KDP US Equity☆

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, 2020 and 2019 and year-over-year comparisons between the years ended December 31, 2020 and 2019. Discussions of the periods prior to the year ended December 31, 2019 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, 2019 and the discussion therein for the year ended December 31, 2019 compared to the year ended December 31, 2018 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, with a diverse portfolio of flavored (non-cola) CSDs, NCBs, including water (enhanced and flavored), ready-to-drink tea and coffee, juice, juice drinks, mixers and specialty coffee, and is a leading producer of innovative single serve brewers. With a wide range of hot and cold beverages that meet virtually any consumer need, KDP key brands include Keurig, Dr Pepper, Canada Dry, Snapple, Bai, Mott's, Core, Green Mountain and The Original Donut Shop. KDP 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. KDP offers more than 125 owned, licensed and partner brands, including the top ten best-selling coffee brands and Dr Pepper as a leading flavored CSD in the U.S. according to IRi, available nearly everywhere people shop and consume beverages.

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 delivery system. KDP markets and sells its 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 its 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

As of December 31, 2020, we report our business in four operating segments:

•The Coffee Systems segment reflects sales in the U.S. and Canada of the manufacture and distribution of finished goods relating to the Company's single-serve brewers, K-Cup pods and other coffee products.

•The Packaged Beverages segment reflects sales in the U.S. and Canada from the manufacture and distribution of finished beverages and other products, including sales of the Company's own brands and third-party brands, through our DSD and WD systems.

•The Beverage Concentrates segment reflects sales of the Company's branded concentrates and syrup to third-party bottlers, primarily in the U.S. and Canada. Most of the brands in this segment are CSDs.

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

VOLUME

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

Coffee Systems K-Cup Pod and Appliance Sales Volume

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

Packaged Beverages and Latin America Beverages Sales Volume

In our Packaged Beverages and Latin America Beverages segments, 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.

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Beverage Concentrates Sales Volume

In our Beverage Concentrates segment, 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.

USE OF NON-GAAP FINANCIAL MEASURES

Non-GAAP financial measures are provided in addition to U.S. GAAP measures, including adjusted income from operations, adjusted net income and adjusted diluted earnings per share. See Non-GAAP Financial Measures for more information, including reconciliations to the corresponding U.S. GAAP measures.

UNCERTAINTIES AND TRENDS AFFECTING OUR BUSINESS

We believe the North American beverage market is influenced by certain key trends and uncertainties. Some of these items, such as the ongoing outbreak of COVID-19, changes in consumer preferences and macroeconomic changes, have previously created and may continue to create category headwinds for a number of our products. Refer to Item 1A, "Risk Factors", combined with the Uncertainties and Trends Affecting Liquidity section below, for more information about the risks and uncertainties we face.

COVID-19 Pandemic Disclosures

Our first priority, always, is to keep our employees safe and healthy. We have taken extraordinary precautions to do this and to provide the support our employees and their families may need during this unprecedented time.

We continue to deliver for our customers and consumers, working hard to fulfill strong demand. We are finding innovative ways to quickly adapt to changes in shopping behaviors, with the vast majority of North America impacted by a mix of occupancy limitations, stay-at-home or shelter-in-place orders, and closures of non-essential businesses.

We are also focused on providing for our communities by supporting frontline healthcare workers who are fighting this crisis day in and day out. We don’t make masks or medical equipment at our Company, but we do make beverages and, through our Fueling The Frontline program, we donated Keurig brewers, coffee and other beverages to hospitals in need, as our way to say thank you for the unwavering commitment and courage of the entire medical community.

The COVID-19 pandemic has had divergent impacts within our business. For example, we experienced a significant increase in demand and consumption of our products in our at-home business caused in part by changing consumer habits in response to COVID-19, contributing to increases in net sales. At the same time, we experienced significant declines in net sales in our away-from-home business due to office closures and the slowdown of hospitality and fountain foodservice as a result of shelter-in-place guidelines and restaurant capacity limits. In the future, the economic effects of the COVID-19 pandemic, including higher levels of unemployment, lower wages or a recessionary environment, may result in reduced demand for our products. It could also lead to volatility in demand due to government actions, such as shelter-in-place notices, in response to increases in reported cases and hospitalizations in certain regions. These government actions could impact consumers' movements and access to our products.

While we believe that there will continue to be strong long-term demand for our products, the timing and extent of economic recovery, and the uncertainties in short-term demand trends, make it difficult to predict the overall effects of the COVID-19 pandemic on our business. We expect that there will be heightened volatility in net sales during and subsequent to the duration of the pandemic that may impact interim periods.

Our ability to continue to operate without any significant negative impacts will in part depend on our ability to protect our critical frontline employees and our supply chain. As food and agriculture is deemed part of the critical infrastructure by the Department of Homeland Security, our frontline employees have been identified as critical workers in maintaining the U.S. food and beverage supply. As a result, we have strived to follow recommended actions of government and health authorities to protect our employees, with particular measures in place for those working in our manufacturing and distribution facilities, which also included temporary incentive pay programs and benefits. We intend to continue to work with government authorities and implement our employee safety measures; however, disruptions to our supply chain, measures taken to protect employees, increased absenteeism or other local effects of the COVID-19 pandemic have impacted and could continue to impact our operations. For our corporate employees, we do not believe that the remote work environment has had any significant impact on our internal controls over financial reporting. With the health and safety of our employees remaining our top priority, we are diligently working on plans to safely bring our employees back to office locations with enhanced safety and health protocols. We do not believe these plans will impact our near-term liquidity needs.

The COVID-19 pandemic has not materially impacted our liquidity position. We continue to generate operating cash flows to meet our short-term liquidity needs, and we expect to maintain access to the capital markets enabled by our debt ratings. Refer to Uncertainties and Trends Affecting Liquidity within the Liquidity and Capital Resources section below for more information.

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EXECUTIVE SUMMARY

Impact of COVID-19 on our Financial Statements

The impact of COVID-19 on our net sales performance presented both headwinds and tailwinds across the business and within the segments, requiring strong portfolio, package and channel mix management to optimize overall performance. The diversity of the Company’s broad portfolio and extensive route to market network enabled us to successfully navigate these mix impacts posed by the COVID-19 pandemic to drive overall performance.

•Coffee Systems experienced growth in K-Cup coffee pods for at-home consumption and strong double-digit growth in brewers, which more than offset the significant decline in away-from-home consumption due to weaknesses in the office coffee channel, as many companies shifted to a work-from-home model during 2020. Sales in the e-commerce channel were very strong, as consumers shifted purchases to the online channel, including at the Keurig.com retail site.

•Packaged Beverages experienced a net benefit from strong in-market execution, driven by net sales and market share growth in the majority of the segment's beverage portfolio. Performance in large-format channels continued to be strong across multi-pack and take-home packages, which was partially offset by softness in the convenience and gas channels due to decreased consumer mobility.

•Beverage Concentrates experienced a significant decline in net sales due to the fountain foodservice component of the business, which services restaurants and hospitality, as a result of the impact of shutdowns and reductions in occupant capacity, which improved throughout the year, reflecting a modest reopening of quick-serve and other fast-casual restaurants.

•Latin America Beverages experienced limited growth in sales volumes, driven by reduced consumer mobility and tourism in Mexico.

The current environment has increased operating costs, requiring us to take deliberate action. In addition to strong portfolio, package and channel mix management to optimize overall net sales performance, we maintained our strong cost discipline, which included the following:

•Reduced marketing expense, given the current COVID-19 landscape which has impacted the effectiveness and return on marketing investments; and

•Reduced other discretionary costs, such as travel and entertainment expenses, within our business.

As a result of these items, COVID-19 impacted our results, both positively and negatively, and should be taken into account when reviewing this Management's Discussion and Analysis. Refer to the section Uncertainties and Trends Affecting our Business - COVID-19 Pandemic Disclosures above for further information.

The following table sets forth our reconciliation of significant COVID-19-related expenses. Employee compensation expense and employee protection costs, which impact our SG&A expenses and cost of sales, are included as the COVID-19 item affecting comparability and is excluded in our non-GAAP financial measures. In addition, reported amounts under U.S. GAAP also include additional costs, not included in the COVID-19 item affecting comparability, as presented in tables below.

Items Affecting Comparability(1)

For the year ended December 31, 2020

Beverage Concentrates — — 4 — 4

Latin America Beverages — 2 — — 2

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

(2)Primarily reflects temporary incremental frontline incentive pay and the associated taxes in order to maintain essential operations during the COVID-19 pandemic. Impacts both cost of sales and SG&A expenses. In mid-September 2020, we discontinued the incremental frontline incentive pay program.

(3)Includes costs associated with personal protective equipment, temperature scans, cleaning and other sanitization services. Impacts both cost of sales and SG&A expenses.

(4)Allowances reflect the expected impact of the economic uncertainty caused by COVID-19, leveraging estimates of credit worthiness, default and recovery rates for certain of our customers. Impacts SG&A expenses.

(5)Inventory write-downs represent obsolescence charges, which impact cost of sales.

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Financial Overview

The following table details our net income and diluted EPS for the years ended December 31, 2020 and 2019:

For the Year Ended December 31, Dollar Percent

(in millions, except per share data) 2020 2019 Change Change

Net income attributable to KDP increased $71 million, or 5.7%, to $1,325 million for the year ended December 31, 2020, compared to $1,254 million in the prior year, reflecting strong growth in income from operations, driven primarily by the continued benefit of productivity and merger synergies, volume/mix growth and lower discretionary expenses, primarily marketing, partially offset by $150 million of additional pre-tax expenses associated with COVID-19 and a non-cash impairment on our Bai brand intangible asset. Other favorable drivers included lower interest expense due to continued deleveraging and the impact of a lower effective tax rate, partially offset by a non-cash impairment on equity investments and a related party note receivable.

Adjusted net income attributable to KDP increased $261 million, or 15.1%, to $1,988 million, compared to $1,727 million in the prior year, reflecting the continued benefit of productivity and merger synergies, volume/mix growth and lower discretionary expenses, primarily marketing, which were partially offset by lower net price realization and higher operating and manufacturing costs associated with increased consumer retail demand for our products. Other drivers included lower Adjusted interest expense due to continued deleveraging and the impact of a lower Adjusted effective tax rate.

During the year ended December 31, 2020, we made net repayments of $951 million related to our Notes, our 2019 KDP Term Loan, and our commercial paper notes. Additionally, we repaid $341 million and added $171 million of structured payables.

In February 2021, our Board has approved an increase of 25% in our quarterly dividend, which will begin with the second quarter dividend announcement.

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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".

Consolidated Operations

The following table sets forth our consolidated results of operations for the years ended December 31, 2020 and 2019:

For the Year Ended December 31, Dollar Percentage

(in millions, except per share amounts) 2020 2019 Change Change

Selling, general and administrative expenses 3,978 3,962 16 0.4

Impairment of intangible assets 67 — 67 NM

Other operating (income) expense, net (39) 2 (41) NM

Loss on early extinguishment of debt 4 11 (7) (63.6)

Impairment of investments and note receivable 102 — 102 NM

Other expense (income), net 17 19 (2) (10.5)

Less: Net income attributable to non-controlling interest — — — NM

Earnings per common share:

Sales Volume.The following table sets forth changes in sales volume for the year ended December 31, 2020 compared to the prior year:

K-Cup pod volume 6.3 %

Brewer volume 21.2 %

CSD sales volume 0.1 %

NCB sales volume 1.4 %

Net Sales.Net sales for the year ended December 31, 2020 increased $498 million to $11,618 million compared with net sales of $11,120 million in the prior year. This performance reflected higher volume/mix of 5.6%, partially offset by lower net price realization of 0.6% and unfavorable foreign currency translation of 0.5%, primarily in our Latin America Beverages segment.

Gross Profit. Gross profit for the year ended December 31, 2020 was $6,486 million, or 55.8% of net sales as compared to $6,342 million, or 57.0% of net sales in the prior year. This performance primarily reflected the impact of higher volume/mix and the benefit of productivity and merger synergies. These benefits were partially offset by unfavorable net price realization, unfavorable FX translation, $52 million in COVID-19 charges and an increase in other manufacturing costs, associated with the strong consumer demand. Gross margin decreased 120 bps from the prior year to 55.8%.

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Selling, General and Administrative Expenses.SG&A expenses for the year ended December 31, 2020 increased $16 million to $3,978 million, compared with $3,962 million in the prior year. The increase was driven by $98 million in COVID-19 charges, expenses associated with productivity projects, inflation in logistics, and higher operating costs associated with the strong consumer demand, such as logistics and labor. These increases were partially offset by the benefit of strong productivity and merger synergies and lower discretionary expenses, primarily marketing.

Impairment of Intangible Assets. Impairment of intangible assets reflects a $67 million non-cash impairment charge recorded for the Bai brand as a result of our annual impairment analysis as of October 1, 2020. Refer to Note 4 of the Notes to our Consolidated Financial Statements for further information regarding the impairment analysis.

Other Operating (Income) Expense, Net. Other operating (income) expense, net had a favorable change of $41 million for the year ended December 31, 2020 compared with the prior year, largely driven by the comparison to unfavorable fair value adjustments on real estate assets in the prior year. Additionally, we had an incremental gain from our network optimization program in the current year, with a gain of $42 million from the sale-leaseback of four facilities in the current year, compared to a gain of $30 million in the prior year from the sale-leaseback of three facilities.

Income from Operations. Income from operations increased $102 million to $2,480 million for the year ended December 31, 2020, driven by the increase in gross profit and the favorable change in other operating (income) expense, net, partially offset by the non-cash impairment of the Bai brand intangible asset and the increase in SG&A expenses. Operating margin decreased 10 bps versus the prior year to 21.3%.

Interest Expense.Interest expense decreased $50 million or 7.6%, to $604 million for the year ended December 31, 2020 compared to $654 million in the prior year. This change was primarily the result of the benefit of lower indebtedness due to continued deleveraging.

Loss on Early Extinguishment of Debt. Loss on early extinguishment of debt decreased $7 million to $4 million for the year ended December 31, 2020 compared to $11 million for the prior year. This change was primarily the result of the Company's focus on repaying commercial paper during the current year, versus our focus on voluntary repayments on our term loan in the prior year.

Impairment on Investments and Note Receivable. Impairment on investments and note receivable reflected a non-cash impairment charge of $102 million for the year ended December 31, 2020 associated with our Bedford investment and the related note receivable and our LifeFuels investment. Refer to Note 5 of the Notes to our Consolidated Financial Statements for additional information regarding the impairment charges.

Effective Tax Rate.The effective tax rates for the years ended December 31, 2020 and 2019 were 24.4% and 26.0%, respectively. The decrease from prior year primarily related to the tax benefit received in the current year due to a decrease in our uncertain tax positions as a result of examination settlements and the reversal of a valuation allowance related to the carryforward of net operating losses in a wholly-owned subsidiary.

Net Income Attributable to KDP. Net income attributable to KDP increased $71 million, or 5.7%, to $1,325 million for the year ended December 31, 2020 as compared to $1,254 million in the prior year, driven by improved income from operations, reduced interest expense and reduced losses on early extinguishment of debt, as well as the decrease in the effective tax rate, which were partially offset by the non-cash impairment on investments and note receivable during the year ended December 31, 2020.

Diluted EPS. Diluted EPS increased 5.7% to $0.93 per diluted share as compared to $0.88 in the prior year.

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Adjusted Results of Operations

The following table sets forth selected consolidated adjusted results of operations for the years ended December 31, 2020 and 2019:

For the Year Ended December 31, Dollar Percentage

(in millions, except per share amounts) 2020 2019 Change Change

Adjusted operating margin 27.5 % 26.0 % 150 bps

Adjusted effective tax rate 24.5 % 25.5 % (100 bps)

Adjusted Income from Operations. Adjusted income from operations increased $301 million, or 10.4%, to $3,191 million for the year ended December 31, 2020 compared to $2,890 million in the prior year. Driving this performance in the current year was the benefit of productivity and merger synergies, which impacted both SG&A and cost of sales, higher volume/mix, and lower discretionary expenses, primarily marketing. Partially offsetting these positive drivers were unfavorable net price realization, $22 million of COVID-19 charges and higher operating and manufacturing costs associated with the strong consumer demand. Adjusted operating margin grew 150 bps to 27.5%.

Adjusted Interest Expense. Adjusted interest expense decreased $11 million, or 2.0%, to $542 million for the year ended December 31, 2020 compared to $553 million in the prior year. This benefit was primarily driven by lower indebtedness resulting from continued deleveraging, which was partially offset by the unfavorable comparison to realized gains in the prior year resulting from the termination of interest rate swaps and amortization of deferred financing costs incurred since the DPS Merger.

Adjusted Effective Tax Rate. The Adjusted effective tax rate decreased 100 bps to 24.5% for the year ended December 31, 2020 compared to 25.5% in the prior year. The decrease from prior year primarily related to the tax benefit received in the current year due to a decrease in our uncertain tax positions as a result of examination settlements and the reversal of a valuation allowance related to the carryforward of net operating losses in a wholly-owned subsidiary.

Adjusted Net Income Attributable to KDP.Adjusted net income increased 15.1% to $1,988 million for the year ended December 31, 2020 as compared to $1,727 million in the prior year. This performance was driven primarily by strong growth in Adjusted income from operations.

Adjusted Diluted EPS.Adjusted diluted EPS increased 14.8% to $1.40 per diluted share as compared to $1.22 per diluted share in the prior year.

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Results of Operations by Segment

The following tables set forth net sales and income from operations for our segments for the years ended December 31, 2020 and 2019, as well as the other amounts necessary to reconcile our total segment results to our consolidated results presented in accordance with U.S. GAAP:

(in millions) For the Year Ended December 31,

Latin America Beverages 497 528

For the Year Ended December 31,

Segment Results — Income from Operations

Latin America Beverages 105 85

Unallocated corporate costs (647) (638)

COFFEE SYSTEMS

The following table provides selected information for our Coffee Systems segment for the years ended December 31, 2020 and 2019:

For the Year Ended December 31, Dollar Percentage

Adjusted operating margin 34.2 % 33.1 % 110 bps

Sales Volume. Sales volume growth for the year ended December 31, 2020 compared to the prior year for the Coffee Systems segment included strong K-Cup pod volume growth of 6.3%, reflecting strength in at-home consumption which was significantly offset by softness in the away-from-home business due to the COVID-19 pandemic. Brewer volume increased 21.2% in the year ended December 31, 2020, as compared to 8.2% growth in the prior year, reflecting successful innovation introduced over the past two years and investments to drive household penetration.

Net Sales. Net sales increased $200 million, or 4.7%, to $4,433 million for the year ended December 31, 2020, compared to $4,233 million in the prior year due to volume/mix growth of 7.2%, driven by strong sales volume growth in both pods and brewers. This growth was partially offset by lower net price realization of 2.4% and unfavorable foreign currency translation of 0.1%.

Income from Operations.Income from operations increased $49 million, or 4.0%, to $1,268 million for the year ended December 31, 2020, compared to $1,219 million in the prior year, driven by the continued benefit of strong productivity and merger synergies, which impacted both cost of sales and SG&A, strong volume/mix growth and lower discretionary expenses, primarily marketing. These benefits were partially offset by strategic pricing, $35 million in COVID-19 charges, and expenses associated with productivity projects. Operating margin declined 20 bps to 28.6%.

Adjusted Income from Operations. Adjusted income from operations increased $111 million, or 7.9%, to $1,514 million for the year ended December 31, 2020, compared to $1,403 million in the prior year, driven by the continued benefit of strong productivity and merger synergies, which impacted both cost of sales and SG&A, strong volume/mix, and lower discretionary expenses, primarily marketing. Partially offsetting these factors was strategic pricing and $10 million in COVID-19 charges. Adjusted operating margin grew 110 bps to 34.2%.

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PACKAGED BEVERAGES

The following table provides selected information for our Packaged Beverages segment for the years ended December 31, 2020 and 2019:

For the Year Ended December 31, Dollar Percentage

Operating margin 15.3 % 15.3 % 0 bps

Adjusted operating margin 19.0 % 15.8 % 320 bps

Sales Volume. Sales volume for the year ended December 31, 2020 increased 7.3% compared to the prior year, reflecting the impact of COVID-19 and our strong in-market execution, which displayed strength in CSDs, juice and juice drinks, premium water and apple sauce. These increases were partially offset by lower volume in enhanced flavored water, driven by Bai, due to continued softness in convenience and gas channels during the current year.

Net Sales. Net sales increased $418 million, or 8.5%, to $5,363 million for the year ended December 31, 2020, compared to $4,945 million in the prior year, driven by higher volume/mix of 8.2% and favorable price realization of 0.3%.

Income from Operations. Income from operations increased $65 million, or 8.6%, to $822 million for the year ended December 31, 2020, compared to $757 million in the prior year, driven primarily by strong volume/mix. Other favorable drivers included the benefit of continued productivity and merger synergies and lower discretionary expenses, primarily marketing. These growth drivers were partially offset by $109 million in COVID-19 charges, a non-cash impairment charge of $67 million related to the Bai brand, higher manufacturing and operating costs, such as logistics and labor, associated with the strong consumer demand, inflation in logistics, the unfavorable comparison to a $10 million net gain on a renegotiation of a manufacturing contract in the prior year and increased expenses associated with productivity projects. Operating margin was flat versus the prior year at 15.3%.

Adjusted Income from Operations. Adjusted income from operations increased $238 million, or 30.4%, to $1,021 million for the year ended December 31, 2020 compared to $783 million in the prior year, largely driven by strong volume/mix. Other favorable drivers included the benefit of continued productivity and merger synergies and lower discretionary expenses, primarily marketing. These drivers were partially offset by higher manufacturing and operating costs, such as logistics and labor, associated with the strong consumer demand, inflation in logistics, and the unfavorable comparison to a $10 million net gain on a renegotiation of a manufacturing contract in the prior year. Adjusted operating margin grew 320 bps versus the prior year to 19.0%.

BEVERAGE CONCENTRATES

The following table provides selected information for our Beverage Concentrates segment for the years ended December 31, 2020 and 2019:

For the Year Ended December 31, Dollar Percentage

Adjusted income from operations 938 957 (19) (2.0) %

Adjusted operating margin 70.8 % 67.7 % 310 bps

Sales Volume. Sales volume for the year ended December 31, 2020 declined 5.1% compared to the prior year, primarily reflecting the decline in our fountain foodservice component of the business, which services restaurants and hospitality, reflecting the impact of shutdowns and reductions in occupant capacity.

Net Sales. Net sales decreased $89 million, or 6.3% to $1,325 million for the year ended December 31, 2020, compared to $1,414 million in the prior year, driven by unfavorable volume/mix of 5.8%, lower net price realization of 0.4% and unfavorable foreign currency translation of 0.1%.

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Income from Operations. Income from operations decreased $23 million, or 2.4% to $932 million for the year ended December 31, 2020, compared to $955 million in the prior year, driven by the net sales decline and higher compensation costs, partially offset by lower discretionary expenses, primarily marketing. Operating margin increased 280 bps versus the prior year to 70.3%.

Adjusted Income from Operations. Adjusted income from operations decreased $19 million, or 2.0%, to $938 million for the year ended December 31, 2020 compared to $957 million in the prior year, driven by the net sales decline, partially offset by lower discretionary expenses, primarily marketing. Adjusted operating margin grew 310 bps versus the prior year to 70.8%.

LATIN AMERICA BEVERAGES

The following table provides selected information for our Latin America Beverages segment for the years ended December 31, 2020 and 2019:

For the Year Ended December 31, Dollar Percentage

Adjusted operating margin 21.7 % 15.5 % 620 bps

Sales Volume. Sales volume for the year ended December 31, 2020 increased 0.4% compared to the prior year, driven by Squirt.

Net Sales. Net sales decreased $31 million, or 5.9% to $497 million for the year ended December 31, 2020, compared to $528 million in the prior year, driven primarily by unfavorable FX translation of 9.7%. Excluding the unfavorable impact of FX translation, net sales increased as a result of higher net price realization of 5.8%, partially offset by unfavorable volume/mix of 2.0%.

Income from Operations. Income from operations increased $20 million, or 23.5%, to $105 million for the year ended December 31, 2020, compared to $85 million in the prior year, driven by higher net price realization, continued productivity and lower discretionary expenses, primarily marketing, partially offset by unfavorable FX effects (FX translation and transaction), unfavorable volume/mix, inflation in logistics and the comparison to a real estate gain in the prior year. Operating margin increased 500 bps versus the prior year to 21.1%.

Adjusted Income from Operations. Adjusted income from operations increased $26 million, or 31.7%, to $108 million for the year ended December 31, 2020, compared to $82 million in the prior year. This performance reflected higher net price realization, continued productivity and lower marketing expense, partially offset by unfavorable FX effects (FX translation and transaction), unfavorable volume/mix and inflation in logistics. Adjusted operating margin grew 620 bps versus the prior year to 21.7%.

LIQUIDITY AND CAPITAL RESOURCES

Overview

Our financial condition and liquidity remain strong. Net cash provided by operations was $2,456 million for the year ended December 31, 2020 compared to $2,474 million for the prior year. Although there is uncertainty related to the anticipated impact of the ongoing COVID-19 pandemic on our future results, we believe we are uniquely positioned, with our broad portfolio and unmatched distribution network, to successfully navigate through this pandemic, and the steps we have taken to strengthen our balance sheet leave us well positioned to manage our business as the crisis continues to unfold. 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 and developing new opportunities for growth.

Our principal sources of liquidity are our existing cash and cash equivalents, cash generated from operations and our $3.9 billion borrowing capacity currently available under our existing KDP Revolver and 2020 364-Day Credit Agreement. Additionally, we have an uncommitted commercial paper program where we can issue up to $2.4 billion of unsecured commercial paper notes on a private placement basis, which provides us significant flexibility and short-term liquidity. We believe this level of liquidity enables us to more than meet our commitments, even in a prolonged economic downturn, as we continue to exercise financial discipline to ensure our long-term financial health. Refer to Note 3 of the Notes to our Consolidated Financial Statements for management's discussion of these financing arrangements.

As of December 31, 2020, we were in compliance with all debt covenants and we have no reason to believe that we will be unable to satisfy these covenants.

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Uncertainties and Trends Affecting Liquidity

Disruptions in financial and credit markets, including those caused by the ongoing COVID-19 pandemic, may impact our ability to manage normal commercial relationships with our customers, suppliers and creditors. 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 additionally be impacted by all risk factors discussed in Item 1A, "Risk Factors" that could have a material effect on production, delivery and consumption of our products in the U.S., Mexico and the Caribbean or Canada, which could result in a reduction in our sales volume. Similarly, disruptions in financial and credit markets 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.

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

•Our intention to drive significant cash flow generation to enable rapid deleveraging within two to three years from the DPS Merger;

•Our ability to issue unsecured commercial paper notes on a private placement basis up to a maximum aggregate amount outstanding at any time of $2,400 million;

•Our ability to access our other financing arrangements, including the KDP Revolver and the 2020 364-Day Credit Agreement, which have availability of $3,900 million as of December 31, 2020;

•A significant downgrade in our credit ratingscould limit 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;

•Our continued payment of dividends;

•Our continued capital expenditures;

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

•Future equity investments;

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

•Fluctuations in our tax obligations.

LIBOR Considerations

In 2017, the U.K. Financial Conduct Authority announced that LIBOR will no longer be published after 2021. In the U.S., the Alternative Reference Rates Committee selected the Secured Overnight Financing Rate as the preferred alternative reference rate to LIBOR. In December 2020, it was announced that certain LIBOR rates will continue to be published through June 30, 2023.

We have a number of financing arrangements which incorporate LIBOR as a benchmark rate and which extend past 2021, including the 2019 KDP Term Loan and the KDP Revolver. The agreements related to such financing arrangements contain provisions for alternative reference rates, and we do not expect a significant change to our cost of debt as a result of the transition from LIBOR to an alternative reference rate.

Liquidity

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. 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.

The following table summarizes our cash activity:

Year Ended December 31,

Net cash provided by operating activities $ 2,456 $ 2,474 $ 1,613

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

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

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NET CASH PROVIDED BY OPERATING ACTIVITIES

Net cash provided by operating activities decreased $18 million for the year ended December 31, 2020 as compared to year ended December 31, 2019, driven by the decline in working capital and an increase in income tax payments, partially offset by the increase in net income adjusted for non-cash items.

As of December 31, 2020, we had no deferred estimated tax payments, as compared to deferred estimated tax payments as of December 31, 2019 of $59 million, which were paid in January 2020.

Beginning in the second quarter of 2020 and continuing through the rest of the year, we deferred payments of employer-related payroll taxes as allowed under the U.S. Coronavirus Aid, Relief and Economic Security Act, commonly known as the CARES Act. Payment of at least 50% of the deferred amount is due on December 31, 2021 with the remainder due by December 31, 2022. As of December 31, 2020, we have deferred a total of $59 million in such payments.

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:

Component Calculation (on a trailing twelve month basis)

DIO (Average inventory divided by cost of sales) * Number of days in the period

DSO (Accounts receivable divided by net sales) * Number of days in the period

Our cash conversion cycle declined (17) days to approximately (63) days as of December 31, 2020 as compared to (46) days as of December 31, 2019. The following table summarizes our cash conversion cycle:

December 31,

Cash conversion cycle (63) (46)

For the year ending December 31, 2021, DPO is expected to have a positive impact on our cash conversion cycle as a result of our supplier terms initiative, which has set our customary terms as we integrate our legacy businesses.

Accounts Payable Program

As part of our ongoing efforts to improve our cash flow and related liquidity, we work with our suppliers to optimize our terms and conditions, which include the extension of 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 entered into an agreement with a third party administrator 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. We have been informed by the third party administrator that as of December 31, 2020 and December 31, 2019, $2,578 million and $2,097 million, respectively, of our outstanding payment obligations were voluntarily elected by the supplier and sold to financial institutions. The amounts settled through the program and paid to the financial institutions were $2,770 million and $1,745 million for the years ended December 31, 2020 and 2019, respectively.

NET CASH USED IN INVESTING ACTIVITIES

Cash used in investing activities for the year ended December 31, 2020 was primarily driven by our purchases of property, plant and equipment of $461 million and purchases of intangible assets of $56 million, which was partially offset by proceeds of $203 million from sales of property, plant and equipment, primarily driven by our asset sale-leaseback transactions.

Cash used in investing activities for the year ended December 31, 2019 was primarily driven by our purchases of property, plant and equipment of $330 million, partially offset by proceeds of $247 million from sales of property, plant and equipment, primarily driven by our asset sale-leaseback transactions. Other drivers of cash used investing activities included $35 million for purchases of intangible assets, primarily the reacquisition of distribution rights, and advances of $32 million to Bedford under its line of credit with us.

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NET CASH USED IN FINANCING ACTIVITIES

Cash used in financing activities for the year ended December 31, 2020 consisted primarily of the net repayment of $1,246 million for commercial paper notes. We made the decision to repay commercial paper notes with an equivalent amount of borrowings under our KDP Revolver, as the costs and ability to issue commercial paper became inefficient at the onset of the COVID-19 pandemic versus borrowings under our KDP Revolver. The KDP Revolver was subsequently repaid through the issuance of our 2030 Notes and 2050 Notes. Additionally, we made voluntary and mandatory repayments on the term loan facility of $955 million, dividend payments of $846 million, the repayment of the 2020 Notes of $250 million and net payments on structured payables of $170 million. We also received $29 million from controlling shareholder stock transactions, which related to the disgorgement of short-swing profits pursuant to Section 16(b) of the Exchange Act.

Net cash used in financing activities for the year ended December 31, 2019 consisted primarily of the voluntary and mandatory repayments on the 2018 KDP Term Loan and 2019 KDP Term Loan of $1,203 million, dividend payments of $844 million, repayments of structured payables of $531 million and the repayment of the 2019 Notes of $250 million. These cash outflows from financing activities were partially offset by net issuance of commercial paper notes of $167 million and proceeds from structured payables of $330 million.

Debt Ratings

As of December 31, 2020, our credit ratings were as follows:

Rating Agency Long-Term Debt Rating Commercial Paper Rating Outlook

Moody's Baa2 P-2 Negative

S&P BBB A-2 Stable

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.

Capital Expenditures

Purchases of property, plant and equipment were $461 million and $330 million for the years ended December 31, 2020 and 2019, respectively.

Capital expenditures, which includes purchases of property, plant and equipment and amounts reflected in accounts payable and accrued expenses, for the year ended December 31, 2020 primarily related to our continued investment in state-of-the-art manufacturing facilities and equipment through the build-out of our Spartanburg manufacturing facility, the purchase of real estate in Ireland and the associated build out of the manufacturing facility and the build-out of our Allentown manufacturing facility.

Capital expenditures for the year ended December 31, 2019 primarily related to manufacturing equipment, our continued investment in the construction of our new Spartanburg facility in South Carolina and information technology infrastructure.

Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents

Cash, cash equivalents, restricted cash and restricted cash equivalents increased $144 million to $255 million as of December 31, 2020 compared to $111 million as of December 31, 2019.

Our cash balances are used to fund working capital requirements, scheduled debt and interest payments, capital expenditures, income tax obligations, dividend payments and business combinations. Cash generated by our foreign operations is generally repatriated to the U.S. periodically as working capital funding requirements in those jurisdictions allow. Foreign cash balances were $165 million and $70 million as of December 31, 2020 and December 31, 2019, respectively. We accrue tax costs for repatriation, as applicable, as cash is generated in those foreign jurisdictions.

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Contractual Commitments and Obligations

We enter into various contractual obligations that impact, or could impact, our liquidity. Based on our current and anticipated level of operations, we believe that our proceeds from operating cash flows will be sufficient to meet our anticipated obligations. 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. Refer to Note 3 of the Notes to our Consolidated Financial Statements for obligations related to our senior unsecured notes and our KDP Credit Agreements. Refer to Note 9 of the Notes to our Consolidated Financial Statements for future minimum lease commitments.

The following table summarizes our contractual obligations as of December 31, 2020:

Payments Due in Year

(1)Amounts represent payments under agreements to purchase goods or services that are legally binding and that specify all significant terms, including capital obligations and long-term contractual obligations.

Amounts excluded from our table

As of December 31, 2020, we had $11 million of non-current unrecognized tax benefits, related interest and penalties classified as a long-term liability. The table above does not reflect any payments related to these amounts as it is not possible to make a reasonable estimate of the amount or timing of the payment. Refer to Note 7 of the Notes to our Consolidated Financial Statements for further information.

The total accrued benefit liability representing the underfunded position for pension recognized as of December 31, 2020 was approximately $25 million. This amount is impacted by, among other items, funding levels, plan amendments, changes in plan assumptions and the investment return on plan assets. We did not include estimated payments related to our total accrued benefit liability in the table above. The Pension Protection Act of 2006 was enacted in August 2006 and established, among other things, new standards for funding of U.S. defined benefit pension plans. We generally expect to fund all future contributions with cash flows from operating activities. Our international pension plans are generally funded in accordance with local laws and income tax regulations. We did not include our estimated contributions to our various single employer plans in the table above.

We have a deferred compensation plan where the assets are maintained in a rabbi trust and the corresponding liability related to the plan is recorded in other non-current liabilities. We did not include estimated payments related to the deferred compensation liability as the timing and payment of these amounts are determined by the participants and outside our control.

In general, we are covered under conventional insurance programs with high deductibles or are self-insured for large portions of many different types of claims. Our accrued liabilities for our losses related to these programs are estimated through actuarial procedures of the insurance industry and by using industry assumptions, adjusted for our specific expectations based on our claim history. As of December 31, 2020, our accrued liabilities for our losses related to these programs totaled approximately $107 million.

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.

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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.

We define our six reporting units as the following:

Segments Reporting Units

Packaged Beverages DSD

WD

Coffee Systems Coffee Systems US

Coffee Systems Canada

Beverage Concentrates Beverage Concentrates

Latin America Beverages Latin America Beverages

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

For the year ended December 31, 2020, we performed a quantitative analysis, 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.

Critical assumptions for quantitative analyses include revenue growth and profit performance, including the achievability of productivity and synergies, over the next five year period, as well as an appropriate discount rate, long term growth rate and royalty rates, as applicable. 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 growth and the long-term economic growth potential. Royalty rates are based on observable market participant information.

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

Rate Minimum Maximum

Discount rates 6.0 % 10.0 %

Long-term growth rates — % 3.5 %

Royalty rates 1.0 % 10.0 %

The carrying values of goodwill and indefinite lived intangible assets as of December 31, 2020, were $20,184 million and $22,534 million, respectively. During the year ended December 31, 2020, the Company recorded an impairment of $67 million for the indefinite lived brand asset of Bai. No other impairment of goodwill or indefinite lived intangible assets was identified during the year ended December 31, 2020, and no impairment was identified in each of the years ended December 31, 2019 and 2018.

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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, 2020, would not change our conclusion.

For the indefinite-lived intangible assets, holding all other assumptions in the analysis constant, including the revenue and profit performance assumption, the effect of a 0.50% increase in the discount rate used to determine the fair value of our brands and trade names as of October 1, 2020, would impact the amount of headroom over the carrying value of our brands and trade names as follows (in millions):

Selected Discount Rate Discount Rate Increase of 0.50%

Headroom Percentage Carrying Value Fair Value Carrying Value Fair Value

Brands

Trade Names

Potential impairment $ — $ — $ — $ —

(1)The amounts listed in the Selected Discount Rate columns represent the carrying value of Bai as of the October 1, 2020 measurement date, prior to the $67 million impairment recorded during the fourth quarter of 2020.

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, 2020, would not change our conclusion.

For the indefinite-lived intangible assets, holding all other assumptions in the analysis constant, including the discrete period revenue and profit performance assumptions as well as the discount rates, the effect of a 0.50% decrease in the long-term revenue growth rate used to determine the fair value of our brands and trade names as of October 1, 2020, would impact the amount of headroom over the carrying value of our brands and trade names as follows (in millions):

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

Headroom Percentage Carrying Value Fair Value Carrying Value Fair Value

Brands

Trade Names

Potential impairment $ — $ — $ — $ —

(1)The amounts listed in the Selected Long-Term Growth Rate columns represent the carrying value of Bai as of the October 1, 2020 measurement date, prior to the $67 million impairment recorded during the fourth quarter of 2020.

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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 expense recognition. Our estimates are based primarily on a combination of known or historical transaction experiences. Differences between estimated expenses and actual costs are normally insignificant and are recognized to 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 $38 million for the year ended December 31, 2020.

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.

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.

We also assess the likelihood of realizing our deferred tax assets. Valuation allowances reduce deferred tax assets to the amount more likely than not to be realized. We base our judgment of the recoverability of our deferred tax assets primarily on historical earnings, our estimate of current and expected future earnings and prudent and feasible tax planning strategies.

If results differ from our assumptions, a valuation allowance against deferred tax assets may be increased or decreased which would impact our effective tax rate.

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.

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

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OFF-BALANCE SHEET ARRANGEMENTS

Distribution Rights Associated with Residual Value Guarantee

On December 28, 2020, one of our third-party bottlers sold their manufacturing and distribution rights to Veyron SPE. Subsequently, we entered into a distribution arrangement with Veyron SPE, which provided us access to distribute certain CSD beverages, such as Canada Dry, 7UP and A&W in a number of counties in New York and New Jersey in exchange for a fixed service fee and a residual value guarantee. As a result of the residual value guarantee, Veyron SPE was determined to be a VIE; however, we did not consolidate the VIE as we were not the primary beneficiary. Since the agreement provided us immediate distribution access without reacquiring ownership of the distribution rights asset and includes a guarantee on the assets of Veyron SPE, we believe this is an off-balance sheet arrangement. Revenues and expenses related to the arrangement for the year ended December 31, 2020 were not significant. Refer to Note 16 of the Notes to our Consolidated Financial Statements for additional information.

Multi-Employer Pension Plans

We currently participate, and have in the past participated, in multi-employer pension plans in the U.S. If, in the future, we choose to withdraw from participation in one of these plans, or we are deemed to have withdrawn from any of the multi-employer pension plans in which we currently participate or have participated in the past, the plan will assess us a withdrawal liability for exiting the plan, and U.S. GAAP would require us to record the withdrawal charge as an expense in our consolidated statements of income and as a liability on our consolidated balance sheets once the multi-employer pension withdrawal charge is probable and estimable. Refer to Note 10 of the Notes to our Consolidated Financial Statements for additional information regarding our multi-employer pension plans.

There are no other off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our results of operations, financial condition, liquidity, capital expenditures or capital resources other than letters of credit outstanding. Refer to Note 3 of the Notes to our Consolidated Financial Statements for additional information regarding outstanding letters of credit.

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.

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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., immaterial subsidiaries used for charitable purposes, 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 the Parent and the Guarantors on a combined basis after intercompany eliminations; the Parent and the Guarantors' amounts due from; amounts due to, and transactions with 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.

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

(in millions) For the Year Ended December 31, 2020

Income from operations 1,262

Net income attributable to KDP 1,325

(1)Includes $423 million and $241 million of current intercompany receivables due to the Parent and Guarantors from the Non-Guarantors as of December 31, 2020 and December 31, 2019, respectively.

(2)Includes $30 million and $20 million of current intercompany payables due to the Non-Guarantors from the Parent and Guarantors as of December 31, 2020 and December 31, 2019, respectively.

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Non-GAAP Financial Measures

To supplement the consolidated financial statements presented in accordance with U.S. GAAP, we have presented for the years ended December 31, 2020 and 2019 (i) Adjusted income from operations, (ii) Adjusted interest expense, (iii) Adjusted provision for income taxes, (iv) Adjusted net income attributable to KDP and (v) Adjusted diluted EPS, which are considered non-GAAP financial measures. The non-GAAP financial measures provided should be viewed in addition to, and not as an alternative for, results prepared in accordance with U.S. GAAP. The non-GAAP financial measures presented may differ from similarly titled non-GAAP financial measures presented by other companies, and other companies may not define these non-GAAP financial measures in the same way. The adjusted measures are not substitutes for their comparable U.S. GAAP financial measures, such as income from operations, net income, diluted EPS, or other measures prescribed by U.S. GAAP, and there are limitations to using non-GAAP financial measures.

For the years ended December 31, 2020 and 2019, we define our Adjusted non-GAAP financial measures as certain financial statement captions and metrics adjusted for certain items affecting comparability. The items affecting comparability are defined below.

Items affecting comparability:

Defined as certain items that are excluded for comparison to the prior year, adjusted for the tax impact as applicable. Tax impact is determined based upon an approximate rate for each item. For each year, management adjusts for (i) the unrealized mark-to-market impact of derivative instruments not designated as hedges in accordance with U.S. GAAP and do not have an offsetting risk reflected within the financial results; (ii) the amortization associated with definite-lived intangible assets; (iii) the amortization of the deferred financing costs associated with the DPS Merger and the Keurig Acquisition; (iv) the amortization of the fair value adjustment of the senior unsecured notes obtained as a result of the DPS Merger; (v) stock compensation expense attributable to the matching awards made to employees who made an initial investment in the EOP, the 2009 Incentive Plan or the 2019 Incentive Plan; and (vi) other certain items that are excluded for comparison purposes to the prior year.

For the year ended December 31, 2020, the other certain items excluded for comparison purposes include (i) restructuring and integration expenses related to significant business combinations; (ii) productivity expenses; (iii) costs related to significant non-routine legal matters; (iv) the loss on early extinguishment of debt related to the redemption of debt; (v) incremental temporary costs to our operations related to risks associated with the COVID-19 pandemic; (vi) impairment recognized on the equity method investments with Bedford and LifeFuels; and (vii) impairment recognized on the Bai brand.

Incremental costs to our operations related to risks associated with the COVID-19 pandemic include incremental expenses incurred to either maintain the health and safety of our front-line employees or temporarily increase compensation to such employees to ensure essential operations continue during the pandemic. We believe removing these costs reflects how management views our business results on a consistent basis. See Impact of COVID-19 on our Financial Statements for further information.

For the year ended December 31, 2019, the other certain items excluded for comparison purposes include (i) restructuring and integration expenses related to significant business combinations; (ii) productivity expenses; (iii) transaction costs for significant business combinations (completed or abandoned) excluding the DPS Merger; (iv) costs related to significant non-routine legal matters; (v) the impact of the step-up of acquired inventory not associated with the DPS Merger; (vi) the loss on early extinguishment of debt related to the redemption of debt and (vii) the loss related to the February 2019 organized malware attack on our business operation networks in the Coffee Systems segment.

For the years ended December 31, 2020 and 2019, the supplemental financial data set forth below includes reconciliations of Adjusted income from operations, Adjusted net income and Adjusted diluted EPS to the applicable financial measure presented in the consolidated financial statement for the same year.

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KEURIG DR PEPPER INC.

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

For the Year Ended December 31, 2020

(Unaudited, in millions, except per share data)

Items Affecting Comparability:

Amortization of intangibles — — (133) — 133

Stock compensation — — (27) — 27

Restructuring and integration costs — — (199) — 199

Impairment of intangible assets — — — (67) 67

Non-routine legal matters — — (57) — 57

Items Affecting Comparability:

Mark to market (27) — — (1) (1) — —

Amortization of deferred financing costs (11) — — 11 3 8 0.01

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

Restructuring and integration costs — — — 199 49 150 0.11

Impairment on intangible asset — — 67 15 52 0.04

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

Diluted EPS may not foot due to rounding.

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KEURIG DR PEPPER INC.

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

For the Year Ended December 31, 2019

(Unaudited, in millions, except per share data)

Items Affecting Comparability:

Amortization of intangibles — — (126) — 126

Stock compensation — — (24) — 24

Restructuring and integration costs (1) 1 (216) (25) 242

Transaction costs — — (9) — 9

Non-routine legal matters — — (48) — 48

Inventory step-up (3) 3 — — 3

Malware incident (2) 2 (6) — 8

Items Affecting Comparability:

Mark to market (47) — 2 (1) 3 —

Amortization of deferred financing costs (13) — 13 4 9 0.01

Amortization of fair value debt adjustment (26) — 26 6 20 0.01

Loss on early extinguishment of debt — (11) 11 2 9 0.01

Inventory step-up — — 3 1 2 —

Malware incident — — 8 2 6 —

Diluted EPS may not foot due to rounding.

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KEURIG DR PEPPER INC.

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

(Unaudited)

(in millions) Reported Items Affecting Comparability Adjusted

For the Year Ended December 31, 2020

Income from Operations

(in millions) Reported Items Affecting Comparability Adjusted

For the Year Ended December 31, 2019

Income from Operations

Latin America Beverages 85 (3) 82

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ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to market risks arising from changes in market rates and prices, including movements in foreign currency exchange rates, interest rates and commodity prices. From time to time, we may enter into derivatives or other financial instruments to hedge or mitigate commercial risks. We do not enter into derivative instruments for speculation, investing or trading. Refer to Note 8 of the Notes to our Consolidated Financial Statements for further information about our derivative instruments.

FOREIGN EXCHANGE RISK

The majority of our net sales, expenses and capital purchases are transacted in U.S. dollars. However, we have exposure with respect to foreign exchange rate fluctuations. Our primary exposure to foreign exchange rates is the Canadian dollar, the Mexican peso and the Euro against the U.S. dollar. Exchange rate gains or losses related to foreign currency transactions are recognized as transaction gains or losses in our income statement as incurred. As of December 31, 2020, the impact to our income from operations of a 10% change (up or down) in exchange rates is estimated to be an increase or decrease of approximately $38 million on an annual basis.

We use derivative instruments such as foreign exchange forward contracts to manage a portion of our exposure to changes in foreign exchange rates. As of December 31, 2020, we had derivative contracts outstanding with a notional value of $809 million maturing at various dates through September 25, 2024.

INTEREST RATE RISK

We centrally manage our debt portfolio through the use of interest rate swaps and monitor our mix of fixed-rate and variable-rate debt. As of December 31, 2020, the carrying value of our fixed-rate debt, excluding lease obligations, was $13,065 million and our variable-rate debt was $423 million, inclusive of commercial paper. As of December 31, 2020, the total notional value of our receive-variable, pay-fixed interest rate swaps was $450 million. Based upon our variable rate debt and the fair value of the interest rate swaps that could result from hypothetical interest rate changes during the term of the financial instruments, there was no interest rate risk associated with our debt balances based on debt levels as of December 31, 2020.

COMMODITY RISK

We are subject to market risks with respect to commodities because our ability to recover increased costs through higher pricing may be limited by the competitive environment in which we operate. Our principal commodities risks relate to our purchases of coffee beans, PET, aluminum, diesel fuel, corn (for high fructose corn syrup), apple juice concentrate, apples, sucrose and natural gas (for use in processing and packaging).

We utilize commodities derivative instruments and supplier pricing agreements to hedge the risk of movements in commodity prices for limited time periods for certain commodities. As of December 31, 2020, we had derivative contracts outstanding with a notional value of $450 million maturing at various dates through January 1, 2024. The fair market value of these contracts as of December 31, 2020 was a net asset of $50 million.

As of December 31, 2020, the impact of a 10% change (up or down) in market prices for these commodities where the risk of movements has not been hedged is estimated to have a $15 million impact to our income from operations for the year ended December 31, 2021.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Page Number

Reports of Independent Registered Accounting Firm 48

Consolidated Statements of Income 51

Consolidated Statements of Comprehensive Income 52

Consolidated Balance Sheets 53

Consolidated Statements of Cash Flows 54

Consolidated Statements of Changes in Stockholders' Equity 56

Notes to Consolidated Financial Statements 57

1. Business and Basis of Presentation 57

2. Significant Accounting Policies 58

3. Long-Term Obligations and Borrowing Arrangements 67

4. Goodwill and Other Intangible Assets 71

5. Acquisitions and Investments in Unconsolidated Subsidiaries 73

6. Restructuring and Integration Costs 77

7. Income Taxes 79

8. Derivatives 81

10. Employee Benefit Plans 85

11. Earnings per Share 90

12. Stock-Based Compensation 90

13. Accumulated Other Comprehensive (Loss) Income 93

14. Property, Plant and Equipment 93

15. Other Financial Information 94

16. Commitments and Contingencies 96

17. Related Parties 98

19. Revenue Recognition 101

20. Unaudited Quarterly Financial Information 102

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the stockholders and the Board of Directors of

Keurig Dr Pepper Inc.

Burlington, Massachusetts

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, 2020 and 2019, the related consolidated statements of income, comprehensive income, changes in stockholders’ equity, and cash flows for each of the three years ended December 31, 2020, 2019 and 2018, 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, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, 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, 2020, 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, 2021, 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 Valuation - Certain Brand Assets - Refer to Notes 2 and 4 to the financial statements

Critical Audit Matter Description

As discussed in Notes 2 and 4, the Company has indefinite-lived brand intangible assets (“brand assets”). The Company’s evaluation of the brand asset’s for impairment involves the comparison of the fair value of each brand asset to its’ carrying value. Management estimates the fair value of the brand assets annually as of October 1, 2020, using a multi-period excess earnings method, which is a specific discounted cash flow method.The fair value determination of these assets requires management to make significant estimates and assumptions related to revenue growth projections, discount rates, and operating margins. Each of these assumptions is sensitive to future market or industry conditions, as well as company-specific conditions. Changes in these assumptions could have a significant impact on the fair value of certain indefinite-lived brand intangible assets (“certain brand assets”) that have a lower headroom percentage, the amount of any impairment, or both. During the year ended December 31, 2020, the Company recognized impairment of $67 million for the Bai brand, as the fair value of the brand was lower than its carrying value. Given the significant judgments made by management to estimate the fair value of certain brand assets, a high degree of auditor judgment and an increased extent of effort were required to perform audit procedures that evaluated the reasonableness of management’s estimates and assumptions.

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How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the underlying business and valuation assumptions for certain brand assets included the following, among others:

•We tested the effectiveness of controls over the Company’s indefinite-lived brand intangible asset impairment review process. This included controls over management’s review of the revenue growth rates, operating margins, and discount rates used in the valuation models.

•We performed risk assessment procedures and for certain brand assets with a higher risk of impairment, we evaluated the reasonableness of management’s ability to forecast revenue growth and operating margins by comparing the forecasts to:

–Historical revenue and operating margins.

–Underlying analysis of business strategies and growth plans.

–Internal communication to senior management.

–Forecasted information in industry reports.

–Historical and forecasted peer data.

•We considered the impact of changes in management's forecast from the October 1, 2020 annual assessment date to December 31, 2020.

•With the assistance of our fair value specialists, we evaluated the reasonableness of the valuation methodology and discount rates, including testing the mathematical accuracy of the calculation, and developed a range of independent estimates and compared those to the discount rates selected by management.

/s/ DELOITTE & TOUCHE LLP

Boston, Massachusetts

February 25, 2021

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

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the stockholders and the Board of Directors of

Keurig Dr Pepper Inc.

Burlington, Massachusetts

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, 2020, 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, 2020, 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, 2020 of the Company and our report dated February 25, 2021 expressed an unqualified opinion on those financial statements.

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

Boston, Massachusetts

February 25, 2021

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KEURIG DR PEPPER INC.

CONSOLIDATED STATEMENTS OF INCOME

Year Ended December 31,

Selling, general and administrative expenses 3,978 3,962 2,635

Impairment of intangible assets 67 — —

Other operating (income) expense, net (39) 2 10

Interest expense - related party — — 51

Loss on early extinguishment of debt 4 11 13

Impairment of investments and note receivable 102 — —

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

Income before provision for income taxes 1,753 1,694 791

Less: Net income attributable to non-controlling interest — — 3

Earnings per common share:

Weighted average common shares outstanding:

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

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KEURIG DR PEPPER INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Year Ended December 31,

Other comprehensive income

Foreign currency translation adjustments (9) 230 (225)

Total other comprehensive income (loss) (27) 234 (229)

Comprehensive income attributable to non-controlling interest — — (3)

Comprehensive income attributable to KDP $ 1,298 $ 1,488 $ 357

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

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KEURIG DR PEPPER INC.

CONSOLIDATED BALANCE SHEETS

December 31,

(in millions, except share and per share data) 2020 2019

Assets

Current assets:

Cash and cash equivalents $ 240 $ 75

Restricted cash and restricted cash equivalents 15 26

Trade accounts receivable, net 1,048 1,115

Prepaid expenses and other current assets 323 403

Property, plant and equipment, net 2,212 2,028

Investments in unconsolidated affiliates 88 151

Other non-current assets 894 748

Deferred tax assets 45 29

Liabilities and Stockholders' Equity

Current liabilities:

Short-term borrowings and current portion of long-term obligations 2,345 1,593

Other current liabilities 416 445

Other non-current liabilities 1,119 930

Commitments and contingencies

Stockholders' equity:

Accumulated other comprehensive income 77 104

Non-controlling interest 1 —

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

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KEURIG DR PEPPER INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Year Ended December 31,

Operating activities:

Provision for sales returns 54 43 54

Deferred income taxes (51) (23) (81)

Employee stock-based compensation expense 85 64 35

Loss on early extinguishment of debt 4 11 13

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

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

Unrealized (gain) loss on foreign currency (1) (24) 28

Unrealized loss on derivatives 8 36 49

Equity in losses of unconsolidated affiliates 20 51 17

Impairment of intangible assets 67 — —

Changes in assets and liabilities:

Trade accounts receivable (5) (7) 82

Income taxes receivable and payables, net (91) 36 71

Other current and non current assets (435) (324) (49)

Accounts payable and accrued expenses 624 583 206

Other current and non current liabilities 180 102 (38)

Net change in operating assets and liabilities 166 366 457

Investing activities:

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

Cash acquired in acquisitions — — 169

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

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

Purchases of property, plant and equipment (461) (330) (180)

Proceeds from sales of property, plant and equipment 203 247 3

Purchases of intangibles (56) (35) —

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

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

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KEURIG DR PEPPER INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(continued)

Year Ended December 31,

Financing activities:

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

Proceeds from controlling shareholder stock transactions 29 — —

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

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

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

Payments on structured payables (341) (531) —

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

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

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

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

Other, net — 5 (51)

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

Net change from:

Operating, investing and financing activities 150 (40) 59

Effect of exchange rate changes (6) 12 (15)

Non-cash investing activities: