What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-02-23 compared with 2022-02-24 · 269 added, 236 removed, 438 unchanged (54% of the section changed)

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All of the product names included in this Annual Report on Form 10-K are either our registered trademarks or those of our licensors.

KDP is a leading beverage company in North America, with a diverse portfolio of flavored (non-cola) CSDs, NCBs, including water (enhanced and flavored), ready-to-drink tea and coffee, juice, juice drinks, mixers and specialty coffee, and is a leading producer of innovative single serve brewers.

With a wide range of hot and cold beverages that meet virtually any consumer need, KDP key brands include Keurig, Dr Pepper, Canada Dry, Snapple, Bai, Mott's, Core, Green Mountain and The Original Donut Shop.

KDP is a leading beverage company in North America, with a diverse portfolio of flavored CSDs, NCBs, including water (enhanced and flavored), RTD tea and coffee, juice, juice drinks, mixers and specialty coffee, and is a leading producer of innovative single serve brewers.

With a wide range of hot and cold beverages that meet virtually any consumer need, KDP key brands include Keurig, Dr Pepper, Canada Dry, Snapple, Mott's, Clamato, Core, Green Mountain Coffee Roasters and The Original Donut Shop.

KDP has some of the most recognized beverage brands in North America, with significant consumer awareness levels and long histories that evoke strong emotional connections with consumers.

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Our integrated business model enables us to be more flexible and responsive to the changing needs of our large retail customers and allows us to more fully leverage our scale and reduce costs by creating greater geographic manufacturing and distribution coverage.

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

These modifications did not change our reportable segments.

As of December 31, 2022, our reportable segments were as follows:

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

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

and Canada of the manufacture and distribution of finished goods relating to our single-serve brewers, K-Cup pods and other coffee products.

• The Packaged Beverages segment reflects sales in the U.S.

and Canada from the manufacture and distribution of finished beverages and other products, including sales of the Company's own brands and third-party brands, through our 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 CSDs.

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.

and Canada from the manufacture and distribution of finished beverages and other products, including sales of our own brands and third-party brands, through both the DSD and WD systems.

• The Beverage Concentrates segment reflects sales primarily in the U.S.

and Canada of our branded concentrates to third-party bottlers and our syrup to fountain foodservice customers.

Most of the brands in this segment are carbonated soft drink brands.

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

In evaluating our performance, we consider different volume measures depending on whether we sell beverage concentrates, finished beverages, pods or brewers.

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As Adjusted, in millions (except Diluted EPS)

During the years ended December 31, 2021 and 2020, we made net repayments of our Notes, our commercial paper and our other credit agreements of $1,721 million and $951 million, respectively.

On November 1, 2021, Coca-Cola announced that it had acquired full ownership of BodyArmor.

On December 15, 2021, we received $ 576 million of cash proceeds, net of holdback liabilities, from the sale of our equity interests in BodyArmor to Coca-Cola.

As a result, we recorded an estimated gain on the sale of approximately $ 524 million during the fourth quarter of 2021.

Refer to Note 14 of the Notes to our Consolidated Financial Statements for further information about the transaction.

In the fourth quarter of 2021, we announced that our Board of Directors authorized a share repurchase program of up to $4 billion of our outstanding common stock, beginning on January 1, 2022, potentially enabling us to return value to shareholders.

On October 6, 2022, we announced a strategic partnership with Red Bull, the iconic global energy brand, to sell and distribute Red Bull Energy Drink products in Mexico, which began in the fourth quarter of 2022.

On November 9, 2022, we invested $ 51 million, inclusive of incremental third-party costs, in exchange for equity interests in Athletic Brewing, a leading non-alcoholic craft beer maker in the U.S.

On December 8, 2022, we announced a strategic partnership with Nutrabolt, a global active health and wellness company, to sell and distribute C4 Energy RTD beverages in the vast majority of our company-owned DSD territories.

We invested $ 871 million, inclusive of incremental third-party costs, in exchange for an approximately 30% ownership interest in the company and expect to begin distributing C4 Energy RTD beverages in early 2023.

As a result of our quarterly triggering events assessment and our annual impairment assessment, we recorded non-cash impairment charges of $ 472 million on indefinite-lived brands during the year ended December 31, 2022, led by Bai and Schweppes.

Refer to Note 3 of the Notes to our Consolidated Financial Statements for further information.

Uncertainties and Trends Affecting Our Business

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Refer to Item 1A, Risk Factors , as well as the Uncertainties and Trends Affecting Liquidity section below, for more information about risks and uncertainties facing us.

Some of these items, such as the ongoing COVID-19 pandemic and its resulting impacts on the global economy, including supply chain challenges and labor shortages, have led to broad-based inflation in input costs, logistics, manufacturing and labor costs.

Some of these items, such as the ongoing COVID-19 pandemic and the invasion of Ukraine by Russia, and the resulting impacts on the global economy, including supply chain constraints and labor shortages, have led to inflation in input costs, logistics, manufacturing and labor costs, which has further led to fluctuation in interest rates.

During the year ended December 31, 2022, we have experienced supply chain disruptions and a significant inflationary impact compared to the prior year.

These challenges intensified during the later part of the year due to the surge in cases resulting from the Omicron variant.

These impacts have created headwinds for our products that we expect to continue into 2022.

These inflationary pressures could impact our margins and operating results.

We, along with our competitors, have increased the pricing on a number of products in response to widespread inflation.

These pricing increases may result in future reductions in volume.

These impacts have created headwinds for our industry that we expect to continue into 2023.

As a result of these inflationary pressures, we have increased the pricing on a number of our products across our portfolio.

Consequently, we may incur a reduction of volume or net sales, which, combined with the inflationary pressures, could impact our margins and operating results.

Refer to Note 5 of the Notes to our Consolidated Financial Statements and Item 7A, Quantitative and Qualitative Disclosures About Market Risk for management's discussion of how we manage our exposure to commodity risk.

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Allowances for Expected Credit Losses (4)

Inventory Write-Downs (5)

For the year ended December 31, 2022

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(1) Employee compensation expense and employee protection costs are both included as the COVID-19 items affecting comparability in the reconciliation of our Adjusted Non-GAAP financial measures.

(2) In 2021, amounts primarily included incremental benefits provided to frontline workers such as extended sick leave, in order to maintain essential operations during the COVID-19 pandemic.

In 2020, amounts primarily reflected temporary incremental frontline incentive pay and benefits, as well as pay for temporary employees, including the associated taxes.

Impacts both cost of sales and SG&A expenses.

(2) Amounts primarily included incremental benefits provided to frontline workers such as extended sick leave, in order to maintain essential operations during the COVID-19 pandemic.

(3) Includes costs associated with personal protective equipment, temperature scans, cleaning and other sanitization services.

Impacts both cost of sales and SG&A expenses.

(4) In 2020, allowances reflected the expected impact of the economic uncertainty caused by COVID-19, leveraging estimates of credit worthiness, default and recovery rates for certain of our customers.

In 2021, reversals of those previously recorded allowances reflect improving economic conditions.

Impacts SG&A expenses.

(5) Impacts cost of sales.

(4) Reflects reversal of allowances initially recorded in 2020 specifically related to the COVID-19 pandemic, driven by improving economic conditions during 2021.

RESULTS OF OPERATIONS

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References in the financial tables to percentage changes that are not meaningful are denoted by "NM".

Non-GAAP financial measures are provided in addition to U.S.

GAAP measures.

Such non-GAAP financial measures are excluded from the Results of Operations by Segment when there is no difference between the non-GAAP and the corresponding U.S.

GAAP measure.

See Non-GAAP Financial Measures for more information, including reconciliations to the corresponding U.S.

GAAP measures.

Consolidated Operations

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Impairment of intangible assets 477 — 477 NM

Other operating (income) expense, net (70) (39) (31) NM

Gain on litigation settlement (299) — (299) NM

Other operating income, net (105) (70) (35) NM

Income from operations 2,605 2,894 (289) (10.0)

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Impairment of investments and note receivable 12 17 (5) NM

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

Other expense (income), net 14 (2) 16 NM

Income before provision for income taxes 1,719 2,798 (1,079) (38.6)

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NCB sales volume 1.3 %

Net sales increased $1,065 million, or 9.2%, to $12,683 million for the year ended December 31, 2021 compared to $11,618 million in the pri or year.

This performance reflected volume/mix of 5.7%, net price realization of 2.7% and favorable FX translation of 0.8%.

Net sales increased $1,374 million, or 10.8%, to $14,057 million for the year ended December 31, 2022 compared to $12,683 million in the prior year.

This performance reflected favorable net price realization across all segments totaling 10.6% and volume/mix growth of 0.5%.

These benefits were slightly offset by unfavorable FX translation of 0.3%.

Gross Profit.

Gross profit increase d $491 million, or 7.6%, to $6,977 million for the year ended December 31, 2021 compared to $6,486 million in the prior year.

This performance primarily reflected strong growth in net sales and the benefit of productivity and merger synergies.

These benefits were partially offset by higher input and manufacturing costs, driven by both volume/mix growth and inflation, and unfavorable FX effects on our cost of sales.

Gross profit increased $346 million, or 5.0%, to $7,323 million for the year ended December 31, 2022 compared to $6,977 million in the prior year.

This performance primarily reflected the strong growth in net sales and the benefit of productivity, partially offset by broad-based inflation and an unfavorable change in unrealized commodity mark-to-market impacts of $152 million.

Gross margin decreased 290 bps versus the year ago period to 52.1%.

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SG&A expenses increased $492 million, or 11.8%, to $4,645 million for the year ended December 31, 2022 compared to $4,153 million in the prior year.

The increase was driven by increases in logistics, driven by both inflation and higher volumes, higher marketing expense, and unfavorable FX effects.

These increases were partially offset by reduced expenses of $100 million related to the COVID-19 pandemic and productivity and merger synergies.

The increase reflected higher logistics costs, driven by both inflation and volume/mix impacts, increases in labor and other operating expenses, and an unfavorable comparison of unrealized mark-to-market losses of $55 million on commodity contracts.

Impairment of Intangible Assets.

Impairment of intangible assets had a favorable change of $67 million for the year ended December 31, 2021 compared to the prior year, as a result of a non-cash impairment charge recorded for the Bai brand in the prior year as a result of our annual impairment analysis.

Impairment of intangible assets reflected non-cash impairment charges of $477 million primarily driven by Bai and Schweppes.

Refer to Note 3 of the Notes to our Consolidated Financial Statements for further information.

Gain on litigation settlement .

Gain on litigation settlement reflects the portion of the settlement payment from BodyArmor which was allocated to the gain on the full settlement of the existing claims against BodyArmor in the first quarter of 2022.

Refer to Note 12 of the Notes to our Consolidated Financial Statements for further information.

Other Operating Income, Net.

Other operating income, net had a favorable change of $31 million for the year ended December 31, 2021 compared to the prior year, largely driven by the increased gain of $28 million year-over-year on asset sale-leaseback transactions related to our strategic asset investment program.

Other operating income, net increased $35 million for the year ended December 31, 2022 compared to the prior year, primarily driven by the portion of the settlement payment from BodyArmor which was allocated to the recovery of legal fees incurred during the litigation process and a business interruption insurance recovery.

Income from Operations.

Income from operations increased $414 million, or 16.7%, to $2,894 million for the year ended December 31, 2021 compared to $2,480 million in the prior year, driven by growth in all four segments.

The increase in gross profit and the favorable change in impairment of intangible assets and other operating income, net, were partially offset by the increase in SG&A expenses.

Operating margin increased 150 bps versus the year ago period to 22.8%.

Income from operations decreased $289 million, or 10.0%, to $2,605 million for the year ended December 31, 2022 compared to $2,894 million in the prior year, primarily driven by the non-cash impairment charges of $477 million, which was partially offset by the gain on the litigation settlement.

Other factors include higher SG&A expenses, partially offset by increased gross profit.

Operating margin decreased 430 bps versus the year ago period to 18.5%.

Interest Expense.

Interest expense decreased $104 million, or 17.2%, to $500 million for the year ended December 31, 2021 compared to $604 million for the prior year.

This change was primarily the result of lower interest rates resulting from our strategic refinancing initiatives, as well as our continued deleveraging and favorable unrealized mark-to-market activity on interest rate contracts.

Interest expense increased $193 million, or 38.6%, to $693 million for the year ended December 31, 2022 compared to $500 million for the prior year.

This change was primarily driven by the unfavorable comparison of unrealized mark-to-market losses of $255 million on interest rate contracts, which was partially offset by reduced interest expense on our senior unsecured notes as a result of our strategic refinancing initiatives.

Loss on Early Extinguishment of Debt.

Loss on early extinguishment of debt reflected expense of $105 million during the year ended December 31, 2021 due to our strategic refinancing initiatives, as compared to $4 million in the prior year period.

Loss on early extinguishment of debt reflected an unfavorable change of $112 million, with a loss of $217 million during the year ended December 31, 2022 related to our 2022 Strategic Refinancing and our early retirement of our 2038 Notes, the 2021 364-Day Credit Agreement and the KDP Revolver, as compared to a loss of $105 million in the prior year associated with our 2021 strategic refinancing.

Gain on sale of equity method investment .

Gain on sale of investment reflects the gain recognized on the sale of our equity interests in BodyArmor during the year ended December 31, 2021.

For the years ended December 31, 2022 and 2021 we recorded $50 million and $524 million, respectively, for the sale of our equity method investment in BodyArmor.

The amount recorded in 2022 represents the portion of the settlement payment from BodyArmor that was allocated to the satisfaction of the holdback amount owed to us.

Refer to Note 12 of the Notes to our Consolidated Financial Statements for further information.

Impairment of Investments and Note Receivable.

For the year ended December 31, 2021, Impairment on investments and note receivable reflected a charge of $17 million, as the investment in Bedford and the associated notes receivable made during the year were determined to be impaired as Bedford used these funds to begin the wind-down of their operations.

In the prior year, Impairment on investments and note receivable reflected a non-cash impairment charge of $102 million associated with the Bedford and LifeFuels investments.

Impairment on investments and note receivable reflected non-cash impairment charges of $12 million and $17 million for the years ended December 31, 2022 and 2021, respectively, associated with the wind-down of Bedford.

Refer to Note 12 of the Notes to our Consolidated Financial Statements for further information.

Effective Tax Rate.

The effective tax rate decreased 110 bps to 23.3% for the year ended December 31, 2021, compared to 24.4% in the prior year, primarily driven by the release of our valuation allowance against our U.S.

foreign tax credit carryforwards, the tax benefit received from excess tax deductions that were generated from the vesting of RSUs, and the benefit received from the deferred rate change on the deferred tax liability related to our indefinite-lived intangible assets during the year ended December 31, 2021.

These benefits were partially offset by an increase in our valuation allowance related to a deferred tax asset on our historical investment in Bedford.

The effective tax rate decreased 680 bps to 16.5% for the year ended December 31, 2022, compared to 23.3% in the prior year, primarily driven by the revaluation of state deferred tax liabilities due to legislative changes and the favorable mix of our incremental income in low tax jurisdictions in the year.

Net Income Attributable to KDP.

Net income attributable to KDP increased $821 million, or 62.0%, to $2,146 million for the year ended December 31, 2021 as compared to $1,325 million in the prior year, driven by the gain on sale of our equity method investment in BodyArmor, improved income from operations and reduced interest expense.

Diluted EPS increased 61.3% to $1.50 per diluted share as compared to $0.93 in the prior year.

Adjusted Results of Operations

The following table sets forth selected consolidated adjusted results of operations for the years ended December 31, 2021 and 2020:

For the Year Ended December 31, Dollar Percentage

(in millions, except per share amounts) 2021 2020 Change Change

Adjusted income from operations $ 3,421 $ 3,191 $ 230 7.2 %

Adjusted interest expense 480 542 (62) (11.4)

Adjusted provision for income taxes 670 644 26 4.0

Adjusted net income attributable to KDP 2,280 1,988 292 14.7

Adjusted diluted EPS

1.60 1.40 0.20 14.3

Adjusted operating margin 27.0 % 27.5 % (50) bps

Adjusted effective tax rate 22.7 % 24.5 % (180) bps

Adjusted Income from Operations.

Adjusted income from operations increased $230 million, or 7.2%, to $3,421 million for the year ended December 31, 2021 compared to Adjusted income from operations of $3,191 million in the prior year.

Driving this performance in the current period was strong growth in net sales, the benefit of productivity and merger synergies, and the favorable year-over-year comparison of asset sale-leaseback activities related to our strategic asset investment program.

Partially offsetting these positive drivers were the impacts of broad-based inflation, higher marketing expense, increased operating costs due to higher volumes, and unfavorable foreign currency effects on our expenses.

Adjusted operating margin declined 50 bps versus the year ago period to 27.0%.

Adjusted Interest Expense.

Adjusted interest expense decreased $62 million, or 11.4%, to $480 million for the year ended December 31, 2021 compared to Adjusted interest expense of $542 million in the prior year, driven by reduced interest rates resulting from our strategic refinancing initiatives and continued deleveraging.

Adjusted Effective Tax Rate.

The Adjusted effective tax rate decreased 180 bps to 22.7% for the year ended December 31, 2021, compared to 24.5% in the prior year, primarily driven by the tax benefit received from the release of our valuation allowance against our U.S.

foreign tax credit carryforwards, as well as the benefit of excess tax deductions that were generated from the vesting of RSUs, during the year ended December 31, 2021.

Adjusted Net Income Attributable to KDP.

Adjuste d net income attributable to KDP increased $292 million, or 14.7%, to $2,280 million for the year ended December 31, 2021 as compared to Adjusted net income of $1,988 million in the prior year.

This performance was driven primarily by strong growth in Adjusted income from operations and the decrease in Adjusted interest expense.

Adjusted Diluted EPS.

Adjusted diluted EPS increased 14.3% to $1.60 per diluted share as compared to $1.40 per diluted share in the prior year.

Net income attributable to KDP decreased $710 million, or 33.1%, to $1,436 million for the year ended December 31, 2022 as compared to $2,146 million in the prior year, primarily driven by the unfavorable change in gain on sale of our equity method investment in BodyArmor, lower income from operations, increased interest expense, and the unfavorable change in loss on early extinguishment of debt, partially offset by the decrease in our effective tax rate.

Diluted EPS decreased 32.7% to $1.01 per diluted share as compared to $1.50 in the prior year.

Results of Operations by Segment

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Operating margin 26.4 % 30.7 % (430) bps

Adjusted income from operations 1,515 1,514 1 0.1 %

Adjusted operating margin 32.1 % 34.2 % (210) bps

Sales Volume.

Sales volume growth in the year ended December 31, 2021 compared to the prior year included K-Cup pod volume growth of 5.6%, reflecting strength in at-home consumption and improvement in the away-from-home businesses.

Brewer volume increased 10.0% in the year ended December 31, 2021, successfully lapping growth of 21.2% in the year-ago period, driven by our successful brewer innovation program and continued marketing investment.

Net sales increased $283 million, or 6.4%, to $4,716 million for the year ended December 31, 2021 co mpared to $4,433 million in the prior year, driven by volume/mix growth of 6.5% and favorable FX translation of 0.8%, partially offset by lower net price realization of 0.9%.

Our net price realization primarily reflected continued moderation in strategic pod pricing and customer fines in the second half of the year stemming from challenged service levels, which was only partially offset by the benefit of list price increases on owned and licensed pods and brewers.

Inclusive of the impact of the 53rd week, K-Cup pod volume increased 1.4% for the year ended December 31, 2022, which reflected the segment’s coffee recovery program to increase pod manufacturing output and rebuild finished goods inventories to satisfy consumer demand and restore customer service levels.

Brewer volume decreased 5.2% in the year ended December 31, 2022, driven by the unfavorable comparison to brewer shipment growth of 10.0% in the prior year as appliance household penetration growth rates returned to expected long-term trends.

Net sales increased 5.6% to $4,982 million for the year ended December 31, 2022 compared to $4,716 million in the prior year, driven by favorable net price realization of 7.0%, partially offset by volume/mix declines of 0.8% and unfavorable FX translation of 0.6%.

Income from Operations.

Income from operations increased $50 million, or 3.9%, to $1,318 million for the year ended December 31, 2021, compared to $1,268 million in the prior year, driven by the continued benefit of productivity and merger synergies, strong volume/mix, and reduced costs associated with our productivity projects.

These benefits were partially offset by the impacts of broad-based inflation, continued moderation in strategic pod pricing, increased operating costs due to higher volumes and the unfavorable comparison to a strategic asset investment program gain of $16 million on an asset sale-leaseback of a manufacturing facility in the prior year.

Operating margin decreased 70 bps versus the year ago period to 27.9%.

Adjusted Income from Operations.

Adjusted income from operations increased $1 million, or 0.1%, to $1,515 million for the year ended December 31, 2021, compared to $1,514 million in the prior year, driven by the continued benefit of productivity and merger synergies and strong volume/mix.

These benefits were largely offset by declines due to the impacts of broad-based inflation, continued moderation in strategic pod pricing, increased operating costs due to higher volumes, the unfavorable comparison to a strategic asset investment program gain of $16 million on an asset sale-leaseback of a manufacturing facility in the prior year, and customer fines in the second half of the year stemming from challenged service levels.

Adjusted operating margin declined 210 bps versus the year ago period to 32.1%.

Income from operations decreased $130 million, or 9.0%, to $1,316 million for the year ended December 31, 2022, compared to $1,446 million in the prior year, as a result of broad-based inflation, particularly in green coffee and packaging and increases in other operating expenses.

These decreases were partially offset by the benefits of net sales growth, productivity, favorable asset sale-leaseback activity of $44 million in the Coffee Systems segment associated with our strategic asset investment program and a business interruption insurance recovery.

Operating margin declined 430 bps versus the prior year to 26.4%, primarily due to the aforementioned inflationary headwinds.

PACKAGED BEVERAGES

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Operating margin 15.3 % 17.4 % (210) bps

Adjusted income from operations 1,109 1,021 88 8.6 %

Adjusted operating margin 18.9 % 19.0 % (10) bps

Sales Volume.

Sales volume for the year ended December 31, 2021 increased 3.0% compared to the prior year, reflecting continued market share growth across the portfolio, with particular strength in CSDs across our flavor portfolio, the addition of Polar to our portfolio of partner brands, and growth in Mott’s.

This was partially offset by declines in Hawaiian Punch and lower contract manufacturing.

Net sales increased $519 million, or 9.7%, to $5,882 million in the year ended December 31, 2021, compared to $5,363 million in the prior year, driven by volume/mix of 6.0%, net price realization of 3.5% and favorable FX translation of 0.2%.

Income from O perations.

Income from operations increased $188 million, or 22.9%, to $1,010 million for the year ended December 31, 2021 compared to $822 million for the prior year, driven primarily by strong net sales growth, the benefit of productivity and merger synergies, lower COVID-19-related expenses, the favorable comparison to both a non-cash impairment charge of $67 million related to the Bai brand and year-over-year favorable asset sale-leaseback activity of $44 million from our strategic asset investment program.

These increases were partially offset by the impacts of broad-based inflation, increased operating costs due to higher volumes, driven by an expansion of our route to market network and strong consumer demand, increased expenses associated with productivity projects and higher marketing expense.

Operating margin grew 190 bps from the year ago period to 17.2%.

Adjusted Income from Operations.

Adjusted income from operations increased $88 million, or 8.6%, to $1,109 million for the year ended December 31, 2021 compared to $1,021 million for the prior year, driven primarily by strong net sales growth, the benefit of productivity and merger synergies, and the favorable comparison of year-over-year asset sale-leaseback activity of $44 million from our strategic asset investment program.

Adjusted operating margin decreased 10 bps versus the year ago period to 18.9%.

Sales volume for the year ended December 31, 2022 decreased 0.5% compared to the prior year.

Reductions in contract manufacturing more than offset growth in our branded portfolio, with strength in Motts, Core, Polar, Hawaiian Punch, and our CSD portfolio, partially offset by declines in Bai.

Net sales increased 12.3% to $6,607 million in the year ended December 31, 2022, compared to $5,882 million in the prior year, driven by favorable net price realization of 12.1% and volume/mix growth of 0.3%, slightly offset by unfavorable FX translation of 0.1%.

Income from Operations.

Income from operations decreased $9 million, or 0.9%, to $1,014 million for the year ended December 31, 2022 compared to $1,023 million for the prior year, primarily driven by the $316 million non-cash impairment charges in the segment, predominantly related to Bai, which were partially offset by the gain on the settlement of litigation with BodyArmor of $271 million.

Other offsetting factors included the benefits of net sales growth, productivity, and reduced restructuring and integration expense, partially offset by broad-based inflation, higher costs to serve the ongoing strong consumer demand, and the unfavorable year-over-year comparison in the Packaged Beverages segment of asset sale-leaseback activity associated with our strategic asset investment program.

Operating margin declined 210 bps versus the prior year to 15.3%.

BEVERAGE CONCENTRATES

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Operating margin 61.5 % 70.5 % (900) bps

Adjusted income from operations 1,055 938 117 12.5 %

Adjusted operating margin 71.0 % 70.8 % 20 bps

Sales Volume.

Sales volume for the year ended December 31, 2021 increased 1.1% compared to the prior year, primarily reflecting improving trends in our fountain foodservice component of the business, which services restaurants and hospitality, driven by increasing levels of consumer mobility during the year ended December 31, 2021.

Net sales increased $161 million, or 12.2%, to $1,486 million in t he year ended December 31, 2021, compared to $1,325 million in the prior year, reflecting higher net price realization of 9.7%, volume/mix growth of 2.0% and favorable FX translation of 0.5%.

Sales volume for the year ended December 31, 2022 increased 1.6% compared to the prior year, primarily driven by Dr Pepper and Canada Dry, partially offset by Schweppes and Crush.

Net sales increased 16.1% to $1,725 million in the year ended December 31, 2022, compared to $1,486 million in the prior year, reflecting higher net price realization of 14.7% and volume/mix growth of 1.7%, slightly offset by unfavorable FX translation effects of 0.3%.

Income from Operations.

Income from operations increased $112 million, or 12.0%, to $1,044 million for the year ended December 31, 2021 compared to $932 million in the prior yea r.

This performance reflected the impact of net sales growth, partially offset by higher marketing expense.

Operating margin was flat versus the year ago period at 70.3%.

Adjusted Income from Operations.

Adjusted income from operations increased $117 million, or 12.5%, to $1,055 million for the year ended December 31, 2021 compared to $938 million in the prior ye ar.

This performance reflected the impact of net sales growth, partially offset by higher marketing expense.

Adjusted operating margin increased 20 bps versus the year ago period to 71.0%.

Income from operations increased $14 million, or 1.3%, to $1,061 million for the year ended December 31, 2022 compared to $1,047 million in the prior year.

This performance reflected the impact of strong net sales growth, partially offset by the non-cash impairment charges in the segment of $161 million, led by Schweppes, broad-based inflation and costs associated with the start-up and operation of our new manufacturing facility.

Operating margin decreased 900 bps versus the prior year to 61.5%.

LATIN AMERICA BEVERAGES

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Operating margin 21.3 % 22.2 % (90) bps

Adjusted income from operations 135 108 27 25.0 %

Adjusted operating margin 22.5 % 21.7 % 80 bps

Sales Volume.

Sales volume for the year ended December 31, 2021 as compared to the prior year increased 3.0%, driven by Peñafiel and Clamato, partially offset by declines in Crush.

Net sales grew $102 million, or 20.5%, to $599 million for the year ended December 31, 2021, compared to $497 million in the prior year, reflecting volume/mix growth of 7.3%, net price realization of 6.8%, and favorable FX translation of 6.4%.

Sales volume for the year ended December 31, 2022 increased 7.2% versus the prior year, driven by strong in-market execution across the segment’s portfolio, with particular strength in Peñafiel and Squirt.

Net sales grew 24.0% to $743 million for the year ended December 31, 2022, compared to $599 million in the prior year, reflecting favorable net price realization of 13.9%, volume/mix growth of 9.1%, and favorable FX translation of 1.0%.

Income from Operations.

Income from operations increased $28 million, or 26.7%, to $133 million for the year ended December 31, 2021 compared to $105 million in the prior year, driven by higher net price realization, favorable volume/mix and the benefit of productivity, partially offset by the impacts of broad-based inflation and higher marketing expense.

Operating margin increased 110 bps versus the year ago period to 22.2%.

Adjusted Income from Operations.

Adjusted income from operations increased $27 million, or 25.0%, to $135 million for the year ended December 31, 2021 compared to $108 million in the prior year, driven by higher net price realization, favorable volume/mix and the benefit of productivity, partially offset by the impacts of broad-based inflation, and higher marketing expense.

Adjusted operating margin improved 80 bps versus the year ago period to 22.5%.

Income from operations increased $25 million, or 18.8%, to $158 million for the year ended December 31, 2022 compared to $133 million in the prior year, driven by the benefits of net sales growth and productivity, partially offset by the impacts of broad-based inflation, logistics and operating costs associated with incremental volumes, and increased marketing expense.

Operating margin decreased 90 bps versus the prior year to 21.3%.

LIQUIDITY AND CAPITAL RESOURCES

We believe our financial condition and liquidity remain strong.

Net cash provided by operations was $2,874 million for the year ended December 31, 2021 compared to $2,456 million for the prior year.

Although there is continued uncertainty related to the impact of the ongoing COVID-19 pandemic on our future results, we believe we are uniquely positioned, with our broad portfolio and unmatched distribution network, to successfully navigate through this pandemic, and the steps we have taken over the course of the pandemic to strengthen our balance sheet leave us well positioned to manage our business.

We continue to manage all aspects of our business, including, but not limited to, monitoring the financial health of our customers, suppliers and other third-party relationships, implementing gross margin enhancement strategies through our integration and productivity initiatives, and developing new opportunities for growth such as innovation and agreements with partners to distribute brands that are accretive to our portfolio.

We continue to manage all aspects of our business, including, but not limited to, monitoring the financial health of our customers, suppliers and other third-party relationships, implementing cost management strategies through our productivity initiatives, and developing new opportunities for growth such as innovation and agreements with partners to distribute brands that are accretive to our portfolio.

The following summarizes our cash activity for the years ended December 31, 2022, 2021 and 2020:

Cash, cash equivalents, restricted cash and restricted cash equivalents increased $313 million from December 31, 2020 to December 31, 2021 primarily as a result of the proceeds from the sale of our BodyArmor investment and an increase in cash generated from our operations, which outpaced deleveraging.

Cash, cash equivalents, restricted cash and restricted cash equivalents decreased $33 million from December 31, 2021 to December 31, 2022 primarily as a result of our investment in Nutrabolt, offset by proceeds from the cash settlement with BodyArmor.

Cash generated by our foreign operations is generally repatriated to the U.S.

periodically as working capital funding requirements where allowed.

Foreign cash balances were $216 million and $165 million as of December 31, 2021 and 2020, respectively.

We do not expect restrictions or taxes on repatriation of cash held outside the U.S.

to have a material effect on our overall business, liquidity, financial condition or results of operations for the foreseeable future .

Additionally, in April 2022, we chose to undertake our 2022 Strategic Refinancing, issuing approximately $3 billion of senior unsecured notes and using the net proceeds to voluntarily prepay and retire several tranches of existing senior unsecured notes with higher interest rates, which reduced our overall interest payments and our annual cash requirements.

As part of this transaction, we additionally unwound approximately $1.5 billion of notional amount of our outstanding designated forward starting swaps and received cash proceeds of approximately $125 million.

Refer to Note 4 of the Notes to our Consolidated Financial Statements for further information about the 2022 strategic refinancing initiative.

Principal Sources of Capital Resources

Our principal sources of liquidity are our existing cash and cash equivalents, cash generated from our operations and borrowing capacity currently available under our KDP Revolver and 2021 364-Day Credit Agreement.

Our principal sources of liquidity are our existing cash and cash equivalents, cash generated from our operations and borrowing capacity currently available under our 2022 Revolving Credit Agreement.

Additionally, we have an uncommitted commercial paper program where we can issue unsecured commercial paper notes on a private placement basis.

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Sources of Liquidity - Operations

Net cash provided by operating activities increased $418 million for the year ended December 31, 2021, as compared to the year ended December 31, 2020, driven by the increase in net income, which includes the impact of the gain on the sale of our BodyArmor investment, adjusted for non-cash items and working capital.

Net cash provided by operating activities decreased $37 million for the year ended December 31, 2022, as compared to the year ended December 31, 2021, driven by the decrease in net income adjusted for non-cash items and the impact of the change in working capital.

Cash Conversion Cycle

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Cash conversion cycle (60) (69)

Our cash conversion cycle increased 9 days to approximately (60) days as of December 31, 2022 as compared to (69) days as of December 31, 2021.

The increases in DSO and DPO were primarily driven by rising inflation during the year, and the increase in DIO reflects our efforts to restore inventory to meet customer service levels.

Accounts Payable Program

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Impact of the CARES Act

Beginning in the second quarter of 2020, we deferred payments of employer-related payroll taxes as allowed under the U.S.

Coronavirus Aid, Relief and Economic Security Act, commonly known as the CARES Act.

Payment of at least 50% of the deferred amount was due by January 3, 2022, with the remainder due by December 31, 2022.

We deferred a total of $59 million in such payments since the CARES Act was implemented, and we timely paid approximately $30 million as of January 3, 2022.

Beginning in the second quarter of 2020, we deferred payments of employer-related payroll taxes as allowed under the CARES Act.

Payment of at least 50% of the deferred amount was due on January 3, 2022, with the remainder due by January 3, 2023.

We deferred a total of $59 million in such payments since the CARES Act was implemented, and we timely paid approximately $30 million as of January 3, 2022 and the remainder as of January 3, 2023.

Sources of Liquidity - Financing

In March 2021, we undertook a strategic refinancing and issued $2,150 million aggregate face value of Notes, consisting of $1,150 million aggregate principal amount of 0.750% 2024 Notes, $500 million aggregate principal amount of 2.250% 2031 Notes, and $500 million aggregate principal amount of 3.350% 2051 Notes.

The proceeds from the issuance were used to voluntarily prepay several tranches of our existing Notes and our 2019 KDP Term Loan in order to benefit from current market conditions to refinance our debt maturities at more attractive interest rates, while also extending the duration of our debt.

We also terminated our 2020 364-Day Credit Agreement, which would have expired in April 2021, and replaced it with our 2021 364-Day Credit Agreement, which has a term-out option allowing us to extend the maturity date by converting the facility into a term loan agreement for an additional one-year term.

Additionally, in March 2021, we filed a prospectus supplement with the SEC in order to sell up to 4,300,000 shares to or through Goldman in at-the-market offerings, known as an ATM Program.

The ATM Program was completed effective March 15, 2021, and the net proceeds of approximately $ 140 million were primarily used to cover our obligation to remit cash to local, state and federal tax authorities in connection with the net settlement of vesting restricted stock units during the first quarter of 2021.

Commissions and fees paid under the ATM program were less than $1 million for the year ended December 31, 2021.

Refer to Note 3 of the Notes to our Consolidated Financial Statements for management's discussion of our financing arrangements.

In February 2022, we terminated our 2021 364-Day Credit Agreement and our KDP Revolver and replaced them with the 2022 Revolving Credit Agreement, which provides for a $4 billion revolving credit facility.

In April 2022, we undertook our 2022 Strategic Refinancing and issued a $3 billion aggregate face value of Notes, consisting of the 2029 Notes, the 2032 Notes, and the 2052 Notes.

The proceeds from the issuance were used to voluntarily prepay and retire the remaining 2023 Merger Notes and to tender portions of the 2025 Merger Notes, the 2028 Merger Notes, the 2038 Merger Notes, and the 2048 Merger Notes.

We have a commercial paper program, under which we 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.

As of December 31, 2022, we had borrowings of $ 399 million outstanding.

We also have an active shelf registration statement, filed with the SEC on August 19, 2022, which allows us to issue an indeterminate number or amount of common stock, preferred stock, debt securities and warrants from time to time in one or more offerings at the direction of our Board of Directors.

Refer to Note 4 of the Notes to our Consolidated Financial Statements for management's discussion of our financing arrangements.

Sources of Liquidity - Asset Sale-Leaseback Transactions

We have leveraged our strategic asset investment program to create value from certain assets to enable reinvestment in KDP.

These transactions are accounted for as sale-leaseback transactions.

We received $168 million, $102 million, and $200 million of net cash proceeds from our strategic asset investment program during the years ended December 31, 2022, 2021 and 2020, respectively, which are included in Proceeds from sales of property, plant and equipment in the Consolidated Statements of Cash Flows.

As of December 31, 2022, our credit ratings were as follows:

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Moody's Baa2 P-2 Stable February 26, 2021

S&P BBB A-2 Stable May 14, 2018

S&P BBB A-2 Stable April 19, 2022

These debt and commercial paper ratings impact the interest we pay on our financing arrangements.

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Financial Conduct Authority announced that LIBOR will no longer be published after 2021.

In the U.S., the Alternative Reference Rates Committee selected the Secured Overnight Financing Rate as the preferred alternative reference rate to LIBOR.

In December 2020, it was announced that certain LIBOR tenors will continue to be published through June 30, 2023.

In the U.S., the Alternative Reference Rates Committee selected the SOFR as the preferred alternative reference rate to LIBOR.

Certain LIBOR tenors will continue to be published through June 30, 2023.

We have a number of financing arrangements which incorporate LIBOR as a benchmark rate and which extend past 2022.

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Principal Uses of Capital Resources

Through 2021, our principal uses of our capital resources following the DPS Merger were deleveraging, providing shareholder return to our investors through regular quarterly dividends, and investing in KDP to capture market share and drive growth through innovation and routes to market.

Beginning in 2022, now that we have met our post-merger goals, we will look to invest in inorganic value creation through M&A, including portfolio expansion, distribution scale, geographic expansion, and new capabilities.

In addition to M&A, we may consider share repurchases and special dividends to our investors.

Our Board of Directors authorized a four-year share repurchase program of up to $4 billion of our outstanding common stock, beginning on January 1, 2022, potentially enabling us to return value to shareholders.

See Expansion of Our Capital Allocation Strategy below.

Over the past several years, our principal uses of our capital resources were deleveraging, providing shareholder return to our investors through regular quarterly dividends, and investing in KDP to capture market share and drive growth through innovation and routes to market.

Now that we have met our post-merger goals, we plan to further reduce our leverage ratio.

We also plan to invest in inorganic value creation through M&A, including portfolio expansion, distribution scale, geographic expansion, and new capabilities.

In addition to M&A, we have repurchased shares of our outstanding common stock, as described below.

Deleveraging and Other Debt Repayments

In 2018, management set deleveraging targets for a 2-3 year time period following the DPS Merger in order to optimize our balance sheet.

Since the DPS Merger, we have made net repayments of $4,896 million of our Notes, our commercial paper and our other credit agreements, including $1,721 million for the year ended December 31, 2021.

These amounts include a make-whole premium paid during the year ended December 31, 2021 of $95 million.

In May 2021, our 2021 Merger Notes were repaid at maturity, using cash generated from operations and the issuance of commercial paper.

During the year ended December 31, 2022, we made net debt repayments of $115 million, primarily driven by the redemption and retirement of the remainder of our 2023 Merger Notes and 2038 Notes, as well as the tender of portions of the 2025 Merger Notes, the 2028 Merger Notes, the 2038 Merger Notes, and the 2048 Merger Notes.

Regular Quarterly Dividends

In February 2021, we announced that our Board of Directors approved a 25% increase in our annualized dividend rate to $0.75 per share, from the current annualized rate of $0.60 per share, effective with the Company’s regular quarterly dividend for the second quarter of 2021.

For the year ended December 31, 2021, we have declared total dividends of $0.7125 per share.

For the year ended December 31, 2022, we have declared total dividends of $0.775 per share, versus $ 0.7125 per share for the year ended December 31, 2021.

Repurchases of Common Stock

Our Board authorized a four-year share repurchase program of up to $4 billion of our outstanding common stock potentially enabling us to return value to shareholders.

We repurchased and retired $ 379 million of common stock during the year ended December 31, 2022.

Capital Expenditures

We have significantly invested in state-of-the-art manufacturing and warehousing facilities, including expansive investments in new facilities in Newbridge, Ireland;

We are investing in state-of-the-art manufacturing and warehousing facilities, including expansive investments in facilities in Newbridge, Ireland;

Spartanburg, South Carolina;

and Allentown, Pennsylvania, in order to optimize our supply chain network through integration and productivity projects and to mitigate risk of business interruption.

and Allentown, Pennsylvania, in 2022 and 2021, in order to optimize our supply chain network.

Purchases of property, plant and equipment were $ 353 million, $ 423 million and $ 461 million for the years ended December 31, 2022, 2021 and 2020, respectively.

Capital expenditures, which includes both purchases of property, plant and equipment and amounts included in accounts payable and accrued expenses, for the years ended December 31, 2021, 2020 and 2019 primarily related to our continued investment in state-of-the-art manufacturing and warehousing facilities.

Capital expenditures, which includes both purchases of property, plant and equipment and amounts included in accounts payable and accrued expenses, for the years ended December 31, 2022, 2021 and 2020 primarily related to the manufacturing and warehousing facilities discussed above.

Capital expenditures included in accounts payable and accrued expenses were $ 213 million, $ 189 million and $ 280 million for the years ended December 31, 2022, 2021 and 2020, respectively, which primarily related to these investments.

As we begin to move past the three-year period after the DPS Merger, we expect that purchases of property, plant and equipment will be approximately 3% of net sales on an annualized basis.

Investments in Unconsolidated Affiliates

From time to time, we expect to invest in beverage startup companies or in brand ownership companies to grow our presence in certain product categories, or enter into various licensing and distribution agreements to expand our product portfolio.

Our investments in beverage startup companies generally involve acquiring a minority interest in equity securities of a company, in certain cases with a protected path to ownership at our future option.

During the year ended December 31, 2022, we invested $972 million in exchange for equity interests in Nutrabolt, Tractor and Athletic Brewing.

Purchases of Intangible Assets

We have invested in the expansion of our DSD network through transactions with strategic independent bottlers to ensure competitive distribution scale for our brands.

These transactions are generally accounted for as an asset acquisition, as the majority of the transaction price represents the cost to re-acquire our distribution rights.

From time to time, we additionally acquire brand ownership companies to expand our portfolio.

These transactions are generally accounted for as an asset acquisition, as the majority of the transaction price represents the acquisition of an intangible asset.

Purchases of intangible assets were $45 million, $ 32 million and $ 56 million for the years ended December 31, 2022, 2021 and 2020, respectively.

Expansion of Our Capital Allocation Strategy

Beginning on January 1, 2022, we intend to expand our capital allocation strategy to include inorganic options to drive total shareholder return.

Strategic acquisitions are our primary inorganic option.

However, to the extent our primary option does not occur, we may employ secondary options, which may include the repurchase of shares or special dividends.

See Part II, Item 5, for further information.

RESIDUAL VALUE GUARANTEES

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As of December 31, 2022, we have not recorded any liabilities as it is not probable that we will have to make any payments required under the residual value guarantee.

Refer to Note 19 of the Notes to our Consolidated Financial Statements for further information about the residual value guarantees.

Refer to Note 19 of the Notes to our Consolidated Financial Statements for further information.

UNCERTAINTIES AND TRENDS AFFECTING LIQUIDITY AND CAPITAL RESOURCES

Disruptions in financial and credit markets, including those caused by the ongoing COVID-19 pandemic, may impact our ability to manage normal commercial relationships with our customers, suppliers and creditors.

Disruptions in financial and credit markets, including those caused by inflation due to global economic uncertainty and the associated rise in interest rates, may impact our ability to manage normal commercial relationships with our customers, suppliers and creditors.

These disruptions could have a negative impact on the ability of our customers to timely pay their obligations to us, thus reducing our cash flow, or the ability of our vendors to timely supply materials.

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• Our continued payment of regular quarterly dividends;

• Future opportunistic repurchases of our common stock or special dividends to drive total shareholder return;

• Our continued capital expenditures;

• Future equity investments;

• Seasonality of our operating cash flows, which could impact short-term liquidity;

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• Future mergers or acquisitions, which may include brand ownership companies, regional bottling companies, distributors and/or distribution rights to further extend our geographic coverage;

• Future opportunistic repurchases of our common stock or special dividends to drive total shareholder return;

• Future equity investments;

• Fluctuations in our tax obligations.

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Although this did not change our reportable segments, our reporting units and operating segments were redefined.

For 2021, we defined our six reporting units as the following:

For 2022 and 2021, we defined our six reporting units as follows:

Reportable Segments Reporting Units

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Latin America Beverages Latin America Beverages

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

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

If a quantitative analysis is required, the following would be required:

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• The impairment tests for goodwill include comparing fair value of the respective reporting unit with its carrying value, including goodwill and considering any indefinite lived intangible asset impairment charges.

For the year ended December 31, 2021, we performed a quantitative analysis for goodwill and certain indefinite lived brand assets, whereby we used an income approach, or in some cases a combination of income and market based approaches, to determine the fair value of our assets, as well as an overall consideration of market capitalization and enterprise value.

We performed a qualitative Step 0 analysis for other indefinite lived intangible assets, including trade names, contractual arrangements, and distribution rights.

As of October 1, 2022, we performed a quantitative analysis for goodwill and certain indefinite lived brand assets, whereby we used an income approach, or in some cases a combination of income and market based approaches, to determine the fair value of our assets, as well as an overall consideration of market capitalization and enterprise value.

We performed a qualitative Step 0 analysis for other indefinite lived intangible assets, including certain brands, trade names, contractual arrangements, and distribution rights.

These types of analyses contain uncertainties because they require management to make assumptions and to apply judgment to estimate industry and economic factors and the profitability of future business strategies.

These assumptions could be negatively impacted by various risks discussed in Item 1A, Risk Factors , in this Annual Report on Form 10-K.

Critical assumptions for quantitative analyses include revenue growth and profit performance, including the achievability of productivities, over the next five year period, as well as an appropriate discount rate and long-term growth rate, as applicable.

Critical assumptions for quantitative analyses include revenue growth and profit performance over the next five year period, as well as an appropriate discount rate and long-term growth rate, as applicable.

Discount rates are based on a weighted average cost of equity and cost of debt, adjusted with various risk premiums.

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Long-term growth rates — % 3.8 %

The carrying values of goodwill and indefinite lived intangible assets as of December 31, 2021, were $20,182 million and $22,553 million , respectively.

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

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

The following table shows the non-cash impairment charges that were recorded for the years presented:

Year Ended December 31,

(in millions) 2022 2021 2020

Non cash-impairment charges for indefinite lived brand assets $ 472 $ — $ 67

Sensitivity Analysis - Discount Rate

For goodwill, holding all other assumptions in the analysis constant, including the revenue and profit performance assumption, the effect of a 0.50% increase in the discount rate used to determine the fair value of the reporting units as of October 1, 2022, would not change our conclusion.

For the indefinite-lived intangible assets, holding all other assumptions in the analysis constant, including the revenue and profit performance assumption, the effect of a 0.50% increase in the discount rate used to determine the fair value of our brands as of October 1, 2021, would impact the amount of headroom over the carrying value of our brands as follows (in millions):

For the indefinite-lived intangible assets quantitatively assessed, holding all other assumptions in the analysis constant, including the revenue and profit performance assumption, the effect of a 0.50% increase in the discount rate used to determine the fair value of those brands as of October 1, 2022, would impact the amount of headroom over the carrying value of those brands as follows (in millions):

Selected Discount Rate Discount Rate Increase of 0.50%

Headroom Percentage Carrying Value Fair Value Carrying Value Fair Value

Potential impairment $ — $ — $ 1,848 $ 1,769

$ 2,136 $ 2,136 $ 2,710 $ 2,537

Less than 25% 2,186 2,547 1,612 1,799

26 - 50% — — 2,351 3,446

In excess of 50% 14,848 28,942 12,497 22,797

$ 19,819 $ 33,101 $ 19,819 $ 29,711

(1) Carrying value reflects the results of the annual impairment analysis recognized during the year ended December 31, 2022.

Sensitivity Analysis - Long-Term Growth Rate

For goodwill, holding all other assumptions in the analysis constant, including the discrete period revenue and profit performance assumptions as well as the discount rates, the effect of a 0.50% decrease in the long-term growth rate used to determine the fair value of the reporting units as of October 1, 2022, would not change our conclusion.

For the indefinite-lived intangible assets, holding all other assumptions in the analysis constant, including the discrete period revenue and profit performance assumptions as well as the discount rates, the effect of a 0.50% decrease in the long-term revenue growth rate used to determine the fair value of our brands as of October 1, 2021, would impact the amount of headroom over the carrying value of our brands as follows (in millions):

For the indefinite-lived intangible assets quantitatively assessed, holding all other assumptions in the analysis constant, including the discrete period revenue and profit performance assumptions as well as the discount rates, the effect of a 0.50% decrease in the long-term revenue growth rate used to determine the fair value of those brands as of October 1, 2022, would impact the amount of headroom over the carrying value of those brands as follows (in millions):

Selected Long-Term Growth Rate Long-Term Growth Rate Decrease of 0.50%

Headroom Percentage Carrying Value Fair Value Carrying Value Fair Value

Potential impairment $ — $ — $ 1,848 $ 1,806

$ 2,136 $ 2,136 $ 2,396 $ 2,271

Less than 25% 2,186 2,547 1,926 2,153

26 - 50% — — 2,351 3,515

In excess of 50% 14,848 28,942 12,497 23,257

$ 19,819 $ 33,101 $ 19,819 $ 30,316

(1) Carrying value reflects the results of the annual impairment analysis recognized during the year ended December 31, 2022.

Refer to Note 3 of the Notes to our Consolidated Financial Statements for additional information about our impairment assessments.

Revenue Recognition

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EFFECT OF RECENT ACCOUNTING PRONOUNCEMENTS

On November 19, 2020, the SEC issued a final rule intended to modernize, simplify and enhance certain financial disclosure requirements in Regulation S-K related to Management's Discussion and Analysis, Selected Financial Data, and Supplementary Financial Information.

Early adoption on an item-by-item basis is permitted after February 10, 2021, the effective date of the rule, and we must apply the rule to our Form 10-K for the year ending December 31, 2021.

We early adopted the amendments to one item resulting in the elimination of Item 301, Selected Financial Data, from Part II, Item 6 of our Form 10-K for the year ended December 31, 2020, and we adopted the remaining amendments in this Annual Report for the year ended December 31, 2021.

Refer to Note 2 of the Notes to our Consolidated Financial Statements for a discussion of recently issued accounting standards and recently adopted provisions of U.S.

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To supplement the consolidated financial statements presented in accordance with U.S.

GAAP, we have presented for the years ended December 31, 2021 and 2020 (i) Adjusted income from operations, (ii) Adjusted interest expense, (iii) Adjusted provision for income taxes, (iv) Adjusted net income attributable to KDP, (v) Adjusted diluted EPS, (vi) Adjusted gross margin, (vii) Adjusted operating margin, and (viii) Adjusted effective tax rate, which are considered non-GAAP financial measures.

GAAP, we have presented for certain constant currency adjusted or adjusted financial measures for the years ended December 31, 2022 and 2021, which are considered non-GAAP financial measures.

The non-GAAP financial measures provided should be viewed in addition to, and not as an alternative for, results prepared in accordance with U.S.

The non-GAAP financial measures presented may differ from similarly titled non-GAAP financial measures presented by other companies, and other companies may not define these non-GAAP financial measures in the same way as we do.

The adjusted measures are not substitutes for their comparable U.S.

The non-GAAP financial measures are not substitutes for their comparable U.S.

GAAP financial measures, such as income from operations, net income, diluted EPS or other measures prescribed by U.S.

GAAP, and there are limitations to using non-GAAP financial measures.

For the years ended December 31, 2021 and 2020, we define our Adjusted non-GAAP financial measures as certain financial statement captions and metrics adjusted for certain items affecting comparability.

The items affecting comparability are defined below.

We use these non-GAAP financial measures, in addition to U.S.

GAAP financial measures, to evaluate our operating and financial performance and to compare such performance to that of prior periods and to the performance of our competitors.

Additionally, we use these non-GAAP financial measures in making operational and financial decisions and in our budgeting and planning process.

We believe that providing these non-GAAP financial measures to investors helps investors evaluate our operating performance, profitability and business trends in a way that is consistent with how management evaluates such performance and consistent with guidance previously provided by us.

The non-GAAP measures are defined as follows:

Defined as certain financial statement captions and metrics adjusted for certain items affecting comparability.

Items affecting comparability :

Defined as certain items that are excluded for comparison to prior years, adjusted for the tax impact as applicable.

Defined as certain items that are excluded for comparison to prior year periods, adjusted for the tax impact as applicable.

Tax impact is determined based upon an approximate rate for each item.

For each period, management adjusts for (i) the unrealized mark-to-market impact of derivative instruments not designated as hedges in accordance with U.S.

GAAP and do not have an offsetting risk reflected within the financial results, as well as the unrealized mark-to-market impact of our Vita Coco investment;

GAAP that do not have an offsetting risk reflected within the financial results, as well as the unrealized mark-to-market impact of our Vita Coco investment;

(ii) the amortization associated with definite-lived intangible assets;

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(vi) non-cash changes in deferred tax liabilities related to goodwill and other intangible assets as a result of tax rate or apportionment changes;

and (vii) other certain items that are excluded for comparison purposes to prior years.

and (vii) other certain items that are excluded for comparison purposes to prior year periods.

For the year ended December 31, 2022, the other certain items excluded for comparison purposes include (i) restructuring and integration expenses related to significant business combinations;

(ii) productivity expenses;

(iii) costs related to significant non-routine legal matters, specifically the antitrust litigation;

(iv) the loss on early extinguishment of debt related to the redemption of debt;

(v) incremental costs to our operations related to risks associated with the COVID-19 pandemic, which were incurred to either maintain the health and safety of our front-line employees or temporarily increase compensation to such employees to ensure essential operations continue during the pandemic;

(vi) the gain on the sale of our investment in BodyArmor as a result of the settlement of the associated holdback liability;

(vii) the gain on the settlement of our prior litigation with BodyArmor, excluding recoveries of previously incurred litigation expenses which were included in our adjusted results;

(viii) losses recognized with respect to our equity method investment in Bedford as a result of funding our share of their wind-down costs;

(ix) transaction costs for significant business combinations (completed or abandoned);

(x) foundational projects, which are transformative and non-recurring in nature;

and (xi) impairments recognized on certain intangible brand assets.

For the year ended December 31, 2021, the other certain items excluded for comparison purposes include (i) restructuring and integration expenses related to significant business combinations;

(ii) productivity expenses;

(iii) costs related to significant non-routine legal matters;

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and (ix) transaction costs for significant business combinations (completed or abandoned).

For the year ended December 31, 2020, the other certain items excluded for comparison purposes include (i) restructuring and integration expenses related to significant business combinations;

(ii) productivity expenses;

(iii) costs related to significant non-routine legal matters;

(iv) the loss on early extinguishment of debt related to the redemption of debt, (v) incremental costs to our operations related to risks associated with the COVID-19 pandemic, (vi) impairment recognized on our equity method investments with Bedford and LifeFuels and (vii) impairment recognized on the Bai brand.

Costs related to significant non-routine legal matters relate to the antitrust litigation.

Incremental costs to our operations related to risks associated with the COVID-19 pandemic include incremental expenses incurred to either maintain the health and safety of our front-line employees or temporarily increase compensation to such employees to ensure essential operations continue during the pandemic.

We believe removing these costs reflects how management views our business results on a consistent basis.

See Impact of COVID-19 on our Financial Statements for further information.

For the years ended December 31, 2021 and 2020, the supplemental financial data set forth below includes reconciliations of Adjusted gross margin, Adjusted income from operations, Adjusted operating margin, Adjusted net income and Adjusted diluted EPS to the applicable financial measure presented in the consolidated financial statement for the same year.

Constant currency adjusted :

Defined as certain financial statement captions and metrics adjusted for certain items affecting comparability, calculated on a constant currency basis by converting our current period local currency financial results using the prior period foreign currency exchange rates.

For the years ended December 31, 2022 and 2021, the supplemental financial data set forth below includes reconciliations of adjusted and constant currency adjusted financial measures to the applicable financial measure presented in the consolidated financial statements for the same period.

KEURIG DR PEPPER INC.

RECONCILIATION OF CERTAIN REPORTED ITEMS TO CERTAIN NON-GAAP ADJUSTED ITEMS

(Unaudited, in millions, except per share and percentages)

Cost of sales Gross profit Gross margin Selling, general and administrative expenses Impairment of intangible assets Gain on litigation settlement Other operating income, net Income from operations Operating margin

For the Year Ended December 31, 2022

(Unaudited, in millions, except per share data)

Cost of sales Gross profit Gross margin Selling, general and administrative expenses Income from operations Operating margin

Reported $ 6,734 $ 7,323 52.1 % $ 4,645 $ 477 $ ( 299 ) $ (105) $ 2,605 18.5 %

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Productivity (116) 116 (114) — — — 230

Impairment of intangible assets — — — (477) — — 477

Non-routine legal matters — — (13) — — — 13

COVID-19 (9) 9 (5) — — — 14

Gain on litigation — — — — 271 — (271)

Transaction costs — — (1) — — — 1

Malware incident — — 2 (2)

Foundational projects — — (4) — — — 4

Adjusted $ 6,489 $ 7,568 53.8 % $ 4,165 $ — $ (28) $ (107) $ 3,538 25.2 %

Interest expense Loss on early extinguishment of debt Impairment of investments and note receivable Gain on sale of equity-method investment Other (income) expense, net Income before provision for income taxes Provision for income taxes Effective tax rate Net income attributable to KDP Diluted earnings per share

Impact of foreign currency — % — %

Constant currency adjusted 53.8 % 25.2 %

For the Year Ended December 31, 2021

Reported $ 5,706 $ 6,977 55.0 % $ 4,153 $ — $ — $ (70) $ 2,894 22.8 %

2 unchanged sentences

Amortization of intangibles — — (134) — — — 134

Amortization of deferred financing costs (7) — — — — 7 2 5 —

Amortization of fair value debt adjustment (19) — — — — 19 5 14 0.01

Stock compensation — — (18) — — — 18

1 unchanged sentence

Productivity (72) 72 (91) — — — 163

Impairment of investment — — (17) — — 17 (45) 62 0.04

Loss on early extinguishment of debt — (105) — — — 105 24 81 0.06

Non-routine legal matters — — (30) — — — 30

COVID-19 (26) 26 (11) — — — 37

Gain on sale of equity-method investment — — — 524 — (524) (124) (400) (0.28)

Transaction costs — — (2) — — — 2

Malware incident — — 2 — — — (2)

Change in deferred tax liabilities related to goodwill and other intangible assets $ — $ — $ — $ — $ — $ — $ 19 $ (19) $ (0.01)

Adjusted $ 5,640 $ 7,043 55.5 % $ 3,692 $ — $ — $ (70) $ 3,421 27.0 %

Diluted EPS may not foot due to rounding.

Refer to page 46 for reconciliations of reported net sales to constant currency net sales and adjusted income from operations to constant currency adjusted income from operations.

KEURIG DR PEPPER INC.

RECONCILIATION OF CERTAIN REPORTED ITEMS TO CERTAIN NON-GAAP ADJUSTED ITEMS

(Unaudited, in millions, except per share and percentages)

Interest expense Loss on early extinguishment of debt Gain on sale of equity method investment Impairment of investments and note receivable Other expense (income), net Income before provision for income taxes Provision for income taxes Effective tax rate Net income attributable to KDP Diluted earnings per share

For the Year Ended December 31, 2022

(Unaudited, in millions, except per share data)

Cost of sales Gross profit Gross margin Selling, general and administrative expenses Impairment of intangible assets Income from operations Operating margin

Reported $ 693 $ 217 $ ( 50 ) $ 12 $ 14 $ 1,719 $ 284 16.5 % $ 1,436 $ 1.01

2 unchanged sentences

Amortization of intangibles — — — — — 138 35 103 0.07

Amortization of deferred financing costs (2) — — — — 2 — 2 —

Amortization of fair value debt adjustment (19) — — — — 19 4 15 0.01

Stock compensation — — — — — 5 (1) 6 —

1 unchanged sentence

Productivity — — — — — 230 56 174 0.12

Impairment on intangible asset — — — (67) 67

Impairment of intangible assets — — — — — 477 126 351 0.25

Impairment of investment — — — (12) — 12 3 9 0.01

Loss on early extinguishment of debt — (217) — — — 217 51 166 0.12

Non-routine legal matters — — — — — 13 3 10 0.01

COVID-19 — — — — — 14 4 10 0.01

Gain on litigation — — — — — (271) (68) (203) (0.14)

Gain on sale of equity-method investment — — 50 — — (50) (12) (38) (0.03)

Transaction costs — — — — — 1 — 1 —

Foundational projects — — — — — 4 1 3 —

Change in deferred tax liabilities related to goodwill and other intangible assets — — — — — — 80 (80) (0.06)

Adjusted $ 423 $ — $ — $ — $ 18 $ 3,097 $ 700 22.6 % $ 2,398 $ 1.68

Interest expense Loss on early extinguishment of debt Impairment of investments and note receivable Income before provision for income taxes Provision for income taxes Effective tax rate Net income attributable to KDP Diluted earnings per share

Impact of foreign currency — %

Constant currency adjusted 22.6 %

Diluted earnings per common share may not foot due to rounding.

KEURIG DR PEPPER INC.

RECONCILIATION OF CERTAIN REPORTED ITEMS TO CERTAIN NON-GAAP ADJUSTED ITEMS

(Unaudited, in millions, except per share and percentages)

For the Year Ended December 31, 2021

Reported $ 500 $ 105 $ ( 524 ) $ 17 $ (2) $ 2,798 $ 653 23.3 % $ 2,146 $ 1.50

3 unchanged sentences

Amortization of deferred financing costs (7) — — — — 7 2 5 —

Amortization of fair value debt adjustment (24) — — 24 6 18 0.01

Amortization of fair value of debt adjustment (19) — — — — 19 5 14 0.01

Stock compensation — — — — — 18 15 3 —

1 unchanged sentence

Productivity — — — — — 163 40 123 0.09

Impairment on intangible asset — — — 67 15 52 0.04

Loss on early extinguishment of debt — (4) — 4 1 3 —

Impairment of investment — — — (17) — 17 (45) 62 0.04

Loss on early extinguishment of debt — (105) — — — 105 24 81 0.06

Non-routine legal matters — — — — — 30 7 23 0.01

COVID-19 — — — — — 37 9 28 0.02

Gain on sale of equity-method investment — — 524 — — (524) (124) (400) (0.28)

Transaction costs — — — — — 2 — 2 —

Malware incident — — — — — (2) — (2) —

Change in deferred tax liabilities related to goodwill and other intangible assets — — — — — — 19 (19) (0.01)

Adjusted $ 480 $ — $ — $ — $ (8) $ 2,949 $ 670 22.7 % $ 2,280 $ 1.60

Diluted EPS may not foot due to rounding.

Change - adjusted (11.9) % 5.2 % 5.0 %

Impact of foreign currency — % 0.2 % — %

Change - constant currency adjusted (11.9) % 5.4 % 5.0 %

Diluted earnings per common share may not foot due to rounding.

KEURIG DR PEPPER INC.

RECONCILIATION OF SEGMENT ITEMS TO CERTAIN NON-GAAP ADJUSTED SEGMENT ITEMS

RECONCILIATION OF CERTAIN REPORTED SEGMENT MEASURES

TO CERTAIN NON-GAAP ADJUSTED AND CURRENCY NEUTRAL ADJUSTED SEGMENT MEASURES

(in millions) Reported Items Affecting Comparability Adjusted

7 unchanged sentences

Total income from operations $ 2,605 $ 933 $ 3,538

(in millions) Reported Items Affecting Comparability Adjusted

For the year ended December 31, 2021

6 unchanged sentences

Total income from operations $ 2,894 $ 527 $ 3,421

Reported Impact of Foreign Currency Constant Currency

For the year ended December 31, 2022

Coffee Systems 5.6 % 0.6 % 6.2 %

Packaged Beverages 12.3 0.1 12.4 %

Beverage Concentrates 16.1 0.3 16.4 %

Latin America Beverages 24.0 (1.0) 23.0 %

Total net sales 10.8 0.3 11.1 %

Adjusted Impact of Foreign Currency Constant Currency Adjusted

For the year ended December 31, 2022

Income from operations

Coffee Systems (7.9) % 0.4 % (7.5) %

Packaged Beverages 1.0 0.2 1.2 %

Beverage Concentrates 16.6 0.3 16.9 %

Latin America Beverages 20.0 (1.5) 18.5 %

Total income from operations 3.4 0.3 3.7 %

Reported Items Affecting Comparability Adjusted Impact of Foreign Currency Constant Currency Adjusted

For the year ended December 31, 2022

Operating margin

Coffee Systems 26.4 % 4.0 % 30.4 % (0.1) % 30.3 %

Packaged Beverages 15.3 1.8 % 17.1 0.1 % 17.2

Beverage Concentrates 61.5 10.0 % 71.5 — % 71.5

Latin America Beverages 21.3 0.5 % 21.8 (0.1) % 21.7

Total operating margin 18.5 6.7 % 25.2 — % 25.2

CONSTANT CURRENCY ADJUSTED RESULTS OF OPERATIONS

Year Ended December 31, 2022 Compared to Year Ended December 31, 2021

The following discussion of our results for the year ended December 31, 2022 is presented on a constant currency adjusted basis.

These adjusted financial results are calculated on a constant currency basis by converting our current-period local currency financial results using the prior-period FX rates.

Consolidated Operations

Constant Currency Net Sales.

Constant currency net sales increased 11.1% in the year ended December 31, 2022 compared to the prior year, driven by favorable net price realization of 10.6% and volume/mix growth of 0.5%.

Constant Currency Adjusted Income from Operations.

Constant currency adjusted income from operations increased 3.7% compared to the prior year, primarily driven by the strong growth in net sales and the benefit of productivity.

These benefits were partially offset by the impact of broad-based inflation and increases in other operating costs.

Constant Currency Adjusted Interest Expense.

Constant currency adjusted interest expense decreased 11.9% compared to the prior year, driven by reduced interest expense on our senior unsecured notes as a result of our strategic refinancing initiatives.

Constant Currency Adjusted Effective Tax Rate.

The c onstant currency adjusted effective tax rate was 22.6% for the year ended December 31, 2022 compared to 22.7% for the prior year, primarily driven by our incremental income in low tax jurisdictions in the current year, mostly offset by the unfavorable comparison to the tax benefit received in the prior year from the release of our valuation allowance against our U.S.

foreign tax credit carryforwards.

Constant Currency Adjusted Net Income Attributable to KDP.

Constant currency adjusted net income attributable to KDP increased 5.4% compared to the prior year, primarily driven by income from operations growth and lower interest expense.

Constant Currency Adjusted Diluted EPS.

Constant currency adjusted diluted EPS increased approximately 5.0% over the prior year.

Results of Operations by Segment

COFFEE SYSTEMS

Constant Currency Net Sales.

Constant currency net sales increased 6.2%, driven by higher net price realization of 7.0%, partially offset by unfavorable volume/mix of 0.8%.

Constant Currency Adjusted Income from Operations.

Constant currency adjusted income from operations for the year ended December 31, 2022 decreased 7.5% compared to the prior year period, as a result of broad-based inflation, particularly in green coffee and increases in other operating expenses.

These decreases were partially offset by the benefits of net sales growth, productivity, favorable asset sale-leaseback activity in the Coffee Systems segment associated with our strategic asset investment program and a business interruption insurance recovery.

PACKAGED BEVERAGES

Constant Currency Net Sales.

Constant currency net sales increased 12.4%, reflecting favorable net price realization of 12.1% and volume/mix growth of 0.3%.

Constant Currency Adjusted Income from Operations.

Constant currency adjusted income from operations for the year ended December 31, 2022 increased 1.2% compared to the prior year period, driven by the benefits of net sales growth and increased productivity.

These benefits were partially offset by broad-based inflation, higher costs to serve the ongoing strong consumer demand, and the unfavorable year-over-year comparison in the Packaged Beverages segment of asset sale-leaseback activity associated with our strategic asset investment program.

BEVERAGE CONCENTRATES

Constant Currency Net Sales.

Constant currency net sales increased 16.4%, reflecting higher net price realization of 14.7% and volume/mix growth of 1.7%.

Constant Currency Adjusted Income from Operations.

Constant currency adjusted income from operations for the year ended December 31, 2022 increased 16.9% compared to the prior year period.

This performance reflected the impact of net sales growth, partially offset by costs associated with the operation of our new manufacturing facility in Newbridge, Ireland.

LATIN AMERICA BEVERAGES

Constant Currency Net Sales.

Constant currency net sales increased 23.0%, driven by favorable net price realization of 13.9% and volume/mix growth of 9.1%.

Constant Currency Adjusted Income from Operations.

Constant currency adjusted income from operations for the year ended December 31, 2022 increased 18.5% compared to the prior year period, driven by the benefits of net sales growth and productivity, partially offset by the impacts of broad-based inflation, logistics and operating costs associated with incremental volumes, and increased marketing expense.

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 7. Management’s Discussion and Analysis