What changed in this filing

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Item 1. Financial Statements

2020-08-04 compared with 2020-05-05 · 199 added, 158 removed, 744 unchanged (32% of the section changed)

2 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

First Quarter

Second Quarter First Half

(in thousands, except per share data) 2020 2019 2020 2019

6 unchanged sentences

Other expense, net 16,134 31,181 18,432 47,032

Income (loss) before income taxes 20,962 ( 8,583 )

Income tax expense (benefit) 5,361 ( 3,005 )

Net income (loss) 15,601 ( 5,578 )

Income before income taxes 57,800 24,038 78,762 15,455

Income tax expense 15,187 7,182 20,548 4,177

Net income 42,613 16,856 58,214 11,278

Net income attributable to noncontrolling interest 3,044 1,486 3,983 2,739

Net income (loss) attributable to Coca-Cola Consolidated, Inc.

Net income attributable to Coca-Cola Consolidated, Inc.

$ 39,569 $ 15,370 $ 54,231 $ 8,539

Basic net income (loss) per share based on net income (loss) attributable to Coca-Cola Consolidated, Inc.:

Basic net income per share based on net income attributable to Coca-Cola Consolidated, Inc.:

Common Stock $ 4.23 $ 1.64 $ 5.79 $ 0.91

2 unchanged sentences

Weighted average number of Class B Common Stock shares outstanding 2,232 2,232 2,232 2,225

Diluted net income (loss) per share based on net income (loss) attributable to Coca-Cola Consolidated, Inc.:

Diluted net income per share based on net income attributable to Coca-Cola Consolidated, Inc.:

Common Stock $ 4.19 $ 1.64 $ 5.74 $ 0.91

7 unchanged sentences

COCA-COLA CONSOLIDATED, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

First Quarter

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Second Quarter First Half

(in thousands) 2020 2019 2020 2019

Net income (loss) $ 15,601 $ ( 5,578 )

Other comprehensive income (loss), net of tax:

Net income $ 42,613 $ 16,856 $ 58,214 $ 11,278

Other comprehensive income, net of tax:

Defined benefit plans reclassification including pension costs:

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Foreign currency translation adjustment 3 5 2 ( 4 )

Other comprehensive income (loss), net of tax ( 50 ) 578

Comprehensive income (loss) 15,551 ( 5,000 )

Other comprehensive income, net of tax 971 593 921 1,171

Comprehensive income 43,584 17,449 59,135 12,449

Comprehensive income attributable to noncontrolling interest 3,044 1,486 3,983 2,739

Comprehensive income (loss) attributable to Coca-Cola Consolidated, Inc.

Comprehensive income attributable to Coca-Cola Consolidated, Inc.

$ 40,540 $ 15,963 $ 55,152 $ 9,710

2 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data) March 29, 2020 December 29, 2019

(in thousands, except share data) June 28, 2020 December 29, 2019

Current Assets:

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

First Quarter

(in thousands) 2020 2019

Cash Flows from Operating Activities:

Net income (loss) $ 15,601 $ ( 5,578 )

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Net income $ 58,214 $ 11,278

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

Depreciation expense from property, plant and equipment and financing leases 74,878 79,316

3 unchanged sentences

Deferred income taxes 21,670 4,017

Impairment of property, plant and equipment 1,350 1,155

Stock compensation expense — 2,045

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Borrowings under revolving credit facility 235,000 206,339

Payments on term loan facility ( 7,500 ) ( 15,000 )

Payments on term loan facility and senior notes ( 15,000 ) ( 132,500 )

Proceeds from issuance of senior notes — 100,000

Payments of acquisition related contingent consideration ( 20,531 ) ( 12,836 )

2 unchanged sentences

Debt issuance fees ( 145 ) ( 265 )

Net cash provided by financing activities $ 38,173 $ 23,127

Net cash used in financing activities $ ( 88,363 ) $ ( 34,544 )

Net increase (decrease) in cash during period $ 67,936 $ ( 7,856 )

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Cash at end of period $ 77,550 $ 5,692

Significant noncash investing and financing activities:

Significant non-cash investing and financing activities:

Right-of-use assets obtained in exchange for lease obligations $ 32,224 $ 21,220

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Balance on December 30, 2018 $ 10,204 $ 2,839 $ 124,228 $ 359,435 $ ( 77,265 ) $ ( 60,845 ) $ ( 409 ) $ 358,187 $ 96,979 $ 455,166

Net income (loss) — — — ( 6,831 ) — — — ( 6,831 ) 1,253 ( 5,578 )

Net income — — — 8,539 — — — 8,539 2,739 11,278

Other comprehensive income, net of tax — — — — 1,171 — — 1,171 — 1,171

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Reclassification of stranded tax effects — — — 19,720 ( 19,720 ) — — — — —

Balance on March 31, 2019 $ 10,204 $ 2,860 $ 128,983 $ 369,985 $ ( 96,407 ) $ ( 60,845 ) $ ( 409 ) $ 354,371 $ 98,232 $ 452,603

Balance on June 30, 2019 $ 10,204 $ 2,860 $ 128,983 $ 383,012 $ ( 95,814 ) $ ( 60,845 ) $ ( 409 ) $ 367,991 $ 99,718 $ 467,709

Balance on December 29, 2019 $ 10,204 $ 2,860 $ 128,983 $ 381,161 $ ( 115,002 ) $ ( 60,845 ) $ ( 409 ) $ 346,952 $ 104,164 $ 451,116

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— — — ( 1,115 ) — — — ( 1,115 ) — ( 1,115 )

Balance on March 29, 2020 $ 10,204 $ 2,860 $ 128,983 $ 393,479 $ ( 115,052 ) $ ( 60,845 ) $ ( 409 ) $ 359,220 $ 105,103 $ 464,323

Balance on June 28, 2020 $ 10,204 $ 2,860 $ 128,983 $ 430,706 $ ( 114,081 ) $ ( 60,845 ) $ ( 409 ) $ 397,418 $ 108,147 $ 505,565

See accompanying notes to condensed consolidated financial statements.

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The condensed consolidated financial statements reflect all adjustments, including normal, recurring accruals, which, in the opinion of management, are necessary for a fair statement of the results for the interim periods presented:

• The financial position as of March 29, 2020 and December 29, 2019.

• The results of operations and comprehensive income (loss) for the 13-week periods ended March 29, 2020 (the “first quarter” of fiscal 2020 (“2020”)) and March 31, 2019 (the “first quarter” of fiscal 2019 (“2019”)).

• The changes in cash flows and equity for the first quarter of 2020 and the first quarter of 2019.

• The financial position as of June 28, 2020 and December 29, 2019.

• The results of operations and comprehensive income for the 13-week periods ended June 28, 2020 (the “second quarter” of fiscal 2020 (“2020”)) and June 30, 2019 (the “second quarter” of fiscal 2019 (“2019”)), and the 26-week periods ended June 28, 2020 (the “first half” of 2020) and June 30, 2019 (the “first half” of 2019).

• The changes in cash flows and equity for the first half of 2020 and the first half of 2019.

The condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial reporting and the instructions to Form 10-Q and Article 10 of Regulation S-X.

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In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820):

Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement,” which removes, modifies and adds certain disclosure requirements in ASC Topic 820, Fair Value Measurement.

Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement,” which removes, modifies and adds certain disclosure requirements in Accounting Standards Codification Topic 820, Fair Value Measurement.

This ASU is effective for annual and interim reporting periods beginning after December 15, 2019.

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The Company adopted ASU 2018-13 in the first quarter of 2020.

See Note 14—Fair Value of Financial Instruments.

See Note 14 for additional information.

Recently Issued Accounting Pronouncements

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Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans,” which is effective for fiscal years ending after December 15, 2020.

Under this guidance, disclosures will be removed for the amounts in AOCI expected to be recognized as components of net periodic benefit cost over the next fiscal year, the amount and timing of assets expected to be returned to the employer, certain related party disclosures, and the effects of a one-percentage-point change in the assumed health care cost trend rates.

Under this guidance, disclosures will be removed for the amounts in accumulated other comprehensive income expected to be recognized as components of net periodic benefit cost over the next fiscal year, the amount and timing of assets expected to be returned to the employer, certain related party disclosures, and the effects of a one-percentage-point change in the assumed health care cost trend rates.

Additional disclosures will include the weighted average interest crediting rate for plans with promised crediting interest rates and an explanation of the reasons for significant gains and losses related to the benefit obligation for the period.

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Frank Harrison, Jr., control shares representing approximately 86 % of the total voting power of the Company’s total outstanding Common Stock and Class B Common Stock on a consolidated basis.

As of March 29, 2020, The Coca-Cola Company owned approximately 27 % of the Company’s total outstanding Common Stock and Class B Common Stock on a consolidated basis, representing approximately 5 % of the total voting power of the Company’s Common Stock and Class B Common Stock voting together.

As of June 28, 2020, The Coca-Cola Company owned approximately 27 % of the Company’s total outstanding Common Stock and Class B Common Stock on a consolidated basis, representing approximately 5 % of the total voting power of the Company’s Common Stock and Class B Common Stock voting together.

As long as The Coca-Cola Company holds the number of shares of the Company’s Common Stock it currently owns, it has the right to have its designee proposed by the Company for nomination to the Company’s Board of Directors, and J.

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The following table summarizes the significant transactions between the Company and The Coca-Cola Company:

First Quarter

Second Quarter First Half

(in thousands) 2020 2019 2020 2019

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These sub-bottling payments are based on gross profit derived from sales of certain beverages and beverage products that are sold under the same trademarks that identify a covered beverage, beverage product or certain cross-licensed brands.

Sub-bottling payments to CCR were $ 10.5 million during the first quarter of 2020 and $ 6.2 million during the first quarter of 2019.

Sub-bottling payments to CCR were $ 20.5 million during the first half of 2020 and $ 12.8 million during the first half of 2019.

The following table summarizes the liability recorded by the Company to reflect the estimated fair value of contingent consideration related to future sub-bottling payments to CCR:

(in thousands) March 29, 2020 December 29, 2019

(in thousands) June 28, 2020 December 29, 2019

Current portion of acquisition related contingent consideration $ 34,388 $ 41,087

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The Company accounts for Southeastern as an equity method investment.

The Company’s investment in Southeastern, which was classified as other assets in the condensed consolidated balance sheets, was $ 22.6 million as of March 29, 2020 and $ 23.2 million as of December 29, 2019.

The Company’s investment in Southeastern, which was classified as other assets in the condensed consolidated balance sheets, was $ 22.6 million as of June 28, 2020 and $ 23.2 million as of December 29, 2019.

South Atlantic Canners, Inc.

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The Company accounts for SAC as an equity method investment.

The Company’s investment in SAC, which was classified as other assets in the condensed consolidated balance sheets, was $ 8.0 million as of March 29, 2020 and $ 8.2 million as of December 29, 2019.

The Company’s investment in SAC, which was classified as other assets in the condensed consolidated balance sheets, was $ 8.0 million as of June 28, 2020 and $ 8.2 million as of December 29, 2019.

The Company receives a fee for managing the day-to-day operations of SAC pursuant to a management agreement.

Proceeds from management fees received from SAC, which were classified as a reduction to cost of sales in the condensed consolidated statements of operations, were $ 2.4 million in the first quarter of 2020 and $ 2.2 million in the first quarter of 2019.

Proceeds from management fees received from SAC, which were classified as a reduction to cost of sales in the condensed consolidated statements of operations, were $ 4.7 million in the first half of 2020 and $ 4.5 million in the first half of 2019.

Coca-Cola Bottlers’ Sales and Services Company, LLC (“CCBSS”)

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CCBSS negotiates the procurement for the majority of the Company’s raw materials, excluding concentrate, and the Company receives a rebate from CCBSS for the purchase of these raw materials.

The Company had rebates due from CCBSS of

$ 15.6 million on March 29, 2020 and $ 10.0 million on December 29, 2019, which were classified as accounts receivable, other in the condensed consolidated balance sheets.

The Company had rebates due from CCBSS of $ 12.4 million on June 28, 2020 and $ 10.0 million on December 29, 2019, which were classified as accounts receivable, other in the condensed consolidated balance sheets.

In addition, the Company pays an administrative fee to CCBSS for its services.

The Company incurred administrative fees to CCBSS of $ 0.6 million in the first quarter of 2020 and $ 0.3 million in the first quarter of 2019, which were classified as selling, delivery and administrative (“SD&A”) expenses in the condensed consolidated statements of operations.

The Company incurred administrative fees to CCBSS of $ 1.6 million in the first half of 2020 and $ 1.0 million in the first half of 2019, which were classified as selling, delivery and administrative (“SD&A”) expenses in the condensed consolidated statements of operations.

CONA Services LLC (“CONA”)

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The Company accounts for CONA as an equity method investment.

The Company’s investment in CONA, which was classified as other assets in the condensed consolidated balance sheets, was $ 11.3 million as of March 29, 2020 and $ 10.5 million as of December 29, 2019.

The Company’s investment in CONA, which was classified as other assets in the condensed consolidated balance sheets, was $ 11.3 million as of June 28, 2020 and $ 10.5 million as of December 29, 2019.

Pursuant to an amended and restated master services agreement with CONA, the Company is authorized to use the Coke One North America system (the “CONA System”), a uniform information technology system developed to promote operational efficiency and uniformity among North American Coca-Cola bottlers.

In exchange for the Company’s rights to use the CONA System and receive CONA-related services, it is charged service fees by CONA.

The Company incurred CONA service fees of $ 5.8 million in the first quarter of 2020 and $ 5.3 million in the first quarter of 2019.

The Company incurred CONA service fees of $ 11.6 million in the first half of 2020 and $ 11.5 million in the first half of 2019.

Related Party Leases

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Frank Harrison, III, Chairman of the Board of Directors and Chief Executive Officer of the Company, is the majority stockholder and Morgan H.

Everett, Senior Vice President and a director of the Company, is a minority stockholder.

Everett, Vice Chair of the Companys Board of Directors, is a minority stockholder.

During the first quarter of 2020, the Company entered into a new lease agreement, effective January 1, 2020, with Beacon to continue to lease its corporate facilities.

The new lease expires on December 31, 2029.

The principal balance outstanding under the new lease was $ 32.3 million on March 29, 2020 and the principal balance outstanding under the previous lease, which was replaced by the new lease, was $ 6.8 million on December 29, 2019.

The principal balance outstanding under the new lease was $ 31.8 million on June 28, 2020 and the principal balance outstanding under the previous lease, which was replaced by the new lease, was $ 6.8 million on December 29, 2019.

See Note 9 for additional information.

The Company leases the Snyder Production Center and an adjacent sales facility in Charlotte, North Carolina from Harrison Limited Partnership One, which is directly and indirectly owned by trusts of which J.

The Company leases the Snyder Production Center and an adjacent sales facility in Charlotte, North Carolina from Harrison Limited Partnership One (“HLP”), which is directly and indirectly owned by trusts of which J.

Frank Harrison, III and Sue Anne H.

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Everett is a permissible, discretionary beneficiary.

The annual base rent the Company is obligated to pay under this lease agreement is subject to an adjustment for an inflation factor and the lease expires on December 31, 2020.

The principal balance outstanding under this lease was $ 3.3 million on March 29, 2020 and $ 4.3 million on December 29, 2019.

The principal balance outstanding under this lease was $ 2.2 million on June 28, 2020 and $ 4.3 million on December 29, 2019.

Subsequent to quarter end, the Company entered into an amendment to this lease, effective June 30, 2020, with HLP to continue to lease its production facility in Charlotte, North Carolina.

The amendment extended the term of the original lease agreement by 15 years from December 31, 2020 through December 31, 2035.

This lease will continue to be classified as a financing lease and the additional lease liability associated with this lease commitment is $ 60.1 million.

A summary of rental payments related to these leases is as follows:

First Quarter

Second Quarter First Half

(in thousands) 2020 2019 2020 2019

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These awards may be settled in cash and/or shares of the Company’s Class B Common Stock, based on the average of the closing prices of the Company’s Common Stock during the last 20 trading days of the performance period.

Compensation expense for the Long-Term Performance Equity Plan, which is included in SD&A expenses in the condensed consolidated statements of operations, was $ 1.8 million in the first quarter of 2020 and $ 3.8 million in the first quarter of 2019.

Compensation expense for the Long-Term Performance Equity Plan, which is included in SD&A expenses in the condensed consolidated statements of operations, was $ 4.3 million in the first half of 2020 and $ 6.7 million in the first half of 2019.

Revenue Recognition

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Bottle/can sales, sales to other Coca-Cola bottlers and post-mix sales are recognized when control transfers to a customer, which is generally upon delivery and is considered a single point in time (“point in time”).

Point in time sales accounted for approximately 97 % of the Company’s net sales in the first quarter of 2020 and approximately 96 % of the Company’s net sales in the first quarter of 2019.

Point in time sales accounted for approximately 97 % of the Company’s net sales in the first half of 2020 and approximately 96 % of the Company’s net sales in the first half of 2019.

Substantially all of the Company’s revenue is recognized at a point in time and is included in the Nonalcoholic Beverages segment.

Other sales, which include revenue for service fees related to the repair of cold drink equipment and delivery fees for freight hauling and brokerage services, are recognized over time (“over time”).

Revenues related to cold drink equipment repair are recognized as the respective services are completed using a cost-to-cost input method.

Revenues related to cold drink equipment repair are

recognized as the respective services are completed using a cost-to-cost input method.

Repair services are generally completed in less than one day but can extend up to one month .

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The following table represents a disaggregation of revenue from contracts with customers:

First Quarter

Second Quarter First Half

(in thousands) 2020 2019 2020 2019

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At any given time, the Company estimates less than 1 % of bottle/can sales and post-mix sales could be at risk for return by customers.

The Company’s reserve for customer returns, which was classified as allowance for doubtful accounts in the condensed consolidated balance sheets, was $ 3.6 million as of both March 29, 2020 and December 29, 2019.

The Company’s reserve for customer returns, which was classified as allowance for doubtful accounts in the condensed consolidated balance sheets, was $ 3.6 million as of both June 28, 2020 and December 29, 2019.

Returned product is recognized as a reduction to net sales.

The company recognizes an allowance for credit losses related to its accounts receivable to present the net amount expected to be collected as of the balance sheet date.

The Company recognizes an allowance for credit losses related to its accounts receivable to present the net amount expected to be collected at the balance sheet date.

The Company estimates this allowance based on historical data such as days' sales outstanding trends, previous write-offs of balances, and monthly reviews of aged trial balances, among others.

1 unchanged sentence

Expected recoveries, not to exceed the amount previously written off, are considered in determining the reserve balance at the balance sheet date.

Below is a summary of activity for the allowance for credit losses as of the end of the first quarter of 2020:

Below is a summary of activity for the allowance for credit losses as of the end of the first half of 2020:

(in thousands) Allowance for Credit Losses to Accounts Receivable

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Write-offs, net of recoveries ( 1,914 )

Balance at March 29, 2020 $ 12,612

Balance at June 28, 2020 $ 17,694

The additions to the allowance for credit losses for the first half of 2020 include a $ 5.0 million adjustment to address the COVID-19-related collectability risk primarily for our on-premise customers.

The Company evaluates segment reporting in accordance with the FASB Accounting Standards Codification Topic 280, Segment Reporting, each reporting period, including evaluating the reporting package reviewed by the Chief Operating Decision Maker (the “CODM”).

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The Company’s segment results are as follows:

First Quarter

Second Quarter First Half

(in thousands) 2020 2019 2020 2019

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Sales between these segments are recognized at either fair market value or cost depending on the nature of the transaction .

Net Income (Loss) Per Share

The following table sets forth the computation of basic net income (loss) per share and diluted net income (loss) per share under the two-class method:

First Quarter

Net Income Per Share

The following table sets forth the computation of basic net income per share and diluted net income per share under the two-class method:

Second Quarter First Half

(in thousands, except per share data) 2020 2019 2020 2019

Numerator for basic and diluted net income (loss) per Common Stock and Class B Common Stock share:

Net income (loss) attributable to Coca-Cola Consolidated, Inc.

Numerator for basic and diluted net income per Common Stock and Class B Common Stock share:

Net income attributable to Coca-Cola Consolidated, Inc.

$ 39,569 $ 15,370 $ 54,231 $ 8,539

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Class B Common Stock 557 558 1,115 1,112

Total undistributed earnings (losses) $ 12,318 $ ( 9,170 )

Common Stock undistributed earnings (losses) – basic $ 9,385 $ ( 6,996 )

Class B Common Stock undistributed earnings (losses) – basic 2,933 ( 2,174 )

Total undistributed earnings (losses) – basic $ 12,318 $ ( 9,170 )

Common Stock undistributed earnings (losses) – diluted $ 9,314 $ ( 6,996 )

Class B Common Stock undistributed earnings (losses) – diluted 3,004 ( 2,174 )

Total undistributed earnings (losses) – diluted $ 12,318 $ ( 9,170 )

Numerator for basic net income (loss) per Common Stock share:

Total undistributed earnings $ 37,227 $ 13,027 $ 49,545 $ 3,857

Common Stock undistributed earnings – basic $ 28,362 $ 9,925 $ 37,747 $ 2,941

Class B Common Stock undistributed earnings – basic 8,865 3,102 11,798 916

Total undistributed earnings – basic $ 37,227 $ 13,027 $ 49,545 $ 3,857

Common Stock undistributed earnings – diluted $ 28,161 $ 9,874 $ 37,479 $ 2,925

Class B Common Stock undistributed earnings – diluted 9,066 3,153 12,066 932

Total undistributed earnings – diluted $ 37,227 $ 13,027 $ 49,545 $ 3,857

Numerator for basic net income per Common Stock share:

Dividends on Common Stock $ 1,785 $ 1,785 $ 3,571 $ 3,570

Common Stock undistributed earnings (losses) – basic 9,385 ( 6,996 )

Numerator for basic net income (loss) per Common Stock share $ 11,171 $ ( 5,211 )

First Quarter

(in thousands, except per share data) 2020 2019

Numerator for basic and diluted net income (loss) per Common Stock and Class B Common Stock share:

Numerator for basic net income (loss) per Class B Common Stock share:

Common Stock undistributed earnings – basic 28,362 9,925 37,747 2,941

Numerator for basic net income per Common Stock share $ 30,147 $ 11,710 $ 41,318 $ 6,511

Numerator for basic net income per Class B Common Stock share:

Dividends on Class B Common Stock $ 557 $ 558 $ 1,115 $ 1,112

Class B Common Stock undistributed earnings (losses) – basic 2,933 ( 2,174 )

Numerator for basic net income (loss) per Class B Common Stock share $ 3,491 $ ( 1,620 )

Numerator for diluted net income (loss) per Common Stock share:

Class B Common Stock undistributed earnings – basic 8,865 3,102 11,798 916

Numerator for basic net income per Class B Common Stock share $ 9,422 $ 3,660 $ 12,913 $ 2,028

Numerator for diluted net income per Common Stock share:

Dividends on Common Stock $ 1,785 $ 1,785 $ 3,571 $ 3,570

Dividends on Class B Common Stock assumed converted to Common Stock 557 558 1,115 1,112

Common Stock undistributed earnings (losses) – diluted 12,318 ( 9,170 )

Numerator for diluted net income (loss) per Common Stock share $ 14,662 $ ( 6,831 )

Numerator for diluted net income (loss) per Class B Common Stock share:

Common Stock undistributed earnings – diluted 37,227 13,027 49,545 3,857

Numerator for diluted net income per Common Stock share $ 39,569 $ 15,370 $ 54,231 $ 8,539

Second Quarter First Half

(in thousands, except per share data) 2020 2019 2020 2019

Numerator for diluted net income per Class B Common Stock share:

Dividends on Class B Common Stock $ 557 $ 558 $ 1,115 $ 1,112

Class B Common Stock undistributed earnings (losses) – diluted 3,004 ( 2,174 )

Numerator for diluted net income (loss) per Class B Common Stock share $ 3,562 $ ( 1,620 )

Denominator for basic net income (loss) per Common Stock and Class B Common Stock share:

Class B Common Stock undistributed earnings – diluted 9,066 3,153 12,066 932

Numerator for diluted net income per Class B Common Stock share $ 9,623 $ 3,711 $ 13,181 $ 2,044

Denominator for basic net income per Common Stock and Class B Common Stock share:

Common Stock weighted average shares outstanding – basic 7,141 7,141 7,141 7,141

Class B Common Stock weighted average shares outstanding – basic 2,232 2,232 2,232 2,225

Denominator for diluted net income (loss) per Common Stock and Class B Common Stock share:

Denominator for diluted net income per Common Stock and Class B Common Stock share:

Common Stock weighted average shares outstanding – diluted (assumes conversion of Class B Common Stock to Common Stock) 9,440 9,421 9,440 9,415

Class B Common Stock weighted average shares outstanding – diluted 2,299 2,280 2,299 2,274

Basic net income (loss) per share:

Basic net income per share:

Common Stock $ 4.23 $ 1.64 $ 5.79 $ 0.91

Class B Common Stock $ 4.23 $ 1.64 $ 5.79 $ 0.91

Diluted net income (loss) per share:

Diluted net income per share:

Common Stock $ 4.19 $ 1.64 $ 5.74 $ 0.91

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NOTES TO TABLE

(1) For purposes of the diluted net income (loss) per share computation for Common Stock, all shares of Class B Common Stock are assumed to be converted;

therefore, 100 % of undistributed earnings (losses) is allocated to Common Stock.

(2) For purposes of the diluted net income (loss) per share computation for Class B Common Stock, weighted average shares of Class B Common Stock are assumed to be outstanding for the entire period and not converted.

(1) For purposes of the diluted net income per share computation for Common Stock, all shares of Class B Common Stock are assumed to be converted;

therefore, 100 % of undistributed earnings is allocated to Common Stock.

(2) For purposes of the diluted net income per share computation for Class B Common Stock, weighted average shares of Class B Common Stock are assumed to be outstanding for the entire period and not converted.

(3) For periods presented during which the Company has net income, the denominator for diluted net income per share for Common Stock and Class B Common Stock included the dilutive effect of shares relative to the Long-Term Performance Equity Plan .

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(4) The Long-Term Performance Equity Plan awards may be settled in cash and/or shares of the Company’s Class B Common Stock.

Once an election has been made to settle an award in cash, the dilutive effect of shares relative to such award is prospectively removed from the denominator for the calculation of diluted net income (loss) per share.

(5) The Company did no t have anti-dilutive shares for any periods presented.

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(in thousands)

March 29, 2020 December 29, 2019

June 28, 2020 December 29, 2019

Finished products

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Prepaid expenses and other current assets consisted of the following:

(in thousands) March 29, 2020 December 29, 2019

(in thousands) June 28, 2020 December 29, 2019

Repair parts $ 28,994 $ 28,967

Prepayments for sponsorship contracts 7,544 8,696

Prepaid taxes 4,088 4,359

Prepaid software 6,494 5,850

Prepaid marketing 6,314 5,658

Prepaid taxes 5,138 4,359

Prepayments for sponsorship contracts 3,412 8,696

Other prepaid expenses and other current assets 21,818 15,931

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The principal categories and estimated useful lives of property, plant and equipment, net were as follows:

(in thousands) March 29, 2020 December 29, 2019 Estimated Useful Lives

(in thousands) June 28, 2020 December 29, 2019 Estimated Useful Lives

Land $ 83,168 $ 76,860

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The Company has elected the practical expedient to not separate lease and non-lease components for certain classes of underlying assets.

The Company has equipment and vehicle lease agreements, which generally have the lease and associated non-lease components accounted for as a single lease component.

The Company has equipment and vehicle lease

agreements, which generally have the lease and associated non-lease components accounted for as a single lease component.

The Company has real estate lease agreements with lease and non-lease components, which are generally accounted for separately where applicable.

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Following is a summary of the weighted average remaining lease term and weighted average discount rate for the Company’s population of leases:

March 29, 2020 December 29, 2019

June 28, 2020 December 29, 2019

Weighted average remaining lease term:

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The new lease has a 10 -year term and expires on December 31, 2029.

This lease is classified as an operating lease and the additional lease liability associated with this lease was $ 32.3 million as of March 29, 2020.

This lease is classified as an operating lease and the additional lease liability associated with this lease was $ 31.8 million as of June 28, 2020.

This lease replaced the previous lease agreement, which was classified as a financing lease and was scheduled to expire on December 31, 2021, and had a $ 6.8 million principal balance outstanding as of December 29, 2019.

As of June 28, 2020, the Company had two real estate lease commitments that had not yet commenced.

The Company amended an existing lease agreement, effective July 6, 2020, to continue to lease its warehouse in North Charleston, South Carolina.

The amendment extended the term of the original lease agreement by three years from April 5, 2027 through April 5, 2030.

This lease will continue to be classified as an operating lease and the additional lease liability associated with this lease commitment is expected to be $ 0.8 million.

The Company amended an existing lease agreement, effective June 30, 2020, with HLP to continue to lease its production facility in Charlotte, North Carolina.

The amendment extended the term of the original lease agreement by 15 years from December 31, 2020 through December 31, 2035.

This lease will continue to be classified as a financing lease and the additional lease liability associated with this lease commitment is $ 60.1 million.

Following is a summary of balances related to the Company’s lease portfolio within the condensed consolidated statements of operations:

First Quarter

Second Quarter First Half

(in thousands) 2020 2019 2020 2019

14 unchanged sentences

The future minimum lease payments related to the Company’s lease portfolio include renewal options the Company has determined to be reasonably certain and exclude payments to landlords for real estate taxes and common area maintenance.

Following is a summary of future minimum lease payments for all noncancelable operating leases and financing leases as of March 29, 2020 :

Following is a summary of future minimum lease payments for all noncancelable operating leases and financing leases as of June 28, 2020 :

(in thousands) Operating

26 unchanged sentences

Following is a summary of balances related to the Company’s lease portfolio within the condensed consolidated statements of cash flows:

First Quarter

(in thousands) 2020 2019

9 unchanged sentences

(in thousands)

March 29, 2020 December 29, 2019

June 28, 2020 December 29, 2019

Distribution agreements at cost

7 unchanged sentences

(in thousands)

March 29, 2020 December 29, 2019

June 28, 2020 December 29, 2019

Customer lists and other identifiable intangible assets at cost

6 unchanged sentences

Other accrued liabilities consisted of the following:

(in thousands) March 29, 2020 December 29, 2019

(in thousands) June 28, 2020 December 29, 2019

Accrued insurance costs $ 47,629 $ 44,584

2 unchanged sentences

Employee and retiree benefit plan accruals 29,752 33,699

Checks and transfers yet to be presented for payment from zero balance cash accounts 23,291 20,199

Accrued taxes (other than income taxes) 10,061 6,366

Commodity hedges at fair market value 2,918 1,174

Checks and transfers yet to be presented for payment from zero balance cash accounts 2,412 20,199

Current deferred proceeds from Territory Conversion Fee 2,286 2,286

Federal income taxes — 1,651

Commodity hedges at fair market value 4,272 1,174

All other accrued expenses 26,226 22,841

11 unchanged sentences

The following table summarizes pre-tax changes in the fair value of the Company’s commodity derivative financial instruments and the classification of such changes in the condensed consolidated statements of operations:

First Quarter

Second Quarter First Half

(in thousands) Classification of Gain (Loss) 2020 2019 2020 2019

3 unchanged sentences

The following table summarizes the fair values and classification in the condensed consolidated balance sheets of derivative instruments held by the Company:

(in thousands) Balance Sheet Classification March 29, 2020 December 29, 2019

(in thousands) Balance Sheet Classification June 28, 2020 December 29, 2019

Commodity hedges at fair market value Prepaid expenses and other current assets $ 823 $ 1,007

5 unchanged sentences

The following table summarizes the Company’s gross derivative assets and gross derivative liabilities in the condensed consolidated balance sheets:

(in thousands) March 29, 2020 December 29, 2019

(in thousands) June 28, 2020 December 29, 2019

Gross derivative assets $ 904 $ 3,298

1 unchanged sentence

The following table summarizes the Company’s outstanding commodity derivative agreements:

(in thousands) March 29, 2020 December 29, 2019

(in thousands) June 28, 2020 December 29, 2019

Notional amount of outstanding commodity derivative agreements $ 123,428 $ 171,699

19 unchanged sentences

The following tables summarize, by assets and liabilities, the carrying amounts and fair values by level of the Company’s deferred compensation plan, commodity hedging agreements, debt and acquisition related contingent consideration:

March 29, 2020

June 28, 2020

(in thousands) Carrying

21 unchanged sentences

As a result, the fair value of the acquisition related contingent consideration liability is impacted by the Company’s WACC, management’s estimate of the amounts that will be paid in the future under the CBA, and current sub-bottling payments (all Level 3 inputs).

Changes in any of these Level 3 inputs, particularly the underlying risk-free interest rate used to estimate the Company’s WACC, could result in material changes to the fair value of the acquisition related contingent consideration and could materially impact the amount of noncash income or expense recorded each reporting period.

The acquisition related contingent consideration is the Company’s only Level 3 asset or liability.

Changes in any of these Level 3 inputs, particularly the underlying risk-free interest rate used to estimate the Company’s WACC, could result in material changes to the fair value of the acquisition related contingent consideration and could materially impact the amount of non-cash income or expense recorded each reporting period.

The acquisition related contingent consideration liability is the Company’s only Level 3 asset or liability.

A reconciliation of the Level 3 activity is as follows:

First Quarter

Second Quarter First Half

(in thousands) 2020 2019 2020 2019

4 unchanged sentences

Ending balance - Level 3 liability $ 441,113 $ 412,450 $ 441,113 $ 412,450

The increase in the fair value of the acquisition related contingent consideration liability during the first quarter of 2020 was primarily driven by updates to future cash flow projections, partially offset by an increase in the discount rate used to calculate the fair values.

The increase in the fair value of the acquisition related contingent consideration liability during the first quarter of 2019 was primarily driven by a decrease in the discount rate used to calculate the fair values.

The increase in the fair value of the acquisition related contingent consideration liability during the first half of 2020 was primarily driven by changes in future cash flow projections of the distribution territories subject to sub-bottling fees, partially offset by an increase in the discount rate used to calculate the fair values.

The increase in the fair value of the acquisition related contingent consideration liability during the first half of 2019 was primarily driven by a decrease in the discount rate and changes in future cash flow projections of the distribution territories subject to sub-bottling fees.

These fair value adjustments were recorded in other expense, net in the condensed consolidated statements of operations.

The anticipated amount the Company could pay annually under acquisition related contingent consideration arrangements is expected to be in the range of $ 28 million to $ 52 million.

The Company’s effective income tax rate, calculated by dividing income tax expense (benefit) by income (loss) before income taxes, was 25.6 % for the first quarter of 2020 and 35.0 % for the first quarter of 2019.

The Company’s effective income tax rate, calculated by dividing income tax expense by income before income taxes, was 26.1 % for the first half of 2020 and 27.0 % for the first half of 2019.

The decrease in the effective income tax rate was primarily driven by improved financial results and the extension of certain tax credits in 2020.

The Company’s effective income tax rate, calculated by dividing income tax expense (benefit) by income (loss) before income taxes minus net income attributable to noncontrolling interest, was 26.8 % for the first quarter of 2020 and 30.6 % for the first quarter of 2019.

The Company had uncertain tax positions, including accrued interest, of $ 2.6 million on March 29, 2020 and $ 2.5 million on December 29, 2019, all of which would affect the Company’s effective income tax rate if recognized.

The Company’s effective income tax rate, calculated by dividing income tax expense by income before income taxes minus net income attributable to noncontrolling interest, was 27.5 % for the first half of 2020 and 32.8 % for the first half of 2019.

The Company had uncertain tax positions, including accrued interest, of $ 3.4 million on June 28, 2020 and $ 2.5 million on December 29, 2019, all of which would affect the Company’s effective income tax rate if recognized.

While it is expected the amount of uncertain tax positions may change in the next 12 months, the Company does not expect such change would have a significant impact on the condensed consolidated financial statements.

8 unchanged sentences

The components of net periodic pension cost were as follows:

First Quarter

Second Quarter First Half

(in thousands) 2020 2019 2020 2019

5 unchanged sentences

Net periodic pension cost $ 2,229 $ 2,601 $ 4,459 $ 5,203

The Company did no t make any contributions to the two Company-sponsored pension plans during the first quarter of 2020.

The Company did no t make any contributions to the two Company-sponsored pension plans during the first half of 2020.

Contributions to the two Company-sponsored pension plans are expected to be in the range of $ 8 million to $ 12 million for the remainder of 2020.

4 unchanged sentences

The components of net periodic postretirement benefit cost were as follows:

First Quarter

Second Quarter First Half

(in thousands) 2020 2019 2020 2019

6 unchanged sentences

Other liabilities consisted of the following:

(in thousands)

March 29, 2020 December 29, 2019

(in thousands) June 28, 2020 December 29, 2019

Noncurrent portion of acquisition related contingent consideration

1 unchanged sentence

Accruals for executive benefit plans 135,001 141,380

125,142 141,380

Noncurrent deferred proceeds from Territory Conversion Fee

2 unchanged sentences

29,170 29,569

Deferral of payroll taxes under CARES Act 13,128 —

Other 8,912 9,143

Total other liabilities

5 unchanged sentences

Paid Public or

Nonpublic March 29,

Nonpublic June 28,

2020 December 29,

19 unchanged sentences

In 2019, the Company entered into a $ 100 million fixed rate swap maturing June 7, 2021 , to hedge a portion of the interest rate risk on the Company’s term loan facility.

This interest rate swap is designated as a cash flow hedging instrument and is not expected to be material to the condensed consolidated balance sheets.

Changes in the fair value of this interest rate swap were classified as accumulated other comprehensive loss on the condensed consolidated balance sheets and included in the condensed consolidated statements of comprehensive income (loss).

This interest rate swap is designated as a cash flow hedging instrument and changes in its fair value are not expected to be material to the condensed consolidated balance sheets.

The indentures under which the Company’s public debt was issued do not include financial covenants but do limit the incurrence of certain liens and encumbrances as well as indebtedness by the Company’s subsidiaries in excess of certain amounts.

1 unchanged sentence

a consolidated cash flow/fixed charges ratio and a consolidated funded indebtedness/cash flow ratio, each as defined in the respective agreements.

The Company was in compliance with these covenants as of March 29, 2020.

The Company was in compliance with these covenants as of June 28, 2020.

These covenants do not currently, and the Company does not anticipate they will, restrict its liquidity or capital resources.

5 unchanged sentences

The Company is also obligated to purchase 17.5 million cases of finished product from SAC on an annual basis through June 2024.

The Company purchased 7.7 million cases and 6.8 million cases of finished product from SAC in the first quarter of 2020 and the first quarter of 2019, respectively.

The Company purchased 15.1 million cases and 14.3 million cases of finished product from SAC in the first half of 2020 and the first half of 2019, respectively.

The following table summarizes the Company’s purchases from these manufacturing cooperatives:

First Quarter

Second Quarter First Half

(in thousands) 2020 2019 2020 2019

3 unchanged sentences

The Company guarantees a portion of SAC’s debt, which expires at various dates through 2024.

The amount guaranteed was $ 14.7 million on both March 29, 2020 and December 29, 2019.

The amount guaranteed was $ 14.7 million on both June 28, 2020 and December 29, 2019.

In the event SAC fails to fulfill its commitments under the related debt, the Company would be responsible for payment to the lenders up to the level of the guarantee.

3 unchanged sentences

The Company monitors its investment in SAC and would be required to write down its investment if an impairment was identified and the Company determined it to be other than temporary.

No impairment of the Company’s investment in SAC was identified as of March 29, 2020, and there was no impairment identified in 2019.

No impairment of the Company’s investment in SAC was identified as of June 28, 2020, and there was no impairment identified in 2019.

Other Commitments and Contingencies

The Company has standby letters of credit, primarily related to its property and casualty insurance programs.

These letters of credit totaled $ 35.6 million on March 29, 2020 and $ 35.6 million on December 29, 2019.

These letters of credit totaled $ 37.6 million on June 28, 2020 and $ 35.6 million on December 29, 2019.

The Company participates in long-term marketing contractual arrangements with certain prestige properties, athletic venues and other locations.

As of March 29, 2020, the future payments related to these contractual arrangements, which expire at various dates through 2033, amounted to $ 187.3 million.

As of June 28, 2020, the future payments related to these contractual arrangements, which expire at various dates through 2033, amounted to $ 178.1 million.

The Company is involved in various claims and legal proceedings which have arisen in the ordinary course of its business.

7 unchanged sentences

Accumulated other comprehensive income (loss) (“AOCI(L)”) is comprised of adjustments relative to the Company’s pension and postretirement medical benefit plans and foreign currency translation adjustments required for a subsidiary of the Company that performs data analysis and provides consulting services outside the United States.

A summary of AOCI(L) for the first quarter of 2020 and the first quarter of 2019 is as follows:

(in thousands) December 29, 2019 Pre-tax Activity Tax Effect March 29, 2020

A summary of AOCI(L) for the second quarter of 2020 and the second quarter of 2019 is as follows:

(in thousands) March 29, 2020 Pre-tax Activity Tax Effect June 28, 2020

Net pension activity:

8 unchanged sentences

Total AOCI(L) $ ( 115,052 ) $ 1,288 $ ( 317 ) $ ( 114,081 )

(in thousands) December 30, 2018 Pre-tax Activity Tax Effect March 31, 2019

(in thousands) March 31, 2019 Pre-tax Activity Tax Effect June 30, 2019

Net pension activity:

7 unchanged sentences

Total AOCI(L) $ ( 96,407 ) $ 787 $ ( 194 ) $ ( 95,814 )

A summary of AOCI(L) for the first half of 2020 and the first half of 2019 is as follows:

(in thousands) December 29, 2019 Pre-tax Activity Tax Effect June 28, 2020

Net pension activity:

Actuarial loss $ ( 93,174 ) $ 2,379 $ ( 586 ) $ ( 91,381 )

Prior service costs ( 7 ) 9 ( 2 ) —

Net postretirement benefits activity:

Actuarial loss ( 1,191 ) 175 ( 43 ) ( 1,059 )

Prior service costs ( 624 ) — — ( 624 )

Interest rate swap ( 270 ) ( 1,344 ) 331 ( 1,283 )

Foreign currency translation adjustment ( 16 ) 3 ( 1 ) ( 14 )

Reclassification of stranded tax effects ( 19,720 ) — — ( 19,720 )

Total AOCI(L) $ ( 115,002 ) $ 1,222 $ ( 301 ) $ ( 114,081 )

(in thousands) December 30, 2018 Pre-tax Activity Tax Effect June 30, 2019

Net pension activity:

Actuarial loss $ ( 72,690 ) $ 1,801 $ ( 443 ) $ ( 71,332 )

Prior service costs ( 24 ) 12 ( 3 ) ( 15 )

Net postretirement benefits activity:

Actuarial loss ( 4,902 ) 391 ( 96 ) ( 4,607 )

Prior service costs 351 ( 646 ) 159 ( 136 )

Foreign currency translation adjustment — ( 3 ) ( 1 ) ( 4 )

Reclassification of stranded tax effects — — ( 19,720 ) ( 19,720 )

Total AOCI(L) $ ( 77,265 ) $ 1,555 $ ( 20,104 ) $ ( 95,814 )

A summary of the impact of AOCI(L) on certain statements of operations line items is as follows:

First Quarter 2020

(in thousands) Net Pension

Postretirement

Benefits Activity Interest

Rate Swap Foreign Currency

Adjustment Total

Second Quarter 2020

(in thousands) Net Pension Activity Net

Postretirement Benefits Activity Interest Rate Swap Foreign Currency Translation Adjustment Total

Cost of sales $ 360 $ 57 $ — $ — $ 417

1 unchanged sentence

Subtotal pre-tax 1,194 87 3 4 1,288

Income tax expense 294 21 1 1 317

Total after tax effect $ 900 $ 66 $ 2 $ 3 $ 971

Second Quarter 2019

(in thousands)

Net Pension Activity Net

Postretirement Benefits Activity Interest Rate Swap Foreign Currency Translation Adjustment Total

Cost of sales

$ 266 $ ( 66 ) $ — $ — $ 200

Selling, delivery and administrative expenses

641 ( 61 ) — 7 587

Subtotal pre-tax

907 ( 127 ) — 7 787

Income tax expense (benefit) 223 ( 31 ) — 2 194

Total after tax effect

First Quarter 2019

$ 684 $ ( 96 ) $ — $ 5 $ 593

First Half 2020

(in thousands) Net Pension Activity Net

Postretirement Benefits Activity Interest Rate Swap Foreign Currency Translation Adjustment Total

Cost of sales $ 694 $ 105 $ — $ — $ 799

Selling, delivery and administrative expenses 1,694 70 ( 1,344 ) 3 423

Subtotal pre-tax 2,388 175 ( 1,344 ) 3 1,222

Income tax expense (benefit) 588 43 ( 331 ) 1 301

Total after tax effect $ 1,800 $ 132 $ ( 1,013 ) $ 2 $ 921

First Half 2019

(in thousands)

Postretirement

Benefits Activity Foreign Currency

Translation Adjustment

Net Pension Activity Net

Postretirement Benefits Activity Interest Rate Swap Foreign Currency Translation Adjustment Total

Cost of sales

9 unchanged sentences

Changes in current assets and current liabilities affecting cash flows were as follows:

First Quarter

(in thousands) 2020 2019

10 unchanged sentences

Change in current assets less current liabilities $ 20,935 $ ( 78,842 )

Subsequent Events

In response to the rapid spread of the COVID-19 pandemic within the United States, federal, state and local governments throughout the country have imposed restrictions on social and commercial activity to promote social distancing in an effort to slow the spread of COVID-19.

Certain “stay-at-home” and “shelter-in-place” orders, the cancellation of large public gatherings such as sporting events, and the closing of numerous on-premise customer outlets, including restaurants and schools, have begun to negatively impact the Company’s financial results for the second quarter of 2020.

As government-imposed public safety restrictions are eased, the Company expects its business to improve slowly as product and package mix and channel mix become more favorable.

However, the pace at which that shift will occur is unknown, as it is not clear when “stay-at-home” and “shelter-in-place” orders will be lifted, what parts of the economy will be re-opened when those orders are lifted and how quickly consumer behavior will return to more typical buying patterns after those orders are lifted.

Additionally, it is unclear how many outlets will re-open after the orders are lifted, which will impact the Company’s ability to attain its pre-COVID-19 business results.

Also, it is uncertain how consumer behavior will change in the long run as a result of the COVID-19 pandemic and how new consumer behavior will impact the Company’s long-term results.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements