What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-08-04 compared with 2020-05-05 · 315 added, 176 removed, 305 unchanged (62% of the section changed)

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The condensed consolidated financial statements presented are:

• 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.

All comparisons are to the corresponding period in the prior year unless specified otherwise.

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products and, in some regions, local bottlers of Dr Pepper products.

The principal methods of competition in the nonalcoholic beverage industry are new brand and product introductions, point-of-sale merchandising, new vending and dispensing equipment, packaging changes, pricing, sales promotions, product quality, retail space management, customer service, frequency of distribution and advertising.

space management, customer service, frequency of distribution and advertising.

We believe we are competitive in our territories with respect to these methods of competition.

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COVID-19 Impact on Customer, Teammate and Community Safety

On March 11, 2020, the World Health Organization declared the COVID-19 outbreak to be a global pandemic.

The Company is diligently monitoring the impact of the COVID-19 pandemic on all aspects of its business, including the impact on its customers, teammates, suppliers and distribution network.

Our business has been recognized by the United States Department of Homeland Security and state and local governments in the communities in which we operate as “essential,” as all our teammates support beverage manufacturing and distribution.

The Company continues to diligently monitor the impact of the COVID-19 pandemic on all aspects of its business, including the impact on its customers, teammates, suppliers and distribution network.

Our business has been recognized by the United States Department of Homeland Security and state and local governments in the communities in which we operate as “essential,” as all of our teammates support beverage manufacturing and distribution.

The Company has taken the following actions to protect our customers, teammates and communities, while it continues to manufacture and distribute its products:

• We have increased our sanitation protocols to sanitize equipment and common areas multiple times per day.

• We have actively promoted hygiene practices recommended by the Centers for Disease Control and Prevention, including social distancing requiring six or more feet between teammates where possible, and staggered work start and stop times and lunch breaks.

• We continue to execute our Infectious Disease Response Plan and Incident Management Crisis Response protocols as the macro environment moves through the Response, Reopen and Recovery phases of the COVID-19 pandemic.

• We have established a cross-functional Health & Wellness Task Force to manage and monitor all risk mitigation and safety activities related to COVID-19.

In addition, a subset of leaders from the Health & Wellness Task Force conducts case management activities that follow prescribed company and other accepted standards (e.g., Centers for Disease Control and Prevention (“CDC”) and local health authorities).

• We have established a process for the reporting of COVID-19 symptoms, exposures, and positive test results of teammates and of incidents in our customer accounts that our teammates have serviced.

This reporting process enables the Company to follow appropriate quarantine protocols and to communicate to our workforce in a timely and appropriate manner.

• We have increased our communications with our teammates through podcasts, meetings, videos and emails about safety protocols, Personal Protective Equipment (“PPE”), such as disposable gloves and masks, and CDC requirements and recommendations.

• We have increased our sanitation protocols to sanitize equipment and common areas multiple times per day in order to mitigate risk and exposure situations.

• We have promoted hygiene practices recommended by the CDC, including social distancing requiring six or more feet between teammates where possible, and staggered work start and stop times and lunch breaks.

• We have utilized daily health and wellness monitoring, PPE and other measures to promote workplace safety and remain in compliance with local or state regulatory requirements.

• We have restricted access to our facilities for non-essential visitors, vendors and contractors.

• We have produced and bottled thousands of containers of sanitization solution for our front-line teammates who interact with our product and customers.

• We have procured and sent hundreds of thousands of disposable gloves and masks to our teammates to use in their work.

• We have implemented work-from-home routines for teammates whose work duties permit it and are utilizing virtual technology to replace in-person meetings.

For essential visitors, vendors and contractors we require health and wellness certifications to be completed and the use of PPE as the Company deems appropriate.

• We have restricted business travel to “essential travel” to curtail exposure risks for all teammates.

• We have provided sanitation solution and supplies for our front-line teammates who interact with our products, customers, communities and office environments.

• We have implemented work-from-home routines for teammates whose work duties permit it and are utilizing virtual technology to replace many of our in-person meetings.

• We have developed a comprehensive Return to Office Program of Guidelines to manage a phased, measured approach and to prepare our higher density locations with safety modifications, signage, and process changes to promote a safe work environment.

• We have offered our teammates 40 hours of supplemental sick time for non-exempt teammates to encourage our teammates to stay home if they or their family members are experiencing COVID-19 symptoms.

• We have modified our healthcare plans for COVID-19-related events to cover the costs of COVID-19 treatment to remove a barrier for our teammates to receive care if they are experiencing symptoms.

• We have vendors prepared to perform additional sanitation and deep cleaning at facilities where circumstances warrant following exposure to COVID-19.

COVID-19 Impact on Results of Operations and Financial Position

The COVID-19 pandemic and related “stay-at-home” or “shelter-in-place” orders issued by state and local governments, combined with the closing of certain types of retail outlets, including restaurants and schools, and the cancelling of large public gatherings such as sporting events are expected to have a material impact on our results of operations in the short term.

While the first quarter of 2020 was favorably impacted by increased consumer purchasing activity in the last three weeks of the quarter, we expect the financial results of the second quarter of 2020 to be negatively impacted.

Our historical composition of our total bottle/can physical case volume and net sales by customer selling channel for fiscal year 2019 was as follows:

Customer Category Volume Net Sales

Large Retail (including grocery stores and mass merchandise outlets) 59.6 % 48.7 %

Small Retail (including convenience stores, drug stores and value stores) 27.7 % 35.7 %

On-premise (including restaurants, hospitals and schools) 12.7 % 15.6 %

100.0 % 100.0 %

During the last three weeks of the first quarter of 2020, we experienced a shift of approximately 7% in our total bottle/can physical case volume and net sales from smaller retail store and on-premise outlets to larger retail store outlets.

Larger retail store outlets, including grocery stores and mass merchandise outlets, sell a much higher percentage of take home packages than smaller retail store or on-premise outlets.

These take home packages generally carry lower revenue and gross profit

per case as compared to packages sold for immediate consumption through smaller retail store and on-premise outlets.

As a result, our gross profit will decline significantly as long as this shift in our business continues.

Due to the closing of restaurants, schools and amusement and recreational facilities for on-premise consumption, we have seen a significant shift in our business to date in the second quarter of 2020.

However, as government-imposed public safety restrictions are eased, we expect our business to improve slowly as product and package mix and channel mix become more favorable.

The pace at which that shift will occur, however, 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 our ability to attain our 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 our long-term results.

We have not experienced any material supply chain interruptions during the COVID-19 pandemic, and we do not expect any material interruptions in the short term.

We have not experienced any material distribution issues in delivering our product to retail outlets that have remained open.

• We have worked with state and local elected officials in order to quickly implement newly enacted state and local government regulatory safety requirements and guidelines.

Executive Summary for the Second Quarter of 2020

Physical case volume increased 0.6% in the second quarter of 2020.

COVID-19-related stay-at-home orders resulted in extreme volatility in our revenue and physical case sales during the quarter as the shift towards multi-serve packages sold in larger retail

stores caused by the closure of on-premise outlets that started during March continued during the second quarter of 2020.

Volume was strong in our Sparkling category, increasing 3.7% in the second quarter of 2020.

Still beverage volume declined 6.6%, as convenience retail and on-premise outlets were negatively impacted by less consumer traffic.

Our Still beverage portfolio relies more heavily on single serve sales in our small stores and accounts where our products are consumed on-premise.

Consumer demand was highly volatile during the quarter but improved sequentially as stay-at-home orders were lifted and local economies re-opened.

Our bottle/can physical case sales volume monthly growth/(decline) compared to the same month of 2019 was (6.1)%, 1.9% and 4.7% for April, May and June 2020, respectively.

We don't expect the demand experienced in June to sustain itself in future months, but we are encouraged by the volume growth generated in the second quarter of 2020.

Revenue decreased 3.6% in the second quarter of 2020.

Revenue from our bottle/can Sparkling beverages increased 4.4% in the second quarter of 2020, driven primarily by volume growth and price realization within this category.

Revenue from our Still beverages declined 4.7% in the second quarter of 2020 as a result of lower sales volume in small store and on-premise outlets.

Revenue from fountain syrup, which is primarily sold through restaurants, convenience stores, amusement parks and other on-premise outlets, declined $29.3 million, or 56.6%, during the second quarter of 2020.

The significant decline in fountain syrup revenue is a direct result of the previously mentioned stay-at-home orders.

For the first half of 2020, revenue increased $23.7 million, or 1.0%.

While sales within our Sparkling and Still categories grew 5.1% and 2.2% for the first half of 2020, respectively, fountain syrup sales decreased 32.8%.

Gross profit decreased $6.5 million, or 1.5%, in the second quarter of 2020, while gross margin increased 80 basis points to 35.0%, primarily driven by a shift in our product mix to Sparkling take home packages which generally carry a lower per case gross profit than immediate consumption packages.

The negative mix impact was partially offset by commodity price favorability and favorable manufacturing costs.

On an adjusted basis, as defined in the “Adjusted Non-GAAP Results” section below, gross profit declined $13.2 million, or 3.0%, in the second quarter of 2020.

Adjusted gross margin increased 20 basis points to 34.9% primarily as a result of favorable commodity prices.

Gross profit for the first half of 2020 increased $9.5 million, or 1.2%.

On an adjusted basis, gross profit increased $8.8 million compared to the first half of 2019,while adjusted gross margin was 34.8%, consistent with the prior year period.

Selling, delivery and administrative (“SD&A”) expenses in the second quarter of 2020 decreased $22.4 million, or 6.1%.

SD&A expenses as a percentage of net sales decreased 70 basis points in the second quarter of 2020.

Adjusted SD&A expenses in the second quarter of 2020 decreased $17.4 million, or 4.8%.

The decrease in SD&A expenses relates to lower labor costs as a result of adjustmen ts we made to our operating model in response to COVID-19-related impacts on our business.

In April, we furloughed approximately 700 employees, most of whom returned to work in mid-June.

We estimate these furloughs resulted in approximately $6.0 million of payroll savings for the second quarter of 2020.

Additionally, we generated favorable results in a number of expense categories due to reductions in local market activity and diligent management of our variable operating expenses.

SD&A expenses in the first half of 2020 decreased $19.1 million or 2.6%.

SD&A expenses as a percentage of net sales decreased 110 basis points in the first half of 2020 as compared to the first half of 2019.

Income from operations in the second quarter of 2020 was $83.1 million, compared to $67.2 million in the second quarter of 2019, an increase of 23.7%.

Adjusted income from operations in the second quarter of 2020 was $81.7 million, an increase of 5.4% For the first half of 2020, income from operations increased $28.6 million to $115.9 million.

Adjusted income from operations in the first half of 2020 was $118.5 million, an increase of $20.2 million, or 20.5% compared to the first half of 2019.

Net income in the second quarter of 2020 was $39.6 million, compared to $15.4 million in the second quarter of 2019, an improvement of $24.2 million.

Net income for the second quarter of 2020 was adversely impacted by fair value adjustments to our acquisition related contingent consideration liability, driven by changes in future cash flow projections.

Fair value adjustments to this liability are non-cash in nature and a routine part of our quarterly financial closing process.

Net income increased $45.7 million for the first half of 2020 to $54.2 million as compared to the first half of 2019.

Cash flows provided by operations for the first half of 2020 were $229.0 million, compared to $88.6 million for the first half of 2019.

The significant increase in operating cash flows for the first half of 2020 was primarily a result of our strong operating performance and working capital improvement, primarily related to a reduction in inventory related to the June sales trends, the timing of accounts payable and the deferral of payroll taxes permitted under the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”).

We do not currently expect the COVID-19 pandemic to materially impact our liquidity position or access to capital in the short term.

Our revolving credit facility matures on June 8, 2023 and has an aggregate maximum borrowing capacity of $500 million, which may be increased at the Company’s option to $750 million, subject to obtaining commitments from the lenders and

satisfying other conditions specified in the credit agreement.

We had no borrowings under the revolving credit facility as of June 28, 2020.

Our supply chain is dependent on several key raw materials, including aluminum, PET resin and high-fructose corn syrup.

All of these raw materials have seen significant declines in market value, but we have not currently experienced any supply issues that would impact our results materially.

Additionally, we utilize carbon dioxide (“CO2”) in the production of our carbonated beverages and, while we have not experienced a shortage of CO2 in our production processes despite some supply interruptions in the marketplace, we will continue to monitor and react as needed to the supply of this critical production input.

While we expect our operations to be negatively impacted by the COVID-19 pandemic, we are taking several cost-saving actions to offset the recent decline in our revenue.

We furloughed approximately 700 employees in mid-April and expect this furlough to continue through mid-June.

In addition, we have taken measures to reduce or defer operating expenses, maintaining only business-critical expenses to support business operations.

Lastly, we have taken measures to reduce capital expenditures to conserve cash in this time of uncertainty.

While we expect our business results to be negatively impacted, we do not currently expect the COVID-19 pandemic to materially impact our liquidity position or access to capital in the short term.

Borrowings under the revolving credit facility as of March 29, 2020 were $105 million.

Additionally, in response to the COVID-19 pandemic, the President signed into law the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) on March 27, 2020.

The CARES Act provides numerous tax relief provisions and other economic stimulus measures, including the temporary suspension of certain payment requirements for the employer portion of Social Security payroll taxes and the creation of certain refundable employee retention credits.

The Company expects the deferral of Social Security payroll taxes to have an approximately $30 million to $40 million positive impact on its cash flows from operations in 2020.

Additionally, the Company is currently evaluating the impact of other provisions and measures within the CARES Act.

As overall beverage consumption continues to shift from restaurants and on-premise locations to homes during the COVID-19 pandemic, the supply of aluminum cans has tightened.

Further, many new product offerings within the beverage industry, both alcoholic and non-alcoholic, are coming to the market in cans.

During the pandemic, consumers appear to be favoring the portability and storability of cans as they spend more time at home.

We have made changes to our typical sourcing model and product offerings to address the supply constraints for can production.

Specifically, we have sourced cans from international locations and have limited our can product package offerings.

We will continue to monitor and react as needed to the limited supply of cans in the marketplace.

We do not expect any material impairments or adjustments to the fair value of our assets as a result of the COVID-19 pandemic.

Through the normal course of business, we have assessed the collectability of our receivables and have recorded any expected losses as of March 29, 2020.

These adjustments recorded to our receivables did not have a material impact on our results for the first quarter of 2020.

Further, we have evaluated our goodwill, intangible assets and long-lived assets for impairment, noting no impairment to these assets as of the first quarter of 2020.

Through the normal course of business, we have assessed the collectability of our receivables and have recorded any expected losses as of June 28, 2020.

During the second quarter of 2020, we recorded a $3.5 million reserve against our accounts receivable balance to address the COVID-19-related collectability risk for primarily our on-premise customers.

The charge related to this additional reserve is included in SD&A expenses for the second quarter of 2020.

Further, there have been no triggering events identified during the second quarter of 2020 that would indicate an impairment of our goodwill, intangible assets and long-lived assets.

We will continue to monitor the valuation of our assets and the collectability of our receivables and record any adjustments as necessary.

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We do not anticipate any material impact to our control procedures that would materially affect our internal controls over financial reporting.

In addition, we activated our Infectious Disease Response Plan and Incident Management Crisis Response procedures in early March and all aspects of that plan and those procedures are functioning as designed.

We do not expect any material expenditures as a result of the plan’s and the procedures’ implementation.

Executive Summary for the First Quarter of 2020

Net sales grew 6.4% in the first quarter of 2020, primarily due to an increase in physical case volume of 6.1%.

Physical case volume growth was strong in both Sparkling and Still categories as we introduced Coca-Cola line extensions and new products such as Coke Energy, AHA and enhanced waters.

Volume growth was particularly strong in the last three weeks of the quarter as consumers prepared for COVID-19-related stay-at-home orders which shifted consumer buying patterns to take home multi-serve packages sold in larger retail stores.

We estimate approximately two-thirds of our first quarter 2020 volume growth is attributable to heavy increases in demand during the last three weeks of March.

Net sales from our bottle/can Sparkling beverages increased 6.0% in the first quarter of 2020, driven primarily by volume growth and price realization within this category.

Net sales from our Still beverages grew 10.4% in the first quarter of 2020, related to the successful introduction of AHA, Coke Energy and continued strong BodyArmor performance.

Gross profit increased $16.0 million, or 4.1%, in the first quarter of 2020, driven by higher volumes, while gross margin decreased 70 basis points to 34.6% due to the shift in our product mix away from single-serve sales and towards take home multi-serve sales.

On an adjusted basis, as defined in the “Adjusted Non-GAAP Results” section below, gross profit grew $22.1 million, or 5.7%, and gross margin decreased 20 basis points.

We continue to focus on price realization and margin improvement across our portfolio.

However, the higher growth rates for Still products, which generally have lower gross margins than Sparkling products, continue to put pressure on our overall gross margin.

We estimate the shift in consumer buying patterns in the last three weeks of the quarter impacted our gross margin by approximately 20 basis points.

Selling, delivery and administrative (“SD&A”) expenses in the first quarter of 2020 increased $3.3 million, or 0.9%.

SD&A expenses as a percentage of net sales decreased 170 basis points in the first quarter of 2020.

Adjusted SD&A expenses in the first quarter of 2020 increased $6.1 million, or 1.7%.

The substantial improvement in SD&A expenses as a percentage of net sales relates to our ability to leverage our operating model during such a period of strong revenue growth along with diligent management of our variable operating expenses.

Income from operations in the first quarter of 2020 was $32.8 million, compared to $20.2 million in the first quarter of 2019, an increase of 62.9%.

Adjusted income from operations in the first quarter of 2020 was $36.8 million, an increase of 77.3%.

Net income in the first quarter of 2020 was $14.7 million, compared to a net loss of $6.8 million in the first quarter of 2019, an improvement of $21.5 million.

Cash flows provided by operations for the first quarter of 2020 were $32.3 million, compared to $5.6 million for the first quarter of 2019.

Improved cash generation continues to be a key management focus area as we continue to work to improve our profitability and further strengthen our balance sheet.

Areas of Emphasis

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We are focused on optimizing our supply chain as we continue to integrate the acquired territories and facilities into our operations.

We are in the process of integrating our Memphis, Tennessee production center with our West Memphis, Arkansas operations, which is expected to greatly

expand our West Memphis production capabilities and to reduce our overall production costs.

We are in the process of integrating our Memphis, Tennessee production center with our West Memphis, Arkansas operations, which is expected to greatly expand our West Memphis production capabilities and to reduce our overall production costs.

Additionally, we are planning to consolidate our Anderson, Bloomington, Lafayette, Shelbyville and Speedway, Indiana warehousing and distribution operations into a new facility in Whitestown, Indiana by the spring of 2021.

This increased space and capacity will allow us to expand our operations and better serve our customers and consumers in Indiana and the surrounding areas.

We will continue to look for opportunities to invest in our supply chain to optimize our costs.

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Results of Operations

First Quarter Results

The Company’s results of operations for the first quarter of 2020 and the first quarter of 2019 are summarized in the table below and discussed in the following paragraphs.

First Quarter

Second Quarter Results

The Company’s results of operations for the second quarter of 2020 and the second quarter of 2019 are summarized in the table below and discussed in the following paragraphs.

Second Quarter

(in thousands) 2020 2019 Change

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Other expense, net 16,134 31,181 (15,047)

Income (loss) before income taxes 20,962 (8,583) 29,545

Income tax expense (benefit) 5,361 (3,005) 8,366

Net income (loss) 15,601 (5,578) 21,179

Income before income taxes 57,800 24,038 33,762

Income tax expense 15,187 7,182 8,005

Net income 42,613 16,856 25,757

Net income attributable to noncontrolling interest 3,044 1,486 1,558

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

Net income attributable to Coca-Cola Consolidated, Inc.

$ 39,569 $ 15,370 $ 24,199

Other comprehensive income (loss), net of tax (50) 578 (628)

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

Other comprehensive income, net of tax 971 593 378

Comprehensive income attributable to Coca-Cola Consolidated, Inc.

$ 40,540 $ 15,963 $ 24,577

Items Impacting Operations and Financial Condition

First Quarter 2020

• $3.9 million in pre-tax unfavorable mark-to-market adjustments related to the Company’s commodity hedging program.

Second Quarter 2020

• $14.5 million recorded in other expense, net as a result of an increase in the fair value of the Company’s acquisition related contingent consideration liability;

• $0.1 million of net expense related to the impairment and accelerated deprecation of property, plant and equipment as the Company continues to optimize efficiency.

First Quarter 2019

• $2.1 million in pre-tax unfavorable mark-to-market adjustments related to the Company’s commodity hedging program;

• $0.6 million of net expense related to the impairment and accelerated depreciation of property, plant and equipment as the Company continues to optimize the efficiency of its supply chain.

Second Quarter 2019

• $29.2 million recorded in other expense, net as a result of an increase in the fair value of the Company’s acquisition related contingent consideration liability;

• $4.9 million in pre-tax favorable mark-to-market adjustments related to the Company’s commodity hedging program;

• $4.7 million of expenses related to the System Transformation, the majority of which were information technology-related costs.

• $2.5 million of expenses due to an increase in the capitalization thresholds on certain low-cost, short-lived assets.

Net sales increased $70.1 million, or 6.4%, to $1.17 billion in the first quarter of 2020, as compared to $1.10 billion in the first quarter of 2019.

The increase in net sales was primarily attributable to the following (in millions):

First Quarter 2020

• $2.2 million of expenses related to the System Transformation transactions, the majority of which were information technology-related costs;

• $1.9 million adjustment to reflect the prospective change of increasing the capitalization thresholds on certain low-cost, short-lived assets.

Net sales decreased $46.4 million, or 3.6%, to $1.23 billion in the second quarter of 2020, as compared to $1.27 billion in the second quarter of 2019.

The decrease in net sales was primarily attributable to the following (in millions):

Second Quarter 2020

Attributable to:

$ 53.8 Increase in net sales related to increased sales volume

12.9 Increase in net sales primarily related to an increase in average bottle/can sales price per unit to retail customers and the shift in product mix to higher revenue still products in order to meet consumer preferences

3.6 Increase in sales volume to other Coca-Cola bottlers

$ 70.1 Total increase in net sales

$ (34.2) Decrease in net sales primarily driven by a decrease in fountain syrup sales mainly sold in on-premise outlets impacted by COVID-19-related stay-at-home orders and closures

(9.4) Decrease in sales volume to other Coca-Cola bottlers

$ (46.4) Total decrease in net sales

Net sales by product category were as follows:

First Quarter

Second Quarter

(in thousands) 2020 2019 % Change

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Bottle/Can Sales Volume

First Quarter

Second Quarter

Bottle/Can Sales

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Any differences are not material.

The following table summarizes the percentage of the Company’s total bottle/can sales volume to its largest customers, as well as the percentage of the Company’s total net sales that such volume represents:

First Quarter

Approximate percent of the Company’s total bottle/can sales volume:

Wal-Mart Stores, Inc.

The Kroger Company 13 % 12 %

Total approximate percent of the Company’s total bottle/can sales volume 33 % 32 %

Approximate percent of the Company’s total net sales:

Wal-Mart Stores, Inc.

The Kroger Company 9 % 9 %

Total approximate percent of the Company’s total net sales 23 % 23 %

Cost of Sales

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Raw material costs represent approximately 20% of total cost of sales on an annual basis.

Cost of sales increased $54.1 million, or 7.6%, to $767.7 million in the first quarter of 2020, as compared to $713.6 million in the first quarter of 2019.

The increase in cost of sales was primarily attributable to the following (in millions):

First Quarter 2020

Cost of sales decreased $40.0 million, or 4.8%, to $797.9 million in the second quarter of 2020, as compared to $837.9 million in the second quarter of 2019.

The decrease in cost of sales was primarily attributable to the following (in millions):

Second Quarter 2020

Attributable to:

$ 35.2 Increase in cost of sales related to increased sales volume

5.9 Increase in cost of sales primarily related to, in order of magnitude, the change in product mix to meet consumer preferences and an increase in concentrate costs, partially offset by lower fuel prices

3.6 Increase in costs related to increased volume of freight services provided to external customers (other than nonalcoholic beverages)

3.3 Increase in sales volume to other Coca-Cola bottlers

$ 54.1 Total increase in cost of sales

$ (26.0) Decrease in cost of sales primarily driven by a decrease in fountain syrup sales mainly sold in on-premise outlets impacted by COVID-19-related stay-at-home orders and closures, a favorable commodity environment and lower manufacturing costs

(9.8) Decrease in sales volume to other Coca-Cola bottlers

(6.1) Decrease in cost of sales due to changes in the fair value adjustments on commodity hedges

$ (40.0) Total decrease in cost of sales

The Company relies extensively on advertising and sales promotion in the marketing of its products.

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The Company also benefits from national advertising programs conducted by The Coca-Cola Company and other beverage companies.

Total marketing funding support from The Coca-Cola Company and other beverage companies, which includes both direct payments to the Company and payments to customers for marketing programs, was $30.3 million in the first quarter of 2020, as compared to $31.3 million in the first quarter of 2019.

Total marketing funding support from The Coca-Cola Company and other beverage companies, which includes both direct payments to the Company and payments to customers for marketing programs, was $26.3 million in the second quarter of 2020, as compared to $34.7 million in the second quarter of 2019.

The Company’s cost of sales may not be comparable to other peer companies, as some peer companies include all costs related to their distribution network in cost of sales.

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sales management labor costs, distribution costs resulting from transporting finished products from distribution centers to customer locations, distribution center overhead including depreciation expense, distribution center warehousing costs, delivery vehicles and cold drink equipment, point-of-sale expenses, advertising expenses, cold drink equipment repair costs, amortization of intangibles and administrative support labor and operating costs.

SD&A expenses increased by $3.3 million, or 0.9%, to $372.5 million in the first quarter of 2020, as compared to $369.2 million in the first quarter of 2019.

SD&A expenses as a percentage of net sales decreased to 31.8% in the first quarter of 2020 from 33.5% in the first quarter of 2019.

The increase in SD&A expenses was primarily attributable to the following (in millions):

First Quarter 2020

SD&A expenses decreased by $22.4 million, or 6.1%, to $346.2 million in the second quarter of 2020, as compared to $368.6 million in the second quarter of 2019.

SD&A expenses as a percentage of net sales decreased to 28.2% in the second quarter of 2020 from 28.9% in the second quarter of 2019.

The decrease in SD&A expenses was primarily attributable to the following (in millions):

Second Quarter 2020

Attributable to:

$ (13.1) Decrease in payroll costs and employee benefits including bonuses and incentives, primarily as a result of the furloughs of 700 teammates during the majority of the second quarter of 2020 and structural changes made to certain portions of our business

(8.6) Decrease in a number of expense categories due to reductions in discretionary spending, including travel and entertainment and local marketing activities

(2.2) Decrease in System Transformation transaction expenses

4.3 Increase in payroll costs and employee benefits including bonuses and incentives

$ 3.3 Total increase in SD&A expenses

$ (22.4) Total decrease in SD&A expenses

The Company has three primary delivery systems:

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Shipping and handling costs related to the movement of finished goods from manufacturing locations to distribution centers are included in cost of sales.

Shipping and handling costs related to the movement of finished goods from distribution centers to customer locations, including distribution center warehousing costs, totaled $160.1 million in the first quarter of 2020 and $148.9 million in the first quarter of 2019.

Shipping and handling costs related to the movement of finished goods from distribution centers to customer locations, including distribution center warehousing costs, totaled $149.1 million in the second quarter of 2020 and $155.8 million in the second quarter of 2019.

Interest Expense, Net

Interest expense, net decreased $3.3 million, or 25.8%, to $9.6 million in the first quarter of 2020, as compared to $12.9 million in the first quarter of 2019.

The decrease was primarily a result of lower average debt balances and lower average interest rates.

Interest expense, net decreased $2.8 million, or 23.4%, to $9.2 million in the second quarter of 2020, as compared to $12.0 million in the second quarter of 2019.

The decrease was primarily a result of lower average interest rates and lower average debt balances.

Other Expense, Net

A summary of other expense, net is as follows:

First Quarter

Second Quarter

(in thousands) 2020 2019

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Non-service cost component of net periodic benefit cost 1,586 1,959

Other — (156)

Total other expense, net $ 16,134 $ 31,181

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The Company is required to pay the current portion of the sub-bottling fee on a quarterly basis.

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.

Income Tax Expense (Benefit)

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 increase in the fair value of the acquisition related contingent consideration liability during the second quarter of 2020 was primarily driven by changes in future cash flow projections of the distribution territories subject to sub-bottling fees.

The increase in the fair value of the acquisition related contingent consideration liability during the second quarter 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.

Income Tax Expense

The Company’s effective income tax rate, calculated by dividing income tax expense by income before income taxes, was 26.3% for the second quarter of 2020 and 29.9% for the second quarter of 2019.

The decrease in the effective income tax rate was primarily driven by improved financial results.

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 27.7% for the second quarter of 2020 and 31.8% for the second quarter of 2019.

Noncontrolling Interest

The Company recorded net income attributable to noncontrolling interest of $3.0 million in the second quarter of 2020 and $1.5 million in the second quarter of 2019, each related to the portion of Piedmont owned by The Coca-Cola Company.

Other Comprehensive Income, Net of Tax

Other comprehensive income, net of tax was $1.0 million in the second quarter of 2020 and $0.6 million in the second quarter of 2019.

First Half Results

Our results of operations for the first half of 2020 and the first half of 2019 are highlighted in the table below and discussed in the following paragraphs.

(in thousands)

2020 2019 Change

Net sales $ 2,400,236 $ 2,376,571 $ 23,665

Cost of sales 1,565,640 1,551,484 14,156

Gross profit 834,596 825,087 9,509

Selling, delivery and administrative expenses 718,657 737,719 (19,062)

Income from operations 115,939 87,368 28,571

Interest expense, net 18,745 24,881 (6,136)

Other expense, net 18,432 47,032 (28,600)

Income before income taxes 78,762 15,455 63,307

Income tax expense 20,548 4,177 16,371

Net income 58,214 11,278 46,936

Net income attributable to noncontrolling interest 3,983 2,739 1,244

Net income attributable to Coca-Cola Consolidated, Inc.

$ 54,231 $ 8,539 $ 45,692

Other comprehensive income, net of tax 921 1,171 (250)

Comprehensive income attributable to Coca-Cola Consolidated, Inc.

$ 55,152 $ 9,710 $ 45,442

Items Impacting Operations and Financial Condition

First Half 2020

• $15.3 million recorded in other expense, net as a result of an increase in the fair value of the Company’s acquisition related contingent consideration liability;

• $1.8 million in pre-tax favorable mark-to-market adjustments related to the Company’s commodity hedging program;

• $0.7 million of net expense related to the impairment and accelerated depreciation of property, plant and equipment as the Company continues to optimize the efficiency of its supply chain.

First Half 2019

• $43.3 million recorded in other expense, net as a result of an increase in the fair value of the Company’s acquisition related contingent consideration liability;

• $6.9 million of expenses related to the System Transformation transactions, the majority of which were information technology-related costs;

• $4.4 million adjustment to reflect the prospective change of increasing the capitalization thresholds on certain low-cost, short-lived assets;

• $1.7 million in pre-tax unfavorable mark-to-market adjustments related to the Company’s commodity hedging program.

Net sales increased $23.7 million, or 1.0%, to $2.40 billion in the first half of 2020, as compared to $2.38 billion in the first half of 2019.

The increase in net sales was primarily attributable to the following (in millions):

First Half 2020

Attributable to:

$ 32.4 Increase in net sales primarily driven by an increase in bottle/can sales volume partially offset by a decrease in fountain syrup sales mainly sold in on-premise outlets impacted by COVID-19-related stay-at-home orders and closures

(5.8) Decrease in sales volume to other Coca-Cola bottlers

$ 23.7 Total increase in net sales

Net sales by product category were as follows:

(in thousands) 2020 2019 % Change

Bottle/can sales:

Sparkling beverages $ 1,324,854 $ 1,260,565 5.1 %

Still beverages 769,849 753,573 2.2 %

Total bottle/can sales 2,094,703 2,014,138 4.0 %

Sales to other Coca-Cola bottlers 165,143 170,950 (3.4) %

Post-mix and other 140,390 191,483 (26.7) %

Total other sales 305,533 362,433 (15.7) %

Total net sales $ 2,400,236 $ 2,376,571 1.0 %

Product category sales volume of physical cases as a percentage of total bottle/can sales volume and the percentage change by product category were as follows:

Bottle/Can Sales Volume

First Half Bottle/Can Sales

Product Category 2020 2019 Volume % Change

Sparkling beverages 71.3 % 71.1 % 3.5 %

Still beverages 28.7 % 28.9 % 2.2 %

Total bottle/can sales volume 100.0 % 100.0 % 3.1 %

As the Company introduces new products, it reassesses the category assigned to its products at the SKU level, therefore categorization could differ from previously presented results to conform with current period categorization.

Any differences are not material.

Approximate percent of the Company’s total bottle/can sales volume:

Wal-Mart Stores, Inc.

The Kroger Company 14 % 12 %

Total approximate percent of the Company’s total bottle/can sales volume 34 % 31 %

Approximate percent of the Company’s total net sales:

Wal-Mart Stores, Inc.

The Kroger Company 10 % 8 %

Total approximate percent of the Company’s total net sales 24 % 22 %

Cost of Sales

Cost of sales increased $14.2 million, or 0.9%, to $1.57 billion in the first half of 2020, as compared to $1.55 billion in the first half of 2019.

The increase in cost of sales was primarily attributable to the following (in millions):

First Half 2020 Attributable to:

$ 15.7 Increase in cost of sales primarily driven by an increase in bottle/can sales volume partially offset by a decrease in fountain syrup sales mainly sold in on-premise outlets impacted by COVID-19-related stay-at-home orders and closures

(6.5) Decrease in sales volume to other Coca-Cola bottlers

$ 14.2 Total increase in cost of sales

Total marketing funding support from The Coca-Cola Company and other beverage companies was $56.6 million in the first half of 2020, as compared to $66.0 million in the first half of 2019.

Selling, Delivery and Administrative Expenses

SD&A expenses decreased by $19.1 million, or 2.6%, to $718.7 million in the first half of 2020, as compared to $737.7 million in the first half of 2019.

SD&A expenses as a percentage of net sales decreased to 29.9% in the first half of 2020 from 31.0% in the first half of 2019.

The decrease in SD&A expenses was primarily attributable to the following (in millions):

First Half 2020 Attributable to:

$ (8.8) Decrease in payroll costs and employee benefits including bonuses and incentives, primarily as a result of the furloughs of 700 teammates during the majority of the second quarter of 2020 and structural changes made to certain portions of our business

(6.9) Decrease in System Transformation transaction expenses

$ (19.1) Total decrease in SD&A expenses

Shipping and handling costs related to the movement of finished goods from distribution centers to customer locations, including distribution center warehousing costs, totaled $309.2 million in the first half of 2020 and $304.7 million in the first half of 2019.

Interest Expense, Net

Interest expense, net decreased $6.1 million, or 24.7%, to $18.7 million in the first half of 2020, as compared to $24.9 million in the first half of 2019.

The decrease was primarily a result of lower average interest rates and lower average debt balances.

Other Expense, Net

A summary of other expense, net is as follows:

(in thousands) 2020 2019

Increase in the fair value of the acquisition related contingent consideration liability $ 15,260 $ 43,268

Non-service cost component of net periodic benefit cost 3,172 3,920

Other — (156)

Total other expense, net $ 18,432 $ 47,032

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.

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.

Income Tax Expense

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’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.

Noncontrolling Interest

The Company recorded net income attributable to noncontrolling interest of $0.9 million in the first quarter of 2020 and $1.3 million in the first quarter of 2019, each related to the portion of Piedmont owned by The Coca-Cola Company.

Other Comprehensive Income (Loss), Net of Tax

Other comprehensive income, net of tax was $0.1 million in the first quarter of 2020 and other comprehensive loss, net of tax was $0.6 million in the first quarter of 2019.

The Company recorded net income attributable to noncontrolling interest of $4.0 million in the first half of 2020 and $2.7 million in the first half of 2019, each related to the portion of Piedmont owned by The Coca-Cola Company.

Other Comprehensive Income, Net of Tax

Other comprehensive income, net of tax was $0.9 million in the first half of 2020 and $1.2 million in the first half of 2019.

Segment Operating Results

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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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The following tables reconcile reported results (GAAP) to adjusted results (non-GAAP):

First Quarter 2020

Second Quarter 2020

(in thousands, except per share data)

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Adjusted results (non-GAAP) $ 428,706 $ 347,018 $ 81,688 $ 70,918 $ 48,924 $ 5.22

First Quarter 2019

Second Quarter 2019

(in thousands, except per share data)

Gross profit SD&A expenses Income from operations Income (loss) before income taxes Net income (loss) Basic net income (loss) per share

Gross profit SD&A expenses Income from

operations Income before

income taxes Net income Basic net income per share

Reported results (GAAP) $ 435,779 $ 368,565 $ 67,214 $ 24,038 $ 15,370 $ 1.64

7 unchanged sentences

— (1,903) 1,903 1,903 1,431 0.15

Supply chain optimization and consolidation (3)

1,294 — 1,294 1,294 973 0.10

Other tax adjustments (4)

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Adjusted results (non-GAAP) $ 441,947 $ 364,411 $ 77,536 $ 63,582 $ 42,292 $ 4.51

First Half 2020

(in thousands, except per share data)

Gross profit SD&A expenses Income from

operations Income before

income taxes Net income Basic net

Reported results (GAAP) $ 834,596 $ 718,657 $ 115,939 $ 78,762 $ 54,231 $ 5.79

Fair value adjustment of acquisition related contingent consideration (1)

— — — 15,260 11,476 1.22

Fair value adjustments for commodity hedges (2)

270 (1,524) 1,794 1,794 1,349 0.14

Supply chain optimization and consolidation (3)

1,319 601 718 718 540 0.06

Other tax adjustments (4)

— — — — (682) (0.07)

Total reconciling items 1,589 (923) 2,512 17,772 12,683 1.35

Adjusted results (non-GAAP) $ 836,185 $ 717,734 $ 118,451 $ 96,534 $ 66,914 $ 7.14

First Half 2019

(in thousands, except per share data)

Gross profit SD&A expenses Income from

operations Income before

income taxes Net income Basic net

Reported results (GAAP) $ 825,087 $ 737,719 $ 87,368 $ 15,455 $ 8,539 $ 0.91

System Transformation transaction expenses (5)

— (6,915) 6,915 6,915 5,200 0.56

Fair value adjustment of acquisition related contingent consideration (1)

— — — 43,268 32,538 3.47

Fair value adjustments for commodity hedges (2)

969 2,649 (1,680) (1,680) (1,263) (0.13)

Capitalization threshold change for certain assets (6)

— (4,379) 4,379 4,379 3,293 0.35

Supply chain optimization and consolidation (3)

1,294 — 1,294 1,294 973 0.10

Other tax adjustments (4)

— — — — (3,660) (0.39)

Total reconciling items 2,263 (8,645) 10,908 54,176 31,881 3.96

Adjusted results (non-GAAP) $ 827,350 $ 729,074 $ 98,276 $ 69,631 $ 40,420 $ 4.87

Following is an explanation of non-GAAP adjustments:

(1) This noncash, fair value adjustment of acquisition related contingent consideration fluctuates based on factors such as long-term interest rates and projections of future cash flows of distribution territories subject to sub-bottling fees.

(1) This non-cash, fair value adjustment of acquisition related contingent consideration fluctuates based on factors such as long-term interest rates and projections of future cash flows of distribution territories subject to sub-bottling fees.

(2) The Company enters into derivative instruments from time to time to hedge some or all of its projected purchases of aluminum, PET resin, diesel fuel and unleaded gasoline in order to mitigate commodity risk.

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(4) Adjustment reflects the impact from the reconciling items to reported results on the annualized adjusted effective income tax rate.

(5) Adjustment reflects expenses incurred during 2019 related to the System Transformation transactions, which primarily includes information technology system conversions.

(6) Adjustment reflects the change of increasing the capitalization threshold during 2019 of certain low-cost, short-lived assets.

(5) Adjustment reflects expenses incurred during the applicable period of 2019 related to the System Transformation transactions, which primarily includes information technology system conversions.

(6) Adjustment reflects the prospective change of increasing the capitalization thresholds during the applicable period of 2019 on certain low-cost, short-lived assets.

Financial Condition

Total assets were $3.20 billion on March 29, 2020, which was an increase of $68.8 million from December 29, 2019.

Net working capital, defined as current assets less current liabilities, was $295.5 million on March 29, 2020, which was an increase of $87.4 million from December 29, 2019.

Significant changes in net working capital on March 29, 2020 from December 29, 2019 were as follows:

• An increase in cash and cash equivalents of $38.1 million as a result of increased net borrowings under our revolving credit facility.

• An increase in accounts receivable, trade of $37.3 million and a decrease in accounts receivable from The Coca-Cola Company of $5.8 million, both primarily as a result of the timing of cash receipts.

Total assets were $3.18 billion on June 28, 2020, which was an increase of $57.7 million from December 29, 2019.

Net working capital, defined as current assets less current liabilities, was $265.9 million on June 28, 2020, which was an increase of $57.8 million from December 29, 2019.

Significant changes in net working capital on June 28, 2020 from December 29, 2019 were as follows:

• An increase in cash and cash equivalents of $67.9 million as a result of our strong operating performance and working capital improvement, primarily related to a reduction in inventory related to the June sales trends, the timing of accounts payable and the deferral of payroll taxes permitted under the CARES Act.

• An increase in accounts receivable, trade of $38.4 million driven primarily by an increase in average daily sales in June 2020, as compared to December 2019.

• A decrease in accounts receivable from The Coca-Cola Company of $14.3 million, primarily as a result of the timing of cash receipts.

• A decrease in inventory of $14.8 million, primarily as a result of higher than anticipated sales volume in June that resulted in lower inventory levels.

• An increase in accounts payable, trade of $28.7 million and an increase in accounts payable to The Coca-Cola Company of $31.1 million, both primarily as a result of the timing of cash payments.

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The amount and frequency of future dividends will be determined by the Company’s Board of Directors in light of the earnings and financial condition of the Company at such time, and no assurance can be given that dividends will be declared or paid in the future.

The Company’s total debt as of March 29, 2020 and December 29, 2019 was as follows:

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

The Company’s total debt as of June 28, 2020 and December 29, 2019 was as follows:

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

Term loan facility (1)

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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.

As discussed below under “Cash Flows From Financing Activities,” in the first quarter of 2019, the Company sold $100 million aggregate principal amount of senior unsecured notes due in 2026 to MetLife Investment Advisors, LLC (“MetLife”) and certain of its affiliates.

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The Company currently believes all banks participating in the revolving credit facility have the ability to and will meet any funding requests from the Company.

As of March 29, 2020, the Company had outstanding borrowings of $105.0 million under the revolving credit facility, and, therefore, had $395.0 million borrowing capacity available .

As of June 28, 2020, the Company had no outstanding borrowings under the revolving credit facility, and, therefore, had $500 million borrowing capacity available .

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.

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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.

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Moody’s rating outlook for the Company is stable.

As of March 29, 2020, the Company’s credit ratings were as follows:

As of June 28, 2020, the Company’s credit ratings were as follows:

Long-Term Debt

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The Company is subject to interest rate risk on its variable rate debt, including its revolving credit facility and term loan facility.

Assuming no changes in the Company’s capital structure, if market interest rates average 1% more over the next 12 months than the interest rates as of March 29, 2020, interest expense for the next 12 months would increase by approximately $2.6 million.

Assuming no changes in the Company’s capital structure, if market interest rates average 1% more over the next 12 months than the interest rates as of June 28, 2020, interest expense for the next 12 months would increase by approximately $1.5 million.

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

There were no transfers of assets or liabilities from Level 1 or Level 2 in any period presented.

Fair value adjustments were noncash, and, therefore, did not impact the Company’s liquidity or capital resources.

Fair value adjustments were non-cash, and, therefore, did not impact the Company’s liquidity or capital resources.

Following is a summary of the Level 3 activity:

First Quarter

Second Quarter First Half

(in thousands) 2020 2019 2020 2019

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A summary of cash-based activity is as follows:

First Quarter

(in thousands) 2020 2019

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Borrowings under revolving credit facility $ 235,000 $ 206,339

Proceeds from issuance of senior notes — 100,000

Net cash provided by operating activities (1)

229,003 88,586

Proceeds from the sale of property, plant and equipment 1,764 823

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Payments on revolving credit facility $ 280,000 $ 186,339

Payments on term loan facility 7,500 15,000

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

Additions to property, plant and equipment 72,886 57,581

6 unchanged sentences

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

(1) Net cash provided by operating activities in the first quarter of 2020 included net income tax payments of $2.0 million and net cash provided by operating activities in the first quarter of 2019 included a net refund of income tax payments of $1.0 million.

(1) Net cash provided by operating activities in the first half of 2020 included net income tax payments of $2.9 million and net cash provided by operating activities in the first half of 2019 included net income tax payments of $0.1 million.

Cash Flows From Operating Activities

During the first quarter of 2020, cash provided by operating activities was $32.3 million, which was an increase of $26.7 million as compared to the first quarter of 2019.

The increase was primarily a result of improved financial results during the first quarter of 2020 as compared to the first quarter of 2019.

During the first half of 2020, cash provided by operating activities was $229.0 million, which was an increase of $140.4 million as compared to the first half of 2019.

The increase was primarily a result of our strong operating performance and working capital improvement, primarily related to a reduction in inventory related to the June sales trends, the timing of accounts payable and the deferral of payroll taxes permitted under the CARES Act.

Cash Flows From Investing Activities

During the first quarter of 2020, cash used in investing activities was $32.3 million, which was a decrease of $1.4 million as compared to the first quarter of 2019.

Additions to property, plant and equipment were $33.1 million during the first quarter of 2020.

As of March 29, 2020, $6.7 million of additions to property, plant and equipment were accrued in accounts payable, trade.

Additions to property, plant and equipment were $29.3 million during the first quarter of 2019.

As of March 31, 2019, $5.4 million of additions to property, plant and equipment were accrued in accounts payable, trade.

During the first half of 2020, cash used in investing activities was $72.7 million, which was an increase of $10.8 million as compared to the first half of 2019.

Additions to property, plant and equipment were $72.9 million during the first half of 2020.

As of June 28, 2020, $11.9 million of additions to property, plant and equipment were accrued in accounts payable, trade.

Additions to property, plant and equipment were $57.6 million during the first half of 2019.

As of June 30, 2019, $10.3 million of additions to property, plant and equipment were accrued in accounts payable, trade.

Cash Flows From Financing Activities

During the first quarter of 2020, cash provided by financing activities was $38.2 million, which was an increase of $15.0 million as compared to the first quarter of 2019.

The change was primarily driven by an increase in net borrowings under our revolving credit facility to increase cash on hand in response to the COVID-19 pandemic.

The Company had cash payments for acquisition related contingent consideration of $10.5 million during the first quarter of 2020 and $6.2 million during the first quarter of 2019.

The Company anticipates that the amount it could pay annually under the acquisition related contingent consideration arrangements for the distribution territories subject to sub-bottling fees will be in the range of $28 million to $51 million.

During the first half of 2020, cash used in financing activities was $88.4 million, which was an increase of $53.8 million as compared to the first half of 2019.

The change was primarily driven by an increase in cash flows from operating activities as noted above which enabled the Company to repay debt of $59.7 million.

The Company had cash payments for acquisition related contingent consideration of $20.5 million during the first half of 2020 and $12.8 million during the first half of 2019.

The Company anticipates that the amount it could pay annually under the

acquisition related contingent consideration arrangements for the distribution territories subject to sub-bottling fees will be in the range of $28 million to $52 million.

In the first quarter of 2019, the Company sold $100 million aggregate principal amount of senior unsecured notes due in 2026 to MetLife and certain of its affiliates pursuant to a note purchase and private shelf agreement, dated January 23, 2019, between the Company, MetLife and the other parties thereto.

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All of SAC’s shareholders are Coca-Cola bottlers and each has equal voting rights.

As of March 29, 2020, the Company had guaranteed $14.7 million of SAC’s debt.

As of June 28, 2020, the Company had guaranteed $14.7 million of SAC’s debt.

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.

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The net impact of the commodity hedges on the condensed consolidated statements of operations was as follows:

First Quarter

Second Quarter First Half

(in thousands) 2020 2019 2020 2019

Increase (decrease) in cost of sales $ 2,214 $ (1,989)

Increase in cost of sales $ 378 $ 7,784 $ 2,592 $ 5,795

Increase (decrease) in SD&A expenses 219 388 2,995 (1,985)

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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 2. Management’s Discussion and Analysis