Keurig Dr Pepper Inc. (KDP) FY 2024 MD&A

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This section of this Annual Report on Form 10-K generally discusses the years ended December 31, 2024 and 2023 and year-over-year comparisons between the years ended December 31, 2024 and 2023. Discussions of the periods prior to the year ended December 31, 2023 that are not included in this Annual Report on Form 10-K are found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2023 and the discussion therein for the year ended December 31, 2023 compared to the year ended December 31, 2022 is incorporated by reference into this Annual Report.

This Annual Report on Form 10-K contains the names of some of our owned or licensed trademarks, trade names and service marks, which we refer to as our brands. All of the product names included in this Annual Report on Form 10-K are either our registered trademarks or those of our licensors.

OVERVIEW

KDP is a leading beverage company in North America that manufactures, markets, distributes and sells hot and cold beverages and single serve brewing systems. We have a broad portfolio of iconic beverage brands, including Keurig, Dr Pepper, Canada Dry, Mott's, A&W, Peñafiel, Snapple, 7UP, Green Mountain Coffee Roasters, GHOST, Clamato, Core Hydration, and The Original Donut Shop. KDP has some of the most recognized beverage brands in North America, with significant consumer awareness levels and long histories that evoke strong emotional connections with consumers. We offer more than 125 owned, licensed, and partner brands, available nearly everywhere people shop and consume beverages through our sales and distribution network.

KDP operates as an integrated brand owner, manufacturer, and distributor. We believe our integrated business model strengthens our route-to-market and provides opportunities for net sales and profit growth through the alignment of the economic interests of our brand ownership and our manufacturing and distribution businesses through both our DSD system and our WD system. We market and sell our products to retailers, including supermarkets, mass merchandisers, club stores, pure-play e-commerce retailers, and office superstores; to restaurants, hotel chains, office product and coffee distributors, and partner brand owners; and directly to consumers through our website. Our integrated business model enables us to be more flexible and responsive to the changing needs of our large retail customers and allows us to more fully leverage our scale and reduce costs by creating greater geographic manufacturing and distribution coverage.

SEGMENTS

Our operating and reportable segments are as follows:

•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 other coffee products to partners, retailers, and directly to consumers through our Keurig.com website.

•The International segment reflects sales in international markets, including the following:

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

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

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VOLUME

In evaluating our performance, we use different volume measures for LRB and for K-Cup pods and appliances.

For LRB, we measure our sales volume in 288 fluid ounce equivalent cases.

•For beverage concentrates, we measure our sales volume as concentrate case sales for concentrates sold by us to our bottlers and distributors. A concentrate case is the amount of concentrate needed to make one case of 288 fluid ounces of finished beverage, the equivalent of 24 twelve ounce servings. It does not include any other component of the finished beverage other than concentrate.

•For packaged beverages, we measure volume as case sales to customers. A case sale represents a unit of measurement equal to 288 fluid ounces of packaged beverage sold by us. Case sales include both our owned brands and certain brands licensed to and/or distributed by us.

For our K-Cup pods and appliances, we measure our sales volume as the number of appliances and the number of individual K-Cup pods sold to our customers.

EXECUTIVE SUMMARY

Financial Overview

As Reported, in millions (except Diluted EPS)

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Key Events During and Subsequent to the Fourth Quarter of 2024

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 approximately $1 billion on December 31, 2024. We also entered into an agreement requiring us to purchase the remaining equity interests in GHOST in 2028. The initial payment was funded primarily by proceeds drawn from the Term Loan Agreement. We also executed an agreement with GHOST and ABI which transfers the distribution rights for GHOST products from ABI to us, effective March 3, 2025, for a termination payment to ABI of $225 million which will be paid during the first quarter of 2025. Refer to Note 4 of the Notes to our Consolidated Financial Statements for additional information.

On January 31, 2025, we repaid the amount outstanding under the Term Loan Agreement using proceeds from commercial paper.

Uncertainties and Trends Affecting Our Business

We believe the North American beverage market is influenced by certain key trends and uncertainties. Refer to Item 1A, Risk Factors, as well as the Uncertainties and Trends Affecting Liquidity and Capital Resources section below, for more information about risks and uncertainties facing us.

Refer to Note 6 of the Notes to our Consolidated Financial Statements and Item 7A, Quantitative and Qualitative Disclosures About Market Risk for management's discussion of how we manage our exposure to commodity risk.

RESULTS OF OPERATIONS

We eliminate from our financial results all intercompany transactions between entities included in our consolidated financial statements and the intercompany transactions with our equity method investees.

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

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For the Year Ended December 31, 2024 Compared to the Year Ended December 31, 2023:

Consolidated Operations

The following table sets forth our consolidated results of operations for the years ended December 31, 2024 and 2023:

Sales Volume. The following table provides the change in sales volume compared to the prior year:

Net Sales. Net sales increased $537 million, or 3.6%, to $15,351 million for the year ended December 31, 2024 compared to $14,814 million in the prior year. This performance reflected volume/mix growth of 2.7% and favorable net price realization of 1.2%, slightly offset by unfavorable impacts from FX translation of 0.3%.

Gross Profit. Gross profit increased $449 million, or 5.6%, to $8,529 million for the year ended December 31, 2024 compared to $8,080 million in the prior year. This performance primarily reflected the gross profit impact of net sales growth (3 percentage points), a net benefit from changes in ingredients, materials, and productivity (2 percentage points), and earned equity from the achievement of milestones associated with certain distribution agreements (1 percentage point), partially offset by net increases in other manufacturing costs (1 percentage point).

Selling, General and Administrative Expenses. SG&A expenses increased $101 million, or 2.1%, to $5,013 million for the year ended December 31, 2024 compared to $4,912 million in the prior year, led by increases in transportation and warehousing expenses (2 percentage points) and people costs (1 percentage point), partially offset by reduced costs associated with productivity projects (1 percentage point).

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Impairment of Goodwill. Impairment of goodwill reflected a non-cash impairment charge of $306 million within the U.S. Warehouse Direct reporting unit in the U.S. Refreshment Beverages segment. Refer to Note 5 of the Notes to our Consolidated Financial Statements for further information.

Impairment of Other Intangible Assets. Impairment of intangible assets reflected non-cash impairment charges of $412 million for intangible brand assets, primarily led by Snapple. Refer to Note 5 of the Notes to our Consolidated Financial Statements for further information.

Other operating expense (income), net. Other operating (expense) income, net reflected an unfavorable change of $233 million for the year ended December 31, 2024, primarily driven by the accrued $225 million termination fee associated with ABI. Refer to Note 4 of the Notes to our Consolidated Financial Statements for further information.

Income from Operations. Income from operations decreased $601 million, or 18.8%, to $2,591 million for the year ended December 31, 2024 compared to $3,192 million in the prior year, as our increase in gross profit (14 percentage points) was more than offset by the impacts of our non-cash impairment charges for goodwill and other intangible assets (22 percentage points) and the accrued termination fee associated with ABI (7 percentage points).

Interest Expense, Net. Interest expense, net increased $239 million, or 48.2%, to $735 million for the year ended December 31, 2024 compared to $496 million for the prior year, primarily driven by increased debt and higher financing costs (32 percentage points) and an unfavorable year-over-year change in unrealized mark-to-market activity (17 percentage points).

Effective Tax Rate. The effective tax rate increased 380 bps to 24.7% for the year ended December 31, 2024, compared to 20.9% in the prior year, primarily driven by the impact of our non-cash goodwill impairment charge (270 bps) and the unfavorable comparison to the prior year tax benefit received from a non-cash adjustment (100 bps).

Net Income. Net income decreased $740 million, or 33.9%, to $1,441 million for the year ended December 31, 2024 as compared to $2,181 million in the prior year.

Diluted EPS. Diluted EPS decreased 32.3% to $1.05 per diluted share as compared to $1.55 in the prior year.

Results of Operations by Segment

The following tables set forth net sales and income from operations for our reportable segments for the years ended December 31, 2024 and 2023, as well as the other amounts necessary to reconcile our total segment results to our consolidated results presented in accordance with U.S. GAAP:

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U.S. Refreshment Beverages

The following table provides selected information about our U.S. Refreshment Beverages segment’s results:

Sales Volume. Sales volumes for the year ended December 31, 2024 increased approximately 1.0% compared to the prior year period. Growth in carbonated soft drinks and the contributions from partnerships, such as Electrolit and C4, was partially offset by softness in our still beverages portfolio.

Net Sales. Net sales increased 5.8% to $9,331 million in the year ended December 31, 2024, compared to $8,821 million in the prior year period, driven by favorable net price realization of 3.1% and volume/mix growth of 2.7%.

Income from Operations. Income from operations decreased $605 million, or 24.4%, to $1,878 million for the year ended December 31, 2024 compared to $2,483 million for the prior year period. This decrease was primarily driven by the non-cash goodwill and intangible impairment charges (29 percentage points) and the accrued termination fee associated with ABI (9 percentage points). Other drivers include the benefit to gross profit of net sales growth (13 percentage points), a net benefit from changes in ingredients, materials, and productivity (3 percentage points), and earned equity from the achievement of milestones associated with certain distribution agreements (3 percentage points), partially offset by increased transportation and warehousing expenses (3 percentage points).

U.S. Coffee

The following table provides selected information about our U.S. Coffee segment’s results:

Sales Volume. K-Cup pod volume was flat for the year ended December 31, 2024 compared to the prior year period. Appliance volume increased 7.3% in the year ended December 31, 2024, driven by Keurig market share momentum and improving coffeemaker category trends.

Net Sales. Net sales decreased 2.6% to $3,967 million for the year ended December 31, 2024 compared to $4,071 million in the prior year period, driven by unfavorable net price realization of 3.6%, partially offset by volume/mix growth of 1.0%.

Income from Operations. Income from operations decreased $79 million, or 6.8%, to $1,079 million for the year ended December 31, 2024, compared to $1,158 million in the prior year period, driven by the gross profit impact of the net sales decrease (11 percentage points), partially offset by a net benefit from changes in ingredients, materials, and productivity (3 percentage points).

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International

The following table provides selected information about our International segment’s results:

Sales Volume. The following table provides the percentage change in sales volumes for the International segment compared to the prior year period:

Net Sales. Net sales increased 6.8% to $2,053 million in the year ended December 31, 2024, compared to $1,922 million in the prior year period, reflecting volume/mix growth of 6.2% and higher net price realization of 3.0%, partially offset by unfavorable FX translation of 2.4%.

Income from Operations. Income from operations increased $70 million, or 14.7%, to $545 million for the year ended December 31, 2024 compared to $475 million in the prior year period. This performance reflected the gross profit impact of volume/mix growth and higher net price realization (25 percentage points) and a net benefit from changes in ingredients, materials, and productivity (5 percentage points), partially offset by increased transportation and warehousing expenses (5 percentage points) and higher marketing investment (5 percentage points).

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LIQUIDITY AND CAPITAL RESOURCES

Overview

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

Cash generated by our foreign operations is generally repatriated to the U.S. periodically as working capital funding requirements, where allowed. We do not expect restrictions or taxes on repatriation of cash held outside the U.S. to have a material effect on our overall business, liquidity, financial condition, or results of operations for the foreseeable future.

The following summarizes our cash activity for the years ended December 31, 2024, 2023, and 2022:

Principal Sources of Capital Resources

Our principal sources of liquidity are our existing cash and cash equivalents, cash generated from our operations, and borrowing capacity currently available under our Revolving Credit Agreement and our Term Loan Agreement. Additionally, we have an uncommitted commercial paper program where we can issue unsecured commercial paper notes on a private placement basis. Based on our current and anticipated level of operations, we believe that our operating cash flows will be sufficient to meet our anticipated obligations for the next twelve months and thereafter for the foreseeable future. To the extent that our operating cash flows are not sufficient to meet our liquidity needs, we may utilize cash on hand or amounts available under our financing arrangements, if necessary. At any time, and from time to time, we may seek additional deleveraging, refinancing, or liquidity enhancing transactions, including entering into transactions to repurchase or redeem outstanding indebtedness or otherwise seek transactions to reduce interest expense, extend debt maturities, and improve our capital and liquidity structure.

Sources of Liquidity - Operations

Net cash provided by operating activities increased $890 million for the year ended December 31, 2024, as compared to the year ended December 31, 2023, driven by the favorable comparison in working capital versus the prior year period.

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Cash Conversion Cycle

Our cash conversion cycle is defined as DIO and DSO less DPO. The calculation of each component of the cash conversion cycle is provided below:

The following table summarizes our cash conversion cycle:

Our cash conversion cycle increased 20 days to approximately 12 days as of December 31, 2024 as compared to (8) days as of December 31, 2023, which was primarily driven by the decrease in DPO, reflecting the reduction of payment terms for certain suppliers.

Accounts Payable Program

We work with our suppliers to optimize our terms and conditions, which includes payment terms. Excluding our suppliers who require cash at date of purchase or sale, our current payment terms with our suppliers generally range from 10 to 360 days. We also enter into agreements with third party administrators to allow participating suppliers to track payment obligations from us, and, if voluntarily elected by the supplier, sell payment obligations from us to financial institutions. Suppliers can sell one or more of our payment obligations at their sole discretion and our rights and obligations to our suppliers are not impacted. We have no economic interest in a supplier’s decision to enter into these agreements and no direct financial relationship with the financial institutions. Our obligations to our suppliers, including amounts due and scheduled payment terms, are not impacted. Refer to Note 2 of the Notes to our Consolidated Financial Statements for additional information on our obligations to participating suppliers.

Sources of Liquidity - Financing

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

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

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Debt Ratings

Our credit ratings are as follows:

These debt and commercial paper ratings impact the interest we pay on our financing arrangements. A downgrade of one or both of our debt and commercial paper ratings could increase our interest expense and decrease the cash available to fund anticipated obligations.

As of December 31, 2024, we were in compliance with all debt covenants and we have no reason to believe that we will be unable to satisfy these covenants.

Principal Uses of Capital Resources

Our capital allocation priorities are investing to grow our business both organically and inorganically, continuing to strengthen our balance sheet, and returning cash to shareholders through regular quarterly dividends and opportunistic share repurchases. We dynamically adjust our cash deployment plans based on the specific opportunities available in a given period, but over time we allocate capital to balance each of these priorities.

Regular Quarterly Dividends

We have declared total dividends of $0.89 per share and $0.83 per share for the years ended December 31, 2024 and 2023, respectively.

Repurchases of Common Stock

Our Board authorized a four-year share repurchase program, ending December 31, 2025, of up to $4 billion of our outstanding common stock. Repurchases and retirements of common stock, including payments on our share excise tax obligation, were $1,110 million and $706 million during the years ended December 31, 2024 and 2023, respectively. As of December 31, 2024, $1,810 million remained available for repurchase under the authorized share repurchase program.

Capital Expenditures

Purchases of property, plant, and equipment were $563 million and $425 million for the years ended December 31, 2024 and 2023, respectively.

Capital expenditures, which includes both purchases of property, plant, and equipment and amounts included in accounts payable and accrued expenses, for the years ended December 31, 2024 and 2023, primarily related to investments in manufacturing capabilities, both in the U.S. and internationally. Capital expenditures included in accounts payable and accrued expenses were $220 million and $276 million for the years ended December 31, 2024 and 2023, respectively, which primarily related to these investments.

Investments in Unconsolidated Affiliates

From time to time, we invest in beverage startup companies or in brand ownership companies to grow our presence in certain product categories, or enter into various licensing and distribution agreements to expand our product portfolio. Our investments generally involve acquiring a minority interest in equity securities of a company, in certain cases with a protected path to ownership at our future option. Investments in unconsolidated affiliates were $7 million and $316 million for the years ended December 31, 2024 and 2023, respectively.

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Acquisitions of Businesses and Purchases of Intangible Assets

We have invested in the expansion of our DSD network through transactions with strategic independent bottlers or third-party brand ownership companies to enhance competitive distribution scale. From time to time, we additionally acquire brand ownership companies to expand our portfolio. These transactions could be accounted for either as an acquisition of a business or as an asset acquisition, if the majority of the transaction price represents the acquisition of a single intangible asset. During the year ended December 31, 2024, we completed several acquisitions. Refer to Note 4 of the Notes to our Consolidated Financial Statements for further information about these acquisitions. Purchases of intangible assets were $59 million and $56 million for the years ended December 31, 2024 and 2023, respectively.

RESIDUAL VALUE GUARANTEES

We have a number of leasing arrangements and one licensing arrangement with VIEs for which we are not the primary beneficiary. Each one of these arrangements contain an RVG. As of December 31, 2024, we have not recorded any liabilities as it is not probable that we will have to make any payments required under the RVGs. Refer to Note 19 of the Notes to our Consolidated Financial Statements for further information.

UNCERTAINTIES AND TRENDS AFFECTING LIQUIDITY AND CAPITAL RESOURCES

Disruptions in financial and credit markets, including those caused by global economic uncertainty and fluctuations in interest rates, may impact our ability to manage normal commercial relationships with our customers, suppliers, and creditors. These disruptions could have a negative impact on the ability of our customers to timely pay their obligations to us, thus reducing our cash flow, or the ability of our vendors to timely supply materials.

Customer and consumer demand for our products may also be impacted by the risk factors discussed under "Risk Factors" in Part 1, Item 1A in this Annual Report on Form 10-K, as well as subsequent filings with the SEC, that could have a material effect on production, delivery, and consumption of our products, which could result in a reduction in our sales volume.

We believe that the following events, trends and uncertainties may also impact liquidity:

•Our ability to either repay existing debt maturities through cash flow from operations or refinance through future issuances of senior unsecured notes;

•Our ability to access and/or renew our committed financing arrangements;

•Our ability to issue unsecured uncommitted commercial paper notes on a private placement basis;

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

•Seasonality and other variability in our operating cash flows, which could impact short-term liquidity;

•Our continued payment of regular quarterly dividends;

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

•Our continued capital expenditures;

•Fluctuations in our tax obligations; and

•A potential significant downgrade in our credit ratings, which could limit i) our ability to issue debt at terms that are favorable to us, or ii) a financial institution's willingness to participate in our accounts payable program and reduce the attractiveness of the accounts payable program to participating suppliers who may sell payment obligations from us to financial institutions, which could impact our accounts payable program.

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CRITICAL ACCOUNTING ESTIMATES

The process of preparing our consolidated financial statements in conformity with U.S. GAAP requires the use of estimates and judgments that affect the reported amounts of assets, liabilities, revenue, and expenses. Critical accounting estimates are both fundamental to the portrayal of a company’s financial condition and results and require difficult, subjective or complex estimates and assessments. These estimates and judgments are based on historical experience, future expectations and other factors and assumptions we believe to be reasonable under the circumstances. The most significant estimates and judgments are reviewed on an ongoing basis and revised when necessary. We have not made any material changes in the accounting methodology we use to assess or measure our critical accounting estimates. We have identified the items described below as our critical accounting estimates. We do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we use in our critical accounting estimates. However, if actual results are not consistent with our estimates or assumptions, we may be exposed to gains or losses that could be material to our consolidated financial statements. See Note 2 of the Notes to our Consolidated Financial Statements for a discussion of these and other accounting policies.

Impairment Assessment of Goodwill and Other Indefinite Lived Intangible Assets

We conduct tests for impairment of our goodwill and our other indefinite lived intangible assets annually, as of October 1, or more frequently if events or circumstances indicate the carrying amount may not be recoverable. We use present value and other valuation techniques to make this assessment. If the carrying amount of goodwill or an intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. For purposes of impairment testing, we assign goodwill to the reporting unit that benefits from the synergies arising from each business combination, and we also assign indefinite lived intangible assets to our reporting units.

Our reportable segments as of October 1, 2024 were:

•U.S. Refreshment Beverages (reporting units: U.S. Beverage Concentrates, U.S. Warehouse Direct, and Direct Store Delivery)

•U.S. Coffee (reporting unit: U.S. Coffee)

•International (reporting units: Canada Beverage Concentrates, Canada Warehouse Direct, Canada Coffee, and Latin America Beverages)

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

If a quantitative analysis is required:

•The impairment test for indefinite lived intangible assets encompasses calculating a fair value of an indefinite lived intangible asset and comparing the fair value to its carrying value. If the carrying value exceeds the estimated fair value, impairment is recorded.

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

As of October 1, 2024, we performed a quantitative analysis for goodwill and certain of our indefinite lived brand assets, whereby we used an income approach, or in some cases a combination of income and market based approaches, to determine the fair value of our assets, as well as an overall consideration of market capitalization and enterprise value. These types of analyses contain uncertainties because they require management to make assumptions and to apply judgment to estimate industry and economic factors and the profitability of future business strategies. These assumptions could be negatively impacted by various risks discussed in Item 1A, Risk Factors, in this Annual Report on Form 10-K.

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Critical assumptions and estimates for quantitative analyses include revenue growth and profit performance over the next five year period, based on our strategic plan, as well as an appropriate discount rate and long-term growth rate, as applicable. Our strategic plan is updated as part of our annual planning process and is reviewed and approved by management, and includes assumptions related to macroeconomic conditions, competitive activities, productivity initiatives, and available market data. Discount rates are based on a weighted average cost of equity and cost of debt, adjusted with various risk premiums. Long-term growth rates are based on the long-term inflation forecast, industry and category growth trends, and the long-term economic growth potential.

The following table provides the range of rates used in the analysis as of October 1, 2024:

The following table shows the non-cash impairment charges that were recorded for goodwill and for indefinite lived brand assets for the years presented:

(1)Goodwill attributed to the U.S. WD reporting unit was impaired by the amount its carrying value exceeded its fair value.

(2)Indefinite lived brand assets, led primarily by Snapple for the year ended December 31, 2024, and Bai for the year ended December 31, 2022, were impaired to bring the respective carrying value equal to its fair value.

Sensitivity Analysis - Discount Rate

For goodwill, holding all other assumptions in the analysis constant, including the revenue and profit performance assumption, the effect of a 0.50% increase in the discount rate used to determine the fair value of the reporting units as of October 1, 2024, would result in additional non-cash impairment charges of $198 million to our U.S. WD reporting unit, but would not change our conclusion on any other reporting units.

For the indefinite-lived priority brand assets quantitatively assessed, holding all other assumptions in the analysis constant, including the revenue and profit performance assumption, the effect of a 0.50% increase in the discount rate used to determine the fair value of those assets as of October 1, 2024, would impact the amount of headroom over the carrying value of the following assets as follows (in millions):

(1)Carrying value at the selected discount rate reflects the results of the annual impairment analysis recognized during the year ended December 31, 2024.

Sensitivity Analysis - Long-Term Growth Rate

For goodwill, holding all other assumptions in the analysis constant, including the discrete period revenue and profit performance assumptions as well as the discount rates, the effect of a 0.50% decrease in the long-term growth rate used to determine the fair value of the reporting units as of October 1, 2024, would result in additional non-cash impairment charges of $147 million to our U.S. WD reporting unit, but would not change our conclusion on any other reporting units.

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For the indefinite-lived priority brand assets quantitatively assessed, holding all other assumptions in the analysis constant, including the discrete period revenue and profit performance assumptions as well as the discount rates, the effect of a 0.50% decrease in the long-term revenue growth rate used to determine the fair value of those assets as of October 1, 2024, would impact the amount of headroom over the carrying value of the following assets as follows (in millions):

(1)Carrying value at the selected long-term growth rate reflects the results of the annual impairment analysis recognized during the year ended December 31, 2024.

Refer to Note 5 of the Notes to our Consolidated Financial Statements for additional information about our impairment assessments.

Revenue Recognition

We recognize revenue when performance obligations under the terms of a contract with the customer are satisfied. Accruals for customer incentives, sales returns, and marketing programs are established for the expected payout based on contractual terms, volume-based metrics, and/or historical trends.

Our customer incentives, sales returns, and marketing accrual methodology contains uncertainties because it requires management to make assumptions and to apply judgment regarding our contractual terms in order to estimate our customer participation and volume performance levels which impact the revenue recognition. Our estimates are based primarily on a combination of known or historical transaction experiences. Differences between estimated revenue and actual revenue are normally insignificant and are recognized into earnings in the period differences are determined.

Additionally, judgment is required to ensure the classification of the spend is correctly recorded as either a reduction from gross sales or advertising and marketing expense, which is a component of our SG&A expenses.

A 10% change in the accrual for our customer incentives, sales returns and marketing programs would have affected our income from operations by $52 million for the year ended December 31, 2024.

Income Taxes

We establish income tax liabilities to remove some or all of the income tax benefit of any of our income tax positions based upon one of the following:

•the tax position is not “more likely than not” to be sustained,

•the tax position is “more likely than not” to be sustained, but for a lesser amount, or

•the tax position is “more likely than not” to be sustained, but not in the financial period in which the tax position was originally taken.

Our liability for uncertain tax positions contains uncertainties because management is required to make assumptions and to apply judgment to estimate the exposures associated with our various tax positions.

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Our income tax returns, like those of most companies, are periodically audited by domestic and foreign tax authorities. These audits include questions regarding our tax positions, including the timing and amount of deductions and the allocation of income among various tax jurisdictions. As these audits progress, events may occur that cause us to change our liability for uncertain tax positions. To the extent we prevail in matters for which a liability for uncertain tax positions has been established, or are required to pay amounts in excess of our established liability, our effective tax rate in a given financial statement period could be materially affected. An unfavorable tax settlement generally would require use of our cash and may result in an increase in our effective tax rate in the period of resolution. A favorable tax settlement may be recognized as a reduction in our effective tax rate in the period of resolution.

Business Combinations

We record acquisitions using the purchase method of accounting. All of the assets acquired and liabilities assumed are recorded at fair value as of the acquisition date. The excess of the purchase price over the estimated fair values of the net tangible and intangible assets acquired is recorded as goodwill.

The application of the purchase method of accounting for business combinations requires management to make significant estimates and assumptions in the determination of the fair value of assets acquired and liabilities assumed, in order to properly allocate purchase price consideration between assets that are depreciated and amortized from goodwill. The fair value assigned to tangible and intangible assets acquired and liabilities assumed are based on management’s estimates and assumptions, as well as other information compiled by management, including valuations that utilize customary valuation procedures and techniques. Significant assumptions and estimates include, but are not limited to, the cash flows that an asset is expected to generate in the future, the appropriate weighted-average cost of capital, and the cost savings expected to be derived from acquiring an asset, if applicable.

Further, 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.

If the actual results differ from the estimates and judgments used in these estimates, the amounts recorded in the financial statements may be exposed to potential impairment of the intangible assets and goodwill, as discussed in Impairment Assessment of Goodwill and Other Indefinite Lived Intangible Assets above.

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Impairment Assessment of Equity Method Investments Without Readily Determinable Fair Values

Equity method investments are reviewed quarterly to determine whether a significant event or change in circumstances has occurred that may have an adverse effect on the fair value of each investment. When such events or changes occur, we evaluate the fair value compared to our carrying value of the investment. For investments in non-publicly traded companies, management’s assessment of fair value is based on various valuation methodologies, including the option pricing model when the investment is in a preferred class of security, discounted cash flows, market multiples, and the impact of our contractual terms with the investee, as appropriate. We consider the assumptions that we believe a market participant would use in evaluating estimated future cash flows when employing the discounted cash flow methodologies. The ability to accurately predict future cash flows, especially in emerging and developing markets, may impact the determination of fair value. In the event the fair value of an investment declines below our carrying value, management is required to determine if the decline in fair value is other than temporary. If management determines the decline is other than temporary, an impairment charge is recorded.

Investments in Variable Interest Entities

We hold equity investments in entities that are considered VIEs, including Nutrabolt and Chobani. We would be required to consolidate a VIE for which we are determined to be the primary beneficiary. To determine if we are the primary beneficiary of a VIE, 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 us and the VIE’s other partner(s).

We have determined that we are not the primary beneficiary of any VIEs. Refer to Note 19 of the Notes to our Consolidated Financial Statements for additional information on our investments in VIEs.

EFFECT OF RECENT ACCOUNTING PRONOUNCEMENTS

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

SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION

The Notes are fully and unconditionally guaranteed by certain of our direct and indirect subsidiaries (the "Guarantors"), as defined in the indentures governing the Notes. The Guarantors are 100% owned either directly or indirectly by us and jointly and severally guarantee, subject to the release provisions described below, our obligations under the Notes. None of our subsidiaries organized outside of the U.S., any of the subsidiaries held by Maple Parent Holdings Corp. prior to the DPS Merger, or any of the subsidiaries acquired after the DPS Merger (collectively, the "Non-Guarantors") guarantee the Notes. The subsidiary guarantees with respect to the Notes are subject to release upon the occurrence of certain events, including the sale of all or substantially all of a subsidiary's assets, the release of the subsidiary's guarantee of our other indebtedness, our exercise of the legal defeasance option with respect to the Notes, and the discharge of our obligations under the applicable indenture.

The following schedules present the summarized financial information for Keurig Dr Pepper Inc. (the “Parent”) and the Guarantors on a combined basis after intercompany eliminations; the Parent and the Guarantors' amounts due from and amounts due to Non-Guarantors are disclosed separately. The consolidating schedules are provided in accordance with the reporting requirements of Rule 13-01 under SEC Regulation S-X for the issuer and guarantor subsidiaries.

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The summarized financial information for the Parent and Guarantors were as follows:

(1)Includes $115 million and $56 million of intercompany receivables due to the Parent and Guarantors from the Non-Guarantors as of December 31, 2024 and December 31, 2023, respectively.

(2)Includes $1,997 million and $1,399 million of intercompany payables due to the Non-Guarantors from the Parent and Guarantors as of December 31, 2024 and December 31, 2023, respectively.

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