What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-05-11 compared with 2020-11-03 · 177 added, 345 removed, 253 unchanged (67% of the section changed)

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

The Company’s fiscal year generally ends on the Sunday closest to December 31 of each year.

Each of the Company’s quarters, other than the fourth quarter, ends on the Friday closest to the last day of the corresponding quarterly calendar period.

The Company’s fourth quarter and fiscal year end on December 31 regardless of the day of the week on which December 31 falls.

The condensed consolidated financial statements presented are:

• 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 include the consolidated operations of the Company and its majority-owned subsidiaries, including Piedmont Coca‑Cola Bottling Partnership (“Piedmont”), the Company’s only subsidiary with a significant noncontrolling interest.

This noncontrolling interest consists of The Coca‑Cola Company’s interest in Piedmont, which was 22.7% for all periods presented.

• The financial position as of April 2, 2021 and December 31, 2020.

• The results of operations and comprehensive income for the three-month periods ended April 2, 2021 (the “first quarter” of fiscal 2021 (“2021”)) and March 29, 2020 (the “first quarter” of fiscal 2020 (“2020”)).

• The changes in cash flows and equity for the first quarter of 2021 and the first quarter of 2020.

The condensed consolidated financial statements include the consolidated operations of the Company and its majority-owned subsidiaries.

During 2020, Piedmont Coca-Cola Bottling Partnership (“Piedmont”) was the Company’s only subsidiary that had a significant noncontrolling interest.

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.

Our Business and the Nonalcoholic Beverage Industry

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We also distribute products for several other beverage companies, including BA Sports Nutrition, LLC (“BodyArmor”), Keurig Dr Pepper Inc.

(“Dr Pepper”) and Monster Energy Company.

(“Dr Pepper”) and Monster Energy Company (“Monster Energy”).

Our purpose is to honor God in all we do, serve others, pursue excellence and grow profitably.

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Bottle/can sales include products packaged primarily in plastic bottles and aluminum cans.

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.

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.

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.

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 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 locations, 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 nonalcoholic beverage industry is highly competitive for both sparkling and still beverages.

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

The principal methods of competition in the nonalcoholic beverage industry are new brand and product introductions, point-of-sale merchandising, new vending and dispensing equipment, packaging changes, pricing, sales promotions, product quality, retail

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

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

Business seasonality results primarily from higher unit sales of the Company’s products in the second and third quarters of the fiscal year.

Business seasonality results primarily from higher unit sales of the Company’s products in the second and third quarters of the fiscal year, as sales of our products are typically correlated with warmer weather.

We believe that we and other manufacturers from whom we purchase finished products have adequate production capacity to meet sales demand for sparkling and still beverages during these peak periods.

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Executive Summary

Physical case volume increased 3.9% in the third quarter of 2020, as sales of multi-serve packages in larger retail stores remained strong and single-serve sales began to gradually improve in small stores and accounts where our products are consumed on-premise.

Sparkling category volume increased 3.6% in the third quarter of 2020, while Still beverages grew 4.5%.

Still beverage sales are more tied to smaller outlets than our Sparkling category, and sales of Still products improved as certain government-imposed restrictions were eased or lifted during the third quarter.

While volume growth was strong for the third quarter of 2020, sales volume softened in the last two months of the quarter.

Revenue increased 4.5% in the third quarter of 2020.

Revenue from our bottle/can Sparkling beverages increased 7.0% in the third quarter of 2020, driven primarily by volume growth and price realization within this category.

Sales of multi-serve PET packages were especially strong in the quarter as we adjusted our commercial plans to emphasize PET packages and limit product assortment in cans as demand for aluminum cans has exceeded supply this year.

Revenue from our Still beverages increased 6.0% in the third quarter of 2020 as a result of higher sales volume in small stores and on-premise outlets.

Revenue from fountain syrup, which is primarily sold through restaurants, convenience stores, amusement parks, and other on-premise outlets, declined $19.5 million, or 35.2%, during the third quarter of 2020.

While the decline in fountain syrup revenue was significant, we are experiencing gradual improvement within this revenue stream as compared to the second quarter of 2020, as traffic continues to increase at our on-premise outlets.

For the first nine months of 2020, revenue increased $81.1 million, or 2.2%.

While sales within our Sparkling and Still categories grew 5.8% and 3.2% for the first nine months of 2020, respectively, fountain syrup sales decreased 33.8%.

Gross profit increased $40.2 million, or 9.3%, in the third quarter of 2020, while gross margin increased 160 basis points to 35.6%.

On an adjusted basis, as defined in the “Adjusted Non-GAAP Results” section below, gross profit increased $39.0 million, or 9.0%, in the third quarter of 2020.

The improvement in gross profit and gross margin was primarily due to price realization within our Sparkling category, favorable input costs, and lower manufacturing costs.

Gross profit in the first nine months of 2020 increased $49.7 million, or 4.0%, while gross margin increased 60 basis points to 35.1%.

On an adjusted basis, gross profit increased $47.9 million compared to the first nine months of 2019.

Selling, delivery and administrative (“SD&A”) expenses in the third quarter of 2020 decreased $9.8 million, or 2.6%.

SD&A expenses as a percentage of net sales decreased 210 basis points in the third quarter of 2020.

Adjusted SD&A expenses in the third quarter of 2020 decreased $7.4 million, or 2.0%.

The decrease in SD&A expenses related to lower labor and benefits costs as a result of adjustments we made to our operating model earlier in the year in response to COVID-19-related impacts on our business.

Additionally, we generated favorable results in a number of expense categories due to the diligent management of our variable operating expenses.

SD&A expenses in the first nine months of 2020 decreased $28.8 million, or 2.6%.

SD&A expenses as a percentage of net sales decreased 140 basis points in the first nine months of 2020 as compared to the first nine months of 2019.

Income from operations in the third quarter of 2020 was $103.8 million, compared to $53.8 million in the third quarter of 2019, an increase of 92.9%.

Adjusted income from operations in the third quarter of 2020 was $105.2 million, an increase of 79.1%.

For the first nine months of 2020, income from operations increased $78.6 million to $219.8 million.

Adjusted income from operations in the first nine months of 2020 was $223.6 million, an increase of $66.6 million, or 42.4%, compared to the first nine months of 2019.

Net income in the third quarter of 2020 was $51.9 million, compared to $13.0 million in the third quarter of 2019, an improvement of $38.9 million.

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

Physical case volume increased 4.8% in the first quarter of 2021.

Sparkling beverages maintained steady growth and certain Still brands, including BodyArmor, AHA and Monster, also performed well versus prior year.

Sparkling category volume increased 4.5% in the first quarter of 2021, while Still beverage volume increased 5.5%.

Sales of multi-serve packages in larger retail stores remained very strong, while single-serve sales improved in small stores and accounts where our products are consumed on-premise.

Our first quarter of 2021 included one additional selling day compared to the first quarter of 2020 and we estimate it impacted our physical case growth rates by approximately 1%.

Revenue increased 8.3% in the first quarter of 2021.

The increase in revenue from our bottle/can Sparkling beverages was driven primarily by price realization on most Sparkling packages.

Sales of multi-serve PET packages were especially strong in the quarter as we adjusted our commercial plans to emphasize these packages to complement our assortment of multi-serve can products in take-home outlets.

Sales in take-home channels continue to outpace other channels, but we are seeing improvement in on-premise selling channels as COVID-related restrictions are being lifted throughout our territory.

Gross profit increased $43.4 million, or 10.7%, while gross margin increased 70 basis points to 35.3%.

The improvement in gross profit and gross margin was primarily due to price realization within our Sparkling category.

In addition, favorable product mix, including the shift within Sparkling to multi-serve PET packages, helped to expand margins.

We expect our major input costs, including aluminum, PET and high fructose corn syrup, to rise through the balance of the year which will put pressure on our gross margins.

We currently plan to pass along price increases to our customers later this year in an effort to offset this expected cost pressure.

Selling, delivery and administrative (“SD&A”) expenses in the first quarter of 2021 decreased $18.0 million, or 4.8%.

SD&A expenses as a percentage of net sales decreased 390 basis points in the first quarter of 2021.

The decrease in SD&A expenses related primarily to lower labor costs as a result of adjustments we made to our operating model during the second quarter of 2020.

Additionally, we generated favorable results in a number of expense categories due to the diligent management of our variable operating expenses, including delivery, marketing, and travel and entertainment expenses.

As we progress through the year, we expect our operating expenses to increase as business channels reopen and we service our full portfolio of customers.

Income from operations in the first quarter of 2021 was $94.2 million, compared to $32.8 million in the first quarter of 2020, an increase of 187%.

On an adjusted basis, as defined in the “Adjusted Non-GAAP Results” section below, income from operations in the first quarter of 2021 was $93.7 million, an increase of 155%.

Net income in the first quarter of 2021 was $53.4 million, compared to $14.7 million in the first quarter of 2020, an improvement of $38.7 million.

Net income in the first quarter of 2021 was adversely impacted by fair value adjustments to our acquisition related contingent consideration liability, driven primarily by changes in future cash flow projections, offset by an increase in the discount rate used to value the liability.

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

Net income increased $84.6 million for the first nine months of 2020 to $106.1 million, as compared to the first nine months of 2019.

Cash flows provided by operations for the first nine months of 2020 were $376.4 million, compared to $204.6 million for the first nine months of 2019.

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

COVID-19 Impact on Consumer, Customer, Teammate and Community Safety

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

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

The Company has taken the following actions to protect 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 and Recovery phases of the COVID-19 pandemic.

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

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

• We have established a process for the reporting of COVID-19 symptoms, exposures and positive test results of teammates and of incidents in 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 and emails about safety protocols, Personal Protective Equipment (“PPE”), such as disposable gloves and masks, 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.

• 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.

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

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

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

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

Expected COVID-19 Impact on the Company

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

As of September 27, 2020, we had $164.8 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 September 27, 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.

During the COVID-19 pandemic, beverage consumption has shifted from “on-premise” accounts, where products are typically consumed immediately, such as restaurants, schools, amusement parks and recreational facilities, to homes 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 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 locations and limiting our canned product package offerings.

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

We 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 have been no triggering events identified in the first nine months of 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.

Income tax expense for the first quarter of 2021 was $20.0 million, compared to $5.4 million in the first quarter of 2020.

The increase was the result of higher pre-tax income.

Cash flows provided by operations for the first quarter of 2021 were $81.9 million, compared to $32.3 million for the first quarter of 2020.

The significant increase in operating cash flows for the first quarter of 2021 was a result of our strong operating performance led by our top line growth, expanded gross margins and effective management of operating expenses.

We also remained focused on the effective management of our working capital.

This strong cash flow generation and working capital management has allowed us to reduce our long-term debt balance by more than $170 million since the end of the first quarter of 2020.

Additionally, we continue to invest in long-term strategic projects to optimize our supply chain and better serve our customers, including the opening of our new automated warehouse facility in Whitestown, Indiana in April 2021.

COVID-19 Impact

The Company continues to diligently monitor and manage through the impact of the ongoing 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 continues to implement its COVID-19 Response Program, including numerous actions to protect and promote the health and safety of its consumers, customers, teammates and communities, while it continues to manufacture and distribute products.

Such actions include engaging in increased communication to inform our teammates about the current status of government orders responding to the pandemic and the deployment of vaccines across our territory;

following prescribed Company and other accepted health and safety standards and protocols, including those adopted by the Centers for Disease Control and Prevention (the “CDC”) and local health authorities;

working closely with local health departments and appropriate agencies to manage and monitor teammate cases and exposures, risk mitigation and safety activities;

implementing sanitation protocols and promoting hygiene practices recommended by the CDC;

implementing work-from-home routines for teammates whose work duties permit it, restricting business travel to “essential travel” and restricting access to our facilities for non-essential visitors, vendors and contractors;

offering supplemental sick time for non-exempt teammates;

and modifying our health, welfare and retirement plans for COVID-19-related events.

COVID-19 vaccine program continues to be implemented, we will continue to support awareness and communication of vaccination guidance to our teammates.

As the authorities in the communities we serve respond to changes in current conditions and begin lifting the restrictions put in place in response to the pandemic, we will respond accordingly and strive to serve our customers and communities in the safest ways possible.

At this time and based on current trends, we do not currently expect the COVID-19 pandemic to materially impact our liquidity position or access to capital in 2021.

We also have not experienced, and do not expect, any material impairments or adjustments to the fair values of our assets or the collectability of our receivables as a result of the COVID-19 pandemic.

Additionally, during 2020, we made changes to our typical sourcing model and product offerings to address COVID-19-related constraints in the supply of aluminum cans, including sourcing aluminum cans from international manufacturers and limiting our canned product package offerings.

We will continue to monitor all of these factors and make adjustments as needed.

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 do not anticipate any material impact to our control procedures that would materially affect 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

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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.

We are focused on execution at every step in our supply chain, including raw material and finished product procurement, manufacturing conversion, transportation, warehousing and distribution, to ensure in-store execution can occur.

We continue to invest in tools and technology to enable our teammates to operate more effectively and efficiently with our customers and drive long-term value in our business.

Revenue Management :

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Supply Chain Optimization :

In October 2017, we completed a multi-year series of transactions through which we acquired and exchanged distribution territories and manufacturing facilities (the “System Transformation”).

In fiscal 2017, we completed a multi-year series of transactions through which we acquired and exchanged distribution territories and manufacturing plants.

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.

Subsequent to the end of the first quarter of 2021, we opened a new, automated distribution center in Whitestown, Indiana, which allowed the Company to consolidate certain nearby warehousing and distribution operations into this one new facility.

We believe 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.

In addition, 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.

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

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Results of Operations

Third Quarter Results

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

Third Quarter

First Quarter Results

The Company’s results of operations for the first quarter of 2021 and the first quarter of 2020 are highlighted in the table below and discussed in the following paragraphs.

First Quarter

(in thousands) 2021 2020 Change

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$ 53,363 $ 14,662 $ 38,701

Other comprehensive income, net of tax 1,280 196 1,084

Other comprehensive income (loss), net of tax 1,332 (50) 1,382

Comprehensive income attributable to Coca‑Cola Consolidated, Inc.

$ 54,695 $ 14,612 $ 40,083

Net sales increased $57.5 million, or 4.5%, to $1.33 billion in the third quarter of 2020, as compared to $1.27 billion in the third quarter of 2019.

Net sales increased $96.8 million, or 8.3%, to $1.27 billion in the first quarter of 2021, as compared to $1.17 billion in the first quarter of 2020.

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

Third Quarter 2020

First Quarter 2021

Attributable to:

$ 53.9 Increase in net sales related to increased sales volume

$ 55.6 Increase in net sales primarily related to an increase in average bottle/can sales price per unit to retail customers and the shift in product mix to higher revenue still products in order to meet consumer preferences

(30.8) Decrease in net sales related to the decrease in fountain syrup sales mainly sold in on-premise outlets, which have been impacted by COVID-19

50.6 Increase in net sales related to increased sales volume

(9.4) Decrease in net sales related to the decrease in fountain syrup sales mainly sold in on-premise locations, which have been impacted by the COVID-19 pandemic

$ 96.8 Total increase in net sales

Net sales by product category were as follows:

Third Quarter

First Quarter

(in thousands) 2021 2020 % Change

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Bottle/Can Sales Volume

Third Quarter Bottle/Can Sales

First Quarter Bottle/Can Sales

Product Category 2021 2020 Volume % Change

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Any differences are not material.

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

First Quarter

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

Wal-Mart Stores, Inc.

The Kroger Company 13 % 13 %

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

Approximate percent of the Company’s total net sales:

Wal-Mart Stores, Inc.

The Kroger Company 9 % 9 %

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

Cost of Sales

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(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 facilities to distribution centers, amortization expense of distribution rights, distribution fees of certain products and marketing credits from brand companies.

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 $17.2 million, or 2.1%, to $856.0 million in the third quarter of 2020, as compared to $838.8 million in the third quarter of 2019.

Cost of sales increased $53.4 million, or 7.0%, to $821.2 million in the first quarter of 2021, as compared to $767.7 million in the first quarter of 2020.

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

Third Quarter 2020

First Quarter 2021

Attributable to:

$ (24.3) Decrease in cost of sales related to the decrease in fountain syrup sales mainly sold in on-premise outlets, which have been impacted by COVID-19

$ 35.8 Increase in cost of sales primarily related to increased input costs and the change in product mix to meet consumer preferences

27.2 Increase in cost of sales related to increased sales volume

12.8 Increase in cost of sales primarily related to the change in product mix to meet consumer preferences

(9.6) Decrease in cost of sales related to the decrease in fountain syrup sales mainly sold in on-premise locations, which have been impacted by the COVID-19 pandemic

$ 53.4 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 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 $33.8 million in the third quarter of 2020, as compared to $34.8 million in the third quarter of 2019.

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

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.

Total marketing funding support from The Coca‑Cola Company and other beverage companies, which includes both direct payments to the Company and payments to customers for marketing programs, was $30.0 million in the first quarter of 2021 and $30.3 million in the first quarter of 2020.

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.

Selling, Delivery and Administrative Expenses

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

SD&A expenses decreased by $9.8 million, or 2.6%, to $368.6 million in the third quarter of 2020, as compared to $378.4 million in the third quarter of 2019.

SD&A expenses as a percentage of net sales decreased to 27.7% in the third quarter of 2020 from 29.8% in the third quarter of 2019.

SD&A expenses decreased by $18.0 million, or 4.8%, to $354.5 million in the first quarter of 2021, as compared to $372.5 million in the first quarter of 2020.

SD&A expenses as a percentage of net sales decreased to 27.9% in the first quarter of 2021 from 31.8% in the first quarter of 2020.

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

Third Quarter 2020

First Quarter 2021

Attributable to:

$ (7.9) Decrease in payroll and employee benefit costs, primarily as a result of the elimination of certain field-based positions and reduced overtime hours

$ (10.2) Decrease in payroll costs, primarily as a result of structural changes made to certain portions of our business in the second quarter of 2020

(6.2) Decrease in fleet-related expenses, including fuel costs and repairs

$ (18.0) Total decrease in SD&A expenses

Shipping and handling costs included in SD&A expenses were $155.8 million in the third quarter of 2020 and $161.0 million in the third quarter of 2019.

Shipping and handling costs included in SD&A expenses were $157.4 million in the first quarter of 2021 and $160.1 million in the first quarter of 2020.

Interest Expense, Net

Interest expense, net decreased $1.9 million, or 17.6%, to $9.0 million in the third quarter of 2020, as compared to $11.0 million in the third quarter of 2019.

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

Interest expense, net decreased $0.8 million, or 8.5%, to $8.7 million in the first quarter of 2021, as compared to $9.6 million in the first quarter of 2020.

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

Other Expense, Net

A summary of other expense, net is as follows:

Third Quarter

First Quarter

(in thousands) 2021 2020

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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 Company’s comprehensive beverage agreement, 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 of the distribution territories subject to sub-bottling fees.

The fair value is determined by discounting future expected sub-bottling payments required under the Company’s comprehensive beverage agreements, 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.

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

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

Income Tax Expense

The Company’s effective income tax rate, calculated by dividing income tax expense by income before income taxes, was 25.0% for the third quarter of 2020 and 29.9% for the third quarter of 2019.

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

The Company’s effective income tax rate, calculated by dividing income tax expense by income before income taxes minus net income attributable to noncontrolling interest, was 26.1% for the third quarter of 2020 and 33.7% for the third quarter of 2019.

Noncontrolling Interest

The Company recorded net income attributable to noncontrolling interest of $3.2 million in the third quarter of 2020 and $2.5 million in the third quarter of 2019, each related to the portion of Piedmont owned by The Coca‑Cola Company.

Other Comprehensive Income, Net of Tax

Other comprehensive income, net of tax was $1.3 million in the third quarter of 2020 and $0.2 million in the third quarter of 2019.

First Nine Months Results

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

First Nine Months

(in thousands)

2020 2019 Change

Net sales $ 3,728,720 $ 3,647,600 $ 81,120

Cost of sales 2,421,686 2,390,289 31,397

Gross profit 1,307,034 1,257,311 49,723

Selling, delivery and administrative expenses 1,087,251 1,116,097 (28,846)

Income from operations 219,783 141,214 78,569

Interest expense, net 27,778 35,846 (8,068)

Other expense, net 39,826 67,743 (27,917)

Income before income taxes 152,179 37,625 114,554

Income tax expense 38,911 10,801 28,110

Net income 113,268 26,824 86,444

Net income attributable to noncontrolling interest 7,153 5,279 1,874

Net income attributable to Coca‑Cola Consolidated, Inc.

$ 106,115 $ 21,545 $ 84,570

Other comprehensive income, net of tax 2,201 1,367 834

Comprehensive income attributable to Coca‑Cola Consolidated, Inc.

$ 108,316 $ 22,912 $ 85,404

Net sales increased $81.1 million, or 2.2%, to $3.73 billion in the first nine months of 2020, as compared to $3.65 billion in the first nine months of 2019.

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

First Nine Months 2020

Attributable to:

$ 104.7 Increase in net sales related to increased sales volume

(55.2) Decrease in net sales related to the decrease in fountain syrup sales mainly sold in on-premise outlets, which have been impacted by COVID-19

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

$ 81.1 Total increase in net sales

Net sales by product category were as follows:

First Nine Months

(in thousands) 2020 2019 % Change

Bottle/can sales:

Sparkling beverages $ 2,040,139 $ 1,928,297 5.8 %

Still beverages 1,239,335 1,200,971 3.2 %

Total bottle/can sales 3,279,474 3,129,268 4.8 %

Sales to other Coca‑Cola bottlers 249,994 254,200 (1.7) %

Post-mix and other 199,252 264,132 (24.6) %

Total other sales 449,246 518,332 (13.3) %

Total net sales $ 3,728,720 $ 3,647,600 2.2 %

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

Bottle/Can Sales Volume

First Nine Months Bottle/Can Sales

Product Category 2020 2019 Volume % Change

Sparkling beverages 69.9 % 69.7 % 3.7 %

Still beverages 30.1 % 30.3 % 2.7 %

Total bottle/can sales volume 100.0 % 100.0 % 3.4 %

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.

First Nine Months

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

Wal-Mart Stores, Inc.

The Kroger Company 13 % 12 %

Total approximate percent of the Company’s total bottle/can sales volume 32 % 31 %

Approximate percent of the Company’s total net sales:

Wal-Mart Stores, Inc.

The Kroger Company 10 % 8 %

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

Cost of Sales

Cost of sales increased $31.4 million, or 1.3%, to $2.42 billion in the first nine months of 2020, as compared to $2.39 billion in the first nine months of 2019.

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

First Nine Months 2020 Attributable to:

$ 50.4 Increase in cost of sales related to increased sales volume

(42.1) Decrease in cost of sales related to the decrease in fountain syrup sales mainly sold in on-premise outlets, which have been impacted by COVID-19

17.7 Increase in cost of sales primarily related to the change in product mix to meet consumer preferences

$ 31.4 Total increase in cost of sales

Total marketing funding support from The Coca‑Cola Company and other beverage companies was $90.4 million in the first nine months of 2020, as compared to $100.8 million in the first nine months of 2019.

Selling, Delivery and Administrative Expenses

SD&A expenses decreased by $28.8 million, or 2.6%, to $1.09 billion in the first nine months of 2020, as compared to $1.12 billion in the first nine months of 2019.

SD&A expenses as a percentage of net sales decreased to 29.2% in the first nine

months of 2020 from 30.6% in the first nine months of 2019.

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

First Nine Months 2020 Attributable to:

$ (16.7) Decrease in payroll, employee benefit costs and incentive compensation, primarily as a result of the elimination of certain field-based positions and reduced overtime hours

(13.8) Decrease in a number of expense categories due to reductions in discretionary spending, including travel and entertainment

$ (28.8) Total decrease in SD&A expenses

Shipping and handling costs included in SD&A expenses were $465.0 million in the first nine months of 2020 and $465.7 million in the first nine months of 2019.

Interest Expense, Net

Interest expense, net decreased $8.1 million, or 22.5%, to $27.8 million in the first nine months of 2020, as compared to $35.8 million in the first nine months of 2019.

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

Other Expense, Net

A summary of other expense, net is as follows:

First Nine Months

(in thousands) 2020 2019

Increase in the fair value of the acquisition related contingent consideration liability $ 35,068 $ 62,017

Non-service cost component of net periodic benefit cost 4,758 5,882

Other — (156)

Total other expense, net $ 39,826 $ 67,743

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.

As of April 2, 2021 and March 29, 2020, discount rates of 7.9% and 7.4%, respectively, were utilized in the valuation of the Company’s acquisition related contingent consideration liability.

The increase in the fair value of the acquisition related contingent consideration liability in the first quarter of 2021 and the first quarter of 2020 was primarily driven by higher projections of future cash flows in the distribution territories subject to sub-bottling fees, partially offset by an increase 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 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’s effective income tax rate was 27.3% for the first quarter of 2021 and 25.6% for the first quarter of 2020.

The increase in the effective income tax rate was primarily driven by the favorable tax benefit attributable to an income tax credit recorded during the first quarter of 2020, which did not reoccur in the first quarter of 2021.

Noncontrolling Interest

The Company recorded net income attributable to noncontrolling interest of $7.2 million in the first nine months of 2020 and $5.3 million in the first nine months of 2019, each related to the portion of Piedmont owned by The Coca‑Cola Company.

Other Comprehensive Income, Net of Tax

Other comprehensive income, net of tax was $2.2 million in the first nine months of 2020 and $1.4 million in the first nine months of 2019.

The Company recorded net income attributable to noncontrolling interest of $0.9 million in the first quarter of 2020 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 Income (Loss), Net of Tax

Other comprehensive income, net of tax was $1.3 million in the first quarter of 2021 and other comprehensive loss, net of tax was $0.1 million in the first quarter of 2020.

The improvement was primarily a result of fluctuation in the fair value of the Company’s interest rate swap on its term loan facility.

Segment Operating Results

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The Company’s segment results are as follows:

Third Quarter First Nine Months

First Quarter

(in thousands) 2021 2020

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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 with additional meaningful financial information that should be considered when assessing the Company’s ongoing performance.

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.

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

Third Quarter 2020

(in thousands, except per share data)

expenses Income from

operations Income before

income taxes Net

income Basic net income

Reported results (GAAP) $ 472,438 $ 368,594 $ 103,844 $ 73,417 $ 51,884 $ 5.53

Fair value adjustment of acquisition related contingent consideration (1)

— — — 19,808 14,895 1.59

Fair value adjustments for commodity derivative instruments (2)

(1,194) 575 (1,769) (1,769) (1,330) (0.14)

Supply chain and asset optimization (3)

3,122 — 3,122 3,122 2,348 0.25

Other tax adjustments (4)

— — — — (421) (0.04)

Total reconciling items 1,928 575 1,353 21,161 15,492 1.66

Adjusted results (non-GAAP) $ 474,366 $ 369,169 $ 105,197 $ 94,578 $ 67,376 $ 7.19

Third Quarter 2019

(in thousands, except per share data)

expenses Income from

operations Income before

income taxes Net

income Basic net income

Reported results (GAAP) $ 432,224 $ 378,378 $ 53,846 $ 22,170 $ 13,006 $ 1.39

Fair value adjustment of acquisition related contingent consideration (1)

— — — 18,749 14,099 1.51

Fair value adjustments for commodity derivative instruments (2)

(487) (74) (413) (413) (311) (0.04)

Supply chain and asset optimization (3)

3,581 — 3,581 3,581 2,693 0.29

Capitalization threshold change for certain assets (5)

— (1,732) 1,732 1,732 1,302 0.14

Other tax adjustments (4)

— — — — 1,482 0.15

Total reconciling items 3,094 (1,806) 4,900 23,649 19,265 2.05

Adjusted results (non-GAAP) $ 435,318 $ 376,572 $ 58,746 $ 45,819 $ 32,271 $ 3.44

First Nine Months 2020

(in thousands, except per share data)

First Quarter 2021

(in thousands, except per share data) Gross

expenses Income from

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(288) 560 (848) (848) (636) (0.07)

Supply chain and asset optimization (3)

4,441 601 3,840 3,840 2,888 0.31

Other tax adjustments (4)

Supply chain optimization (3)

276 (106) 382 382 287 0.03

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Adjusted results (non-GAAP) $ 448,691 $ 354,973 $ 93,718 $ 83,915 $ 61,263 $ 6.54

First Nine Months 2019

(in thousands, except per share data)

First Quarter 2020

(in thousands, except per share data) Gross

expenses Income from

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1,536 (2,329) 3,865 3,865 2,906 0.31

Supply chain and asset optimization (3)

4,875 — 4,875 4,875 3,666 0.39

Capitalization threshold change for certain assets (5)

— (6,111) 6,111 6,111 4,595 0.49

System Transformation expenses (6)

— (6,915) 6,915 6,915 5,200 0.56

Other tax adjustments (4)

Supply chain optimization (3)

648 571 77 77 58 0.01

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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 the impact from reconciling items to reported results on the annualized adjusted effective income tax rate.

(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.

(3) Adjustment reflects expenses within the Nonalcoholic Beverages segment as the Company continues to optimize efficiency opportunities across its business.

Financial Condition

Total assets were $3.31 billion as of September 27, 2020, which was an increase of $186.0 million from December 29, 2019.

Net working capital, defined as current assets less current liabilities, was $292.9 million as of September 27, 2020, which was an increase of $84.8 million from December 29, 2019.

Significant changes in net working capital as of September 27, 2020 as compared to December 29, 2019 were as follows:

• An increase in cash and cash equivalents of $155.2 million primarily as a result of our strong operating performance and working capital improvement, primarily related to a reduction in inventory, the timing of accounts payable and the deferral of payroll taxes permitted under the CARES Act.

• A decrease in inventory of $18.2 million, primarily as a result of higher than expected sales volume and a shift in product offerings during the COVID-19 pandemic.

• An increase in accounts payable, trade of $47.2 million and an increase in accounts payable to The Coca‑Cola Company of $27.0 million, both primarily as a result of the timing of cash payments.

• A decrease in other accrued compensation of $13.0 million, primarily as a result of the timing of bonus and incentive payments during the first quarter of each fiscal year.

Total assets were $3.28 billion as of April 2, 2021, which was an increase of $62.4 million from December 31, 2020.

Net working capital, defined as current assets less current liabilities, was $242.9 million as of April 2, 2021, which was an increase of $38.8 million from December 31, 2020.

Significant changes in net working capital as of April 2, 2021 as compared to December 31, 2020 were as follows:

• An increase in accounts receivable, trade of $34.6 million, primarily as a result of a seasonal increase in sales volume at the end of the first quarter of 2021 and the timing of cash receipts.

• An increase in inventory of $31.6 million, primarily as a result of seasonal builds of inventory.

• An increase in accounts payable to The Coca‑Cola Company of $35.1 million, primarily as a result of the timing of cash payments.

• A decrease in other accrued compensation of $25.1 million, primarily as a result of the timing of bonus and incentive payments in the first quarter of 2021.

Liquidity and 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 September 27, 2020, the Company had $164.8 million of cash and cash equivalents.

As of April 2, 2021, the Company had $51.8 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 condensed 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.

The Company’s long-term debt as of September 27, 2020 and December 29, 2019 was as follows:

(in thousands) Maturity Date September 27, 2020 December 29, 2019

At this time, the Company does not expect the COVID-19 pandemic to have a material impact on its liquidity or access to capital.

The Company’s long-term debt as of April 2, 2021 and December 31, 2020 was as follows:

(in thousands) Maturity Date April 2, 2021 December 31, 2020

Term loan facility (1)

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Revolving credit facility 6/8/2023 — —

Senior notes and unamortized discount on senior notes (2)

Senior bonds and unamortized discount on senior bonds (2)

11/25/2025 349,956 349,957

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Long-term debt $ 909,304 $ 940,465

(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 senior notes due in 2025 were issued at 99.975% of par.

(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 using 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 long term.

(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.

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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.

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 September 27, 2020, the Company had no outstanding borrowings under the revolving credit facility, and, therefore, had $500 million borrowing capacity available .

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.

As of April 2, 2021, 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 September 27, 2020.

The Company was in compliance with these covenants as of April 2, 2021.

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

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There are no guarantees of the Company’s debt.

The Company’s Board of Directors has declared, and the Company has paid, dividends on the Common Stock and Class B Common Stock each quarter since 1994.

The Company’s Board of Directors has declared, and the Company has paid, dividends on the Common Stock and Class B Common Stock and each class of common stock has participated equally in all dividends each quarter for more than 25 years.

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.

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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 the first quarter of 2020, Standard & Poor’s reaffirmed the Company’s BBB rating and revised the Company’s rating outlook to stable from negative.

Moody’s rating outlook for the Company is stable.

As of September 27, 2020, the Company’s credit ratings were as follows:

Both Standard & Poor’s and Moody’s have a stable rating outlook for the Company.

As of April 2, 2021, the Company’s credit ratings were as follows:

Long-Term Debt

Standard & Poor’s BBB

Subsequent to quarter end, on April 30, 2021, Moody’s upgraded the Company’s credit rating to Baa1 with a stable outlook.

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 September 27, 2020, interest expense for the next 12 months would increase by approximately $1.4 million.

Assuming no changes in the Company’s capital structure, if market interest rates average 1% more over the next 12 months than the interest rates as of April 2, 2021, interest expense for the next 12 months would increase by approximately $0.9 million.

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

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

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:

Third Quarter First Nine Months

First Quarter

(in thousands) 2021 2020

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A summary of cash-based activity is as follows:

First Nine Months

First Quarter

(in thousands) 2021 2020

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$ 81,910 $ 32,289

Borrowings under revolving credit facility 235,000 331,339

Proceeds from issuance of senior notes — 100,000

Proceeds from the sale of property, plant and equipment 74 1,658

Borrowings under revolving credit facility — 185,000

Total cash sources $ 81,984 $ 218,947

Payments on revolving credit facility $ 280,000 $ 376,339

Payments on term loan facility and senior notes 22,500 132,500

Additions to property, plant and equipment $ 37,204 $ 33,093

Payments on term loan facility 31,250 7,500

Payments of acquisition related contingent consideration 10,046 10,452

Cash dividends paid 2,343 2,344

Payments on financing lease obligations 4,428 6,441

Other distribution agreements 1,998 —

Payments on financing lease obligations 1,447 1,485

Payments on revolving credit facility — 125,000

Other 661 939

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Net increase (decrease) in cash during period $ (2,965) $ 38,134

(1) Net cash provided by operating activities in the first nine months of 2020 included net income tax payments of $36.9 million and pension plan contributions of $16.3 million.

Net cash provided by operating activities in the first nine months of 2019 included net income tax payments of $5.5 million and pension plan contributions of $4.9 million.

(1) Net cash provided by operating activities included net income tax payments of $0.6 million in the first quarter of 2021 and $2.0 million in the first quarter of 2020.

Cash Flows From Operating Activities

During the first nine months of 2020, cash provided by operating activities was $376.4 million, which was an increase of $171.8 million as compared to the first nine months of 2019.

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

During the first quarter of 2021, cash provided by operating activities was $81.9 million, which was an increase of $49.6 million as compared to the first quarter of 2020.

The increase was a result of strong operating performance led by top line growth, expanded gross margins and effective management of operating expenses.

Cash Flows From Investing Activities

During the first nine months of 2020, cash used in investing activities was $110.1 million, which was an increase of $8.0 million as compared to the first nine months of 2019.

The increase was primarily a result of additions to property, plant and equipment,

which were $110.7 million during the first nine months of 2020 and $96.7 million during the first nine months of 2019.

There were $25.5 million and $8.9 million of additions to property, plant and equipment accrued in accounts payable, trade as of September 27, 2020 and September 29, 2019, respectively.

The Company anticipates additions to property, plant and equipment for the full year 2020 will be $180 million to $200 million, with remaining anticipated expenditures in the fourth quarter of 2020 of $70 million to $90 million.

During the first quarter of 2021, cash used in investing activities was $39.6 million, which was an increase of $7.3 million as compared to the first quarter of 2020.

The increase was primarily a result of additions to property, plant and equipment, which were $37.2 million during the first quarter of 2021 and $33.1 million during the first quarter of 2020.

There were $16.2 million and $12.7 million of additions to property, plant and equipment accrued in accounts payable, trade as of April 2, 2021 and March 29, 2020, 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 the first nine months of 2020, cash used in financing activities was $111.1 million, which was an increase of $1.0 million as compared to the first nine months of 2019.

The Company repaid $67.5 million of debt during the first nine months of 2020.

The Company had cash payments for acquisition related contingent consideration of $32.0 million during the first nine months of 2020 and $18.8 million during the first nine months of 2019.

The Company anticipates 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 $53 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 the senior notes 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.

Cash used in financing activities was $45.2 million in the first quarter of 2021 and cash provided by financing activities was $38.2 million in the first quarter of 2020.

The Company repaid $31.3 million of debt and did not have any borrowings or repayments on its revolving credit facility during the first quarter of 2021.

The Company had cash payments for acquisition related contingent consideration of $10.0 million during the first quarter of 2021 and $10.5 million during the first quarter of 2020.

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 $30 million to $54 million.

Critical Accounting Policies

See Note 1, Note 3 and Note 10 to the condensed consolidated financial statements for information on the Company’s critical accounting policies.

See Note 1 to the condensed consolidated financial statements for information on the Company’s critical accounting policies.

Off-Balance Sheet Arrangements

The Company is a shareholder of South Atlantic Canners, Inc.

(“SAC”), a manufacturing cooperative in Bishopville, South Carolina.

(“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 September 27, 2020, the Company had guaranteed $14.7 million of SAC’s debt.

As of April 2, 2021, the Company had guaranteed $14.7 million of SAC’s debt.

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

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Hedging Activities

The Company uses commodity derivative instruments to manage its exposure to fluctuation in certain commodity prices.

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.

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.

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

Third Quarter First Nine Months

First Quarter

(in thousands) 2021 2020

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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,” 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 our Annual Report on Form 10-K for 2019 and in “Item 1A.

Risk Factors” of this report and elsewhere herein, including, without limitation, the factors described under “Critical Accounting Policies” in Note 1 to the condensed consolidated financial statements, or in other filings or statements made by the Company.

Risk Factors” of our Annual Report on Form 10-K for 2020, as well as other factors discussed throughout this report, including, without limitation, the factors described under “Critical Accounting Policies” in Note 1 to the condensed consolidated financial statements, 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.

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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 Securities and Exchange Commission.

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 United States Securities and Exchange Commission.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis