Coca-Cola Consolidated, Inc. 10-K

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. The following Management’s Discussion and Analysis of Financial Condition and Results of Operations of the Company should be read in conjunction with the consolidated financial statements of the Company and the accompanying notes to the consolidated financial statements. During the fourth quarter of 2020, the Company’s Board of Directors approved a change in the Company’s fiscal year so that each fiscal year will end on December 31 of the applicable calendar year. This change was not considered a change in fiscal year under the rules of the SEC as the new fiscal year commenced within seven days of the prior fiscal year-end and the new fiscal year commenced with the end of the prior fiscal year. Previously, the Company’s fiscal year generally ended on the Sunday closest to December 31 of each year. The fiscal years discussed in this management’s discussion and analysis are the fiscal years ended December 31, 2020 (“2020”) and December 29, 2019 (“2019”). Information concerning the fiscal year ended December 30, 2018 (“2018”) and a comparison of 2019 and 2018 may be found under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Annual Report on Form 10‑K for 2019, filed with the SEC on February 25, 2020. The consolidated financial statements include the consolidated operations of the Company and its majority-owned subsidiaries, including Piedmont Coca-Cola Bottling Partnership (“Piedmont”), the Company’s only subsidiary that had a significant noncontrolling interest in 2020. The Company and The Coca‑Cola Company formed Piedmont in 1993 to distribute and market nonalcoholic beverages primarily in portions of North Carolina and South Carolina. On December 9, 2020, an indirect wholly owned subsidiary of the Company purchased the remaining 22.7% general partnership interest in Piedmont from an indirect wholly owned subsidiary of The Coca‑Cola Company, and Piedmont became an indirect wholly owned subsidiary of the Company. Piedmont was subsequently merged with and into CCBCC Operations, LLC, a wholly owned subsidiary of the Company, effective December 28, 2020. The Company manages its business on the basis of three operating segments. Nonalcoholic Beverages represents the vast majority of the Company’s consolidated revenues 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.” COVID-19 Impact on Consumer, Customer, Teammate and Community Safety The Company continues to diligently monitor and manage through the impact of the COVID-19 pandemic on all aspects of its business, including the impact on its teammates and customers. Our industry and business have been designated 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 has taken the following actions to protect and promote the health and safety of its consumers, customers, teammates and communities, while it continues to manufacture and distribute products: • We continue to execute our Infectious Disease Response Plan and Incident Management Crisis Response Protocols as the macro environment moves through the Response, Reopen, Recovery and Vaccine Administration and Deployment 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 customer accounts that our teammates have serviced. This reporting process enables the Company to follow appropriate quarantine protocols and to communicate to its workforce in a timely and appropriate manner. • We have increased our communications with teammates through podcasts, meetings, videos, secure, online company app postings and emails about safety protocols, Personal Protective Equipment (“PPE”), such as disposable gloves and masks, state and local guidance and CDC requirements and recommendations. • We have increased 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. For essential visitors, vendors and contractors, we require health and wellness certifications to be completed and the use of PPE as the Company determines appropriate. • We have restricted business travel to “essential travel” to curtail exposure risk for all teammates. 24 • We have provided sanitation solution and supplies for our front-line teammates who interact with our products, customers and communities. • 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 and gatherings. • We have developed comprehensive return to office guidelines to manage a phased, measured approach and to prepare our higher density locations with safety modifications, signage, technology and process changes to promote a safe work environment. • We have offered our teammates supplemental sick time in years 2020 and 2021 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 worked with state and local elected officials in order to quickly implement newly enacted state and local government regulatory safety requirements and guidelines. • As the U.S. COVID vaccine program continues to evolve through its phases, we will partner with government and healthcare organizations to provide aid in the awareness of the vaccines and protocols for our teammates, including timing of phase eligibility by states across our territories. Expected COVID-19 Impact on the Company COVID-19-related quarantines and other restrictions in 2020 caused a severe downturn in parts of our business, but they also resulted in a significant increase in demand for our products across our take-home channels. In response, our team worked diligently throughout 2020 to meet this elevated demand and optimize our commercial plan as well as our manufacturing and distribution network. Our full-year financial results reflect the strong benefit of price realization, manufacturing efficiencies and cost savings we achieved throughout the year. Some of these cost savings were achieved through lower marketing and sponsorship fees as sports and entertainment venues were closed, lower healthcare costs as teammates deferred elective procedures, reduced travel and entertainment expenses and lower labor costs due to less demand in certain channels of our business such as on-premise and convenience retail. The combination of these factors along with favorable input costs, drove our operating income up more than $100 million to $313 million for the full year. We are optimistic about top line growth opportunities in 2021 as we execute a robust commercial plan with our brand partners. However, given the uncertainty related to the duration of the COVID-19 pandemic and its influence on our customers, suppliers, communities and consumers, the Company recognizes 2021 will be a challenging year to plan and operate. As impacted business channels reopen and consumer buying patterns begin to normalize, we expect our operating costs to increase as we adjust our business model to properly grow and service our full portfolio of customers. While we expect to achieve another solid year of financial performance in 2021, the combination of higher operating expenses and expected input cost inflation will likely result in 2021 income from operations below the performance we achieved in 2020. We do not currently expect the COVID-19 pandemic to materially impact our liquidity position or access to capital. As of December 31, 2020, we had $54.8 million of cash and cash equivalents. In addition, our revolving credit facility matures in 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 outstanding borrowings under the revolving credit facility as of December 31, 2020. Our supply chain is dependent on aluminum as a key raw material in the production of aluminum cans, which are used to package many of our products. Due to the COVID-19 pandemic, consumer demand shifted in 2020 from products sold for immediate consumption through smaller retail stores and on-premise locations to take-home products sold in grocery stores, mass merchandise stores and club stores, and consumers have favored the portability and storability of aluminum cans as they spend more time at home. Additionally, the alcoholic and nonalcoholic beverage industries continue to introduce many new canned product offerings, further increasing the demand for aluminum cans. These factors have impacted the domestic supply of aluminum cans. We have made changes to our typical sourcing model and product offerings to address constraints in the supply of aluminum cans, including sourcing aluminum cans from international manufacturers and limiting our canned product package offerings. We continue to monitor the supply of aluminum cans in the marketplace. We have not experienced, and do not expect, any material impairments or adjustments to the fair values 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, including COVID-19-related collectability risk, and have recorded any expected losses. Further, there were no triggering events identified in 2020 that would indicate an impairment of our long-lived assets, goodwill or other intangible assets. We will continue to monitor the valuation of our assets and the collectability of our receivables and record any adjustments as necessary. 25 We have assessed COVID-19-related circumstances around work routines, including remote work arrangements, and the impact on our internal controls over financial reporting. We have not identified, and do not anticipate, any material impact to our control procedures that would materially affect our internal controls over financial reporting. Areas of Emphasis Key priorities for the Company include commercial execution, revenue management, supply chain optimization and cash flow generation. Commercial Execution : Our success is dependent on our ability to execute our commercial strategy within our customers’ stores. Our ability to obtain shelf space within stores and remain in-stock across our portfolio of brands and packages in a profitable manner will have a significant impact on our results. We are focused on execution at every step in our supply chain, including raw material and finished products procurement, manufacturing conversion, transportation, warehousing and distribution, to ensure in-store execution can occur. We are investing in tools and technology to enable our teammates to operate more effectively and efficiently with our customers and drive value in our business for the long term. Revenue Management : Our revenue management strategy focuses on pricing our brands and packages optimally within product categories and channels, creating effective working relationships with our customers and making disciplined fact-based decisions. Pricing decisions are made considering a variety of factors, including brand strength, competitive environment, input costs, the roles certain brands play in our product portfolio and other market conditions. Supply Chain Optimization : In October 2017, we completed a multi-year series of transactions through which we acquired and exchanged distribution territories and manufacturing plants (the “System Transformation”). 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 manufacturing plant 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 open a new, automated distribution center in Whitestown, Indiana by the spring of 2021, which will allow us to consolidate our 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 us to optimize our supply chain and to 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. Cash Flow Generation : We have several initiatives in place to optimize cash flow, improve profitability and prudently manage capital expenditures, as we continue to prioritize debt repayment and to focus on strengthening our balance sheet. Results of Operations The Company’s results of operations for 2020 and 2019 are highlighted in the table below and discussed in the following paragraphs. Fiscal Year (in thousands) 2020 2019 Change Net sales $ 5,007,357 $ 4,826,549 $ 180,808 Cost of sales 3,238,448 3,156,047 82,401 Gross profit 1,768,909 1,670,502 98,407 Selling, delivery and administrative expenses 1,455,531 1,489,748 (34,217) Income from operations 313,378 180,754 132,624 Interest expense, net 36,735 45,990 (9,255) Other expense, net 35,603 100,539 (64,936) Income before taxes 241,040 34,225 206,815 Income tax expense 58,943 15,665 43,278 Net income 182,097 18,560 163,537 Less: Net income attributable to noncontrolling interest 9,604 7,185 2,419 Net income attributable to Coca‑Cola Consolidated, Inc. 172,493 11,375 161,118 Other comprehensive loss, net of tax (4,051) (18,017) 13,966 Comprehensive income (loss) attributable to Coca‑Cola Consolidated, Inc. $ 168,442 $ (6,642) $ 175,084 26 Net Sales Net sales increased $180.8 million, or 3.7%, to $5.01 billion in 2020, as compared to $4.83 billion in 2019. The increase in net sales was primarily attributable to the following (in millions): 2020 Attributable to: $ 191.2 Increase in net sales related to increased sales volume 74.3 Increase in net sales related to an increase in average bottle/can sales price per unit to retail customers (70.7) Decrease in net sales related to the decrease in fountain syrup sales mainly sold in on-premise locations, which were impacted by COVID-19 (12.5) Decrease in sales volume to other Coca-Cola bottlers (1.5) Other $ 180.8 Total increase in net sales Net sales by product category were as follows: Fiscal Year (in thousands) 2020 2019 % Change Bottle/can sales: Sparkling beverages $ 2,760,827 $ 2,582,478 6.9 % Still beverages 1,641,716 1,558,944 5.3 % Total bottle/can sales 4,402,543 4,141,422 6.3 % Other sales: Sales to other Coca‑Cola bottlers 329,574 342,062 (3.7) % Post-mix and other 275,240 343,065 (19.8) % Total other sales 604,814 685,127 (11.7) % Total net sales $ 5,007,357 $ 4,826,549 3.7 % 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 Bottle/Can Sales Product Category 2020 2019 Volume % Change Sparkling beverages 70.6 % 70.7 % 4.5 % Still beverages 29.4 % 29.3 % 4.7 % Total bottle/can sales volume 100.0 % 100.0 % 4.5 % 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. 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: Fiscal Year 2020 2019 Approximate percent of the Company’s total bottle/can sales volume Wal-Mart Stores, Inc. 19 % 19 % The Kroger Company 13 % 12 % Total approximate percent of the Company’s total bottle/can sales volume 32 % 31 % Approximate percent of the Company’s total net sales Wal-Mart Stores, Inc. 14 % 13 % The Kroger Company 10 % 8 % Total approximate percent of the Company’s total net sales 24 % 21 % 27 Cost of Sales Inputs representing a substantial portion of the Company’s cost of sales include: (i) purchases of finished products, (ii) raw material costs, including aluminum cans, plastic bottles and sweetener, (iii) concentrate costs and (iv) manufacturing costs, including labor, overhead and warehouse costs. In addition, cost of sales includes shipping, handling and fuel costs related to the movement of finished products from manufacturing plants to distribution centers, amortization expense of distribution rights, distribution fees of certain products and marketing credits from brand companies. Raw material costs represent approximately 20% of total cost of sales on an annual basis. Cost of sales increased $82.4 million, or 2.6%, to $3.24 billion in 2020, as compared to $3.16 billion in 2019. The increase in cost of sales was primarily attributable to the following (in millions): 2020 Attributable to: $ 100.8 Increase in cost of sales related to increased sales volume (48.1) Decrease in cost of sales related to the decrease in fountain syrup sales mainly sold in on-premise locations, which were impacted by COVID-19 45.5 Increase in cost of sales primarily related to the change in product mix to meet consumer preferences (13.2) Decrease in sales volume to other Coca-Cola bottlers (2.6) Other $ 82.4 Total increase in cost of sales The Company relies extensively on advertising and sales promotions in the marketing of its products. The Coca‑Cola Company and other beverage companies that supply concentrates, syrups and finished products to the Company make substantial marketing and advertising expenditures to develop their brand identities and promote sales in the Company’s territories. Certain of the marketing expenditures by The Coca‑Cola Company and other beverage companies are made pursuant to annual arrangements. 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 $126.2 million in 2020, as compared to $131.5 million in 2019. Shipping and handling costs related to the movement of finished products from manufacturing plants to distribution centers are included in cost of sales. Shipping and handling costs related to the movement of finished products from distribution centers to customer locations, including distribution center warehousing costs, are included in SD&A expenses. As a result, the Company’s cost of sales may not be comparable to other peer companies, as some peer companies include all costs related to distribution networks in cost of sales. SD&A Expenses SD&A expenses include the following: 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 intangible assets and administrative support labor and operating costs. SD&A expenses decreased $34.2 million, or 2.3%, to $1.46 billion in 2020, as compared to $1.49 billion in 2019. SD&A expenses as a percentage of sales decreased to 29.1% in 2020 from 30.9% in 2019. The decrease in SD&A expenses was primarily attributable to the following (in millions): 2020 Attributable to: $ (27.6) Decrease in a number of expense categories due to COVID-19-related reductions in discretionary spending, including travel and entertainment and marketing-related expenses (10.4) Decrease in incentive compensation and payroll, partially offset by employee benefit costs, primarily as a result of the elimination of certain field-based positions and reduced overtime hours 3.8 Other $ (34.2) Total decrease in SD&A expenses Shipping and handling costs included in SD&A expenses were $622.1 million in 2020 and $623.4 million in 2019. 28 Interest Expense, Net Interest expense, net decreased $9.3 million, or 20.1%, to $36.7 million in 2020, as compared to $46.0 million in 2019. The decrease was primarily a result of lower average debt balances and lower average interest rates. Other Expense, Net A summary of other expense, net is as follows: Fiscal Year (in thousands) 2020 2019 Increase in the fair value of the acquisition related contingent consideration liability $ 31,210 $ 92,788 Non-service cost component of net periodic benefit cost 4,393 7,907 Other — (156) Other expense, net $ 35,603 $ 100,539 Each reporting period, the Company adjusts its acquisition related contingent consideration liability related to the distribution territories subject to sub-bottling fees to fair value. The fair value is determined by discounting future expected sub-bottling payments required under the CBA, which extend through the life of the applicable distribution assets, using the Company’s estimated weighted average cost of capital (“WACC”), which is impacted by many factors, including long-term interest rates and future cash flow projections. The life of these distribution assets is generally 40 years. The Company is required to pay the current portion of the sub-bottling fee on a quarterly basis. As of December 31, 2020 and December 29, 2019, discount rates of 7.5% and 7.1%, respectively, were utilized in the valuation of the Company’s acquisition related contingent consideration liability. The decrease in the fair value of the acquisition related contingent consideration liability in 2020, as compared to 2019, was primarily driven by the increase in the discount rate used to calculate fair value and 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 in 2019 was primarily driven by changes in future cash flow projections of the distribution territories subject to sub-bottling fees and a decrease in the discount rate used to calculate fair value. Income Tax Expense The Company’s effective income tax rate, calculated by dividing income tax expense by income before income taxes, was 24.5% for 2020 and 45.8% for 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 25.5% for 2020 and 57.9% for 2019. Noncontrolling Interest The Company recorded net income attributable to noncontrolling interest of $9.6 million in 2020 and $7.2 million in 2019 related to the portion of Piedmont owned by The Coca‑Cola Company prior to the purchase by an indirect wholly owned subsidiary of the Company of the remaining 22.7% general partnership interest in Piedmont on December 9, 2020. Other Comprehensive Loss, Net of Tax The Company had other comprehensive loss, net of tax of $4.1 million in 2020 and $18.0 million in 2019. The improvement was primarily a result of a net decrease in actuarial losses on the Company’s pension and postretirement plans. Segment Operating Results The Company evaluates segment reporting in accordance with the Financial Accounting Standards Board (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.” 29 The Company’s segment results are as follows: Fiscal Year (in thousands) 2020 2019 Net sales: Nonalcoholic Beverages $ 4,879,170 $ 4,694,428 All Other 332,728 345,005 Eliminations (1) (204,541) (212,884) Consolidated net sales $ 5,007,357 $ 4,826,549 Income from operations: Nonalcoholic Beverages $ 324,716 $ 174,133 All Other (11,338) 6,621 Consolidated income from operations $ 313,378 $ 180,754 (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. Comparable and Adjusted Non-GAAP Results The Company reports its financial results in accordance with accounting principles generally accepted in the United States (“GAAP”). However, management believes certain non-GAAP financial measures provide users of the financial statements with additional, meaningful financial information that should be considered when assessing the Company’s ongoing performance. Management also uses these non-GAAP financial measures in making financial, operating and planning decisions and in evaluating the Company’s performance. Non-GAAP financial measures should be viewed in addition to, and not as an alternative for, the Company’s reported results prepared in accordance with GAAP. The Company’s non-GAAP financial information does not represent a comprehensive basis of accounting. The following tables reconcile reported results (GAAP) to comparable and adjusted results (non-GAAP): Fiscal Year (in millions) 2020 2019 Change Physical case volume 358.8 343.2 4.5 % Volume related to extra days in fiscal year 4.6 — Comparable physical case volume 354.2 343.2 3.2 % Fiscal Year 2020 (in thousands, except per share data) Net sales Gross profit SD&A expenses Income from operations Income before income taxes Net income Basic net income per share Reported results (GAAP) $ 5,007,357 $ 1,768,909 $ 1,455,531 $ 313,378 $ 241,040 $ 172,493 $ 18.40 Fair value adjustment of acquisition related contingent consideration (1) — — — — 31,210 23,408 2.50 Fair value adjustments for commodity derivative instruments (2) — (1,996) 791 (2,787) (2,787) (2,090) (0.22) Supply chain optimization and consolidation (3) — 4,984 596 4,388 4,388 3,291 0.35 Results of extra days in fiscal year (4) (58,899) (21,707) (14,353) (7,354) (7,354) (5,516) (0.59) Total reconciling items (58,899) (18,719) (12,966) (5,753) 25,457 19,093 2.04 Adjusted results (non-GAAP) $ 4,948,458 $ 1,750,190 $ 1,442,565 $ 307,625 $ 266,497 $ 191,586 $ 20.44 Adjusted percentage change versus 2019 2.5 % 4.8 % (2.1) % 57.4 % 30 Fiscal Year 2019 (in thousands, except per share data) Net sales Gross profit SD&A expenses Income from operations Income before income taxes Net income Basic net income per share Reported results (GAAP) $ 4,826,549 $ 1,670,502 $ 1,489,748 $ 180,754 $ 34,225 $ 11,375 $ 1.21 Fair value adjustment of acquisition related contingent consideration (1) — — — — 92,788 69,591 7.43 Fair value adjustments for commodity derivative instruments (2) — (6,602) 3,536 (10,138) (10,138) (7,604) (0.81) Supply chain optimization and consolidation (3) — 5,625 (4,952) 10,577 10,577 7,933 0.85 Capitalization threshold change for certain assets (5) — — (7,305) 7,305 7,305 5,479 0.58 System Transformation expenses (6) — — (6,915) 6,915 6,915 5,200 0.56 Total reconciling items — (977) (15,636) 14,659 107,447 80,599 8.61 Adjusted results (non-GAAP) $ 4,826,549 $ 1,669,525 $ 1,474,112 $ 195,413 $ 141,672 $ 91,974 $ 9.82 Following is an explanation of non-GAAP adjustments: (1) This non-cash, fair value adjustment of acquisition related contingent consideration fluctuates based on factors such as long-term interest rates and future cash flow projections of the distribution territories subject to sub-bottling fees. (2) The Company enters into commodity 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. The Company accounts for its commodity derivative instruments on a mark-to-market basis. (3) Adjustment reflects expenses within the Nonalcoholic Beverages segment related to the impairment and accelerated depreciation of property, plant and equipment as the Company continues to optimize efficiency opportunities across its business. (4) Adjustment reflects four extra days in 2020, as compared to 2019. (5) Adjustment reflects additional expense for the prospective change of increasing the capitalization thresholds in 2019 on certain low-cost, short-lived assets. (6) Adjustment reflects expenses incurred during the applicable period of 2019 related to the System Transformation, which primarily includes information technology system conversions. Financial Condition Total assets increased $95.5 million to $3.22 billion on December 31, 2020, as compared to $3.13 billion on December 29, 2019. Net working capital, defined as current assets less current liabilities, was $204.2 million on December 31, 2020, which was a decrease of $3.9 million from December 29, 2019. Significant changes in net working capital on December 31, 2020 from December 29, 2019 were as follows: • An increase in cash and cash equivalents of $45.2 million primarily as a result of our strong operating performance. • A decrease in accounts receivable from The Coca‑Cola Company of $13.2 million primarily as a result of the timing of cash receipts. • An increase in accounts payable, trade of $30.1 million primarily as a result of the timing of cash payments. Liquidity and Capital Resources Capital Resources The Company’s sources of capital include cash flows from operations, available credit facilities and the issuance of debt and equity securities. As of December 31, 2020, the Company had $54.8 million of cash and cash equivalents. The Company has obtained its long-term debt from public markets, private placements and bank facilities. Management believes the Company has sufficient sources of capital available to refinance its maturing debt, finance its business plan, meet its working capital requirements and maintain an appropriate level of capital spending for at least the next 12 months from the issuance of the consolidated financial statements. At this time, the Company does not expect the COVID-19 pandemic to have a material impact on its liquidity or sources of capital. 31 The Company’s long-term debt as of December 31, 2020 and December 29, 2019 was as follows: (in thousands) Maturity Date December 31, 2020 December 29, 2019 Term loan facility (1) 6/7/2021 $ 217,500 $ 262,500 Senior notes 2/27/2023 125,000 125,000 Revolving credit facility 6/8/2023 — 45,000 Senior bonds and unamortized discount on senior bonds (2) 11/25/2025 349,957 349,948 Senior notes 10/10/2026 100,000 100,000 Senior notes 3/21/2030 150,000 150,000 Debt issuance costs (1,992) (2,528) Long-term debt $ 940,465 $ 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, and the Company is not restricted by any subjective acceleration clause within the revolving credit agreement. As such, any amounts due in the next 12 months were classified as noncurrent. (2) The senior bonds due in 2025 were issued at 99.975% of par. The Company’s term loan facility matures on June 7, 2021. The original aggregate principal amount borrowed by the Company under the facility was $300 million and repayment of principal amounts outstanding began in 2018. The Company may request additional term loans under the term loan facility, provided the Company’s aggregate borrowings under the facility do not exceed $500 million. 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 consolidated balance sheets. Changes in the fair value of this interest rate swap were classified as accumulated other comprehensive loss on the consolidated balance sheets and included in the consolidated statements of comprehensive income. As discussed below under “Cash Flows From Financing Activities,” in 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. The Company may request that MetLife consider the purchase of additional senior unsecured notes of the Company under the agreement in an aggregate principal amount of up to $200 million. The Company’s 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. 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 December 31, 2020, the Company had no borrowings outstanding under the revolving credit facility, and therefore had $500 million borrowing capacity available under the revolving credit facility. The indenture under which the Company’s senior bonds were 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 December 31, 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. The Company’s Board of Directors has declared, and the Company has paid, $0.25 in dividends on both the Common Stock and Class B Common Stock each quarter since 1994. 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 credit ratings are reviewed periodically by certain nationally recognized rating agencies. Changes in the Company’s operating results or financial position could result in changes in the Company’s credit ratings. Lower credit ratings could result in higher borrowing costs for the Company or reduced access to capital markets, which could have a material adverse impact on the Company’s operating results or financial position. During 2020, Standard & Poor’s reaffirmed the Company’s BBB rating and revised 32 the Company’s rating outlook to stable from negative. Moody’s rating outlook for the Company is stable. As of December 31, 2020, the Company’s credit ratings were as follows: Long-Term Debt Standard & Poor’s BBB Moody’s Baa2 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 December 31, 2020, interest expense for the next 12 months would increase by approximately $1.2 million. See “Item 7A. Quantitative and Qualitative Disclosures About Market Risk” for additional information. The Company’s only Level 3 asset or liability is the acquisition related contingent consideration liability. There were no transfers from Level 1 or Level 2 in any period presented. 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: Fiscal Year (in thousands) 2020 2019 Beginning balance - Level 3 liability $ 446,684 $ 382,898 Payment of acquisition related contingent consideration (43,400) (27,182) Reclassification to current payables 200 (1,820) Increase in fair value 31,210 92,788 Ending balance - Level 3 liability $ 434,694 $ 446,684 Cash Sources and Uses A summary of cash-based activity is as follows: Fiscal Year (in thousands) 2020 2019 Cash Sources: Net cash provided by operating activities (1) $ 494,461 $ 290,370 Borrowings under revolving credit facility 235,000 515,339 Proceeds from the sale of property, plant and equipment 3,385 4,064 Proceeds from issuance of senior notes — 100,000 Total cash sources $ 732,846 $ 909,773 Cash Uses: Payments on revolving credit facility $ 280,000 $ 550,339 Additions to property, plant and equipment 202,034 171,374 Purchase of noncontrolling interest in Piedmont 100,000 — Payments on term loan facility and senior bonds 45,000 140,000 Payments of acquisition related contingent consideration 43,400 27,182 Cash dividends paid 9,374 9,369 Payments on financing or capital lease obligations 5,861 8,656 Other distribution agreements — 4,654 Other 1,998 2,133 Total cash uses $ 687,667 $ 913,707 Net increase (decrease) in cash $ 45,179 $ (3,934) (1) Net cash provided by operating activities in 2020 included net income tax payments of $55.8 million and pension plan contributions of $16.3 million. Net cash provided by operating activities in 2019 included net income tax payments of $6.3 million and pension plan contributions of $4.9 million. Cash Flows From Operating Activities During 2020, cash provided by operating activities was $494.5 million, which was an increase of $204.1 million, as compared to 2019. The increase was a result of our strong operating performance and cash provided by the change in current assets less current liabilities, 33 primarily related to the timing of accounts receivable and the deferral of payroll taxes permitted under the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”). The Company has taken advantage of certain provisions of 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. Cash Flows From Investing Activities During 2020, cash used in investing activities was $200.4 million, which was an increase of $26.7 million, as compared to 2019. The increase was primarily a result of additions to property, plant and equipment, which were $202.0 million during 2020 and $171.4 million during 2019. There were $17.0 million and $19.5 million of additions to property, plant and equipment accrued in accounts payable, trade as of December 31, 2020 and December 29, 2019, respectively. The Company anticipates additions to property, plant and equipment in 2021 to be in the range of $170 million to $200 million. Cash Flows From Financing Activities During 2020, cash used in financing activities was $248.9 million, which was an increase of $128.2 million, as compared to 2019. The increase was primarily driven by the purchase by an indirect wholly owned subsidiary of the Company of the remaining 22.7% general partnership interest in Piedmont for $100 million and net repayments of debt of $90 million in 2020, stemming from improved financial results. The Company had cash payments for acquisition related contingent consideration of $43.4 million during 2020 and $27.2 million during 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 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. These notes bear interest at 3.93%, payable quarterly in arrears, and will mature on October 10, 2026, unless earlier redeemed by the Company. The Company used the proceeds to refinance senior bonds due on April 15, 2019. The Company may request that MetLife consider the purchase of additional senior unsecured notes of the Company under the agreement in an aggregate principal amount of up to $200 million. Off-Balance Sheet Arrangements The Company is a shareholder of SAC, a manufacturing cooperative located in Bishopville, South Carolina. All of SAC’s shareholders are Coca‑Cola bottlers and each has equal voting rights. As of December 31, 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. 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. See Note 21 to the consolidated financial statements for additional information. 34 Aggregate Contractual Obligations The following table summarizes the Company’s contractual obligations and commercial commitments as of December 31, 2020: Contractual Obligation Payments Due During (in thousands) Total Fiscal 2021 Fiscal 2022 Fiscal 2023 Fiscal 2024 Fiscal 2025 Thereafter Total debt, net of interest $ 942,500 $ 217,500 $ — $ 125,000 $ — $ 350,000 $ 250,000 Estimated interest on debt obligations (1) 153,036 28,488 27,270 23,853 23,170 22,062 28,193 Acquisition related contingent consideration 434,694 36,020 27,723 28,368 28,912 29,463 284,208 SAC purchase obligation (2) 362,068 103,448 103,448 103,448 51,724 — — Executive benefit plans 174,481 32,681 22,606 14,582 9,442 10,045 85,125 Operating lease obligations 169,581 24,056 20,970 18,125 15,330 13,747 77,353 Long-term marketing contractual arrangements (3) 164,895 35,224 30,314 21,302 16,974 15,110 45,971 Financing lease obligations 92,241 7,079 7,145 7,201 7,396 7,593 55,827 Purchase orders (4) 84,921 84,921 — — — — — Postretirement benefit obligations (5) 67,665 2,886 2,983 3,151 3,341 3,494 51,810 Obligation for exiting multiemployer pension plan 5,836 974 974 974 974 974 966 Total contractual obligations $ 2,651,918 $ 573,277 $ 243,433 $ 346,004 $ 157,263 $ 452,488 $ 879,453 (1) Includes interest payments based on contractual terms. (2) Represents an estimate of the Company’s obligation to purchase 17.5 million cases of finished product from SAC on an annual basis through June 2024. (3) Includes long-term marketing contractual arrangements with certain prestige properties, athletic venues and other locations. (4) Purchase orders include commitments in which a written purchase order has been issued to a vendor, but the goods have not been received or the services performed. (5) Includes the liability for postretirement benefit obligations only. The unfunded portion of the Company’s pension plan is excluded as the timing and/or amount of any cash payment is uncertain. The Company had uncertain tax positions, including accrued interest, of $2.6 million on December 31, 2020, 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 consolidated financial statements. See Note 17 to the consolidated financial statements for additional information. The Company is a shareholder of Southeastern Container (“Southeastern”), a plastic bottle manufacturing cooperative from which the Company is obligated to purchase at least 80% of its requirements of plastic bottles for certain designated territories. This obligation is not included in the Company’s table of contractual obligations and commercial commitments as there are no minimum purchase requirements. See Note 21 to the consolidated financial statements for additional information related to Southeastern. 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 December 31, 2020. See Note 21 to the consolidated financial statements for additional information related to commercial commitments, guarantees, legal and tax matters. The Company contributed $16.3 million to the two Company-sponsored pension plans during 2020. Contributions to the two Company-sponsored pension plans are expected to be in the range of $8 million to $12 million in 2021. Postretirement medical care payments are expected to be approximately $3 million in 2021. See Note 18 to the consolidated financial statements for additional information related to pension and postretirement benefit obligations. Hedging Activities The Company uses commodity derivative instruments to manage its exposure to fluctuations in certain commodity prices. Fees paid by the Company for commodity derivative instruments are amortized over the corresponding period of the instrument. The Company accounts for its commodity derivative instruments on a mark-to-market basis with any expense or income being reflected as an adjustment to cost of sales or SD&A expenses, consistent with the expense classification of the underlying hedged item. The Company uses several different financial institutions for commodity derivative instruments to minimize the concentration of credit risk. The Company has master agreements with the counterparties to its commodity derivative instruments that provide for net 35 settlement of derivative transactions. The net impact of the commodity derivative instruments on the consolidated statements of operations was as follows: Fiscal Year (in thousands) 2020 2019 Increase (decrease) in cost of sales $ (518) $ 8,318 Increase (decrease) in SD&A expenses 2,343 (1,922) Net impact $ 1,825 $ 6,396 Discussion of Critical Accounting Policies and Estimates and Recent Accounting Pronouncements Critical Accounting Policies and Estimates In the ordinary course of business, the Company has made a number of estimates and assumptions relating to the reporting of results of operations and financial position in the preparation of its consolidated financial statements in conformity with GAAP. Actual results could differ significantly from those estimates under different assumptions and conditions. The Company believes the following discussion addresses the Company’s most critical accounting policies, which are those most important to the portrayal of the Company’s 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 inherently uncertain matters. Any changes in critical accounting policies and estimates are discussed with the Audit Committee of the Board of Directors of the Company during the quarter in which a change is contemplated and prior to making such change. Revenue Recognition 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”). 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 consolidated financial statements. 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 typically collects payment from customers within 30 days from the date of sale. 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 Company’s allowance for doubtful accounts in the 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. 36 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. Valuation of Long-Lived Assets, Goodwill and Other Intangibles Management performs recoverability and impairment tests of long-lived assets, goodwill and other intangibles in accordance with GAAP, during which management makes numerous assumptions which involve a significant amount of judgment. When performing impairment tests, management estimates the fair values of the assets using its best assumptions, which management believes would be consistent with what a hypothetical marketplace participant would use. Estimates and assumptions used in these tests are evaluated and updated as appropriate. For certain assets, recoverability and/or impairment tests are required only when conditions exist that indicate the carrying value may not be recoverable. For other assets, impairment tests are required at least annually, or more frequently if events or circumstances indicate that an asset may be impaired. The Company evaluates the recoverability of the carrying amount of its property, plant and equipment and other intangibles when events or circumstances indicate the carrying amount of an asset or asset group may not be recoverable. These evaluations are performed at a level where independent cash flows may be attributed to either an asset or an asset group. If the Company determines the carrying amount of an asset or asset group is not recoverable based upon the expected undiscounted future cash flows of the asset or asset group, an impairment loss is recorded equal to the excess of the carrying amounts over the estimated fair values of the long-lived assets. During 2020 and 2019, the Company performed periodic reviews of property, plant and equipment and other intangibles and determined no material impairment existed. All business combinations are accounted for using the acquisition method. All of the Company’s goodwill resides within one reporting unit within the Nonalcoholic Beverages reportable segment, and, therefore, the Company has determined it has one reporting unit for the purpose of assessing goodwill for potential impairment. The Company performs its annual goodwill impairment test as of the first day of the fourth quarter each year, and more frequently if facts and circumstances indicate such assets may be impaired, including significant declines in actual or future projected cash flows and significant deterioration of market conditions. The Company uses its overall market capitalization as part of its estimate of fair value of the reporting unit and in assessing the reasonableness of the Company’s internal estimates of fair value. The Company’s goodwill impairment assessment includes a qualitative assessment to determine whether it is more likely than not that the fair value of the goodwill is below its carrying value, each year, and more often if there are significant changes in business conditions that could result in impairment. When a quantitative analysis is considered necessary for the annual impairment analysis of goodwill, the Company develops an estimated fair value for the reporting unit considering three different approaches: 1) market value, using the Company’s stock price plus outstanding debt; 2) discounted cash flow analysis; and 3) multiple of earnings before interest, taxes, depreciation and amortization based upon relevant industry data. The estimated fair value of the reporting unit is then compared to its carrying amount, including goodwill. If the estimated fair value exceeds the carrying amount, goodwill is not considered impaired. If the carrying amount, including goodwill, exceeds its estimated fair value, any excess of the carrying value of goodwill of the reporting unit over its fair value is recorded as an impairment. The Company performed its annual impairment test of goodwill as of the first day of the fourth quarter during both 2020 and 2019 and determined there was no impairment of the carrying values of these assets. The Company has determined there has not been an interim impairment trigger since the first day of the fourth quarter of 2020 annual test date. Acquisition Related Contingent Consideration Liability The acquisition related contingent consideration liability consists of the estimated amounts due to The Coca‑Cola Company under the CBA with The Coca‑Cola Company and CCR over the useful life of the related distribution rights. Under 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. This acquisition related contingent consideration is 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 subject to sub-bottling fees to fair value by discounting future expected sub-bottling payments required under the CBA using the Company’s estimated WACC. These future expected sub-bottling payments extend through the life of the related distribution assets acquired in each distribution territory, 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 37 the future under the CBA and current sub-bottling payments (all Level 3 inputs). Changes in any of these Level 3 inputs, particularly the underlying risk-free interest rate used to estimate the Company’s WACC, could result in material changes to the fair value of the acquisition related contingent consideration and could materially impact the amount of non-cash expense (or income) recorded each reporting period. Income Tax Estimates Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to operating losses and tax credit carryforwards, as well as the differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance will be provided against deferred tax assets if the Company determines it is more likely than not such assets will not ultimately be realized. The Company does not recognize a tax benefit unless it concludes that it is more likely than not that the benefit will be sustained on audit by the taxing authority based solely on the technical merits of the associated tax position. If the recognition threshold is met, the Company recognizes a tax benefit measured at the largest amount of the tax benefit that, in the Company’s judgment, is greater than 50 percent likely to be realized. The Company records interest and penalties related to uncertain tax positions in income tax expense. Pension and Postretirement Benefit Obligations There are two Company-sponsored pension plans. The primary Company-sponsored pension plan (the “Primary 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 the amounts currently deductible for income tax purposes. The Company also sponsors a postretirement healthcare plan for employees meeting specified criteria. Several statistical and other factors, which attempt to anticipate future events, are used in calculating the expense and liability related to the plans. These factors include assumptions about the discount rate, expected return on plan assets, employee turnover and age at retirement, as determined by the Company, within certain guidelines. In addition, the Company uses subjective factors such as mortality rates to estimate the projected benefit obligation. The actuarial assumptions used by the Company may differ materially from actual results due to changing market and economic conditions, higher or lower withdrawal rates or longer or shorter life spans of participants. These differences may result in a significant impact to the amount of net periodic pension cost recorded by the Company in future periods. See Note 18 to the consolidated financial statements for additional information. The discount rate used in determining the actuarial present value of the projected benefit obligation for the Primary Plan and the Bargaining Plan was 2.66% and 3.12%, respectively, in 2020 and 3.36% and 3.61%, respectively, in 2019. The discount rate assumption is generally the estimate which can have the most significant impact on net periodic pension cost and the projected benefit obligation for these pension plans. The Company determines an appropriate discount rate annually based on the Aon AA Above Median yield curve as of the measurement date and reviews the discount rate assumption at the end of each year. Pension costs were $8.3 million in 2020 and $10.6 million in 2019. A 0.25% increase or decrease in the discount rate assumption would have impacted the projected benefit obligation and net periodic pension cost of the Company-sponsored pension plans as follows: (in thousands) 0.25% Increase 0.25% Decrease Increase (decrease) in: Projected benefit obligation for Primary Plan at December 31, 2020 $ (11,299) $ 11,990 Net periodic pension cost for Primary Plan in 2020 11 (24) (in thousands) 0.25% Increase 0.25% Decrease Increase (decrease) in: Projected benefit obligation for Bargaining Plan at December 31, 2020 $ (2,308) $ 2,498 Net periodic pension cost for Bargaining Plan in 2020 (501) 540 38 The weighted average expected long-term rate of return of plan assets used in computing net periodic pension costs for the Primary Plan was 5.50% in 2020 and 5.00% in 2019. The weighted average expected long-term rate of return of plan assets used in computing net periodic pension costs for the Bargaining Plan was 6.25% in 2020 and 5.25% in 2019. These rates reflect an estimate of long-term future returns for the pension plan assets. This estimate is primarily a function of the asset classes (equities versus fixed income) in which the pension plan assets are invested and the analysis of past performance of these asset classes over a long period of time. This analysis includes expected long-term inflation and the risk premiums associated with equity and fixed income investments. See Note 18 to the consolidated financial statements for the details by asset type of the Company’s pension plan assets and the weighted average expected long-term rate of return of each asset type. The actual return on pension plan assets for the Primary Plan was a gain of 14.3% in 2020 and 12.8% in 2019. The actual return on pension plan assets for the Bargaining Plan was a gain of 13.9% in 2020 and 15.3% in 2019. The Company sponsors a postretirement healthcare plan for employees meeting specified qualifying criteria. Several statistical and other factors, which attempt to anticipate future events, are used in calculating the net periodic postretirement benefit cost and postretirement benefit obligation for this plan. These factors include assumptions about the discount rate and the expected growth rate for the cost of healthcare benefits. In addition, the Company uses subjective factors such as withdrawal and mortality rates to estimate the projected liability under this plan. The actuarial assumptions used by the Company may differ materially from actual results due to changing market and economic conditions, higher or lower withdrawal rates or longer or shorter life spans of participants. The Company does not prefund its postretirement benefits and has the right to modify or terminate certain of these benefits in the future. The discount rate assumption, the annual healthcare cost trend and the ultimate trend rate for healthcare costs are key estimates which can have a significant impact on the net periodic postretirement benefit cost and postretirement benefit obligation in future periods. The Company annually determines the healthcare cost trend based on recent actual medical trend experience and projected experience for subsequent years. The discount rate assumptions used to determine the pension and postretirement benefit obligations are based on the annual yield on long-term corporate bonds as of each plan’s measurement date. The discount rate used in determining the postretirement benefit obligation was 2.70% in 2020 and 3.32% in 2019. The discount rate was derived using the Aon AA Above Median yield curve. Projected benefit payouts for each plan were matched to the Aon AA Above Median yield curve and an equivalent flat rate was derived. A 0.25% increase or decrease in the discount rate assumption would have impacted the postretirement benefit obligation and service cost and interest cost of the Company’s postretirement benefit plan as follows: (in thousands) 0.25% Increase 0.25% Decrease Increase (decrease) in: Postretirement benefit obligation at December 31, 2020 $ (2,166) $ 2,293 Net periodic postretirement benefit cost in 2020 (143) 150 Recently Adopted Accounting Pronouncements In June 2016, 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 2020 and the adoption did not have a material impact on its 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 2020 and has updated disclosures in this report. See Note 16 to the consolidated financial statements for additional information. 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, removed disclosures include 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 include an explanation of 39 the reasons for significant gains and losses related to the benefit obligation for the period. The Company adopted ASU 2018‑14 in 2020 and has updated disclosures in this report. See Note 18 to the consolidated financial statements for additional information. Recently Issued Accounting Pronouncements 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 evaluated the impact ASU 2019‑12 will have on its consolidated financial statements and does not expect a material impact upon adoption in 2021. Cautionary Information Regarding Forward-Looking Statements Certain statements contained in this report, or in other public filings, press releases, or other written or oral communications made by the Company or its representatives, which are not historical facts, are forward-looking statements subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements address, among other things, Company plans, activities or events which the Company expects will or may occur in the future and may include express or implied projections of revenue or expenditures; statements of plans and objectives for future operations, growth or initiatives; statements of future economic performance, including, but not limited to, the state of the economy, capital investment and financing plans, net sales, cost of sales, SD&A expenses, gross profit, income tax rates, net income per diluted share, dividends, pension plan contributions and estimated acquisition related contingent consideration payments; statements regarding the outcome or impact of certain recent accounting pronouncements and pending or threatened litigation; or statements regarding the impact of the COVID-19 pandemic on the Company’s business, financial condition, results of operations or cash flows. These forward-looking statements may be identified by the use of the words “will,” “may,” “believe,” “plan,” “estimate,” “expect,” “anticipate,” “probably,” “should,” “project,” “intend,” “continue,” “could,” “strive” and other similar terms and expressions. Various factors, risks and uncertainties may cause the Company’s actual results to differ materially from those expressed or implied in any forward-looking statements. Factors, risks and uncertainties that may result in actual results differing from such forward-looking information include, but are not limited to, those listed in “Item 1A. Risk Factors” of this report and elsewhere herein, including, without limitation, the factors described under “Critical Accounting Policies and Estimates” in Item 7 of this report, or in other filings or statements made by the Company. All of the forward-looking statements in this report and other documents or statements are qualified by these and other factors, risks and uncertainties. Caution should be taken not to place undue reliance on the forward-looking statements included in this report. The Company assumes no obligation to update any forward-looking statements, even if experience or future changes make it clear that projected results expressed or implied in such statements will not be realized, except as may be required by law. In evaluating forward-looking statements, these risks and uncertainties should be considered, together with the other risks described from time to time in the Company’s other reports and documents filed with the SEC.