Coca-Cola Consolidated, Inc. 10-Q

Item 1. Financial Statements. COCA ‑ COLA CONSOLIDATED, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Third Quarter First Nine Months (in thousands, except per share data) 2020 2019 2020 2019 Net sales $ 1,328,484 $ 1,271,029 $ 3,728,720 $ 3,647,600 Cost of sales 856,046 838,805 2,421,686 2,390,289 Gross profit 472,438 432,224 1,307,034 1,257,311 Selling, delivery and administrative expenses 368,594 378,378 1,087,251 1,116,097 Income from operations 103,844 53,846 219,783 141,214 Interest expense, net 9,033 10,965 27,778 35,846 Other expense, net 21,394 20,711 39,826 67,743 Income before income taxes 73,417 22,170 152,179 37,625 Income tax expense 18,363 6,624 38,911 10,801 Net income 55,054 15,546 113,268 26,824 Less: Net income attributable to noncontrolling interest 3,170 2,540 7,153 5,279 Net income attributable to Coca‑Cola Consolidated, Inc. $ 51,884 $ 13,006 $ 106,115 $ 21,545 Basic net income per share based on net income attributable to Coca‑Cola Consolidated, Inc.: Common Stock $ 5.53 $ 1.39 $ 11.32 $ 2.30 Weighted average number of Common Stock shares outstanding 7,141 7,141 7,141 7,141 Class B Common Stock $ 5.53 $ 1.39 $ 11.32 $ 2.30 Weighted average number of Class B Common Stock shares outstanding 2,232 2,232 2,232 2,228 Diluted net income per share based on net income attributable to Coca‑Cola Consolidated, Inc.: Common Stock $ 5.51 $ 1.38 $ 11.25 $ 2.29 Weighted average number of Common Stock shares outstanding – assuming dilution 9,430 9,413 9,430 9,409 Class B Common Stock $ 5.51 $ 1.38 $ 11.24 $ 2.28 Weighted average number of Class B Common Stock shares outstanding – assuming dilution 2,289 2,272 2,289 2,268 Cash dividends per share: Common Stock $ 0.25 $ 0.25 $ 0.75 $ 0.75 Class B Common Stock $ 0.25 $ 0.25 $ 0.75 $ 0.75 See accompanying notes to condensed consolidated financial statements. 1 COCA ‑ COLA CONSOLIDATED, INC. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) Third Quarter First Nine Months (in thousands) 2020 2019 2020 2019 Net income $ 55,054 $ 15,546 $ 113,268 $ 26,824 Other comprehensive income, net of tax: Defined benefit plans reclassification including pension costs: Actuarial gains 896 679 2,689 2,037 Prior service benefits 4 4 11 13 Postretirement benefits reclassification included in benefits costs: Actuarial gains 66 148 198 443 Prior service costs — ( 244 ) — ( 731 ) Interest rate swap 303 ( 374 ) ( 710 ) ( 374 ) Foreign currency translation adjustment 11 ( 17 ) 13 ( 21 ) Other comprehensive income, net of tax 1,280 196 2,201 1,367 Comprehensive income 56,334 15,742 115,469 28,191 Less: Comprehensive income attributable to noncontrolling interest 3,170 2,540 7,153 5,279 Comprehensive income attributable to Coca‑Cola Consolidated, Inc. $ 53,164 $ 13,202 $ 108,316 $ 22,912 See accompanying notes to condensed consolidated financial statements. 2 COCA ‑ COLA CONSOLIDATED, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (in thousands, except share data) September 27, 2020 December 29, 2019 ASSETS Current Assets: Cash and cash equivalents $ 164,823 $ 9,614 Accounts receivable, trade 453,402 433,552 Allowance for doubtful accounts ( 25,050 ) ( 13,782 ) Accounts receivable from The Coca‑Cola Company 54,516 62,411 Accounts receivable, other 44,569 43,094 Inventories 207,773 225,926 Prepaid expenses and other current assets 69,829 69,461 Assets held for sale 7,036 — Total current assets 976,898 830,276 Property, plant and equipment, net 979,210 997,403 Right-of-use assets - operating leases 135,559 111,376 Leased property under financing leases, net 71,281 17,960 Other assets 111,775 113,269 Goodwill 165,903 165,903 Distribution agreements, net 859,003 876,096 Customer lists and other identifiable intangible assets, net 13,264 14,643 Total assets $ 3,312,893 $ 3,126,926 LIABILITIES AND EQUITY Current Liabilities: Current portion of obligations under operating leases $ 18,812 $ 15,024 Current portion of obligations under financing leases 5,814 9,403 Accounts payable, trade 234,715 187,476 Accounts payable to The Coca‑Cola Company 135,656 108,699 Other accrued liabilities 207,522 208,834 Accrued compensation 74,778 87,813 Accrued interest payable 6,693 4,946 Total current liabilities 683,990 622,195 Deferred income taxes 131,218 125,130 Pension and postretirement benefit obligations 103,431 114,831 Other liabilities 679,361 668,566 Noncurrent portion of obligations under operating leases 121,288 97,765 Noncurrent portion of obligations under financing leases 71,183 17,403 Long-term debt 962,867 1,029,920 Total liabilities 2,753,338 2,675,810 Commitments and Contingencies Equity: Common Stock, $ 1.00 par value: 30,000,000 shares authorized; 10,203,821 shares issued 10,204 10,204 Class B Common Stock, $ 1.00 par value: 10,000,000 shares authorized; 2,860,356 shares issued 2,860 2,860 Capital in excess of par value 128,983 128,983 Retained earnings 480,246 381,161 Accumulated other comprehensive loss ( 112,801 ) ( 115,002 ) Treasury stock, at cost: Common Stock – 3,062,374 shares ( 60,845 ) ( 60,845 ) Treasury stock, at cost: Class B Common Stock – 628,114 shares ( 409 ) ( 409 ) Total equity of Coca‑Cola Consolidated, Inc. 448,238 346,952 Noncontrolling interest 111,317 104,164 Total equity 559,555 451,116 Total liabilities and equity $ 3,312,893 $ 3,126,926 See accompanying notes to condensed consolidated financial statements. 3 COCA ‑ COLA CONSOLIDATED, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) First Nine Months (in thousands) 2020 2019 Cash Flows from Operating Activities: Net income $ 113,268 $ 26,824 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation expense from property, plant and equipment and financing leases 117,203 119,145 Amortization of intangible assets and deferred proceeds, net 17,286 17,271 Fair value adjustment of acquisition related contingent consideration 35,068 62,017 Impairment of property, plant and equipment 7,908 4,144 Deferred income taxes 5,302 5,254 Loss on sale of property, plant and equipment 3,656 5,474 Amortization of debt costs 778 1,032 Stock compensation expense — 2,045 Change in current assets less current liabilities 69,975 ( 54,263 ) Change in other noncurrent assets 16,360 12,581 Change in other noncurrent liabilities ( 11,451 ) 2,611 Other 1,048 448 Total adjustments 263,133 177,759 Net cash provided by operating activities $ 376,401 $ 204,583 Cash Flows from Investing Activities: Additions to property, plant and equipment $ ( 110,717 ) $ ( 96,747 ) Proceeds from the sale of property, plant and equipment 2,397 1,028 Investment in CONA Services LLC ( 1,770 ) ( 1,713 ) Other distribution agreements — ( 4,654 ) Net cash used in investing activities $ ( 110,090 ) $ ( 102,086 ) Cash Flows from Financing Activities: Payments on revolving credit facility $ ( 280,000 ) $ ( 376,339 ) Borrowings under revolving credit facility 235,000 331,339 Payments on term loan facility and senior notes ( 22,500 ) ( 132,500 ) Proceeds from issuance of senior notes — 100,000 Payments of acquisition related contingent consideration ( 31,999 ) ( 18,784 ) Cash dividends paid ( 7,030 ) ( 7,026 ) Payments on financing lease obligations ( 4,428 ) ( 6,441 ) Debt issuance fees ( 145 ) ( 305 ) Net cash used in financing activities $ ( 111,102 ) $ ( 110,056 ) Net increase (decrease) in cash during period $ 155,209 $ ( 7,559 ) Cash at beginning of period 9,614 13,548 Cash at end of period $ 164,823 $ 5,989 Significant non-cash investing and financing activities: Additions to leased property under financing leases $ 61,121 $ — Right-of-use assets obtained in exchange for operating lease obligations 38,317 39,213 Additions to property, plant and equipment accrued and recorded in accounts payable, trade 25,477 8,909 Issuance of Class B Common Stock in connection with stock award — 4,776 See accompanying notes to condensed consolidated financial statements. 4 COCA ‑ COLA CONSOLIDATED, INC. CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (Unaudited) (in thousands, except share data) Common Stock Class B Common Stock Capital in Excess of Par Value Retained Earnings Accumulated Other Comprehensive Loss Treasury Stock - Common Stock Treasury Stock - Class B Common Stock Total Equity of Coca ‑ Cola Consolidated, Inc. Non- controlling Interest Total Equity 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 — — — 21,545 — — — 21,545 5,279 26,824 Other comprehensive income, net of tax — — — — 1,367 — — 1,367 — 1,367 Cash dividends paid: Common Stock ($ 0.75 per share) — — — ( 5,356 ) — — — ( 5,356 ) — ( 5,356 ) Class B Common Stock ($ 0.75 per share) — — — ( 1,670 ) — — — ( 1,670 ) — ( 1,670 ) Issuance of 19,224 shares of Class B Common Stock — 21 4,755 — — — — 4,776 — 4,776 Reclassification of stranded tax effects — — — 19,720 ( 19,720 ) — — — — — Balance on September 29, 2019 $ 10,204 $ 2,860 $ 128,983 $ 393,674 $ ( 95,618 ) $ ( 60,845 ) $ ( 409 ) $ 378,849 $ 102,258 $ 481,107 Balance on December 29, 2019 $ 10,204 $ 2,860 $ 128,983 $ 381,161 $ ( 115,002 ) $ ( 60,845 ) $ ( 409 ) $ 346,952 $ 104,164 $ 451,116 Net income — — — 106,115 — — — 106,115 7,153 113,268 Other comprehensive loss, net of tax — — — — 2,201 — — 2,201 — 2,201 Cash dividends paid: Common Stock ($ 0.75 per share) — — — ( 5,356 ) — — — ( 5,356 ) — ( 5,356 ) Class B Common Stock ($ 0.75 per share) — — — ( 1,674 ) — — — ( 1,674 ) — ( 1,674 ) Balance on September 27, 2020 $ 10,204 $ 2,860 $ 128,983 $ 480,246 $ ( 112,801 ) $ ( 60,845 ) $ ( 409 ) $ 448,238 $ 111,317 $ 559,555 See accompanying notes to condensed consolidated financial statements. 5 COCA ‑ COLA CONSOLIDATED, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. Critical Accounting Policies and Recent Accounting Pronouncements The condensed consolidated financial statements include the accounts of Coca‑Cola Consolidated, Inc. and its majority-owned subsidiaries (the “Company”). All significant intercompany accounts and transactions have been eliminated. 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 September 27, 2020 and December 29, 2019. • The results of operations and comprehensive income for the 13-week periods ended September 27, 2020 (the “third quarter” of fiscal 2020 (“2020”)) and September 29, 2019 (the “third quarter” of fiscal 2019 (“2019”)), and the 39-week periods ended September 27, 2020 (the “first nine months” of 2020) and September 29, 2019 (the “first nine months” of 2019). • The changes in cash flows and equity for the first nine months of 2020 and the first nine months 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. The accounting policies followed in the presentation of interim financial results are consistent with those followed on an annual basis. These policies are presented in Note 1 to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for 2019 filed with the Securities and Exchange Commission. The preparation of condensed consolidated financial statements, in conformity with GAAP, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Critical Accounting Policies In the ordinary course of business, the Company has made a number of estimates and assumptions relating to the reporting of its results of operations and financial position in the preparation of its condensed consolidated financial statements in conformity with GAAP. Actual results could differ significantly from those estimates under different assumptions and conditions. The Company included in its Annual Report on Form 10-K for 2019 under the caption “Discussion of Critical Accounting Policies and Estimates and Recent Accounting Pronouncements” in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” a discussion of the Company’s most critical accounting policies, which are those the Company believes to be the most important to the portrayal of its financial condition and results of operations and require management’s most difficult, subjective and complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Any changes in critical accounting policies and estimates are discussed with the Audit Committee of the Company’s Board of Directors during the quarter in which a change is contemplated and prior to making such change. Recently Adopted Accounting Pronouncements In June 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2016-13, “Measurement of Credit Losses on Financial Instruments,” which requires measurement and recognition of expected credit losses at the point a loss is probable to occur, rather than expected to occur, which will generally result in earlier recognition of allowances for credit losses. The new guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company adopted ASU 2016-13 in the first quarter of 2020 and the adoption did not have a material impact on its condensed consolidated financial statements. In August 2018, the FASB issued ASU 2018-13, “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. Certain amendments must be applied prospectively while others are to be applied on a retrospective basis to all periods presented. The Company adopted ASU 2018-13 in the first quarter of 2020. See Note 15 for additional information. 6 Recently Issued Accounting Pronouncements In August 2018, the FASB issued ASU 2018-14, “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 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. In December 2019, the FASB issued ASU 2019-12, “Simplifying the Accounting for Income Taxes,” which will simplify the accounting for income taxes by removing certain exceptions to the general principles in income tax accounting and improve consistent application of and simplify GAAP for other areas of income tax accounting by clarifying and amending existing guidance. The new guidance is effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company is currently evaluating the impact ASU 2019-12 will have on its condensed consolidated financial statements. 2. Related Party Transactions The Coca‑Cola Company The Company’s business consists primarily of the production, marketing and distribution of nonalcoholic beverages of The Coca‑Cola Company, which is the sole owner of the formulas under which the primary components of its soft drink products, either concentrate or syrup, are manufactured. J. Frank Harrison, III, the Chairman of the Board of Directors and Chief Executive Officer of the Company, together with the trustees of certain trusts established for the benefit of certain relatives of the late J. 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 September 27, 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. Frank Harrison, III and the trustees of the J. Frank Harrison, Jr. family trusts described above, have agreed to vote the shares of the Company’s Class B Common Stock which they control in favor of such designee. The Coca‑Cola Company does not own any shares of the Company’s Class B Common Stock. The following table summarizes the significant transactions between the Company and The Coca‑Cola Company: Third Quarter First Nine Months (in thousands) 2020 2019 2020 2019 Payments made by the Company to The Coca‑Cola Company for: Concentrate, syrup, sweetener and other purchases $ 324,312 $ 306,588 $ 873,827 $ 893,123 Customer marketing programs 34,550 36,597 99,941 109,110 Cold drink equipment parts 5,965 4,519 16,345 18,568 Brand investment programs 4,359 3,616 11,609 10,209 Payments made by The Coca‑Cola Company to the Company for: Marketing funding support payments $ 21,187 $ 25,931 $ 58,182 $ 74,954 Fountain delivery and equipment repair fees 7,555 10,873 22,990 31,507 Presence marketing funding support on the Company’s behalf 565 2,879 6,445 7,816 Facilitating the distribution of certain brands and packages to other Coca‑Cola bottlers 1,151 1,602 3,469 3,952 In fiscal 2017 (“2017”), The Coca‑Cola Company agreed to provide the Company a fee to compensate the Company for the net economic impact of changes made by The Coca‑Cola Company to the authorized pricing on sales of covered beverages produced at certain manufacturing facilities owned by the Company (the “Legacy Facilities Credit”). The Company immediately recognized 7 the portion of the Legacy Facilities Credit applicable to a regional manufacturing facility divested in 2017 and the remaining balance of the Legacy Facilities Credit will be amortized as a reduction to cost of sales over a period of 40 years. The portion of the deferred liability that is expected to be amortized in the next 12 months is classified as current. Coca‑Cola Refreshments USA, Inc. (“CCR”) The Company, The Coca‑Cola Company and CCR, a wholly owned subsidiary of The Coca‑Cola Company, entered into a comprehensive beverage agreement in 2017 (as amended, the “CBA”). Pursuant to the CBA, the Company is required to make quarterly sub-bottling payments to CCR on a continuing basis in exchange for the grant of exclusive rights to distribute, promote, market and sell the authorized brands of The Coca‑Cola Company and related products in certain distribution territories the Company acquired from CCR. 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 $ 32.0 million during the first nine months of 2020 and $ 18.8 million during the first nine months 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) September 27, 2020 December 29, 2019 Current portion of acquisition related contingent consideration $ 41,912 $ 41,087 Noncurrent portion of acquisition related contingent consideration 406,741 405,597 Total acquisition related contingent consideration $ 448,653 $ 446,684 Upon the conversion of the Company’s then-existing bottling agreements in 2017 pursuant to the CBA, the Company received a fee from CCR (the “Territory Conversion Fee”). The Territory Conversion Fee was recorded as a deferred liability and will be amortized as a reduction to cost of sales over a period of 40 years. The portion of the deferred liability that is expected to be amortized in the next 12 months is classified as current. Southeastern Container (“Southeastern”) The Company is a shareholder of Southeastern, a plastic bottle manufacturing cooperative. 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 $ 22.8 million as of September 27, 2020 and $ 23.2 million as of December 29, 2019. South Atlantic Canners, Inc. (“SAC”) The Company is a shareholder of SAC, a manufacturing cooperative in Bishopville, South Carolina. All of SAC’s shareholders are Coca‑Cola bottlers and each has equal voting rights. 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 September 27, 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 $ 6.9 million in the first nine months of 2020 and $ 7.0 million in the first nine months of 2019. Coca‑Cola Bottlers’ Sales and Services Company, LLC (“CCBSS”) Along with other Coca‑Cola bottlers in the United States and Canada, the Company is a member of CCBSS, a company formed to provide certain procurement and other services with the intention of enhancing the efficiency and competitiveness of the Coca‑Cola bottling system. The Company accounts for CCBSS as an equity method investment and its investment in CCBSS is not material. 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 $ 13.8 million on September 27, 2020 and $ 10.0 million on December 29, 2019, which were classified as accounts receivable, other in the condensed consolidated balance sheets. 8 In addition, the Company pays an administrative fee to CCBSS for its services. The Company incurred administrative fees to CCBSS of $ 2.1 million in the first nine months of 2020 and $ 1.7 million in the first nine months of 2019, which were classified as selling, delivery and administrative (“SD&A”) expenses in the condensed consolidated statements of operations. CONA Services LLC (“CONA”) The Company is a member of CONA, an entity formed with The Coca‑Cola Company and certain other Coca‑Cola bottlers to provide business process and information technology services to its members. 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 $ 11.5 million as of September 27, 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 $ 17.4 million in the first nine months of 2020 and $ 17.7 million in the first nine months of 2019. Related Party Leases The Company leases its headquarters office facility and an adjacent office facility in Charlotte, North Carolina from Beacon Investment Corporation (“Beacon”), of which J. Frank Harrison, III is the majority stockholder and Morgan H. Everett, Vice Chair of the Company’s 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 operating lease was $ 31.3 million on September 27, 2020 and the principal balance outstanding under the previous financing lease, which was replaced by the new operating lease, was $ 6.8 million on December 29, 2019. 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. Wells, a director of the Company, are trustees and beneficiaries and of which Morgan H. Everett is a permissible, discretionary beneficiary. During the third quarter of 2020, the Company entered into an amendment to this lease, effective June 30, 2020, with HLP to extend the term of the original lease agreement by 15 years from December 31, 2020 through December 31, 2035. The principal balance outstanding under the amended lease was $ 62.6 million on September 27, 2020 and the principal balance outstanding under the lease, prior to being amended, was $ 4.3 million on December 29, 2019. A summary of rental payments related to these leases is as follows: Third Quarter First Nine Months (in thousands) 2020 2019 2020 2019 Company headquarters $ 826 $ 1,132 $ 2,478 $ 3,393 Snyder Production Center 1,112 1,080 3,338 3,241 Long-Term Performance Equity Plan The Long-Term Performance Equity Plan compensates J. Frank Harrison, III based on the Company’s performance. Awards granted under the Long-Term Performance Equity Plan are earned based on the Company’s attainment during a performance period of certain performance measures, each as specified by the Compensation Committee of the Company’s Board of Directors. 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 was included in SD&A expenses in the condensed consolidated statements of operations, was $ 7.2 million in the first nine months of 2020 and $ 10.3 million in the first nine months of 2019. 3. Revenue Recognition The Company offers a range of nonalcoholic beverage products and flavors, including both sparkling and still beverages, designed to meet the demands of its consumers. Sparkling beverages are carbonated beverages and the Company’s principal sparkling beverage is Coca‑Cola. Still beverages include energy products and noncarbonated beverages such as bottled water, tea, ready to drink coffee, enhanced water, juices and sports drinks. 9 The Company’s products are sold and distributed in the United States through various channels, which include selling directly to customers, including grocery stores, mass merchandise stores, club stores, convenience stores and drug stores, selling to “on-premise” accounts, where products are typically consumed immediately, such as restaurants, schools, amusement parks and recreational facilities, and selling through other channels such as vending machine outlets. The Company typically collects payment from customers within 30 days from the date of sale. The Company’s sales are divided into two main categories: (i) bottle/can sales and (ii) other sales. Bottle/can sales include products packaged primarily in plastic bottles and aluminum cans. Bottle/can net pricing is based on the invoice price charged to customers reduced by any promotional allowances. Bottle/can net pricing per unit is impacted by the price charged per package, the sales volume generated for each package and the channels in which those packages are sold. Other sales include sales to other Coca‑Cola bottlers, “post-mix” products, transportation revenue and equipment maintenance revenue. Post-mix products are dispensed through equipment that mixes fountain syrups with carbonated or still water, enabling fountain retailers to sell finished products to consumers in cups or glasses. The Company’s contracts are derived from customer orders, including customer sales incentives, generated through an order processing and replenishment model. Generally, the Company’s service contracts and contracts related to the delivery of specifically identifiable products have a single performance obligation. Revenues do not include sales or other taxes collected from customers. The Company has defined its performance obligations for its contracts as either at a point in time or over time. 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 nine months of 2020 and approximately 96 % of the Company’s net sales in the first nine months of 2019. 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. Repair services are generally completed in less than one day but can extend up to one month . Revenues related to freight hauling and brokerage services are recognized as the delivery occurs using a miles driven output method. Generally, delivery occurs and freight charges are recognized in the same day. Over time sales orders open at the end of a financial period are not material to the condensed consolidated financial statements. The following table represents a disaggregation of revenue from contracts with customers: Third Quarter First Nine Months (in thousands) 2020 2019 2020 2019 Point in time net sales: Nonalcoholic Beverages - point in time $ 1,286,542 $ 1,224,653 $ 3,607,502 $ 3,512,901 Total point in time net sales $ 1,286,542 $ 1,224,653 $ 3,607,502 $ 3,512,901 Over time net sales: Nonalcoholic Beverages - over time $ 8,729 $ 11,608 $ 25,874 $ 34,472 All Other - over time 33,213 34,768 95,344 100,227 Total over time net sales $ 41,942 $ 46,376 $ 121,218 $ 134,699 Total net sales $ 1,328,484 $ 1,271,029 $ 3,728,720 $ 3,647,600 The Company participates in various sales programs with The Coca‑Cola Company, other beverage companies and customers to increase the sale of its products. Programs negotiated with customers include arrangements under which allowances can be earned for attaining agreed-upon sales levels. The cost of these various sales incentives is not considered a separate performance obligation and is included as a deduction to net sales. Allowance payments made to customers can be conditional on the achievement of volume targets and/or marketing commitments. Payments made in advance are recorded as prepayments and amortized in the condensed consolidated statements of operations over the relevant period for which the customer commitment is made. In the event there is no separate identifiable benefit or the fair value of such benefit cannot be established, the amortization of the prepayment is included as a deduction to net sales. 10 The Company sells its products and extends credit, generally without requiring collateral, based on an ongoing evaluation of the customer’s business prospects and financial condition. The Company evaluates the collectability of its trade accounts receivable based on a number of factors, including the Company’s historic collections pattern and changes to a specific customer’s ability to meet its financial obligations. The Company has established an allowance for doubtful accounts to adjust the recorded receivable to the estimated amount the Company believes will ultimately be collected. The nature of the Company’s contracts gives rise to several types of variable consideration, including prospective and retrospective rebates. The Company accounts for its prospective and retrospective rebates using the expected value method, which estimates the net price to the customer based on the customer’s expected annual sales volume projections. The Company’s allowance for doubtful accounts in the condensed consolidated balance sheets includes a reserve for customer returns and an allowance for credit losses. The Company experiences customer returns primarily as a result of damaged or out-of-date product. 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. Returned product is recognized as a reduction to net sales. The Company’s reserve for customer returns was $ 3.6 million as of both September 27, 2020 and December 29, 2019. The Company estimates an allowance for credit losses, based on historic days’ sales outstanding trends, aged customer balances, previously written-off balances and expected recoveries up to balances previously written off, in order to present the net amount expected to be collected. Accounts receivable balances are written off when determined uncollectible and are recognized as a reduction to the allowance for credit losses. Following is a summary of activity for the allowance for credit losses during the first nine months of 2020: (in thousands) First Nine Months 2020 Balance at beginning of year - allowance for credit losses $ 10,232 Additions charged to costs and expenses (1) 14,238 Write-offs, net of recoveries ( 2,970 ) Balance at end of period - allowance for credit losses $ 21,500 (1) Includes an allowance for credit losses for COVID-19-related collectability risk . 4. Segments 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”). The Company has concluded the Chief Executive Officer, the Chief Operating Officer and the Chief Financial Officer, as a group, represent the CODM. Asset information is not provided to the CODM. The Company believes three operating segments exist. Nonalcoholic Beverages represents the vast majority of the Company’s consolidated net sales and income from operations. The additional two operating segments do not meet the quantitative thresholds for separate reporting, either individually or in the aggregate, and, therefore, have been combined into “All Other.” 11 The Company’s segment results are as follows: Third Quarter First Nine Months (in thousands) 2020 2019 2020 2019 Net sales: Nonalcoholic Beverages $ 1,295,271 $ 1,236,261 $ 3,633,376 $ 3,547,373 All Other 84,776 92,501 246,406 275,358 Eliminations (1) ( 51,563 ) ( 57,733 ) ( 151,062 ) ( 175,131 ) Consolidated net sales $ 1,328,484 $ 1,271,029 $ 3,728,720 $ 3,647,600 Income from operations: Nonalcoholic Beverages $ 108,035 $ 48,248 $ 227,559 $ 120,613 All Other ( 4,191 ) 5,598 ( 7,776 ) 20,601 Consolidated income from operations $ 103,844 $ 53,846 $ 219,783 $ 141,214 Depreciation and amortization: Nonalcoholic Beverages $ 45,066 $ 43,067 $ 125,733 $ 128,986 All Other 3,027 2,521 8,756 7,430 Consolidated depreciation and amortization $ 48,093 $ 45,588 $ 134,489 $ 136,416 (1) The entire net sales elimination represents net sales from the All Other segment to the Nonalcoholic Beverages segment. Sales between these segments are recognized at either fair market value or cost depending on the nature of the transaction. 5. 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: Third Quarter First Nine Months (in thousands, except per share data) 2020 2019 2020 2019 Numerator for basic and diluted net income per Common Stock and Class B Common Stock share: Net income attributable to Coca‑Cola Consolidated, Inc. $ 51,884 $ 13,006 $ 106,115 $ 21,545 Less dividends: Common Stock 1,785 1,786 5,356 5,356 Class B Common Stock 559 558 1,674 1,670 Total undistributed earnings $ 49,540 $ 10,662 $ 99,085 $ 14,519 Common Stock undistributed earnings – basic $ 37,743 $ 8,123 $ 75,490 $ 11,066 Class B Common Stock undistributed earnings – basic 11,797 2,539 23,595 3,453 Total undistributed earnings – basic $ 49,540 $ 10,662 $ 99,085 $ 14,519 Common Stock undistributed earnings – diluted $ 37,515 $ 8,089 $ 75,034 $ 11,019 Class B Common Stock undistributed earnings – diluted 12,025 2,573 24,051 3,500 Total undistributed earnings – diluted $ 49,540 $ 10,662 $ 99,085 $ 14,519 Numerator for basic net income per Common Stock share: Dividends on Common Stock $ 1,785 $ 1,786 $ 5,356 $ 5,356 Common Stock undistributed earnings – basic 37,743 8,123 75,490 11,066 Numerator for basic net income per Common Stock share $ 39,528 $ 9,909 $ 80,846 $ 16,422 Numerator for basic net income per Class B Common Stock share: Dividends on Class B Common Stock $ 559 $ 558 $ 1,674 $ 1,670 Class B Common Stock undistributed earnings – basic 11,797 2,539 23,595 3,453 Numerator for basic net income per Class B Common Stock share $ 12,356 $ 3,097 $ 25,269 $ 5,123 12 Third Quarter First Nine Months (in thousands, except per share data) 2020 2019 2020 2019 Numerator for diluted net income per Common Stock share: Dividends on Common Stock $ 1,785 $ 1,786 $ 5,356 $ 5,356 Dividends on Class B Common Stock assumed converted to Common Stock 559 558 1,674 1,670 Common Stock undistributed earnings – diluted 49,540 10,662 99,085 14,519 Numerator for diluted net income per Common Stock share $ 51,884 $ 13,006 $ 106,115 $ 21,545 Numerator for diluted net income per Class B Common Stock share: Dividends on Class B Common Stock $ 559 $ 558 $ 1,674 $ 1,670 Class B Common Stock undistributed earnings – diluted 12,025 2,573 24,051 3,500 Numerator for diluted net income per Class B Common Stock share $ 12,584 $ 3,131 $ 25,725 $ 5,170 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 2,228 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) 9,430 9,413 9,430 9,409 Class B Common Stock weighted average shares outstanding – diluted 2,289 2,272 2,289 2,268 Basic net income per share: Common Stock $ 5.53 $ 1.39 $ 11.32 $ 2.30 Class B Common Stock $ 5.53 $ 1.39 $ 11.32 $ 2.30 Diluted net income per share: Common Stock $ 5.51 $ 1.38 $ 11.25 $ 2.29 Class B Common Stock $ 5.51 $ 1.38 $ 11.24 $ 2.28 NOTES TO TABLE (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 had net income, the denominator for diluted net income per share for Common Stock and Class B Common Stock includes the dilutive effect of shares relative to the Long-Term Performance Equity Plan . For periods presented during which the Company had net loss, the unvested shares granted pursuant to the Long-Term Performance Equity Plan are excluded from the computation of diluted net loss per share, as the effect would have been anti-dilutive. See Note 2 for additional information on the Long-Term Performance Equity Plan . (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 in the computation of diluted net income per share. (5) The Company did no t have anti-dilutive shares for any periods presented. 6. Inventories Inventories consisted of the following: (in thousands) September 27, 2020 December 29, 2019 Finished products $ 125,388 $ 142,363 Manufacturing materials 45,425 45,267 Plastic shells, plastic pallets and other inventories 36,960 38,296 Total inventories $ 207,773 $ 225,926 13 7. Prepaid Expenses and Other Current Assets Prepaid expenses and other current assets consisted of the following: (in thousands) September 27, 2020 December 29, 2019 Repair parts $ 28,342 $ 28,967 Prepaid taxes 8,099 4,359 Prepaid software 6,462 5,850 Prepaid marketing 6,134 5,658 Prepayments for sponsorship contracts 2,462 8,696 Other prepaid expenses and other current assets 18,330 15,931 Total prepaid expenses and other current assets $ 69,829 $ 69,461 8. Assets Held for Sale The Company is in the process of integrating its Memphis, Tennessee manufacturing plant with its West Memphis, Arkansas operations, which is expected to greatly expand its West Memphis production capabilities and to reduce its overall production costs. Additionally, the Company is planning to open a new, automated distribution center in Whitestown, Indiana by the spring of 2021, which will allow the Company to consolidate its Anderson, Bloomington, Lafayette, Shelbyville and Speedway, Indiana warehousing and distribution operations into this one new facility. The increased capacity and automation in Whitestown will allow the Company to optimize its supply chain and to better serve its customers and consumers in Indiana and the surrounding areas. As of September 27, 2020, certain locations of the Company, which are primarily those included in the Company’s supply chain optimization discussed above, met the accounting guidance criteria to be classified as assets held for sale. All locations classified as held for sale are included in the Nonalcoholic Beverages segment. There are not any liabilities held for sale associated with these locations and none meet the accounting guidance criteria to be classified as discontinued operations. Following is a summary of the assets held for sale: (in thousands) September 27, 2020 Land $ 2,017 Buildings and leasehold and land improvements 5,019 Assets held for sale $ 7,036 An impairment of $ 1.6 million was recorded for these locations as a result of the net book value exceeding the agreed upon purchase price of one of the locations. This impairment was recorded within cost of sales on the condensed consolidated statements of operations and within impairment of property, plant and equipment on the condensed consolidated statements of cash flows. 14 9. Property, Plant and Equipment, Net The principal categories and estimated useful lives of property, plant and equipment, net were as follows: (in thousands) September 27, 2020 December 29, 2019 Estimated Useful Lives Land $ 81,151 $ 76,860 Buildings 232,828 223,500 8 - 50 years Machinery and equipment 370,116 355,575 5 - 20 years Transportation equipment 436,604 417,532 4 - 20 years Furniture and fixtures 97,298 92,059 3 - 10 years Cold drink dispensing equipment 471,607 489,050 5 - 17 years Leasehold and land improvements 150,800 145,341 5 - 20 years Software for internal use 129,429 128,792 3 - 10 years Construction in progress 37,234 29,369 Total property, plant and equipment, at cost 2,007,067 1,958,078 Less: Accumulated depreciation and amortization 1,027,857 960,675 Property, plant and equipment, net $ 979,210 $ 997,403 10. Leases The Company leases office and warehouse space, machinery and other equipment under noncancelable operating lease agreements and also leases certain warehouse space under financing lease agreements. The Company uses the following policies and assumptions to evaluate its leases: • Determining a lease: The Company assesses contracts at inception to determine whether an arrangement is or includes a lease, which conveys the Company’s right to control the use of an identified asset for a period of time in exchange for consideration. Operating lease right-of-use assets and associated liabilities are recognized at the commencement date and initially measured based on the present value of lease payments over the defined lease term. • Allocating lease and non-lease components: 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 real estate lease agreements with lease and non-lease components, which are generally accounted for separately where applicable. • Calculating the discount rate: The Company calculates the discount rate based on the discount rate implicit in the lease, or if the implicit rate is not readily determinable from the lease, then the Company calculates an incremental borrowing rate using a portfolio approach. The incremental borrowing rate is calculated using the contractual lease term and the Company’s borrowing rate. • Recognizing leases: The Company does not recognize leases with a contractual term of less than 12 months on its condensed consolidated balance sheets. Lease expense for these short-term leases is expensed on a straight-line basis over the lease term. • Including rent increases or escalation clauses: Certain leases contain scheduled rent increases or escalation clauses, which can be based on the Consumer Price Index or other rates. The Company assesses each contract individually and applies the appropriate variable payments based on the terms of the agreement. • Including renewal options and/or purchase options: Certain leases include renewal options to extend the lease term and/or purchase options to purchase the leased asset. The Company assesses these options using a threshold of reasonably certain, which is a high threshold and, therefore, the majority of the Company’s leases do not include renewal periods or purchase options for the measurement of the right-of-use asset and the associated lease liability. For leases the Company is reasonably certain to renew or purchase, those options are included within the lease term and, therefore, included in the measurement of the right-of-use asset and the associated lease liability. • Including options to terminate: Certain leases include the option to terminate the lease prior to its scheduled expiration. This allows a contractually bound party to terminate its obligation under the lease contract, typically in return for an agreed-upon financial consideration. The terms and conditions of the termination options vary by contract. • Including residual value guarantees, restrictions or covenants: The Company’s lease agreements do not contain residual value guarantees, restrictions or covenants. 15 Following is a summary of the weighted average remaining lease term and the weighted average discount rate for the Company’s leases: September 27, 2020 December 29, 2019 Weighted average remaining lease term: Operating leases 9.7 years 10.2 years Financing leases 13.6 years 4.8 years Weighted average discount rate: Operating leases 4.0 % 4.1 % Financing leases 3.2 % 5.7 % As of September 27, 2020, the Company had one real estate and two vehicle operating lease commitments that had not yet commenced. These lease commitments are expected to commence during the fourth quarter of 2020 and have lease terms of approximately three years . The additional lease liability associated with these lease commitments is expected to be $ 2.1 million. Following is a summary of the Company’s leases within the condensed consolidated statements of operations: Third Quarter First Nine Months (in thousands) 2020 2019 2020 2019 Cost of sales impact: Operating lease costs $ 1,397 $ 1,356 $ 4,167 $ 4,039 Short-term and variable leases 3,711 2,814 9,368 7,393 Depreciation expense from financing leases 643 353 1,350 1,060 Total cost of sales impact $ 5,751 $ 4,523 $ 14,885 $ 12,492 SD&A expenses impact: Operating lease costs $ 4,846 $ 3,717 $ 14,225 $ 9,639 Short-term and variable leases 271 838 1,612 2,676 Depreciation expense from financing leases 772 1,139 1,914 3,415 Total SD&A expenses impact $ 5,889 $ 5,694 $ 17,751 $ 15,730 Interest expense, net impact: Interest expense on financing lease obligations $ 613 $ 666 $ 1,120 $ 2,083 Total interest expense, net impact $ 613 $ 666 $ 1,120 $ 2,083 Total lease cost $ 12,253 $ 10,883 $ 33,756 $ 30,305 The future minimum lease payments related to the Company’s leases 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 September 27, 2020 : (in thousands) Operating Leases Financing Leases Total Remainder of 2020 $ 5,882 $ 1,760 $ 7,642 2021 22,603 7,079 29,682 2022 19,535 7,145 26,680 2023 16,839 7,201 24,040 2024 15,336 7,396 22,732 Thereafter 91,125 63,421 154,546 Total minimum lease payments including interest $ 171,320 $ 94,002 $ 265,322 Less: Amounts representing interest 31,220 17,005 48,225 Present value of minimum lease principal payments 140,100 76,997 217,097 Less: Current portion of lease liabilities - operating and financing leases 18,812 5,814 24,626 Noncurrent portion of lease liabilities - operating and financing leases $ 121,288 $ 71,183 $ 192,471 16 Following is a summary of future minimum lease payments for all noncancelable operating leases and financing leases as of December 29, 2019: (in thousands) Operating Leases Financing Leases Total 2020 $ 19,236 $ 10,611 $ 29,847 2021 16,815 6,215 23,030 2022 14,016 2,694 16,710 2023 11,704 2,750 14,454 2024 10,989 2,808 13,797 Thereafter 67,556 5,406 72,962 Total minimum lease payments including interest $ 140,316 $ 30,484 $ 170,800 Less: Amounts representing interest 27,527 3,678 31,205 Present value of minimum lease principal payments 112,789 26,806 139,595 Less: Current portion of lease liabilities - operating and financing leases 15,024 9,403 24,427 Noncurrent portion of lease liabilities - operating and financing leases $ 97,765 $ 17,403 $ 115,168 Following is a summary of the Company’s leases within the condensed consolidated statements of cash flows: First Nine Months (in thousands) 2020 2019 Cash flows from operating activities impact: Operating leases $ 14,134 $ 13,576 Interest payments on financing lease obligations 1,120 2,083 Total cash flows from operating activities impact $ 15,254 $ 15,659 Cash flows from financing activities impact: Principal payments on financing lease obligations $ 4,428 $ 6,441 Total cash flows from financing activities impact $ 4,428 $ 6,441 11. Distribution Agreements, Net Distribution agreements, net, which are amortized on a straight-line basis and have an estimated useful life of 10 to 40 years, consisted of the following: (in thousands) September 27, 2020 December 29, 2019 Distribution agreements at cost $ 951,677 $ 950,549 Less: Accumulated amortization 92,674 74,453 Distribution agreements, net $ 859,003 $ 876,096 12. Customer Lists and Other Identifiable Intangible Assets, Net Customer lists and other identifiable intangible assets, net, which are amortized on a straight-line basis and have an estimated useful life of five to 12 years, consisted of the following: (in thousands) September 27, 2020 December 29, 2019 Customer lists and other identifiable intangible assets at cost $ 25,288 $ 25,288 Less: Accumulated amortization 12,024 10,645 Customer lists and other identifiable intangible assets, net $ 13,264 $ 14,643 17 13. Other Accrued Liabilities Other accrued liabilities consisted of the following: (in thousands) September 27, 2020 December 29, 2019 Accrued insurance costs $ 47,775 $ 44,584 Current portion of acquisition related contingent consideration 41,912 41,087 Accrued marketing costs 35,906 34,947 Employee and retiree benefit plan accruals 27,819 33,699 Current portion of deferred payroll taxes under CARES Act 12,324 — Accrued taxes (other than income taxes) 9,076 6,366 Checks and transfers yet to be presented for payment from zero balance cash accounts 3,140 20,199 Current deferred proceeds from Territory Conversion Fee 2,286 2,286 Commodity derivative instruments at fair market value 1,376 1,174 Federal income taxes — 1,651 All other accrued expenses 25,908 22,841 Total other accrued liabilities $ 207,522 $ 208,834 The Company has taken advantage of certain provisions of the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”), which allow an employer to defer the deposit and payment of the employer’s portion of social security taxes that would otherwise be due on or after March 27, 2020 and before January 1, 2021. The law permits an employer to deposit half of these deferred payments by December 31, 2021 and the other half by December 31, 2022. The Company intends to repay a portion of the deferred payroll taxes in the next 12 months and has classified this portion as current. 14. Derivative Financial Instruments The Company is subject to the risk of increased costs arising from adverse changes in certain commodity prices. In the normal course of business, the Company manages these risks through a variety of strategies, including the use of commodity derivative instruments. The Company does not use commodity derivative instruments for trading or speculative purposes. These commodity derivative instruments are not designated as hedging instruments under GAAP and are used as “economic hedges” to manage certain commodity price risk. The Company uses several different financial institutions for commodity derivative instruments to minimize the concentration of credit risk. While the Company would be exposed to credit loss in the event of nonperformance by these counterparties, the Company does not anticipate nonperformance by these parties. Commodity derivative instruments held by the Company are marked to market on a monthly basis and recognized in earnings consistent with the expense classification of the underlying hedged item. Settlements of commodity derivative instruments are included in cash flows from operating activities in the condensed consolidated statements of cash flows. The following table summarizes pre-tax changes in the fair values of the Company’s commodity derivative instruments and the classification of such changes in the condensed consolidated statements of operations: Third Quarter First Nine Months (in thousands) 2020 2019 2020 2019 Cost of sales $ 1,194 $ 487 $ 924 $ ( 482 ) Selling, delivery and administrative expenses 575 ( 74 ) ( 949 ) 2,575 Total gain (loss) $ 1,769 $ 413 $ ( 25 ) $ 2,093 All commodity derivative instruments are recorded at fair value as either assets or liabilities in the condensed consolidated balance sheets. The Company has master agreements with the counterparties to its commodity derivative instruments that provide for net settlement of derivative transactions. Accordingly, the net amounts of derivative assets are recognized in either prepaid expenses and other current assets or other assets in the condensed consolidated balance sheets and the net amounts of derivative liabilities are recognized in either other accrued liabilities or other liabilities in the condensed consolidated balance sheets. The 18 following table summarizes the fair values of the Company’s commodity derivative instruments and the classification of such instruments in the condensed consolidated balance sheets: (in thousands) September 27, 2020 December 29, 2019 Assets: Prepaid expenses and other current assets $ 1,049 $ 1,007 Total assets $ 1,049 $ 1,007 Liabilities: Other accrued liabilities $ 1,376 $ 1,174 Total liabilities $ 1,376 $ 1,174 The following table summarizes the Company’s gross commodity derivative instrument assets and gross commodity derivative instrument liabilities in the condensed consolidated balance sheets: (in thousands) September 27, 2020 December 29, 2019 Gross commodity derivative instrument assets $ 1,049 $ 3,298 Gross commodity derivative instrument liabilities 1,376 3,465 The following table summarizes the Company’s outstanding commodity derivative instruments: (in thousands) September 27, 2020 December 29, 2019 Notional amount of outstanding commodity derivative instruments $ 73,010 $ 171,699 Latest maturity date of outstanding commodity derivative instruments December 2020 December 2020 15. Fair Values of Financial Instruments GAAP requires assets and liabilities carried at fair value to be classified and disclosed in one of the following categories: • Level 1: Quoted market prices in active markets for identical assets or liabilities. • Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data. • Level 3: Unobservable inputs that are not corroborated by market data. The below methods and assumptions were used by the Company in estimating the fair values of its financial instruments. There were no transfers of assets or liabilities between levels in any period presented. Financial Instrument Fair Value Level Methods and Assumptions Deferred compensation plan assets and liabilities Level 1 The fair value of the Company’s nonqualified deferred compensation plan for certain executives and other highly compensated employees is based on the fair values of associated assets and liabilities, which are held in mutual funds and are based on the quoted market values of the securities held within the mutual funds. Commodity derivative instruments Level 2 The fair values of the Company’s commodity derivative instruments are based on current settlement values at each balance sheet date, which represent the estimated amounts the Company would have received or paid upon termination of these instruments. The Company’s credit risk related to the commodity derivative instruments is managed by requiring high standards for its counterparties and periodic settlements. The Company considers nonperformance risk in determining the fair values of commodity derivative instruments. Nonpublic variable rate debt Level 2 The carrying amounts of the Company’s nonpublic variable rate debt approximate the fair values due to variable interest rates with short reset periods. Nonpublic fixed rate debt Level 2 The fair values of the Company’s nonpublic fixed rate debt are based on estimated current market prices. Public debt securities Level 2 The fair values of the Company’s public debt securities are based on estimated current market prices. Acquisition related contingent consideration Level 3 The fair value of the Company’s acquisition related contingent consideration is based on internal forecasts and the weighted average cost of capital (“WACC”) derived from market data. 19 The following tables summarize the carrying amounts and fair values by level of the Company’s deferred compensation plan, commodity derivative instruments, debt and acquisition related contingent consideration: September 27, 2020 (in thousands) Carrying Amount Total Fair Value Fair Value Level 1 Fair Value Level 2 Fair Value Level 3 Assets: Deferred compensation plan assets $ 46,602 $ 46,602 $ 46,602 $ — $ — Commodity derivative instruments 1,049 1,049 — 1,049 — Liabilities: Deferred compensation plan liabilities 46,602 46,602 46,602 — — Commodity derivative instruments 1,376 1,376 — 1,376 — Nonpublic variable rate debt 239,882 240,000 — 240,000 — Nonpublic fixed rate debt 374,747 402,500 — 402,500 — Public debt securities 348,238 390,200 — 390,200 — Acquisition related contingent consideration 448,653 448,653 — — 448,653 December 29, 2019 (in thousands) Carrying Amount Total Fair Value Fair Value Level 1 Fair Value Level 2 Fair Value Level 3 Assets: Deferred compensation plan assets $ 42,543 $ 42,543 $ 42,543 $ — $ — Commodity derivative instruments 1,007 1,007 — 1,007 — Liabilities: Deferred compensation plan liabilities 42,543 42,543 42,543 — — Commodity derivative instruments 1,174 1,174 — 1,174 — Nonpublic variable rate debt 307,250 307,500 — 307,500 — Nonpublic fixed rate debt 374,723 383,900 — 383,900 — Public debt securities 347,947 367,300 — 367,300 — Acquisition related contingent consideration 446,684 446,684 — — 446,684 The acquisition related contingent consideration was valued using a probability weighted discounted cash flow model based on internal forecasts and the WACC derived from market data, which are considered Level 3 inputs. Each reporting period, the Company adjusts its acquisition related contingent consideration liability related to the distribution territories to fair value by discounting future expected sub-bottling payments required under the CBA using the Company’s estimated WACC. The future expected sub-bottling payments extend through the life of applicable distribution assets acquired from CCR, which is generally 40 years. 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 liability 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 summary of the Level 3 activity is as follows: Third Quarter First Nine Months (in thousands) 2020 2019 2020 2019 Beginning balance - Level 3 liability $ 441,113 $ 412,450 $ 446,684 $ 382,898 Payments of acquisition related contingent consideration ( 11,468 ) ( 5,948 ) ( 31,999 ) ( 18,784 ) Reclassification to current payables ( 800 ) ( 60 ) ( 1,100 ) ( 940 ) Increase in fair value 19,808 18,749 35,068 62,017 Ending balance - Level 3 liability $ 448,653 $ 425,191 $ 448,653 $ 425,191 20 The increase in the fair value of the acquisition related contingent consideration liability during the first nine months 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 value. The increase in the fair value of the acquisition related contingent consideration liability during the first nine months of 2019 was primarily driven by a decrease in the discount rate used to calculate the fair value 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 $ 53 million. 16. Income Taxes The Company’s effective income tax rate, calculated by dividing income tax expense by income before income taxes, was 25.6 % for the first nine months of 2020 and 28.7 % for the first nine months 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 26.8 % for the first nine months of 2020 and 33.4 % for the first nine months of 2019. The Company had uncertain tax positions, including accrued interest, of $ 3.4 million on September 27, 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. Prior tax years beginning in year 2002 remain open to examination by the Internal Revenue Service, and various tax years beginning in year 1998 remain open to examination by certain state taxing authorities. 17. Pension and Postretirement Benefit Obligations Pension Plans There are two Company-sponsored pension plans. The primary Company-sponsored pension plan was frozen as of June 30, 2006 and no benefits accrued to participants after this date. The second Company-sponsored pension plan (the “Bargaining Plan”) is for certain employees under collective bargaining agreements. Benefits under the Bargaining Plan are determined in accordance with negotiated formulas for the respective participants. Contributions to the plans are based on actuarially determined amounts and are limited to amounts currently deductible for income tax purposes. The components of net periodic pension cost were as follows: Third Quarter First Nine Months (in thousands) 2020 2019 2020 2019 Service cost $ 1,659 $ 1,207 $ 4,976 $ 3,620 Interest cost 2,760 3,063 8,280 9,188 Expected return on plan assets ( 3,382 ) ( 2,574 ) ( 10,148 ) ( 7,722 ) Recognized net actuarial loss 1,189 901 3,568 2,702 Amortization of prior service cost 5 5 14 17 Net periodic pension cost $ 2,231 $ 2,602 $ 6,690 $ 7,805 The Company contributed $ 16.3 million to the two Company-sponsored pension plans during the first nine months of 2020 and does no t anticipate making additional contributions during the fourth quarter of 2020. Postretirement Benefits The Company provides postretirement benefits for employees meeting specified criteria . The Company recognizes the cost of postretirement benefits, which consist principally of medical benefits, during employees’ periods of active service. The Company does not pre-fund these benefits and has the right to modify or terminate certain of these benefits in the future. 21 The components of net periodic postretirement benefit cost were as follows: Third Quarter First Nine Months (in thousands) 2020 2019 2020 2019 Service cost $ 376 $ 389 $ 1,128 $ 1,167 Interest cost 504 694 1,511 2,080 Recognized net actuarial loss 88 196 263 587 Amortization of prior service cost — ( 324 ) — ( 970 ) Net periodic postretirement benefit cost $ 968 $ 955 $ 2,902 $ 2,864 18. Other Liabilities Other liabilities consisted of the following: (in thousands) September 27, 2020 December 29, 2019 Noncurrent portion of acquisition related contingent consideration $ 406,741 $ 405,597 Accruals for executive benefit plans 140,795 141,380 Noncurrent deferred proceeds from Territory Conversion Fee 81,162 82,877 Noncurrent deferred proceeds from Legacy Facilities Credit 28,970 29,569 Noncurrent portion of deferred payroll taxes under CARES Act 12,324 — Other 9,369 9,143 Total other liabilities $ 679,361 $ 668,566 19. Long-Term Debt Following is a summary of the Company’s long-term debt: (in thousands) Maturity Date Interest Rate Interest Paid Public or Nonpublic September 27, 2020 December 29, 2019 Term loan facility (1) 6/7/2021 Variable Varies Nonpublic $ 240,000 $ 262,500 Senior notes 2/27/2023 3.28 % Semi-annually Nonpublic 125,000 125,000 Revolving credit facility (2) 6/8/2023 Variable Varies Nonpublic — 45,000 Senior notes 11/25/2025 3.80 % Semi-annually Public 350,000 350,000 Senior notes 10/10/2026 3.93 % Quarterly Nonpublic 100,000 100,000 Senior notes 3/21/2030 3.96 % Quarterly Nonpublic 150,000 150,000 Unamortized discount on senior notes (3) 11/25/2025 ( 45 ) ( 52 ) Debt issuance costs ( 2,088 ) ( 2,528 ) Long-term debt $ 962,867 $ 1,029,920 (1) The Company intends to refinance principal payments due in the next 12 months under the term loan facility, and has the capacity to do so under its revolving credit facility, which is classified as long-term debt. As such, any amounts due in the next 12 months were classified as noncurrent. (2) The Company’s revolving credit facility 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. 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. (3) The senior notes due in 2025 were issued at 99.975 % of par. The Company mitigates its financing risk by using multiple financial institutions and only entering into credit arrangements with institutions with investment grade credit ratings. The Company monitors counterparty credit ratings on an ongoing basis. 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 changes in its fair value are 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. 22 The indenture under which the Company’s public debt was issued does not include financial covenants but does limit the incurrence of certain liens and encumbrances as well as indebtedness by the Company’s subsidiaries in excess of certain amounts. The agreements under which the Company’s nonpublic debt was issued include two financial covenants: a consolidated cash flow/fixed charges ratio and a consolidated funded indebtedness/cash flow ratio, each as defined in the respective agreement. The Company was in compliance with these covenants as of September 27, 2020. These covenants do not currently, and the Company does not anticipate they will, restrict its liquidity or capital resources. All outstanding long-term debt has been issued by the Company and none has been issued by any of its subsidiaries. There are no guarantees of the Company’s debt. 20. Commitments and Contingencies Manufacturing Cooperatives The Company is obligated to purchase at least 80 % of its requirements of plastic bottles for certain designated territories from Southeastern. 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 21.9 million cases and 22.2 million cases of finished product from SAC in the first nine months of 2020 and the first nine months of 2019, respectively. The following table summarizes the Company’s purchases from these manufacturing cooperatives: Third Quarter First Nine Months (in thousands) 2020 2019 2020 2019 Purchases from Southeastern $ 31,196 $ 31,178 $ 94,835 $ 102,118 Purchases from SAC 37,006 42,870 119,225 120,309 Total purchases from manufacturing cooperatives $ 68,202 $ 74,048 $ 214,060 $ 222,427 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 September 27, 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. The Company does not anticipate SAC will fail to fulfill its commitments related to the debt. The Company further believes SAC has sufficient assets, including production equipment, facilities and working capital, and the ability to adjust selling prices of its products to adequately mitigate the risk of material loss from the Company’s guarantee. The Company holds no assets as collateral against the SAC guarantee, the fair value of which is immaterial to the condensed consolidated financial statements. The Company monitors its investment in SAC and would be required to write down its investment if an impairment, other than a temporary impairment, was identified. No impairment of the Company’s investment in SAC was identified as of September 27, 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 $ 37.6 million on September 27, 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 September 27, 2020, the future payments related to these contractual arrangements, which expire at various dates through 2033, amounted to $ 168.1 million. The Company is involved in various claims and legal proceedings which have arisen in the ordinary course of its business. Although it is difficult to predict the ultimate outcome of these claims and legal proceedings, management believes the ultimate disposition of these matters will not have a material adverse effect on the financial condition, results of operations or cash flows of the Company. No material amount of loss in excess of recorded amounts is believed to be reasonably possible as a result of these claims and legal proceedings. The Company is subject to audits by tax authorities in jurisdictions where it conducts business. These audits may result in assessments that are subsequently resolved with the authorities or potentially through the courts. Management believes the Company has adequately provided for any assessments likely to result from these audits; however, final assessments, if any, could be different than the amounts recorded in the condensed consolidated financial statements. 23 21. Accumulated Other Comprehensive Income (Loss) Accumulated other comprehensive income (loss) (“AOCI(L)”) is comprised of adjustments to the Company’s pension and postretirement medical benefit plans, the interest rate swap on the Company’s term loan facility and the foreign currency translation for a subsidiary of the Company that performs data analysis and provides consulting services outside the United States. Following is a summary of AOCI(L) for the third quarter of 2020 and the third quarter of 2019: (in thousands) June 28, 2020 Pre-tax Activity Tax Effect September 27, 2020 Net pension activity: Actuarial loss $ ( 91,381 ) $ 1,189 $ ( 293 ) $ ( 90,485 ) Prior service costs — 5 ( 1 ) 4 Net postretirement benefits activity: Actuarial loss ( 1,059 ) 88 ( 22 ) ( 993 ) Prior service costs ( 624 ) — — ( 624 ) Interest rate swap ( 1,283 ) 402 ( 99 ) ( 980 ) Foreign currency translation adjustment ( 14 ) 15 ( 4 ) ( 3 ) Reclassification of stranded tax effects ( 19,720 ) — — ( 19,720 ) Total AOCI(L) $ ( 114,081 ) $ 1,699 $ ( 419 ) $ ( 112,801 ) (in thousands) June 30, 2019 Pre-tax Activity Tax Effect September 29, 2019 Net pension activity: Actuarial loss $ ( 71,332 ) $ 901 $ ( 222 ) $ ( 70,653 ) Prior service costs ( 15 ) 5 ( 1 ) ( 11 ) Net postretirement benefits activity: Actuarial loss ( 4,607 ) 196 ( 48 ) ( 4,459 ) Prior service costs ( 136 ) ( 324 ) 80 ( 380 ) Interest rate swap — ( 496 ) 122 ( 374 ) Foreign currency translation adjustment ( 4 ) ( 23 ) 6 ( 21 ) Reclassification of stranded tax effects ( 19,720 ) — — ( 19,720 ) Total AOCI(L) $ ( 95,814 ) $ 259 $ ( 63 ) $ ( 95,618 ) Following is a summary of AOCI(L) for the first nine months of 2020 and the first nine months of 2019: (in thousands) December 29, 2019 Pre-tax Activity Tax Effect September 27, 2020 Net pension activity: Actuarial loss $ ( 93,174 ) $ 3,568 $ ( 879 ) $ ( 90,485 ) Prior service costs ( 7 ) 14 ( 3 ) 4 Net postretirement benefits activity: Actuarial loss ( 1,191 ) 263 ( 65 ) ( 993 ) Prior service costs ( 624 ) — — ( 624 ) Interest rate swap ( 270 ) ( 942 ) 232 ( 980 ) Foreign currency translation adjustment ( 16 ) 18 ( 5 ) ( 3 ) Reclassification of stranded tax effects ( 19,720 ) — — ( 19,720 ) Total AOCI(L) $ ( 115,002 ) $ 2,921 $ ( 720 ) $ ( 112,801 ) 24 (in thousands) December 30, 2018 Pre-tax Activity Tax Effect September 29, 2019 Net pension activity: Actuarial loss $ ( 72,690 ) $ 2,702 $ ( 665 ) $ ( 70,653 ) Prior service costs ( 24 ) 17 ( 4 ) ( 11 ) Net postretirement benefits activity: Actuarial loss ( 4,902 ) 587 ( 144 ) ( 4,459 ) Prior service costs 351 ( 970 ) 239 ( 380 ) Interest rate swap — ( 496 ) 122 ( 374 ) Foreign currency translation adjustment — ( 26 ) 5 ( 21 ) Reclassification of stranded tax effects — — ( 19,720 ) ( 19,720 ) Total AOCI(L) $ ( 77,265 ) $ 1,814 $ ( 20,167 ) $ ( 95,618 ) Following is a summary of the impact of AOCI(L) on the condensed consolidated statements of operations: Third Quarter 2020 (in thousands) Net Pension Activity Net Postretirement Benefits Activity Interest Rate Swap Foreign Currency Translation Adjustment Total Cost of sales $ 363 $ 55 $ — $ — $ 418 Selling, delivery and administrative expenses 831 33 402 15 1,281 Subtotal pre-tax 1,194 88 402 15 1,699 Income tax expense 294 22 99 4 419 Total after tax effect $ 900 $ 66 $ 303 $ 11 $ 1,280 Third Quarter 2019 (in thousands) Net Pension Activity Net Postretirement Benefits Activity Interest Rate Swap Foreign Currency Translation Adjustment Total Cost of sales $ 265 $ ( 67 ) $ — $ — $ 198 Selling, delivery and administrative expenses 641 ( 61 ) ( 496 ) ( 23 ) 61 Subtotal pre-tax 906 ( 128 ) ( 496 ) ( 23 ) 259 Income tax expense 223 ( 32 ) ( 122 ) ( 6 ) 63 Total after tax effect $ 683 $ ( 96 ) $ ( 374 ) $ ( 17 ) $ 196 First Nine Months 2020 (in thousands) Net Pension Activity Net Postretirement Benefits Activity Interest Rate Swap Foreign Currency Translation Adjustment Total Cost of sales $ 1,057 $ 160 $ — $ — $ 1,217 Selling, delivery and administrative expenses 2,525 103 ( 942 ) 18 1,704 Subtotal pre-tax 3,582 263 ( 942 ) 18 2,921 Income tax expense 882 65 ( 232 ) 5 720 Total after tax effect $ 2,700 $ 198 $ ( 710 ) $ 13 $ 2,201 First Nine Months 2019 (in thousands) Net Pension Activity Net Postretirement Benefits Activity Interest Rate Swap Foreign Currency Translation Adjustment Total Cost of sales $ 794 $ ( 200 ) $ — $ — $ 594 Selling, delivery and administrative expenses 1,925 ( 183 ) ( 496 ) ( 26 ) 1,220 Subtotal pre-tax 2,719 ( 383 ) ( 496 ) ( 26 ) 1,814 Income tax expense 669 ( 95 ) ( 122 ) ( 5 ) 447 Total after tax effect $ 2,050 $ ( 288 ) $ ( 374 ) $ ( 21 ) $ 1,367 25 22. Supplemental Disclosures of Cash Flow Information Changes in current assets and current liabilities affecting cash flows were as follows: First Nine Months (in thousands) 2020 2019 Accounts receivable, trade $ ( 19,850 ) $ ( 11,638 ) Allowance for doubtful accounts 11,268 4,169 Accounts receivable from The Coca‑Cola Company 7,895 ( 15,509 ) Accounts receivable, other ( 1,475 ) ( 9,621 ) Inventories 18,153 ( 21,719 ) Prepaid expenses and other current assets ( 368 ) ( 8,478 ) Accounts payable, trade 40,937 44,506 Accounts payable to The Coca‑Cola Company 26,957 23,155 Other accrued liabilities ( 2,254 ) ( 58,493 ) Accrued compensation ( 13,035 ) ( 1,946 ) Accrued interest payable 1,747 1,311 Change in current assets less current liabilities $ 69,975 $ ( 54,263 ) 26