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Item 8. Financial Statements and Supplementary Data

2022-02-24 compared with 2021-02-25 · 664 added, 748 removed, 1218 unchanged (54% of the section changed)

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Reports of Independent Registered Accounting Firm

Reports of Independent Registered Accounting Firm (PCAOB ID No.

Consolidated Statements of Income

8 unchanged sentences

Goodwill and Other Intangible Assets

Acquisitions and Investments in Unconsolidated Subsidiaries

Restructuring and Integration Costs

2 unchanged sentences

Stock-Based Compensation

Accumulated Other Comprehensive (Loss) Income

Revenue Recognition

Acquisitions and Investments in Unconsolidated Subsidiaries

Accumulated Other Comprehensive Income (Loss)

Property, Plant and Equipment

1 unchanged sentence

Commitments and Contingencies

Transactions with Variable Interest Entities

Related Parties

Revenue Recognition

Unaudited Quarterly Financial Information

Subsequent Events

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

24 unchanged sentences

As discussed in Notes 2 and 4, the Company has indefinite-lived brand intangible assets (“brand assets”).

The Company’s evaluation of the brand asset’s for impairment involves the comparison of the fair value of each brand asset to its’ carrying value.

Management estimates the fair value of the brand assets annually as of October 1, 2020, using a multi-period excess earnings method, which is a specific discounted cash flow method.The fair value determination of these assets requires management to make significant estimates and assumptions related to revenue growth projections, discount rates, and operating margins.

The Company’s evaluation of the brand assets for impairment is performed annually as of October 1, and involves the comparison of the fair value of each brand asset to its carrying value.

Management estimates the fair value of the brand assets using a multi-period excess earnings method, which is a specific discounted cash flow method.

The fair value determination of these assets requires management to make significant estimates and assumptions related to revenue growth projections, discount rates, and operating margins.

Each of these assumptions is sensitive to future market or industry conditions, as well as company-specific conditions.

Changes in these assumptions could have a significant impact on the fair value of certain indefinite-lived brand intangible assets (“certain brand assets”) that have a lower headroom percentage, the amount of any impairment, or both.

During the year ended December 31, 2020, the Company recognized impairment of $67 million for the Bai brand, as the fair value of the brand was lower than its carrying value.

Given the significant judgments made by management to estimate the fair value of certain brand assets, a high degree of auditor judgment and an increased extent of effort were required to perform audit procedures that evaluated the reasonableness of management’s estimates and assumptions.

55 unchanged sentences

Interest expense 500 604 654

Interest expense - related party — — 51

Loss on early extinguishment of debt 105 4 11

Gain on sale of equity method investment ( 524 ) — —

Impairment of investments and note receivable 17 102 —

Other expense (income), net 17 19 ( 19 )

Other (income) expense, net ( 2 ) 17 19

Income before provision for income taxes 2,798 1,753 1,694

Provision for income taxes 653 428 440

1,325 1,254 589

Net income attributable to non-controlling interest — — 3

Net income including non-controlling interest 2,145 1,325 1,254

Net loss attributable to non-controlling interest ( 1 ) — —

Net income attributable to KDP

11 unchanged sentences

(in millions) 2021 2020 2019

Net income $ 1,325 $ 1,254 $ 589

Net income including non-controlling interest $ 2,145 $ 1,325 $ 1,254

Other comprehensive income

1 unchanged sentence

Net change in pension and post-retirement liability, net of tax of $ — , $ 1 , and $( 1 ), respectively

( 4 ) 4 ( 4 )

Net change in cash flow hedges, net of tax of $ 30 , $ 1 and $ — , respectively

( 89 ) ( 14 ) —

Total other comprehensive income (loss) ( 103 ) ( 27 ) 234

38 unchanged sentences

Retained earnings 3,199 2,061

Accumulated other comprehensive income 77 104

Accumulated other comprehensive (loss) income ( 26 ) 77

Total stockholders' equity 24,972 23,829

8 unchanged sentences

Operating activities:

Net income $ 1,325 $ 1,254 $ 589

Net income attributable to KDP

$ 2,146 $ 1,325 $ 1,254

Adjustments to reconcile net income to net cash provided by operating activities:

6 unchanged sentences

Loss on early extinguishment of debt 105 4 11

Gain on step acquisition of unconsolidated subsidiaries — — ( 18 )

(Gain) loss on disposal of property, plant and equipment ( 36 ) ( 14 ) 5

Gain on sale of equity method investment ( 524 ) — —

Gain on disposal of property, plant and equipment ( 75 ) ( 36 ) ( 14 )

Unrealized (gain) loss on foreign currency 9 ( 1 ) ( 24 )

Unrealized loss on derivatives 8 36 49

Unrealized (gain) loss on derivatives ( 70 ) 8 36

Equity in losses of unconsolidated affiliates 5 20 51

12 unchanged sentences

Investing activities:

Acquisitions of businesses — ( 8 ) ( 19,114 )

Cash acquired in acquisitions — — 169

Issuance of related party note receivable ( 6 ) ( 32 ) ( 11 )

Investments in unconsolidated affiliates ( 5 ) ( 16 ) ( 39 )

Proceeds from capital distributions from investments in unconsolidated affiliates — — 35

Proceeds from sale of investment in unconsolidated affiliates 578 — —

Purchases of property, plant and equipment ( 423 ) ( 461 ) ( 330 )

1 unchanged sentence

Purchases of intangibles ( 32 ) ( 56 ) ( 35 )

Acquisitions of businesses — — ( 8 )

Issuance of related party note receivable ( 19 ) ( 6 ) ( 32 )

Investments in unconsolidated affiliates — ( 5 ) ( 16 )

Other, net ( 16 ) 9 24

Net cash used in investing activities $ ( 316 ) $ ( 150 ) $ ( 19,131 )

Net cash provided by (used in) investing activities $ 210 $ ( 316 ) $ ( 150 )

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

4 unchanged sentences

Financing activities:

Proceeds from issuance of common stock $ — $ — 9,000

Proceeds from controlling shareholder stock transactions 29 — —

Proceeds from unsecured credit facility 1,850 — 1,900

Proceeds from senior unsecured notes 1,500 — 8,000

Proceeds from issuance of Notes $ 2,150 $ 1,500 $ —

Repayment of Notes ( 3,595 ) ( 250 ) ( 250 )

Proceeds from issuance of commercial paper 5,406 7,288 16,197

Repayments of commercial paper ( 5,257 ) ( 8,534 ) ( 16,030 )

Proceeds from KDP Revolver — 1,850 —

Repayment of KDP Revolver — ( 1,850 ) —

Proceeds from term loan — — 2,000

Net (repayment) issuance of commercial paper notes ( 1,246 ) 167 1,080

Repayments of term loan ( 425 ) ( 955 ) ( 3,203 )

Proceeds from issuance of common stock 140 — —

Proceeds from structured payables 156 171 330

Payments on structured payables ( 167 ) ( 341 ) ( 531 )

Repayment of senior unsecured notes ( 250 ) ( 250 ) —

Repayment of unsecured credit facility ( 1,850 ) — ( 1,900 )

Repayment of term loan ( 955 ) ( 3,203 ) ( 3,447 )

Payments on finance leases ( 52 ) ( 38 ) ( 17 )

Cash contributions from redeemable non-controlling interest shareholders — — 18

Cash dividends paid ( 955 ) ( 846 ) ( 844 )

Tax withholdings related to net share settlements ( 125 ) — —

Payments on finance leases ( 54 ) ( 52 ) ( 38 )

Proceeds from controlling shareholder stock transactions — 29 —

Other, net ( 36 ) — 5

Net cash (used in) provided by financing activities ( 1,990 ) ( 2,364 ) 17,577

Net cash used in financing activities ( 2,762 ) ( 1,990 ) ( 2,364 )

Net change from:

5 unchanged sentences

Capital expenditures included in accounts payable and accrued expenses $ 189 $ 280 $ 163

Conversion of note receivable to equity method investment 15 — —

Non-cash acquisition of controlling interest — 3 —

Measurement period adjustment of Core purchase price — — ( 11 )

Purchases of intangibles — 2 —

Issuance of common stock for acquisition of business — — ( 441 )

Fair value of stock and replacement equity awards not converted to cash — — ( 3,643 )

Holdback liability for acquisition of business — — 54

Non-cash purchases of intangibles — — 2

Non-cash financing activities:

Dividends declared but not yet paid 265 212 211

Finance lease additions 90 69 40

Capitalization of related party debt into additional paid-in-capital — — ( 1,815 )

Supplemental cash flow disclosures:

Cash paid for interest 477 515 521

Cash paid for related party interest — — 51

Cash paid for income taxes 506 582 433

10 unchanged sentences

Adoption of new accounting standards — — — ( 5 ) — ( 5 ) — ( 5 )

Net income attributable to KDP — — — 586 — 586 586

Net income — — — 1,254 — 1,254 — 1,254

Other comprehensive income — — — — 234 234 — 234

Issuance of common stock 407.0 4 8,996 — — 9,000 — 9,000

Acquisition of DPS 182.5 2 3,641 — — 3,643 — 3,643

Conversion of subsidiary shares 7.9 — 172 — — 172 — 172

Capitalization of loans with related parties — — 1,815 — — 1,815 — 1,815

Adjustment of non-controlling interests to fair value — — — ( 16 ) — ( 16 ) — ( 16 )

Reclassification of historical Maple Parent Corporation employee redeemable non-controlling interest and mezzanine equity awards — — 9 139 — 148 — 148

Acquisition of Core 16.7 — 441 — — 441 — 441

Dividends declared — — — ( 441 ) — ( 441 ) — ( 441 )

Measurement period adjustment for acquisition of Core — — 11 — — 11 — 11

Dividends declared, $ 0.60 per share

— — — ( 845 ) — ( 845 ) — ( 845 )

Shares issued under employee stock-based compensation plans and other 0.9 — — — — — — —

1 unchanged sentence

Balance as of December 31, 2019 1,406.8 $ 14 $ 21,557 $ 1,582 $ 104 $ 23,257 $ — $ 23,257

Adoption of new accounting standards — — — ( 5 ) — ( 5 ) — ( 5 )

Net income attributable to KDP — — — 1,254 — 1,254 — 1,254

Other comprehensive income — — — — 234 234 — 234

Measurement period adjustment for acquisition of Core — — 11 — — 11 — 11

Net income — — — 1,325 — 1,325 — 1,325

Other comprehensive loss — — — — ( 27 ) ( 27 ) — ( 27 )

Dividends declared, $ 0.60 per share

— — — ( 846 ) — ( 846 ) — ( 846 )

Proceeds from sale of stock by JAB — — 29 — — 29 — 29

Non-cash acquisition of controlling interest — — 3 — — 3 1 4

Shares issued under employee stock-based compensation plans and other 0.5 — — — — — — —

1 unchanged sentence

Balance as of December 31, 2020 1,407.3 $ 14 $ 21,677 $ 2,061 $ 77 $ 23,829 $ 1 $ 23,830

Net income attributable to KDP — — — 1,325 — 1,325 — 1,325

Other comprehensive income — — — — ( 27 ) ( 27 ) — (27)

Net income (loss) — — — 2,146 — 2,146 ( 1 ) 2,145

Other comprehensive loss — — — — ( 103 ) ( 103 ) — ( 103 )

Issuance of common stock 4.3 — 140 — — 140 — 140

Dividends declared, $ 0.7125 per share

— — — ( 1,008 ) — ( 1,008 ) — ( 1,008 )

Proceeds from controlling shareholder stock transactions — — 29 — — 29 — 29

Non-cash acquisition of controlling interest — — 3 — — 3 1 4

Shares issued under employee stock-based compensation plans and other 6.5 — — — — — — —

Tax withholdings related to net share settlements — — ( 125 ) — — ( 125 ) — ( 125 )

Stock-based compensation — — 93 — — 93 — 93

6 unchanged sentences

Keurig Dr Pepper Inc.

is a leading coffee and beverage company in North America with a diverse portfolio of flavored (non-cola) CSDs, specialty coffee, and NCBs, and is a leader in single serve coffee brewers in the U.S.

is a leading coffee and beverage company in North America with a diverse portfolio of flavored CSDs, specialty coffee, and NCBs, and is a leader in single serve coffee brewers in the U.S.

References in this Annual Report on Form 10-K to "KDP" or "the Company" refer to Keurig Dr Pepper Inc.

3 unchanged sentences

All of the product names included herein are either KDP registered trademarks or those of the Company's licensors.

Effective September 18, 2020, at market close, the Company's common stock ceased to be listed on the New York Stock Exchange and on September 21, 2020, the following business day, KDP's common stock began trading on Nasdaq's Global Select Market at market open.

The Company's stock ticker remains "KDP".

BASIS OF PRESENTATION

For financial reporting and accounting purposes, Maple Parent Holdings Corp.

was the acquirer of DPS upon completion of the DPS Merger.

The consolidated financial statements as of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018 include the results of operations of DPS subsequent to the DPS Merger, which was completed on July 9, 2018.

The accompanying consolidated financial statements have been prepared in accordance with U.S.

8 unchanged sentences

Non-controlling interests are presented as a separate component within equity in the Consolidated Balance Sheets, and net earnings attributable to the non-controlling interests are presented separately in the Consolidated Statements of Income.

The Company would be required to consolidate VIEs for which KDP has been determined to be the primary beneficiary.

To determine if KDP is the primary beneficiary, the Company assesses whether it has the power to direct the significant activities of the VIE and the obligation to absorb losses or receive benefits from the VIE that may be significant to the VIE.

The Company has determined that it is not the primary beneficiary of any VIEs.

However, future events may require the Company to consolidate VIEs if the Company becomes the primary beneficiary.

The Company uses the equity method to account for investments in companies if the investment provides the Company with the ability to exercise significant influence over operating and financial policies of the investee.

2 unchanged sentences

KDP eliminates from its financial results all intercompany transactions between entities included in the consolidated financial statements.

KEURIG DR PEPPER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

RECLASSIFICATIONS

For the year ended December 31, 2021, the Company made certain reclassifications in the prior period presentations of the Consolidated Statements of Cash Flows to conform to the current year presentation.

KEURIG DR PEPPER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Statements of Cash Flows

1 unchanged sentence

Year Ended December 31,

(in millions) Prior Presentation Revised Presentation 2019 2018

Net cash provided by operating activities:

(Gain) loss on disposal of property, plant and equipment Other, net (Gain) loss on disposal of property, plant and equipment $ ( 14 ) $ 5

Amortization of deferred financing fees Amortization expense Other, net 13 15

Amortization of bond fair value Amortization expense Other, net 27 13

(in millions) Prior Presentation 2020 2019

Net cash used in financing activities:

Payment of deferred financing fees Deferred financing charges paid Other, net — ( 55 )

Proceeds from commercial paper Net (repayment) issuance of commercial paper $ 7,288 $ 16,197

Repayments of commercial paper Net (repayment) issuance of commercial paper ( 8,534 ) ( 16,030 )

Significant Accounting Policies

21 unchanged sentences

There were no transfers of financial instruments between the three levels of fair value hierarchy during the years ended December 31, 2021, 2020 and 2019.

KEURIG DR PEPPER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Business Combinations

6 unchanged sentences

These charges primarily include direct third-party professional fees for advisory and consulting services and other incremental costs related to the acquisition.

KEURIG DR PEPPER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Cash and Cash Equivalents

15 unchanged sentences

Balance, beginning of the period $ 21 $ 9 $ 8

Charges to bad debt expense 17 2 5

Charges to (reversals of) bad debt expense ( 13 ) 17 2

Write-offs and adjustments ( 1 ) ( 5 ) ( 1 )

12 unchanged sentences

If the valuation shows that the net realizable value is lower than the carrying value, the Company takes a charge to cost of sales and directly reduces the carrying value of the inventory.

KEURIG DR PEPPER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company estimates any required write downs for inventory obsolescence by examining its inventories on a quarterly basis to determine if there are indicators that the carrying values exceed net realizable value.

2 unchanged sentences

Adjustments for excess and obsolete inventories are based on an assessment of slow-moving and obsolete inventories, determined by historical usage and demand.

KEURIG DR PEPPER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Property, Plant and Equipment, Net

14 unchanged sentences

Measurement of an impairment loss is based on the excess of the carrying amount of the group of assets over the long-lived asset's fair value.

For the years ended December 31, 2020 and 2019, the Company recorded an impairment loss of $ 1 million and $ 24 million, respectively and no impairment loss for the year ended December 31, 2018.

Impairment loss is recorded in Other expense (income), net, net in the Consolidated Statements of Income.

For the year ended December 31, 2021, the Company recorded no impairment loss.

For the years ended December 31, 2020 and 2019, the Company recorded an impairment loss of $ 1 million and $ 24 million, respectively.

Impairment loss is recorded in Other operating (income) expense, net, in the Consolidated Statements of Income.

The Company leases certain facilities and machinery and equipment, including fleet.

1 unchanged sentence

Some lease agreements contain standard renewal provisions that allow us to renew the lease at rates equivalent to fair market value at the end of the lease term.

The Company's lease agreements do not contain any material residual value guarantees or restrictive covenants, except for certain manufacturing properties that contain a residual value guarantee at the end of the term.

The Company's lease agreements do not contain any material restrictive covenants.

KDP has certain leases of manufacturing and distribution properties and the Frisco headquarters that contain a residual value guarantee at the end of the term.

Refer to Note 19 for additional information about the Company’s residual value guarantees.

Operating leases are included within other non-current assets, other current liabilities, and other non-current liabilities within our Consolidated Balance Sheets.

5 unchanged sentences

KDP has lease agreements with lease and non-lease components, which are generally accounted for as a single lease component.

KEURIG DR PEPPER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Sale-and-leaseback transactions occur when the Company sells assets to a third-party and subsequently leases them back.

3 unchanged sentences

Rental payments under such transactions are recognized as a reduction of the financing obligation and as interest expense using an effective interest method.

KEURIG DR PEPPER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Deferred Compensation Plan

1 unchanged sentence

non-qualified defined contribution plan.

Employee and employer matching contributions under the non-qualified defined contribution plan are maintained in a rabbi trust and are not readily available to us.

Employee and employer matching contributions under the non-qualified defined contribution plan are maintained in a rabbi trust and are not readily available to the Company.

The rabbi trust consists of readily marketable equity securities, which are included in Other non-current assets in the Consolidated Balance Sheets.

Gains or losses from such investments are classified as trading and are charged to Other expense (income), net in the Consolidated Statements of Income.

Gains or losses from such investments are classified as trading and are charged to Other (income) expense, net in the Consolidated Statements of Income.

The corresponding deferred compensation liability is included in Other non-current liabilities in the Consolidated Balance Sheets, with changes in this obligation recognized as adjustments to compensation expense and recorded in SG&A expenses.

3 unchanged sentences

The Company also holds non-controlling investments in certain privately held entities which are accounted for as equity method investments or equity securities without readily determinable value.

The Company also holds non-controlling investments in certain privately held entities which are accounted for as equity method investments, equity securities with readily determinable fair value, or equity securities without readily determinable value.

The companies over which we exert significant influence, but do not control the financial and operating decisions, are accounted for as equity method investments.

The Company's equity method investments are reported at cost and adjusted each period for the Company’s share of the investee’s net income (loss) and dividends paid, if any.

The Company's proportionate share of the net income (loss) resulting from these investments is recorded in Other expense (income), net in the Consolidated Statements of Income.

Any gains and losses resulting from the sale of these investments are recorded in Other expense (income), net.

The Company's proportionate share of the net income (loss) resulting from these investments is recorded in Other (income) expense, net in the Consolidated Statements of Income.

Any gains and losses resulting from the sale of these investments are recorded in Gain on sale of equity method investment.

The carrying value of the Company's equity method investments is reported in Investments in unconsolidated affiliates in the Company's Consolidated Balance Sheets.

The Company classifies distributions received from equity method investments using the cumulative earnings approach on the Consolidated Statements of Cash Flows.

Other investments that are not controlled, and over which we do not have the ability to exercise significant influence, are accounted for as equity securities without readily determinable value at cost and reported in Other non-current assets in the Company's Consolidated Balance Sheets.

Investments with readily determinable fair values for which we do not have the ability to exercise significant influence are measured at fair value and reported in Other non-current assets in the Company's Consolidated Balance Sheets.

Unrealized gains and losses on these investments are recorded in Other (income) expense, net in the Consolidated Statements of Income.

Investments without readily determinable fair values for which we do not have the ability to exercise significant influence are accounted for at cost and reported in Other non-current assets in the Company's Consolidated Balance Sheets.

Any gains or losses resulting from the sales of these investments are recorded in Other operating (income) expense, net, in the Consolidated Statements of Income.

30 unchanged sentences

KDP's six reporting units are as follows:

Segments Reporting Units

Reportable Segments Reporting Units

Packaged Beverages DSD

Coffee Systems Coffee Systems US

Coffee Systems Canada

Beverage Concentrates Beverage Concentrates

Coffee Systems Coffee Systems

Beverage Concentrates Branded Concentrates

Fountain Foodservice

Latin America Beverages Latin America Beverages

10 unchanged sentences

Structured Payables

The Company entered into an agreement with a supply chain payment processing intermediary, for the intermediary to act as a virtual credit card sponsor, whereby the card sponsor will pay amounts on behalf of the Company and sell the amounts due from the Company to a participating financial institution.

The card sponsor will then bill the Company the original payment amount.

The Company has entered into an agreement with a supply chain payment processing intermediary, for the intermediary to act as a virtual credit card sponsor, whereby the card sponsor pays amounts on behalf of the Company and sells the amounts due from the Company to a participating financial institution.

The card sponsor then bills the Company the original payment amount.

The agreement permits the Company to utilize the third party and participating financial institutions to make a broad range of payments, including commercial payables to suppliers, business acquisitions, purchases of property, plant and equipment, and employee-related payments.

9 unchanged sentences

defined pension plans exceed the estimated annual interest and service costs.

The components of net periodic benefit cost other than the service cost component are included in Other expense (income), net, in the Company's Consolidated Statements of Income.

The components of net periodic benefit cost other than the service cost component are included in Other (income) expense, net, in the Company's Consolidated Statements of Income.

The service cost component is included in either Cost of sales or SG&A expenses, depending on the classification of the employee's other compensation costs.

2 unchanged sentences

The Company participates in three multi-employer pension plans and makes contributions to those plans, which are recorded in either Cost of sales or SG&A expenses, depending on the classification of the employee's other compensation costs.

Voluntary Prepayment of Term Loans

The Company has the ability to voluntarily prepay its senior unsecured term loan facilities in whole or in part with prior notice to JPMorgan.

The prepayment of the senior unsecured term loan facilities does not result in any additional fees or penalties, just the payment of daily accrued interest at the agreed upon rate.

As the Company periodically prepays its senior unsecured term loan facilities, the Company has presented these voluntary prepayments as an early extinguishment of debt and expense the proportionate amount of unamortized deferred financing costs, as the loan has been partially settled.

Risk Management Programs

20 unchanged sentences

The Company records all derivative instruments on a gross basis, including those subject to master netting arrangements.

KDP formally designates and accounts for certain foreign exchange forward contracts that meet established accounting criteria under U.S.

KDP formally designates and accounts for certain foreign exchange forward contracts and interest rate contracts that meet established accounting criteria under U.S.

GAAP as cash flow hedges.

31 unchanged sentences

All other costs incurred after this condition is met are considered selling costs and included in SG&A expenses.

Selling, General and Administrative Expenses

Transportation and Warehousing Costs

16 unchanged sentences

Forfeitures are recognized as incurred.

Stock-based compensation expense is recognized ratably over the vesting period in the Consolidated Statements of Income.

Stock-based compensation expense is recognized ratably over the vesting period and is recorded SG&A expenses in the Consolidated Statements of Income.

Refer to Note 11 for additional information .

18 unchanged sentences

Assets and liabilities resulting from these transactions are translated at the rate of exchange in effect at the balance sheet date.

All such differences are recorded in Other expense (income), net in the Consolidated Statements of Income .

Such differences are recorded in Cost of sales or Other (income) expense, net in the Consolidated Statements of Income, depending on the nature of the underlying transaction .

Earnings per Share

2 unchanged sentences

RECENTLY ISSUED ACCOUNTING STANDARDS

In January 2020, the FASB issued ASU 2020-01, Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint Ventures (Topic 323),and Derivatives and Hedging (Topic 815):

Clarifying the Interactions between Topic 321, Topic 323, and Topic 815 ("ASU 2020-01").

The objective of ASU 2020-01 is to clarify the interaction of the accounting for equity securities, investments accounted for under the equity method of accounting and the accounting for certain forward contracts and purchased options accounted for under different topics in U.S.

ASU 2020-01 is effective for public companies for annual periods, and interim periods within those annual periods, beginning after December 15, 2020.

The adoption of ASU 2020-01 will not materially impact KDP's consolidated financial statements.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848):

4 unchanged sentences

The Company is currently evaluating ASU 2020-04 but expects the impact to be immaterial to KDP's consolidated financial statements.

In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832):

Disclosures by Business Entities about Government Assistance .

The objective of ASU 2021-10 is to require business entities to disclose information about certain government assistance they receive.

ASU 2021-10 is effective for all entities for annual periods beginning after December 15, 2021.

The Company is currently evaluating ASU 2021-10 but expects the impact of the disclosures to be immaterial to KDP’s consolidated financial statements.

RECENTLY ADOPTED PROVISIONS OF U.S.

Credit Losses

As of January 1, 2020, the Company adopted ASU 2016-13, Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments, which replaced the incurred loss methodology with an expected loss methodology.

The objective of ASU 2016-13 was to provide for a new impairment model which requires measurement and recognition of current expected credit losses (CECL) for most financial assets held.

The Company adopted ASU 2016-13 using the modified retrospective method for all financial assets measured at amortized cost, which means that results for reporting periods beginning after January 1, 2020 are presented under ASU 2016-13 while prior period amounts continue to be reported in accordance with previously applicable GAAP.

Refer to the Trade Accounts Receivable and Allowance for Expected Credit Losses section above for required disclosures under ASU 2016-13.

The adoption of ASU 2016-13 did not have an impact on the Company's consolidated financial statements.

Other Accounting Standards

As of January 1, 2020, the Company adopted ASU 2018-13, Fair Value Measurement (Topic 820):

Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurements .

The objective of ASU 2018-13 is to improve the disclosures related to fair value measurement by removing, modifying, or adding disclosure requirements related to recurring and non-recurring fair value measurements.

The adoption of ASU 2018-13 did not have an impact on the Company's consolidated financial statements.

KEURIG DR PEPPER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of January 1, 2021, the Company adopted ASU 2020-01, Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint Ventures (Topic 323),and Derivatives and Hedging (Topic 815):

Clarifying the Interactions between Topic 321, Topic 323, and Topic 815 .

The adoption of the standard did not impact KDP’s consolidated financial statements.

Long-term Obligations and Borrowing Arrangements

6 unchanged sentences

Long-term obligations $ 11,578 $ 11,143

KEURIG DR PEPPER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table summarizes the Company's short-term borrowings and current portion of long-term obligations:

5 unchanged sentences

Short-term borrowings and current portion of long-term obligations $ 304 $ 2,345

KEURIG DR PEPPER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SENIOR UNSECURED NOTES

2 unchanged sentences

Issuance Maturity Date Rate 2021 2020

2020 Notes (1)

January 15, 2020 2.000 % — 250

2021 Merger Notes May 25, 2021 3.551 % — 1,750

4 unchanged sentences

2023 Notes December 15, 2023 3.130 % 500 500

2024 Notes (1)

March 15, 2024 0.750 % 1,150 —

2025 Merger Notes May 25, 2025 4.417 % 1,000 1,000

3 unchanged sentences

2028 Merger Notes May 25, 2028 4.597 % 2,000 2,000

2030 Notes May 1, 2030 3.200 % 750 750

2031 Notes March 15, 2031 2.250 % 500 —

2038 Notes (3)

May 1, 2038 7.450 % 125 125

2038 Notes May 1, 2038 7.450 % 125 125

2038 Merger Notes May 25, 2038 4.985 % 500 500

2 unchanged sentences

2048 Merger Notes May 25, 2048 5.085 % 750 750

2050 Notes (2)

May 1, 2050 3.800 % 750 —

2050 Notes May 1, 2050 3.800 % 750 750

2051 Notes March 15, 2051 3.350 % 500 —

Principal amount $ 11,875 $ 13,225

2 unchanged sentences

Carrying amount $ 11,733 $ 13,065

(1) On January 15, 2020, the Company repaid the 2020 Notes at maturity, using commercial paper borrowings.

(2) On April 13, 2020, the Company completed the issuance of $ 1.5 billion aggregate principal amount of senior unsecured notes consisting of $ 750 million aggregate principal amount of 3.200 % senior unsecured notes due May 1, 2030 and $ 750 million aggregate principal amount of 3.800 % senior unsecured notes due May 1, 2050.

The discount associated with the 2030 Notes and the 2050 Notes was approximately $ 6 million.

The net proceeds from the issuance were used to repay outstanding borrowings under the KDP Revolver.

(1) The 2024 Notes may be called anytime on or after March 15, 2022, in whole or in part, at the Company’s option, at a redemption price equal to 100% of the principal amount being redeemed, plus accrued and unpaid interest.

(2) The carrying amount includes unamortized discounts, debt issuance costs and fair value adjustments related to the DPS Merger.

(3) On January 24, 2022, the Company redeemed and retired the remainder of its 2038 Notes.

Notice was provided to external parties of the Company’s intention to redeem the 2038 Notes prior to December 31, 2021, therefore the Notes have been reclassified and are reported in Current portion of long-term obligations within the Consolidated Balance Sheets.

Refer to Note 21 for additional information.

KEURIG DR PEPPER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

On March 15, 2021, the Company completed the issuance of the 2024 Notes, the 2031 Notes, and the 2051 Notes.

The discount associated with these notes was approximately $ 3 million and the Company incurred $ 13 million in debt issuance costs.

The net proceeds from the issuance were used to repay the Company’s 2021-A Notes, 2021-B Notes, 2022 Notes, and approximately $ 1 billion of the 2023 Merger Notes, as well as to repay and terminate the 2019 KDP Term Loan as described below.

As a result of the repayments of senior unsecured notes, the Company recorded losses on early extinguishment of debt of $ 104 million during the year ended December 31, 2021, comprised of a make-whole premium, fair market value adjustments and deferred financing fees written off.

The indentures governing the Notes, among other things, contain customary default provisions and limit the Company's ability to incur indebtedness secured by principal properties, to enter into certain sale and leaseback transactions and to enter into certain mergers or transfers of substantially all of the Company's assets.

1 unchanged sentence

As of December 31, 2021, the Company was in compliance with all financial covenant requirements of the Notes.

KEURIG DR PEPPER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

BORROWING ARRANGEMENTS

3 unchanged sentences

Issuance Maturity Date Available Balances Carrying Value Carrying Value

2019 KDP Term Loan (1)

February 2023 — 425 1,380

2019 KDP Term Loan February 8, 2023 — — 425

KDP Revolver (1)

February 28, 2023 2,400 — —

2020 364-Day Credit Agreement May 2021 1,500 — —

2020 364-Day Credit Agreement April 13, 2021 — — —

2021 364-Day Credit Agreement March 23, 2022 1,500 — —

Principal amount $ — $ 425

1 unchanged sentence

Carrying amount $ — $ 423

(1) During the year ended December 31, 2020, the Company prepaid $ 955 million of its outstanding obligations, of which $ 855 million were voluntary prepayments, under the 2019 KDP Term Loan using a combination of commercial paper and cash on hand.

As a result of the voluntary prepayments, the Company recorded a $ 4 million loss on early extinguishment during the year ended December 31, 2020.

(1) The KDP Revolver has $ 200 million letters of credit available, none of which were utilized as of December 31, 2021.

1 unchanged sentence

The KDP Credit Agreements also contain (i) certain customary affirmative covenants, including those that impose certain reporting and/or performance obligations on KDP and its subsidiaries, (ii) certain customary negative covenants that generally limit, subject to various exceptions, KDP and its subsidiaries from taking certain actions, including, without limitation, incurring liens, consummating certain fundamental changes and entering into transactions with affiliates, (iii) a financial covenant in the form of a total net leverage ratio and (iv) customary events of default (including a change of control) for financings of this type.

As of December 31, 2020, the Company was in compliance with all financial covenant requirements relating to the KDP Credit Agreements.

Term Loan Agreements

On February 8, 2019, the Company terminated its 2018 KDP Term Loan and refinanced it with the $ 2 billion 2019 KDP Term Loan, in order to achieve a more favorable interest rate.

As of December 31, 2021, the Company was in compliance with its financial covenant requirement relating to the KDP Credit Agreements.

2019 KDP Term Loan

In March 2021, the Company terminated its 2019 KDP Term Loan using proceeds from the aforementioned issuance of senior unsecured notes.

As a result of the extinguishment of the 2019 KDP Term Loan, the Company recorded approximately $ 1 million of loss on early extinguishment during the year ended December 31, 2021.

The interest rate applicable to the 2019 KDP Term Loan ranges from a rate equal to LIBOR plus a margin of 0.75 % to 1.25 % or a base rate plus a margin of 0.00 % to 0.25 %, depending on the rating of certain indexed debt of KDP.

The 2019 KDP Term Loan requires KDP to make quarterly payments on the unpaid principal amount in an amount equal to 1.25 % of the aggregate principal amount made on the effective date of the 2019 KDP Term Loan, resulting in annual mandatory repayments of $ 100 million.

The 2019 KDP Term Loan matures on February 8, 2023.

The 2019 KDP Term Loan had an original maturity date of February 8, 2023.

364-Day Credit Agreements

The Company entered into the 2019 364-Day Credit Agreement on May 29, 2019 among the Company, the banks party thereto and JPMorgan as administrative agent, pursuant to which the Company obtained a $ 750 million commitment.

The interest rate applicable to borrowings under the 2019 364-Day Credit Agreement ranges from a rate equal to LIBOR plus a margin of 1.000 % to 1.625 % or a base rate plus a margin of 0.000 % to 0.625 %, depending on the rating of certain index debt of the Company.

The 2019 364-Day Credit Agreement had an original maturity date of May 27, 2020.

On April 14, 2020, the Company terminated the 2019 364-Day Credit Agreement and executed the 2020 364-Day Credit Agreement in order to increase the commitment from $ 750 million to $ 1.5 billion.

The 2020 364-Day Credit Agreement is unsecured, and its proceeds may be used for general corporate purposes.

The interest rate applicable to borrowings under the 2020 364-Day Credit Agreement ranges from a rate equal to LIBOR plus a margin of 2.250 % to 2.750 % or a base rate plus a margin of 1.250 % to 1.750 %, depending on the rating of certain index debt of the Company.

The 2020 364-Day Credit Agreement will mature on April 13, 2021.

In March 2021, KDP terminated its 2020 364-Day Credit Agreement, which originally was available through April 13, 2021.

No amounts were drawn under the 2020 364-Day Credit Agreement prior to termination.

KDP then entered into the 2021 364-Day Credit Agreement on March 24, 2021 among KDP, the banks party thereto and Bank of America, N.A.

as administrative agent, pursuant to which KDP obtained a $ 1.5 billion commitment.

The interest rate applicable to borrowings under the 2021 364-Day Credit Agreement ranges from a rate equal to LIBOR plus a margin of 1.000 % to 1.625 % or a base rate plus a margin of 0.000 % to 0.625 %, depending on the rating of certain indexed debt of the Company.

The 2021 364-Day Credit Agreement matures on March 23, 2022, and includes a term-out option which allows KDP to extend any outstanding amounts borrowed under the agreement for one year for a fee of 0.750 % on the amounts borrowed.

KEURIG DR PEPPER INC.

5 unchanged sentences

Commercial Paper Program

DPS initially executed its commercial paper program on December 10, 2010.

On July 9, 2018, the Company amended its commercial paper program, under which the Company may issue unsecured commercial paper notes on a private placement basis up to a maximum aggregate amount outstanding at any time of $ 2,400 million.

KDP has a commercial paper program, under which the Company may issue unsecured commercial paper notes on a private placement basis up to a maximum aggregate amount outstanding at any time of $2,400 million.

The maturities of the commercial paper notes will vary, but may not exceed 397 days from the date of issuance.

The Company's intent is to classify the commercial paper notes on a short term basis, as maturities are not expected to exceed 90 days.

KDP classifies its commercial paper notes as short-term, as maturities do not exceed one year.

The Company issues commercial paper notes as needed for general corporate purposes.

Outstanding commercial paper notes rank equally with all of the commercial paper notes' existing and future unsecured borrowings.

The Company had no outstanding commercial paper notes as of December 31, 2020 and $ 1,246 million as of December 31, 2019.

The Company had $ 149 million outstanding commercial paper notes as of December 31, 2021 and none as of December 31, 2020.

The following table provides information about the Company's weighted average borrowings under its commercial paper program:

3 unchanged sentences

Weighted average borrowing rates 0.25 % 1.24 % 2.56 %

(1) The Company assumed the commercial paper program as a result of the DPS Merger on July 9, 2018.

As a result, weighted average commercial paper borrowings and weighted average borrowing rates are weighted from the assumption of the commercial paper program on July 9, 2018 through December 31, 2018.

Letters of Credit Facility

2 unchanged sentences

FAIR VALUE DISCLOSURES

The fair values of each of the Company's commercial paper notes and the 2019 KDP Term Loan approximate the carrying value and are considered Level 2 within the fair value hierarchy.

The fair values of the Company's commercial paper notes approximate the carrying value and are considered Level 2 within the fair value hierarchy.

The fair values of the Company's Notes are based on current market rates available to the Company and are considered Level 2 within the fair value hierarchy.

5 unchanged sentences

Changes in the carrying amount of goodwill by reportable segment for the years ended December 31, 2021 and 2020 are as follows:

Coffee Systems Packaged Beverages Beverage Concentrates Latin America Beverages Corporate Unallocated Total

Coffee Systems Packaged Beverages Beverage Concentrates Latin America Beverages Total

Balance as of December 31, 2019 $ 9,775 $ 5,301 $ 4,526 $ 570 $ 20,172

Foreign currency translation 20 13 10 ( 31 ) 12

Acquisitions (1)

3 391 242 ( 73 ) ( 525 ) 38

Balance as of December 31, 2020 9,795 5,314 4,536 539 20,184

1 unchanged sentence

Balance as of December 31, 2021 $ 9,800 $ 5,319 $ 4,539 $ 524 $ 20,182

(1) Amounts primarily represent the goodwill and measurement period adjustments recorded as a result of the DPS Merger, the Big Red Acquisition, and the Core Acquisition.

INTANGIBLE ASSETS OTHER THAN GOODWILL

6 unchanged sentences

Total $ 22,553 $ 22,534

(1) The decrease in brands with indefinite lives was due to $ 67 million impairment of the Bai brand, as well as a decrease of $ 7 million due to foreign currency translation during the year ended December 31, 2020.

Refer to Impairment Analysis below for further details about the impairment of Bai.

(2) The Company executed nine agreements to acquire distribution rights during the year ended December 31, 2020, which resulted in an increase of $ 41 million.

This increase was partially offset by foreign currency translation .

(1) The decrease was driven by $ 9 million of FX translation during the year ended December 31, 2021.

(2) The Company executed ten agreements to acquire distribution rights during the year ended December 31, 2021, which resulted in an increase of $ 28 million.

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

12 unchanged sentences

Amortization expense for intangible assets with definite lives $ 134 $ 133 $ 126

KEURIG DR PEPPER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Amortization expense of these intangible assets is expected to be as follows:

2 unchanged sentences

Expected amortization expense for intangible assets with definite lives $ 134 $ 132 $ 124 $ 109 $ 105

KEURIG DR PEPPER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

IMPAIRMENT ANALYSIS

For both goodwill and other indefinite lived intangible assets, KDP has the option to first assess qualitative factors to determine whether the fair value of either the reporting unit or indefinite lived intangible asset is not "more likely than not" less than its carrying value, also known as a Step 0 analysis.

For the year ended December 31, 2021, KDP performed a Step 0 analysis for certain indefinite lived intangible assets, including trade names, contractual arrangements and distribution rights and did not identify any indicators of impairment.

For goodwill and the primary indefinite-lived brands, KDP performed a quantitative analysis, using the income approach, or in some cases a combination of income and market based approaches, to determine the fair value of the Company's assets, as well as an overall consideration of market capitalization and enterprise value.

For the year ended December 31, 2020, KDP performed a quantitative analysis, using the income approach, or in some cases a combination of income and market based approaches, to determine the fair value of the Company's assets, as well as an overall consideration of market capitalization and enterprise value.

For the year ended December 31, 2019, KDP performed a quantitative analysis using an income based approach to determine fair value.

For the year ended December 31, 2018, KDP performed a Step 0 analysis on the legacy DPS assets concluding that no further analysis was required and a quantitative step 1 analysis on the legacy Keurig assets using an income based approach to determine the fair value.

The following table provides the range of rates used in the analysis as of October 1, 2021, 2020, and 2019:

4 unchanged sentences

Royalty rates (1)

During the year ended December 31, 2020, the Company recorded an impairment of $ 67 million for Bai, an indefinite lived brand asset.

No other impairment of goodwill or indefinite lived intangible assets was identified during the year ended December 31, 2020, and no impairment was identified in each of the years ended December 31, 2019 and 2018.

The factors that led to the Bai brand impairment determination were primarily performance of the brand during the COVID-19 pandemic, related shifts in consumer behaviors that are expected to be other-than-temporary, and updated forecasts of brand performance based on a refined strategic vision to market and sell the product.

N/A N/A 1.0 % 10.0 % 1.0 % 10.0 %

(1) Royalty rates were not used for the impairment analysis for the year ended December 31, 2021 as KDP performed a Step 0 qualitative analysis for the trade names which historically utilized the Relief From Royalty Method.

No impairment was identified for the years ended December 31, 2021 or 2019.

KDP recorded impairment of $ 67 million for the year ended December 31, 2020 for Bai, an indefinite lived brand asset.

No other impairment of goodwill or indefinite lived intangible assets was identified for the year ended December 31, 2020.

The factors that led to the Bai brand impairment determination for the year ended December 31, 2020 were primarily performance of the brand during the COVID-19 pandemic, related shifts in consumer behaviors that are expected to be other-than-temporary, and updated forecasts of brand performance based on a refined strategic vision to market and sell the product.

The results of the impairment analysis of the Company's indefinite lived brands and trade names as of October 1, 2021, 2020, and 2019 are as follows:

7 unchanged sentences

$ 19,819 $ 33,101 $ 19,741 $ 29,018 $ 19,863 $ 26,542

Impairment $ — $ — $ — $ — $ — $ —

0 - 25% 1 1 — — — —

26 - 50% — — — — — —

In excess of 50% 2,479 6,990 2,479 6,650 2,479 4,600

Trade Names (2)

Impairment N/A N/A $ — $ — $ — $ —

0 - 25% N/A N/A 1 1 — —

26 - 50% N/A N/A — — — —

In excess of 50% N/A N/A 2,479 6,990 2,479 6,650

$ — $ — $ 2,480 $ 6,991 $ 2,479 $ 6,650

(1) Due to the timing of the DPS Merger, the Company performed as a step 0 analysis on the indefinite lived brands as of October 1, 2018, which resulted in carrying value approximating fair value.

(1) The impairment line represents the carrying value and fair value of Bai as of the October 1, 2020 measurement date, prior to the $ 67 million impairment recorded during the fourth quarter of 2020.

KEURIG DR PEPPER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Acquisitions and Investments in Unconsolidated Affiliates

2020 ACQUISITIONS

On July 31, 2020, the Company closed on a stock purchase agreement to obtain a 66.4 % ownership interest in Revive from Peet's for cash consideration of $ 1 , with Peet's retaining a minority ownership interest.

Revive is an organic, non-alcoholic kombucha brand, available in both traditional refrigerated and shelf-stable varieties.

The transaction is considered a common control transaction due to KDP's relationship with Peet's through certain affiliates of JAB.

The investment was accounted for as an acquisition of a controlling interest, and in accordance with the requirements of U.S.

GAAP for common control transactions, KDP recognized all of Revive's assets and liabilities at their carrying values as of July 31, 2020, with the $ 3 million difference between the Company's ownership interest in the net assets and the purchase price recorded to additional paid-in capital.

Refer to Note 1 for the Company's accounting policies with respect to the consolidation of Revive and accounting for the non-controlling interest.

2019 ACQUISITIONS

The Company spent an aggregate of $ 8 million in connection with immaterial acquisitions during the year ended December 31, 2019, which resulted in the recognition of fixed assets, intangible assets and goodwill.

2018 ACQUISITIONS

For the acquisitions in the year ended December 31, 2018, the Company used consistent valuation approaches in order to derive the fair value of assets acquired.

The Company valued personal property using a combination of the market approach and the cost approach, which is based upon current replacement or reproduction cost of the asset as newly adjusted for any depreciation attributable to physical, functional and economic factors.

The Company valued real property using the cost approach and land using the sales comparison approach.

The Company used existing carrying values to value trade receivables and payables, as well as certain other current and non-current assets and liabilities, as the Company determined that they represented the fair value of those items.

The Company valued WIP and finished goods inventory using a net realizable value approach and raw materials were valued at net book value.

The brand portfolios were valued utilizing the multi-period excess earnings method, a form of the income approach.

Contractual arrangements with bottlers and distributors and retail and food service customer relationships were valued utilizing the distributor method, a form of the income approach.

Acquisition of DPS

Overview and Total Consideration Exchanged

Maple Parent Holdings Corp.

merged with DPS on July 9, 2018.

DPS is a leading integrated brand owner, manufacturer and distributor of non-alcoholic beverages in the U.S., Canada and Mexico with a diverse portfolio of flavored (non-cola) CSDs and NCBs, including ready-to-drink teas, juices, juice drinks, water and mixers.

The DPS Merger was accounted for as a reverse merger under the acquisition method of accounting for business combinations.

Maple Parent Holdings Corp.

was considered to be the accounting acquirer, and DPS was considered the legal acquirer.

Under the acquisition method of accounting, total consideration exchanged was:

(in millions)

Aggregate fair value of DPS common stock $ 3,611

$103.75 per share special cash dividend (1)

Fair value of replacement equity awards (2)

Total consideration exchanged $ 22,482

(1) As a result of the DPS Merger, all DPS stock option awards, RSUs and PSUs which were unvested prior to the DPS Merger vested immediately as a result of the Change in Control (as defined in the terms of each individual award agreement).

All such awards, except for the stock option awards and certain RSUs not yet released to the employee, received the special cash dividend of $ 103.75 per share, subject to any withholding of taxes required by law.

These amounts were included within the special cash dividend.

(2) The fair value of replacement equity awards includes the Company issued replacement stock option awards for DPS stock option awards that were fully vested as of July 9, 2018 but not yet exercised by the employee, the DPS stock option awards that were fully vested as of July 9, 2018 and converted to cash by the employee and certain RSUs not yet released to the employee as a result of certain IRS requirements.

KEURIG DR PEPPER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The total consideration exchanged in the DPS Merger was funded by the following sources of funds:

• A $ 9,000 million equity investment from JAB.

• The issuance by the Company of $ 8,000 million of senior unsecured notes.

• Proceeds of $ 2,700 million borrowed under the 2018 KDP Term Loan and proceeds of $ 1,900 million borrowed under the KDP Revolver.

Refer to Note 3 for additional information.

• Proceeds of $ 124 million from the Company's structured payables.

• The remainder of the total consideration exchanged in the DPS Merger was funded by cash on hand.

Allocation of Consideration Exchanged

The Company's allocation of consideration exchanged to the net tangible and intangible assets acquired and liabilities assumed in the DPS Merger is based on estimated fair values as of the DPS Merger Date, and was finalized on July 9, 2019.

The following is a summary of the allocation of consideration exchanged to the estimated fair values of assets acquired and liabilities assumed in the DPS Merger:

(in millions) Purchase Price Allocation Estimated Useful Life

Cash and cash equivalents $ 147

Investments in unconsolidated subsidiaries 90

Property, plant and equipment 1,475 1 year - 41 years

Other intangible assets

Brands 19,556 n/a

Contractual arrangements 127 n/a

Customer relationships 390 10 years - 40 years

Favorable leases 5 5 years - 12 years

Long-term obligations ( 4,049 )

Capital lease and financing obligations ( 205 )

Acquired assets, net of assumed liabilities (1)

Deferred tax liabilities, net of deferred tax assets (2)

Total consideration exchanged 22,482

Fair value of stock and replacement equity awards not converted to cash 3,643

Acquisition of business $ 18,839

(1) The Company valued WIP and finished goods inventory resulting in a step-up of $ 131 million which was recognized in the cost of goods sold for the year ended December 31, 2018 as the related inventory was sold during that period.

(2) Net deferred tax liabilities represented the expected future tax consequences of temporary differences between the fair values of the assets acquired and liabilities assumed and their tax bases.

(3) The goodwill recognized is attributable to operational and general and administrative cost synergies resulting from the warehouse and transportation integration, direct procurement savings on overlapping materials, purchasing scale on indirect spend categories and optimization of duplicate positions and processes.

The Company may also recognize revenue synergies, driven by a strong portfolio of brands with exposure to higher growth segments and the ability to leverage the Company's collective distribution strength.

The goodwill created in the DPS Merger is not deductible for tax purposes.

Acquisition of Big Red

Overview and Purchase Price

On August 31, 2018, the Company closed the Big Red Acquisition for a cash purchase price of $ 300 million, with proceeds from structured payables.

In order to complete the Big Red Acquisition, the Company paid $ 282 million, net of the Company's previous ownership interest, in exchange for the remaining ownership interests and seller transaction costs.

Additionally, $ 15 million was held back and placed in escrow.

As a result of the Big Red Acquisition, the Company's existing 14.36 % equity interest in Big Red, which was previously earned based on the Company's distribution of Big Red's products and valued at $ 16 million during the DPS Merger purchase price allocation, was remeasured to fair value of $ 22 million.

The gain of $ 6 million was recorded in Other operating (income) expense, net during the year ended December 31, 2018.

KEURIG DR PEPPER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Allocation of Consideration Exchanged

The Company's allocation of consideration exchanged to the net tangible and intangible assets acquired and liabilities assumed in the Big Red Acquisition is based on estimated fair values as of August 31, 2018 and was finalized on August 31, 2019.

The following is a summary of the allocation of consideration exchanged to the estimated fair values of assets acquired and liabilities assumed in the Big Red Acquisition:

(in millions) Purchase Price Allocation Estimated Useful Life

Cash and cash equivalents $ 3

Other intangible assets

Brands 220 n/a

Brands 11 5 years

Contractual arrangements 6 12 years

Customer relationships 1 8 years - 40 years

Assumed liabilities, net of acquired assets (1)

Total consideration exchanged 306

Company's previous ownership interest 22

Holdback placed in Escrow 15

Acquisition of business $ 269

(1) The Company valued WIP and finished goods inventory resulting in a step-up of $ 2 million which was recognized in the cost of goods sold for the year ended December 31, 2018 as the related inventory was sold during that period.

(2) The goodwill recognized is attributable to operational and general and administrative cost synergies resulting from the warehouse and transportation integration, purchasing scale on various spend categories and optimization of duplicate positions and processes.

The goodwill created in the Big Red Acquisition is not deductible for tax purposes.

Acquisition of Core

Overview and Purchase Price

On November 30, 2018, the Company closed the Core Acquisition, whereby we acquired Core for merger consideration, which represented an enterprise value of $ 525 million (subject to customary post-closing working capital and other adjustments), with the issuance of KDP shares from the open market and approximately $ 6 million in cash.

Approximately $ 27 million of cash was held back and placed in escrow.

The number of shares of KDP common stock issued was based on the final merger consideration and the volume weighted average of the closing prices of KDP common stock for the five consecutive trading days ending on, and including, the second trading day prior to the closing.

Core is a brand owner with a portfolio of NCBs in the water category.

As a result of the Core Acquisition, the Company's 5.1 % equity interest of Core's common units was remeasured to fair value of $ 26 million.

The gain of approximately $ 12 million was recorded in Other expense (income), net during the year ended December 31, 2018.

Allocation of Consideration Exchanged

The Company's allocation of consideration exchanged to the net tangible and intangible assets acquired and liabilities assumed in the Core Acquisition is based on estimated fair values as of November 30, 2018, and was finalized on November 30, 2019.

KEURIG DR PEPPER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following is a summary of the allocation of purchase price to the estimated fair values of assets acquired and liabilities assumed in the Core Acquisition:

(in millions) Purchase Price Allocation Estimated Useful Life

Cash and cash equivalents $ 10

Other intangible assets

Brands 142 n/a

Contractual arrangements 17 10 years

Assumed liabilities, net of acquired assets ( 17 )

Total purchase price $ 514

Company's previous ownership interest 31

Holdback placed in Escrow 23

Acquisition of business $ 460

(1) The goodwill recognized is attributable to operational and general and administrative cost synergies resulting from the warehouse and transportation integration, purchasing scale on various spend categories and optimization of duplicate positions and processes.

The goodwill created in the Core Acquisition is deductible for tax purposes.

TRANSACTION EXPENSES

The following table provides information about the Company's transaction expenses associated with business combinations (completed or abandoned) incurred during the years ended December 31, 2020, 2019 and 2018:

Year Ended December 31,

(in millions) 2020 2019 2018

DPS Merger $ — $ 8 $ 158

Other transaction expenses — 17 4

Total transaction expenses incurred $ — $ 25 $ 162

INVESTMENTS IN UNCONSOLIDATED AFFILIATES

The following table summarizes the Company's investments in unconsolidated affiliates:

(in millions) Ownership Interest 2020 2019

BodyArmor 12.5 % $ 51 $ 52

Bedford 30.0 % — 46

Dyla LLC 12.4 % 12 13

Force Holdings LLC 33.3 % 5 5

Beverage startup companies (various) 15 30

Other (various) 5 5

Investments in unconsolidated affiliates $ 88 $ 151

(2) The Company performed a Step 0 qualitative impairment analysis on the trade names for the year ended December 31, 2021 .

KEURIG DR PEPPER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Impairments of Investments

Bedford Investment and Related Party Note Receivable

The Company and ABI, in conjunction with the creation of Bedford, had executed a line of credit agreement with Bedford on March 3, 2017, which was amended on December 7, 2018 to increase the line of credit.

The Company committed and funded the $ 51 million capacity, which incurs a fixed interest rate of 8.1 % per annum.

The credit agreement with Bedford matures on March 3, 2024.

In March 2020, the Company reduced its expectation of future operating performance for Bedford based on COVID-19 and a new revised five-year projection from the management of Bedford that projected the possibility of profitability two years later than previously anticipated.

As a result of these indicators of impairment, the Company tested the Bedford investment for an other-than-temporary impairment using a discounted cash flow framework with multiple scenarios, including the conversion of the note receivable into equity.

The results of its analysis indicated that the note receivable of $ 55 million was fully impaired and the investment in unconsolidated affiliates was impaired by $ 31 million, which was recorded on the Impairment of investments and note receivable line in the Consolidated Statements of Income.

As a result of the other-than-temporary impairment, the Company has placed the note receivable in non-accrual status.

Beverage Startup Companies

In September 2020, the Company tested its investment in LifeFuels, which is included in the Beverage startup companies line in the table above, for an other-than-temporary impairment as a result of continued losses, ongoing liquidity concerns and a lack of a buyer for LifeFuels.

As a result of this analysis, the Company determined that the investment was fully impaired and recorded an impairment charge of approximately $ 16 million to the Impairment of investments and note receivable line in the Consolidated Statements of Income.

Restructuring and Integration Costs

2 unchanged sentences

(in millions) 2021 2020 2019

Business realignment $ — $ — $ 2

Keurig K2.0 exit — 1 12

DPS Integration program $ 202 $ 200 $ 232

Other restructuring programs — — 1

Other restructuring charges — — 1

Total restructuring and integration charges

$ 202 $ 200 $ 233

KEURIG DR PEPPER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Restructuring liabilities that qualify as exit and disposal costs under U.S.

GAAP are included in accounts payable and accrued expenses on the consolidated financial statements.

R estructuring liabilities as of December 31, 2020 and 2019 , along with charges to expense, cash payments, and non-cash charges during the years ended December 31, 2020 and 2019, were as follows:

(in millions) Workforce Reduction Costs Other (1)

R estructuring liabilities for the DPS Integration Program, all of which were workforce reduction costs, as of December 31, 2021 and 2020 , along with charges to expense, cash payments, and non-cash charges during the years ended December 31, 2021 and 2020, were as follows:

(in millions) Workforce Reduction Costs

Balance as of December 31, 2019 $ 15

1 unchanged sentence

Cash payments

( 44 ) — ( 44 )

Non-cash adjustment items

— ( 1 ) ( 1 )

Balance as of December 31, 2020 14

1 unchanged sentence

Cash payments

( 29 ) — ( 29 )

Non-cash adjustment items

( 3 ) — ( 3 )

Balance as of December 31, 2021 $ 19

(1) Primarily reflects activities associated with the closure of certain facilities, excluding contract termination costs, which include any associated asset write-downs and accelerated depreciation.

RESTRUCTURING PROGRAMS

1 unchanged sentence

As part of the DPS Merger, the Company developed a program to deliver $ 600 million in synergies over a three-year period through supply chain optimization, reduction of indirect spend through new economies of scale, elimination of duplicative support functions and advertising and promotion optimization.

The Company expects to incur total cash expenditures of $ 750 million, comprised of both capital expenditures and expense, and expects to complete the program by 2021.

Although the program was initially expected to be completed in 2021, as a result of delays due to COVID-19, KDP will continue to recognize expenditures for certain initiatives which began during the integration period and will be completed in 2022.

The restructuring and integration program resulted in cumulative pre-tax charges of approximately $ 790 million, primarily consisting of professional fees related to the integration and transformation and costs associated with severance and employee terminations, through December 31, 2021.

Business Realignment

In 2018, the Company approved realignment as the Company determined that its strategic priorities had shifted and as a result has redesigned its organization impacting various employees in the U.S., Canada and UK.

The restructuring resulted in cumulative pre-tax restructuring charges of approximately $ 2 million, primarily related to costs associated with severance and employee terminations through December 31, 2018.

The Company does not expect to incur additional restructuring charges related to this realignment as it was completed in 2018.

Keurig K2.0 Exit

In August 2017, the Company determined due to shifting demand and strategic priorities that it would stop producing and selling its Keurig K2.0 brewer models.

This restructuring program resulted in cumulative pre-tax restructuring charges of approximately $ 29 million, primarily related to costs associated with accelerated depreciation on all K2.0 molds and tooling equipment as well as costs associated with obsolete inventory on hand through December 31, 2019.

The Company does not expect to incur additional restructuring charges related to this program as it was completed in 2019.

KEURIG DR PEPPER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Income before provision for income taxes was as follows:

For the Year Ended December 31,

(in millions) 2020 2019 2018

$ 1,367 $ 1,389 $ 635

International 386 305 156

Total $ 1,753 $ 1,694 $ 791

The provision for income taxes has the following components:

For the Year Ended December 31,

(in millions) 2020 2019 2018

Federal $ 297 $ 303 $ 183

State 103 98 62

International 79 62 38

Total current provision $ 479 $ 463 $ 283

Federal $ ( 31 ) $ ( 31 ) $ ( 24 )

State ( 6 ) 1 ( 50 )

International ( 14 ) 7 ( 7 )

Total deferred provision $ ( 51 ) $ ( 23 ) $ ( 81 )

Total provision for income taxes $ 428 $ 440 $ 202

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) 2020 2019 2018

Statutory federal income tax rate 21.0 % 21.0 % 21.0 %

State income taxes, net 4.0 % 3.7 % 5.4 %

federal domestic manufacturing benefit — % — % ( 1.5 ) %

Impact of non-U.S.

Operations 0.2 % 0.3 % 0.1 %

Tax credits ( 1.3 ) % ( 0.9 ) % ( 0.9 ) %

Valuation allowance for deferred tax assets ( 1.1 ) % — % 2.0 %

taxation of foreign earnings 1.6 % 1.5 % 1.8 %

Deferred rate change 0.5 % ( 0.3 ) % ( 4.9 ) %

State refund — % — % ( 0.4 ) %

Uncertain tax positions ( 1.3 ) % — % 0.6 %

federal provision to return 0.1 % ( 0.6 ) % ( 0.3 ) %

Transaction costs — % — % 1.4 %

Impact of the TCJA — % — % 0.5 %

Other 0.7 % 1.3 % 0.7 %

Total provision for income taxes 24.4 % 26.0 % 25.5 %

KEURIG DR PEPPER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Deferred tax assets and liabilities were comprised of the following:

(in millions) 2020 2019

Deferred tax assets:

Operating lease liability $ 161 $ 67

Net operating losses carryforwards 46 48

Tax credit carryforwards 54 56

Accrued expenses 153 118

Share-based compensation 36 24

Multi-year upfront payments 15 18

Equity method investments 29 —

Total deferred tax assets 521 367

Valuation allowances ( 51 ) ( 71 )

Total deferred tax assets, net of valuation allowances $ 470 $ 296

Deferred tax liabilities:

Brands, trade names and other intangible assets $ ( 5,916 ) $ ( 5,913 )

Property, plant and equipment ( 293 ) ( 263 )

Derivative instruments ( 38 ) ( 48 )

Right of use assets ( 159 ) ( 64 )

Equity method investments — ( 1 )

Other ( 12 ) ( 8 )

Total deferred tax liabilities ( 6,418 ) ( 6,297 )

Net deferred tax liabilities $ ( 5,948 ) $ ( 6,001 )

CARRYFORWARDS

As of December 31, 2020 and 2019, the Company had $ 45 million and $ 48 million, respectively, in tax-effected Luxembourg net operating loss carry forwards.

Of the $ 45 million of net operating loss carryforwards as of December 31, 2020, $ 44 million will not expire and $ 1 million will begin to expire in the year 2035.

The Company recorded a $ 19 million valuation allowance release during the year ended December 31, 2020 on the Luxembourg net operating losses, as realization is more likely than not.

The Company has $ 53 million of U.S.

foreign tax credit carryforwards and $ 1 million of other carryforwards, primarily related to U.S.

state income tax.

Of the $ 53 million of U.S.

foreign tax credit carryforwards, $ 51 million have a valuation allowance.

Foreign tax credits will begin to expire in 2026.

UNDISTRIBUTED INTERNATIONAL EARNINGS

For the tax year ended December 31, 2020 and 2019, undistributed earnings in non-U.S.

subsidiaries for which no deferred taxes have been provided totaled approximately $ 130 million and $ 88 million, respectively.

The majority of additional current year earnings and profits are subject to inclusion through new tax rules effective for the December 31, 2018 period and future years under the TCJA.

Under these new rules, any remaining tax on earnings and profits would be considered immaterial.

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 and Mexico.

and most state income tax returns for years prior to 2017 are closed to examination by applicable tax authorities.

Mexican income tax returns are generally open for tax years 2015 and forward, and Canadian income tax returns are open for audit for tax years 2012 and forward.

KEURIG DR PEPPER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 $ 6 million in the year ended December 31, 2020, resulting in no impact to basic and diluted EPS for the year ended December 31, 2020.

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) 2020 2019 2018

Balance, beginning of the period $ 43 $ 50 $ 35

Increases related to tax positions taken during the current year 2 2 1

Increases related to tax positions taken during the prior year 2 3 12

Increases related to tax positions from acquisitions — — 13

Decreases related to settlements with taxing authorities ( 8 ) ( 8 ) ( 8 )

Decreases related to lapse of applicable statute of limitations ( 21 ) ( 4 ) ( 3 )

Balance, end of the period $ 18 $ 43 $ 50

The total amount of unrecognized tax benefits that, if recognized, would reduce the effective tax rate, is $ 13 million after considering the federal impact of state income taxes.

During the next twelve months, KDP does not expect a significant change to its unrecognized tax benefits.

KDP accrues interest and penalties on its uncertain tax positions as a component of its provision for income taxes.

The Company recognized a benefit of $ 8 million and expense of $ 3 million and $ 1 million related to interest and penalties for uncertain tax positions for the years ended December 31, 2020, 2019 and 2018, respectively.

The Company had a total of $ 1 million and $ 11 million accrued for interest and penalties for its uncertain tax positions reported as part of other non-current liabilities as of December 31, 2020 and 2019, respectively.

INTEREST RATES

The Company is exposed to interest rate risk related to its borrowing arrangements and obligations.

The Company enters into interest rate swaps to provide predictability in the Company's overall cost structure.

Economic Hedges

KDP is exposed to interest rate risk related to its borrowing arrangements and obligations.

The Company enters into interest rate swaps to provide predictability in the Company 's overall cost structure and to manage the balance of fixed-rate and variable-rate debt.

KDP primarily enters into receive-fixed, pay-variable and receive-variable, pay-fixed swaps and swaption contracts.

A natural hedging relationship exists in which changes in the fair value of the instruments act as an economic offset to changes in the fair value of the underlying items.

Changes in the fair value of these instruments are recorded in earnings throughout the term of the derivative instrument and are reported in interest expense in the Consolidated Statements of Income.

As of December 31, 2020, all interest rate swap contracts will mature in March 2025.

As of December 31, 2021, economic interest rate derivative instruments have maturities ranging from January 2027 to May 2028.

Cash Flow Hedges

In order to hedge the variability in cash flows from interest rate changes associated with the Company’s planned future issuances of long-term debt, during the first quarter of 2021, the Company entered into forward starting swaps and designated them as cash flow hedges.

The forward starting swaps are planned to be unwound at the issuance of long-term debt.

As of December 31, 2021, the forward starting swaps have mandatory termination dates ranging from June 2022 to May 2025.

FOREIGN EXCHANGE

The Company is exposed to foreign exchange risk in its international subsidiaries, which may transact in currencies that are different from the functional currencies of those subsidiaries.

KDP is exposed to foreign exchange risk in its international subsidiaries, which may transact in currencies that are different from the functional currencies of those subsidiaries.

The balance sheets of each of these businesses are also subject to exposure from movements in exchange rates.

Economic Hedges

During the years ended December 31, 2020, 2019 and 2018, the Company held FX forward contracts to economically manage the balance sheet exposures resulting from changes in the FX exchange rates described above.

During the years ended December 31, 2021, 2020 and 2019, KDP held FX forward contracts to economically manage the balance sheet exposures resulting from changes in the FX exchange rates described above.

The intent of these FX contracts is to minimize the impact of FX risk associated with balance sheet positions not in local currency.

1 unchanged sentence

Changes in the fair value of these instruments are recorded in earnings throughout the term of the derivative instrument and are reported in the same caption of the Consolidated Statements of Income as the associated risk.

These FX contracts have maturities ranging from January 2021 to September 2024 as of December 31, 2020.

KEURIG DR PEPPER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of December 31, 2021, these FX contracts have maturities ranging from January 2022 to September 2024.

Cash Flow Hedges

During 2020, the Company began to designate certain FX forward contracts related to inventory purchases of the Canadian and Mexican businesses as cash flow hedges in order to manage the exposures resulting from changes in the FX rates described above.

During 2020, KDP began to designate certain FX forward contracts related to inventory purchases of the Canadian and Mexican businesses as cash flow hedges in order to manage the exposures resulting from changes in the FX rates described above.

The intent of these FX contracts is to provide predictability in the Company's overall cost structure.

These FX contracts, carried at fair value, have maturities ranging from January 2021 to March 2022 as of December 31, 2020.

As of December 31, 2021, these FX contracts have maturities ranging from January 2022 to May 2023.

Economic Hedges

KDP centrally manages the exposure to volatility in the prices of certain commodities used in its production process and transportation through various derivative contracts.

The intent of these contracts is to provide a certain level of predictability in the Company's overall cost structure.

During the years ended December 31, 2021, 2020 and 2019, the Company held forward, future, swap and option contracts that economically hedged certain of its risks.

2 unchanged sentences

Unrealized gains and losses are recognized as a component of unallocated corporate costs until the Company's operating segments are affected by the completion of the underlying transaction, at which time the gain or loss is reflected as a component of the respective segment's income from operations.

As of December 31, 2020, these commodity contracts have maturities ranging from January 2021 to January 2024.

As of December 31, 2021, these commodity contracts have maturities ranging from January 2022 to November 2023.

KEURIG DR PEPPER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTIONAL AMOUNTS OF DERIVATIVE INSTRUMENTS

2 unchanged sentences

Interest rate contracts

Receive-fixed, pay-variable interest rate swaps (1)

Receive-variable, pay-fixed interest rate swaps (2)

Forward starting swaps, designated as cash flow hedges $ 2,500 $ —

Receive-variable, pay-fixed interest rate swaps, not designated as hedging instruments — 450

Receive-fixed, pay-variable interest rate swaps, not designated as hedging instruments 400 —

Forward contracts, not designated as hedging instruments 463 476

Forward contracts, designated as cash flow hedges 385 333

Commodity contracts 450 150

(1) During the year ended December 31, 2020, the Company elected to terminate $ 50 million notional amount of receive-fixed, pay-variable interest rate swaps and received cash of $ 18 million.

(2) During the year ended December 31, 2020, the Company elected to terminate $ 575 million notional amount of receive-variable, pay-fixed interest rate swaps and received cash of $ 2 million.

Commodity contracts, not designated as hedging instruments 529 450

FAIR VALUE OF DERIVATIVE INSTRUMENTS

4 unchanged sentences

Therefore, the Company has categorized these contracts as Level 2.

KEURIG DR PEPPER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Not Designated as Hedging Instruments

2 unchanged sentences

Interest rate contracts 2 Prepaid expenses and other current assets $ 2 $ —

FX forward contracts 2 Prepaid expenses and other current assets 3 —

Commodity contracts 2 Prepaid expenses and other current assets 133 45

Interest rate contracts 2 Other non-current assets — 18

Commodity contracts 2 Other non-current assets 2 12

5 unchanged sentences

Commodity contracts 2 Other non-current liabilities 1 2

KEURIG DR PEPPER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Designated as Hedging Instruments

The following table summarizes the fair value hierarchy and the location of the fair value of the Company's derivative instruments which are designated as hedging instruments within the Consolidated Balance Sheets:

(in millions) Fair Value Hierarchy Balance Sheet Location 2020 2019

FX forward contracts 2 Other current liabilities $ 12 $ —

(in millions) Balance Sheet Location 2021 2020

FX contracts Prepaid expenses and other current assets $ 6 $ —

FX contracts Other non-current assets 1 —

FX contracts Other current liabilities $ 1 $ 12

Interest rate contracts Other current liabilities 8 —

Interest rate contracts Other non-current liabilities 128 —

IMPACT OF DERIVATIVE INSTRUMENTS NOT DESIGNATED AS HEDGING INSTRUMENTS

8 unchanged sentences

FX forward contracts Cost of sales 4 ( 6 ) 5

FX forward contracts Other expense (income), net 6 18 ( 27 )

FX forward contracts Other (income) expense, net — 6 18

IMPACT OF CASH FLOW HEDGES

During the year ended December 31, 2020, the Company reclassified $ 2 million of losses from AOCI into income from operations.

No amounts were reclassified from AOCI into income from operations for the years ended December 31, 2019 and 2018.

KDP expects to reclassify approximately $ 14 million of losses from AOCI into income from operations during the next twelve months.

The following table presents the amount of (gains) losses, net, reclassified from AOCI into the Consolidated Statements of Income related to derivative instruments designated as cash flow hedging instruments during the periods presented:

For the Year Ended December 31,

(in millions) Income Statement Location 2021 2020 2019

Interest rate contracts Interest expense $ — $ — $ —

FX contracts Cost of sales 18 2 —

KDP expects to reclassify approximately $ 1 million of pre-tax net gains from AOCI into net income during the next twelve months related to its FX contracts.

KDP expects to reclassify $ 2 million of pre-tax net losses from AOCI into net income during the next twelve months related to its interest rate contracts.

KEURIG DR PEPPER INC.

1 unchanged sentence

The following table presents the components of lease cost:

Year Ended December 31,

For the Year Ended December 31,

(in millions) 2021 2020 2019

8 unchanged sentences

(1) Variable lease cost primarily consists of common area maintenance costs, property taxes, and adjustments for inflation.

The following table presents supplemental cash flow information about the Company's leases:

Year Ended December 31,

The following table presents supplemental cash flow and other information about the Company's leases:

For the Year Ended December 31,

(in millions) 2021 2020 2019

3 unchanged sentences

Financing cash flows from finance leases 54 52 38

Right-of-use assets obtained in exchange for lease obligations:

Operating leases $ 293 $ 234 $ 189

Finance leases 408 90 71

The following table presents information about the Company's weighted average discount rate and remaining lease term:

5 unchanged sentences

Finance leases 10 years 11 years

KEURIG DR PEPPER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SCHEDULE OF FUTURE MINIMUM LEASE PAYMENTS

6 unchanged sentences

Present value of minimum lease payments $ 684 $ 700

KEURIG DR PEPPER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SIGNIFICANT LEASES THAT HAVE NOT YET COMMENCED

As of December 31, 2021, the Company has entered into leases that have not yet commenced with estimated aggregated future lease payments of approximately $ 202 million.

These leases will commence between the first quarter of 2021 and the third quarter of 2021, with initial lease terms ranging from 1 year to 17 years.

These leases will commence in 2022 and 2023, with initial lease terms ranging from 2 years to 10 years.

ASSET SALE-LEASEBACK TRANSACTIONS

On January 10, 2020, the Company closed an asset sale-leaseback transaction on two distribution properties.

The Company received proceeds of approximately $ 50 million, net of selling costs for the properties, which had a carrying value of $ 27 million, and resulted in an approximately $ 23 million gain on the sale transaction.

The leaseback is accounted for as an operating lease.

The term of the leaseback is expected to end in 2025 and has two three-year renewals.

On January 6, 2020, the Company closed an asset sale-leaseback transaction on two manufacturing properties as the buyer obtained control.

The Company received proceeds of approximately $ 150 million, net of selling costs for the properties, which had a carrying value of $ 131 million, and resulted in an approximately $ 19 million gain on the sale transaction.

The leaseback is accounted for as an operating lease.

The initial term of the leaseback is expected to end during 2034 and has two 10-year renewal options.

The renewal options are not reasonably assured as (i) the Company's position that the dynamic environment in which it operates precludes the Company's ability to be reasonably certain of exercising the renewal options in the distant future and (ii) the options are contingent as the Company must remain investment grade and a change-in-control has not occurred as of the end of the lease term.

The leaseback has a residual value guarantee;

however, the Company concluded it was not probable that the Company will owe an amount at the end of the lease term and will record the lease obligation excluding the residual value guarantee.

On December 23, 2019, the Company closed an asset sale-leaseback transaction for three manufacturing properties as the buyer obtained control.

The Company received proceeds of approximately $ 170 million, net of selling costs for the properties, which had a carrying value of $ 140 million, and resulted in an approximately $ 30 million gain on the sale transaction, which was recorded in Other operating (income) expense, net.

The leaseback is accounted for as an operating lease.

The initial term of the leaseback is expected to end during 2034 and has two 10-year renewal options.

Transactions with Special Purpose Entities with Same Sponsor

The Company has entered into a number of asset sale-leaseback transactions with the same sponsor.

The following table presents details of the transactions.

Gains on the sale transactions are recorded in Other operating (income) expense, net, and the leasebacks are accounted for as operating leases.

Sale Proceeds Carrying Value Gain on Sale

December 29, 2021 (1)

$ 102 $ 32 $ 70

January 6, 2020 (2)

$ 150 $ 131 $ 19

December 23, 2019 (3)

$ 170 $ 140 $ 30

(1) The sale-leaseback transaction included two manufacturing properties and two distribution properties.

(2) The sale-leaseback transaction included two manufacturing properties.

(3) The sale-leaseback transaction included three manufacturing properties.

The initial term of each leaseback is 15 years, with two 10-year renewal options.

The renewal options are not reasonably assured as (i) the Company's position that the dynamic environment in which it operates precludes the Company's ability to be reasonably certain of exercising the renewal options in the distant future and (ii) the options are contingent on the Company remaining investment grade and no change-in-control as of the end of the lease term.

The leaseback has a residual value guarantee;

however, the Company concluded it was not probable that the Company will owe an amount at the end of the lease term and recorded the lease obligation excluding the residual value guarantee.

On December 20, 2019, the Company closed the asset sale-leaseback transaction on the Company's Plano headquarters as the buyer obtained control.

The leaseback is accounted for as an operating lease.

During the year ended December 31, 2019, the Company transferred the assets from plant, property and equipment to assets held for sale and recognized an impairment of approximately $ 5 million as a result.

The Company received proceeds of approximately $ 49 million, net of selling costs for the properties, and recognized no additional gain or loss on the sale transaction.

The term of the leaseback is expected to end in 2021 upon the Company's relocation to a new facility.

On December 13, 2019, the Company closed the asset sale-leaseback transaction on certain properties in Waterbury, Vermont as the buyer obtained control.

The leaseback is accounted for as an operating lease.

The Company received proceeds of approximately $ 8 million, net of selling costs for the properties, and recognized no gain or loss on the sale transaction.

Each leaseback has a RVG.

Refer to Note 19 for additional information about RVGs associated with asset sale-leaseback transactions.

KEURIG DR PEPPER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company has additionally entered into asset sale-leaseback transactions with other entities.

The following table presents details of the transactions.

Gains on the sale transactions are recorded in Other operating (income) expense, net, and the leasebacks are accounted for as operating leases.

Sale Proceeds Carrying Value Gain on Sale

January 10, 2020 (1)

$ 50 $ 27 $ 23

December 20, 2019 (2)

December 13, 2019 (3)

(1) The sale-leaseback transaction included two distribution properties.

The initial term of the leaseback is five years and has two three-year renewal options.

(2) The sale-leaseback transaction included KDP’s former headquarters in Plano, Texas.

During the year ended December 31, 2019, KDP transferred the assets to assets held for sale and recognized an impairment of approximately $ 5 million.

The leaseback ended in 2021 upon the Company’s relocation to a new facility.

(3) The sale-leaseback transaction included certain properties in Waterbury, Vermont.

During the year ended December 31, 2019, KDP transferred the assets to assets held for sale and recognized an impairment of approximately $ 12 million.

The term of the leaseback ended in 2020 upon the Company’s relocation to a new facility.

KEURIG DR PEPPER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Employee Benefit Plans

4 unchanged sentences

The Company also participates in various multi-employer defined benefit plans.

KEURIG DR PEPPER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company's largest U.S.

31 unchanged sentences

pension plans represent approximately 98 % of the total plan assets and 95 % of the total projected benefit obligation of all plans combined as of December 31, 2021.

KEURIG DR PEPPER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table summarizes key pension plan information regarding plans whose accumulated benefit obligations exceed the fair value of their respective plan assets:

4 unchanged sentences

Aggregate fair value of plan assets 65 61

KEURIG DR PEPPER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table summarizes the components of the Company's net periodic benefit cost:

10 unchanged sentences

There will be no estimated service cost or net actuarial loss for the defined benefit pension plans amortized from AOCI into periodic benefit cost in 2022.

The Company included $ 3 million net actuarial loss in AOCI as of December 31, 2020 and none as of December 31, 2019.

The Company included $ 2 million of net actuarial losses in AOCI as of both December 31, 2021 and 2020.

Contributions and Expected Benefit Payments

14 unchanged sentences

For KDP's U.S.

plans, the Company used the Pri-2012 mortality tables and the Mortality Improvement Scale MP-2020 published by the Society of Actuaries’ Retirement Plans Experience Committee for the year ended December 31, 2020, and the Pri-2012 mortality tables and the Mortality Improvement Scale MP-2019 for the year ended December 31, 2019.

plans, the Company used the Pri-2012 mortality tables and the Mortality Improvement Scale MP-2020 published by the Society of Actuaries’ Retirement Plans Experience Committee for each of the years ended December 31, 2021 and 2020.

KEURIG DR PEPPER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table summarizes the weighted-average assumptions used to determine benefit obligations at the plan measurement dates for U.S.

2 unchanged sentences

Rate of increase in compensation levels 3.00 % 3.00 %

KEURIG DR PEPPER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table summarizes the weighted average actuarial assumptions used to determine the net periodic benefit costs for U.S.

9 unchanged sentences

For the Year Ended December 31,

2021 2020 2019

Fixed income securities:

18 unchanged sentences

equity securities, 5 - 15 % for international equity securities, and 70 - 90 % for fixed income securities.

As a result of the DPS Merger, the Company acquired several non-contributory defined benefit PRMB plans, each having a measurement date of December 31.

The Company has several non-contributory defined benefit PRMB plans, each having a measurement date of December 31.

The majority of these PRMB plans have been frozen.

2 unchanged sentences

The Company's PRMB plans are not significant to the Company's consolidated financial statements as of December 31, 2021 and 2020.

KEURIG DR PEPPER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FAIR VALUE OF THE PENSION AND PRMB ASSETS

4 unchanged sentences

As such, the Company uses the fair value hierarchy to measure the fair value of assets held by the Company's various pension and PRMB plans.

KEURIG DR PEPPER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following tables present the major categories of plan assets and the respective fair value hierarchy for the pension and PRMB plan assets:

6 unchanged sentences

Level 2 11 8 12 7

International fixed income securities (2)

Level 2 4 — 15 —

Fixed income securities (3)

4 unchanged sentences

(2) The NAV is based on the fair value of the underlying assets owned by the equity index fund or fixed income investment vehicle per share, multiplied by the number of units held as of the measurement date.

(3) Fixed income securities are comprised of a diversified portfolio of investment-grade corporate and government securities.

(3) Fixed income securities are comprised of domestic and international corporate bonds and U.S.

government securities.

Investments are provided by the investment managers using a unit price or NAV based on the fair value of the underlying investments.

MULTI-EMPLOYER PLANS

As a result of the DPS Merger, the Company assumed multi-employer plans, which are three trustee-managed multi-employer defined benefit pension plans for union-represented employees under certain collective bargaining agreements.

The Company has three multi-employer plans, which are trustee-managed multi-employer defined benefit pension plans for union-represented employees under certain collective bargaining agreements.

The risks of participating in these multi-employer plans are different from single-employer plans, as assets contributed to the multi-employer plan by one employer may be used to provide benefits to employees of other participating employers.

8 unchanged sentences

Expiration dates of collective bargaining agreements (1)

February 17,2021 through January 20, 2025

March 20, 2022 through February 20, 2025

Financial Improvement Plan/Rehabilitation Plan status pending/implemented Implemented

6 unchanged sentences

Central States has not utilized any extended amortization provisions that affect the calculation of the zone status.

KEURIG DR PEPPER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company's contributions to Central States did not exceed 5% of the total contributions made to Central States for the years ended December 31, 2021, 2020 and 2019.

2 unchanged sentences

Future estimated contributions to Central States $ 2 $ 2 $ 2 $ 2 $ 2

KEURIG DR PEPPER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DEFINED CONTRIBUTION PLANS

9 unchanged sentences

The corresponding liability related to the deferred defined compensation plan is recorded in other non-current liabilities.

Gains and losses in connection with these trading securities are recorded in Other expense (income), net with an offset for the same amount recorded in SG&A expenses.

There were $ 8 million in gains associated with these trading securities during each of the years ended December 31, 2020 and 2019, and $ 5 million in losses during the year ended December 31, 2018.

Gains and losses in connection with these trading securities are recorded in Other (income) expense, net with an offset for the same amount recorded in SG&A expenses.

There were $ 5 million in gains associated with these trading securities during the year ended December 31, 2021, and $ 8 million in gains during each of the years ended December 31, 2020 and 2019.

The Company makes matching contributions and discretionary profit sharing contributions to each of the respective plans.

The Company incurred contribution expense of $ 73 million, $ 77 million and $ 66 million to the defined contribution plans for the years ended December 31, 2021, 2020 and 2019, respectively.

Effective January 1, 2021, the Company modified its internal reporting and operating segments to reflect changes in the executive leadership team to further enhance speed-to-market and decision effectiveness.

These changes did not change the Company’s reportable segments.

As of December 31, 2021 and 2020 and for the years ended December 31, 2021, 2020 and 2019, the Company's reportable segments consist of the following:

• The Coffee Systems segment reflects sales in the U.S.

and Canada of the manufacture and distribution of finished goods relating to the Company's coffee system, K-Cup pods and brewers.

• 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 the Company's own brands and third-party brands, through both the DSD and WD systems.

DSD and WD have both been identified as operating segments that the Company aggregated into Packaged Beverages due to similar economic characteristics and similarities in the nature of finished goods sales and route-to-markets.

• The Beverage Concentrates segment reflects sales of the Company's branded concentrates and syrup to third-party bottlers primarily in the U.S.

Most of the brands in this segment are CSD brands.

Our FFS operating segment is aggregated with our Branded Concentrates operating segment into our Beverage Concentrates reportable segment due to similar economic characteristics and similarities in the nature of the product sold.

• The Latin America Beverages segment reflects sales in Mexico, the Caribbean, and other international markets from the manufacture and distribution of concentrates, syrup and finished beverages.

Segment results are based on management reports.

Net sales and income from operations are the significant financial measures used to assess the operating performance of the Company's operating segments.

Intersegment sales are recorded at cost and are eliminated in the Consolidated Statements of Income.

“Unallocated corporate costs” are excluded from the Company's measurement of segment performance and include unrealized commodity derivative gains and losses, and certain general corporate expenses.

KEURIG DR PEPPER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Information about the Company's operations by reportable segment is as follows:

For the Year Ended December 31,

(in millions) 2021 2020 2019

Coffee Systems $ 4,716 $ 4,433 $ 4,233

Packaged Beverages 5,882 5,363 4,945

Beverage Concentrates 1,486 1,325 1,414

Latin America Beverages 599 497 528

Total net sales $ 12,683 $ 11,618 $ 11,120

Income from operations

Coffee Systems $ 1,318 $ 1,268 $ 1,219

Packaged Beverages 1,010 822 757

Beverage Concentrates 1,044 932 955

Latin America Beverages 133 105 85

Unallocated corporate costs ( 611 ) ( 647 ) ( 638 )

Income from operations $ 2,894 $ 2,480 $ 2,378

(in millions) 2021 2020

Identifiable operating assets

Coffee Systems $ 15,397 $ 15,295

Packaged Beverages 11,819 11,540

Beverage Concentrates 20,674 20,575

Latin America Beverages 1,763 1,763

Segment total 49,653 49,173

Unallocated corporate assets 915 518

Total identifiable operating assets 50,568 49,691

Investments in unconsolidated affiliates 30 88

Total assets $ 50,598 $ 49,779

GEOGRAPHIC DATA

The following table presents information about the Company's operations by geographic region:

For the Year Ended December 31,

(in millions) 2021 2020 2019

$ 11,267 $ 10,318 $ 9,843

International 1,416 1,300 1,277

Net sales $ 12,683 $ 11,618 $ 11,120

KEURIG DR PEPPER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in millions) 2021 2020

Property, plant and equipment, net

$ 2,084 $ 1,893

International 410 319

Total property, plant and equipment, net $ 2,494 $ 2,212

MAJOR CUSTOMER

Walmart is considered a major customer, accounting for more than 10% of the Company's total net sales.

The following table provides net sales for Walmart:

For the Year Ended December 31,

(in millions) 2021 2020 2019

Walmart $ 1,989 $ 1,782 $ 1,483

Additionally, customers in the Company's Beverage Concentrates segment buy concentrate from the Company, which is used in finished goods sold by the Company's third party bottlers to Walmart.

These indirect sales further increase the concentration of risk associated with the Company's consolidated net sales as it relates to Walmart.

Earnings Per Share

The following table presents the Company's basic and diluted EPS and shares outstanding.

Anti-dilutive stock-based awards excluded from the calculations of diluted EPS were immaterial during the periods presented.

For the Year Ended December 31,

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Weighted average common shares outstanding 1,415.7 1,407.2 1,406.7

Earnings per common share — basic $ 0.94 $ 0.89 $ 0.54

Net income attributable to KDP $ 1,325 $ 1,254 $ 586

Weighted average common shares outstanding 1,407.2 1,406.7 1,086.3

Effect of dilutive securities:

Stock options 0.3 0.6 0.9

RSUs 14.6 11.8 10.4

Dilutive effect of stock-based awards 12.2 14.9 12.4

Weighted average common shares outstanding and common stock equivalents 1,427.9 1,422.1 1,419.1

Earnings per common share — diluted $ 0.93 $ 0.88 $ 0.53

Anti-dilutive shares excluded from the diluted weighted average shares outstanding calculation 0.5 — 1.2

Basic EPS $ 1.52 $ 0.94 $ 0.89

Diluted EPS $ 1.50 $ 0.93 $ 0.88

Stock-Based Compensation

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Upon consummation of the DPS Merger, RSUs granted under these programs were converted at the exchange ratio established in the DPS Merger into RSUs that will be settled into shares of the Company's common stock on their existing vesting schedule.

The Company previously adopted the 2009 Incentive Plan, under which employees and non-employee directors could be granted stock options, stock appreciation rights, stock awards, RSUs and PSUs, and grants subsequent to the DPS Merger Date were granted under the 2009 Incentive Plan.

During the year ended December 31, 2019, the Company adopted the 2019 Incentive Plan, which expires in 2029 and otherwise contains substantially similar provisions as the 2009 Incentive Plan.

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RSUs granted after the DPS Merger through 2019 5 -year term with cliff-vesting at the end of the term

RSUs granted during 2020 5-year term with graded vesting as follows:

RSUs granted during 2020 and 2021 5 -year term with graded vesting as follows:

0% in year 1, 0% in year 2, 60% in year 3, 20% in year 4, 20% in year 5

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STOCK OPTIONS

Upon the consummation of the DPS Merger, the Company issued replacement stock option awards for DPS stock option awards that were fully vested as of July 9, 2018 but not yet exercised by the employee.

The fair value of these replacement stock option awards was considered as consideration exchanged in the DPS Merger as a result of the Change in Control (as defined in the terms of each individual award agreement).

The table below summarizes stock option activity for the year ended December 31, 2021 :

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Revenue Recognition

The following table disaggregates the Company's revenue by portfolio:

(in millions) Coffee Systems Packaged Beverages Beverage Concentrates Latin America Beverages Total

For the Year Ended December 31, 2021

$ — $ 2,825 $ 1,463 $ 435 $ 4,723

— 2,617 11 163 2,791

K-cup pods (2)

3,546 — — — 3,546

Appliances 907 — — — 907

Other 263 440 12 1 716

Net sales $ 4,716 $ 5,882 $ 1,486 $ 599 $ 12,683

For the Year Ended December 31, 2020

$ — $ 2,489 $ 1,304 $ 361 $ 4,154

— 2,477 10 135 2,622

K-cup pods (2)

3,369 — — — 3,369

Appliances 850 — — — 850

Other 214 397 11 1 623

Net sales $ 4,433 $ 5,363 $ 1,325 $ 497 $ 11,618

For the Year Ended December 31, 2019

$ — $ 2,219 $ 1,385 $ 380 $ 3,984

— 2,317 13 146 2,476

K-cup pods (2)

3,293 — — — 3,293

Appliances 723 — — — 723

Other 217 409 16 2 644

Net sales $ 4,233 $ 4,945 $ 1,414 $ 528 $ 11,120

(1) Represents net sales of owned and partner brands within the Company's portfolio.

(2) Represents net sales from owned brands, partner brands and private label owners.

Net sales for partner brands and private label owners are contractual and long term in nature.

KEURIG DR PEPPER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Income before provision for income taxes was as follows:

For the Year Ended December 31,

(in millions) 2021 2020 2019

$ 2,353 $ 1,367 $ 1,389

International 445 386 305

Total $ 2,798 $ 1,753 $ 1,694

The provision for income taxes has the following components:

For the Year Ended December 31,

(in millions) 2021 2020 2019

Federal $ 386 $ 297 $ 303

State 136 103 98

International 100 79 62

Total current provision $ 622 $ 479 $ 463

Federal $ 41 $ ( 31 ) $ ( 31 )

State ( 8 ) ( 6 ) 1

International ( 2 ) ( 14 ) 7

Total deferred provision $ 31 $ ( 51 ) $ ( 23 )

Total provision for income taxes $ 653 $ 428 $ 440

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) 2021 2020 2019

Statutory federal income tax rate 21.0 % 21.0 % 21.0 %

State income taxes, net 3.8 % 4.0 % 3.7 %

Impact of non-U.S.

Operations 0.1 % 0.2 % 0.3 %

Tax credits ( 0.8 ) % ( 1.3 ) % ( 0.9 ) %

Valuation allowance for deferred tax assets ( 0.1 ) % ( 1.1 ) % — %

taxation of foreign earnings 0.7 % 1.6 % 1.5 %

Deferred rate change ( 0.7 ) % 0.5 % ( 0.3 ) %

Uncertain tax positions — % ( 1.3 ) % — %

federal provision to return ( 0.3 ) % 0.1 % ( 0.6 ) %

Excess tax deductions on stock-based compensation ( 1.0 ) % — % — %

Other 0.6 % 0.7 % 1.3 %

Total provision for income taxes 23.3 % 24.4 % 26.0 %

KEURIG DR PEPPER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Deferred tax assets and liabilities were comprised of the following:

(in millions) 2021 2020

Deferred tax assets:

Operating lease liability $ 166 $ 161

Net operating losses carryforwards 43 46

Tax credit carryforwards 49 54

Accrued expenses 125 153

Share-based compensation 32 36

Multi-year upfront payments 13 15

Equity method investments 50 29

Total deferred tax assets 519 521

Valuation allowances ( 48 ) ( 51 )

Total deferred tax assets, net of valuation allowances $ 471 $ 470

Deferred tax liabilities:

Brands, trade names and other intangible assets $ ( 5,909 ) $ ( 5,916 )

Property, plant and equipment ( 314 ) ( 293 )

Derivative instruments ( 18 ) ( 38 )

Right of use assets ( 164 ) ( 159 )

Other ( 10 ) ( 12 )

Total deferred tax liabilities ( 6,415 ) ( 6,418 )

Net deferred tax liabilities $ ( 5,944 ) $ ( 5,948 )

CARRYFORWARDS

As of December 31, 2021 and 2020, the Company had $ 39 million and $ 45 million, respectively, in tax-effected Luxembourg net operating loss carry forwards.

Of the $ 39 million of net operating loss carryforwards as of December 31, 2021, $ 38 million will not expire and $ 1 million will begin to expire in the year 2035.

As of December 31, 2021, the Company has $ 48 million of U.S.

foreign tax credit carryforwards and $ 1 million of other carryforwards, primarily related to U.S.

state income tax.

The Company recorded a valuation allowance release of approximately $ 51 million during the year ended December 31, 2021 against U.S.

foreign tax credit carryforwards, as realization is more likely than not.

Foreign tax credits will begin to expire in 2024.

UNDISTRIBUTED INTERNATIONAL EARNINGS

For the tax year ended December 31, 2021 and 2020, undistributed earnings in non-U.S.

subsidiaries for which no deferred taxes have been provided totaled approximately $ 295 million and $ 130 million, respectively.

An actual repatriation from our non-U.S.

subsidiaries could still be subject to additional foreign withholding taxes.

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 and Mexico.

and most state income tax returns for years prior to 2017 are closed to examination by applicable tax authorities.

Mexican income tax returns are generally open for tax years 2016 and forward, and Canadian income tax returns are open for audit for tax years 2013 and forward.

KEURIG DR PEPPER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 $ 6 million for each of the years ended December 31, 2021 and 2020, respectively, resulting in no impact to basic and diluted EPS for each of the years ended December 31, 2021 and 2020.

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) 2021 2020 2019

Balance, beginning of the period $ 18 $ 43 $ 50

Increases related to tax positions taken during the current year 2 2 2

(Decreases) increases related to tax positions taken during the prior year ( 3 ) 2 3

Decreases related to settlements with taxing authorities ( 1 ) ( 8 ) ( 8 )

Decreases related to lapse of applicable statute of limitations ( 4 ) ( 21 ) ( 4 )

Balance, end of the period $ 12 $ 18 $ 43

The total amount of unrecognized tax benefits that, if recognized, would reduce the effective tax rate, is $ 9 million after considering the federal impact of state income taxes.

During the next twelve months, KDP does not expect a significant change to its unrecognized tax benefits.

KDP accrues interest and penalties on its uncertain tax positions as a component of its provision for income taxes.

The Company recognized a benefit of $ 1 million and $ 8 million, and expense of $ 3 million, related to interest and penalties for uncertain tax positions for the years ended December 31, 2021, 2020 and 2019, respectively.

The Company had a total of $ 2 million and $ 1 million accrued for interest and penalties for its uncertain tax positions reported as part of other non-current liabilities as of December 31, 2021 and 2020, respectively.

Acquisitions and Investments in Unconsolidated Affiliates

2021 ACQUISITIONS

The Company did not make any acquisitions during the year ended December 31, 2021.

2020 ACQUISITIONS

Revive is an organic, non-alcoholic kombucha brand, available in both traditional refrigerated and shelf-stable varieties.

The transaction is considered a common control transaction due to KDP's relationship with Peet's through certain affiliates of JAB.

The investment was accounted for as an acquisition of a controlling interest, and in accordance with the requirements of U.S.

Refer to Note 1 for the Company's accounting policies with respect to the consolidation of Revive and accounting for the non-controlling interest.

2019 ACQUISITIONS

KEURIG DR PEPPER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

INVESTMENTS IN UNCONSOLIDATED AFFILIATES

The following table summarizes the Company's investments in unconsolidated affiliates:

(in millions) Ownership Interest (1)

BodyArmor — % $ — $ 51

Bedford 30.0 % — —

Dyla LLC 12.4 % 12 12

Force Holdings LLC (2)

Beverage startup companies (3)

(various) 8 15

Other (various) 5 5

Investments in unconsolidated affiliates $ 30 $ 88

(1) Represents the Company’s ownership interest as of December 31, 2021 on an undiluted basis, which does not reflect the potential dilution resulting from equity arrangements of the entity, including vesting of such arrangements upon a change in control.

(2) Force Holdings LLC has a 14.1% ownership interest in Dyla LLC.

(3) Beverage startup companies represent equity method investments in development stage entities and may include entities which are pre-revenue, in test markets, or in early operations.

Sale of Investment

On November 1, 2021, Coca-Cola announced that it had acquired full ownership of BodyArmor for cash consideration of $ 5.6 billion for the remaining 85 % of equity interests that Coca-Cola did not previously own.

Prior to the transaction, KDP held an ownership interest in BodyArmor of 12.5 % on an undiluted basis, which had a carrying value of approximately $ 52 million.

As a result of BodyArmor’s change in control, KDP’s ownership interest was diluted to 10.6 % as a result of the vesting of incentive equity compensation previously granted by BodyArmor to employees, athletes, and endorsers.

KDP received cash consideration from the sale of its interests in BodyArmor, net of holdback liabilities, of $ 576 million on December 15, 2021, resulting in a gain on the sale of the investment of $ 524 million.

This gain was recorded to Gain on sale of investment in the Consolidated Statements of Income.

The Company’s holdback liabilities represent a contingent gain due to a number of uncertainties, which includes unresolved items and any potential indemnification claims.

The end of the holdback period is 18 months after Coca-Cola’s full acquisition of BodyArmor.

The holdback liability, as of November 1, 2021, was $$ 105 million.

Refer to Note 21 for information about the resolution of the holdback liabilities subsequent to December 31, 2021.

Impairments of Investments

Bedford Investment and Related Party Note Receivable - 2020

The Company committed and funded the $ 51 million capacity, which incurs a fixed interest rate of 8.1 % per annum.

The credit agreement with Bedford originally had a maturity of March 3, 2024.

The results of its analysis indicated that the note receivable of $ 55 million and the investment in unconsolidated affiliates of $ 31 million were fully impaired, which was recorded on the Impairment of investments and note receivable line in the Consolidated Statements of Income.

As a result of the other-than-temporary impairment, the Company placed the note receivable in non-accrual status.

Bedford Investment and Related Party Notes Receivable - 2021

In July 2021, the board of directors of Bedford communicated to KDP that Bedford was seeking additional investors in order to continue its operations.

On July 15, 2021, KDP issued a convertible promissory note for $ 15 million to Bedford at an interest rate of 0.12 % per year.

The outstanding principal and any unpaid accrued interest automatically converted to equity interests in Bedford during the fourth quarter of 2021.

KEURIG DR PEPPER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

On November 29, 2021, KDP issued a promissory note for $ 2 million to Bedford at an interest rate of 0.33 % per year.

The outstanding principal and any unpaid accrued interest are due November 29, 2022.

In December 2021, the board of directors of Bedford communicated to KDP that it was unable to obtain additional investors, and that Bedford will begin procedures to wind down the company.

As a result of this decision, KDP fully impaired the outstanding note receivable of $ 2 million and investment in unconsolidated affiliates of $ 15 million, and the note receivable was placed in non-accrual status.

As part of the wind down procedures, KDP and ABI agreed to together fund a $ 68 million credit agreement to Bedford.

KDP will fund 30 % of this loan, in line with the Company’s ownership percentage in Bedford.

The $ 2 million promissory note funded on November 29, 2021 is considered as part of this credit agreement.

Impairment of LifeFuels

Accumulated Other Comprehensive Income (Loss)

The following table provides a summary of changes in AOCI, net of taxes:

(in millions) Foreign Currency Translation Pension and PRMB Liabilities (1)

Cash Flow Hedges (2)

(in millions) Foreign Currency Translation Pension and PRMB Liabilities Cash Flow Hedges AOCI

Balance as of December 31, 2018 $ ( 126 ) $ ( 4 ) $ — $ ( 130 )

OCI before reclassifications 230 5 — 235

Net current period other comprehensive loss ( 225 ) ( 4 ) — ( 229 )

Amounts reclassified from AOCI — ( 1 ) — ( 1 )

Net current period other comprehensive income 230 4 — 234

Balance as of December 31, 2019 104 — — 104

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Amounts reclassified from AOCI — 1 2 3

Net current period other comprehensive income 230 4 — 234

Net current period other comprehensive loss ( 9 ) ( 4 ) ( 14 ) ( 27 )

Balance as of December 31, 2020 95 ( 4 ) ( 14 ) 77

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Amounts reclassified from AOCI — — 13 13

Net current period other comprehensive income ( 9 ) ( 4 ) ( 14 ) ( 27 )

Net current period other comprehensive loss ( 14 ) — ( 89 ) ( 103 )

Balance as of December 31, 2021 $ 81 ( 4 ) $ ( 103 ) $ ( 26 )

(1) Amounts reclassified from AOCI during the period represent settlement gains (losses), which are recorded to SG&A expenses within the Consolidated Statements of Income.

(2) Amounts reclassified from AOCI during the period represent settled FX forward contracts, which are recorded to Cost of sales within the Consolidated Statements of Income.

The following table presents the amount of losses reclassified from AOCI into the Consolidated Statements of Income:

For the Year Ended December 31,

(in millions) Income Statement Caption 2021 2020 2019

Pension and PRMB liabilities SG&A expenses $ — $ 1 $ ( 1 )

Income tax benefit — — —

Total, net of tax $ — $ 1 $ ( 1 )

Cash flow hedges:

Interest rate contracts Interest expense $ — $ — $ — $ —

FX contracts Cost of sales 18 2 —

Income tax benefit ( 5 ) — —

Total, net of tax $ 13 $ 2 $ —

KEURIG DR PEPPER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Property, Plant and Equipment

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Total depreciation expense $ 410 $ 362 $ 358

KEURIG DR PEPPER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Other Financial Information

CASH AND CASH EQUIVALENTS

The carrying value of cash, cash equivalents, restricted cash and restricted cash equivalents is valued as of the balance sheet date equating fair value and is classified as Level 1.

3 unchanged sentences

Restricted cash and restricted cash equivalents 1 15

Non-current restricted cash and restricted cash equivalents (2)

Total cash, cash equivalents, restricted cash and restricted cash equivalents $ 568 $ 255

(1) Restricted cash and cash equivalents primarily represent amounts held in escrow in connection with the acquisitions of Core, Bai and Big Red, and have a corresponding holdback liability recorded in other current liabilities, as shown below.

During the year ended December 31, 2020, the Company released restricted cash and cash equivalents and the corresponding holdback liability primarily related to the acquisition of Core, in accordance with the terms of the respective acquisition agreement.

Refer to Note 5 for additional information.

(2) Included within the Other non-current assets caption below.

ACCOUNTS PAYABLE

KDP has agreements with third party administrators which allow participating suppliers to track payment obligations from KDP, and if voluntarily elected by the supplier, to sell payment obligations from KDP to financial institutions.

Suppliers can sell one or more of KDP's payment obligations at their sole discretion and the rights and obligations of KDP to its suppliers are not impacted.

KDP has no economic interest in a supplier’s decision to enter into these agreements and no direct financial relationship with the financial institutions.

KDP's obligations to its suppliers, including amounts due and scheduled payment terms, are not impacted.

KDP has been informed by the third party administrator that as of December 31, 2021 and 2020, $ 3,194 million and $ 2,578 million, respectively, of KDP's outstanding payment obligations were voluntarily elected by the supplier and sold to financial institutions.

KEURIG DR PEPPER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SELECTED BALANCE SHEET INFORMATION

The following tables provide selected financial information from the Consolidated Balance Sheets:

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Customer incentive programs $ 59 $ 70

Marketable securities - trading 41 40

Equity securities (1)

Operating lease right-of-use assets 673 645

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Equity securities without readily determinable fair values 1 1

Non-current restricted cash and restricted cash equivalents — 10

Related party notes receivable (2)

Other 143 125

Total other non-current assets $ 937 $ 894

(1) The decrease in assets held for sale was due to the assets included in sale-leaseback transactions that closed during the year ended December 31, 2020.

Refer to Note 9 for additional information about the transactions.

The remaining amounts were comprised of property, plant and equipment expected to be sold within the next twelve months.

(2) Refer to Note 5 for information about the impairment of the Company's related party note receivable from Bedford.

(1) Equity securities are comprised of assets held in a rabbi trust in connection with a non-qualified defined contribution plan, as well as our ownership interest in Vita Coco.

Refer to Note 8 for additional information about the rabbi trust.

On October 25, 2021, the Company acquired an ownership interest in Vita Coco for $ 20 million.

Unrealized mark-to-market losses on the investment of $ 5 million for the year ended December 31, 2021 are recorded in Other (income) expense, net.

KEURIG DR PEPPER INC.

25 unchanged sentences

Total other non-current liabilities $ 1,577 $ 1,119

ACCOUNTS PAYABLE

KDP has an agreement with a third party which allows participating suppliers to track payment obligations from KDP, and if voluntarily elected by the supplier, to sell payment obligations from KDP to financial institutions.

Suppliers can sell one or more of KDP's payment obligations at their sole discretion and the rights and obligations of KDP to its suppliers are not impacted.

KDP has no economic interest in a supplier’s decision to enter into these agreements and no direct financial relationship with the financial institutions.

KDP's obligations to its suppliers, including amounts due and scheduled payment terms, are not impacted.

KDP has been informed by the third party administrator that as of December 31, 2020 and 2019, $ 2,578 million and $ 2,097 million, respectively, of KDP's outstanding payment obligations were voluntarily elected by the supplier and sold to financial institutions.

KEURIG DR PEPPER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Commitments and Contingencies

KDP is occasionally subject to litigation or other legal proceedings.

Reserves are recorded for specific legal proceedings when the Company determines that the likelihood of an unfavorable outcome is probable and the amount of loss can be reasonably estimated.

As of December 31, 2021 and 2020, the Company had litigation reserves of $ 14 million and $ 32 million, respectively, which includes the specific amounts disclosed below.

KDP has also identified certain other legal matters where we believe an unfavorable outcome is reasonably possible and/or for which no estimate of possible losses can be made.

The Company does not believe that the outcome of these, or any other, pending legal matters, individually or collectively, will have a material adverse effect on the results of operations, financial condition or liquidity of KDP.

ANTITRUST LITIGATION

In February 2014, TreeHouse Foods, Inc.

and certain affiliated entities filed suit against KDP’s wholly-owned subsidiary, KGM, in the U.S.

and certain affiliated entities filed suit against KDP’s wholly-owned subsidiary, Keurig, in the U.S.

District Court for the Southern District of New York (“SDNY”) (TreeHouse Foods, Inc.

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The TreeHouse complaint asserted claims under the federal antitrust laws and various state laws, contending that Keurig had monopolized alleged markets for single serve coffee brewers and single serve coffee pods.

The TreeHouse complaint sought monetary damages, declaratory relief, injunctive relief and attorneys’ fees.

The TreeHouse complaint sought treble monetary damages, declaratory relief, injunctive relief and attorneys’ fees.

In March 2014, JBR, Inc.

filed suit against KGM in the U.S.

filed suit against Keurig in the U.S.

District Court for the Eastern District of California (JBR, Inc.

Keurig Green Mountain, Inc.).

The claims asserted and relief sought in the JBR, Inc.

complaint were substantially similar to the claims asserted and relief sought in the TreeHouse complaint.

KEURIG DR PEPPER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Beginning in March 2014, twenty-seven putative class actions asserting similar claims and seeking similar relief were filed on behalf of purported direct and indirect purchasers of KGM’s products in various federal district courts.

In June 2014, the Judicial Panel on Multidistrict Litigation granted a motion to transfer these various actions, including the TreeHouse and JBR actions, to a single judicial district for coordinated or consolidated pre-trial proceedings (the “Multidistrict Antitrust Litigation”).

Consolidated putative class action complaints by direct purchaser and indirect purchaser plaintiffs were filed in July 2014.

An additional class action on behalf of indirect purchasers, originally filed in the Circuit Court of Faulkner County, Arkansas (Julie Rainwater et al.

Keurig Green Mountain, Inc.), was transferred into the Multidistrict Antitrust Litigation in November 2015.

The claims asserted and relief sought in the JBR complaint were substantially similar to the claims asserted and relief sought in the TreeHouse complaint.

Beginning in 2014, a number of putative class actions asserting similar claims and seeking similar relief to the matters described above were filed on behalf of purported direct purchasers of Keurig’s products in various federal district courts.

In June 2014, these various actions, including the TreeHouse and JBR suits, were transferred to a single judicial district for coordinated pre-trial proceedings (the “Multidistrict Antitrust Litigation”).

A consolidated putative class action complaint by direct purchaser plaintiffs was filed in July 2014.

In January 2019, McLane Company, Inc.

filed suit against KGM (McLane Company, Inc.

filed suit against Keurig (McLane Company, Inc.

Keurig Green Mountain, Inc.) in the SDNY asserting similar claims and was also transferred into the Multidistrict Antitrust Litigation.

1 unchanged sentence

Keurig Green Mountain Single-Serve Coffee Antitrust Litigation).

Discovery in the Multidistrict Antitrust Litigation commenced in December 2017.

Separately, a statement of claim was filed in September 2014 against KGM and Keurig Canada Inc.

Discovery in the Multidistrict Antitrust Litigation concluded in 2021, with plaintiffs collectively claiming more than $ 5 billion of monetary damages.

Keurig strongly disputes the merits of the claims and the calculation of damages.

As a result, Keurig has fully briefed a summary judgment motion that, if successful, would end the cases entirely.

Keurig has also fully briefed other significant motions, including challenges to the validity of plaintiffs’ damages calculations.

Keurig is also pursuing its opposition to direct purchaser plaintiffs’ motion for class certification.

In July 2021, BJ’s Wholesale Club, Inc.

filed suit against Keurig (BJ’s Wholesale Club, Inc.

Keurig Green Mountain, Inc.) in the U.S.

District Court for the Eastern District of New York (“EDNY”) asserting similar claims and also was transferred into the Multidistrict Antitrust Litigation.

In August 2021, Winn-Dixie Stores, Inc.

and Bi-Lo Holding LLC filed suit against Keurig (Winn-Dixie Stores, Inc.

Keurig Green Mountain, Inc.

et al.) in the EDNY asserting similar claims and was also transferred into the Multidistrict Antitrust Litigation.

These cases remain in the early stages of discovery.

A number of putative class actions asserting similar claims and seeking similar relief were previously filed on behalf of purported indirect purchasers of Keurig’s products.

In July 2020, Keurig reached an agreement with the putative indirect purchaser class plaintiffs in the Multidistrict Antitrust Litigation to settle the claims asserted for $ 31 million.

The settlement class consists of individuals and entities in the United States that purchased, from persons other than Keurig and not for purposes of resale, Keurig manufactured or licensed single serve beverage portion packs during the applicable class period (beginning in September 2010 for most states).

The court granted preliminary approval of the settlement in December 2020, and the Company paid the settlement amount in January 2021.

In June 2021, the Court granted final approval of the settlement, entered final judgment, and dismissed the indirect purchasers’ claims.

Separate from the U.S.

actions described above, a statement of claim was filed in September 2014 against Keurig and Keurig Canada Inc.

in Ontario, Canada, by Club Coffee L.P., a Canadian manufacturer of single serve beverage pods, asserting a breach of competition law and false and misleading statements by Keurig.

In July 2020, KGM reached an agreement with the putative indirect purchaser class plaintiffs in the Multidistrict Antitrust Litigation to settle the claims asserted in their complaint for $ 31 million.

The settlement class consists of individuals and entities in the United States that purchased, from persons other than KGM and not for purposes of resale, KGM manufactured or licensed single serve beverage portion packs during the applicable class period (beginning in September 2010 for most states).

The court granted approval of the settlement in December 2020, and the Company paid the settlement amount in January 2021.

Putative class members will now be given notice and the opportunity to object or opt out of the settlement.

KDP intends to vigorously defend the remaining pending lawsuits brought by Treehouse, JBR, McLane, the putative direct purchaser class and Club Coffee.

To date, this plaintiff has not taken substantive action to prosecute its claims.

KDP intends to vigorously defend the remaining lawsuits described above.

At this time, the Company is unable to predict the outcome of these lawsuits, the potential loss or range of loss, if any, associated with the resolution of these lawsuits or any potential effect they may have on the Company or its operations.

Accordingly, the Company has not accrued for a loss contingency.

Additionally, as the timelines in these cases may be beyond our control, we cannot assure you if or when there will be material developments in these matters.

KEURIG DR PEPPER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

PROPOSITION 65 LITIGATION

1 unchanged sentence

Brad Barry LLC, et al., Case No.

BC461182), alleging that KGM, and certain other defendants who manufacture, package, distribute or sell coffee, failed to warn persons in California that KGM's coffee products expose persons to the chemical acrylamide in violation of Proposition 65.

KGM, as part of a joint defense group organized to defend against the lawsuit, disputed CERT's claims and asserted multiple affirmative defenses.

BC461182), alleging that Keurig, and certain other defendants who manufacture, package, distribute or sell coffee, failed to warn persons in California that Keurig's coffee products expose persons to the chemical acrylamide in violation of Proposition 65.

Keurig, as part of a joint defense group organized to defend against the lawsuit, disputed CERT's claims and asserted multiple affirmative defenses.

The case was scheduled to proceed to a third phase for trial on damages, remedies and attorneys' fees, but such trial did not occur in light of California’s Office of Environmental Health Hazard Assessment proposal of a new Proposition 65 regulation clarifying that cancer warnings are not required for chemicals, such as acrylamide, that are present in coffee as a result of roasting coffee beans.

1 unchanged sentence

In August 2020, the court granted the defendants' motion for summary judgment, effectively ending CERT's Proposition 65 litigation at the trial court level.

CERT has filed its notice to appeal, and the Company intends to continue vigorously defending itself in this action.

CERT has filed its appeal brief, and the Company intends to continue vigorously defending itself in this action.

However, the Company believes that the likelihood that it will incur a material loss in connection with the CERT litigation is remote and accordingly, no loss contingency has been recorded.

8 unchanged sentences

The Company participates in a study for this site with other potentially responsible parties.

KEURIG DR PEPPER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

UNCONDITIONAL PURCHASE OBLIGATIONS

As of December 31, 2020, KDP had $ 116 million in fixed service fee commitments related to a 15-year distribution agreement effective on December 28, 2020, with Veyron SPE.

These commitments were used to assist Veyron SPE in obtaining financing.

Such fixed service fee payments begin January 1, 2021.

Fixed service fees over the next five years are expected to be as follows:

For the Years Ending December 31,

(in millions) 2021 2022 2023 2024 2025

Fixed service fees $ 8 $ 8 $ 8 $ 8 $ 8

FINANCIAL GUARANTEES

ABC, a wholly-owned subsidiary of KDP, has provided a guarantee in connection with its distribution agreement with Veyron SPE to be paid only in the event Veyron SPE sells specific distribution rights and the value of those distribution rights does not exceed $ 142 million, which is the maximum undiscounted amount that KDP could pay under the guarantee.

All obligations with respect to the guarantee will cease upon termination of the distribution agreement, which would occur upon notice by ABC not to renew the distribution agreement, KDP no longer being investment grade at the end of the term or the sale of the distribution rights by Veyron SPE.

As of December 31, 2020, KDP has not recorded a liability as it is not probable that the Company will have to make any payments required under the residual value guarantee, as the fair value of the distribution rights is not expected to fall below $ 142 million over the next fifteen years.

PRODUCT WARRANTIES

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Balance as of December 31, 2021 $ 13

KEURIG DR PEPPER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Transactions with Variable Interest Entities

The Company has a number of leasing arrangements and one licensing arrangement with special purpose entities associated with the same sponsor, which are referred to as the Veyron SPEs.

The Veyron SPEs are VIEs for which KDP is not the primary beneficiary.

Leasing Arrangements

As of December 31, 2021, the Company has entered into ten lease transactions with the Veyron SPEs, nine of which were associated with asset sale-leaseback transactions.

Refer to Note 7 for additional information about the asset sale-leaseback transactions.

Each lease has a RVG based on a percentage of Veyron SPEs’s purchase price;

however, the Company concluded it was not probable that the Company will owe an amount at the end of each individual lease term, as the fair values of the properties are not expected to fall below the RVGs at the end of each individual lease term.

As such, the Company recorded each lease obligation excluding the associated RVG.

The aggregate maximum undiscounted RVG associated with the leasing arrangements as of December 31, 2021 and 2020 were $ 549 million and $ 249 million, respectively.

This aggregate maximum value assumes that the fair value of each property at the end of either the original lease term or renewal term is equal to zero, which the Company has concluded is not probable.

The following table provides the carrying amounts of the right-to-use assets and lease obligations recorded on the Company’s Consolidated Balance Sheets associated with these leasing arrangements related to the VIEs as of December 31, 2021 and 2020.

(in millions) 2021 (1)

Current assets $ 19 $ 8

Non-current assets 312 159

Current liabilities 13 9

Non-current liabilities 323 155

(1) The leasing agreements included as of December 31, 2021 include seven manufacturing sites, two distribution centers and our Frisco, Texas headquarters.

(2) The leasing agreements included as of December 31, 2020 include five manufacturing sites.

Licensing Arrangement

ABC, a wholly-owned subsidiary of KDP, has provided a guarantee in connection with its distribution agreement with the Veyron SPEs to be paid only in the event the Veyron SPEs sell specific distribution rights and the value of those distribution rights does not exceed $ 142 million, which is the maximum undiscounted amount that KDP could pay under the guarantee.

All obligations with respect to the guarantee will cease upon termination of the distribution agreement, which would occur upon notice by ABC not to renew the distribution agreement, KDP no longer being investment grade at the end of the term, or the sale of the distribution rights by the Veyron SPEs.

As of December 31, 2021, KDP has not recorded a liability as it is not probable that the Company will have to make any payments required under the residual value guarantee, as the fair value of the distribution rights is not expected to fall below $ 142 million over the term of the agreement.

As of December 31, 2021, KDP had $ 108 million in fixed service fee commitments related to the 15-year distribution agreement which was effective on December 28, 2020, with Veyron SPEs.

These commitments were used to assist the Veyron SPEs in obtaining financing.

Such fixed service fee payments began on January 1, 2021.

Fixed service fees over the next five years are expected to be as follows:

For the Years Ending December 31,

(in millions) 2022 2023 2024 2025 2026

Fixed service fees $ 8 $ 8 $ 8 $ 8 $ 8

KEURIG DR PEPPER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Related Parties

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for resale to retail customers.

KEURIG DR PEPPER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

KDP holds investments in certain brand ownership companies, and in certain instances, the Company also has rights in specified territories to bottle and/or distribute the brands owned by such companies.

11 unchanged sentences

Payments to related parties 67 73 57

As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018, the Company's operating structure consisted of the following four operating segments:

• The Coffee Systems segment reflects sales in the U.S.

and Canada of the manufacture and distribution of finished goods relating to the Company's innovative single serve brewers and specialty coffee.

• 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 the Company's own brands and third-party brands, through both the DSD and WD systems.

• The Beverage Concentrates segment reflects sales of the Company's branded concentrates and syrup to third-party bottlers primarily in the U.S.

Most of the brands in this segment are CSD brands.

• The Latin America Beverages segment reflects sales in Mexico, the Caribbean, and other international markets from the manufacture and distribution of concentrates, syrup and finished beverages.

Segment results are based on management reports.

Net sales and income from operations are the significant financial measures used to assess the operating performance of the Company's operating segments.

Intersegment sales are recorded at cost and are eliminated in the Consolidated Statements of Income.

KEURIG DR PEPPER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Information about the Company's operations by reportable segment is as follows:

For the Year Ended December 31,

(in millions) 2020 2019 2018

Coffee Systems $ 4,433 $ 4,233 $ 4,114

Packaged Beverages 5,363 4,945 2,415

Beverage Concentrates 1,325 1,414 669

Latin America Beverages 497 528 244

Total net sales $ 11,618 $ 11,120 $ 7,442

Income from operations

Coffee Systems $ 1,268 $ 1,219 $ 1,163

Packaged Beverages 822 757 257

Beverage Concentrates 932 955 430

Latin America Beverages 105 85 29

Unallocated corporate costs ( 647 ) ( 638 ) ( 642 )

Income from operations $ 2,480 $ 2,378 $ 1,237

(in millions) 2020 2019

Identifiable operating assets

Coffee Systems $ 15,295 $ 15,230

Packaged Beverages 11,540 11,399

Beverage Concentrates 20,575 20,447

Latin America Beverages 1,763 1,856

Segment total 49,173 48,932

Unallocated corporate assets 518 435

Total identifiable operating assets 49,691 49,367

Investments in unconsolidated affiliates 88 151

Total assets $ 49,779 $ 49,518

GEOGRAPHIC DATA

The following table presents information about the Company's operations by geographic region:

For the Year Ended December 31,

(in millions) 2020 2019 2018

$ 10,318 $ 9,843 $ 6,608

International 1,300 1,277 834

Net sales $ 11,618 $ 11,120 $ 7,442

(in millions) 2020 2019

Property, plant and equipment, net

$ 1,893 $ 1,770

International 319 258

Total property, plant and equipment, net $ 2,212 $ 2,028

KEURIG DR PEPPER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MAJOR CUSTOMER

Walmart is considered a major customer, accounting for more than 10% of the Company's total net sales.

The following table provides net sales for Walmart:

For the Year Ended December 31,

(in millions) 2020 2019 2018

Walmart $ 1,782 $ 1,483 $ 1,053

Additionally, customers in the Company's Beverage Concentrates segment buy concentrate from the Company, which is used in finished goods sold by the Company's third party bottlers to Walmart.

These indirect sales further increase the concentration of risk associated with the Company's consolidated net sales as it relates to Walmart.

Revenue Recognition

The following table disaggregates the Company's revenue by portfolio:

(in millions) Coffee Systems Packaged Beverages Beverage Concentrates Latin America Beverages Total

For the Year Ended December 31, 2020

$ — $ 2,489 $ 1,304 $ 361 $ 4,154

— 2,477 10 135 2,622

K-cup pods (2)

3,369 — — — 3,369

Appliances 850 — — — 850

Other 214 397 11 1 623

Net sales $ 4,433 $ 5,363 $ 1,325 $ 497 $ 11,618

For the Year Ended December 31, 2019

$ — $ 2,219 $ 1,385 $ 380 $ 3,984

— 2,317 13 146 2,476

K-cup pods (2)

3,293 — — — 3,293

Appliances 723 — — — 723

Other 217 409 16 2 644

Net sales $ 4,233 $ 4,945 $ 1,414 $ 528 $ 11,120

For the Year Ended December 31, 2018

$ — $ 1,084 $ 656 $ 174 $ 1,914

— 1,153 6 69 1,228

K-cup pods (2)

3,249 — — — 3,249

Appliances 643 — — — 643

Other 222 178 7 1 408

Net sales $ 4,114 $ 2,415 $ 669 $ 244 $ 7,442

(1) Represents net sales of owned and partner brands within the Company's portfolio.

(2) Represents net sales from owned brands, partner brands and private label owners.

Net sales for partner brands and private label owners are contractual and long term in nature.

NOTE RECEIVABLE FROM BEDFORD

KDP holds a note receivable executed in December 2021 from Bedford, a related party.

All fundings made under this note receivable in 2021 were fully impaired and placed in non-accrual status as of December 31, 2021.

Refer to Note 14 for additional information.

Subsequent Events

BODYARMOR LITIGATION

In January 2022, KDP agreed to a $ 350 million payment from BodyArmor for a full settlement of all of the claims under the existing litigation against BodyArmor and in complete satisfaction of the holdback amount owed to ABC in association with the sale of ABC’s equity interest in BodyArmor in 2021.

ABC received the settlement payment in January 2022 and the lawsuit has been dismissed.

In January 2022, the Company allocated approximately $ 300 million of the settlement for resolution of the prior litigation, which was recorded to other operating (income) expense, net.

The remaining $ 50 million was allocated to the settlement of the holdback liability, which was recorded to Gain on the sale of our equity method investment.

KEURIG DR PEPPER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Unaudited Quarterly Financial Information

The following table presents unaudited quarterly financial information:

(unaudited, in millions, except per share data) First Quarter Second Quarter Third Quarter Fourth Quarter

For the Year Ended December 31, 2020

Net sales $ 2,613 $ 2,864 $ 3,020 $ 3,121

Cost of sales 1,161 1,302 1,316 1,353

Gross profit 1,452 1,562 1,704 1,768

Selling, general and administrative expenses 1,028 1,001 949 1,000

Impairment of intangible assets — — — 67

Other operating (income) expense, net ( 42 ) — 2 1

Income from operations 466 561 753 700

Interest expense 153 157 148 146

Loss on early extinguishment of debt 2 2 — —

Impairment of investments and note receivable 86 — 16 —

Other expense (income), net 20 ( 4 ) 5 ( 4 )

Income before provision for income taxes 205 406 584 558

Provision for income taxes 49 108 141 130

Net income 156 298 443 428

Net income attributable to non-controlling interest — — — —

Net income attributable to KDP $ 156 $ 298 $ 443 $ 428

Earnings per common share:

Basic $ 0.11 $ 0.21 $ 0.31 $ 0.30

Diluted 0.11 0.21 0.31 0.30

For the Year Ended December 31, 2019

Net sales $ 2,504 $ 2,812 $ 2,870 $ 2,934

Cost of sales 1,106 1,186 1,245 1,241

Gross profit 1,398 1,626 1,625 1,693

Selling, general and administrative expenses 911 1,028 1,012 1,011

Other operating (income) expense, net ( 11 ) 11 33 ( 31 )

Income from operations 498 587 580 713

Interest expense 169 170 158 157

Loss on early extinguishment of debt 9 — — 2

Other expense (income), net 5 1 9 4

Income before provision for income taxes 315 416 413 550

Provision for income taxes 85 102 109 144

Net income $ 230 $ 314 $ 304 $ 406

Earnings per common share:

Basic $ 0.16 $ 0.22 $ 0.22 $ 0.29

Diluted 0.16 0.22 0.21 0.29

REDEMPTION OF THE 2038 NOTES

On January 24, 2022, KDP redeemed and retired the remainder of its 2038 Notes.

The loss on early extinguishment of the 2038 Notes was approximately $ 45 million, comprised of the make-whole premium and the write-off of the associated unamortized fair value adjustment related to the DPS Merger.

TERMINATION OF EXISTING CREDIT FACILITIES AND CREATION OF NEW FIVE-YEAR CREDIT FACILITY

On February 23, 2022, KDP terminated the 2021 364-Day Credit Agreement and the KDP Revolver.

There were no amounts drawn upon the 2021 364-Day Credit Agreement or the KDP Revolver prior to termination.

Also on February 23, 2022, KDP entered into the 2022 Revolving Credit Agreement among KDP, as borrower, the lenders from time to time party thereto and JPMorgan Chase, Bank, N.A., as administrative agent.

The 2022 Revolving Credit Agreement provides for a $ 4 billion revolving credit facility, including a letter of credit sub-facility in an aggregate principal amount of up to $200 million.

The 2022 Revolving Credit Agreement will mature in February 2027.

The 2022 Revolving Credit Agreement will replace the KDP Revolver and the 2021 364-Day Credit Agreement and the proceeds of the credit facility will be used for working capital and for other general corporate purposes of KDP.

Borrowings under the 2022 Revolving Credit Agreement will bear interest at a rate per annum equal to, at KDP's option, an adjusted SOFR rate plus a margin of 0.875 % to 1.500 % or a base rate plus a margin of zero to 0.500 %, in each case, depending on the rating of certain index debt of KDP.

The 2022 Revolving Credit Agreement contains customary representations and warranties for investment grade financings.

The 2022 Revolving Credit Agreement also contains (i) certain customary affirmative covenants, including those that impose certain reporting and/or performance obligations on KDP and its subsidiaries, (ii) certain customary negative covenants that generally limit, subject to various exceptions, KDP and its subsidiaries from taking certain actions, including, without limitation, incurring liens, consummating certain fundamental changes and entering into transactions with affiliates, (iii) a financial covenant in the form of a minimum interest coverage ratio and (iv) customary events of default (including a change of control) for financings of this type.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data