Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

247K characters. Original on sec.gov · Markdown

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


						Page Number
Consolidated Statements of Income						44
Consolidated Statements of Comprehensive Income						45
Consolidated Balance Sheets						46
Consolidated Statements of Cash Flows						47
Consolidated Statements of Changes in Stockholders' Equity						49
Notes to Consolidated Financial Statements						50
1. Business and Basis of Presentation						50
2. Significant Accounting Policies						51
3. Long-Term Obligations and Borrowing Arrangements						63
4. Acquisitions						66
5. Goodwill and Other Intangible Assets						68
6. Derivatives						71
7. Leases						74
8. Segments						76
9. Revenue Recognition						79
10. Earnings per Share						80
1 1. Employee Benefit Plans						80
1 2 . Stock-Based Compensation						85
1 3 . Investments						87
1 4 . Income Taxes						88
1 5 . Accumulated Other Comprehensive Income (Loss)						91
1 6 . Property, Plant, and Equipment						92
1 7 . Other Financial Information						93
18. Commitments and Contingencies						96
1 9 . Transactions with Variable Interest Entities						97
20 . Restructuring and Integration Costs						99
2 1 . Related Parties						100
22. Subsequent Events						101
Reports of Independent Registered Accounting Firm (PCAOB ID No. 34)						102

KEURIG DR PEPPER INC.

CONSOLIDATED STATEMENTS OF INCOME


	Year Ended December 31,
(in millions, except per share data)	2024		2023		2022
Net sales	$	15,351	$	14,814	$	14,057
Cost of sales	6,822		6,734		6,734
Gross profit	8,529		8,080		7,323
Selling, general, and administrative expenses	5,013		4,912		4,645
Impairment of goodwill	306		—		—
Impairment of other intangible assets	412		2		477
Gain on litigation settlement	—		—		(299)
Other operating expense (income), net	207		(26)		(105)
Income from operations	2,591		3,192		2,605
Interest expense, net	735		496		693
Loss on early extinguishment of debt	—		—		217
Gain on sale of equity method investment	—		—		(50)
Impairment of investments and note receivable	2		—		12
Other (income) expense, net	(60)		(61)		14
Income before provision for income taxes	1,914		2,757		1,719
Provision for income taxes	473		576		284
Net income including non-controlling interest	1,441		2,181		1,435
Less: Net loss attributable to non-controlling interest	—		—		(1)
Net income	$	1,441	$	2,181	$	1,436

Earnings per common share:
Basic	$	1.06	$	1.56	$	1.01
Diluted	1.05		1.55		1.01
Weighted average common shares outstanding:
Basic	1,362.2		1,399.3		1,416.8
Diluted	1,368.3		1,408.4		1,428.5

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

KEURIG DR PEPPER INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME


	Year Ended December 31,
(in millions)	2024		2023		2022
Net income including non-controlling interest	$	1,441	$	2,181	$	1,435
Other comprehensive income
Foreign currency translation adjustments	(612)		288		(167)
Net change in pension and post-retirement liability, net of tax of $—, $2, and $3, respectively	—		(4)		(6)
Net change in cash flow hedges, net of tax of $(24), $29, and $(87), respectively	21		(98)		328
Total other comprehensive (loss) income	(591)		186		155
Comprehensive income	850		2,367		1,590
Less: Comprehensive income attributable to non-controlling interest	—		—		—
Comprehensive income attributable to KDP	$	850	$	2,367	$	1,590

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

KEURIG DR PEPPER INC.

CONSOLIDATED BALANCE SHEETS


	December 31,
(in millions, except share and per share data)	2024		2023
Assets
Current assets:
Cash and cash equivalents	$	510	$	267
Restricted cash and restricted cash equivalents	80		—
Trade accounts receivable, net	1,502		1,368
Inventories	1,299		1,142
Prepaid expenses and other current assets	606		598
Total current assets	3,997		3,375
Property, plant, and equipment, net	2,964		2,699
Investments in unconsolidated affiliates	1,543		1,387
Goodwill	20,053		20,202
Other intangible assets, net	23,634		23,287
Other non-current assets	1,200		1,149
Deferred tax assets	39		31
Total assets	$	53,430	$	52,130
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	2,985	$	3,597
Accrued expenses	1,584		1,242
Structured payables	41		117
Short-term borrowings and current portion of long-term obligations	2,642		3,246
Other current liabilities	835		714
Total current liabilities	8,087		8,916
Long-term obligations	12,912		9,945
Deferred tax liabilities	5,435		5,760
Other non-current liabilities	2,753		1,833
Total liabilities	29,187		26,454
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.01 par value, 15,000,000 shares authorized, no shares issued	—		—
Common stock, $0.01 par value, 2,000,000,000 shares authorized, 1,356,664,609 and 1,390,446,043 shares issued and outstanding as of December 31, 2024 and 2023, respectively	14		14
Additional paid-in capital	19,712		20,788
Retained earnings	4,793		4,559
Accumulated other comprehensive (loss) income	(276)		315
Total stockholders' equity	24,243		25,676


Total liabilities and stockholders’ equity	$	53,430	$	52,130

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

KEURIG DR PEPPER INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS


	Year Ended December 31,
(in millions)	2024		2023		2022
Operating activities:
Net income	$	1,441	$	2,181	$	1,436
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation expense	422		402		399
Amortization of intangibles	133		137		138
Other amortization expense	178		181		172
Provision for sales returns	70		61		61
Deferred income taxes	(254)		(4)		(289)
Employee stock-based compensation expense	98		116		52
Loss on early extinguishment of debt	—		—		217
Gain on sale of equity method investment	—		—		(50)
Loss (gain) on disposal of property, plant, and equipment	16		(1)		(80)
Unrealized loss (gain) on foreign currency	33		(13)		26
Unrealized loss on derivatives	91		31		383
Settlements of interest rate contracts	—		54		125
Equity in (earnings) loss of unconsolidated affiliates	(42)		(33)		5
Earned equity from distribution arrangements	(94)		(44)		—
Impairment of goodwill	306		—		—
Impairment of intangible assets	412		2		477
Impairment of investments and note receivable of unconsolidated affiliate	2		—		12
Other, net	(2)		6		28
Changes in assets and liabilities, excluding the effects of business acquisitions:
Trade accounts receivable	(209)		70		(398)
Inventories	(92)		182		(426)
Income taxes receivable and payables, net	133		(199)		(105)
Other current and non-current assets	(227)		(192)		(456)
Accounts payable and accrued expenses	(196)		(1,618)		903
Other current and non-current liabilities	—		10		207
Net change in operating assets and liabilities	(591)		(1,747)		(275)
Net cash provided by operating activities	2,219		1,329		2,837
Investing activities:
Acquisitions of businesses, net of cash acquired	(1,000)		—		—
Proceeds from sale of investment in unconsolidated affiliates	—		—		50
Purchases of property, plant, and equipment	(563)		(425)		(353)
Proceeds from sales of property, plant, and equipment	4		9		168
Purchases of intangibles	(59)		(56)		(26)

Issuance of related party note receivable	—		—		(18)
Investments in unconsolidated affiliates	(7)		(316)		(962)

Other, net	11		4		6
Net cash used in investing activities	$	(1,614)	$	(784)	$	(1,135)

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

KEURIG DR PEPPER INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(CONTINUED)


	Year Ended December 31,
(in millions)	2024		2023		2022
Financing activities:
Proceeds from issuance of Notes	$	3,000	$	—	$	3,000
Repayment of Notes	(1,150)		(500)		(3,365)
Net (repayment) issuance of commercial paper	(480)		1,697		250


Proceeds from term loan	990		—		—


Proceeds from structured payables	49		130		155
Payments on structured payables	(129)		(148)		(158)
Cash dividends paid	(1,194)		(1,142)		(1,080)
Repurchases of common stock	(1,110)		(706)		(379)
Tax withholdings related to net share settlements	(61)		(62)		(15)
Payments on finance leases	(115)		(95)		(90)


Other, net	(23)		(6)		(46)
Net cash used in financing activities	(223)		(832)		(1,728)
Cash, cash equivalents, restricted cash, and restricted cash equivalents:
Net change from operating, investing and financing activities	382		(287)		(26)
Effect of exchange rate changes	(41)		19		(7)
Beginning balance	267		535		568
Ending balance	$	608	$	267	$	535

Supplemental cash flow disclosures of non-cash investing and financing activities:
Capital expenditures included in accounts payable and accrued expenses	$	220	$	276	$	213
Earned equity from distribution arrangements	94		44		—
Equity received in exchange for modification of related party contract	19		—		—
Acquisitions of businesses	98		—		—
Transaction costs included in accounts payable and accrued expenses	—		6		8
Conversion of note receivable to equity method investment	—		—		6

Non-cash purchases of intangibles	—		—		19
Dividends declared but not yet paid	312		299		281
Mandatory redemption liability	689		—		—
Accrued excise tax on net share repurchases	9		5		—

Supplemental cash flow disclosures:
Cash paid for interest	494		443		363
Cash paid for income taxes	331		507		686

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

KEURIG DR PEPPER INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY


	Common Stock Issued			Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive (Loss) Income		Total Stockholders' Equity		Non-Controlling Interest		Total Equity
(in millions, except per share data)	Shares	Amount
Balance as of December 31, 2021	1,418.1	$	14	$	21,785	$	3,199	$	(26)	$	24,972	$	—	$	24,972

Net income	—	—		—		1,436		—		1,436		(1)		1,435
Other comprehensive income	—	—		—		—		155		155		—		155

Dividends declared, $0.775 per share	—	—		—		(1,096)		—		(1,096)		—		(1,096)
Repurchases of common stock	(10.6)	—		(379)		—		—		(379)		—		(379)


Shares issued under employee stock-based compensation plans and other	0.9	—		—		—		—		—		—		—
Tax withholdings related to net share settlements	—	—		(15)		—		—		(15)		—		(15)
Stock-based compensation and stock options exercised	—	—		53		—		—		53		—		53
Balance as of December 31, 2022	1,408.4	14		21,444		3,539		129		25,126		(1)		25,125
Net income	—	—		—		2,181		—		2,181		—		2,181
Other comprehensive income	—	—		—		—		186		186		—		186

Dividends declared, $0.83 per share	—	—		—		(1,160)		—		(1,160)		—		(1,160)
Repurchases of common stock, inclusive of excise tax obligation	(21.7)	—		(711)		—		—		(711)		—		(711)


Shares issued under employee stock-based compensation plans and other	3.7	—		—		—		—		—		—		—
Tax withholdings related to net share settlements	—	—		(62)		—		—		(62)		—		(62)
Stock-based compensation and stock options exercised	—	—		117		—		—		117		—		117
Non-controlling interest surrender of shares	—	—		—		(1)		—		(1)		1		—
Balance as of December 31, 2023	1,390.4	14		20,788		4,559		315		25,676		—		25,676
Net income	—	—		—		1,441		—		1,441		—		1,441
Other comprehensive loss	—	—		—		—		(591)		(591)		—		(591)

Dividends declared, $0.89 per share	—	—		—		(1,207)		—		(1,207)		—		(1,207)
Repurchases of common stock, inclusive of excise tax obligation	(38.0)	—		(1,114)		—		—		(1,114)		—		(1,114)
Shares issued under employee stock-based compensation plans and other	4.3	—		—		—		—		—		—		—
Tax withholdings related to net share settlements	—	—		(61)		—		—		(61)		—		(61)
Stock-based compensation and stock options exercised	—	—		99		—		—		99		—		99

Balance as of December 31, 2024	1,356.7	$	14	$	19,712	$	4,793	$	(276)	$	24,243	$	—	$	24,243

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

KEURIG DR PEPPER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Business and Basis of Presentation

ORGANIZATION AND NATURE OF OPERATIONS

Keurig Dr Pepper Inc. is a leading coffee and beverage company in North America that manufactures, markets, distributes, and sells hot and cold beverages and single serve brewing systems.

References in this Annual Report on Form 10-K to "KDP", “we”, “us”, and “our" refer to Keurig Dr Pepper Inc. and all wholly-owned subsidiaries included in the consolidated financial statements. Definitions of terms used in this Annual Report on Form 10-K are included within the Master Glossary.

This Annual Report on Form 10-K refers to some of our owned or licensed trademarks, trade names, and service marks, which are referred to as our brands. All of the product names included herein are either KDP registered trademarks or those of our licensors.

BASIS OF PRESENTATION

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

FISCAL YEAR END

Our fiscal year end is December 31, and our interim fiscal quarters are March 31, June 30, and September 30. KDP's significant subsidiary, Maple Parent Holdings Corp., has a fiscal year end of the last Saturday in December, and its interim fiscal quarters end every thirteenth Saturday. The fiscal year for Maple Parent Holdings Corp. includes 52 weeks for the years ended December 31, 2024 and 2023 and 53 weeks for the year ended December 31, 2022. We do not adjust for the difference in fiscal year, as the difference is within the range permitted by the Exchange Act.

PRINCIPLES OF CONSOLIDATION

We consolidate all wholly owned subsidiaries.

We consolidate investments in companies in which we hold the majority interest. In these cases, the third party equity interest is referred to as non-controlling interest. Generally, 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. However, if the investment agreement contains a mandatorily redeemable financial instrument for the non-controlling interests, such mandatorily redeemable interests are recorded as a liability, rather than equity, in the Consolidated Balance Sheets, and no earnings are attributable to the non-controlling interests.

We would be required to consolidate VIEs for which KDP has been determined to be the primary beneficiary. To determine if we are the primary beneficiary, we assess specific criteria and use judgment when determining if we have 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. Factors considered include risk and reward sharing, voting rights, involvement in day-to-day capital and operating decisions, representation on a VIE’s governance structure, existence of unilateral kick-out rights exclusive of protective rights or voting rights, and level of economic disproportionality between KDP and the VIE’s other partner(s). We have determined that we are not the primary beneficiary of any VIEs. However, future events may require us to consolidate VIEs if we become the primary beneficiary.

We use the equity method to account for investments in companies if the investment provides us with the ability to exercise significant influence over operating and financial policies of the investee. Consolidated net income includes KDP's proportionate share of the net income or loss of these companies. Judgment regarding the level of influence over each equity method investment includes considering key factors such as ownership interest, representation on the Board or similar governing body, participation in policy-making decisions, and material intercompany transactions.

KEURIG DR PEPPER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(CONTINUED)

We eliminate from our financial results all intercompany transactions between entities included in the consolidated financial statements.

RECLASSIFICATIONS

We reclassified amounts in the Financing Activities section of the consolidated Statement of Cash Flows for the years ended December 31, 2023 and 2022 in order to conform to current year presentation, as maturities for our commercial paper program in both periods are 90 days or less.


		Year Ended December 31,
(in millions)	Prior Presentation	2023		2022
Net (repayment) issuance of commercial paper	Proceeds from issuance of commercial paper	$	36,940	$	1,198
Net (repayment) issuance of commercial paper	Repayments of commercial paper	(35,243)		(948)

2. Significant Accounting Policies

USE OF ESTIMATES

The process of preparing our consolidated financial statements in conformity with U.S. GAAP requires the use of estimates and judgments that affect reported amounts. These estimates and judgments are based on historical experience, future expectations, and other factors and assumptions we believe to be reasonable under the circumstances. These estimates and judgments are reviewed on an ongoing basis and are revised when necessary. Changes in estimates are recorded in the period of change. Actual amounts may differ from these estimates.

SIGNIFICANT ACCOUNTING POLICIES

Fair Value

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Based upon the transparency of inputs to the valuation of an asset or liability, a three-level hierarchy has been established for fair value measurements. The three-level hierarchy for disclosure of fair value measurements is as follows:

Level 1 - Quoted market prices in active markets for identical assets or liabilities.

Level 2 - Observable inputs such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets.

Level 3 - Valuations with one or more unobservable significant inputs that reflect the reporting entity's own assumptions.

The fair value of Notes and marketable securities as of December 31, 2024 and 2023 are based on quoted market prices for publicly traded securities.

We estimate fair values of financial instruments measured at fair value in the consolidated financial statements on a recurring basis to ensure they are calculated based on market rates to settle the instruments. These values represent the estimated amounts we would pay or receive to terminate agreements, taking into consideration current market rates and creditworthiness.

As of December 31, 2023, we did not have any assets or liabilities measured on a recurring basis without observable market values that would require a high level of judgment to determine fair value (Level 3). As of December 31, 2024, the mandatory redemption liability for GHOST is a liability measured on a recurring basis that is considered Level 3 within the fair value hierarchy. Refer to the Mandatory Redemption Liability section below for further information.

KEURIG DR PEPPER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(CONTINUED)

Transfers between levels are recognized at the end of each reporting period. There were no transfers of financial instruments between the three levels of fair value hierarchy during the years ended December 31, 2024, 2023, and 2022.

Acquisitions

We evaluate the facts and circumstances of each acquisition to determine whether the transaction should be accounted for as an asset acquisition or a business combination.

Asset Acquisitions

When substantially all of the fair value of the assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets, the transaction is accounted for as an asset acquisition. Direct transaction costs associated with asset acquisitions are capitalized.

Business Combinations

We include the results of operations of the acquired business in the consolidated financial statements prospectively from the acquisition date. We allocate the purchase consideration to the assets acquired and liabilities assumed in the acquired entity generally based on their fair values at the acquisition date. The excess of the fair value of purchase consideration over the fair value of these assets acquired and liabilities assumed in the acquired entity is recorded as goodwill. During the measurement period, we will continue to obtain information to assist in determining the fair value of net assets acquired, which may differ from these preliminary estimates. Measurement period adjustments, if applicable, will be applied in the reporting period in which the adjustment amounts are determined. Certain of our acquisitions may include other forms of consideration, including mandatorily redeemable liabilities and other earn-out arrangements. As of the acquisition date, we record such consideration, as applicable, at the estimated fair value of the expected future payments associated with the obligation. Any changes to the recorded fair value of the consideration are recognized in earnings in the period in which they occur.

Transaction expenses are recognized separately from the business combination and are expensed as incurred. These charges primarily include direct third-party professional fees for advisory and consulting services and other incremental costs related to the acquisition.

Cash and Cash Equivalents

Cash and cash equivalents include cash and investments in short-term, highly liquid securities, with original maturities of three months or less.

We are exposed to potential risks associated with its cash and cash equivalents. We place our cash and cash equivalents with high credit quality financial institutions. Deposits with these financial institutions may exceed the amount of insurance provided; however, these deposits typically are redeemable upon demand and, therefore, we believe the financial risks associated with these financial instruments are minimal.

Trade Accounts Receivable and Allowance for Expected Credit Losses

Trade accounts receivable are recorded at the invoiced amount and do not bear interest.

We are exposed to potential credit risks associated with our accounts receivable, as we generally do not require collateral on our accounts receivable. We determine the required allowance for expected credit losses using information such as customer credit history and financial condition, industry and market segment information, credit reports, and economic trends and conditions. Allowances can be affected by changes in the industry, customer credit issues or customer bankruptcies, or expectations of any such events in a future period when reasonable and supportable. Historical information is utilized beyond reasonable and supportable forecast periods. Amounts are charged against the allowance when it is determined that expected credit losses may occur.

KEURIG DR PEPPER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(CONTINUED)

Activity in the allowance for expected credit loss accounts was as follows:


	For the Year Ended December 31,
(in millions)	2024		2023		2022
Balance, beginning of the period	$	10	$	9	$	7
Charges to (reversals of) bad debt expense	—		3		3
Write-offs and adjustments	(1)		(2)		(1)
Balance, end of the period	$	9	$	10	$	9

Concentration of credit risk with respect to accounts receivable is limited due to the large number of customers in various channels comprising our customer base. Walmart is a major customer as described in Note 8. As of December 31, 2024 and 2023, Walmart accounted for approximately $205 million and $204 million of trade receivables, respectively, which exceeded 10% of KDP's total trade accounts receivable.

Inventories

Inventories consist of raw materials, work in process, and finished goods. Raw materials include various commodity costs for our ingredients and materials sourced from various providers. The costs of finished goods inventories manufactured by us include raw materials, direct labor, and indirect production and overhead costs. Finished goods also include the purchases of brewing systems and certain beverages from third-party manufacturers. Inventories are stated at the lower of cost or net realizable value. Cost is measured using standard cost, which approximates first-in, first-out. We regularly review whether the net realizable value of inventory is lower than its carrying value. If the valuation shows that the net realizable value is lower than the carrying value, we take a charge to cost of sales and directly reduce the carrying value of the inventory.

We estimate any required write downs for inventory obsolescence by examining inventories on a quarterly basis to determine if there are indicators that the carrying values exceed net realizable value. Indicators that could result in additional inventory write downs include age of inventory, damaged inventory, slow moving products, and products at the end of their life cycles. While management believes that inventory is appropriately stated, judgment is involved in determining the net realizable value of inventory. Adjustments for excess and obsolete inventories are based on an assessment of slow-moving and obsolete inventories, determined by historical usage and demand.

Property, Plant, and Equipment, Net

Property, plant, and equipment is stated at cost plus capitalized interest on borrowings during the actual construction period of major capital projects, net of accumulated depreciation. Significant improvements which substantially extend the useful lives of assets are capitalized, and expenditures for repairs and maintenance which do not improve or extend the life of the assets are expensed as incurred. We capitalize certain computer software and software development costs incurred in connection with developing or obtaining computer software for internal use, which are included in property, plant, and equipment. When property, plant, and equipment is sold, the costs and the related accumulated depreciation are removed from the accounts, and any net gain or loss is recorded in Other operating expense (income), net in the Consolidated Statements of Income.

For financial reporting purposes, depreciation is computed on the straight-line method over the estimated useful asset lives as follows:


Type of Asset	Useful Life
Buildings and improvements	3	to	40 years
Machinery and equipment	2	to	20 years
Cold drink equipment	2	to	7 years
Computer software	2	to	8 years

Leasehold improvements, which are primarily considered building improvements, are depreciated over the shorter of the estimated useful life of the assets or the lease term. Estimated useful lives are periodically reviewed and, when warranted, are updated.

KEURIG DR PEPPER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(CONTINUED)

We periodically review long-lived assets for impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. In order to assess recoverability, we compare the estimated undiscounted future pre-tax cash flows from the use of the group of assets, as defined, to the carrying amount of such assets. 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, and any impairment loss is recorded in Other operating expense (income), net, in the Consolidated Statements of Income. For the years ended December 31, 2024, 2023, and 2022, no impairment loss was recorded related to these assets.

Leases

We lease certain facilities and machinery and equipment, including fleet. These leases expire at various dates through 2044. 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. Our lease agreements do not contain any material restrictive covenants. Certain leases of manufacturing and distribution properties and our Frisco headquarters contain an RVG at the end of the term. Refer to Note 19 for additional information about RVGs.

Operating leases are included within other non-current assets, other current liabilities, and other non-current liabilities within the Consolidated Balance Sheets. Finance leases are included within Property, plant, and equipment, net, other current liabilities, and other non-current liabilities. Leases with an initial term of 12 months or less are not recognized on the Consolidated Balance Sheets.

Right of use assets and lease liabilities are recognized in the Consolidated Balance Sheets at the present value of future minimum lease payments over the lease term on the commencement date. When the rate implicit in the lease is not provided to us, we use our incremental borrowing rate based on information available at the commencement date to determine the present value of future minimum lease payments. Our incremental borrowing rate is determined using a portfolio of secured borrowing rates commensurate with the term of the lease and is reassessed on a quarterly basis.

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

Sale-and-leaseback transactions occur when we sell assets to a third-party and subsequently lease them back. The resulting leases that qualify for sale-and-leaseback accounting are evaluated and accounted for as operating leases. A transaction that does not qualify for sale-and-leaseback accounting as a result of finance lease classification or the failure to meet certain revenue recognition criteria is accounted for as a financing transaction. For a financing transaction, we retain the assets sold within Property, plant, and equipment, net and record a financing obligation equal to the amount of cash proceeds received. Rental payments under such transactions are recognized as a reduction of the financing obligation and as interest expense using an effective interest method.

Investments

Deferred Compensation Plan

We have a U.S. non-qualified defined contribution plan. Contributions under the non-qualified defined contribution plan are maintained in a rabbi trust and are not readily available to us. 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 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.

KEURIG DR PEPPER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(CONTINUED)

Investments in Other Equity Securities

On July 31, 2023, the remaining shareholders of Revive surrendered their ownership interests. As a result, KDP holds 100% ownership interest in Revive and has eliminated the Non-controlling interest component within the Consolidated Statements of Changes in Stockholders’ Equity. As of December 31, 2024, we hold a majority interest in GHOST. This investment contains a mandatorily redeemable financial instrument for the non-controlling interests. Refer to Note 4 for further information about the GHOST Transactions.

We also hold investments in certain 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. Equity method investments are reported at cost, which includes third-party transaction costs, and are adjusted each period for dividends paid, if any, as well as our share of the investee’s net income or loss, unless the investment agreement indicates an alternative allocation of earnings or losses. Our share of the net income or loss resulting from these investments is recorded in Other (income) expense, net in the Consolidated Statements of Income. To the extent we earn additional equity in these investments from achieving certain contractual milestones in our distribution activities, the earned equity is recorded as a reduction in Cost of sales and included in the Earned equity from distribution arrangements line on the Consolidated Statements of Cash Flows. 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 our equity method investments is reported in Investments in unconsolidated affiliates in the Consolidated Balance Sheets. Distributions received from equity method investments are classified using the cumulative earnings approach on the Consolidated Statements of Cash Flows.

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 Consolidated Balance Sheets. As of December 31, 2024 and 2023, all such investments were categorized as Level 1. 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 Consolidated Balance Sheets. Any gains or losses resulting from the sales of these investments are recorded in Other operating expense (income), net, in the Consolidated Statements of Income.

Our equity method investments in certain privately held entities do not have readily determinable fair values and are periodically evaluated for impairment. An impairment loss would be recorded whenever a decline in value of an investment below its carrying amount is determined to be other than temporary. We recorded impairment charges of $2 million and $12 million for the years ended December 31, 2024 and 2022, respectively, on the Impairment of investments and note receivable line in the Consolidated Statements of Income. No impairment charges were recorded for the year ended December 31, 2023.

KEURIG DR PEPPER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(CONTINUED)

Goodwill and Other Intangible Assets

Other intangible assets are classified into two categories:

intangible assets with definite lives subject to amortization, and
intangible assets with indefinite lives not subject to amortization.

The majority of the intangible asset balance is made up of brands which we have determined to have indefinite useful lives. In arriving at the conclusion that a brand has an indefinite useful life, we review factors such as size, diversification, and market share of each brand. We expect to acquire, hold, and support brands for an indefinite period through consumer marketing and promotional support. We also consider factors such as our ability to continue to protect the legal rights that arise from these intangible assets indefinitely or the absence of any regulatory, economic, or competitive factors that could truncate the life of these intangible assets. If the criteria are not met, the brand is considered to have a finite useful life.

Identifiable intangible assets deemed to have determinable finite useful lives are amortized on a straight-line basis over the period of which the expected economic benefit is derived. Amortization expense is recorded in Selling, general, and administrative expenses in the Consolidated Statements of Income. The estimated useful lives of intangible assets with definite lives are as follows:


Type of Asset	Useful Life
Acquired technology			20 years
Brands			5 years
Contractual arrangements	10	to	20 years
Customer relationships	10	to	40 years
Distribution rights	4	to	10 years
Trade names			10 years

For intangible assets with definite lives, tests for impairment are performed if conditions exist that indicate the carrying value may not be recoverable.

For goodwill and indefinite-lived intangible assets, we perform quarterly analyses to evaluate whether any triggering events have occurred which may indicate that the carrying amount of an asset may not be recoverable. We also conduct tests for impairment annually on the first day of the fourth quarter, or more frequently if events or circumstances indicate the carrying amount may not be recoverable.

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. When performing a quantitative, or Step 1, analysis, we use the 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

The tests for impairment include significant judgment in estimating the fair value of reporting units and intangible assets. Management's estimates of fair value, which fall under Level 3 and are non-recurring, are based on historical and forecasted revenues and profit performance and discount rates. Fair value is based on what the reporting units and intangible assets would be worth to a third party market participant. Discount rates are based on a weighted average cost of equity and cost of debt, adjusted with various risk premiums.

KEURIG DR PEPPER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(CONTINUED)

Goodwill is assigned to reporting units for purposes of impairment testing. A reporting unit is the same as an operating segment or one level below an operating segment. As of October 1, 2024, KDP's reporting units were as follows:


Reportable Segments						Reporting Units
U.S. Refreshment Beverages						U.S. Beverage Concentrates
						U.S. WD
						DSD

U.S. Coffee						U.S. Coffee
International						Canada Beverage Concentrates
						Canada WD
						Canada Coffee
						Latin America Beverages

If the carrying value of the reporting unit or intangible asset exceeds its fair value, an impairment charge will be recorded in current earnings for the difference up to the carrying value of the goodwill or intangible asset recorded. Refer to Note 5 for additional information.

Capitalized Customer Incentive Programs

KDP provides support to certain customers to cover various programs and initiatives to increase net sales, including contributions to customers or vendors for cold drink equipment used to market and sell our products. These programs and initiatives generally directly benefit KDP over a period of time. Accordingly, costs of these programs and initiatives are recorded in Prepaid expenses and other current assets and Other non-current assets in the Consolidated Balance Sheets. Refer to Note 17 for additional information. The costs for these programs are amortized over the period to be directly benefited based upon a methodology consistent with our contractual rights under these arrangements.

Accounts Payable

We have 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.

The table below summarizes activity in our outstanding obligations under supplier financing arrangements, which are confirmed as valid and included in accounts payable:


(in millions)	For the Year Ended December 31, 2024
Balance as of December 31, 2023	$	2,389
Additions	2,999
Settlements	(3,639)
Effect of exchange rate changes	(9)
Balance as of December 31, 2024	$	1,740

KEURIG DR PEPPER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(CONTINUED)

Structured Payables

We have 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 KDP and sells the amounts due from KDP to a participating financial institution. The card sponsor then bills KDP the original payment amount, effectively financing the transaction. The agreement permits us 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.

Additionally, we have commercial arrangements with suppliers who use third party administrators to sell payment obligations from KDP to financial institutions. We evaluate these commercial arrangements with suppliers to determine if they are more representative of debt or accounts payable classification. If we determine these commercial arrangements are more representative of a financing transaction, then we record those payment obligations as structured payables.

Structured payables have equal priority with accounts payable and are treated as non-recourse obligations. We record interest for the period the structured payables obligation is outstanding and reflect the proceeds and payments related to these transactions as a financing activity on the Consolidated Statements of Cash Flows.

Mandatory Redemption Liability

Certain of our acquisitions may include other forms of consideration, including mandatorily redeemable liabilities and other earn-out arrangements. As of the acquisition date, we record such consideration, as applicable, at the estimated fair value of the expected future payments associated with the obligation. Any changes to the recorded fair value of the consideration are recognized in earnings in the period in which they occur.

Subsequent to the date of acquisition, if future payments are expected to differ from our estimate as of the date of acquisition, any related fair value adjustments are recognized in the period that such expectation is considered probable. Changes in the fair value of payments are recorded within Other nonoperating (income) expense, net, in the Consolidated Statements of Operations.

For the year ended December 31, 2024, the fair value of our mandatory redemption liability for Ghost was estimated using the Monte Carlo simulation method, which incorporates significant inputs not observable in the market (Level 3 inputs) including forecasted EBITDA expectations, adjusting for market risks and volatility, calculating redemption prices, discounting to present terms with the cost of debt, and averaging results across scenarios to determine fair value, incorporating the market price of risk and volatility estimates from similar companies. Mandatory redemption liabilities are included within Other non-current liabilities within the Consolidated Balance Sheets. Refer to Note 17 for additional information.

Pension and Post-retirement Medical Benefits

KDP has U.S. and foreign pension and PRMB plans which provide benefits to a defined group of employees who satisfy age and length of service requirements at the discretion of KDP. As of December 31, 2024, KDP has several stand-alone non-contributory defined benefit plans and PRMB plans. Depending on the plan, pension and PRMB benefits are based on a combination of factors, which may include salary, age, and years of service.

Employee pension and PRMB plan obligations and the associated expense included in the consolidated financial statements are determined from actuarial analyses based on plan assumptions, employee demographic data, years of service, compensation, benefits and claims paid, and employer contributions. Non-cash settlement charges occur when the total amount of lump sum payments made to participants of various U.S. 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 (income) expense, net, in the 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.

The objective with respect to the funding of our pension plans is to provide adequate assets for the payment of future benefits. Pursuant to this objective, KDP will fund the pension plans as required by governmental regulations and may consider discretionary contributions as conditions warrant.

KEURIG DR PEPPER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(CONTINUED)

KDP participates in several 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.

Risk Management Programs

We retain selected levels of property, casualty, workers' compensation, health, cyber, and other business risks. Many of these risks are covered under conventional insurance and reinsurance programs with deductibles or self-insured retentions. Accrued liabilities related to the retained casualty and health risks are calculated based on loss experience and development factors, which contemplate a number of variables including claim history and expected trends, and are recorded in Other current liabilities and Other non-current liabilities in the Consolidated Balance Sheets.

Income Taxes

Income taxes are accounted for using the asset and liability approach, which involves determining the temporary differences between assets and liabilities recognized for financial reporting and the corresponding amounts recognized for tax purposes and computing the tax-related carryforwards at the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be reversed. The resulting amounts are deferred tax assets or liabilities. The total of taxes currently payable per the tax return, the deferred tax expense or benefit, and the impact of uncertain tax positions represents the income tax expense or benefit for the year for financial reporting purposes.

We periodically assess the likelihood of realizing our deferred tax assets based on the amount that we believe is more likely than not to be realized. We base our judgment of the recoverability of deferred tax assets primarily on historical earnings, our estimate of current and expected future earnings, and prudent and feasible tax planning strategies.

We establish income tax liabilities to remove some or all of the income tax benefit of any of our income tax positions at the time we determine that the positions become uncertain based upon one of the following: (1) the tax position is not "more likely than not" to be sustained, (2) the tax position is "more likely than not" to be sustained, but for a lesser amount, or (3) the tax position is "more likely than not" to be sustained, but not in the financial period in which the tax position was originally taken. The evaluation of whether or not a tax position is uncertain is based on the following: (1) we presume the tax position will be examined by the relevant taxing authority such as the IRS that has full knowledge of all relevant information, (2) the technical merits of a tax position are derived from authorities such as legislation and statutes, legislative intent, regulations, rulings, and case law, and their applicability to the facts and circumstances of the tax position, and (3) each tax position is evaluated without considerations of the possibility of offset or aggregation with other tax positions taken. We adjust these income tax liabilities when our judgment changes as a result of new information. Any change will impact income tax expense in the period in which such determination is made.

Derivative Instruments

KDP is exposed to market risks arising from adverse changes in interest rates, commodity prices, and FX rates. We manage these risks through a variety of strategies, including the use of interest rate contracts, FX forward contracts, commodity forward, future, swap and option contracts, and supplier pricing agreements. We do not hold or issue derivative financial instruments for trading or speculative purposes.

All derivative instruments are recorded on a gross basis, including those subject to master netting arrangements.

KEURIG DR PEPPER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(CONTINUED)

We formally designate and account for certain foreign exchange forward contracts and interest rate contracts that meet established accounting criteria under U.S. GAAP as cash flow hedges. For such contracts, the effective portion of the gain or loss on the derivative instruments is recorded, net of applicable taxes, in AOCI. When net income is affected by the variability of the underlying transaction, the applicable offsetting amount of the gain or loss from the derivative instrument deferred in AOCI is reclassified to net income. Cash flows from derivative instruments designated in a qualifying hedging relationship are classified in the same category as the cash flows from the underlying hedged items. If a cash flow hedge were to cease to qualify for hedge accounting, or were terminated, the derivatives would continue to be carried on the balance sheet at fair value until settled and hedge accounting would be discontinued prospectively. If the underlying hedged transaction ceases to exist, any associated amounts reported in AOCI would be reclassified to earnings at that time.

For derivatives that are not designated or for which the designated hedging relationship is discontinued, the gain or loss on the instrument is recognized in earnings in the period of change.

We have exposure to credit losses from derivative instruments in an asset position in the event of nonperformance by the counterparties to the agreements. Historically, we have not experienced material credit losses as a result of counterparty nonperformance. We select and periodically review our counterparties based on credit ratings, limit our exposure to a single counterparty under defined guidelines and monitor the market position of the programs upon execution of a hedging transaction and at least on a quarterly basis.

Loss Contingencies

Legal Matters

KDP is involved from time to time in various claims, proceedings, and litigation, including those described in Note 18. We establish reserves for specific legal proceedings when we determine that the likelihood of an unfavorable outcome is probable and the amount of loss can be reasonably estimated. Management has also identified certain other legal matters where it believes an unfavorable outcome is reasonably possible and/or for which no estimate of possible losses can be made, and where applicable, provides disclosure of such legal matters in Note 18.

Product Warranties

We provide for the estimated cost of product warranties associated with our brewers in cost of sales, at the time product revenue is recognized. Warranty costs are estimated primarily using historical warranty information in conjunction with current engineering assessments applied to the expected repair or replacement costs. The estimate for warranties requires assumptions relating to expected warranty claims which are based on historical claims and known current year factors.

Revenue Recognition

We recognize revenue when performance obligations under the terms of a contract with the customer are satisfied. Branded product sales, which include LRBs, K-Cup pods, appliances, and other, occur once control is transferred upon delivery to the customer. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods. The amount of consideration we receive and revenue we recognize varies with changes in customer incentives offered to our customers and their customers. These incentives and discounts, which are recorded as a reduction of revenue, include cash discounts, price allowances, volume-based rebates, product placement fees, and other financial support for items such as trade promotions, displays, new products, consumer incentives, and advertising assistance. Accruals are established for the expected payout based on contractual terms, volume-based metrics, and/or historical trends, and require management judgment with respect to estimating customer participation and performance levels. Sales taxes and other similar taxes are excluded from revenue. Costs associated with shipping and handling activities, such as merchandising, are included in SG&A expenses as revenue is recognized.

KEURIG DR PEPPER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(CONTINUED)

Cost of Sales

Cost of goods sold includes all costs to acquire and manufacture our products including raw materials, direct and indirect labor, manufacturing overhead, including depreciation expense, and all other costs incurred to bring the product to salable condition. 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

We incurred $1,910 million, $1,783 million, and $1,746 million of transportation and warehousing costs during the years ended December 31, 2024, 2023, and 2022, respectively. These amounts, which primarily relate to shipping and handling costs, are recorded in SG&A expenses in the Consolidated Statements of Income.

Advertising and Marketing Expense

Advertising and marketing production costs related to television, print, radio, and other marketing investments are expensed as of the first date the advertisement takes place. All other advertising and marketing costs are expensed as incurred. Advertising and marketing expenses were approximately $657 million, $640 million, and $537 million for the years ended December 31, 2024, 2023, and 2022, respectively. Advertising and marketing expenses are recorded in SG&A expenses in the Consolidated Statements of Income. Prepaid advertising and marketing costs are recorded as Other current and Other non-current assets in the Consolidated Balance Sheets.

Research and Development Costs

Research and development costs are expensed when incurred and amounted to $70 million, $66 million, and $65 million for the years ended December 31, 2024, 2023, and 2022, respectively. These expenses are recorded primarily in SG&A expenses in the Consolidated Statements of Income.

Stock-Based Compensation Expense

Stock-based compensation expense is recognized within SG&A expenses in the Consolidated Statements of Income related to the fair value of employee stock-based awards, ratably over the vesting period, and only for awards expected to vest. Estimated forfeiture rates are based on historical data and are periodically reassessed.

Compensation cost is based on the grant-date fair value. The fair value of RSUs is determined based on the number of units granted and the grant date price of common stock. The fair value of PSUs is estimated at the date of grant using a Monte-Carlo simulation.

Restructuring and Integration Costs

We implement restructuring programs from time to time and incur costs that are designed to improve operating effectiveness and lower costs. When these programs are implemented, we incur expenses, such as employee separations, lease terminations, and other direct exit costs, that qualify as exit and disposal costs under U.S. GAAP. Severance costs are recorded once they are both probable and estimable. 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.

We also incur expenses that are an integral component of, and directly attributable to, the restructuring activities, which do not qualify as exit and disposal costs, such as accelerated depreciation, asset impairments, IT implementation costs, and other incremental costs. We have recorded these costs within SG&A expenses on the Consolidated Statements of Income, and these costs are held within unallocated corporate costs.

KEURIG DR PEPPER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(CONTINUED)

Foreign Currency Translation and Transaction

We translate assets and liabilities of our foreign subsidiaries from their respective functional currencies to U.S. dollars at the appropriate spot rates as of the balance sheet date. The functional currency of our operations outside the U.S. is generally the local currency of the country where the operations are located, or U.S. dollars. The results of operations are translated into U.S. dollars at a monthly average rate, calculated using daily exchange rates.

Differences arising from the translation of opening balance sheets of these entities to the rate at the end of the financial year are recognized in AOCI. The differences arising from the translation of foreign results at the average rate are also recognized in AOCI. Such translation differences are recognized as income or expense in the period in which we dispose of the operations.

Transactions in foreign currencies are recorded at the approximate rate of exchange at the transaction date. Assets and liabilities resulting from these transactions are translated at the rate of exchange in effect at the balance sheet date. 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

Basic EPS is computed by dividing Net income by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the assumed conversion of all dilutive securities determined through the treasury stock method.

Repurchases of Common Stock

Shares repurchased under authorized share repurchase programs are retired, and the excess purchase price over the par value is recorded to additional paid-in capital.

The IRA imposes a 1% excise tax on net share repurchases that occur after December 31, 2022. The tax associated with shares repurchased is recorded to additional paid-in capital. Cash paid related to the excise tax on net share repurchases is included in the Repurchases of common stock line in the Consolidated Statements of Cash Flows.

RECENTLY ISSUED ACCOUNTING STANDARDS

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The objective of ASU 2023-09 is to enhance disclosures related to income taxes, including specific thresholds for inclusion within the tabular disclosure of income tax rate reconciliation and specified information about income taxes paid. ASU 2023-09 is effective for public companies starting in annual periods beginning after December 15, 2024. We are currently evaluating ASU 2023-09 but expect the impact of the disclosures to be immaterial to KDP’s consolidated financial statements.

In February 2024, the FASB issued ASU 2024-03, Income Statement Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40). The objective of ASU 2024-03 is to require entities to provide enhanced disclosures of income statement expenses through disaggregation of specific expense captions. ASU 2024-03 is effective for public companies starting in annual periods beginning after December 15, 2026 and in interim periods beginning after December 15, 2027. We are currently evaluating ASU 2024-03 and the impact of the disclosures to KDP’s consolidated financial statements.

RECENTLY ADOPTED PROVISIONS OF U.S. GAAP

As of January 1, 2024 we adopted ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The objective of ASU 2023-07 is to require entities to provide enhanced disclosures on significant segment expenses. ASU 2023-07 is effective for public companies in annual periods beginning after December 15, 2023, and interim periods beginning after December 15, 2024. Refer to Note 8 for additional information on our segment related disclosures.

KEURIG DR PEPPER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(CONTINUED)

3. Long-term Obligations and Borrowing Arrangements

The following table summarizes our long-term obligations:


	December 31,
(in millions)	2024		2023
Notes	$	12,948	$	11,095
Term loan	990		—
Less: current portion of long-term obligations	(1,026)		(1,150)
Long-term obligations	$	12,912	$	9,945

The following table summarizes our short-term borrowings and current portion of long-term obligations:


	December 31,
(in millions)	2024		2023
Commercial paper notes	$	1,616	$	2,096
Current portion of long-term obligations:
Notes	1,026		1,150

Short-term borrowings and current portion of long-term obligations	$	2,642	$	3,246

KEURIG DR PEPPER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(CONTINUED)

SENIOR UNSECURED NOTES

Our Notes consisted of the following:


(in millions)			December 31,
Issuance	Maturity Date	Rate	2024		2023

2024 Notes	March 15, 2024	0.750%	$	—	$	1,150
2025 Merger Notes	May 25, 2025	4.417%	529		529
2025 Notes	November 15, 2025	3.400%	500		500
2026 Notes	September 15, 2026	2.550%	400		400
2027-B Notes	March 15, 2027	Floating(2)	350		—
2027-C Notes	March 15, 2027	5.100%	750		—
2027 Notes	June 15, 2027	3.430%	500		500
2028 Merger Notes	May 25, 2028	4.597%	1,112		1,112
2029-B Notes	March 15, 2029	5.050%	750		—
2029 Notes	April 15, 2029	3.950%	1,000		1,000
2030 Notes	May 1, 2030	3.200%	750		750
2031 Notes	March 15, 2031	2.250%	500		500
2031-B Notes	March 15, 2031	5.200%	500		—
2032 Notes	April 15, 2032	4.050%	850		850
2034 Notes	March 15, 2034	5.300%	650		—
2038 Merger Notes	May 25, 2038	4.985%	211		211
2045 Notes	November 15, 2045	4.500%	550		550
2046 Notes	December 15, 2046	4.420%	400		400
2048 Merger Notes	May 25, 2048	5.085%	391		391
2050 Notes	May 1, 2050	3.800%	750		750
2051 Notes	March 15, 2051	3.350%	500		500
2052 Notes	April 15, 2052	4.500%	1,150		1,150
Principal amount			13,093		11,243
Adjustment from principal amount to carrying amount(1)			(145)		(148)
Carrying amount			$	12,948	$	11,095

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

(2)The 2027-B Notes bear interest at a rate equal to Compounded SOFR (as defined in the respective supplemental indenture) plus 0.88% per annum, and the rate is reassessed quarterly.

On March 7, 2024, we completed the issuance of the 2027-B Notes, the 2027-C Notes, the 2029-B Notes, the 2031-B Notes, and the 2034 Notes, with an aggregate principal amount of $3 billion. The discount associated with these notes was approximately $5 million, and we incurred $16 million in debt issuance costs. The proceeds from the issuance were used for our share repurchase program, to repay outstanding commercial paper, and to repay the 2024 Notes at maturity, with the remainder intended for general corporate purposes.

Notes, among other things, contain customary default provisions and limit our 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 KDP‘s assets. The Notes are fully and unconditionally guaranteed by certain of our direct and indirect subsidiaries. As of December 31, 2024, we were in compliance with all financial covenant requirements of the Notes.

KEURIG DR PEPPER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(CONTINUED)

VARIABLE-RATE BORROWING ARRANGEMENTS

Term Loan Agreement

On October 25, 2024, we entered into the Term Loan Agreement among KDP, as borrower, the lenders party thereto and Bank of America, N.A., as administrative agent. The deferred financing fees incurred in connection with the Term Loan Agreement were insignificant.

The Term Loan Agreement provides for a delayed draw term loan facility in an aggregate principal amount of $1.25 billion, available in a first tranche of up to $1 billion and second tranche of up to $250 million. The proceeds of the Term Loan Agreement may be used by KDP for general corporate purposes, including to finance acquisitions (including the payment of any fees and expenses incurred in connection therewith). Borrowings under the Term Loan Agreement are unsecured. Borrowings under the first tranche and second tranche must be repaid on April 25, 2026, and February 23, 2027, respectively, but may be repaid earlier without penalty. On December 31, 2024, we drew $990 million on the first tranche of the Term Loan Agreement, and the remaining capacity of the first tranche was forfeited. As of December 31, 2024, the second tranche of up to $250 million remains available.

The interest rate applicable to borrowings under the Term Loan Agreement ranges from (i) a rate equal to SOFR plus a spread adjustment of 0.100% and a margin of 0.875% to 1.500% to (ii) a rate equal to a base rate plus a margin of 0.000% to 0.500%, in each case depending on our credit rating as determined by Moody’s and S&P. The Term Loan 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 of 3.25 to 1.00, and (iv) customary events of default (including a change of control) for financings of this type. As of December 31, 2024, we were in compliance with our minimum interest coverage ratio relating to the Term Loan Agreement.

Revolving Credit Agreement

On February 23, 2022, we entered into the Revolving Credit Agreement among KDP, as borrower, the lenders from time to time party thereto and JPMorgan Chase, Bank, N.A., as administrative agent. We incurred approximately $4 million in deferred financing fees related to the issuance.

The following table summarizes information about the Revolving Credit Agreement:


(in millions)		December 31, 2024				December 31, 2023
Issuance	Maturity Date	Capacity		Carrying Value		Carrying Value
Revolving Credit Agreement(1)	February 23, 2027	$	4,000	$	—	$	—

(1)The Revolving Credit Agreement has $200 million letters of credit available, none of which were utilized as of December 31, 2024.

Borrowings under the 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 0.000% to 0.500%, in each case, depending on the rating of certain index debt of KDP. The Revolving Credit Agreement contains customary representations and warranties for investment grade financings. The 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 of 3.25 to 1.00, and (iv) customary events of default (including a change of control) for financings of this type. As of December 31, 2024, we were in compliance with our minimum interest coverage ratio relating to the Revolving Credit Agreement.

KEURIG DR PEPPER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(CONTINUED)

Commercial Paper Program

KDP has a commercial paper program, under which we may issue unsecured commercial paper notes on a private placement basis. Effective November 10, 2023, the maximum aggregate amount available under the facility was increased to $4,000 million. The maturities of the commercial paper notes vary, but commercial paper notes are classified as short-term, as maturities do not exceed one year. We issue 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 following table provides information about our weighted average borrowings under our commercial paper program:


	For the Year Ended December 31,
(in millions, except %)	2024			2023			2022
Weighted average commercial paper borrowings	$	2,270		$	1,267		$	40
Weighted average borrowing rates	5.42		%	5.41		%	2.36		%

Letters of Credit Facility

In addition to the portion of the Revolving Credit Agreement reserved for issuance of letters of credit, we have an incremental letter of credit facility. Under this facility, $150 million is available for the issuance of letters of credit, $74 million of which was utilized as of December 31, 2024 and $76 million of which remains available for use.

FAIR VALUE DISCLOSURES

The fair value of our commercial paper approximates the carrying value and is considered Level 2 within the fair value hierarchy.

The fair values of our Notes are based on current market rates available to us and are considered Level 2 within the fair value hierarchy. The difference between the fair value and the carrying value represents the theoretical net premium or discount that would be paid or received to retire all the Notes and related unamortized costs to be incurred at such date. The fair value of our Notes was $12,036 million and $10,486 million as of December 31, 2024 and 2023, respectively.

4. Acquisitions

GHOST TRANSACTIONS

On October 23, 2024, we entered into a definitive agreement with GHOST, and certain other parties named therein, to acquire a controlling interest in GHOST. Founded in 2016, GHOST is a lifestyle sports nutrition business with a portfolio anchored by GHOST Energy, a leading ready-to-drink energy brand.

Under the terms of the agreement, we initially purchased a 60% stake in GHOST for aggregate consideration of $999 million, which included customary adjustments. We also entered into an agreement which requires us to purchase the remaining equity interests in GHOST in 2028.

Separately from the above transaction, we also executed an agreement with GHOST and ABI which terminates the distribution rights for certain GHOST products by ABI, effective March 3, 2025, for a termination payment to ABI of $225 million. At that time, we will assume the distribution of such products. The termination payment was accrued as of December 31, 2024, with the corresponding expense included within Other operating expense (income), net in the Consolidated Statements of Income.

KEURIG DR PEPPER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(CONTINUED)

Under the acquisition method of accounting, total consideration was as follows:


(in millions)	Total Consideration
Initial payment to acquire 60% of GHOST	$	999
Fair value of mandatory redemption liability for the remainder of the business on December 31, 2024(1)	689
Total consideration	$	1,688

(1)The fair value of our mandatory redemption liability is estimated using the Monte Carlo simulation method which includes forecasted EBITDA expectations, adjusting for market risks and volatility, calculating redemption prices, discounting to present terms with the cost of debt, and averaging results across scenarios to determine fair value, incorporating the market price of risk and volatility estimates from similar companies.

The initial payment of $999 million was funded primarily by proceeds drawn from the Term Loan Agreement. Refer to Note 3 for additional information.

Allocation of Consideration

Our preliminary allocation of consideration to the net tangible and intangible assets acquired and liabilities assumed in the GHOST Transactions is based on estimated fair values as of December 31, 2024. The following is a summary of the preliminary allocation of consideration to the estimated fair values of assets acquired and liabilities assumed in the GHOST Transactions as of December 31, 2024:


(in millions)	Fair Value
Brand	$	1,146
Assets acquired, net of liabilities assumed	82
Customer relationships	23
Goodwill	437
Total consideration	1,688
Less: Holdback placed in escrow(1)	(90)
Acquisition of business	$	1,598

(1)Amount includes both the current and non-current portion of the holdback liability. Refer to Note 17 for additional information.

The GHOST Transactions preliminarily resulted in $437 million of goodwill. The goodwill to be recognized is attributable to revenue synergies, driven by a strong portfolio of brands with exposure to higher growth segments and the ability to leverage our collective distribution strength, as well as operational and general and administrative cost synergies. The goodwill created in the GHOST Transactions is expected to be deductible for tax purposes. All of the goodwill is included in our U.S. Refreshment Beverages segment.

We have not presented estimated unaudited pro forma results of operations for the GHOST Transactions or the actual results of GHOST because it is not material to our consolidated financial statements.

KEURIG DR PEPPER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(CONTINUED)

OTHER IMMATERIAL ACQUISITIONS

Kalil Acquisition

On May 30, 2024, we entered into an agreement with Kalil, under which we agreed to acquire all of Kalil’s production, sales, and distribution assets for total consideration of $103 million, subject to certain adjustments outlined in the agreement. Kalil is an independent bottler with bottling and distribution rights in Arizona to key KDP brands, including Canada Dry, 7UP, A&W, Snapple, and Core Hydration. On August 9, 2024, we completed the Kalil Acquisition, and approximately $8 million of cash was held back and placed in escrow.

Our preliminary allocation of consideration exchanged to the net tangible and intangible assets acquired and liabilities assumed in the Kalil Acquisition is based on estimated fair values as of August 9, 2024, and the consideration was primarily allocated to property, plant, and equipment and other intangible assets.

Other

We spent $6 million in connection with an immaterial acquisition during the year ended December 31, 2024.

5. Goodwill and Other Intangible Assets

GOODWILL

Changes in the carrying amount of goodwill by reportable segment are as follows:


(in millions)	U.S. Refreshment Beverages		U.S. Coffee		International		Total
Balance as of December 31, 2022	$	8,714	$	8,622	$	2,736	$	20,072
Foreign currency translation	—		—		130		130

Balance as of December 31, 2023	8,714		8,622		2,866		20,202
Acquisitions(1)	447		—		—		447
Impairment(2)	(306)		—		—		(306)
Foreign currency translation	—		—		(290)		(290)
Balance as of December 31, 2024(3)	$	8,855	$	8,622	$	2,576	$	20,053

(1)Acquisition activity during the year ended December 31, 2024 represents goodwill recorded as a result of the 2024 acquisitions. Refer to Note 4 for additional information.

(2)Impairment activity during the year ended December 31, 2024 represents impairment of our U.S. WD reporting unit. Refer to Impairment Analysis - 2024 Impairment Analysis below for further information.

(3)As of December 31, 2024, goodwill for the U.S. Refreshment Beverages segment is inclusive of accumulated impairment losses of $306 million. There were no accumulated impairment losses for goodwill as of December 31, 2023 or 2022.

KEURIG DR PEPPER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(CONTINUED)

INTANGIBLE ASSETS OTHER THAN GOODWILL

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


	December 31, 2024						December 31, 2023
(in millions)	Gross Amount		Accumulated Amortization		Net Amount		Gross Amount		Accumulated Amortization		Net Amount
Intangible assets with definite lives:
Acquired technology	$	1,146	$	(621)	$	525	$	1,146	$	(548)	$	598
Customer relationships	666		(270)		396		638		(236)		402
Contractual arrangements	144		(21)		123		146		(13)		133
Trade names	126		(124)		2		126		(114)		12
Brands	51		(32)		19		51		(25)		26
Distribution rights	66		(23)		43		29		(22)		7
Total intangible assets with definite lives	$	2,199	$	(1,091)	$	1,108	$	2,136	$	(958)	$	1,178

Intangible assets with indefinite lives:
Brands(1)					$	19,848					$	19,476
Trade names					2,478						2,478

Distribution rights(2)					200						155
Total intangible assets with indefinite lives					22,526						22,109
Other intangible assets, net					$	23,634					$	23,287

(1)The change in brands with indefinite lives was driven by the acquisition of the GHOST brand in the amount of $1,146 million, which was partially offset by non-cash impairment charges of $412 million and unfavorable foreign currency translation impacts of $362 million during the year ended December 31, 2024. Refer to Impairment Analysis - 2024 Impairment Analysis below for further information.

(2)The increase in distribution rights with indefinite lives during the year ended December 31, 2024 was primarily driven by acquired distribution rights related to Electrolit of $49 million.

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


	Year Ended December 31,
(in millions)	2024		2023		2022
Amortization expense	$	133	$	137	$	138

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


	For the Years Ending December 31,
(in millions)	2025		2026		2027		2028		2029
Expected amortization expense	$	127	$	123	$	107	$	99	$	96

KEURIG DR PEPPER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(CONTINUED)

GOODWILL AND OTHER INTANGIBLE ASSETS IMPAIRMENT

2024 Impairment Analysis

For the year ended December 31, 2024, we performed a Step 0 analysis for certain indefinite lived intangible assets, including trade names and distribution rights, and did not identify any indicators of impairment. For goodwill and indefinite-lived brands, we performed a Step 1 analysis. As a result, non-cash impairment charges of $412 million were recorded specific to certain brands in the U.S. Refreshment Beverages segment, and a non-cash impairment charge of $306 million was recorded to goodwill related to the U.S. Warehouse Direct reporting unit in the U.S. Refreshment Beverages segment. The primary factors that led to the brand impairment determination as of October 1, 2024, primarily led by Snapple, were a downward outlook for operating cash flows in our strategic plan, which led to a reduction in the long-term growth rate. The primary factors that led to the goodwill impairment determination as of October 1, 2024, driven by our U.S. Warehouse Direct reporting unit, were headwinds experienced by certain brands in our still portfolio, including a downward outlook for operating cash flows in our strategic plan, which led to a reduction in the long-term growth rate.

2023 Impairment Analysis

For the year ended December 31, 2023, we performed a Step 1 analysis on all goodwill and indefinite-lived intangible assets. No impairments were recorded as a result of these analyses.

2022 Impairment Analysis

In the third quarter of 2022, management identified specific performance and margin challenges for the Bai brand and performed a Step 1 quantitative discounted cash flow analysis using the income approach. As a result of this analysis, we recorded an impairment charge of $311 million in the U.S. Refreshment Beverages segment.

During our annual impairment analysis, we 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, we performed a Step 1 analysis which resulted in non-cash impairment charges of $161 million were recorded specific to certain brands during the year. The primary factors that led to the brand impairment determination as of October 1, 2022, driven primarily by Schweppes, were the change in the macroeconomic environment leading to increases in discount rates, as well as supply chain disruptions within third-party distribution networks.

Additional Impairment Considerations

The following table provides the range of rates considered to be significant inputs that were used in the annual impairment analyses as of October 1, 2024, 2023, and 2022:


	2024				2023				2022
Rate	Minimum		Maximum		Minimum		Maximum		Minimum		Maximum
Discount rates	7.0	%	9.5	%	8.0	%	13.5	%	7.3	%	10.3	%
Long-term growth rates	—	%	3.5	%	—	%	4.0	%	—	%	3.8	%
Royalty rates(1)	1.0	%	1.0	%	1.0	%	10.0	%	N/A		N/A

(1)Royalty rates were used in a Step 1 quantitative analysis of certain non-priority brands for the years ended December 31, 2024 and 2023, and trade names for the year ended December 31, 2023. For the year ended December 31, 2022, royalty rates were not used, as we performed a Step 0 qualitative analysis for both trade names and certain non-priority brands.

KEURIG DR PEPPER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(CONTINUED)

The results of the impairment analyses of our indefinite lived brands as of October 1, 2024, 2023, and 2022 are as follows:


	2024				2023				2022
Headroom Percentage	Carrying Value		Fair Value		Carrying Value		Fair Value		Carrying Value		Fair Value
Brands
0%(1)	$	280	$	280	$	—	$	—	$	2,136	$	2,136
Less than 25%	2,580		2,900		2,274		2,493		2,186		2,547
26 - 50%	1,488		2,160		2,339		3,018		—		—
In excess of 50%	14,481		34,490		14,767		29,002		14,848		28,942

(1)Carrying value reflects the results of the annual impairment analysis recognized during the years ended December 31, 2024 and 2022.

6. Derivatives

INTEREST RATES

Economic Hedges

We are exposed to interest rate risk related to our borrowing arrangements and obligations. We enter into interest rate contracts to provide predictability in our overall cost structure and to manage the balance of fixed-rate and variable-rate debt. We primarily enter into receive-fixed, pay-variable and receive-variable, pay-fixed swaps, and swaption contracts. A natural hedging relationship exists in which changes in the fair value of the instruments act as an economic offset to changes in the fair value of the underlying items. Changes in the fair value of these instruments are recorded in earnings throughout the term of the derivative instrument and are generally reported in Interest expense, net in the Consolidated Statements of Income. As of December 31, 2024, economic interest rate derivative instruments have maturities ranging from May 2035 to July 2043.

Cash Flow Hedges

In April 2022, KDP terminated $1.5 billion of notional amount of its $2.5 billion forward starting swaps, which had been designated as cash flow hedges. Upon termination, KDP received $125 million to settle the contracts with the counterparties, which is amortized to Interest expense, net over the respective terms of the issued Notes.

On September 30, 2022, KDP de-designated $500 million of notional amount of the forward starting swaps. As the forecasted debt transaction was still probable to occur, the fair value of the these instruments as of the de-designation was recorded to AOCI. Changes in fair value of the these instruments from the point of de-designation were recorded as unrealized gains or losses in Interest expense, net in the Consolidated Statements of Income until the instruments were terminated in the third quarter of 2023, at which time the realized gains in excess of the fair value as of the date of de-designation were recorded in Interest expense, net. The fair value of the instruments as of the date of de-designation remained in AOCI until March 2024, when the forecasted debt transaction took place with the issuance of the 2034 Notes, and the fair value of the instruments began amortizing to Interest expense, net over the term of the 2034 Notes.

During the first quarter of 2023, KDP terminated the remaining forward starting swaps which were designated as cash flow hedges. As the forecasted debt transaction associated with the terminated forward starting swaps was no longer considered probable, the realized gains associated with the termination were recorded in Interest expense, net during the first quarter of 2023.

FOREIGN EXCHANGE

We are exposed to foreign exchange risk in our foreign subsidiaries and with certain counterparties in foreign jurisdictions, which may transact in currencies that are different from the functional currencies of our legal entities. Additionally, the balance sheets of these subsidiaries are subject to exposure from movements in exchange rates.

KEURIG DR PEPPER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(CONTINUED)

Economic Hedges

We hold FX forward contracts to economically manage the balance sheet exposures resulting from changes in the FX rates described above. The intent of these FX contracts is to minimize the impact of FX risk associated with balance sheet positions not in local currency. In these cases, a hedging relationship exists in which changes in the fair value of the instruments act as an economic offset to changes in the fair value of the underlying items. Changes in the fair value of these instruments are recorded in earnings throughout the term of the derivative instrument and are reported in the same caption of the Consolidated Statements of Income as the associated risk. As of December 31, 2024, these FX contracts have maturities ranging from January 2025 to September 2026.

Cash Flow Hedges

We designate certain FX forward contracts as cash flow hedges in order to manage the exposures resulting from changes in the FX rates described above. These designated FX forward contracts relate to forecasted inventory purchases in U.S. dollars of our Canadian and Mexican businesses. The intent of these FX contracts is to provide predictability in our overall cost structure. As of December 31, 2024, these FX contracts have maturities ranging from January 2025 to December 2025.

COMMODITIES

Economic Hedges

We centrally manage the exposure to volatility in the prices of certain commodities used in our production process and transportation through various derivative contracts. We generally hold some combination of future, swap and option contracts that economically hedge certain risks. In these cases, a hedging relationship exists in which changes in the fair value of the instruments act as an economic offset to changes in the fair value of the underlying items or as an offset to certain costs of production. Changes in the fair value of these instruments are recorded in earnings throughout the term of the derivative instrument and are reported in the same line item of the Consolidated Statements of Income as the hedged transaction. Unrealized gains and losses are recognized as a component of unallocated corporate costs until our reportable segments are affected by the completion of the underlying transaction, at which time the gain or loss is reflected as a component of the respective segment's income from operations. As of December 31, 2024, these commodity contracts have maturities ranging from January 2025 to July 2026.

NOTIONAL AMOUNTS OF DERIVATIVE INSTRUMENTS

The following table presents the notional amounts of our outstanding derivative instruments by type:


	December 31,
(in millions)	2024		2023
Interest rate contracts
Forward starting swaps, not designated as hedging instruments	$	1,700	$	1,700



Swaptions, not designated as hedging instruments	—		3,200
FX contracts
Forward contracts, not designated as hedging instruments	$	490	$	710
Forward contracts, designated as cash flow hedges	486		425
Commodity contracts, not designated as hedging instruments(1)	515		500

(1)Notional value for commodity contracts is calculated as the expected volume times strike price per unit on a gross basis.

KEURIG DR PEPPER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(CONTINUED)

FAIR VALUE OF DERIVATIVE INSTRUMENTS

The fair values of commodity contracts, interest rate contracts and FX forward contracts are determined based on inputs that are readily available in public markets or can be derived from information available in publicly quoted markets. The fair values of commodity contracts are valued using the market approach based on observable market transactions, primarily underlying commodities futures or physical index prices, at the reporting date. Interest rate contracts are valued using models based primarily on readily observable market parameters, such as SOFR forward rates, for all substantial terms of our contracts and credit risk of the counterparties. FX forward contracts are valued using quoted FX forward rates at the reporting date. Therefore, we have categorized these contracts as Level 2.

Not Designated as Hedging Instruments

The following table summarizes the location of the fair value of our derivative instruments which are not designated as hedging instruments within the Consolidated Balance Sheets. All such instruments are considered level 2 within the fair value hierarchy.


		December 31,
(in millions)	Balance Sheet Location	2024		2023
Assets:

FX forward contracts	Prepaid expenses and other current assets	$	7	$	5
Commodity contracts	Prepaid expenses and other current assets	32		9

FX forward contracts	Other non-current assets	4		—
Commodity contracts	Other non-current assets	2		3

Liabilities:
Interest rate contracts	Other current liabilities	$	22	$	80
FX forward contracts	Other current liabilities	4		3
Commodity contracts	Other current liabilities	82		53
Interest rate contracts	Other non-current liabilities	345		186
FX forward contracts	Other non-current liabilities	—		4
Commodity contracts	Other non-current liabilities	3		11

Designated as Hedging Instruments

The following table summarizes the fair value hierarchy and the location of the fair value of our derivative instruments which are designated as hedging instruments within the Consolidated Balance Sheets. All such instruments are considered level 2 within the fair value hierarchy.


		December 31,
(in millions)	Balance Sheet Location	2024		2023
Assets:
FX contracts	Prepaid expenses and other current assets	$	41	$	1




Liabilities:
FX contracts	Other current liabilities	$	—	$	14

KEURIG DR PEPPER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(CONTINUED)

IMPACT OF DERIVATIVE INSTRUMENTS NOT DESIGNATED AS HEDGING INSTRUMENTS

The following table presents the amount of (gains) losses recognized in the Consolidated Statements of Income related to derivative instruments not designated as hedging instruments under U.S. GAAP during the periods presented. Amounts include both realized and unrealized gains and losses.


		For the Year Ended December 31,
(in millions)	Income Statement Location	2024		2023		2022
Interest rate contracts	Interest expense, net	$	63	$	(26)	$	231
Interest rate contracts	Loss on early extinguishment of debt	—		—		31
FX forward contracts	Cost of sales	(6)		(2)		(7)
FX forward contracts	Other (income) expense, net	(10)		5		(9)
Commodity contracts	Cost of sales	28		22		12
Commodity contracts	SG&A expenses	10		17		(46)

IMPACT OF CASH FLOW HEDGES

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	2024		2023		2022
Interest rate contracts(1)	Interest expense, net	$	(12)	$	(74)	$	(6)
FX contracts	Cost of sales	(3)		—		5

(1)Amounts recognized during the year ended December 31, 2023 include the realized gains associated with the termination of forward starting swaps designated as cash flow hedges of approximately $66 million.

We expect to reclassify approximately $13 million and $38 million of pre-tax net gains from AOCI into net income during the next twelve months related to interest rate contracts and FX contracts, respectively.

7. Leases

The following table presents the components of lease cost:


	For the Year Ended December 31,
(in millions)	2024		2023		2022
Operating lease cost	$	170	$	159	$	137
Finance lease cost
Amortization of right-of-use assets	95		81		76
Interest on lease liabilities	33		25		23
Variable lease cost(1)	37		39		35
Short-term lease cost	2		1		2
Sublease income	(1)		—		—
Total lease cost	$	336	$	305	$	273

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

KEURIG DR PEPPER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(CONTINUED)

The following table presents supplemental cash flow and other information about our leases:


	For the Year Ended December 31,
(in millions)	2024		2023		2022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	161	$	149	$	125
Operating cash flows from finance leases	32		25		23
Financing cash flows from finance leases	115		95		90
Right-of-use assets obtained in exchange for lease obligations:
Operating leases	$	118	$	112	$	320
Finance leases	196		109		104

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


	December 31,
	2024		2023
Weighted average discount rate
Operating leases	5.3	%	5.3	%
Finance leases	4.5	%	3.9	%
Weighted average remaining lease term
Operating leases	9 years		10 years
Finance leases	9 years		9 years

SCHEDULE OF FUTURE MINIMUM LEASE PAYMENTS

Future minimum lease payments for non-cancellable leases that have commenced and are reflected on the Consolidated Balance Sheets as of December 31, 2024 were as follows:


(in millions)	Operating Leases		Finance Leases
2025	$	158	$	158
2026	161		193
2027	136		102
2028	107		89
2029	100		82
Thereafter	494		339
Total future minimum lease payments	1,156		963
Less: imputed interest	(238)		(161)
Present value of minimum lease payments	$	918	$	802

SIGNIFICANT LEASES THAT HAVE NOT YET COMMENCED

As of December 31, 2024, we have entered into leases that have not yet commenced with estimated aggregated future lease payments of approximately $148 million. These leases will commence between 2025 and 2027, with initial lease terms ranging from 1 year to 7 years.

KEURIG DR PEPPER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(CONTINUED)

ASSET SALE-LEASEBACK TRANSACTIONS

In 2022 and 2023, we entered into a number of asset sale-leaseback transactions with a single sponsor, the Veyron SPEs. Gains on the sale-leasebacks are recorded in Other operating expense (income), net, and the leasebacks are accounted for as operating leases. Gains on sale-leaseback transactions were as follows:


	For the Year Ended December 31,
(in millions)	2024		2023		2022
Gain on sale	$	—	$	6	82

The initial term of each leaseback is 15 years, with two 10-year renewal options. The renewal options are not reasonably assured as (i) KDP’s position that the dynamic environment in which we operate precludes our ability to be reasonably certain of exercising the renewal options in the distant future and (ii) the options are contingent on KDP remaining investment grade and no change-in-control as of the end of the lease term. Each leaseback has an RVG. Refer to Note 19 for additional information about RVGs associated with asset sale-leaseback transactions.

8. Segments

Effective January 1, 2023, we revised our segment structure to align with changes in how our CODM manages the business, assesses performance and allocates resources. The prior period segment disclosures reflect the revised presentation.

Our operating and reportable segments consist of the following:

The U.S. Refreshment Beverages segment reflects sales in the U.S. from the manufacture and distribution of branded concentrates, syrup, and finished beverages, including the sales of our own brands and third-party brands, to third-party bottlers, distributors, and retailers.
The U.S. Coffee segment reflects sales in the U.S. from the manufacture and distribution of finished goods relating to our K-Cup pods, single serve brewers and accessories, and other coffee products to partners, retailers, and directly to consumers through the Keurig.com website.
The International segment reflects sales in international markets, including the following:

◦Sales in Canada, Mexico, the Caribbean, and other international markets from the manufacture and distribution of branded concentrates, syrup, and finished beverages, including sales of our own brands and third-party brands, to third-party bottlers, distributors, and retailers.

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

Segment results are based on management reports provided to the CODM, which is Tim Cofer, our CEO. Net sales and income from operations are the significant financial measures used to assess the operating performance of KDP's operating segments. The CODM periodically monitors our actual results and remaining forecast versus our annual budget for these financial measures, and this information is used to assess performance of the reportable segments, determine the payout of short-term incentive plan compensation, and to establish management’s base salaries.

Intersegment sales are recorded at cost and are eliminated in the Consolidated Statements of Income. We have not provided disclosures of intersegment sales or total assets for each reportable segment, as our CODM does not review and is not provided with this information. “Other segment expense (income)” includes Other operating expense (income), net, as well as other financial statement captions for infrequent charges, such as impairment of goodwill or intangible assets, used to arrive at “Income from operations - reportable segments”. “Unallocated corporate costs” are excluded from our 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

(CONTINUED)

Information about our operations and significant expenses by reportable segment is as follows:


(in millions)	U.S. Refreshment Beverages		U.S. Coffee		International		Total
For the Year Ended December 31, 2024
Net sales	$	9,331	$	3,967	$	2,053	$	15,351
Cost of sales	3,608		2,210		996
SG&A expenses	2,904		684		521
Other segment expense (income)(1)	941		(6)		(9)
Income from operations - reportable segments	$	1,878	$	1,079	$	545	$	3,502
Unallocated corporate costs							(911)
Income from operations							2,591
Interest expense, net							735
Impairment of investments and note receivable							2
Other (income) expense, net							(60)
Income before provision for income taxes							$	1,914

(1)During the year ended December 31, 2024, Other segment items within the U.S. Refreshment Beverages segment primarily consisted of non-cash impairment charges of $412 million recorded specific to certain indefinite-lived brand assets and $306 million recorded to the WD reporting unit goodwill. Refer to Note 5 for additional information about these non-cash impairment charges. Other segment items within the U.S. Refreshment Beverages segment also included the $225 million termination payment to ABI for distribution rights related to the GHOST Transactions. Refer to Note 4 for additional information.


(in millions)	U.S. Refreshment Beverages		U.S. Coffee		International		Total
For the Year Ended December 31, 2023
Net sales	$	8,821	$	4,071	$	1,922	$	14,814
Cost of sales	3,536		2,228		979
SG&A expenses	2,810		691		476
Other segment income	(8)		(6)		(8)
Income from operations - reportable segments	$	2,483	$	1,158	$	475	$	4,116
Unallocated corporate costs							(924)
Income from operations							$	3,192
Interest expense, net							496
Other (income) expense, net							(61)
Income before provision for income taxes							$	2,757

KEURIG DR PEPPER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(CONTINUED)


(in millions)	U.S. Refreshment Beverages		U.S. Coffee		International		Total
For the Year Ended December 31, 2022
Net sales	$	8,083	$	4,302	$	1,672	$	14,057
Cost of sales	3,318		2,415		891
SG&A expenses	2,637		726		422
Other segment expense (income)(1)	167		(54)		(14)
Income from operations - reportable segments	$	1,961	$	1,215	$	373	$	3,549
Unallocated corporate costs							(944)
Income from operations							$	2,605
Interest expense, net							693
Loss on early extinguishment of debt							217
Gain on sale of equity method investment							(50)
Impairment of investments and note receivable							12
Other (income) expense, net							14
Income before provision for income taxes							$	1,719

(1)During the year ended December 31, 2022, Other segment items under the U.S. Refreshment Beverages segment primarily consisted of noncash impairment charges of $472 million recorded specific to certain indefinite-lived brand assets. Refer to Note 5 for additional information. This was offset by a $271 million gain on litigation settlement. Other segment items under the U.S. Coffee segment primarily consisted of a $30 million gain on sale related to asset sale-leaseback transaction.

GEOGRAPHIC DATA

The following tables present information about our operations by geographic region:


	For the Year Ended December 31,
(in millions)	2024		2023		2022
Net sales
U.S.	$	13,368	$	12,961	$	12,454
Foreign	1,983		1,853		1,603
Net sales	$	15,351	$	14,814	$	14,057


	December 31,
(in millions)	2024		2023
Property, plant, and equipment, net
U.S.	$	2,450	$	2,247
Foreign	514		452
Total property, plant, and equipment, net	$	2,964	$	2,699

KEURIG DR PEPPER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(CONTINUED)

MAJOR CUSTOMER

Walmart is considered a major customer, accounting for more than 10% of our total net sales, and is represented in all three of our reportable segments. The following table provides our net sales to Walmart:


	For the Year Ended December 31,
(in millions)	2024		2023		2022
Net sales
Walmart	$	2,514	$	2,476	$	2,184

Additionally, customers in our U.S. Refreshment Beverages and International segments buy concentrate from KDP, which is used in finished goods sold by our third party bottlers to Walmart. These indirect sales further increase the concentration of risk associated with our consolidated net sales as it relates to Walmart.

9. Revenue Recognition

The following table disaggregates our revenue by portfolio:


(in millions)	U.S. Refreshment Beverages		U.S. Coffee		International		Total
For the Year Ended December 31, 2024
LRB	$	9,196	$	38	$	1,332	$	10,566
K-Cup pods	—		3,112		502		3,614
Appliances	—		694		78		772
Other	135		123		141		399
Net sales	$	9,331	$	3,967	$	2,053	$	15,351

For the Year Ended December 31, 2023
LRB	$	8,675	$	—	$	1,230	$	9,905
K-Cup pods	—		3,207		477		3,684
Appliances	—		725		74		799
Other	146		139		141		426
Net sales	$	8,821	$	4,071	$	1,922	$	14,814

For the Year Ended December 31, 2022
LRB	$	7,951	$	—	$	987	$	8,938
K-Cup pods	—		3,328		444		3,772
Appliances	—		837		86		923
Other	132		137		155		424
Net sales	$	8,083	$	4,302	$	1,672	$	14,057

LRB represents net sales of owned and partner brands within our portfolio and includes branded concentrates, syrup, and finished beverages, including contract manufacturing of KDP branded products for our bottlers and distributors. K-Cup pods 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

(CONTINUED)

10. Earnings Per Share

The following table presents our basic and diluted EPS and shares outstanding:


	For the Year Ended December 31,
(in millions, except per share data)	2024		2023		2022
Net income	$	1,441	$	2,181	$	1,436

Weighted average common shares outstanding	1,362.2		1,399.3		1,416.8
Dilutive effect of stock-based awards	6.1		9.1		11.7
Weighted average common shares outstanding and common stock equivalents	1,368.3		1,408.4		1,428.5

Basic EPS	$	1.06	$	1.56	$	1.01
Diluted EPS	1.05		1.55		1.01

Anti-dilutive shares excluded from the diluted weighted average shares outstanding calculation	0.8		1.0		—

11. Employee Benefit Plans

DEFINED BENEFIT PENSION PLANS

Overview

We have several non-contributory defined benefit plans, each having a measurement date of December 31. To participate in the defined benefit plans, eligible employees must have been employed for at least one year. Employee benefit plan obligations and expenses included in the consolidated financial statements are determined using actuarial analyses based on plan assumptions including employee demographic data such as years of service and compensation, benefits and claims paid, and employer contributions, among others. We also participate in various multi-employer defined benefit plans.

One of our U.S. defined benefit pension plans, which is a cash balance plan, was suspended and the accrued benefit was frozen effective December 31, 2008. Participants in this plan no longer earn additional benefits for future services or salary increases. The cash balance plans maintain individual record-keeping accounts for each participant, which are annually credited with interest credits equal to the 12-month average of one-year U.S. Treasury Bill rates, plus 1%, with a required minimum rate of 5%.

KEURIG DR PEPPER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(CONTINUED)

Financial Statement Impact

The following table sets forth amounts recognized in our financial statements and the pension plans' funded status:


	As of December 31,
(in millions)	2024		2023
Projected benefit obligations
Beginning balance	$	169	$	159
Service cost	3		3
Interest cost	9		9
Actuarial (gains) losses, net	(5)		11
Benefits paid	(5)		(5)
Impact of changes in FX rates	(4)		2

Settlements	(8)		(10)
Ending balance	$	159	$	169

Fair value of plan assets
Beginning balance	$	134	$	126
Actual return on plan assets	—		11
Employer contributions	6		12
Benefits paid	(5)		(5)

Settlements	(8)		(10)
Ending balance	$	127	$	134

Net liability recognized	$	(32)	$	(35)


Current liability	$	(1)	$	(2)
Non-current liability	(31)		(33)

The accumulated benefit obligations for all defined benefit pension plans were $156 million and $165 million as of December 31, 2024 and 2023, respectively. The following table summarizes key pension plan information regarding plans whose accumulated benefit obligations exceed the fair value of their respective plan assets:


	As of December 31,
(in millions)	2024		2023
Aggregate projected benefit obligation	$	159	$	169
Aggregate accumulated benefit obligation	156		165
Aggregate fair value of plan assets	127		134

The following table summarizes the components of our net periodic benefit cost:


	For the Year Ended December 31,
(in millions)	2024		2023		2022
Service cost	$	3	$	3	$	4
Interest cost	9		9		7
Expected return on assets	(6)		(8)		(7)

Settlements	1		1		(1)
Total net periodic benefit costs	$	7	$	5	$	3

KEURIG DR PEPPER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(CONTINUED)

We use the corridor approach for amortization of actuarial gains or losses. The corridor is calculated as 10% of the greater of the plans’ projected benefit obligation or assets. The amortization period for plans with active participants is the average future service of covered active employees, and the amortization period for plans with no active participants is the average future lifetime of plan participants. The estimated service costs or net actuarial losses for the defined benefit pension plans amortized from AOCI into periodic benefit cost in 2025 are expected to be insignificant.

The following table summarizes amounts included in AOCI for our defined benefit plans:


	As of December 31,
(in millions)	2024		2023
Net actuarial loss	$	12	$	12
Prior service cost	2		3
Total	$	14	$	15

Contributions and Expected Benefit Payments

The following table summarizes the contributions made to our defined benefit plans for the years ended December 31, 2024, 2023, and 2022, as well as our projected contributions for the year ended December 31, 2025:


	Projected		For the Year Ended December 31,
(in millions)	2025		2024		2023		2022
Non-discretionary contributions	$	7	$	6	$	12	$	3

The following table summarizes the estimated future benefit payments for our defined benefit plans:


(in millions)			2025						2026						2027						2028						2029						2030-2034
Estimated future benefit payments			$	15					$	13					$	14					$	13					$	14					$	69

Actuarial Assumptions

Our pension expense was calculated based upon a number of actuarial assumptions including discount rates, retirement age, mortality rates, compensation rate increases and expected long-term rate of return on plan assets for pension benefits.

The following information is provided for our U.S. defined benefit pension plans, as our foreign defined benefit pension plans are not material to our consolidated financial statements.

The discount rate that was utilized for determining our projected benefit obligations as of December 31, 2024 and 2023, as well as projected 2025 net periodic benefit cost, for U.S. plans was selected based upon an interest rate yield curve. The yield curve is constructed based on the yields of a large number of U.S. AA rated bonds as of December 31, 2024. The population of bonds utilized to calculate the discount rate includes those having an average yield between the 10th and 90th percentiles. Projected cash flows from the U.S. plans are then matched to spot rates along that yield curve in order to determine their present value and a single equivalent discount rate is calculated that produces the same present value as the spot rates.

Expected mortality is a key assumption in the measurement for pension benefit obligations. For our U.S. plans, we used the Pri-2012 mortality tables and the Mortality Improvement Scale MP-2021, published by the Society of Actuaries’ Retirement Plans Experience Committee, for the years ended December 31, 2024 and 2023.

KEURIG DR PEPPER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(CONTINUED)

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


	As of December 31,
	2024		2023
Discount rate	5.60	%	5.10	%
Rate of increase in compensation levels	3.00	%	3.00	%

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


	For the Year Ended December 31,
	2024		2023		2022
Discount rate	5.60	%	5.10	%	5.40	%
Rate of increase in compensation levels	3.00	%	3.00	%	3.00	%
Expected long-term rate of return	4.95	%	4.75	%	6.00	%

For the years ended December 31, 2024, 2023, and 2022, the expected long-term rate of return on U.S. pension fund assets held by our pension trusts was determined based on several factors, including the impact of active portfolio management and projected long-term returns of broad equity and bond indices. The plans' historical returns were also considered.

Investment Policy and Strategy

We have established formal investment policies for the assets associated with our U.S. defined benefit pension plans. Our investment policy and strategy are mandated by our Investment Committee. The overriding investment objective is to provide for the availability of funds for pension obligations as they become due, to maintain an overall level of financial asset adequacy, and to maximize long-term investment return consistent with a reasonable level of risk. We actively manage the investments in our portfolio, with periodic review of investment performance both by investment manager and asset class, as well as review of overall market conditions and consideration of our long-term investment objectives. The equity and fixed income investments under our sponsored pension plan assets are currently well diversified. The plans' asset allocation policy is reviewed at least annually. Factors considered when determining the appropriate asset allocation include changes in plan liabilities, an evaluation of market conditions, tolerance for risk and cash requirements for benefit payments.

As of December 31, 2023, we were in compliance with the investment policy for the U.S. defined benefit pension plans, which contained allowable ranges in asset mix of 5-15% for U.S. equity securities, 5-15% for international equity securities, and 70-90% for fixed income securities.

During the year ended December 31, 2024, we revised our investment policy for our U.S. defined benefit pension plans. As of December 31, 2024, we were in compliance with the investment policy, which allows for a varying asset allocation dependent on each plan’s funded status, as follows:



			Target allocation
Return-seeking(1)			40-60%
Liability-hedging(2)			40-60%

(1)Return-seeking assets generally consist of common collective trust funds comprised of equity securities, liquid alternatives, and fixed income securities.

(2)Liability-hedging assets consist of common collective trust funds comprised of a mix of fixed income securities and hedging instruments aimed to achieve a target interest rate.

KEURIG DR PEPPER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(CONTINUED)

FAIR VALUE OF THE PENSION ASSETS

Assets contributed by KDP to our pension plans become the property of the individual plans. Even though we no longer have control over these assets, we are indirectly impacted by subsequent fair value adjustments to these assets. The actual return on these assets impacts our future net periodic benefit cost, as well as amounts recognized in the Consolidated Balance Sheets. As such, we use a variety of valuation techniques depending on the type of instrument in order to measure the fair value of assets held by our pension plans.

In conjunction with the revised investment policy discussed above, we implemented changes to the structure of assets held by our pension plans. With the exception of Cash and cash equivalents, all pension assets are comprised of common collective trust funds, which are valued using NAV as a practical expedient. Such assets have not been categorized in the fair value hierarchy. The following table presents the total fair value of major categories of the pension plan assets for the year ended December 31, 2024:


(in millions)	Level 1		NAV		Total
Cash and cash equivalents	$	23	$	—	$	23
Investments measured at NAV(1)	—		104		104
Total fair value of plan assets	$	23	$	104	$	127

(1)Primarily consists of common collective trust funds, which are valued at NAV based on the fair value of the underlying investments.

The following table presents the total fair value of major categories of the pension plan assets for the year ended December 31, 2023:


(in millions)	Level 1		Level 2		Total
Cash and cash equivalents	$	1	$	—	$	1
U.S. equity securities(1)(2)	—		14		14
International equity securities(1)(2)	—		6		6
Fixed income securities(3)	—		113		113
Total fair value of plan assets	$	1	$	133	$	134

(1)Equity securities are comprised of actively managed U.S. and international index funds.

(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 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.

PRMB PLANS

We have several non-contributory defined benefit PRMB plans, each having a measurement date of December 31. The majority of these PRMB plans have been frozen. To participate in the defined benefit plans, eligible employees must have been employed by KDP for at least one year. The PRMB plans are limited to qualified expenses and are subject to deductibles, co-payment provisions, and other provisions. Our PRMB plans are not significant to the consolidated financial statements as of December 31, 2024 and 2023.

MULTI-EMPLOYER PLANS

We participate in several 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. Additionally, if a participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers.

Contributions paid into the multi-employer plans are expensed as incurred. Multi-employer plan expenses were $11 million, $6 million, and $5 million for each of the years ended December 31, 2024, 2023, and 2022, respectively.

KEURIG DR PEPPER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(CONTINUED)

Individually Significant Multi-Employer Plan

We participate in one multi-employer plan, Central States, which is considered to be individually significant. The following table presents information about Central States as of December 31, 2024:


Plan's employer identification number			36-6044243
Plan number			001
Expiration dates of collective bargaining agreements(1)			March 20, 2025 through May 3, 2027
Financial Improvement Plan/Rehabilitation Plan status pending/implemented			Implemented
Pension Protection Act zone status			Critical
Surcharge imposed			Yes

(1)Central States includes six collective bargaining agreements as of December 31, 2024. The largest agreement, which is set to expire February 28, 2027, covers approximately 61% of the employees included in Central States. Two of the collective bargaining agreements are set to expire during 2025, covering approximately 22% of the employees included in Central States. In January 2024, one union decertified, triggering a partial withdrawal liability. The impact was immaterial to our consolidated financial statements.

The most recent Pension Protection Act zone status available as of December 31, 2024 is for the plan's year-end as of December 31, 2023. Central States has not utilized any extended amortization provisions that affect the calculation of the zone status.

Our contributions to Central States did not exceed 5% of the total contributions made to Central States for the years ended December 31, 2024, 2023, and 2022.

Future estimated contributions to Central States based on the number of covered employees and the terms of the collective bargaining agreements are as follows:


(in millions)			2025						2026						2027						2028						2029
Future estimated contributions to Central States			$	2					$	2					$	2					$	2					$	2

DEFINED CONTRIBUTION PLANS

We sponsor various qualified defined contribution plans that cover U.S. and foreign based employees who meet certain eligibility requirements. The U.S. plans permit both pre-tax and after-tax contributions, which are subject to limitations imposed by IRS regulations. We make matching contributions and discretionary profit sharing contributions to these plans. We incurred contribution expense of $67 million, $64 million, and $61 million to the defined contribution plans for the years ended December 31, 2024, 2023, and 2022, respectively.

We also sponsor a non-qualified defined contribution plan for employees which is maintained in a rabbi trust and is not readily available to us. The fair value of the securities within this plan was $33 million and $32 million as of December 31, 2024 and 2023, respectively. Refer to Note 17 for additional information on mark-to-market activity for the deferred defined compensation plan.

12. Stock-Based Compensation

The components of stock-based compensation expense are presented below:


	For the Year Ended December 31,
(in millions)	2024		2023		2022
Total stock-based compensation expense(1)	$	98	$	116	$	52
Income tax benefit recognized in the Consolidated Statements of Income	(16)		(19)		(7)
Stock-based compensation expense, net of tax	$	82	$	97	$	45

(1)Effective January 1, 2022, we changed our accounting policy election to record expense only for awards expected to vest. The cumulative effect of this change in accounting policy was recorded effective January 1, 2022, as the impact of forfeitures on stock-based compensation has historically been insignificant. We recorded a one-time $40 million reduction to stock-based compensation expense as a result of the change in forfeiture policy in the year ended December 31, 2022.

KEURIG DR PEPPER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(CONTINUED)

DESCRIPTION OF STOCK-BASED COMPENSATION PLANS

We 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. Grants subsequent to the DPS Merger and prior to the adoption of the 2019 Incentive Plan were granted under the 2009 Incentive Plan. The 2019 Incentive Plan was adopted in 2019, expires in 2029, and contains substantially similar provisions to the 2009 Incentive Plan. Together, these incentive plans provide for the issuance of up to an aggregate of 27,425,720 shares of our common stock in stock-based compensation awards.

RSUs generally vest on the following schedule:


Period Granted						Vesting Terms
RSUs granted after the DPS Merger through 2019						5-year term with cliff-vesting at the end of the term
RSUs granted in 2020 through 2024						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

However, from time to time, we grant RSUs outside of the normal grant cycle which have different terms and vesting conditions. For all RSU grants, we recognize the expense ratably over the vesting period.

RESTRICTED SHARE UNITS

The table below summarizes RSU activity:


	RSUs	Weighted Average Grant Date Fair Value		Weighted Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value (in millions)
Balance as of December 31, 2023	15,748,820	$	29.42	1.7	$	525
Granted	4,456,257	26.66
Vested and released	(6,123,032)	26.87			187
Forfeited	(1,593,246)	29.31
Balance as of December 31, 2024	12,488,799	29.70		2.0	401

The weighted average grant date fair value for RSUs granted for the years ended December 31, 2024, 2023, and 2022 was $26.66, $30.60, and $35.76, respectively. The aggregate fair value of the RSUs vested and released for the years ended December 31, 2024, 2023, and 2022 was $165 million, $134 million, and $28 million, respectively.

As of December 31, 2024, there was $170 million of unrecognized compensation cost related to unvested RSUs that is expected to be recognized over a weighted average period of 3.2 years.

PERFORMANCE SHARE UNITS

In 2020, the Compensation Committee of the Board approved a PSU grant. Each PSU is equivalent in value to one share of our common stock. The PSUs vested three years from the beginning date of a predetermined performance period, to the extent that the performance criteria is met during the performance period. The performance criteria includes a specified market condition which compares total shareholder return to that of certain indices. Additionally, the PSUs are required to be held by the grantee for one year after the awards have vested. The maximum payout percentage for all PSUs granted by KDP is 100%.

The PSUs are valued using a Monte Carlo simulation model, which requires certain assumptions, including the risk-free interest rate, expected volatility, and the estimated dividend yield. The risk-free interest rate used in the Monte Carlo simulation model is based on zero-coupon yields implied by U.S. Treasury issues with remaining terms similar to the performance period on the PSUs. The performance period of the PSUs represents the period of time between the PSU grant date and the end of the performance period. Expected volatility is based on historical data of KDP and certain indices over the most recent time period equal to the performance period.

KEURIG DR PEPPER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(CONTINUED)

The table below summarizes PSU activity:


	PSUs	Weighted Average Grant Date Fair Value		Weighted Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value (in millions)
Balance as of December 31, 2023	328,776	$	28.80	0.0	$	11
Granted	—	—
Vested and released	(107,422)	28.80			3
Forfeited or expired	(221,354)	28.80
Balance as of December 31, 2024	—	—		0.0	—

As of December 31, 2024, there was no remaining unrecognized compensation cost related to unvested PSUs.

STOCK OPTIONS

The table below summarizes stock option activity:


	Stock Options	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value (in millions)
Balance as of December 31, 2023	37,452	$	14.76	3.2	$	1
Granted	—	—
Exercised	(37,452)	14.76			1
Outstanding as of December 31, 2024	—	—		0.0	—
Exercisable as of December 31, 2024	—	—		0.0	—

13. Investments

The following table summarizes our investments in unconsolidated affiliates:


	December 31,
(in millions)	2024		2023
Nutrabolt(1)	$	1,097	$	960
Chobani(2)	313		307
Tractor(3)	56		44
Athletic Brewing(4)	47		50


Beverage startup companies(5)	5		5
Other	25		21
Investments in unconsolidated affiliates	$	1,543	$	1,387

(1)KDP holds a 35.8% interest on an as-converted basis in Nutrabolt, consisting of 31.1% in Class A preferred shares acquired through our December 2022 investment, which are treated as in-substance common stock, and 4.7% in Class B common shares earned through the achievement of certain milestones included in the distribution agreement with Nutrabolt.

(2)KDP holds a 5.0% interest in Chobani.

(3)In May 2024, we modified our sales agent contract with Tractor. In exchange, we received additional equity interests, raising our total interest to 22.5% as of December 31, 2024.

(4)KDP holds an 11.6% interest in Athletic Brewing.

(5)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.

KEURIG DR PEPPER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(CONTINUED)

Chobani Investment

In August 2023, we invested $300 million in exchange for common shares in La Colombe that represented a 33.3% ownership interest. We additionally capitalized $7 million of incremental third-party costs into the investment balance.

In December 2023, La Colombe merged with a wholly-owned subsidiary of Chobani. Our investment in La Colombe was exchanged for common units in Chobani.

Nutrabolt Investment

Our interest in preferred units earns the greater of (i) a 5% annual coupon on the preferred equity units plus any accretion for amounts not yet paid or (ii) our share of Nutrabolt’s earnings as if our preferred equity was converted into common units. We recorded preferred dividends of $46 million, $44 million, and $3 million during the years ended December 31, 2024, 2023, and 2022, respectively, which increased the investment balance for Nutrabolt.

14. Income Taxes

Income before provision for income taxes was as follows:


	For the Year Ended December 31,
(in millions)	2024		2023		2022
U.S.	$	696	$	1,665	$	789
Foreign	1,218		1,092		930
Total	$	1,914	$	2,757	$	1,719

The provision for income taxes has the following components:


	For the Year Ended December 31,
(in millions)	2024		2023		2022
Current:
Federal	$	377	$	270	$	320
State	108		117		97
Foreign	242		193		156
Total current provision	$	727	$	580	$	573

Deferred:
Federal	$	(199)	$	31	$	(141)
State	(55)		2		(147)
Foreign	—		(37)		(1)
Total deferred provision	(254)		(4)		(289)
Total provision for income taxes	$	473	$	576	$	284

KEURIG DR PEPPER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(CONTINUED)

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)	2024		2023		2022
Statutory federal income tax rate	21.0	%	21.0	%	21.0	%
State income taxes, net	2.1	%	3.2	%	2.6	%
Impact of foreign operations	(1.4)	%	(1.7)	%	(2.3)	%
Tax credits	(6.2)	%	(3.7)	%	(3.9)	%
Valuation allowance for deferred tax assets	0.6	%	—	%	—	%
U.S. taxation of foreign earnings	5.1	%	3.0	%	3.7	%
Goodwill impairment	2.7	%	—	%	—	%
Deferred rate change	(0.4)	%	(0.3)	%	(5.2)	%
Uncertain tax positions	—	%	0.1	%	0.3	%
U.S. federal provision to return	0.2	%	—	%	(0.1)	%
Excess tax deductions on stock-based compensation	(0.2)	%	(0.3)	%	(0.1)	%
Other	1.2	%	(0.4)	%	0.5	%
Total provision for income taxes	24.7	%	20.9	%	16.5	%

Deferred tax assets and liabilities were comprised of the following:


	December 31,
(in millions)	2024		2023
Deferred tax assets:
Operating lease liability	$	229	$	230
Net operating losses carryforwards	30		36
Tax credit carryforwards	10		10
Accrued expenses	154		145
Research and development capitalization	94		76
Accrued termination fees	56		—




Other	107		121
Total deferred tax assets	680		618
Valuation allowances	(25)		(51)
Total deferred tax assets, net of valuation allowances	$	655	$	567
Deferred tax liabilities:
Brands, trade names and other intangible assets	$	(5,486)	$	(5,720)
Property, plant, and equipment	(299)		(334)
Right of use assets	(224)		(226)


Other	(42)		(16)
Total deferred tax liabilities	(6,051)		(6,296)
Net deferred tax liabilities	$	(5,396)	$	(5,729)

KEURIG DR PEPPER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(CONTINUED)

CARRYFORWARDS

As of December 31, 2024 and 2023, we had $30 million and $36 million, respectively, in tax-effected net operating loss carryforwards. Of the $30 million of net operating loss carryforwards as of December 31, 2024, $27 million will not expire, $1 million related to state income tax will begin to expire in 2027, and the remaining $2 million related to foreign income tax will begin to expire in the year 2035.

As of both December 31, 2024 and 2023, we had $10 million of credit carryforwards. As of December 31, 2024, the $10 million of state tax credit carryforwards will begin to expire in the year 2027.

VALUATION ALLOWANCES

For the tax year ended December 31, 2024, the Company recognized a net decrease of $26 million in its valuation allowances, primarily due to net decreases in the deferred tax assets and related valuation allowances on certain equity method investments.

UNDISTRIBUTED FOREIGN EARNINGS

For the tax year ended December 31, 2024, undistributed earnings in foreign subsidiaries for which no deferred taxes have been provided totaled approximately $879 million. An actual repatriation from our foreign subsidiaries could still be subject to additional foreign withholding taxes. We have analyzed our global working capital and cash requirements and continue to be indefinitely reinvested in our undistributed earnings, except for amounts in excess of our working capital and cash requirements. We have recorded any potential withholding tax liabilities, if necessary, attributable to repatriation.

OTHER TAX MATTERS

We file income tax returns for U.S. federal purposes and in various state jurisdictions. We also file income tax returns in various foreign jurisdictions, principally Canada, Ireland, Mexico, and Singapore. The U.S. and most state income tax returns for years prior to 2019 are closed to examination by applicable tax authorities. Canadian and Mexican income tax returns are generally open for audit for tax years 2019 and forward, and Ireland income tax returns are open for audit for tax years 2020 and forward.

We previously had a tax holiday in Singapore, which was effective through June 2024, whereby the local statutory rate is significantly reduced if certain conditions are met. The impact of the tax holiday increased net income by approximately $2 million, $4 million, and $6 million for the years ended December 31, 2024, 2023, and 2022, respectively, resulting in no impact to basic and diluted EPS for each of the years ended December 31, 2024, 2023, and 2022.

On August 16, 2022, the IRA was signed into law in the United States. The IRA added new tax provisions allowing certain taxpayers to elect to transfer an eligible credit to an unrelated transferee taxpayer where the transferee taxpayer is then able to use the transferred tax credit against its own taxable income for taxable years after December 31, 2022. During the years ended December 31, 2024 and 2023, we executed agreements with eligible taxpayers to purchase federal tax credits of $260 million and $270 million, respectively, which will be used against KDP’s federal tax liability. The discounts negotiated for the transfer of eligible federal tax credits of $20 million and $16 million were recorded as an income tax benefit on the Consolidated Statements of Income for the years ended December 31, 2024 and 2023, respectively.

KEURIG DR PEPPER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(CONTINUED)

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)	2024		2023		2022
Balance, beginning of the period	$	13	$	15	$	12
Increases related to tax positions taken during the current year	2		3		4
(Decreases) increases related to tax positions taken during the prior year	(1)		(2)		3
Decreases related to settlements with taxing authorities	—		—		(3)
Decreases related to lapse of applicable statute of limitations	(2)		(3)		(1)
Balance, end of the period	$	12	$	13	$	15

The total amount of unrecognized tax benefits that would reduce the effective tax rate if recognized is $10 million after considering the federal impact of state income taxes. KDP does not expect a significant change to its unrecognized tax benefits, but it is reasonably possible that a change in the unrecognized tax benefits may occur within the next twelve months related to the settlement of audits or the lapse of applicable statutes of limitations.

KDP accrues interest and penalties on its uncertain tax positions as a component of its provision for income taxes. We recognized $1 million of expense related to interest and penalties for uncertain tax positions for each of the years ended December 31, 2024 and 2023 and no expense for the year ended December 31, 2022. We had a total of $3 million accrued for interest and penalties for our uncertain tax positions reported as part of other non-current liabilities as of both December 31, 2024 and 2023.

15. 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		Cash Flow Hedges		Total
Balance as of December 31, 2021	$	81	$	(4)	$	(103)	$	(26)
Other comprehensive (loss) income	(167)		(6)		329		156
Amounts reclassified from AOCI	—		—		(1)		(1)
Total other comprehensive (loss) income	(167)		(6)		328		155
Balance as of December 31, 2022	(86)		(10)		225		129
Other comprehensive income (loss)	288		(5)		(41)		242
Amounts reclassified from AOCI	—		1		(57)		(56)
Total other comprehensive income (loss)	288		(4)		(98)		186
Balance as of December 31, 2023	202		(14)		127		315
Other comprehensive (loss) income	(612)		(1)		33		(580)
Amounts reclassified from AOCI	—		1		(12)		(11)
Total other comprehensive (loss) income	(612)		—		21		(591)
Balance as of December 31, 2024	$	(410)	$	(14)	$	148	$	(276)

KEURIG DR PEPPER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(CONTINUED)

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


		For the Year Ended December 31,
(in millions)	Income Statement Caption	2024		2023		2022
Pension and PRMB liabilities	SG&A expenses	$	2	$	1	$	—
Income tax benefit		(1)		—		—
Total, net of tax		$	1	$	1	$	—

Cash flow hedges:
Interest rate contracts(1)	Interest expense	$	(12)	$	(74)	$	(6)
FX contracts	Cost of sales	(3)		—		5
Total		(15)		(74)		(1)
Income tax expense (benefit)		3		17		—
Total, net of tax		$	(12)	$	(57)	$	(1)

(1)Amounts reclassified from AOCI into interest expense during the year ended December 31, 2023 include the realized gains associated with the termination of forward starting swaps designated as cash flow hedges of approximately $66 million. Refer to Note 6 for additional information on the terminated forward starting swaps.

16. Property, Plant, and Equipment

Property, plant, and equipment, net consisted of the following:


	December 31,
(in millions)	2024		2023
Land	$	58	$	45
Buildings and improvements	825		744
Machinery and equipment	3,290		2,899
Cold drink equipment	142		118
Software	517		492
Construction-in-progress	384		365
Property, plant, and equipment, gross	5,216		4,663
Less: accumulated depreciation and amortization	(2,252)		(1,964)
Property, plant, and equipment, net	$	2,964	$	2,699

The following table summarizes the location of depreciation expense within the Consolidated Statements of Income:


	For the Year Ended December 31,
(in millions)	2024		2023		2022
Cost of sales	$	234	$	231	$	229
SG&A expenses	188		171		170
Total depreciation expense	$	422	$	402	$	399

KEURIG DR PEPPER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(CONTINUED)

17. 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. The following table provides a reconciliation of cash, cash equivalents, restricted cash, and restricted cash equivalents reported with the Consolidated Balance Sheets to the total of the same amounts shown in the Consolidated Statements of Cash Flows:


	December 31,
(in millions)	2024		2023
Cash and cash equivalents	$	510	$	267
Restricted cash and restricted cash equivalents(1)	80		—
Non-current restricted cash and restricted cash equivalents(2)	18		—
Total cash, cash equivalents, restricted cash, and restricted cash equivalents	$	608	$	267

(1)Restricted cash and restricted cash equivalents consists primarily of amounts held in escrow in connection with the acquisitions of GHOST and Kalil, and have a corresponding holdback liability recorded in Other current liabilities, as shown below. Refer to Note 4 for additional information.

(2)Non-current restricted cash and restricted cash equivalents, reported within Non-current assets on the Consolidated Balance Sheets, consists of amounts held in escrow in connection with the acquisition of GHOST, and has a corresponding holdback liability recorded in Other non-current liabilities. Refer to Note 4 for additional information.

KEURIG DR PEPPER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(CONTINUED)

SELECTED BALANCE SHEET INFORMATION

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


	December 31,
(in millions)	2024		2023
Inventories:
Raw materials	$	524	$	409
Work-in-progress	9		12
Finished goods	798		742
Total	1,331		1,163
Allowance for excess and obsolete inventories	(32)		(21)
Total inventories	$	1,299	$	1,142
Prepaid expenses and other current assets:
Other receivables	$	146	$	135
Prepaid income taxes	33		196
Customer incentive programs	18		24
Derivative instruments	80		15
Prepaid marketing	29		20
Spare parts	126		111
Income tax receivable	75		16
Other	99		81
Total prepaid expenses and other current assets	$	606	$	598
Other non-current assets:
Operating lease right-of-use assets	$	880	$	876
Customer incentive programs	45		45
Derivative instruments	6		3
Equity securities	89		69


Non-current restricted cash and restricted cash equivalents	18		—


Other	162		156
Total other non-current assets	$	1,200	$	1,149

Equity Securities

Fair values of equity securities are determined using quoted market prices from daily exchange traded markets, based on the closing price as of the balance sheet date, and are classified as Level 1. Unrealized mark-to-market gains and losses are recorded to Other (income) expense, net. The following table presents the amount of unrealized mark-to-market (gains) losses, net, on our equity securities recognized in the Consolidated Statements of Income related to these securities during the periods presented.


	For the Year Ended December 31,
(in millions)	2024		2023		2022
Unrealized mark-to-market (gains) losses
Vita Coco	$	(17)	$	(16)	$	4
Rabbi trust	(4)		(6)		8

KEURIG DR PEPPER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(CONTINUED)


	December 31,
(in millions)	2024		2023
Accrued expenses:
Accrued customer trade	$	439	$	477
Accrued compensation	235		208
Insurance reserve	57		50
Interest accrual	107		72
Accrued termination fees(1)	225		—
Accrued transferable tax credits	130		152
Other accrued expenses	391		283
Total accrued expenses	$	1,584	$	1,242
Other current liabilities:
Dividends payable	$	312	$	299
Income taxes payable	67		29
Operating lease liability	128		114
Finance lease liability	125		106
Derivative instruments	108		150
Holdback liability	80		—
Other	15		16
Total other current liabilities	$	835	$	714
Other non-current liabilities:
Operating lease liability	$	790	$	793
Finance lease liability	677		620
Mandatory redemption liability(2)	689		—
Pension and post-retirement liability	31		35
Insurance reserves	95		85
Derivative instruments	348		201
Deferred compensation liability	33		32
Holdback liability	18		—
Other	72		67
Total other non-current liabilities	$	2,753	$	1,833

(1)In connection with the GHOST Transactions, we executed an agreement which terminates the distribution rights for certain GHOST products by ABI, effective March 3, 2025, for a termination fee of $225 million. Refer to Note 4 for additional information.

(2)The fair value of our mandatory redemption liability is estimated using the Monte Carlo simulation method which includes forecasted EBITDA expectations, adjusting for market risks and volatility, calculating redemption prices, discounting to present terms with the cost of debt, and averaging results across scenarios to determine fair value, incorporating the market price of risk and volatility estimates from similar companies.

KEURIG DR PEPPER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(CONTINUED)

18. Commitments and Contingencies

We are occasionally subject to litigation or other legal proceedings. Reserves are recorded for specific legal proceedings when we determine that the likelihood of an unfavorable outcome is probable and the amount of loss can be reasonably estimated. We had litigation reserves of $2 million and $12 million as of December 31, 2024 and 2023, respectively. We have 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. We do not believe that the outcome of these, or any other, pending legal matters, individually or collectively, will have a material adverse effect on our results of operations, financial condition or liquidity.

ANTITRUST LITIGATION

In February 2014, TreeHouse Foods, Inc. and certain affiliated entities filed suit against KDP’s wholly-owned subsidiary, Keurig (formerly known as Green Mountain Coffee Roasters, Inc.), in the U.S. District Court for the Southern District of New York (“SDNY”) (TreeHouse Foods, Inc. et al. v. Green Mountain Coffee Roasters, Inc. et al.). 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 treble monetary damages, declaratory relief, injunctive relief and attorneys’ fees. In the months that followed, a number of additional actions, including claims from another coffee manufacturer (JBR, Inc.), as well as putative class actions on behalf of direct and indirect purchasers of Keurig’s products, were filed in various federal district courts, asserting claims and seeking relief substantially similar to the claims asserted and relief sought in the TreeHouse complaint. Additional similar actions were filed by individual direct purchasers (including McLane Company, Inc., BJ’s Wholesale Club, Inc., Winn-Dixie Stores Inc. and Bi-Lo Holding LLC) in 2019 and in 2021. All of these actions were transferred to the SDNY for coordinated pre-trial proceedings (In re: Keurig Green Mountain Single-Serve Coffee Antitrust Litigation) (the “Multidistrict Antitrust Litigation”).

In July 2020, Keurig reached an agreement with one of the plaintiff groups in the Multidistrict Antitrust Litigation, the putative indirect purchaser class, to settle the claims asserted for $31 million. The settlement class consisted 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 settlement was approved and paid, and the indirect purchasers’ claims have been dismissed.

Discovery in all remaining matters pending in the Multidistrict Antitrust Litigation is concluded, with the plaintiffs collectively claiming more than $5 billion of monetary damages. Keurig strongly disputes the merits of the claims and the calculation of damages. In 2021, the parties filed motions challenging the validity of certain of the other parties’ proposed expert opinions. In January 2025, the court issued a ruling on these motions, granting challenges to certain expert testimony—including Keurig’s challenge to JBR, Inc.’s damages expert—but largely denying the parties’ motions. Keurig has also fully briefed summary judgment motions that, if successful, would end the cases entirely. Keurig is also pursuing its opposition to direct purchaser plaintiffs’ motion for class certification.

Keurig intends to continue vigorously defending the remaining lawsuits. At this time, we are 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 KDP or its operations. Accordingly, we have not accrued for a loss contingency. Additionally, as the timelines in these cases may be beyond our control, KDP can provide no assurance as to whether or when there will be material developments in these matters.

KEURIG DR PEPPER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(CONTINUED)

ENVIRONMENTAL, HEALTH, AND SAFETY MATTERS

We operate many manufacturing, bottling, and distribution facilities. In these and other aspects of our business, we are subject to a variety of federal, state, and local environmental, health, and safety laws and regulations. We maintain environmental, health, and safety policies and a quality environmental, health, and safety program designed to ensure compliance with applicable laws and regulations. However, the nature of our business exposes us to the risk of claims with respect to environmental, health, and safety matters, and there can be no assurance that material costs or liabilities will not be incurred in connection with such claims.

The federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, also known as the Superfund law, as well as similar state laws, generally impose joint and several liability for cleanup and enforcement costs on current and former owners and operators of a site without regard to fault or the legality of the original conduct. We were notified by the Environmental Protection Agency that we are a potentially responsible party for study and cleanup costs at Superfund sites in New Jersey and in Michigan. Investigation and remediation costs are yet to be determined, therefore no reasonable estimate exists on which to base a loss accrual.

PRODUCT WARRANTIES

We offer a one year warranty on all Keurig brewing systems. We provide for the estimated cost of product warranties, primarily using historical information and current repair or replacement costs, at the time product revenue is recognized. Product warranties are included in accrued expenses in the accompanying Consolidated Balance Sheets.


(in millions)	Accrued Product Warranties
Balance as of December 31, 2022	$	13
Accruals for warranties issued	17
Settlements	(19)
Balance as of December 31, 2023	11
Accruals for warranties issued	14
Settlements	(15)
Balance as of December 31, 2024	$	10

19. Transactions with Variable Interest Entities

INVESTMENTS IN UNCONSOLIDATED AFFILIATES WHICH QUALIFY AS VIEs

Certain of our equity investments are in entities which qualify as VIEs. We have determined that we are not the primary beneficiary of these VIEs and therefore are not required to consolidate them, as the primary shareholder of each respective VIE has control over the board and decision-making for the activities that most significantly impact the VIE’s economic performance, including sales, marketing, and operations. As of December 31, 2024 and 2023, our investments in Nutrabolt and Chobani represent investments in entities which qualify as VIEs but for which we are not the primary beneficiary. We have no obligation to provide additional funding to these VIEs, and thus our maximum exposure and risk of loss related to these VIEs is limited to the carrying value of our investment. Refer to Note 13 for the carrying value of these investments.

OTHER TRANSACTIONS WITH VIEs

We have a number of leasing arrangements and one licensing arrangement with special purpose entities for which KDP is not the primary beneficiary, as KDP has limited power based on the contractual agreements to direct the activities that most significantly impact the VIEs’ performance.

KEURIG DR PEPPER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(CONTINUED)

Leasing Arrangements

As of December 31, 2024, we have entered into sixteen lease transactions with VIEs. Each lease has an RVG based on a percentage of the VIEs’ purchase price; however, we concluded it was not probable that we 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, we recorded each lease obligation excluding the associated RVG. The aggregate maximum undiscounted RVG associated with the leasing arrangements was $652 million and $653 million as of December 31, 2024 and 2023, 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 we have concluded is not probable.

The following table provides the carrying amounts of the right-to-use assets and lease obligations recorded on the Consolidated Balance Sheets associated with these leasing arrangements related to the VIEs as of December 31, 2024 and 2023:


	December 31,
(in millions)	2024		2023

Non-current assets	$	386	$	412
Current liabilities	24		23
Non-current liabilities	376		402

The leasing agreements included as of December 31, 2024 and 2023 include nine manufacturing sites, five distribution centers, one multipurpose property, and our Frisco, Texas headquarters.

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 RVG. 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, 2024, we have not recorded a liability as it is not probable that we will have to make any payments required under the RVG, 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, 2024, we had $85 million in fixed service fee commitments related to the 15-year distribution agreement, which was effective on December 28, 2020, with the 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)	2025		2026		2027		2028		2029
Fixed service fees	$	8	$	7	$	8	$	8	$	8

KEURIG DR PEPPER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(CONTINUED)

20. Restructuring and Integration Costs

RESTRUCTURING PROGRAMS

2024 Network Optimization

In March 2024, we announced a restructuring program designed to more effectively and efficiently meet the needs of consumers and customers. The program initially included the closure of our manufacturing facility in Williston, Vermont, with operations and employees relocating to other existing manufacturing locations. The relocation began during the second quarter of 2024 and was completed in the third quarter of 2024. In July 2024, we also announced the closure of our Windsor, Virginia manufacturing facility, which is expected to begin in the first quarter of 2025. Our restructuring program also encompasses other costs intended to optimize our manufacturing and distribution footprint throughout our operations.

The restructuring program is expected to incur pre-tax restructuring charges in an estimated range of $125 million to $145 million, primarily comprised of asset related costs, through the second quarter of 2025.

2023 CEO Succession and Associated Realignment

In 2023, we began to enact several organization movements to ensure succession plans, to reinforce enterprise capabilities to support growth, and to control costs. A key component of the program was the appointment of Tim Cofer as Chief Operating Officer, effective November 6, 2023, with Mr. Cofer succeeding Robert Gamgort as our CEO during the second quarter of 2024. We have also realigned our executive and operating leadership structure to enable faster decision making and to better support various strategic initiatives. The program is expected to incur charges of approximately $85 million, primarily driven by severance costs, which were substantially completed as of December 31, 2024, and the sign-on bonus for Mr. Cofer.

DPS Integration Program

As part of the DPS Merger, we 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. Although the program was initially expected to be completed in 2021, as a result of delays due to COVID-19, we continued to recognize expenditures for certain initiatives which began during the integration period through December 31, 2022. The restructuring and integration program resulted in cumulative pre-tax charges of approximately $962 million, primarily consisting of professional fees related to the integration and transformation and costs associated with severance and employee terminations.

RESTRUCTURING CHARGES

Restructuring and integration expenses for the defined programs during the periods presented were as follows:


	Year Ended December 31,
(in millions)	2024		2023		2022
2024 Network Optimization	$	51	$	—	$	—
2023 CEO Succession and Associated Realignment	40		35		—
DPS Integration	—		—		172
Total restructuring and integration charges	$	91	$	35	$	172

KEURIG DR PEPPER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(CONTINUED)

RESTRUCTURING LIABILITIES

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. Restructuring liabilities, primarily consisting of workforce reduction costs, were as follows:


(in millions)	Restructuring Liabilities
Balance as of December 31, 2022	$	55
Charges to expense	18
Cash payments	(46)

Balance as of December 31, 2023	27
Charges to expense	34
Cash payments	(17)

Balance as of December 31, 2024	$	44

21. Related Parties

IDENTIFICATION OF RELATED PARTIES

Prior to August 19, 2020, we were indirectly controlled by JAB, a privately held investor group. Since August 19, 2020, JAB continues to hold a significant but non-controlling interest in KDP. As of December 31, 2024, JAB beneficially owned approximately 16% of our outstanding common stock. JAB and its affiliates also hold investments in a number of other companies that have commercial relationships with us. These commercial relationships may take the form of our purchase of raw materials, our license of the companies’ trademarks for use in the manufacturing of K-Cup pods, our sale of products for resale to retail customers, or our manufacture or distribution of products to, or on behalf of, these companies.

We hold investments in certain brand ownership companies, and in certain instances, we also have rights in specified territories to bottle and/or distribute the brands owned by such companies. We purchase inventory from these brand ownership companies and sell finished product to third-party customers, primarily in the U.S. Additionally, any transactions with significant partners in these investments, such as ABI, are considered related party transactions. ABI purchases Clamato from us and pays us a royalty for use of the brand name. Refer to Note 13 for additional information about our investments in unconsolidated affiliates.

OPERATING TRANSACTIONS WITH RELATED PARTIES

Trade accounts receivable, net from related parties were $30 million and $34 million as of December 31, 2024 and 2023, respectively, primarily related to product sales and royalty revenues. Accounts payable to related parties were $35 million and $21 million as of December 31, 2024 and 2023, respectively, primarily related to purchases of finished goods inventory for distribution.

Revenues from and expenses associated with these related parties were as follows:


	For the Year Ended December 31,
(in millions)	2024		2023		2022
Revenues from related parties	$	163	$	143	$	127
Expenses associated with related parties(1)	128		132		64

(1)Expenses associated with related parties includes a reduction of $93 million and $42 million related to earned equity for the achievement of certain milestones included in our distribution agreement with related parties, which were recognized as a reduction of cost of sales on the Consolidated Statements of Income for the years ended December 31, 2024 and 2023, respectively.

KEURIG DR PEPPER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(CONTINUED)

OTHER TRANSACTIONS WITH RELATED PARTIES

In March 2024, JAB BevCo B.V., a subsidiary of JAB, sold 100 million shares of KDP’s common stock through an underwritten secondary offering. In connection with this offering, we repurchased 35 million shares at the per-share price paid by the underwriter, for a total of $1,012 million, which was effected under our existing share repurchase program.

Transactions with Related Parties for Distribution Rights

We executed an agreement between KDP, GHOST, and ABI, which terminates the distribution rights for certain GHOST products by ABI, effective March 3, 2025, for $225 million, which was accrued as of December 31, 2024, and is expected to be paid during the first quarter of 2025. Refer to Note 4 for additional information.

We made payments to Nutrabolt totaling $8 million and $52 million to acquire certain distribution rights during the years ended December 31, 2024 and 2023, respectively. Refer to Note 5 for additional information.

22. Subsequent Events

On January 31, 2025, we repaid the first tranche of the Term Loan Agreement using proceeds from commercial paper.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the stockholders and the Board of Directors of Keurig Dr Pepper Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Keurig Dr Pepper Inc. and subsidiaries (the "Company") as of December 31, 2024 and 2023, the related consolidated statements of income, comprehensive income, changes in stockholders’ equity, and cash flows, for each of the three years in the period ended December 31, 2024, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2024, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 25, 2025, expressed an unqualified opinion on the Company's internal control over financial reporting.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Indefinite-Lived Intangible Assets and Goodwill Valuation - Certain of the Brand Assets and Reporting Units - Refer to Notes 2 and 5 to the financial statements

Critical Audit Matter Description

As discussed in Notes 2 and 5, the Company has indefinite-lived brand intangible assets (“brand assets”) and goodwill. The Company’s evaluation of brand assets and goodwill for impairment is performed annually as of October 1, or more frequently if events or circumstances indicate the carrying amount may not be recoverable and involves the comparison of the fair value of each brand asset or reporting unit to its carrying value. For the year ended December 31, 2024, the Company recorded an impairment charge of $412 million related to certain brand assets and an impairment charge of $306 million recorded to goodwill, both in the U.S. Refreshment Beverages segment. The Company used the income approach and a combination of income and market based approaches to estimate the fair value of brand assets and reporting units, respectively. These methods required management to make significant estimates and assumptions, specifically related to discount rates, and forecasted cash flows. Assumptions may be sensitive to future market or industry conditions, as well as company-specific conditions, and changes in these assumptions could have a significant impact on the calculation of fair value. Given the significant judgments made by management to estimate certain of the fair values, 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.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures consisted of risk assessment and testing management’s impairment analyses including the underlying business and valuation assumptions for certain of the fair values. Those procedures included, but were not limited to, the following:

We tested the effectiveness of controls over the Company’s brand assets and goodwill impairment review process which include controls related to management’s selection of the discount rate and forecasts of future revenues.
We evaluated the reasonableness of management’s ability to forecast revenue growth and margins by considering:

–Historical revenue and margins.

–Analysis of current and future business strategies to the projected periods.

–Information in industry reports.

With the assistance of our fair value specialists, we evaluated the reasonableness of the valuation methodologies and assumptions, including discount rates.

/s/ Deloitte & Touche LLP

Dallas, Texas

February 25, 2025

We have served as the Company’s auditor since 2016.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the stockholders and the Board of Directors of Keurig Dr Pepper Inc.

Opinion on Internal Control over Financial Reporting

We have audited the internal control over financial reporting of Keurig Dr Pepper Inc. and subsidiaries (the "Company") as of December 31, 2024, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2024, of the Company and our report dated February 25, 2025, expressed an unqualified opinion on those financial statements.

As described in Management’s Report on Internal Control over Financial Reporting, appearing under Item 9A, management excluded from its assessment the internal control over financial reporting at Ghost Lifestyle LLC which was acquired on December 31, 2024 and whose financial statements constitute less than 3% of total assets of the consolidated financial statement amounts as of December 31, 2024. Accordingly, our audit did not include the internal control over financial reporting at Ghost Lifestyle LLC.

Basis for Opinion

The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting, appearing under Item 9A. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Deloitte & Touche LLP

Dallas, Texas

February 25, 2025

Previous: Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK · Next: Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE