Coca-Cola Consolidated, Inc. 10-Q

Item 1. Financial Statements. COCA ‑ COLA CONSOLIDATED, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Second Quarter First Half (in thousands, except per share data) 2021 2020 2021 2020 Net sales $ 1,433,086 $ 1,227,215 $ 2,702,943 $ 2,400,236 Cost of sales 938,146 797,914 1,759,300 1,565,640 Gross profit 494,940 429,301 943,643 834,596 Selling, delivery and administrative expenses 374,079 346,183 728,598 718,657 Income from operations 120,861 83,118 215,045 115,939 Interest expense, net 8,365 9,184 17,111 18,745 Other expense, net 47,041 16,134 59,096 18,432 Income before income taxes 65,455 57,800 138,838 78,762 Income tax expense 17,275 15,187 37,295 20,548 Net income 48,180 42,613 101,543 58,214 Less: Net income attributable to noncontrolling interest — 3,044 — 3,983 Net income attributable to Coca‑Cola Consolidated, Inc. $ 48,180 $ 39,569 $ 101,543 $ 54,231 Basic net income per share based on net income attributable to Coca‑Cola Consolidated, Inc.: Common Stock $ 5.14 $ 4.23 $ 10.83 $ 5.79 Weighted average number of Common Stock shares outstanding 7,141 7,141 7,141 7,141 Class B Common Stock $ 5.14 $ 4.23 $ 10.83 $ 5.79 Weighted average number of Class B Common Stock shares outstanding 2,232 2,232 2,232 2,232 Diluted net income per share based on net income attributable to Coca‑Cola Consolidated, Inc.: Common Stock $ 5.12 $ 4.19 $ 10.79 $ 5.74 Weighted average number of Common Stock shares outstanding – assuming dilution 9,407 9,440 9,407 9,440 Class B Common Stock $ 5.12 $ 4.18 $ 10.79 $ 5.73 Weighted average number of Class B Common Stock shares outstanding – assuming dilution 2,266 2,299 2,266 2,299 Cash dividends per share: Common Stock $ 0.25 $ 0.25 $ 0.50 $ 0.50 Class B Common Stock $ 0.25 $ 0.25 $ 0.50 $ 0.50 See accompanying notes to condensed consolidated financial statements. 1 COCA ‑ COLA CONSOLIDATED, INC. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) Second Quarter First Half (in thousands) 2021 2020 2021 2020 Net income $ 48,180 $ 42,613 $ 101,543 $ 58,214 Other comprehensive income, net of tax: Defined benefit plans reclassification including pension costs: Actuarial gains 913 897 1,829 1,793 Prior service credits — 3 1 7 Postretirement benefits reclassification including benefits costs: Actuarial gains 139 66 279 132 Interest rate swap 244 2 556 ( 1,013 ) Foreign currency translation adjustment 28 3 ( 9 ) 2 Other comprehensive income, net of tax 1,324 971 2,656 921 Comprehensive income 49,504 43,584 104,199 59,135 Less: Comprehensive income attributable to noncontrolling interest — 3,044 — 3,983 Comprehensive income attributable to Coca‑Cola Consolidated, Inc. $ 49,504 $ 40,540 $ 104,199 $ 55,152 See accompanying notes to condensed consolidated financial statements. 2 COCA ‑ COLA CONSOLIDATED, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (in thousands, except share data) July 2, 2021 December 31, 2020 ASSETS Current Assets: Cash and cash equivalents $ 54,204 $ 54,793 Accounts receivable, trade 481,998 425,445 Allowance for doubtful accounts ( 16,432 ) ( 21,620 ) Accounts receivable from The Coca‑Cola Company 58,475 49,203 Accounts receivable, other 26,374 37,084 Inventories 237,823 225,757 Prepaid expenses and other current assets 76,323 74,146 Assets held for sale 8,104 6,429 Total current assets 926,869 851,237 Property, plant and equipment, net 1,020,293 1,022,722 Right-of-use assets - operating leases 131,533 134,383 Leased property under financing leases, net 67,039 69,867 Other assets 117,252 111,781 Goodwill 165,903 165,903 Distribution agreements, net 841,524 853,753 Customer lists, net 11,885 12,804 Total assets $ 3,282,298 $ 3,222,450 LIABILITIES AND EQUITY Current Liabilities: Current portion of obligations under operating leases $ 19,956 $ 19,766 Current portion of obligations under financing leases 5,959 5,860 Accounts payable, trade 283,452 217,560 Accounts payable to The Coca‑Cola Company 139,760 107,181 Other accrued liabilities 223,011 205,141 Accrued compensation 67,835 87,608 Accrued interest payable 3,979 3,944 Total current liabilities 743,952 647,060 Deferred income taxes 142,596 139,423 Pension and postretirement benefit obligations 116,448 113,325 Other liabilities 705,008 679,280 Noncurrent portion of obligations under operating leases 116,039 119,923 Noncurrent portion of obligations under financing leases 67,517 69,984 Long-term debt 778,236 940,465 Total liabilities 2,669,796 2,709,460 Commitments and Contingencies Equity: Common Stock, $ 1.00 par value: 30,000,000 shares authorized; 10,203,821 shares issued 10,204 10,204 Class B Common Stock, $ 1.00 par value: 10,000,000 shares authorized; 2,860,356 shares issued 2,860 2,860 Additional paid-in capital 135,953 135,953 Retained earnings 641,136 544,280 Accumulated other comprehensive loss ( 116,397 ) ( 119,053 ) Treasury stock, at cost: Common Stock – 3,062,374 shares ( 60,845 ) ( 60,845 ) Treasury stock, at cost: Class B Common Stock – 628,114 shares ( 409 ) ( 409 ) Total equity 612,502 512,990 Total liabilities and equity $ 3,282,298 $ 3,222,450 See accompanying notes to condensed consolidated financial statements. 3 COCA ‑ COLA CONSOLIDATED, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) First Half (in thousands) 2021 2020 Cash Flows from Operating Activities: Net income $ 101,543 $ 58,214 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation expense from property, plant and equipment and financing leases 76,264 74,878 Amortization of intangible assets and deferred proceeds, net 11,619 11,518 Fair value adjustment of acquisition related contingent consideration 56,981 15,260 Impairment of property, plant and equipment 3,200 1,350 Loss on sale of property, plant and equipment 2,457 1,416 Deferred income taxes 2,293 21,670 Amortization of debt costs 549 494 Change in current assets less current liabilities 24,332 20,935 Change in other noncurrent assets 6,325 13,420 Change in other noncurrent liabilities ( 14,178 ) 9,848 Total adjustments 169,842 170,789 Net cash provided by operating activities $ 271,385 $ 229,003 Cash Flows from Investing Activities: Additions to property, plant and equipment $ ( 80,308 ) $ ( 72,886 ) Other distribution agreements ( 1,998 ) — Investment in CONA Services LLC ( 1,724 ) ( 1,582 ) Proceeds from the sale of property, plant and equipment 1,678 1,764 Net cash used in investing activities $ ( 82,352 ) $ ( 72,704 ) Cash Flows from Financing Activities: Borrowings under revolving credit facility $ 55,000 $ 235,000 Payments on revolving credit facility — ( 280,000 ) Payments on term loan facility ( 217,500 ) ( 15,000 ) Payments of acquisition related contingent consideration ( 19,920 ) ( 20,531 ) Cash dividends paid ( 4,687 ) ( 4,686 ) Payments on financing lease obligations ( 2,368 ) ( 3,001 ) Debt issuance fees ( 147 ) ( 145 ) Net cash used in financing activities $ ( 189,622 ) $ ( 88,363 ) Net increase (decrease) in cash during period $ ( 589 ) $ 67,936 Cash at beginning of period 54,793 9,614 Cash at end of period $ 54,204 $ 77,550 Significant non-cash investing and financing activities: Additions to property, plant and equipment accrued and recorded in accounts payable, trade $ 16,734 $ 11,900 Right-of-use assets obtained in exchange for operating lease obligations 7,353 32,224 See accompanying notes to condensed consolidated financial statements. 4 COCA ‑ COLA CONSOLIDATED, INC. CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (Unaudited) (in thousands, except share data) Common Stock Class B Common Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Loss Treasury Stock - Common Stock Treasury Stock - Class B Common Stock Total Equity of Coca‑Cola Consolidated, Inc. Non- controlling Interest Total Equity Balance on April 2, 2021 $ 10,204 $ 2,860 $ 135,953 $ 595,300 $ ( 117,721 ) $ ( 60,845 ) $ ( 409 ) $ 565,342 $ — $ 565,342 Net income — — — 48,180 — — — 48,180 — 48,180 Other comprehensive income, net of tax — — — — 1,324 — — 1,324 — 1,324 Cash dividends paid: Common Stock ($ 0.25 per share) — — — ( 1,786 ) — — — ( 1,786 ) — ( 1,786 ) Class B Common Stock ($ 0.25 per share) — — — ( 558 ) — — — ( 558 ) — ( 558 ) Balance on July 2, 2021 $ 10,204 $ 2,860 $ 135,953 $ 641,136 $ ( 116,397 ) $ ( 60,845 ) $ ( 409 ) $ 612,502 $ — $ 612,502 Balance on December 31, 2020 $ 10,204 $ 2,860 $ 135,953 $ 544,280 $ ( 119,053 ) $ ( 60,845 ) $ ( 409 ) $ 512,990 $ — $ 512,990 Net income — — — 101,543 — — — 101,543 — 101,543 Other comprehensive income, net of tax — — — — 2,656 — — 2,656 — 2,656 Cash dividends paid: Common Stock ($ 0.50 per share) — — — ( 3,571 ) — — — ( 3,571 ) — ( 3,571 ) Class B Common Stock ($ 0.50 per share) — — — ( 1,116 ) — — — ( 1,116 ) — ( 1,116 ) Balance on July 2, 2021 $ 10,204 $ 2,860 $ 135,953 $ 641,136 $ ( 116,397 ) $ ( 60,845 ) $ ( 409 ) $ 612,502 $ — $ 612,502 (in thousands, except share data) Common Stock Class B Common Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Loss Treasury Stock - Common Stock Treasury Stock - Class B Common Stock Total Equity of Coca‑Cola Consolidated, Inc. Non- controlling Interest Total Equity Balance on March 29, 2020 $ 10,204 $ 2,860 $ 128,983 $ 393,479 $ ( 115,052 ) $ ( 60,845 ) $ ( 409 ) $ 359,220 $ 105,103 $ 464,323 Net income — — — 39,569 — — — 39,569 3,044 42,613 Other comprehensive income, net of tax — — — — 971 — — 971 — 971 Cash dividends paid: Common Stock ($ 0.25 per share) — — — ( 1,785 ) — — — ( 1,785 ) — ( 1,785 ) Class B Common Stock ($ 0.25 per share) — — — ( 557 ) — — — ( 557 ) — ( 557 ) Balance on June 28, 2020 $ 10,204 $ 2,860 $ 128,983 $ 430,706 $ ( 114,081 ) $ ( 60,845 ) $ ( 409 ) $ 397,418 $ 108,147 $ 505,565 Balance on December 29, 2019 $ 10,204 $ 2,860 $ 128,983 $ 381,161 $ ( 115,002 ) $ ( 60,845 ) $ ( 409 ) $ 346,952 $ 104,164 $ 451,116 Net income — — — 54,231 — — — 54,231 3,983 58,214 Other comprehensive income, net of tax — — — — 921 — — 921 — 921 Cash dividends paid: Common Stock ($ 0.50 per share) — — — ( 3,571 ) — — — ( 3,571 ) — ( 3,571 ) Class B Common Stock ($ 0.50 per share) — — — ( 1,115 ) — — — ( 1,115 ) — ( 1,115 ) Balance on June 28, 2020 $ 10,204 $ 2,860 $ 128,983 $ 430,706 $ ( 114,081 ) $ ( 60,845 ) $ ( 409 ) $ 397,418 $ 108,147 $ 505,565 See accompanying notes to condensed consolidated financial statements. 5 COCA ‑ COLA CONSOLIDATED, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. Critical Accounting Policies and Recent Accounting Pronouncements The condensed consolidated financial statements include the accounts of Coca‑Cola Consolidated, Inc. and its majority-owned subsidiaries (the “Company”). All significant intercompany accounts and transactions have been eliminated. The condensed consolidated financial statements reflect all adjustments, including normal, recurring accruals, which, in the opinion of management, are necessary for a fair statement of the results for the quarters presented. 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 July 2, 2021 and December 31, 2020. • The results of operations and comprehensive income for the three-month periods ended July 2, 2021 (the “second quarter” of fiscal 2021 (“2021”)) and June 28, 2020 (the “second quarter” of fiscal 2020 (“2020”)) and the six-month periods ended July 2, 2021 (the “first half” of 2021) and June 28, 2020 (the “first half” of 2020). • The changes in cash flows and equity for the first half of 2021 and the first half 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. The condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial reporting and the instructions to Form 10-Q and Article 10 of Regulation S-X. The accounting policies followed in the presentation of interim financial results are consistent with those followed on an annual basis. These policies are presented in Note 1 to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for 2020 filed with the United States Securities and Exchange Commission. The preparation of condensed consolidated financial statements, in conformity with GAAP, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Critical Accounting Policies In the ordinary course of business, the Company has made a number of estimates and assumptions relating to the reporting of its results of operations and financial position in the preparation of its condensed consolidated financial statements in conformity with GAAP. Actual results could differ significantly from those estimates under different assumptions and conditions. The Company included in its Annual Report on Form 10-K for 2020 under the caption “Discussion of Critical Accounting Policies and Estimates and Recent Accounting Pronouncements” in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” a discussion of the Company’s most critical accounting policies, which are those the Company believes to be the most important to the portrayal of its financial condition and results of operations and require management’s most difficult, subjective and complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Any changes in critical accounting policies and estimates are discussed with the Audit Committee of the Company’s Board of Directors during the quarter in which a change is contemplated and prior to making such change. Recently Adopted Accounting Pronouncements In December 2019, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2019‑12, “Simplifying the Accounting for Income Taxes,” which simplifies the accounting for income taxes by removing certain exceptions to the general principles in income tax accounting and improves consistent application of and simplifies GAAP for other areas of income tax accounting by clarifying and amending existing guidance. The new guidance is effective for fiscal years 6 beginning after December 15, 2020, including interim periods within those fiscal years. The Company adopted ASU 2019-12 in the first quarter of 2021 and the adoption did not have a material impact on its condensed consolidated financial statements. 2. Related Party Transactions The Coca‑Cola Company The Company’s business consists primarily of the distribution, marketing and manufacture of nonalcoholic beverages of The Coca‑Cola Company, which is the sole owner of the formulas under which the primary components of its soft drink products, either concentrate or syrup, are manufactured. J. Frank Harrison, III, Chairman of the Board of Directors and Chief Executive Officer of the Company, together with the trustees of certain trusts established for the benefit of certain relatives of the late J. Frank Harrison, Jr., control shares representing approximately 86 % of the total voting power of the Company’s total outstanding Common Stock and Class B Common Stock on a consolidated basis. As of July 2, 2021, The Coca‑Cola Company owned approximately 27 % of the Company’s total outstanding Common Stock and Class B Common Stock on a consolidated basis, representing approximately 5 % of the total voting power of the Company’s Common Stock and Class B Common Stock voting together. The number of shares of the Company’s Common Stock currently held by The Coca‑Cola Company gives it the right to have a designee proposed by the Company for nomination to the Company’s Board of Directors in the Company’s annual proxy statement. J. Frank Harrison, III and the trustees of the J. Frank Harrison, Jr. family trusts described above, have agreed to vote the shares of the Company’s Class B Common Stock that they control in favor of such designee. The Coca‑Cola Company does not own any shares of the Company’s Class B Common Stock. The following table summarizes the significant cash transactions between the Company and The Coca‑Cola Company: Second Quarter First Half (in thousands) 2021 2020 2021 2020 Payments made by the Company to The Coca-Cola Company (1) $ 366,808 $ 313,081 $ 716,153 $ 643,382 Payments made by The Coca-Cola Company to the Company 50,325 27,100 80,002 60,628 (1) This excludes payments by the Company to Coca-Cola Refreshments USA, Inc., a wholly owned subsidiary of The Coca‑Cola Company, as discussed in the next section. More than 80 % of the payments made by the Company to The Coca‑Cola Company were for concentrate, syrup, sweetener and other finished goods products, which were recorded in cost of sales in the condensed consolidated statements of operations and represent the primary components of the soft drink products the Company manufactures and distributes. Payments made by the Company to The Coca‑Cola Company also included payments for marketing programs associated with large, national customers managed by The Coca‑Cola Company on behalf of the Company, which were recorded as a reduction to net sales in the condensed consolidated statements of operations. Other payments made by the Company to The Coca‑Cola Company related to cold drink equipment parts, fees associated with the rights to distribute certain brands and other customary items. Payments made by The Coca‑Cola Company to the Company included annual funding in connection with the Company’s agreement to support certain business initiatives developed by The Coca‑Cola Company and funding associated with the delivery of post-mix products to various customers, both of which were recorded as a reduction to cost of sales in the condensed consolidated statements of operations. 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. Payments made by The Coca‑Cola Company to the Company also included transportation services and fountain product delivery and equipment repair services performed by the Company on The Coca‑Cola Company equipment, all of which were recorded in net sales in the condensed consolidated statements of operations. Coca‑Cola Refreshments USA, Inc. (“CCR”) The Company, The Coca‑Cola Company and CCR entered into comprehensive beverage agreements (collectively, the “CBA”). The CBA requires the Company to make quarterly sub-bottling payments to CCR on a continuing basis in exchange for the grant of exclusive rights to distribute, promote, market and sell the authorized brands of The Coca‑Cola Company and related products in certain distribution territories the Company acquired from CCR. These sub-bottling payments are based on gross profit derived from the Company’s sales of certain beverages and beverage products that are sold under the same trademarks that identify a covered beverage, a beverage product or certain cross-licensed brands. 7 Sub-bottling payments to CCR were $ 19.9 million in the first half of 2021 and $ 20.5 million in the first half of 2020. The following table summarizes the liability recorded by the Company to reflect the estimated fair value of contingent consideration related to future sub‑bottling payments to CCR: (in thousands) July 2, 2021 December 31, 2020 Current portion of acquisition related contingent consideration $ 44,658 $ 36,020 Noncurrent portion of acquisition related contingent consideration 428,397 398,674 Total acquisition related contingent consideration $ 473,055 $ 434,694 Southeastern Container (“Southeastern”) The Company is a shareholder of Southeastern, a plastic bottle manufacturing cooperative. The Company accounts for Southeastern as an equity method investment. The Company’s investment in Southeastern, which was classified as other assets in the condensed consolidated balance sheets, was $ 22.4 million as of July 2, 2021 and $ 21.9 million as of December 31, 2020. South Atlantic Canners, Inc. (“SAC”) 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. The Company accounts for SAC as an equity method investment. The Company’s investment in SAC, which was classified as other assets in the condensed consolidated balance sheets, was $ 8.2 million as of July 2, 2021 and $ 8.0 million as of December 31, 2020. The Company also guarantees a portion of SAC’s debt; see Note 20 for additional information. The Company receives a fee for managing the day-to-day operations of SAC pursuant to a management agreement. Proceeds from management fees received from SAC, which were classified as a reduction to cost of sales in the condensed consolidated statements of operations, were $ 4.5 million in the first half of 2021 and $ 4.7 million in the first half of 2020. Coca‑Cola Bottlers’ Sales and Services Company, LLC (“CCBSS”) Along with all other Coca‑Cola bottlers in the United States and Canada, the Company is a member of CCBSS, a company formed to provide certain procurement and other services with the intention of enhancing the efficiency and competitiveness of the Coca‑Cola bottling system. The Company accounts for CCBSS as an equity method investment and its investment in CCBSS is not material. CCBSS negotiates the procurement for the majority of the Company’s raw materials, excluding concentrate, and the Company receives a rebate from CCBSS for the purchase of these raw materials. The Company had rebates due from CCBSS of $ 7.5 million on July 2, 2021 and $ 6.3 million on December 31, 2020, which were classified as accounts receivable, other in the condensed consolidated balance sheets. In addition, the Company pays an administrative fee to CCBSS for its services. The Company incurred administrative fees to CCBSS of $ 1.4 million in the first half of 2021 and $ 1.6 million in the first half of 2020, which were classified as selling, delivery and administrative (“SD&A”) expenses in the condensed consolidated statements of operations. CONA Services LLC (“CONA”) The Company is a member of CONA, an entity formed with The Coca‑Cola Company and certain other Coca‑Cola bottlers to provide business process and information technology services to its members. The Company accounts for CONA as an equity method investment. The Company’s investment in CONA, which was classified as other assets in the condensed consolidated balance sheets, was $ 12.9 million as of July 2, 2021 and $ 11.5 million as of December 31, 2020. Pursuant to an amended and restated master services agreement with CONA, the Company is authorized to use the Coke One North America system (the “CONA System”), a uniform information technology system developed to promote operational efficiency and uniformity among North American Coca‑Cola bottlers. In exchange for the Company’s rights to use the CONA System and receive CONA-related services, it is charged service fees by CONA. The Company incurred CONA service fees of $ 12.4 million in the first half of 2021 and $ 11.6 million in the first half of 2020. 8 Related Party Leases The Company leases its headquarters office facility and an adjacent office facility in Charlotte, North Carolina from Beacon Investment Corporation, of which J. Frank Harrison, III is the majority stockholder and Morgan H. Everett, Vice Chair of the Company’s Board of Directors, is a minority stockholder. The annual base rent the Company is obligated to pay under this lease is subject to an adjustment for an inflation factor and the lease expires on December 31, 2029. The principal balance outstanding under this lease was $ 29.5 million on July 2, 2021 and $ 30.8 million on December 31, 2020. The Company leases the Snyder Production Center and an adjacent sales facility in Charlotte, North Carolina from Harrison Limited Partnership One, which is directly and indirectly owned by trusts of which J. Frank Harrison, III and Sue Anne H. Wells, a director of the Company, are trustees and beneficiaries and of which Morgan H. Everett is a permissible, discretionary beneficiary. The annual base rent the Company is obligated to pay under this lease is subject to an adjustment for an inflation factor and the lease expires on December 31, 2035. The principal balance outstanding under this lease was $ 60.5 million on July 2, 2021 and $ 61.9 million on December 31, 2020. A summary of rental payments for these leases related to the second quarter and the first half of 2021 and 2020 is as follows: Second Quarter First Half (in thousands) 2021 2020 2021 2020 Company headquarters $ 945 $ 826 $ 1,890 $ 1,652 Snyder Production Center 1,113 1,113 2,226 2,226 Long-Term Performance Equity Plan The Long-Term Performance Equity Plan compensates J. Frank Harrison, III based on the Company’s performance. Awards granted to Mr. Harrison under the Long-Term Performance Equity Plan are earned based on the Company’s attainment during a performance period of certain performance measures, each as specified by the Compensation Committee of the Company’s Board of Directors. These awards may be settled in cash and/or shares of Class B Common Stock, based on the average of the closing prices of shares of Common Stock during the last 20 trading days of the performance period. Compensation expense for the Long-Term Performance Equity Plan, which was included in SD&A expenses in the condensed consolidated statements of operations, was $ 5.5 million in the first half of 2021 and $ 4.3 million in the first half of 2020. 3. 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. The Company’s contracts are derived from customer orders, including customer sales incentives, generated through an order processing and replenishment model. Generally, the Company’s service contracts and contracts related to the delivery of specifically identifiable products have a single performance obligation. Revenues do not include sales or other taxes collected from customers. The Company has defined its performance obligations for its contracts as either at a point in time or over time. Bottle/can sales, sales to other Coca‑Cola bottlers and post-mix sales are recognized when control transfers to a customer, which is generally upon delivery and is considered a single point in time (“point in time”). Point in time sales accounted for approximately 97 % of the Company’s net sales in both the first half of 2021 and the first half of 2020. Other sales, which include revenue for service fees related to the repair of cold drink equipment and delivery fees for freight hauling and brokerage services, are recognized over time (“over time”). Revenues related to cold drink equipment repair are recognized as the respective services are completed using a cost-to-cost input method. Repair services are generally completed in less than one day but can extend up to one month . Revenues related to freight hauling and brokerage services are recognized as the delivery occurs using a miles driven output method. Generally, delivery occurs and freight charges are recognized in the same day. Over time sales orders open at the end of a financial period are not material to the condensed consolidated financial statements. 9 The following table represents a disaggregation of revenue from contracts with customers: Second Quarter First Half (in thousands) 2021 2020 2021 2020 Point in time net sales: Nonalcoholic Beverages - point in time $ 1,388,991 $ 1,188,485 $ 2,614,203 $ 2,320,960 Total point in time net sales $ 1,388,991 $ 1,188,485 $ 2,614,203 $ 2,320,960 Over time net sales: Nonalcoholic Beverages - over time $ 10,924 $ 7,039 $ 20,802 $ 17,145 All Other - over time 33,171 31,691 67,938 62,131 Total over time net sales $ 44,095 $ 38,730 $ 88,740 $ 79,276 Total net sales $ 1,433,086 $ 1,227,215 $ 2,702,943 $ 2,400,236 The Company’s allowance for doubtful accounts in the condensed consolidated balance sheets includes a reserve for customer returns and an allowance for credit losses. The Company experiences customer returns primarily as a result of damaged or out-of-date product. At any given time, the Company estimates less than 1 % of bottle/can sales and post-mix sales could be at risk for return by customers. Returned product is recognized as a reduction to net sales. The Company’s reserve for customer returns was $ 3.5 million as of July 2, 2021 and $ 3.6 million as of December 31, 2020. 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. A reconciliation of the activity for the allowance for credit losses is as follows: First Half (in thousands) 2021 2020 Beginning balance - allowance for credit losses $ 18,070 $ 10,232 Additions charged to costs and expenses 1,652 9,376 Deductions ( 6,790 ) ( 1,914 ) Ending balance - allowance for credit losses $ 12,932 $ 17,694 4. Segments The Company evaluates segment reporting in accordance with the FASB Accounting Standards Codification Topic 280, Segment Reporting, each reporting period, including evaluating the reporting package reviewed by the Chief Operating Decision Maker (the “CODM”). The Company has concluded the Chief Executive Officer, the Chief Operating Officer and the Chief Financial Officer, as a group, represent the CODM. Asset information is not provided to the CODM. The Company believes three operating segments exist. Nonalcoholic Beverages represents the vast majority of the Company’s consolidated net sales and income from operations. The additional two operating segments do not meet the quantitative thresholds for separate reporting, either individually or in the aggregate, and, therefore, have been combined into “All Other.” The Company’s segment results are as follows: Second Quarter First Half (in thousands) 2021 2020 2021 2020 Net sales: Nonalcoholic Beverages $ 1,399,915 $ 1,195,524 $ 2,635,005 $ 2,338,105 All Other 93,192 80,329 183,141 161,630 Eliminations (1) ( 60,021 ) ( 48,638 ) ( 115,203 ) ( 99,499 ) Consolidated net sales $ 1,433,086 $ 1,227,215 $ 2,702,943 $ 2,400,236 10 Second Quarter First Half (in thousands) 2021 2020 2021 2020 Income from operations: Nonalcoholic Beverages $ 124,372 $ 83,907 $ 219,414 $ 119,524 All Other ( 3,511 ) ( 789 ) ( 4,369 ) ( 3,585 ) Consolidated income from operations $ 120,861 $ 83,118 $ 215,045 $ 115,939 Depreciation and amortization: Nonalcoholic Beverages $ 41,224 $ 39,909 $ 81,775 $ 80,667 All Other 3,133 2,928 6,108 5,729 Consolidated depreciation and amortization $ 44,357 $ 42,837 $ 87,883 $ 86,396 (1) The entire net sales elimination represents net sales from the All Other segment to the Nonalcoholic Beverages segment. Sales between these segments are recognized at either fair market value or cost depending on the nature of the transaction. 5. Net Income Per Share The following table sets forth the computation of basic net income per share and diluted net income per share under the two-class method: Second Quarter First Half (in thousands, except per share data) 2021 2020 2021 2020 Numerator for basic and diluted net income per Common Stock and Class B Common Stock share: Net income attributable to Coca‑Cola Consolidated, Inc. $ 48,180 $ 39,569 $ 101,543 $ 54,231 Less dividends: Common Stock 1,786 1,785 3,571 3,571 Class B Common Stock 558 557 1,116 1,115 Total undistributed earnings $ 45,836 $ 37,227 $ 96,856 $ 49,545 Common Stock undistributed earnings – basic $ 34,921 $ 28,362 $ 73,792 $ 37,747 Class B Common Stock undistributed earnings – basic 10,915 8,865 23,064 11,798 Total undistributed earnings – basic $ 45,836 $ 37,227 $ 96,856 $ 49,545 Common Stock undistributed earnings – diluted $ 34,795 $ 28,161 $ 73,525 $ 37,479 Class B Common Stock undistributed earnings – diluted 11,041 9,066 23,331 12,066 Total undistributed earnings – diluted $ 45,836 $ 37,227 $ 96,856 $ 49,545 Numerator for basic net income per Common Stock share: Dividends on Common Stock $ 1,786 $ 1,785 $ 3,571 $ 3,571 Common Stock undistributed earnings – basic 34,921 28,362 73,792 37,747 Numerator for basic net income per Common Stock share $ 36,707 $ 30,147 $ 77,363 $ 41,318 Numerator for basic net income per Class B Common Stock share: Dividends on Class B Common Stock $ 558 $ 557 $ 1,116 $ 1,115 Class B Common Stock undistributed earnings – basic 10,915 8,865 23,064 11,798 Numerator for basic net income per Class B Common Stock share $ 11,473 $ 9,422 $ 24,180 $ 12,913 Numerator for diluted net income per Common Stock share: Dividends on Common Stock $ 1,786 $ 1,785 $ 3,571 $ 3,571 Dividends on Class B Common Stock assumed converted to Common Stock 558 557 1,116 1,115 Common Stock undistributed earnings – diluted 45,836 37,227 96,856 49,545 Numerator for diluted net income per Common Stock share $ 48,180 $ 39,569 $ 101,543 $ 54,231 11 Second Quarter First Half (in thousands, except per share data) 2021 2020 2021 2020 Numerator for diluted net income per Class B Common Stock share: Dividends on Class B Common Stock $ 558 $ 557 $ 1,116 $ 1,115 Class B Common Stock undistributed earnings – diluted 11,041 9,066 23,331 12,066 Numerator for diluted net income per Class B Common Stock share $ 11,599 $ 9,623 $ 24,447 $ 13,181 Denominator for basic net income per Common Stock and Class B Common Stock share: Common Stock weighted average shares outstanding – basic 7,141 7,141 7,141 7,141 Class B Common Stock weighted average shares outstanding – basic 2,232 2,232 2,232 2,232 Denominator for diluted net income per Common Stock and Class B Common Stock share: Common Stock weighted average shares outstanding – diluted (assumes conversion of Class B Common Stock to Common Stock) 9,407 9,440 9,407 9,440 Class B Common Stock weighted average shares outstanding – diluted 2,266 2,299 2,266 2,299 Basic net income per share: Common Stock $ 5.14 $ 4.23 $ 10.83 $ 5.79 Class B Common Stock $ 5.14 $ 4.23 $ 10.83 $ 5.79 Diluted net income per share: Common Stock $ 5.12 $ 4.19 $ 10.79 $ 5.74 Class B Common Stock $ 5.12 $ 4.18 $ 10.79 $ 5.73 NOTES TO TABLE (1) For purposes of the diluted net income per share computation for Common Stock, all shares of Class B Common Stock are assumed to be converted; therefore, 100 % of undistributed earnings is allocated to Common Stock. (2) For purposes of the diluted net income per share computation for Class B Common Stock, weighted average shares of Class B Common Stock are assumed to be outstanding for the entire period and not converted. (3) For periods presented during which the Company has net income, the denominator for diluted net income per share for Common Stock and Class B Common Stock includes the dilutive effect of shares relative to the Long-Term Performance Equity Plan . For periods presented during which the Company has net loss, the unvested shares granted pursuant to the Long-Term Performance Equity Plan are excluded from the computation of diluted net loss per share, as the effect would have been anti-dilutive. See Note 2 for additional information on the Long-Term Performance Equity Plan . (4) The Long-Term Performance Equity Plan awards may be settled in cash and/or shares of the Company’s Class B Common Stock. Once an election has been made to settle an award in cash, the dilutive effect of shares relative to such award is prospectively removed from the denominator in the computation of diluted net income per share. (5) The Company did no t have anti-dilutive shares for any periods presented. 6. Inventories Inventories consisted of the following: (in thousands) July 2, 2021 December 31, 2020 Finished products $ 147,184 $ 140,080 Manufacturing materials 49,087 47,081 Plastic shells, plastic pallets and other inventories 41,552 38,596 Total inventories $ 237,823 $ 225,757 12 7. Prepaid Expenses and Other Current Assets Prepaid expenses and other current assets consisted of the following: (in thousands) July 2, 2021 December 31, 2020 Repair parts $ 26,863 $ 26,811 Prepaid software 5,868 6,650 Prepaid marketing 5,849 4,773 Commodity hedges at fair market value 5,715 2,417 Prepaid taxes 525 8,428 Other prepaid expenses and other current assets 31,503 25,067 Total prepaid expenses and other current assets $ 76,323 $ 74,146 8. Assets Held for Sale During the second quarter of 2021, the Company 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. The Company believes 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 integrated 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. As of July 2, 2021, certain properties owned by the Company, which are primarily those being consolidated in the Company’s supply chain optimization discussed above, met the accounting guidance criteria to be classified as assets held for sale. All properties classified as held for sale are included in the Nonalcoholic Beverages segment. There are not any liabilities held for sale associated with these properties and none meet the accounting guidance criteria to be classified as discontinued operations. Following is a summary of the assets held for sale: (in thousands) July 2, 2021 December 31, 2020 Land $ 3,909 $ 2,559 Buildings and leasehold and land improvements 4,195 3,870 Total assets held for sale $ 8,104 $ 6,429 An impairment of $ 1.6 million was recorded in 2020 for these locations as a result of the net book value exceeding the agreed upon purchase price of one of the locations. 9. Property, Plant and Equipment, Net The principal categories and estimated useful lives of property, plant and equipment, net were as follows: (in thousands) July 2, 2021 December 31, 2020 Estimated Useful Lives Land $ 80,641 $ 81,981 Buildings 258,979 240,173 8 - 50 years Machinery and equipment 406,946 392,998 5 - 20 years Transportation equipment 451,173 445,218 3 - 20 years Furniture and fixtures 92,126 96,606 3 - 10 years Cold drink dispensing equipment 443,910 465,881 3 - 17 years Leasehold and land improvements 164,523 155,077 5 - 20 years Software for internal use 47,238 46,569 3 - 10 years Construction in progress 39,693 54,505 Total property, plant and equipment, at cost 1,985,229 1,979,008 Less: Accumulated depreciation and amortization 964,936 956,286 Property, plant and equipment, net $ 1,020,293 $ 1,022,722 13 10. Leases Following is a summary of the weighted average remaining lease term and the weighted average discount rate for the Company’s leases: July 2, 2021 December 31, 2020 Weighted average remaining lease term: Operating leases 9.0 years 9.4 years Financing leases 13.0 years 13.4 years Weighted average discount rate: Operating leases 3.9 % 4.0 % Financing leases 3.2 % 3.2 % Following is a summary of the Company’s leases within the condensed consolidated statements of operations: Second Quarter First Half (in thousands) 2021 2020 2021 2020 Operating lease costs $ 6,565 $ 6,095 $ 12,819 $ 12,149 Short-term and variable leases 4,494 3,508 8,371 6,998 Depreciation expense from financing leases 1,414 924 2,828 1,849 Interest expense on financing lease obligations 579 241 1,163 507 Total lease cost $ 13,052 $ 10,768 $ 25,181 $ 21,503 The future minimum lease payments related to the Company’s leases include renewal options the Company has determined to be reasonably certain and exclude payments to landlords for real estate taxes and common area maintenance. Following is a summary of future minimum lease payments for all noncancelable operating leases and financing leases as of July 2, 2021: (in thousands) Operating Leases Financing Leases Remainder of 2021 $ 12,240 $ 3,547 2022 22,383 7,145 2023 20,050 7,201 2024 16,405 7,396 2025 14,471 7,593 Thereafter 77,887 55,828 Total minimum lease payments including interest $ 163,436 $ 88,710 Less: Amounts representing interest 27,441 15,234 Present value of minimum lease principal payments 135,995 73,476 Less: Current portion of lease liabilities 19,956 5,959 Noncurrent portion of lease liabilities $ 116,039 $ 67,517 Following is a summary of future minimum lease payments for all noncancelable operating leases and financing leases as of December 31, 2020: (in thousands) Operating Leases Financing Leases 2021 $ 24,056 $ 7,079 2022 20,970 7,145 2023 18,125 7,201 2024 15,330 7,396 2025 13,747 7,593 Thereafter 77,353 55,827 Total minimum lease payments including interest $ 169,581 $ 92,241 Less: Amounts representing interest 29,892 16,397 Present value of minimum lease principal payments 139,689 75,844 Less: Current portion of lease liabilities 19,766 5,860 Noncurrent portion of lease liabilities $ 119,923 $ 69,984 14 Following is a summary of the Company’s leases within the condensed consolidated statements of cash flows: First Half (in thousands) 2021 2020 Cash flows from operating activities impact: Operating leases $ 13,689 $ 8,633 Interest payments on financing lease obligations 1,163 507 Total cash flows from operating activities impact $ 14,852 $ 9,140 Cash flows from financing activities impact: Principal payments on financing lease obligations $ 2,368 $ 3,001 Total cash flows from financing activities impact $ 2,368 $ 3,001 As of July 2, 2021, the Company had five operating lease commitments that had not yet commenced. These lease commitments have lease terms of approximately three to 10 years and are expected to commence during the third quarter of 2021. The additional lease liability associated with these lease commitments is expected to be $ 4.6 million. 11. Distribution Agreements, Net Distribution agreements, net, which are amortized on a straight-line basis and have an estimated useful life of 10 to 40 years, consisted of the following: (in thousands) July 2, 2021 December 31, 2020 Distribution agreements at cost $ 952,547 $ 952,533 Less: Accumulated amortization 111,023 98,780 Distribution agreements, net $ 841,524 $ 853,753 12. Customer Lists, Net Customer lists, net, which are amortized on a straight-line basis and have an estimated useful life of five to 12 years, consisted of the following: (in thousands) July 2, 2021 December 31, 2020 Customer lists at cost $ 25,288 $ 25,288 Less: Accumulated amortization 13,403 12,484 Customer lists, net $ 11,885 $ 12,804 13. Other Accrued Liabilities Other accrued liabilities consisted of the following: (in thousands) July 2, 2021 December 31, 2020 Accrued insurance costs $ 50,683 $ 48,318 Current portion of acquisition related contingent consideration 44,658 36,020 Accrued marketing costs 34,901 38,539 Employee and retiree benefit plan accruals 30,897 31,653 Current portion of deferred payroll taxes under CARES Act 18,706 18,706 Accrued taxes (other than income taxes) 8,154 6,178 All other accrued expenses 35,012 25,727 Total other accrued liabilities $ 223,011 $ 205,141 The Company has taken advantage of certain provisions of the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”), which allow an employer to defer the deposit and payment of the employer’s portion of social security taxes that would otherwise have been due on or after March 27, 2020 and before January 1, 2021. The law permits an employer to deposit half of these deferred payments by December 31, 2021 and the other half by December 31, 2022. The Company intends to repay a portion of the deferred payroll taxes in the next 12 months and has classified this portion as current. 15 14. Derivative Financial Instruments The Company is subject to the risk of increased costs arising from adverse changes in certain commodity prices. In the normal course of business, the Company manages these risks through a variety of strategies, including the use of commodity derivative instruments. The Company does not use commodity derivative instruments for trading or speculative purposes. These commodity derivative instruments are not designated as hedging instruments under GAAP and are used as “economic hedges” to manage certain commodity price risk. The Company uses several different financial institutions for commodity derivative instruments to minimize the concentration of credit risk. While the Company would be exposed to credit loss in the event of nonperformance by these counterparties, the Company does not anticipate nonperformance by these counterparties. Commodity derivative instruments held by the Company are marked to market on a monthly basis and recognized in earnings consistent with the expense classification of the underlying hedged item. The Company generally pays a fee for these commodity derivative instruments, which is amortized over the corresponding period of each commodity derivative instrument. Settlements of commodity derivative instruments are included in cash flows from operating activities in the condensed consolidated statements of cash flows. The following table summarizes pre-tax changes in the fair values of the Company’s commodity derivative instruments and the classification of such changes in the condensed consolidated statements of operations: Second Quarter First Half (in thousands) 2021 2020 2021 2020 Cost of sales $ 2,128 $ 1,266 $ 2,416 $ ( 270 ) Selling, delivery and administrative expenses 505 805 1,065 ( 1,524 ) Total gain (loss) $ 2,633 $ 2,071 $ 3,481 $ ( 1,794 ) All commodity derivative instruments are recorded at fair value as either assets or liabilities in the condensed consolidated balance sheets. The Company has master agreements with the counterparties to its commodity derivative instruments that provide for net settlement of derivative transactions. Accordingly, the net amounts of derivative assets are recognized in either prepaid expenses and other current assets or other assets in the condensed consolidated balance sheets and the net amounts of derivative liabilities are recognized in either other accrued liabilities or other liabilities in the condensed consolidated balance sheets. The following table summarizes the fair values of the Company’s commodity derivative instruments and the classification of such instruments in the condensed consolidated balance sheets: (in thousands) July 2, 2021 December 31, 2020 Assets: Prepaid expenses and other current assets $ 5,715 $ 2,417 Other assets 239 56 Total assets $ 5,954 $ 2,473 The following table summarizes the Company’s gross commodity derivative instrument assets and gross commodity derivative instrument liabilities in the condensed consolidated balance sheets: (in thousands) July 2, 2021 December 31, 2020 Gross commodity derivative instrument assets $ 6,394 $ 2,473 Gross commodity derivative instrument liabilities 440 — The following table summarizes the Company’s outstanding commodity derivative instruments: (in thousands) July 2, 2021 December 31, 2020 Notional amount of outstanding commodity derivative instruments $ 44,464 $ 23,030 Latest maturity date of outstanding commodity derivative instruments December 2022 December 2021 15. Fair Values of Financial Instruments GAAP requires assets and liabilities carried at fair value to be classified and disclosed in one of the following categories: • Level 1: Quoted market prices in active markets for identical assets or liabilities. • Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data. • Level 3: Unobservable inputs that are not corroborated by market data. 16 The following methods and assumptions were used by the Company in estimating the fair values of its financial instruments. There were no transfers of assets or liabilities between levels in any period presented. Financial Instrument Fair Value Level Methods and Assumptions Deferred compensation plan assets and liabilities Level 1 The fair value of the Company’s nonqualified deferred compensation plan for certain executives and other highly compensated employees is based on the fair values of associated assets and liabilities, which are held in mutual funds and are based on the quoted market values of the securities held within the mutual funds. Commodity derivative instruments Level 2 The fair values of the Company’s commodity derivative instruments are based on current settlement values at each balance sheet date, which represent the estimated amounts the Company would have received or paid upon termination of these instruments. The Company’s credit risk related to the commodity derivative instruments is managed by requiring high standards for its counterparties and periodic settlements. The Company considers nonperformance risk in determining the fair values of commodity derivative instruments. Long-term debt Level 2 The carrying amounts of the Company’s variable rate debt approximate the fair values due to variable interest rates with short reset periods. The fair values of the Company’s fixed rate debt are based on estimated current market prices. Acquisition related contingent consideration Level 3 The fair value of the Company’s acquisition related contingent consideration is based on internal forecasts and the weighted average cost of capital (“WACC”) derived from market data. The following tables summarize the carrying amounts and fair values by level of the Company’s deferred compensation plan assets and liabilities, commodity derivative instruments, long-term debt and acquisition related contingent consideration: July 2, 2021 (in thousands) Carrying Amount Total Fair Value Fair Value Level 1 Fair Value Level 2 Fair Value Level 3 Assets: Deferred compensation plan assets $ 56,560 $ 56,560 $ 56,560 $ — $ — Commodity derivative instruments 5,954 5,954 — 5,954 — Liabilities: Deferred compensation plan liabilities 56,560 56,560 56,560 — — Long-term debt 778,236 843,300 — 843,300 — Acquisition related contingent consideration 473,055 473,055 — — 473,055 December 31, 2020 (in thousands) Carrying Amount Total Fair Value Fair Value Level 1 Fair Value Level 2 Fair Value Level 3 Assets: Deferred compensation plan assets $ 51,742 $ 51,742 $ 51,742 $ — $ — Commodity derivative instruments 2,473 2,473 — 2,473 — Liabilities: Deferred compensation plan liabilities 51,742 51,742 51,742 — — Long-term debt 940,465 1,015,700 — 1,015,700 — Acquisition related contingent consideration 434,694 434,694 — — 434,694 The acquisition related contingent consideration was valued using a probability weighted discounted cash flow model based on internal forecasts and the WACC derived from market data, which are considered Level 3 inputs. Each reporting period, the Company adjusts its acquisition related contingent consideration liability related to the distribution territories to fair value by discounting future expected sub-bottling payments required under the CBA using the Company’s estimated WACC. The future expected sub-bottling payments extend through the life of the applicable distribution assets acquired from CCR, which is generally 40 years. As a result, the fair value of the acquisition related contingent consideration liability is impacted by the Company’s WACC, management’s estimate of the amounts that will be paid in the future under the CBA, and current sub-bottling payments (all Level 3 inputs). Changes in any of these Level 3 inputs, particularly the underlying risk-free interest rate used to estimate the Company’s WACC, could result in material changes to the fair value of the acquisition related contingent consideration liability and could materially impact the amount of non-cash expense (or income) recorded each reporting period. 17 The acquisition related contingent consideration liability is the Company’s only Level 3 asset or liability. A summary of the Level 3 activity is as follows: Second Quarter First Half (in thousands) 2021 2020 2021 2020 Beginning balance - Level 3 liability $ 435,746 $ 437,094 $ 434,694 $ 446,684 Payments of acquisition related contingent consideration ( 9,874 ) ( 10,079 ) ( 19,920 ) ( 20,531 ) Reclassification to current payables 1,200 ( 450 ) 1,300 ( 300 ) Increase in fair value 45,983 14,548 56,981 15,260 Ending balance - Level 3 liability $ 473,055 $ 441,113 $ 473,055 $ 441,113 As of July 2, 2021 and June 28, 2020, discount rates of 7.7 % 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 half of 2021 and the first half 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. These fair value adjustments were recorded in other expense, net in the condensed consolidated statements of operations. The anticipated amount the Company could pay annually under the acquisition related contingent consideration arrangements for the distribution territories subject to sub-bottling fees is expected to be in the range of $ 31 million to $ 57 million. 16. Income Taxes The Company’s effective income tax rate was 26.9 % for the first half of 2021 and 26.1 % for the first half of 2020. The Company’s income tax expense was $ 37.3 million for the first half of 2021 and $ 20.5 million for the first half of 2020. The increase in income tax expense was primarily attributable to improved financial results during the first half of 2021 compared to the first half of 2020. The Company had uncertain tax positions, including accrued interest, of $ 2.7 million on July 2, 2021 and $ 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 condensed consolidated financial statements. Prior tax years beginning in year 2007 remain open to examination by the Internal Revenue Service, and various tax years beginning in year 1998 remain open to examination by certain state taxing authorities. 17. Pension and Postretirement Benefit Obligations Pension Plans There are two Company-sponsored pension plans. The primary Company-sponsored pension plan was frozen as of June 30, 2006 and no benefits accrued to participants after this date. The second Company-sponsored pension plan (the “Bargaining Plan”) is for certain employees under collective bargaining agreements. Benefits under the Bargaining Plan are determined in accordance with negotiated formulas for the respective participants. Contributions to the plans are based on actuarially determined amounts and are limited to the amounts currently deductible for income tax purposes. 18 The components of net periodic pension cost were as follows: Second Quarter First Half (in thousands) 2021 2020 2021 2020 Service cost $ 1,863 $ 1,658 $ 3,726 $ 3,317 Interest cost 2,455 2,760 4,908 5,520 Expected return on plan assets ( 3,248 ) ( 3,383 ) ( 6,498 ) ( 6,766 ) Recognized net actuarial loss 1,216 1,190 2,435 2,379 Amortization of prior service cost — 4 1 9 Net periodic pension cost $ 2,286 $ 2,229 $ 4,572 $ 4,459 The Company did no t make any contributions to the two Company-sponsored pension plans during the first half of 2021. Contributions to the two Company-sponsored pension plans in 2021 are expected to be in the range of $ 8 million to $ 12 million. Postretirement Benefits The Company provides postretirement benefits for employees meeting specified criteria . The Company recognizes the cost of postretirement benefits, which consist principally of medical benefits, during employees’ periods of active service. The Company does not prefund these benefits and has the right to modify or terminate certain of these benefits in the future. The components of net periodic postretirement benefit cost were as follows: Second Quarter First Half (in thousands) 2021 2020 2021 2020 Service cost $ 403 $ 376 $ 806 $ 752 Interest cost 448 504 895 1,007 Recognized net actuarial loss 185 87 371 175 Net periodic postretirement benefit cost $ 1,036 $ 967 $ 2,072 $ 1,934 18. Other Liabilities Other liabilities consisted of the following: (in thousands) July 2, 2021 December 31, 2020 Noncurrent portion of acquisition related contingent consideration $ 428,397 $ 398,674 Accruals for executive benefit plans 141,964 144,101 Noncurrent deferred proceeds from related parties 107,818 109,361 Noncurrent portion of deferred payroll taxes under CARES Act 18,706 18,706 Other 8,123 8,438 Total other liabilities $ 705,008 $ 679,280 19 19. Long-Term Debt Following is a summary of the Company’s long-term debt: (in thousands) Maturity Date Interest Rate Interest Paid Public/ Nonpublic July 2, 2021 December 31, 2020 2016 Term Loan Facility (1) 6/7/2021 Variable Varies Nonpublic $ — $ 217,500 Senior notes 2/27/2023 3.28 % Semi-annually Nonpublic 125,000 125,000 2018 Revolving Credit Facility 6/8/2023 Variable Varies Nonpublic 55,000 — Senior bonds (2) 11/25/2025 3.80 % Semi-annually Public 350,000 350,000 Senior notes 10/10/2026 3.93 % Quarterly Nonpublic 100,000 100,000 Senior notes 3/21/2030 3.96 % Quarterly Nonpublic 150,000 150,000 Unamortized discount on senior bonds (2) 11/25/2025 ( 39 ) ( 43 ) Debt issuance costs ( 1,725 ) ( 1,992 ) Total long-term debt $ 778,236 $ 940,465 (1) At the end of fiscal 2020, the Company intended to refinance outstanding principal payments due in the next 12 months under the 2016 Term Loan Facility (as defined below) using the 2018 Revolving Credit Facility (as defined below), which was classified as long-term debt, and the Company was not restricted by any subjective acceleration clause within the agreement for the 2018 Revolving Credit Facility. As such, the 2016 Term Loan Facility balance was classified as long term as of December 31, 2020. (2) The senior bonds due in 2025 were issued at 99.975 % of par. The Company mitigates its financing risk by using multiple financial institutions and only entering into credit arrangements with institutions with investment grade credit ratings. The Company monitors counterparty credit ratings on an ongoing basis. On June 7, 2021, the Company used a combination of cash on hand and borrowings under its revolving credit facility (the “2018 Revolving Credit Facility”) to repay the remaining balance of the term loan facility (the “2016 Term Loan Facility”) that matured on that date. Subsequent to the end of the second quarter of 2021, the Company refinanced the 2018 Revolving Credit Facility and entered into a new $ 70 million term loan. See Note 23 for additional information. 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 July 2, 2021. These covenants do not currently, and the Company does not anticipate they will, restrict its liquidity or capital resources. All outstanding long-term debt has been issued by the Company and none has been issued by any of its subsidiaries. There are no guarantees of the Company’s debt. 20. Commitments and Contingencies Manufacturing Cooperatives The Company is obligated to purchase at least 80 % of its requirements of plastic bottles for certain designated territories from Southeastern. The Company is also obligated to purchase 17.5 million cases of finished product from SAC on an annual basis through June 2024. The Company purchased 14.3 million cases and 15.1 million cases of finished product from SAC in the first half of 2021 and the first half of 2020, respectively. The following table summarizes the Company’s purchases from these manufacturing cooperatives: Second Quarter First Half (in thousands) 2021 2020 2021 2020 Purchases from Southeastern $ 34,029 $ 32,611 $ 61,573 $ 63,639 Purchases from SAC 42,557 40,385 83,810 82,219 Total purchases from manufacturing cooperatives $ 76,586 $ 72,996 $ 145,383 $ 145,858 20 The Company guarantees a portion of SAC’s debt, which expires at various dates through 2024. The amount guaranteed was $ 14.7 million on both July 2, 2021 and December 31, 2020. In the event SAC fails to fulfill its commitments under the related debt, the Company would be responsible for payment to the lenders up to the level of the guarantee. The Company does not anticipate SAC will fail to fulfill its commitments related to the debt. The Company further believes SAC has sufficient assets, including production equipment, facilities and working capital, and the ability to adjust selling prices of its products to adequately mitigate the risk of material loss from the Company’s guarantee. The Company holds no assets as collateral against the SAC guarantee, the fair value of which is immaterial to the condensed consolidated financial statements. The Company monitors its investment in SAC and would be required to write down its investment if an impairment, other than a temporary impairment, was identified. No impairment of the Company’s investment in SAC was identified as of July 2, 2021, and there was no impairment identified in 2020. Other Commitments and Contingencies The Company has standby letters of credit, primarily related to its property and casualty insurance programs. These letters of credit totaled $ 37.6 million on both July 2, 2021 and December 31, 2020. The Company participates in long-term marketing contractual arrangements with certain prestige properties, athletic venues and other locations. As of July 2, 2021, the future payments related to these contractual arrangements, which expire at various dates through 2033, amounted to $ 149.7 million. The Company is involved in various claims and legal proceedings which have arisen in the ordinary course of its business. Although it is difficult to predict the ultimate outcome of these claims and legal proceedings, management believes the ultimate disposition of these matters will not have a material adverse effect on the financial condition, results of operations or cash flows of the Company. No material amount of loss in excess of recorded amounts is believed to be reasonably possible as a result of these claims and legal proceedings. The Company is subject to audits by tax authorities in jurisdictions where it conducts business. These audits may result in assessments that are subsequently resolved with the authorities or potentially through the courts. Management believes the Company has adequately provided for any assessments likely to result from these audits; however, final assessments, if any, could be different than the amounts recorded in the condensed consolidated financial statements. 21. Accumulated Other Comprehensive Income (Loss) Accumulated other comprehensive income (loss) (“AOCI(L)”) is comprised of adjustments to the Company’s pension and postretirement medical benefit plans, the interest rate swap on the Company’s term loan facility and the foreign currency translation for a subsidiary of the Company that performs data analysis and provides consulting services outside the United States. Following is a summary of AOCI(L) for the second quarter of 2021 and the second quarter of 2020: (in thousands) April 2, 2021 Pre-tax Activity Tax Effect July 2, 2021 Net pension activity: Actuarial loss $ ( 92,931 ) $ 1,216 $ ( 303 ) $ ( 92,018 ) Prior service credits 9 — — 9 Net postretirement benefits activity: Actuarial loss ( 4,188 ) 185 ( 46 ) ( 4,049 ) Prior service costs ( 624 ) — — ( 624 ) Interest rate swap (1) ( 244 ) 324 ( 80 ) — Foreign currency translation adjustment ( 23 ) 36 ( 8 ) 5 Reclassification of stranded tax effects ( 19,720 ) — — ( 19,720 ) Total AOCI(L) $ ( 117,721 ) $ 1,761 $ ( 437 ) $ ( 116,397 ) (1) In 2019, the Company entered into a $ 100 million fixed rate swap to hedge a portion of the interest rate risk on the 2016 Term Loan Facility, both of which matured on June 7, 2021. This interest rate swap was designated as a cash flow hedging instrument and changes in its fair value were not material to the condensed consolidated balance sheets. 21 (in thousands) March 29, 2020 Pre-tax Activity Tax Effect June 28, 2020 Net pension activity: Actuarial loss $ ( 92,278 ) $ 1,190 $ ( 293 ) $ ( 91,381 ) Prior service costs ( 3 ) 4 ( 1 ) — Net postretirement benefits activity: Actuarial loss ( 1,125 ) 87 ( 21 ) ( 1,059 ) Prior service costs ( 624 ) — — ( 624 ) Interest rate swap ( 1,285 ) 3 ( 1 ) ( 1,283 ) Foreign currency translation adjustment ( 17 ) 4 ( 1 ) ( 14 ) Reclassification of stranded tax effects ( 19,720 ) — — ( 19,720 ) Total AOCI(L) $ ( 115,052 ) $ 1,288 $ ( 317 ) $ ( 114,081 ) Following is a summary of AOCI(L) for the first half of 2021 and the first half of 2020: (in thousands) December 31, 2020 Pre-tax Activity Tax Effect July 2, 2021 Net pension activity: Actuarial loss $ ( 93,847 ) $ 2,435 $ ( 606 ) $ ( 92,018 ) Prior service credits 8 1 — 9 Net postretirement benefits activity: Actuarial loss ( 4,328 ) 371 ( 92 ) ( 4,049 ) Prior service costs ( 624 ) — — ( 624 ) Interest rate swap ( 556 ) 739 ( 183 ) — Foreign currency translation adjustment 14 ( 13 ) 4 5 Reclassification of stranded tax effects ( 19,720 ) — — ( 19,720 ) Total AOCI(L) $ ( 119,053 ) $ 3,533 $ ( 877 ) $ ( 116,397 ) (in thousands) December 29, 2019 Pre-tax Activity Tax Effect June 28, 2020 Net pension activity: Actuarial loss $ ( 93,174 ) $ 2,379 $ ( 586 ) $ ( 91,381 ) Prior service costs ( 7 ) 9 ( 2 ) — Net postretirement benefits activity: Actuarial loss ( 1,191 ) 175 ( 43 ) ( 1,059 ) Prior service costs ( 624 ) — — ( 624 ) Interest rate swap ( 270 ) ( 1,344 ) 331 ( 1,283 ) Foreign currency translation adjustment ( 16 ) 3 ( 1 ) ( 14 ) Reclassification of stranded tax effects ( 19,720 ) — — ( 19,720 ) Total AOCI(L) $ ( 115,002 ) $ 1,222 $ ( 301 ) $ ( 114,081 ) 22 Following is a summary of the impact of AOCI(L) on the condensed consolidated statements of operations: Second Quarter 2021 (in thousands) Net Pension Activity Net Postretirement Benefits Activity Interest Rate Swap Foreign Currency Translation Adjustment Total Cost of sales $ 356 $ 104 $ — $ — $ 460 Selling, delivery and administrative expenses 860 81 324 36 1,301 Subtotal pre-tax 1,216 185 324 36 1,761 Income tax expense 303 46 80 8 437 Total after tax effect $ 913 $ 139 $ 244 $ 28 $ 1,324 Second Quarter 2020 (in thousands) Net Pension Activity Net Postretirement Benefits Activity Interest Rate Swap Foreign Currency Translation Adjustment Total Cost of sales $ 360 $ 57 $ — $ — $ 417 Selling, delivery and administrative expenses 834 30 3 4 871 Subtotal pre-tax 1,194 87 3 4 1,288 Income tax expense 294 21 1 1 317 Total after tax effect $ 900 $ 66 $ 2 $ 3 $ 971 First Half 2021 (in thousands) Net Pension Activity Net Postretirement Benefits Activity Interest Rate Swap Foreign Currency Translation Adjustment Total Cost of sales $ 704 $ 207 $ — $ — $ 911 Selling, delivery and administrative expenses 1,732 164 739 ( 13 ) 2,622 Subtotal pre-tax 2,436 371 739 ( 13 ) 3,533 Income tax expense 606 92 183 ( 4 ) 877 Total after tax effect $ 1,830 $ 279 $ 556 $ ( 9 ) $ 2,656 First Half 2020 (in thousands) Net Pension Activity Net Postretirement Benefits Activity Interest Rate Swap Foreign Currency Translation Adjustment Total Cost of sales $ 694 $ 105 $ — $ — $ 799 Selling, delivery and administrative expenses 1,694 70 ( 1,344 ) 3 423 Subtotal pre-tax 2,388 175 ( 1,344 ) 3 1,222 Income tax expense 588 43 ( 331 ) 1 301 Total after tax effect $ 1,800 $ 132 $ ( 1,013 ) $ 2 $ 921 23 22. Supplemental Disclosures of Cash Flow Information Changes in current assets and current liabilities affecting cash flows were as follows: First Half (in thousands) 2021 2020 Accounts receivable, trade $ ( 56,553 ) $ ( 38,410 ) Allowance for doubtful accounts ( 5,188 ) 7,462 Accounts receivable from The Coca‑Cola Company ( 9,272 ) 14,319 Accounts receivable, other 10,710 3,676 Inventories ( 12,066 ) 14,798 Prepaid expenses and other current assets ( 2,177 ) ( 2,709 ) Accounts payable, trade 68,167 37,015 Accounts payable to The Coca‑Cola Company 32,579 31,081 Other accrued liabilities 17,870 ( 20,160 ) Accrued compensation ( 19,773 ) ( 25,645 ) Accrued interest payable 35 ( 492 ) Change in current assets less current liabilities $ 24,332 $ 20,935 23. Subsequent Events On July 9, 2021, the Company entered into an agreement (the “2021 Revolving Credit Facility Agreement”) providing for a five-year unsecured revolving credit facility with an aggregate maximum borrowing capacity of $ 500 million (the “2021 Revolving Credit Facility”), maturing on July 9, 2026. Subject to obtaining commitments from the lenders and satisfying other conditions specified in the 2021 Revolving Credit Facility Agreement, at the Company’s option, additional incremental revolving commitments of up to $ 250 million may be established under the 2021 Revolving Credit Facility to increase the aggregate revolving commitments under the 2021 Revolving Credit Facility to up to $ 750 million. The 2021 Revolving Credit Facility replaced the 2018 Revolving Credit Facility, which had a maturity date of June 8, 2023. Borrowings under the 2021 Revolving Credit Facility bear interest at a base rate or an adjusted LIBOR rate, at the Company’s option, plus an applicable rate, depending on the applicable rating for the Company’s long-term senior unsecured, non-credit-enhanced debt (“Debt Rating”). In addition, the Company must pay a facility fee on the lenders’ aggregate commitments under the 2021 Revolving Credit Facility ranging from 0.060 % to 0.175 % per annum, depending on the Company’s Debt Rating. On July 9, 2021, the Company entered into a three-year term loan agreement (the “2021 Term Loan Facility Agreement”) for a senior unsecured term loan facility in the aggregate principal amount of $ 70 million (the “2021 Term Loan Facility”), maturing on July 9, 2024. Subject to obtaining commitments from the lenders and satisfying other conditions specified in the 2021 Term Loan Facility Agreement, at the Company’s option, additional incremental term loans of up to $ 50 million may be established under the 2021 Term Loan Facility to increase the aggregate principal amount of term loans under the 2021 Term Loan Facility to up to $ 120 million. Borrowings under the 2021 Term Loan Facility bear interest at a base rate or an adjusted LIBOR rate, at the Company’s option, plus an applicable rate, depending on the Company’s Debt Rating. The Company used approximately $ 55 million of the proceeds to repay outstanding indebtedness under the 2018 Revolving Credit Facility and used the remaining proceeds for general corporate purposes. 24