the amount of the premium can vary significantly.
In our coffee business, the quality of the coffee we seek tends to trade on a negotiated basis at a premium above the “C” price of coffee. This premium depends upon the supply and demand at the time of purchase, and the amount of the premium can vary significantly.
Furthermore, we may incur unforeseen liabilities and obligations in connection with any such transaction, including in connection with the integration or management of the acquired businesses or brands and may encounter unexpected difficulties and costs in integrating them into our operating and internal control structures.
Furthermore, we may incur unforeseen liabilities and obligations in connection with any such transactions, including in connection with the integration or management of the businesses or brands, and may encounter unexpected difficulties and costs in integrating them into our operating, governance and internal control structures.
If we are unable to provide an appropriate mix of incentives to our strategic partners through a combination of premium performance and service, pricing, and marketing and advertising support, or if these strategic partners are not satisfied with our brand innovation and technological or other development efforts, they may take actions that adversely impact us, including entering into agreements with competing pod contract manufacturers or vertically integrating to manufacture their own K-Cup pods.
If we are unable to provide an appropriate mix of incentives to our strategic partners through a combination of premium performance and service, pricing, and marketing and advertising support, or if these strategic partners are not satisfied with our technological or other development efforts, they may take actions that adversely impact us, including entering into agreements with competing contract manufacturers or vertically integrating to manufacture their own Keurig-compatible pods.
In addition, some of our commercial partners may receive or store information provided by us or our users through their websites, including information entrusted to them by customers.
Some of our commercial partners may also receive or store information provided by us or our users through their websites, including information entrusted to them by customers.
As part of ongoing efforts to decrease our cash conversion cycle and maximize our working capital, we negotiate with our suppliers to optimize our terms and conditions, which includes the consideration of payment terms. As part of this process, we strive to seek 360 day payment terms in commercial negotiations with potential suppliers.
As part of ongoing efforts to decrease our cash conversion cycle and manage our working capital, we negotiate with our suppliers to optimize our terms and conditions, which includes the consideration of payment terms. As part of this process, we strive to seek extended payment terms in commercial negotiations with potential suppliers.
In October 2021, our Board of Directors authorized the Company to repurchase up to $4 billion of our outstanding common stock, beginning on January 1, 2022, potentially enabling us to return value to shareholders. Our repurchase program does not obligate us to repurchase any specific dollar amount or to acquire any specific number of shares.
In October 2021, our Board authorized the Company to repurchase up to $4 billion of our outstanding common stock over a four-year period, beginning on January 1, 2022, potentially enabling us to return value to shareholders. Our repurchase program does not obligate us to repurchase any specific dollar amount or to acquire any specific number of shares.
GENERAL RISK FACTORS Our financial results may be negatively impacted by recession, financial and credit market disruptions and other economic conditions.
GENERAL RISK FACTORS Our financial results may be negatively impacted by recession, financial and credit market disruptions and other political, social or economic conditions.
Increasing competition among K-Cup pod manufacturers and moving to vertical integration may result in price compression, which could have an adverse effect on our gross margins.
Increasing competition among Keurig-compatible pod manufacturers and moving to vertical integration may result in price compression, which could have an adverse effect on our gross margins.
The disruption could occur for many reasons, including fire, natural disasters, weather, water scarcity, manufacturing problems, disease, widespread illness (such as the COVID-19 pandemic), strikes, labor shortages, transportation or supply interruption, contractual dispute, government regulation, cybersecurity attacks or terrorism. Moreover, if demand increases beyond our production capabilities, we would need to either expand our capabilities internally or acquire additional capacity.
Disruptions could occur for many reasons, including fire, natural disasters, weather, water scarcity, manufacturing problems, disease, widespread illness, strikes, labor shortages, transportation or supply interruption, contractual dispute, government regulation, cybersecurity attacks or terrorism. Moreover, if demand increases beyond our production capabilities, we would need to expand our capabilities internally or acquire additional capacity.
We have been, and in the future may be, a party to various litigation claims and legal proceedings that may include employment, tort, real estate, antitrust, environmental, recycling/sustainability, intellectual property, commercial, securities, false advertising, packaging, product labeling, consumer protection, discriminatory pricing and other claims.
We have been, and in the future may be, a party to various litigation, claims, legal (including regulatory) proceedings, inquiries and investigations that may include employment, tort, contract, real estate, antitrust, environmental, recycling/sustainability, intellectual property, commercial, securities, false advertising, packaging, product labeling, consumer protection, discriminatory pricing, privacy, tax, insurance and other claims.
If our investment and restructuring costs are higher than anticipated, the investments and upgrades are not sufficient to meet our near-term future business needs, our business does not develop as anticipated to appropriately utilize new or upgraded facilities, or third parties fail to complete the construction or renovation of facilities or production equipment in a timely manner or in accordance with our specifications, our costs and financial performance could be negatively affected.
If the cost of our investments is higher than anticipated, the investments and upgrades are not sufficient to meet our near-term future business needs, our business does not develop as anticipated to appropriately utilize new or upgraded facilities, or third parties fail to complete the construction or renovation of facilities or production equipment in a timely manner or in accordance with our specifications, we may be delayed in realizing the intended benefits or our costs and financial performance could be negatively affected.
Our sales may be negatively affected by numerous factors including our inability to maintain or increase prices, our inability to effectively promote our products, ineffective advertising and marketing campaigns, new entrants into the market, the decision of wholesalers, retailers or consumers to purchase competitors' products instead of ours, increased marketing costs and higher in-store placement and slotting fees driven by our competitors' willingness to spend aggressively.
Our sales of beverages, Keurig brewers, K-Cup pods, and other products may be negatively affected by numerous factors including our inability to maintain or increase prices, our inability to effectively promote our products, new entrants into the market, the decision of wholesalers, retailers, or consumers to purchase competitors' products instead of ours, increased marketing costs, and higher in-store placement and slotting fees driven by our competitors' willingness to spend aggressively.
A disruption at our manufacturing and distribution facilities could have a material adverse effect on our business. In addition, a disruption could occur at the facilities of our suppliers, bottlers, contract manufacturers or distributors.
Substantial disruption at our manufacturing and distribution facilities could occur. A disruption at our manufacturing and distribution facilities could have a material adverse effect on our business, as could a disruption at the facilities of our bottlers, contract manufacturers or distributors.
Changes in economic and financial conditions in the U.S., Canada, Mexico or other geographies where we do business may negatively impact consumer confidence and consumer spending, which could result in a reduction in our sales volume and/or switching to lower price offerings. We may be impacted by consumer price sensitivity associated with many of our products.
Changes in economic and financial conditions in the U.S., Canada, Mexico or other geographies where we do business may negatively impact consumer confidence and consumer spending, which could result in a reduction in our sales volume and/or switching to lower price offerings.
Our efforts to comply with privacy and data protection laws may impose significant costs and challenges that are likely to increase over time, and we could incur substantial penalties or litigation related to violation of existing or future data privacy laws and regulations. Litigation or legal proceedings could expose us to significant liabilities and damage our reputation.
Our efforts to comply with privacy and data protection laws may impose significant costs and challenges that are likely to increase over time, and we could experience substantial penalties, litigation, claims, legal or regulatory proceedings, inquiries or investigations, damage to our reputation and fines or penalties related to violation of existing or future data privacy laws and regulations.
As of December 31, 2022, we had $51,837 million of total assets, of which $20,072 million were goodwill and $23,183 million were other intangible assets. Intangible assets include both definite and indefinite-lived intangible assets in connection with brands, trade names, acquired technology, customer relationships and contractual arrangements.
As of December 31, 2023, we had $52,130 million of total assets, of which $20,202 million were goodwill and $23,287 million were other intangible assets. Intangible assets include both definite and indefinite-lived intangible assets in connection with brands, trade names, acquired technology, customer relationships, and contractual arrangements.
In addition, adverse public opinion, third-party studies or other allegations, whether or not valid, regarding the perceived or potential negative health effects of ingredients in our beverage products, or substances in our packaging materials may lead to additional government regulation, new or increased taxes on our products, actual or threatened legal action against us, and a negative consumer perception of our products, any of which could result in decreased demand for our products or reformulations of existing products to remove such ingredients or substances, which may be costly and reduce their appeal.
In addition, adverse public opinion, third-party studies, or other allegations, whether or not valid, regarding the perceived or potential negative health effects of ingredients in our beverage products, such as concerns about the caloric intake associated with soft drinks or the use of artificial sweeteners in our beverages, or chemicals of concern or other substances in our ingredients or materials, may contribute to actual or threatened legal action against us, negative consumer perception of our products, additional government regulation, or new or increased taxes on our products, any of which could result in decreased demand for our products or reformulations of existing products to remove such ingredients or substances, which may be costly and reduce their appeal.
Concerns about the safety, quality, or health effects of our products could negatively affect our business. The success of our business depends in part on our ability to maintain consumer confidence in the safety and quality of all of our products, including beverage products, their ingredients and packaging, and our brewers.
The success of our business depends in part on our ability to maintain consumer confidence in the safety and quality of all of our products, including beverage products, their ingredients, their packaging, and our brewers.
We also compete with a number of smaller brands and a variety of smaller, regional and private label manufacturers. Smaller companies may be more innovative, better able to bring new products to market and better able to quickly exploit and serve niche markets. We also compete for contract manufacturing with other bottlers and manufacturers.
We also compete with various smaller or regional companies and private label manufacturers, which may be more innovative, better able to bring new products to market, and better able to quickly serve niche markets. Additionally, we compete for contract manufacturing with other bottlers and manufacturers.
When risks such as these materialize, the need for us to coordinate with various third party service providers and for third party service providers to coordinate amongst themselves might make it more challenging to resolve the related issues.
When risks such as these materialize, the need for us to coordinate with various third-party service providers, including with respect to timely notification and access to personnel and information concerning an incident, and for third party service providers to coordinate amongst themselves might make it more challenging to resolve the related issues.
In our Packaged Beverages segment, we have entered into strategic relationships for the manufacture and/or distribution of products from partner brand owners in emerging or fast-growing segments in which we may not currently have a brand presence.
We also regularly enter into strategic relationships for the manufacture and/or distribution of beverage products from partner brand owners, including in emerging or fast-growing segments in which we may not currently have a brand presence.
Any acquisitions, investments or ventures may also disrupt ongoing business activity or result in the diversion of management attention and resources from other initiatives and operations. Our financial performance will depend in large part on how well we can manage and improve the performance of acquired businesses or brands and the success of our other investments and ventures.
Any acquisitions, investments or ventures may also disrupt ongoing business activity or result in the diversion of management attention and resources from other initiatives and operations. Our ability to manage and improve the performance of acquired businesses or brands and our other investments and ventures will impact our financial performance.
Changes in tax laws, regulations, related interpretations, and tax accounting standards in the U.S. and various foreign jurisdictions in which we operate may impact our effective tax rate and adversely affect our financial results. Failure to comply with applicable transfer pricing and similar regulations could harm our business and financial results.
Changes in tax laws, regulations, related interpretations, and tax accounting standards in the U.S. and various foreign jurisdictions in which we operate may impact our effective tax rate and adversely affect our financial results.
Net sales from our Beverage Concentrates segment represent sales of beverage concentrates to third-party bottling companies that we do not own. The Beverage Concentrates segment’s operations generate a significant portion of our overall income from operations. Some of these bottlers are also our direct competitors, or also bottle and distribute products for our competitors.
We license rights to third parties to bottle and distribute our products. A portion of our income from operations is generated from sales of beverage concentrates to third-party bottling companies that we do not own. Some of these bottlers are also our direct competitors, or also bottle and distribute products for our competitors.
We frequently enter into supply contracts whereby the quality, quantity, delivery period and other negotiated terms are agreed upon, but the date, and therefore price, at which the base “C” coffee commodity price component will be fixed has not yet been established. These are known as price-to-be-fixed contracts.
Volatility in coffee prices can impact our ability to enter into fixed-price purchase commitments, and we frequently enter into “price-to-be-fixed” supply contracts in which the quality, quantity, delivery period, and other negotiated terms are agreed upon, but the date, and therefore price, at which the base coffee commodity price component will be fixed has not yet been established.
Our expanding international business will also expose us to economic factors, regulatory requirements, increasing competition and other risks associated with doing business in foreign countries. Our international business is also subject to U.S. laws, regulations and policies, including anti-corruption and export laws and regulations.
Our expanding international business will also expose us to economic factors, regulatory requirements, increasing competition and other risks associated with doing business in foreign countries.
We will establish a reserve as appropriate based upon assessments and estimates in accordance with our accounting policies. We will base our assessments, estimates and disclosures on the information available to us at the time and rely on legal and management judgment. Actual outcomes or losses may differ materially from assessments and estimates.
We base our assessments, estimates and disclosures on the information available to us at the time and rely on legal and management judgment. Actual outcomes or losses may differ materially from assessments and estimates.
In addition, any significant change in such laws or regulations or their interpretation, or the introduction of higher standards or more stringent laws or regulations, could result in increased compliance costs or capital expenditures or significant challenges to our ability to continue to produce and sell products that generate a significant portion of our sales and profits.
Our international business is also subject to U.S. laws, regulations and policies, including anti-corruption and export laws and regulations. 19 Table of Contents Any significant change in laws or regulations or their interpretation, in any of these jurisdictions, or the introduction of higher standards or more stringent laws or regulations, could result in increased compliance costs or capital expenditures or significant challenges to our ability to continue to produce and sell products that generate a significant portion of our sales and profits.
If we are unable to meet the consumer where and when they desire their products or if we are unable to respond to changes in distribution channels (including e-commerce), our financial results could be adversely impacted.
If we are unable to meet the consumer where and when they desire their products or if we are unable to respond to changes in distribution channels, our financial results could be adversely impacted. 11 Table of Contents Concerns about the safety, quality, or health effects of our products could negatively affect our business.
In evaluating such endeavors, we are required to make difficult judgments regarding the value of business strategies, opportunities, technologies and other assets, and the risks and cost of potential liabilities.
From time to time, we acquire or invest in businesses or brands, form joint ventures, and enter into licensing and distribution agreements. In evaluating such endeavors, we are required to make difficult judgments regarding the value of business strategies, opportunities, technologies and other assets, and the risks and cost of potential liabilities.
In recent years, these costs have increased significantly due to factors such as increases in health care costs, declines in investment returns on pension assets and changes in discount rates used to calculate pension and related liabilities. These factors will continue to put pressure on our business and financial performance.
Our profitability is substantially affected by costs for employee health care, pension and other retirement programs and other benefits. In recent years, these costs have increased significantly due to factors such as increases in health care costs, declines in investment returns on pension assets, and changes in discount rates used to calculate pension and related liabilities.
In addition, our effective tax rate in any given financial statement period may be significantly impacted by changes in the mix and level of earnings or by changes to existing accounting rules, tax regulations or interpretations of existing law. Further, tax legislation may be enacted in the future, domestically or abroad, that impacts our effective tax rate.
In addition, our effective tax rate in any given financial statement period may be significantly impacted by changes in the mix and level of earnings or by changes to existing accounting rules, tax regulations or interpretations of existing law. Significant judgment is required in determining our annual income tax expense and in evaluating our tax positions.
We conduct impairment tests on goodwill and all indefinite-lived intangible assets annually, as of October 1, or more frequently if circumstances indicate that all or a portion of the carrying amount of an asset may not be recoverable. The impairment tests require us to make an estimate of the fair value of our reporting units and other intangible assets.
We conduct impairment tests on goodwill and all indefinite-lived intangible assets annually, as of October 1, or more frequently if circumstances indicate that all or a portion of the carrying amount of an asset may not be recoverable. In addition, definite-lived intangible assets and property, plant and equipment are evaluated for impairment or accelerated depreciation as circumstances indicate.
Failure to maintain strategic relationships with brand owners and private label brands could adversely impact our future growth and business, potentially resulting in the termination of those agreements.
Failure to maintain strategic relationships with brand owners and private label brands could adversely impact our future growth and business, potentially resulting in the termination of those agreements. We regularly enter into strategic relationships for the manufacturing, distribution, and sale of K-Cup pods with partner customers, as well as with retailers for their private label brands.
Our share repurchase program could affect the price of our stock and increase volatility and may be suspended or terminated at any time. We cannot guarantee that we will repurchase shares or conduct future share repurchase programs, and we cannot guarantee that any such programs will result in long-term increases to shareholder value.
We cannot guarantee that we will repurchase shares (or the terms or amount of any such repurchase) or conduct future share repurchase programs, and we cannot guarantee that any such programs will result in long-term increases to shareholder value.
We cannot be certain that the steps taken to protect our rights will be sufficient or that others will not infringe or misappropriate our rights. If we are unable to protect our intellectual property rights, our brands, products and business could be harmed. We also license various trademarks from third parties and license our trademarks to third parties.
If we are unable to protect our intellectual property rights, our brands, products and business could be harmed. We also license various trademarks from third parties and license our trademarks to third parties. In some countries, third parties own certain trademarks and related intellectual property that we own in other countries.
Competitive pressures may also cause us to reduce prices we charge customers or may restrict our ability to increase such prices. In addition, the rapid growth of e-commerce may create additional consumer price deflation by, among other things, facilitating comparison shopping, and could potentially threaten the value of some of our legacy route-to-market strategies and thus negatively affect revenues.
In addition, the rapid growth of e-commerce may create additional consumer price deflation by, among other things, facilitating comparison shopping, and could potentially threaten the value of some of our legacy route-to-market strategies and thus negatively affect revenues. If we are unable to effectively compete, our business and our financial results would be negatively affected.
We have various quality, environmental, health and safety supply chain standards. A failure or perceived failure to meet our quality or safety standards, including product contamination or tampering, or allegations of mislabeling, whether actual or perceived, could occur in our operations or those of our bottlers, manufacturers, distributors or suppliers.
A failure or perceived failure to meet our quality, health, or safety standards, particularly as we expand our product offerings through innovation, partnerships or acquisitions into new beverage categories, including product contamination or tampering, undeclared allergens or allegations of mislabeling, whether actual or perceived, could occur in our operations or those of our bottlers, manufacturers, distributors or suppliers.
Additionally, due to these replacements or renegotiations, we may need to utilize various financing arrangements for short-term liquidity. 15 Table of Contents We cannot guarantee that our share repurchase program will be fully consummated or that our share repurchase program will enhance long-term stockholder value, and share repurchases could increase the volatility of the price of our stock and reduce our free cash flow.
Reduced payment terms have contributed to, and could continue to contribute to, our need to utilize various financing arrangements for short-term liquidity. 15 Table of Contents We cannot guarantee that our share repurchase program will be fully consummated or that our share repurchase program will enhance long-term stockholder value.
Our intellectual property rights could be infringed or we could infringe the intellectual property rights of others, and adverse events regarding licensed intellectual property, including a third party’s termination of distribution rights licensed to us, could harm our business. We possess intellectual property that is important to our business.
Our intellectual property rights could be infringed or we could infringe the intellectual property rights of others, and adverse events regarding licensed intellectual property could harm our business. We possess intellectual property that is important to our business. This intellectual property includes ingredient formulas, trademarks, copyrights, patents, business processes and other trade secrets.
We have ongoing programs to invest and upgrade our manufacturing, distribution and other facilities, including expansive investments in manufacturing facilities in Spartanburg, South Carolina; Newbridge, Ireland; and Allentown, Pennsylvania.
We have ongoing programs to invest and upgrade our manufacturing, distribution and other facilities, including expansive investments in manufacturing facilities in Spartanburg, South Carolina and Allentown, Pennsylvania. These investments require us to rely on third parties for the construction and renovation of our facilities and manufacturing of our production equipment.
Any or all of these events may lead to a loss of consumer confidence and trust, could damage the goodwill associated with our brands and may cause consumers to choose other products and could negatively affect our business and financial performance. 12 Table of Contents We may not effectively respond to changing consumer preferences and shopping behavior, which could impact our financial results.
Any or all of these events may lead to a loss of consumer confidence and trust, could damage the reputation of our brands and may cause consumers to choose other products and could negatively affect our business and financial performance. Damage to our reputation or brand image can adversely affect our business.
Plaintiffs in class action litigation may seek to recover amounts that are large and may be indeterminable for some period of time. We evaluate litigation claims and legal proceedings to assess the likelihood of unfavorable outcomes and estimate, if possible, the amount of potential losses.
Plaintiffs in class action litigation may seek to recover amounts that are large and may be indeterminable for some period of time.
Any disruption or failure of these systems or services could cause substantial errors, processing inefficiencies, security breaches, inability to use the systems or process transactions, loss of customers or other business disruptions, all of which could negatively affect our business and financial performance. 19 Table of Contents In addition, because we primarily accept debit and credit cards for payment in our e-commerce channel, we are subject to the PCI Standard, issued by the Payment Card Industry Security Standards Council.
Any disruption or failure of these systems or services could cause substantial errors, processing inefficiencies, security breaches, inability to use the systems or process transactions, loss of customers or other business disruptions, all of which could negatively affect our business and financial performance.
We may not be able to renew collective bargaining agreements on satisfactory terms, or we could experience union activity, including labor disputes or work stoppages. Approximately 8,800 of our employees worldwide are covered by collective bargaining agreements. These agreements typically expire every three to four years at various dates.
We may not be able to renew collective bargaining agreements on satisfactory terms, or we could experience union activity, including new unionization, labor disputes or work stoppages. Many of our employees that are involved in the manufacturing or distribution of our products are covered by collective bargaining agreements.
Our continuity of business applications and operations has been, and may in the future be, also disrupted by other cybersecurity attacks; issues with or errors in systems’ maintenance or security; migration of applications to the cloud; power outages; hardware or software failures; denial of service; telecommunication failures; natural disasters; terrorist attacks; and other catastrophic occurrences.
In addition, our continuity of business applications and operations has been, and may in the future be, disrupted by other issues, including cybersecurity attacks (which may include social engineering, business email compromise, cyber extortion, denial of service, attempts to exploit vulnerabilities, hacking, website defacement, theft of passwords and other credentials or unauthorized use of computing resources for digital currency mining); issues with or errors in systems’ maintenance or security; migration of applications to the cloud; power outages; hardware or software failures; telecommunication failures; natural disasters; terrorist attacks; unintentional or malicious actions of employees or contractors; and fires and other catastrophic occurrences and other cyber incidents.
The majority of these bottlers’ business comes from selling either their own products or our competitors’ products. In addition, some of the finished products we manufacture are distributed by third parties. As independent companies, these bottlers and distributors make their own business decisions.
In addition, some of the finished products we manufacture are distributed by third parties. As independent companies, these bottlers and distributors may have the right to determine whether, and to what extent, they produce and distribute our products, our competitors’ products and their own products.
Consumers are also increasingly focused on sustainability, with particular attention to the recyclability of product packaging, reducing consumption of single-use plastics and non-recyclable materials, and the environmental impact of manufacturing operations. If we do not meet consumer demands by continuing to provide recyclable packaging options and focusing on sustainability throughout our manufacturing operations, our sales could suffer.
Failure to innovate successfully could compromise our competitive position and impact our product sales, financial condition, and operating results. Consumers are increasingly focused on sustainability, with particular attention to the recyclability or reuse of product packaging, reducing consumption of single-use plastics and non-recyclable materials and the environmental impact of manufacturing operations.
We may also experience delays in extending our respective internal control over financial reporting to newly acquired businesses, which may increase the risk of failure to prevent misstatements in our financial records and in our consolidated financial statements. We also regularly pursue productivity initiatives, which are focused on cost savings and tax strategies in procurement, manufacturing, and logistics.
We may also experience delays in extending our respective internal control over financial reporting to new acquisitions or investments, which may increase the risk of misstatements in our financial records and in our consolidated financial statements.
We may not be able to renew our collective bargaining agreements on satisfactory terms or at all. This could result in labor disputes, strikes or work stoppages, which could impair our ability to manufacture and distribute our products and result in a substantial loss of sales.
This could result in labor disputes, strikes, or work stoppages, which could impair our ability to manufacture and distribute our products and result in a substantial loss of sales. The terms of existing, renewed or expanded agreements could also significantly increase our costs or negatively affect our ability to increase operational efficiency.
The termination of any material license arrangement could adversely affect our business and financial performance, and any disputes could be costly and divert management attention. We may need to increase support for our brands in certain territories to maintain our route to market and may not be able to pass price increases through to them.
We may need to increase support for our brands in certain territories to maintain our route to market and may not be able to pass price increases through to third-party bottlers and distributors. Deteriorating economic conditions could negatively impact the financial viability of third-party bottlers.
Privacy and data protection laws may be interpreted and applied differently from country to country and may create inconsistent or conflicting requirements.
Privacy and data protection laws may be interpreted and applied differently from one jurisdiction to another and may create inconsistent or conflicting requirements. In addition, new legislation in this area may be enacted in other jurisdictions at any time.
Similarly, disruptions in financial and credit markets worldwide may impact our ability to manage normal commercial relationships with customers, suppliers and creditors. These disruptions could have a negative impact on the ability of our customers to timely pay their obligations, thus reducing our cash flow, or the ability of our vendors to supply materials timely.
Similarly, disruptions in financial and credit markets worldwide may impact our ability to manage normal commercial relationships with customers, suppliers and creditors.
The termination of any material license arrangement could adversely affect our business and financial performance. 14 Table of Contents RISKS RELATED TO OUR FINANCIAL PERFORMANCE Determinations in the future that a significant impairment of the value of our goodwill and other indefinite-lived intangible assets has occurred could have a material adverse effect on our operating results.
Additionally, significant changes in laws or regulations may reduce our ability or inclination to take advantage of our share repurchase program. Determinations in the future that a significant impairment of the value of our goodwill and other indefinite-lived intangible assets has occurred could have a material adverse effect on our financial performance.
Any such impairment would result in us recognizing a non-cash charge in our Consolidated Statements of Income, which could adversely affect our results of operations and increase our effective tax rate. Our level of indebtedness could adversely affect us, including decreasing our business flexibility and increasing our interest expense.
Any such impairment would result in us recognizing a non-cash charge in our Consolidated Statements of Income, which could adversely affect our results of operations and increase our effective tax rate. 16 Table of Contents RISKS RELATING TO OUR RELATIONSHIPS WITH THIRD PARTIES We depend on third-party bottling and distribution companies for a significant portion of our business.
Although we will actively seek to control increases in costs, there can be no assurance that it will succeed in limiting future cost increases, and continued upward cost pressure could have a material adverse effect on our business and financial performance. 16 Table of Contents RISKS RELATING TO OUR RELATIONSHIPS WITH THIRD PARTIES We depend on a small number of large retailers for a significant portion of our sales.
These factors will continue to put pressure on our business and financial performance. There can be no assurance that we will succeed in limiting future cost increases, and continued upward cost pressure could have a material adverse effect on our business and financial performance.
Furthermore, any price increases passed along to our customers or consumers could significantly reduce demand for our products and could negatively affect our business and financial performance. In addition, price decreases in commodities that we have effectively hedged could also increase our cost of goods sold for mark-to-market changes in the derivative instruments.
In addition, price decreases in commodities that we have effectively hedged could also increase our cost of goods sold for mark-to-market changes in the derivative instruments. 10 Table of Contents We operate in intensely competitive categories, and our potential inability to compete effectively could adversely impact our business.
There are inherent risks associated with new product or packaging introductions, including uncertainties about trade and consumer acceptance or potential impacts on our existing product offerings. We may be required to increase expenditures for new product development.
There are inherent risks associated with new product or packaging innovation, including uncertainties about trade and consumer acceptance or potential impacts on our existing product offerings. Successful innovation may depend on our ability to obtain, protect, and maintain necessary intellectual property rights and to avoid infringing upon the intellectual property rights of others.
Climate change is already affecting the agricultural sector, and disruptions to crop growing conditions are expected to increase with extreme weather events, increasing temperatures, and changing water availability. Water is the main ingredient in substantially all of our products. Climate change may cause water scarcity and a deterioration of water quality in areas where we maintain operations.
Climate change is already affecting the agricultural sector, and disruptions to crop growing conditions are expected to increase with extreme weather events, increasing temperatures and changing water availability. Disruptions to crop growing conditions can cause changes in geographical ranges of crops, as well as weeds, diseases and pests that affect those crops.
These impacts may limit availability or increase the price volatility of key agricultural commodities, such as coffee, corn and tea, which are important sources of ingredients for our products. Concern over climate change, including global warming, has led to legislative and regulatory initiatives directed at limiting greenhouse gas emissions.
These impacts have in the past and may in the future limit availability or increase the price volatility of key agricultural commodities, such as coffee, corn, citrus, cocoa, and apples, which are important sources of ingredients for our products.
Although we maintain insurance coverage that may, subject to policy terms and conditions, cover certain aspects of a breach or disruption, such insurance coverage may be insufficient to cover all losses. 20 Table of Contents We regularly move data across national borders to conduct our operations and consequently are subject to a variety of continuously evolving and developing laws and regulations in numerous jurisdictions regarding privacy, data protection and data security, including those related to the collection, storage, handling, use, disclosure, transfer and security of personal data.
We are subject to a variety of continuously evolving and developing laws and regulations in numerous jurisdictions regarding privacy, data protection and data security, including those related to the collection, storage, handling, use, disclosure, transfer and security of personal data.
Any adverse publicity resulting from allegations made in litigation claims or legal proceedings may also adversely affect our reputation, which in turn could adversely affect our results of operations. Fluctuations in our effective tax rate may result in volatility in our financial results. We are subject to income taxes and non-income-based taxes in many U.S. and certain foreign jurisdictions.
Fluctuations in our effective tax rate may result in volatility in our financial results. We are subject to income taxes and non-income-based taxes in many U.S. and certain foreign jurisdictions. Tax legislation may be enacted, domestically or abroad, that impacts our effective tax rate.
An impairment was recently recorded and could be recorded again as a result of changes in assumptions, estimates or circumstances, some of which are beyond our control.
The impairment tests require us to make an estimate of the fair value of our reporting units and other intangible assets. We have in the past recorded impairments and could do so again as a result of changes in assumptions, estimates or circumstances, some of which are beyond our control.
We may not achieve the strategic and financial objectives for such transactions. If we are unable to achieve such objectives, our consolidated results could be negatively affected. 13 Table of Contents Our facilities and operations will require substantial investment and upgrading, and those investments may not achieve the intended financial benefits of such investment.
We may not achieve the strategic and financial objectives for such transactions. If we are unable to achieve such objectives, our consolidated results could be negatively affected. Failure to realize benefits or successfully manage the potential negative consequences of our productivity initiatives can adversely affect our financial performance.
Some of our competitors, such as Coca-Cola, PepsiCo, The Kraft Heinz Company and Nestlé S.A., are multinational corporations with significant financial resources. These competitors can use their resources and scale to rapidly respond to competitive pressures and changes in consumer preferences by introducing new products, changing their route to market, reducing prices or increasing promotional activities.
The beverage industry is highly competitive and continues to evolve in response to changing consumer preferences. We compete with multinational corporations that can rapidly respond to competitive pressures and changes in consumer preferences by introducing new products, changing their route to market, reducing prices, or increasing promotional activities.
Our raw materials are sourced from industries characterized by a limited supply base, and their cost can fluctuate substantially. Under many of our supply arrangements, the price we pay for raw materials fluctuates along with certain changes in underlying commodities costs.
Under many of our supply arrangements, the price we pay for raw materials fluctuates along with certain changes in underlying commodities costs. This could lead to higher and more variable inventory levels or higher raw material costs for us.
If our payment terms are reduced, our ability to maintain our cash conversion cycle to maximize our working capital, as well as our liquidity, may be adversely affected.
Reductions in our payment terms have negatively affected, and could continue to negatively affect, our liquidity and our ability to maintain our cash conversion cycle to maximize our working capital.
In most cases, they are able to terminate their bottling and distribution arrangements with us without cause. In some cases, the license agreements include buy-out rights that allow us to exit for a fee, and we may have additional limited termination rights.
In some cases, the license agreements include buy-out rights that allow us to exit for a fee, and we may have additional limited termination rights. The termination of any material license arrangement could adversely affect our business and financial performance, and any disputes could be costly and divert management attention.
If we do not innovate rapidly and successfully to respond to shifting consumer demands, our business may suffer. Achieving growth depends on our successful development, introduction and marketing of innovative new products and line extensions.
If we do not effectively anticipate and respond to changing trends and consumer beverage preferences, including through innovation and renovation, our sales and growth could suffer. Addressing changes in consumer preferences may require successful development, introduction, and marketing of new products and line extensions.
Any substantial or sustained decline in the sale of Keurig brewers, failure to continue to reduce the cost of Keurig brewers, or substantial or sustained decline in the sales of K-Cup pods could materially and adversely affect our business. Keurig brewers compete against all sellers and types of coffeemakers.
A significant portion of our business is attributable to sales of K-Cup pods for use with Keurig brewing systems. Continued acceptance of Keurig brewers to further increase household penetration is a significant factor in our growth plans. Any substantial or sustained decline in the sale of Keurig brewers could materially and adversely affect our business.
Violations of these laws or regulations in the manufacturing, safety, sourcing, labeling, storing, transportation, advertising, distribution and sale of our products could damage our reputation and/or result in criminal, civil or administrative actions with substantial financial penalties and operational limitations.
In addition, the entry into new markets or categories has resulted in and could continue to result in our business being subject to additional regulations resulting in higher compliance costs. Violations of laws or regulations could damage our reputation and/or result in criminal, civil or administrative actions with substantial financial penalties and operational limitations.
However, security measures cannot provide absolute security or guarantee that we will be successful in preventing or responding to every breach or disruption on a timely basis.
However, security measures cannot guarantee that we will be successful in preventing or responding to all cyber incidents, systems disruptions, system compromises or misuses of data.
They may have the right to determine whether, and to what extent, they produce and distribute our products, our competitors’ products and their own products. They may devote more resources to other products, prioritize their own products, or take other actions detrimental to our brands.
They may devote more resources to other products, prioritize their own products, or take other actions detrimental to our brands. In most cases, they are able to terminate their bottling and distribution arrangements with us without cause.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeThe following table summarizes our principal manufacturing plants and principal warehouse and distribution facilities by geography and reportable segment as of December 31, 2022: Beverage Concentrates Packaged Beverages Latin America Beverages Coffee Systems Total Owned Leased Owned Leased Owned Leased Owned Leased Owned Leased United States Production facilities 1 — 5 12 — — 1 5 7 17 Warehouse and distribution facilities — — 28 60 — — — 8 28 68 International Production facilities 1 — — — 3 — — 2 4 2 Warehouse and distribution facilities — — — — 5 31 — 33 5 64 Total 2 — 33 72 8 31 1 48 44 151 We believe our facilities are well-maintained and adequate, that they are being appropriately utilized and that they have sufficient production capacity for their present intended purposes.
Biggest changeCoffee International Total Owned Leased Owned Leased Owned Leased Owned Leased United States Production facilities 6 12 1 5 — — 7 17 Warehouse and distribution facilities 27 61 — 8 — — 27 69 International Production facilities 1 — — — 3 2 4 2 Warehouse and distribution facilities — — — — 5 63 5 63 Total 34 73 1 13 8 65 43 151 We believe our facilities are well-maintained and adequate, that they are being appropriately utilized, except for our next-generation coffee production facility in Spartanburg, South Carolina, and that they have sufficient production capacity for their present intended purposes.
ITEM 2. PROPERTIES We have two global corporate headquarters, located in Burlington, Massachusetts and Frisco, Texas, both of which are leased.
ITEM 2. PROPERTIES We have two global corporate headquarters, located in Burlington, Massachusetts and Frisco, Texas, both of which are leased. The following table summarizes our principal manufacturing plants and principal warehouse and distribution facilities by geography and reportable segment as of December 31, 2023: U.S. Refreshment Beverages U.S.
The extent of utilization of such facilities varies based on seasonal demand for our products. It is not possible to measure with any degree of certainty or uniformity the productive capacity and extent of utilization of these facilities. We periodically review our space requirements, and we look to consolidate and dispose or sublet facilities we no longer need as appropriate.
We periodically review our space requirements, and we look to consolidate and dispose or sublet facilities we no longer need as appropriate.
Added
The extent of utilization of such facilities varies based on seasonal demand for our products and the status of our investments to maintain or upgrade various technologies or equipment within such facilities.
Added
As of December 31, 2023, the facility that we are establishing in Spartanburg, South Carolina was significantly underutilized due to delays in the manufacture and installation of certain manufacturing lines, as well as delays exacerbated by the COVID-19 pandemic.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeITEM 3. LEGAL PROCEEDINGS We are occasionally subject to litigation or other legal proceedings relating to our business. Refer to Note 18 of the Notes to our Consolidated Financial Statements related to commitments and contingencies, which is incorporated herein by reference.
Biggest changeITEM 3. LEGAL PROCEEDINGS We are occasionally subject to litigation or other legal proceedings relating to our business. Refer to Note 17 of the Notes to our Consolidated Financial Statements related to commitments and contingencies, which is incorporated herein by reference.
Removed
BODYARMOR LITIGATION In 2019, ABC, a subsidiary of KDP, filed suit against BodyArmor and Mike Repole in the Superior Court for the State of Delaware. The complaint asserted breach of contract and other related claims in connection with BodyArmor’s attempted early termination of the distribution contract between BodyArmor and ABC.
Added
The Staff of the SEC (the “Staff”) is investigating certain statements by the Company regarding the recyclability of our K-Cup pods, including statements in prior Exchange Act reports. We have been cooperating with this investigation and responding to the Staff’s various requests for information.
Removed
In January 2022, KDP agreed to a $350 million payment from BodyArmor as full settlement of all claims under the litigation against BodyArmor and satisfaction of the holdback amount owed to ABC in association with the sale of ABC’s equity interest in BodyArmor in 2021.
Added
In the course of cooperating with this investigation, we have reviewed our prior statements about the recyclability of K-Cup pods, and we continue to believe they were appropriate, accurate and in compliance with the securities laws. We cannot predict the timing or eventual outcome of this investigation, but do not expect it to have a material impact on the Company.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThe following table summarizes shares repurchased by us under this program during the fourth quarter of 2022: Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Program Maximum Amount of Dollars that May Yet be Used to Purchase Shares Under the Program (in millions) October 1 to October 31 — $ — — $ 3,912 November 1 to November 30 — — — 3,912 December 1 to December 31 8,018,696 36.31 8,018,696 3,621 Total 8,018,696 $ 36.31 8,018,696 $ 3,621 23 Table of Contents COMPARISON OF TOTAL STOCKHOLDER RETURN The following performance graph compares the cumulative total returns of DPS through July 9, 2018 and KDP from July 10, 2018 through December 31, 2022 with the cumulative total returns of the S&P 500 Index and the S&P Food and Beverage Select Industry Index.
Biggest changeThe following table summarizes shares repurchased by us under this program during the fourth quarter of 2023: Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Program Maximum Amount of Dollars that May Yet be Used to Purchase Shares Under the Program October 1 to October 31 2,000,000 $ 29.95 2,000,000 $ 3,103,859,210 November 1 to November 30 6,120,798 30.77 6,120,798 2,915,505,309 December 1 to December 31 10,900 31.22 10,900 2,915,165,022 Total 8,131,698 $ 30.57 8,131,698 $ 2,915,165,022
The $4 billion authorization is effective for four years, beginning on January 1, 2022 and expiring on December 31, 2025, and does not require the purchase of any minimum number of shares. There were no share repurchase programs in effect during the years ended December 31, 2021 and 2020.
The $4 billion authorization is effective for four years, beginning on January 1, 2022 and expiring on December 31, 2025, and does not require the purchase of any minimum number of shares.
ISSUER REPURCHASES OF EQUITY SECURITIES On October 1, 2021, our Board of Directors authorized a share repurchase program of up to $4 billion of our outstanding common stock, potentially enabling us to return value to shareholders.
The graph assumes that $100 was invested on December 31, 2018, with dividends reinvested quarterly. 26 Table of Contents ISSUER REPURCHASES OF EQUITY SECURITIES On October 1, 2021, our Board authorized a share repurchase program of up to $4 billion of our outstanding common stock, potentially enabling us to return value to shareholders.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Effective September 21, 2020, our common stock was listed and began trading on Nasdaq's Global Select Market under the ticker symbol "KDP".
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Our common stock is listed on Nasdaq's Global Select Market under the ticker symbol "KDP". As of December 31, 2023, there were 8,315 stock holders of record of our common stock.
We believe that these indices convey an accurate assessment of our performance as compared to the industry. The graph assumes that $100 was invested on December 31, 2017, with dividends reinvested quarterly.
COMPARISON OF TOTAL STOCKHOLDER RETURN The following performance graph compares the cumulative total returns of KDP for a five-year period with the cumulative total returns of the S&P 500 Index and the S&P Food and Beverage Select Industry Index. We believe that these indices convey an accurate assessment of our performance as compared to the industry.
As of December 31, 2022, there were 9,059 stock holders of record of our common stock. KDP's Board has declared a regular quarterly cash dividend and expects to continue to pay such dividends on a quarterly basis.
KDP's Board has declared a regular quarterly cash dividend and expects to continue to pay such dividends on a quarterly basis. Information on securities authorized for issuance under our equity compensation plans has been omitted and will be incorporated by reference, when filed, from our Proxy Statement.
Removed
From July 9, 2018, through September 18, 2020, our common stock was listed and traded on the NYSE under the ticker symbol "KDP". Prior to the closing of the DPS Merger, our common stock was listed and traded on the NYSE under the ticker symbol "DPS".
Removed
The graph additionally assumes that a special cash dividend of $103.75 which was declared and paid as a result of the DPS Merger was reinvested in KDP once shares resumed trading on July 10, 2018.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeWe believe that the following events, trends and uncertainties may also impact liquidity: • Our ability to either repay existing debt maturities through cash flow from operations or refinance through future issuances of senior unsecured notes; • Our ability to access and/or renew our committed financing arrangements ; • A significant downgrade in our credit ratings could limit i) our ability to issue debt at terms that are favorable to us, or ii) a financial institution's willingness to participate in our accounts payable program and reduce the attractiveness of the accounts payable program to participating suppliers who may sell payment obligations from us to financial institutions, which could impact our accounts payable program; • Our continued payment of regular quarterly dividends; • Future opportunistic repurchases of our common stock or special dividends to drive total shareholder return; • Our continued capital expenditures; • Future equity investments; • Seasonality of our operating cash flows, which could impact short-term liquidity; • Our ability to issue unsecured uncommitted commercial paper notes on a private placement basis up to a maximum aggregate amount outstanding at any time of $2,400 million; • Future mergers or acquisitions, which may include brand ownership companies, regional bottling companies, distributors and/or distribution rights to further extend our geographic coverage; and • Fluctuations in our tax obligations. 37 Table of Contents CRITICAL ACCOUNTING ESTIMATES The process of preparing our consolidated financial statements in conformity with U.S.
Biggest changeWe believe that the following events, trends and uncertainties may also impact liquidity: • Our ability to either repay existing debt maturities through cash flow from operations or refinance through future issuances of senior unsecured notes; • Our ability to access and/or renew our committed financing arrangements ; • Our ability to issue unsecured uncommitted commercial paper notes on a private placement basis up to a maximum aggregate amount outstanding at any time of $4,000 million; • Future mergers, acquisitions, or debt or equity investments, which may include brand ownership companies, regional bottling companies, distributors, and/or distribution rights to further extend our geographic coverage; • Seasonality and other variability in our operating cash flows, which could impact short-term liquidity; • Our continued payment of regular quarterly dividends; • Future repurchases of our common stock or special dividends to drive total shareholder return; • Our continued capital expenditures; • Fluctuations in our tax obligations; and • A significant downgrade in our credit ratings could limit i) our ability to issue debt at terms that are favorable to us, or ii) a financial institution's willingness to participate in our accounts payable program and reduce the attractiveness of the accounts payable program to participating suppliers who may sell payment obligations from us to financial institutions, which could impact our accounts payable program. 44 Table of Contents CRITICAL ACCOUNTING ESTIMATES The process of preparing our consolidated financial statements in conformity with U.S.
Goodwill and Other Indefinite Lived Intangible Assets We conduct tests for impairment of our goodwill and our other indefinite lived intangible assets annually, as of October 1, or more frequently if events or circumstances indicate the carrying amount may not be recoverable. We use present value and other valuation techniques to make this assessment.
Impairment Assessment of Goodwill and Other Indefinite Lived Intangible Assets We conduct tests for impairment of our goodwill and our other indefinite lived intangible assets annually, as of October 1, or more frequently if events or circumstances indicate the carrying amount may not be recoverable. We use present value and other valuation techniques to make this assessment.
Our customer incentives, sales returns and marketing accrual methodology contains uncertainties because it requires management to make assumptions and to apply judgment regarding our contractual terms in order to estimate our customer participation and volume performance levels which impact the expense recognition. Our estimates are based primarily on a combination of known or historical transaction experiences.
Our customer incentives, sales returns, and marketing accrual methodology contains uncertainties because it requires management to make assumptions and to apply judgment regarding our contractual terms in order to estimate our customer participation and volume performance levels which impact the revenue recognition. Our estimates are based primarily on a combination of known or historical transaction experiences.
Inclusive of the impact of the 53rd week, K-Cup pod volume increased 1.4% for the year ended December 31, 2022, which reflected the segment’s coffee recovery program to increase pod manufacturing output and rebuild finished goods inventories to satisfy consumer demand and restore customer service levels.
Inclusive of the impact of the 53rd week, K-Cup pod volume increased 1.2% for the year ended December 31, 2022, which reflected the segment’s coffee recovery program to increase K-Cup pod manufacturing output and rebuild finished goods inventories to satisfy consumer demand and restore customer service levels.
Consolidated Operations The following table sets forth our consolidated results of operations for the years ended December 31, 2022 and 2021: For the Year Ended December 31, Dollar Percentage (in millions, except per share amounts) 2022 2021 Change Change Net sales $ 14,057 $ 12,683 $ 1,374 10.8 % Cost of sales 6,734 5,706 1,028 18.0 Gross profit 7,323 6,977 346 5.0 Selling, general and administrative expenses 4,645 4,153 492 11.8 Impairment of intangible assets 477 — 477 NM Gain on litigation settlement (299) — (299) NM Other operating income, net (105) (70) (35) NM Income from operations 2,605 2,894 (289) (10.0) Interest expense 693 500 193 38.6 Loss on early extinguishment of debt 217 105 112 NM Gain on sale of equity method investment (50) (524) 474 NM Impairment of investments and note receivable 12 17 (5) NM Other expense (income), net 14 (2) 16 NM Income before provision for income taxes 1,719 2,798 (1,079) (38.6) Provision for income taxes 284 653 (369) (56.5) Net income including non-controlling interest 1,435 2,145 (710) (33.1) Less: Net loss attributable to non-controlling interest (1) (1) — NM Net income attributable to KDP $ 1,436 $ 2,146 $ (710) (33.1) % Earnings per common share: Basic $ 1.01 $ 1.52 $ (0.51) (33.6) % Diluted 1.01 1.50 (0.49) (32.7) % Gross margin 52.1 % 55.0 % (290) bps Operating margin 18.5 % 22.8 % (430) bps Effective tax rate 16.5 % 23.3 % (680) bps Sales Volume.
Operating margin increased 240 bps versus the year ago period to 24.7%. 34 Table of Contents For the Year Ended December 31, 2022 Compared to the Year Ended December 31, 2021: Consolidated Operations The following table sets forth our consolidated results of operations for the years ended December 31, 2022 and 2021: For the Year Ended December 31, Dollar Percentage (in millions, except per share amounts) 2022 2021 Change Change Net sales $ 14,057 $ 12,683 $ 1,374 10.8 % Cost of sales 6,734 5,706 1,028 18.0 Gross profit 7,323 6,977 346 5.0 Selling, general and administrative expenses 4,645 4,153 492 11.8 Impairment of intangible assets 477 — 477 NM Gain on litigation settlement (299) — (299) NM Other operating income, net (105) (70) (35) NM Income from operations 2,605 2,894 (289) (10.0) Interest expense, net 693 500 193 38.6 Loss on early extinguishment of debt 217 105 112 NM Gain on sale of equity method investment (50) (524) 474 NM Impairment of investments and note receivable 12 17 (5) NM Other (income) expense, net 14 (2) 16 NM Income before provision for income taxes 1,719 2,798 (1,079) (38.6) Provision for income taxes 284 653 (369) (56.5) Net income including non-controlling interest 1,435 2,145 (710) (33.1) Less: Net loss attributable to non-controlling interest (1) (1) — NM Net income attributable to KDP $ 1,436 $ 2,146 $ (710) (33.1) % Earnings per common share: Basic $ 1.01 $ 1.52 $ (0.51) (33.6) % Diluted 1.01 1.50 (0.49) (32.7) % Gross margin 52.1 % 55.0 % (290) bps Operating margin 18.5 % 22.8 % (430) bps Effective tax rate 16.5 % 23.3 % (680) bps Sales Volume.
Principal Uses of Capital Resources Over the past several years, our principal uses of our capital resources were deleveraging, providing shareholder return to our investors through regular quarterly dividends, and investing in KDP to capture market share and drive growth through innovation and routes to market.
Principal Uses of Capital Resources Over the past several years, our principal uses of our capital resources were deleveraging, providing direct shareholder return through regular quarterly dividends, and investing in KDP to capture market share and drive growth through innovation and routes to market.
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations This section of this Annual Report on Form 10-K generally discusses the years ended December 31, 2022 and 2021 and year-over-year comparisons between the years ended December 31, 2022 and 2021.
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations This section of this Annual Report on Form 10-K generally discusses the years ended December 31, 2023 and 2022 and year-over-year comparisons between the years ended December 31, 2023 and 2022.
We continue to manage all aspects of our business, including, but not limited to, monitoring the financial health of our customers, suppliers and other third-party relationships, implementing cost management strategies through our productivity initiatives, and developing new opportunities for growth such as innovation and agreements with partners to distribute brands that are accretive to our portfolio.
We continue to manage all aspects of our business, including monitoring the financial health of our customers, suppliers, and other third-party relationships, implementing cost management strategies through our productivity initiatives, and developing new opportunities for growth such as innovation and agreements with partners to distribute brands that are accretive to our portfolio.
Differences between estimated expenses and actual costs are normally insignificant and are recognized to earnings in the period differences are determined. Additionally, judgment is required to ensure the classification of the spend is correctly recorded as either a reduction from gross sales or advertising and marketing expense, which is a component of our SG&A expenses.
Differences between estimated revenue and actual revenue are normally insignificant and are recognized into earnings in the period differences are determined. Additionally, judgment is required to ensure the classification of the spend is correctly recorded as either a reduction from gross sales or advertising and marketing expense, which is a component of our SG&A expenses.
These assumptions could be negatively impacted by various risks discussed in Item 1A, Risk Factors , in this Annual Report on Form 10-K. Critical assumptions for quantitative analyses include revenue growth and profit performance over the next five year period, as well as an appropriate discount rate and long-term growth rate, as applicable.
These assumptions could be negatively impacted by various risks discussed in Item 1A, Risk Factors , in this Annual Report on Form 10-K. 45 Table of Contents Critical assumptions for quantitative analyses include revenue growth and profit performance over the next five year period, as well as an appropriate discount rate and long-term growth rate, as applicable.
Purchases of Intangible Assets We have invested in the expansion of our DSD network through transactions with strategic independent bottlers to ensure competitive distribution scale for our brands. From time to time, we additionally acquire brand ownership companies to expand our portfolio.
Purchases of Intangible Assets We have invested in the expansion of our DSD network through transactions with strategic independent bottlers or third-party brand ownership companies to ensure competitive distribution scale for our brands. From time to time, we additionally acquire brand ownership companies to expand our portfolio.
Customer and consumer demand for our products may also be impacted by the risk factors discussed under "Risk Factors" in Part 1, Item 1A of our Annual Report, as well as subsequent filings with the SEC, that could have a material effect on production, delivery and consumption of our products, which could result in a reduction in our sales volume.
Customer and consumer demand for our products may also be impacted by the risk factors discussed under "Risk Factors" in Part 1, Item 1A in this Annual Report on Form 10-K, as well as subsequent filings with the SEC, that could have a material effect on production, delivery and consumption of our products, which could result in a reduction in our sales volume.
Net sales increased $1,374 million, or 10.8%, to $14,057 million for the year ended December 31, 2022 compared to $12,683 million in the prior year. This performance reflected favorable net price realization across all segments totaling 10.6% and volume/mix growth of 0.5%. These benefits were slightly offset by unfavorable FX translation of 0.3%. Gross Profit.
Net sales increased $1,374 million, or 10.8%, to $14,057 million for the year ended December 31, 2022 compared to $12,683 million in the year ended December 31, 2021. This performance reflected favorable net price realization across all segments totaling 10.6% and volume/mix growth of 0.5%, slightly offset by unfavorable FX translation of 0.3%. Gross Profit.
As of October 1, 2022, we performed a quantitative analysis for goodwill and certain indefinite lived brand assets, whereby we used an income approach, or in some cases a combination of income and market based approaches, to determine the fair value of our assets, as well as an overall consideration of market capitalization and enterprise value.
As of October 1, 2023, we performed a quantitative analysis for goodwill and all of our indefinite lived brand assets, whereby we used an income approach, or in some cases a combination of income and market based approaches, to determine the fair value of our assets, as well as an overall consideration of market capitalization and enterprise value.
Purchases of property, plant and equipment were $353 million, $423 million and $461 million for the years ended December 31, 2022, 2021 and 2020, respectively.
Purchases of property, plant and equipment were $425 million, $353 million, and $423 million for the years ended December 31, 2023, 2022, and 2021, respectively.
We believe our integrated business model strengthens our route-to-market and provides opportunities for net sales and profit growth through the alignment of the economic interests of our brand ownership and our manufacturing and distribution businesses through both our DSD system and our WD system.
KDP operates as an integrated brand owner, manufacturer, and distributor. We believe our integrated business model strengthens our route-to-market and provides opportunities for net sales and profit growth through the alignment of the economic interests of our brand ownership and our manufacturing and distribution businesses through both our DSD system and our WD system.
Brewer volume decreased 5.2% in the year ended December 31, 2022, driven by the unfavorable comparison to brewer shipment growth of 10.0% in the prior year as appliance household penetration growth rates returned to expected long-term trends. Net Sales.
Appliance volume decreased 5.9% in the year ended December 31, 2022, driven by the unfavorable comparison to appliance shipment growth of 10.7% in the year ended December 31, 2021 as appliance household penetration growth rates returned to expected long-term trends. Net Sales.
Capital expenditures, which includes both purchases of property, plant and equipment and amounts included in accounts payable and accrued expenses, for the years ended December 31, 2022, 2021 and 2020 primarily related to the manufacturing and warehousing facilities discussed above.
Capital expenditures, which includes both purchases of property, plant, and equipment and amounts included in accounts payable and accrued expenses, for the years ended December 31, 2023, 2022, and 2021 primarily related to the manufacturing and warehousing facilities discussed above, as well as our Newbridge, Ireland facility in 2022 and 2021.
Refer to Note 3 of the Notes to our Consolidated Financial Statements for further information. Gain on litigation settlement . Gain on litigation settlement reflects the portion of the settlement payment from BodyArmor which was allocated to the gain on the full settlement of the existing claims against BodyArmor in the first quarter of 2022.
Refer to Note 3 of the Notes to our Consolidated Financial Statements for further information. Gain on Litigation Settlement. Gain on litigation settlement of $299 million reflects the portion of the settlement payment from BodyArmor which was allocated to the gain on the full settlement of the existing claims against BodyArmor in 2022. Other Operating Income, Net.
Long-term growth rates are based on the long-term inflation forecast, industry growth and the long-term economic growth potential. 38 Table of Contents The following table provides the range of rates used in the analysis as of October 1, 2022: Rate Minimum Maximum Discount rates 7.3 % 10.3 % Long-term growth rates — % 3.8 % The following table shows the non-cash impairment charges that were recorded for the years presented: Year Ended December 31, (in millions) 2022 2021 2020 Non cash-impairment charges for indefinite lived brand assets $ 472 $ — $ 67 Sensitivity Analysis - Discount Rate For goodwill, holding all other assumptions in the analysis constant, including the revenue and profit performance assumption, the effect of a 0.50% increase in the discount rate used to determine the fair value of the reporting units as of October 1, 2022, would not change our conclusion.
The following table provides the range of rates used in the analysis as of October 1, 2023: Rate Minimum Maximum Discount rates 8.0 % 13.5 % Long-term growth rates — % 4.0 % Royalty rates 1.0 % 10.0 % The following table shows the non-cash impairment charges that were recorded for indefinite lived brand assets for the years presented: Year Ended December 31, (in millions) 2023 2022 2021 Non-cash impairment charges for indefinite lived brand assets $ — $ 472 $ — Sensitivity Analysis - Discount Rate For goodwill, holding all other assumptions in the analysis constant, including the revenue and profit performance assumption, the effect of a 0.50% increase in the discount rate used to determine the fair value of the reporting units as of October 1, 2023, would not change our conclusion.
An unfavorable tax settlement generally would require use of our cash and may result in an increase in our effective tax rate in the period of resolution. A favorable tax settlement may be recognized as a reduction in our effective tax rate in the period of resolution. We also assess the likelihood of realizing our deferred tax assets.
An unfavorable tax settlement generally would require use of our cash and may result in an increase in our effective tax rate in the period of resolution. A favorable tax settlement may be recognized as a reduction in our effective tax rate in the period of resolution.
None of our subsidiaries organized outside of the U.S., immaterial subsidiaries used for charitable purposes, any of the subsidiaries held by Maple Parent Holdings Corp. prior to the DPS Merger or any of the subsidiaries acquired after the DPS Merger (collectively, the "Non-Guarantors") guarantee the Notes.
None of our subsidiaries organized outside of the U.S., nor any of the subsidiaries held by Maple Parent Holdings Corp. prior to the DPS Merger, nor any of the subsidiaries acquired after the DPS Merger (collectively, the "Non-Guarantors") guarantee the Notes.
KDP markets and sells its products to retailers, including supermarkets, mass merchandisers, club stores, pure-play e-commerce retailers, and office superstores; to restaurants, hotel chains, office product and coffee distributors, and partner brand owners; and directly to consumers through its website.
We market and sell our products to retailers, including supermarkets, mass merchandisers, club stores, pure-play e-commerce retailers, and office superstores; to restaurants, hotel chains, office product and coffee distributors, and partner brand owners; and directly to consumers through our website.
Diluted EPS decreased 32.7% to $1.01 per diluted share as compared to $1.50 in the prior year. 30 Table of Contents Results of Operations by Segment The following tables set forth net sales and income from operations for our segments for the years ended December 31, 2022 and 2021, as well as the other amounts necessary to reconcile our total segment results to our consolidated results presented in accordance with U.S.
Diluted EPS increased 53.5% to $1.55 per diluted share as compared to $1.01 in the prior year, primarily driven by increased net income attributable to KDP. 32 Table of Contents Results of Operations by Segment The following tables set forth net sales and income from operations for our segments for the years ended December 31, 2023 and 2022, as well as the other amounts necessary to reconcile our total segment results to our consolidated results presented in accordance with U.S.
We received $168 million, $102 million, and $200 million of net cash proceeds from our strategic asset investment program during the years ended December 31, 2022, 2021 and 2020, respectively, which are included in Proceeds from sales of property, plant and equipment in the Consolidated Statements of Cash Flows.
These transactions are accounted for as sale-leaseback transactions. We received $7 million, $168 million, and $102 million of net cash proceeds from our strategic asset investment program during the years ended December 31, 2023, 2022, and 2021, respectively, which are included in Proceeds from sales of property, plant and equipment in the Consolidated Statements of Cash Flows.
The effective tax rate decreased 680 bps to 16.5% for the year ended December 31, 2022, compared to 23.3% in the prior year, primarily driven by the revaluation of state deferred tax liabilities due to legislative changes and the favorable mix of our incremental income in low tax jurisdictions in the year. Net Income Attributable to KDP.
The effective tax rate decreased 680 bps to 16.5% for the year ended December 31, 2022, compared to 23.3% in the year ended December 31, 2021, primarily driven by the revaluation of state deferred tax liabilities (450 percentage points) and the favorable mix of our incremental income in low tax jurisdictions in the year (360 percentage points).
UNCERTAINTIES AND TRENDS AFFECTING LIQUIDITY AND CAPITAL RESOURCES Disruptions in financial and credit markets, including those caused by inflation due to global economic uncertainty and the associated rise in interest rates, may impact our ability to manage normal commercial relationships with our customers, suppliers and creditors.
Refer to Note 18 of the Notes to our Consolidated Financial Statements for further information. 43 Table of Contents UNCERTAINTIES AND TRENDS AFFECTING LIQUIDITY AND CAPITAL RESOURCES Disruptions in financial and credit markets, including those caused by inflation due to global economic uncertainty and the associated rise in interest rates, may impact our ability to manage normal commercial relationships with our customers, suppliers, and creditors.
Debt Ratings As of December 31, 2022, our credit ratings were as follows: Rating Agency Long-Term Debt Rating Commercial Paper Rating Outlook Date of Last Change Moody's Baa2 P-2 Stable February 26, 2021 S&P BBB A-2 Stable April 19, 2022 These debt and commercial paper ratings impact the interest we pay on our financing arrangements.
Debt Ratings As of December 31, 2023, our credit ratings were as follows: Rating Agency Long-Term Debt Rating Commercial Paper Rating Outlook Moody's Baa1 P-2 Stable S&P BBB A-2 Stable These debt and commercial paper ratings impact the interest we pay on our financing arrangements.
The increase reflected higher logistics costs, driven by both inflation and volume/mix impacts, increases in labor and other operating expenses, and an unfavorable comparison of unrealized mark-to-market losses of $55 million on commodity contracts. Impairment of Intangible Assets. Impairment of intangible assets reflected non-cash impairment charges of $477 million primarily driven by Bai and Schweppes.
The increase reflected the impact of higher transportation and warehousing costs (7 percentage points), driven by both inflation and volume/mix impacts, an unfavorable comparison of unrealized mark-to-market losses on commodity contracts (1 percentage points), and increased other operating costs. Impairment of Intangible Assets. Impairment of intangible assets reflected non-cash impairment charges of $477 million, primarily driven by Bai and Schweppes.
The following table sets forth changes in sales volume for the year ended December 31, 2022 compared to the prior year: K-Cup pod volume 1.4 % Brewer volume (5.2) % CSD sales volume 1.5 % NCB sales volume 1.3 % 29 Table of Contents Net Sales.
The following table sets forth changes in sales volume for the year ended December 31, 2022 compared to the prior year: LRB 1.4 % K-Cup pods 1.4 % Appliances (5.2) % 35 Table of Contents Net Sales.
For 2022 and 2021, we defined our six reporting units as follows: Reportable Segments Reporting Units Packaged Beverages DSD WD Coffee Systems Coffee Systems Beverage Concentrates Branded Concentrates Fountain Foodservice Latin America Beverages Latin America Beverages For both goodwill and other indefinite lived intangible assets, we have the option to first assess qualitative factors to determine whether the fair value of either the reporting unit or indefinite lived intangible asset is "more likely than not" less than its carrying value, also known as a Step 0 analysis.
Coffee) • International (reporting units: Canada Beverage Concentrates, Canada Warehouse Direct, Canada Coffee, and Latin America Beverages) For both goodwill and other indefinite lived intangible assets, we have the option to first assess qualitative factors to determine whether the fair value of either the reporting unit or indefinite lived intangible asset is "more likely than not" less than its carrying value, also known as a Step 0 analysis.
Income from operations decreased $289 million, or 10.0%, to $2,605 million for the year ended December 31, 2022 compared to $2,894 million in the prior year, primarily driven by the non-cash impairment charges of $477 million, which was partially offset by the gain on the litigation settlement. Other factors include higher SG&A expenses, partially offset by increased gross profit.
Income from operations decreased $289 million, or 10.0%, to $2,605 million for the year ended December 31, 2022 compared to $2,894 million in the year ended December 31, 2021, primarily driven by the non-cash impairment charges of $477 million, which were partially offset by the non-recurring gain on the litigation settlement of $299 million.
Net sales increased 16.1% to $1,725 million in the year ended December 31, 2022, compared to $1,486 million in the prior year, reflecting higher net price realization of 14.7% and volume/mix growth of 1.7%, slightly offset by unfavorable FX translation effects of 0.3%. Income from Operations.
Net sales increased 13.4% to $1,672 million in the year ended December 31, 2022, compared to $1,474 million in the year ended December 31, 2021, reflecting higher net price realization of 11.4% and volume/mix growth of 4.1%, slightly offset by unfavorable FX translation effects of 2.1%. Income from Operations.
Gross margin decreased 290 bps versus the year ago period to 52.1%. Selling, General and Administrative Expenses. SG&A expenses increased $492 million, or 11.8%, to $4,645 million for the year ended December 31, 2022 compared to $4,153 million in the prior year.
Selling, General and Administrative Expenses. SG&A expenses increased $492 million, or 11.8%, to $4,645 million for the year ended December 31, 2022 compared to $4,153 million in the year ended December 31, 2021.
We also have an active shelf registration statement, filed with the SEC on August 19, 2022, which allows us to issue an indeterminate number or amount of common stock, preferred stock, debt securities and warrants from time to time in one or more offerings at the direction of our Board of Directors.
We also have an active shelf registration statement, filed with the SEC on August 19, 2022, which allows us to issue an indeterminate number or amount of common stock, preferred stock, debt securities, and warrants from time to time in one or more offerings at the direction of our Board. 41 Table of Contents Sources of Liquidity - Asset Sale-Leaseback Transactions We have leveraged our strategic asset investment program to create value from certain assets to enable reinvestment in KDP.
Discount rates are based on a weighted average cost of equity and cost of debt, adjusted with various risk premiums.
Discount rates are based on a weighted average cost of equity and cost of debt, adjusted with various risk premiums. Long-term growth rates are based on the long-term inflation forecast, industry growth and the long-term economic growth potential.
Now that we have met our post-merger goals, we plan to further reduce our leverage ratio. We also plan to invest in inorganic value creation through M&A, including portfolio expansion, distribution scale, geographic expansion, and new capabilities. In addition to M&A, we have repurchased shares of our outstanding common stock, as described below.
After meeting our post-merger goals at the end of 2021, we’ve established a long-term plan to further reduce our leverage ratio. We also plan to invest in value creation through mergers, acquisitions, or strategic partnerships, including portfolio expansion, distribution scale, geographic expansion, and new capabilities. In addition, we have repurchased shares of our outstanding common stock, as described below.
Net sales increased 5.6% to $4,982 million for the year ended December 31, 2022 compared to $4,716 million in the prior year, driven by favorable net price realization of 7.0%, partially offset by volume/mix declines of 0.8% and unfavorable FX translation of 0.6%. Income from Operations.
Net sales increased 5.2% to $4,302 million in the year ended December 31, 2022, compared to $4,089 million in the year ended December 31, 2021, driven by favorable net price realization of 6.4%, partially offset by volume/mix declines of 1.2%. Income from Operations.
Based on our current and anticipated level of operations, we believe that our operating cash flows will be sufficient to meet our anticipated obligations for the next twelve months. To the extent that our operating cash flows are not sufficient to meet our liquidity needs, we may utilize cash on hand or amounts available under our financing arrangements, if necessary.
To the extent that our operating cash flows are not sufficient to meet our liquidity needs, we may utilize cash on hand or amounts available under our financing arrangements, if necessary.
Accruals for customer incentives, sales returns and marketing programs are established for the expected payout based on contractual terms, volume-based metrics and/or historical trends.
Revenue Recognition We recognize revenue when performance obligations under the terms of a contract with the customer are satisfied. Accruals for customer incentives, sales returns, and marketing programs are established for the expected payout based on contractual terms, volume-based metrics, and/or historical trends.
December 31, 2022 2021 DIO 68 58 DSO 39 33 DPO 167 160 Cash conversion cycle (60) (69) Our cash conversion cycle increased 9 days to approximately (60) days as of December 31, 2022 as compared to (69) days as of December 31, 2021.
December 31, 2023 2022 DIO 71 68 DSO 34 39 DPO 113 167 Cash conversion cycle (8) (60) Our cash conversion cycle increased 52 days to approximately (8) days as of December 31, 2023 as compared to (60) days as of December 31, 2022.
Net sales increased 12.3% to $6,607 million in the year ended December 31, 2022, compared to $5,882 million in the prior year, driven by favorable net price realization of 12.1% and volume/mix growth of 0.3%, slightly offset by unfavorable FX translation of 0.1%. Income from Operations.
Net sales increased 13.5% to $8,083 million for the year ended December 31, 2022 compared to $7,120 million in the year ended December 31, 2021, driven by favorable net price realization of 12.9% and volume/mix growth of 0.6%. Income from Operations.
Accounts Payable Program As part of our ongoing efforts to improve our cash flow and related liquidity, we work with our suppliers to optimize our terms and conditions, which include the extension of payment terms.
The change was largely due the decrease in DPO, primarily driven by the reduction of payment terms for certain suppliers. Accounts Payable Program As part of our ongoing efforts to improve our cash flow and related liquidity, we work with our suppliers to optimize our terms and conditions, which includes payment terms.
Income Taxes We establish income tax liabilities to remove some or all of the income tax benefit of any of our income tax positions based upon one of the following: • the tax position is not “more likely than not” to be sustained, • the tax position is “more likely than not” to be sustained, but for a lesser amount, or • the tax position is “more likely than not” to be sustained, but not in the financial period in which the tax position was originally taken.
A 10% change in the accrual for our customer incentives, sales returns and marketing programs would have affected our income from operations by $53 million for the year ended December 31, 2023. 47 Table of Contents Income Taxes We establish income tax liabilities to remove some or all of the income tax benefit of any of our income tax positions based upon one of the following: • the tax position is not “more likely than not” to be sustained, • the tax position is “more likely than not” to be sustained, but for a lesser amount, or • the tax position is “more likely than not” to be sustained, but not in the financial period in which the tax position was originally taken.
Net sales grew 24.0% to $743 million for the year ended December 31, 2022, compared to $599 million in the prior year, reflecting favorable net price realization of 13.9%, volume/mix growth of 9.1%, and favorable FX translation of 1.0%. Income from Operations.
Net sales increased 15.0% to $1,922 million in the year ended December 31, 2023, compared to $1,672 million in the prior year period, reflecting higher net price realization of 5.5%, volume/mix growth of 5.0%, and favorable FX translation effects of 4.5%. Income from Operations.
Income from operations increased $14 million, or 1.3%, to $1,061 million for the year ended December 31, 2022 compared to $1,047 million in the prior year.
Income from operations increased $102 million, or 27.3%, to $475 million for the year ended December 31, 2023 compared to $373 million in the prior year period.
The summarized financial information for the Parent and Guarantors were as follows: (in millions) For the Year Ended December 31, 2022 Net sales $ 8,242 Income from operations 1,008 Net income attributable to KDP 1,436 December 31, (in millions) 2022 2021 Current assets $ 1,712 $ 1,594 Non-current assets 45,721 43,972 Total assets (1) $ 47,433 $ 45,566 Current liabilities $ 4,797 $ 3,470 Non-current liabilities 17,463 17,125 Total liabilities (2) $ 22,260 $ 20,595 (1) Includes $3 million and $209 million of intercompany receivables due to the Parent and Guarantors from the Non-Guarantors as of December 31, 2022 and December 31, 2021, respectively.
The summarized financial information for the Parent and Guarantors were as follows: (in millions) For the Year Ended December 31, 2023 Net sales $ 9,147 Gross profit 4,796 Income from operations 1,284 Net income attributable to KDP 2,181 December 31, (in millions) 2023 2022 Current assets $ 1,957 $ 1,712 Non-current assets 48,029 45,721 Total assets (1) $ 49,986 $ 47,433 Current liabilities $ 6,749 $ 4,797 Non-current liabilities 16,689 17,463 Total liabilities (2) $ 23,438 $ 22,260 (1) Includes $56 million and $3 million of intercompany receivables due to the Parent and Guarantors from the Non-Guarantors as of December 31, 2023 and December 31, 2022, respectively.
Coffee Systems K-Cup Pod and Appliance Sales Volume In our Coffee Systems segments, we measure our sales volume as the number of appliances and the number of individual K-Cup pods sold to our customers. Packaged Beverages and Latin America Beverages Sales Volume In our Packaged Beverages and Latin America Beverages segments, we measure volume as case sales to customers.
For our K-Cup pods and appliances, we measure our sales volume as the number of appliances and the number of individual K-Cup pods sold to our customers.
Consequently, we may incur a reduction of volume or net sales, which, combined with the inflationary pressures, could impact our margins and operating results. Refer to Note 5 of the Notes to our Consolidated Financial Statements and Item 7A, Quantitative and Qualitative Disclosures About Market Risk for management's discussion of how we manage our exposure to commodity risk.
Refer to Note 5 of the Notes to our Consolidated Financial Statements and Item 7A, Quantitative and Qualitative Disclosures About Market Risk for management's discussion of how we manage our exposure to commodity risk.
Beverage Concentrates Sales Volume In our Beverage Concentrates segment, we measure our sales volume as concentrate case sales for concentrates sold by us to our bottlers and distributors. A concentrate case is the amount of concentrate needed to make one case of 288 fluid ounces of finished beverage, the equivalent of 24 twelve ounce servings.
For LRB, we measure our sales volume in 288 fluid ounce equivalent cases. • For beverage concentrates, we measure our sales volume as concentrate case sales for concentrates sold by us to our bottlers and distributors.
GAAP . SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION The Notes are fully and unconditionally guaranteed by certain of our direct and indirect subsidiaries (the "Guarantors"), as defined in the indentures governing the Notes. The Guarantors are 100% owned either directly or indirectly by us and jointly and severally guarantee, subject to the release provisions described below, our obligations under the Notes.
The Guarantors are 100% owned either directly or indirectly by us and jointly and severally guarantee, subject to the release provisions described below, our obligations under the Notes.
Our investments in beverage startup companies generally involve acquiring a minority interest in equity securities of a company, in certain cases with a protected path to ownership at our future option. During the year ended December 31, 2022, we invested $972 million in exchange for equity interests in Nutrabolt, Tractor and Athletic Brewing.
Our investments in beverage startup companies generally involve acquiring a minority interest in equity securities of a company, in certain cases with a protected path to ownership at our future option.
KDP has some of the most recognized beverage brands in North America, with significant consumer awareness levels and long histories that evoke strong emotional connections with consumers.
KDP has some of the most recognized beverage brands in North America, with significant consumer awareness levels and long histories that evoke strong emotional connections with consumers. We offer more than 125 owned, licensed, and partner brands, available nearly everywhere people shop and consume beverages through our sales and distribution network.
Sources of Liquidity - Operations Net cash provided by operating activities decreased $37 million for the year ended December 31, 2022, as compared to the year ended December 31, 2021, driven by the decrease in net income adjusted for non-cash items and the impact of the change in working capital.
Sources of Liquidity - Operations Net cash provided by operating activities decreased $1,508 million for the year ended December 31, 2023, as compared to the year ended December 31, 2022.
Constant currency net sales increased 11.1% in the year ended December 31, 2022 compared to the prior year, driven by favorable net price realization of 10.6% and volume/mix growth of 0.5%. Constant Currency Adjusted Income from Operations.
Net sales increased 9.1% to $8,821 million in the year ended December 31, 2023, compared to $8,083 million in the prior year period, driven by favorable net price realization of 9.6%, which was partially offset by unfavorable volume/mix impacts of 0.5%. Income from Operations.
(2) Includes $1,186 million and $40 million of intercompany payables due to the Non-Guarantors from the Parent and Guarantors as of December 31, 2022 and December 31, 2021, respectively. 41 Table of Contents NON-GAAP FINANCIAL MEASURES To supplement the consolidated financial statements presented in accordance with U.S.
(2) Includes $1,399 million and $1,186 million of intercompany payables due to the Non-Guarantors from the Parent and Guarantors as of December 31, 2023 and December 31, 2022, respectively. 49 Table of Contents
Income from operations decreased $9 million, or 0.9%, to $1,014 million for the year ended December 31, 2022 compared to $1,023 million for the prior year, primarily driven by the $316 million non-cash impairment charges in the segment, predominantly related to Bai, which were partially offset by the gain on the settlement of litigation with BodyArmor of $271 million.
Income from operations of $1,961 million for the year ended December 31, 2022 was flat compared to the year ended December 31, 2021, primarily driven by the impact of non-cash impairment charges (24 percentage points), led by Bai and Schweppes, which were partially offset by impact of the non-recurring gain on the settlement of litigation with BodyArmor (14 percentage points).
Regular Quarterly Dividends For the year ended December 31, 2022, we have declared total dividends of $0.775 per share, versus $0.7125 per share for the year ended December 31, 2021. Repurchases of Common Stock Our Board authorized a four-year share repurchase program of up to $4 billion of our outstanding common stock potentially enabling us to return value to shareholders.
Repurchases of Common Stock Our Board authorized a four-year share repurchase program, ending December 31, 2025, of up to $4 billion of our outstanding common stock, potentially enabling us to return value to shareholders. We repurchased and retired $706 million and $379 million of common stock during the years ended December 31, 2023 and 2022.
We repurchased and retired $379 million of common stock during the year ended December 31, 2022. Capital Expenditures We are investing in state-of-the-art manufacturing and warehousing facilities, including expansive investments in facilities in Newbridge, Ireland; Spartanburg, South Carolina; and Allentown, Pennsylvania, in 2022 and 2021, in order to optimize our supply chain network.
As of December 31, 2023, $2,915 million remained available for repurchase under the authorized share repurchase program. Capital Expenditures We are investing in state-of-the-art manufacturing and warehousing facilities, including expansive investments in next-generation facilities in Spartanburg, South Carolina; and Allentown, Pennsylvania, in order to optimize our supply chain network.
Refer to Item 1A, Risk Factors , as well as the Uncertainties and Trends Affecting Liquidity section below, for more information about risks and uncertainties facing us.
Refer to Item 1A, Risk Factors , as well as the Uncertainties and Trends Affecting Liquidity section below, for more information about risks and uncertainties facing us. Some of these items have led to inflation in input costs, logistics, manufacturing, and labor costs, which has further led to fluctuation in interest rates.
For the indefinite-lived intangible assets quantitatively assessed, holding all other assumptions in the analysis constant, including the revenue and profit performance assumption, the effect of a 0.50% increase in the discount rate used to determine the fair value of those brands as of October 1, 2022, would impact the amount of headroom over the carrying value of those brands as follows (in millions): Selected Discount Rate Discount Rate Increase of 0.50% Headroom Percentage Carrying Value Fair Value Carrying Value Fair Value Brands 0% (1) $ 2,136 $ 2,136 $ 2,710 $ 2,537 Less than 25% 2,186 2,547 1,612 1,799 26 - 50% — — 2,351 3,446 In excess of 50% 14,848 28,942 12,497 22,797 (1) Carrying value reflects the results of the annual impairment analysis recognized during the year ended December 31, 2022.
For the brand and trade name indefinite-lived intangible assets quantitatively assessed, holding all other assumptions in the analysis constant, including the revenue and profit performance assumption, the effect of a 0.50% increase in the discount rate used to determine the fair value of those assets as of October 1, 2023, would impact the amount of headroom over the carrying value of the following assets as follows (in millions): Selected Discount Rate Discount Rate Increase of 0.50% Headroom Percentage Carrying Value Fair Value Carrying Value Fair Value Brands 0% $ — $ — $ 28 $ 27 Less than 25% 2,274 2,493 4,445 4,903 25 - 50% 2,339 3,018 2,537 3,747 In excess of 50% 14,767 29,002 12,370 23,106 Trade Names In excess of 50% 2,478 5,930 2,478 5,490 .
A downgrade of one or both of our debt and commercial paper ratings could increase our interest expense and decrease the cash available to fund anticipated obligations.
A downgrade of one or both of our debt and commercial paper ratings could increase our interest expense and decrease the cash available to fund anticipated obligations. As of December 31, 2023, we were in compliance with all debt covenants and we have no reason to believe that we will be unable to satisfy these covenants.
We performed a qualitative Step 0 analysis for other indefinite lived intangible assets, including certain brands, trade names, contractual arrangements, and distribution rights. These types of analyses contain uncertainties because they require management to make assumptions and to apply judgment to estimate industry and economic factors and the profitability of future business strategies.
These types of analyses contain uncertainties because they require management to make assumptions and to apply judgment to estimate industry and economic factors and the profitability of future business strategies.
Operating margin decreased 900 bps versus the prior year to 61.5%. 32 Table of Contents LATIN AMERICA BEVERAGES The following table provides selected information for our Latin America Beverages segment for the years ended December 31, 2022 and 2021: For the Year Ended December 31, Dollar Percentage (in millions) 2022 2021 Change Change Net sales $ 743 $ 599 $ 144 24.0 % Income from operations 158 133 25 18.8 % Operating margin 21.3 % 22.2 % (90) bps Sales Volume.
Operating margin declined 370 bps versus the year ended December 31, 2021 to 28.2%. 38 Table of Contents International The following table provides selected information for our International segment for the years ended December 31, 2022 and 2021: For the Year Ended December 31, Dollar Percentage (in millions) 2022 2021 Change Change Net sales $ 1,672 $ 1,474 $ 198 13.4 % Income from operations 373 382 (9) (2.4) % Operating margin 22.3 % 25.9 % (360) bps Sales Volume.
For the indefinite-lived intangible assets quantitatively assessed, holding all other assumptions in the analysis constant, including the discrete period revenue and profit performance assumptions as well as the discount rates, the effect of a 0.50% decrease in the long-term revenue growth rate used to determine the fair value of those brands as of October 1, 2022, would impact the amount of headroom over the carrying value of those brands as follows (in millions): Selected Long-Term Growth Rate Long-Term Growth Rate Decrease of 0.50% Headroom Percentage Carrying Value Fair Value Carrying Value Fair Value Brands 0% (1) $ 2,136 $ 2,136 $ 2,396 $ 2,271 Less than 25% 2,186 2,547 1,926 2,153 26 - 50% — — 2,351 3,515 In excess of 50% 14,848 28,942 12,497 23,257 (1) Carrying value reflects the results of the annual impairment analysis recognized during the year ended December 31, 2022.
Sensitivity Analysis - Long-Term Growth Rate For goodwill, holding all other assumptions in the analysis constant, including the discrete period revenue and profit performance assumptions as well as the discount rates, the effect of a 0.50% decrease in the long-term growth rate used to determine the fair value of the reporting units as of October 1, 2023, would not change our conclusion. 46 Table of Contents For the indefinite-lived priority brand assets quantitatively assessed, holding all other assumptions in the analysis constant, including the discrete period revenue and profit performance assumptions as well as the discount rates, the effect of a 0.50% decrease in the long-term revenue growth rate used to determine the fair value of those assets as of October 1, 2023, would impact the amount of headroom over the carrying value of the following assets as follows (in millions): Selected Long-Term Growth Rate Long-Term Growth Rate Decrease of 0.50% Headroom Percentage Carrying Value Fair Value Carrying Value Fair Value Brands 0% $ — $ — $ — $ — Less than 25% 2,246 2,465 3,858 4,265 25 - 50% 2,339 3,018 727 912 In excess of 50% 14,756 28,985 14,756 27,183 .
BEVERAGE CONCENTRATES The following table provides selected information for our Beverage Concentrates segment for the years ended December 31, 2022 and 2021: For the Year Ended December 31, Dollar Percentage (in millions) 2022 2021 Change Change Net sales $ 1,725 $ 1,486 $ 239 16.1 % Income from operations 1,061 1,047 14 1.3 % Operating margin 61.5 % 70.5 % (900) bps Sales Volume.
International The following table provides selected information for our International segment for the years ended December 31, 2023 and 2022: For the Year Ended December 31, Dollar Percentage (in millions) 2023 2022 Change Change Net sales $ 1,922 $ 1,672 $ 250 15.0 % Income from operations 475 373 102 27.3 % Operating margin 24.7 % 22.3 % 240 bps Sales Volume.
These transactions are generally accounted for as an asset acquisition, as the majority of the transaction price represents the acquisition of an intangible asset.
These transactions are generally accounted for as an asset acquisition, as the majority of the transaction price represents the acquisition of an intangible asset. Purchases of intangible assets were $56 million, $45 million, and $32 million for the years ended December 31, 2023, 2022, and 2021, respectively.
The amount recorded in 2022 represents the portion of the settlement payment from BodyArmor that was allocated to the satisfaction of the holdback amount owed to us. Refer to Note 12 of the Notes to our Consolidated Financial Statements for further information. Impairment of Investments and Note Receivable.
The amount recorded in 2022 represents the portion of the settlement payment from BodyArmor that was allocated to the satisfaction of the holdback amount owed to us. Other (income) expense, net.
Sales volume for the year ended December 31, 2022 increased 1.6% compared to the prior year, primarily driven by Dr Pepper and Canada Dry, partially offset by Schweppes and Crush. Net Sales.
Sales volume for the year ended December 31, 2022 increased 1.6% compared to the year ended December 31, 2021. Growth in our branded portfolio, particularly in Dr Pepper, Canada Dry, Mott’s, and Core, was mostly offset by reductions in contract manufacturing and softness in Bai, Schweppes, Crush, Polar, and Hawaiian Punch. Net Sales.
Investments in Unconsolidated Affiliates From time to time, we expect to invest in beverage startup companies or in brand ownership companies to grow our presence in certain product categories, or enter into various licensing and distribution agreements to expand our product portfolio.
Capital expenditures included in accounts payable and accrued expenses were $276 million, $213 million, and $189 million for the years ended December 31, 2023, 2022, and 2021, respectively, which primarily related to these investments. 42 Table of Contents Investments in Unconsolidated Affiliates From time to time, we expect to invest in beverage startup companies or in brand ownership companies to grow our presence in certain product categories, or enter into various licensing and distribution agreements to expand our product portfolio.
(4) Reflects reversal of allowances initially recorded in 2020 specifically related to the COVID-19 pandemic, driven by improving economic conditions during 2021. 28 Table of Contents RESULTS OF OPERATIONS We eliminate from our financial results all intercompany transactions between entities included in our consolidated financial statements and the intercompany transactions with our equity method investees.
RESULTS OF OPERATIONS We eliminate from our financial results all intercompany transactions between entities included in our consolidated financial statements and the intercompany transactions with our equity method investees.
Other operating income, net increased $35 million for the year ended December 31, 2022 compared to the prior year, primarily driven by the portion of the settlement payment from BodyArmor which was allocated to the recovery of legal fees incurred during the litigation process and a business interruption insurance recovery. Income from Operations.
Other operating income, net increased $35 million to $105 million for the year ended December 31, 2022, compared to $70 million in the year ended December 31, 2021, primarily driven by the impact of non-operational activity, led by a business interruption insurance recovery and a favorable comparison of year-over-year sale-leaseback activity. Income from Operations.
This change was primarily driven by the unfavorable comparison of unrealized mark-to-market losses of $255 million on interest rate contracts, which was partially offset by reduced interest expense on our senior unsecured notes as a result of our strategic refinancing initiatives. Loss on Early Extinguishment of Debt.
Interest expense, net increased $193 million, or 38.6%, to $693 million for the year ended December 31, 2022 compared to $500 million for the year ended December 31, 2021, primarily driven by the impact of unfavorable comparison of unrealized mark-to-market losses on interest rate contracts (51 percentage points), which was partially offset by the impact of reduced interest expense on our senior unsecured notes resulting from our strategic refinancing initiatives (10 percentage points).
Income from operations increased $25 million, or 18.8%, to $158 million for the year ended December 31, 2022 compared to $133 million in the prior year, driven by the benefits of net sales growth and productivity, partially offset by the impacts of broad-based inflation, logistics and operating costs associated with incremental volumes, and increased marketing expense.
Income from operations decreased $91 million, or 7.0%, to $1,215 million for the year ended December 31, 2022, compared to $1,306 million in the year ended December 31, 2021, driven by the impacts to income from operations of net inflation in ingredients and materials (20 percentage points) and increased other operating costs, partially offset by the impact to gross profit of the benefits of net sales growth (16 percentage points).
SEGMENTS As of December 31, 2022, our reportable segments were as follows: • The Coffee Systems segment reflects sales in the U.S. and Canada of the manufacture and distribution of finished goods relating to our single-serve brewers, K-Cup pods and other coffee products. • The Packaged Beverages segment reflects sales in the U.S. and Canada from the manufacture and distribution of finished beverages and other products, including sales of our own brands and third-party brands, through both the DSD and WD systems. • The Beverage Concentrates segment reflects sales primarily in the U.S. and Canada of our branded concentrates to third-party bottlers and our syrup to fountain foodservice customers.
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 other coffee products to partners, retailers, and directly to consumers through our 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. 28 Table of Contents VOLUME In evaluating our performance, we use different volume measures for LRB and for K-Cup pods and appliances.
As of December 31, 2022, we have not recorded any liabilities as it is not probable that we will have to make any payments required under the residual value guarantee. Refer to Note 19 of the Notes to our Consolidated Financial Statements for further information.
RESIDUAL VALUE GUARANTEES We have a number of leasing arrangements and one licensing arrangement with the Veyron SPEs. Each one of these arrangements contain a residual value guarantee. As of December 31, 2023, we have not recorded any liabilities as it is not probable that we will have to make any payments required under the residual value guarantee.
Cash generated by our foreign operations is generally repatriated to the U.S. periodically as working capital funding requirements where allowed.
Cash generated by our foreign operations is generally repatriated to the U.S. periodically as working capital funding requirements, where allowed. We do not expect restrictions or taxes on repatriation of cash held outside the U.S. to have a material effect on our overall business, liquidity, financial condition or results of operations for the foreseeable future.
Principal Sources of Capital Resources Our principal sources of liquidity are our existing cash and cash equivalents, cash generated from our operations and borrowing capacity currently available under our 2022 Revolving Credit Agreement. Additionally, we have an uncommitted commercial paper program where we can issue unsecured commercial paper notes on a private placement basis.
The following summarizes our cash activity for the years ended December 31, 2023, 2022, and 2021: Principal Sources of Capital Resources Our principal sources of liquidity are our existing cash and cash equivalents, cash generated from our operations, and borrowing capacity currently available under our 2022 Revolving Credit Agreement.
Constant currency net sales increased 16.4%, reflecting higher net price realization of 14.7% and volume/mix growth of 1.7%. Constant Currency Adjusted Income from Operations. Constant currency adjusted income from operations for the year ended December 31, 2022 increased 16.9% compared to the prior year period.
Net sales decreased 5.4% to $4,071 million for the year ended December 31, 2023 compared to $4,302 million in the prior year period, driven by volume/mix declines of 7.9% which were partially offset by favorable net price realization of 2.5%. Income from Operations.
Refer to Note 12 of the Notes to our Consolidated Financial Statements for further information. Other Operating Income, Net.
Refer to Note 3 of the Notes to our Consolidated Financial Statements for further information. Gain on litigation settlement . Gain on litigation settlement reflects the portion of the settlement payment from BodyArmor which was allocated to the gain on the full settlement of the existing claims against BodyArmor in the prior year. Other Operating Income, Net.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

9 edited+1 added−1 removed4 unchanged
Biggest changeAs of December 31, 2022, the impact of a 10% change (up or down) in market prices for these commodities where the risk of movements has not been hedged is estimated to have a $42 million impact to our income from operations for the year ended December 31, 2023. 48 Table of Contents
Biggest changeAs of December 31, 2023, a 10% change (up or down) in commodity prices is estimated to increase or decrease the fair value of these derivative instruments by approximately $45 million. Any increase or decrease in the value of the commodities derivatives instruments would have an approximately offsetting change in the underlying hedged risk. 50 Table of Contents
We use derivative instruments such as foreign exchange forward contracts to manage a portion of our exposure to changes in foreign exchange rates. As of December 31, 2022, we had derivative contracts outstanding with notional values of $1,001 million maturing at various dates through October 2024.
We use derivative instruments such as foreign exchange forward contracts to manage a portion of our exposure to changes in foreign exchange rates. As of December 31, 2023, we had derivative contracts outstanding with notional values of $1,135 million maturing at various dates through December 2024.
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk We are exposed to market risks arising from changes in market rates and prices, including movements in foreign currency exchange rates, interest rates and commodity prices. We regularly enter into derivatives or other financial instruments to hedge or mitigate commercial risks.
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk We are exposed to market risks arising from changes in market rates and prices, including movements in foreign currency exchange rates, interest rates, and commodity prices. We regularly enter into derivatives or other financial instruments to hedge or mitigate commercial risks. We do not enter into derivative instruments for speculative purposes.
We do not enter into derivative instruments for speculation, investing or trading. Refer to Note 5 of the Notes to our Consolidated Financial Statements for further information about our derivative instruments. FOREIGN EXCHANGE RISK The majority of our net sales, expenses and capital purchases are transacted in U.S. dollars. However, we have exposure with respect to foreign exchange rate fluctuations.
Refer to Note 5 of the Notes to our Consolidated Financial Statements for further information about our derivative instruments. FOREIGN EXCHANGE RISK The majority of our net sales, expenses, and capital purchases are transacted in U.S. dollars. However, we have exposure with respect to foreign exchange rate fluctuations.
As of December 31, 2022, we had derivative contracts outstanding with a notional value of $754 million maturing at various dates through April 2024. The fair market value of these contracts as of December 31, 2022 was a net liability of $45 million.
As of December 31, 2023, we had derivative contracts outstanding with a notional value of $500 million maturing at various dates through December 2025. The fair market value of these contracts as of December 31, 2023 was a net liability of $52 million.
We estimate that the potential impact to our interest rate expense associated with variable rate debt and derivative instruments resulting from a hypothetical interest rate change of 1%, based on variable-rate debt and derivative instrument levels as of December 31, 2022, would be an increase or decrease of approximately $23 million.
We estimate that the potential impact to our interest rate expense associated with variable rate interest payments resulting from a hypothetical interest rate change of 1%, based on amounts outstanding as of December 31, 2023, would be an increase or decrease of approximately $33 million.
The fair value of foreign currency derivatives that do not qualify for hedge accounting resulted in a net unrealized gain of $16 million as of December 31, 2022, and the impact of a 10% change (up or down) in exchange rates is estimated to increase or decrease the fair value by approximately $50 million.
The fair value of foreign currency derivatives that do not qualify for hedge accounting resulted in a net unrealized loss of $3 million as of December 31, 2023, and the impact of a 10% weakening in the U.S. dollar is estimated to decrease the fair value by approximately $40 million.
The fair value of foreign currency derivatives that qualify for hedge accounting resulted in a net unrealized gain of $19 million as of December 31, 2022, and the impact of a 10% change (up or down) in exchange rates is estimated to increase or decrease the fair value by approximately $50 million.
The fair value of foreign currency derivatives that qualify for hedge accounting resulted in a net unrealized loss of $13 million as of December 31, 2023, and the impact of a 10% weakening in the U.S. dollar is estimated to decrease the fair value by approximately $49 million.
As of December 31, 2022, the carrying value of our fixed-rate debt, excluding lease obligations, was $11,568 million and our variable-rate debt was $399 million, comprised entirely of commercial paper. Additionally, as of December 31, 2022, the total notional value of receive-fixed, pay-variable interest rate swaps was $1,900 million.
As of December 31, 2023, the carrying value of our fixed-rate debt, excluding lease obligations, was $11,095 million, and our variable-rate debt was $2,096 million, comprised entirely of commercial paper. From time to time, we also enter into interest rate contracts that effectively result in variable-rate interest payments or receipts.
Removed
Our variable-rate derivative instruments are generally based on SOFR and a credit spread.
Added
These derivative instruments are generally based on SOFR and a credit spread. As of December 31, 2023, certain of our outstanding forward starting swaps, with a total notional value of $1,200 million, are expected to begin such payments or receipts in the first quarter of 2024.

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