Keurig Dr Pepper Inc
For the period ended Dec 31, 2023. Filed Feb 22, 2024.
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FY2023 · Filed Feb 22, 2024
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13. Income Taxes
- Income Taxes
Income before provision for income taxes was as follows:
| For the Year Ended December 31, | |||
|---|---|---|---|
| (in millions) | 2023 | 2022 | 2021 |
| U.S. | $1,665 | $789 | $2,353 |
| International | 1,092 | 930 | 445 |
| Total | $2,757 | $1,719 | $2,798 |
The provision for income taxes has the following components:
| For the Year Ended December 31, | |||
|---|---|---|---|
| (in millions) | 2023 | 2022 | 2021 |
| Current: | |||
| Federal | $270 | $320 | $386 |
| State | 117 | 97 | 136 |
| International | 193 | 156 | 100 |
| Total current provision | $580 | $573 | $622 |
| Deferred: | |||
| Federal | $31 | $(141) | $41 |
| State | 2 | (147) | (8) |
| International | (37) | (1) | (2) |
| Total deferred provision | (4) | (289) | 31 |
| Total provision for income taxes | $576 | $284 | $653 |
The following is a reconciliation of the provision for income taxes computed at the U.S. federal statutory tax rate to the provision for income taxes reported in the Consolidated Statements of Income:
| For the Year Ended December 31, | |||
|---|---|---|---|
| (in millions) | 2023 | 2022 | 2021 |
| Statutory federal income tax rate | 21.0% | 21.0% | 21.0% |
| State income taxes, net | 3.2% | 2.6% | 3.8% |
| Impact of non-U.S. operations | (1.7)% | (2.3)% | 0.1% |
| Tax credits | (3.7)% | (3.9)% | (0.8)% |
| Valuation allowance for deferred tax assets | —% | —% | (0.1)% |
| U.S. taxation of foreign earnings | 3.0% | 3.7% | 0.7% |
| Deferred rate change | (0.3)% | (5.2)% | (0.7)% |
| Uncertain tax positions | 0.1% | 0.3% | —% |
| U.S. federal provision to return | —% | (0.1)% | (0.3)% |
| Excess tax deductions on stock-based compensation | (0.3)% | (0.1)% | (1.0)% |
| Other | (0.4)% | 0.5% | 0.6% |
| Total provision for income taxes | 20.9% | 16.5% | 23.3% |
Deferred tax assets and liabilities were comprised of the following:
| December 31, | ||
|---|---|---|
| (in millions) | 2023 | 2022 |
| Deferred tax assets: | ||
| Operating lease liability | $230 | $226 |
| Net operating losses carryforwards | 36 | 36 |
| Tax credit carryforwards | 10 | 35 |
| Accrued expenses | 145 | 149 |
| Share-based compensation | 37 | 41 |
| Multi-year upfront payments | 7 | 10 |
| Equity method investments | 27 | 48 |
| Derivative instruments | 25 | — |
| Other | 101 | 69 |
| Total deferred tax assets | 618 | 614 |
| Valuation allowances | (51) | (47) |
| Total deferred tax assets, net of valuation allowances | $567 | $567 |
| Deferred tax liabilities: | ||
| Brands, trade names and other intangible assets | $(5,720) | $(5,685) |
| Property, plant and equipment | (334) | (343) |
| Right of use assets | (226) | (222) |
| Derivative instruments | — | (9) |
| Other | (16) | (12) |
| Total deferred tax liabilities | (6,296) | (6,271) |
| Net deferred tax liabilities | $(5,729) | $(5,704) |
CARRYFORWARDS
As of December 31, 2023 and 2022, the Company had $36 million in tax-effected net operating loss carryforwards. Of the $36 million of net operating loss carryforwards as of December 31, 2023, $33 million will not expire and $3 million will begin to expire in the year 2034.
As of December 31, 2023 and 2022, the Company has $10 million and $35 million of credit carryforwards, respectively. As of December 31, 2023, the $10 million of state tax credit carryforwards will begin to expire in the year 2027.
UNDISTRIBUTED INTERNATIONAL EARNINGS
For the tax year ended December 31, 2023, undistributed earnings in non-U.S. subsidiaries for which no deferred taxes have been provided totaled approximately $532 million. An actual repatriation from our non-U.S. subsidiaries could still be subject to additional foreign withholding taxes. The Company has analyzed our global working capital and cash requirements and continues to be indefinitely reinvested in its undistributed earnings except for amounts in excess of its working capital and cash requirements. The Company has recorded any potential withholding tax liabilities, if necessary, attributable to repatriation.
OTHER TAX MATTERS
The Company files income tax returns for U.S. federal purposes and in various state jurisdictions. The Company also files income tax returns in various foreign jurisdictions, principally Canada, Ireland, Mexico, and Singapore. The U.S. and most state income tax returns for years prior to 2018 are closed to examination by applicable tax authorities. Canadian and Mexican income tax returns are generally open for audit for tax years 2018 and forward.
The Company has a tax holiday in Singapore, whereby the local statutory rate is significantly reduced if certain conditions are met. The tax holiday for Singapore is effective through June 2024. The impact of the tax holiday increased net income by approximately $4 million, $6 million, and $6 million for the years ended December 31, 2023, 2022, and 2021, respectively, resulting in no impact to basic and diluted EPS for each of the years ended December 31, 2023, 2022, and 2021.
On August 16, 2022, the IRA was signed into law in the United States. The IRA added new tax provisions allowing certain taxpayers to elect to transfer an eligible credit to an unrelated transferee taxpayer where the transferee taxpayer is then able to use the transferred tax credit against its own taxable income for taxable years after December 31, 2022. During the year ended December 31, 2023, the Company executed agreements with eligible taxpayers to purchase federal tax credits of $270 million, which will be used against KDP’s federal tax liability. The discounts negotiated for the transfer of eligible federal tax credits of $16 million were recorded as an income tax benefit on the Consolidated Statements of Income.
UNRECOGNIZED TAX BENEFITS
The following is a reconciliation of the changes in the gross balance of unrecognized tax benefits:
| For the Year Ended December 31, | |||
|---|---|---|---|
| (in millions) | 2023 | 2022 | 2021 |
| Balance, beginning of the period | $15 | $12 | $18 |
| Increases related to tax positions taken during the current year | 3 | 4 | 2 |
| (Decreases) increases related to tax positions taken during the prior year | (2) | 3 | (3) |
| Decreases related to settlements with taxing authorities | — | (3) | (1) |
| Decreases related to lapse of applicable statute of limitations | (3) | (1) | (4) |
| Balance, end of the period | $13 | $15 | $12 |
The total amount of unrecognized tax benefits that would reduce the effective tax rate if recognized is $10 million after considering the federal impact of state income taxes. KDP does not expect a significant change to its unrecognized tax benefits, but it is reasonably possible that a change in the unrecognized tax benefits may occur within the next twelve months related to the settlement of audits or the lapse of applicable statutes of limitations.
KDP accrues interest and penalties on its uncertain tax positions as a component of its provision for income taxes. KDP recognized $1 million expense related to interest and penalties for uncertain tax positions for the year ended December 31, 2023, and recognized benefit of $1 million for the year ended December 31, 2021. No expense or benefit was recorded for the year ended December 31, 2022. The Company had a total of $3 million and $2 million accrued for interest and penalties for its uncertain tax positions reported as part of other non-current liabilities as of both December 31, 2023 and 2022.
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