What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-11-09 compared with 2021-08-10 · 146 added, 151 removed, 399 unchanged (43% of the section changed)

5 unchanged sentences

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 financial position as of October 1, 2021 and December 31, 2020.

• The results of operations, comprehensive income and changes in equity for the three-month periods ended October 1, 2021 (the “third quarter” of fiscal 2021 (“2021”)) and September 27, 2020 (the “third quarter” of fiscal 2020 (“2020”)) and the nine-month periods ended October 1, 2021 (the “first nine months” of 2021) and September 27, 2020 (the “first nine months” of 2020).

• The changes in cash flows for the first nine months of 2021 and the first nine months of 2020.

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

32 unchanged sentences

Executive Summary

Physical case volume increased 5.9% in the second quarter of 2021.

Sparkling volume remained flat in the second quarter of 2021, while Still volume increased 20.9%.

The Still category growth accelerated due to the re-openings of certain small stores and accounts where our products are consumed on-premise.

The Still growth was driven primarily by BodyArmor, AHA and Monster brands.

Sales of multi-serve packages in larger retail stores remained very strong, while single-serve sales improved in small stores and other immediate consumption channels.

Physical case volume in the first half of 2021 increased 5.3%.

Revenue increased 16.8% in the second quarter of 2021 driven by the significant increase in sales of Still beverages, which generally carry a higher selling price per case than Sparkling beverages.

The re-opening of certain small store and other immediate consumption channels helped drive the growth in Still beverages as these channels have a higher mix of Still beverages than take-home outlets.

In addition, the increase in revenue was driven 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 growth in on-premise channels is now outpacing take-home channels, but we continue to see strong demand for future consumption packages.

Revenue from fountain syrup, which is primarily sold through restaurants, convenience stores, amusement parks, and other on-premise outlets, increased $20.8 million, or 92.4%, during the second quarter of 2021 as these outlets began to operate at higher levels of capacity.

For the first half of 2021, revenue increased $302.7 million, or 12.6%.

Gross profit in the second quarter of 2021 increased $65.6 million, or 15.3%, while gross margin decreased 50 basis points to 34.5%.

The improvement in gross profit was primarily due to strong volume growth in our Still category and price realization within our Sparkling category.

The decline in gross margin was driven primarily by the increased mix of Still beverages, which generally carry lower gross margins than Sparkling packages.

In the first half of 2021, we experienced increases in our major input costs, including aluminum, PET resin and high fructose corn syrup, and we expect elevated prices to continue through the balance of the year.

We currently plan to pass along price increases to our customers in the third quarter of this year in an effort to offset this cost pressure.

Gross profit in the first half of 2021 increased $109.0 million, or 13.1%.

Selling, delivery and administrative (“SD&A”) expenses in the second quarter of 2021 increased $27.9 million, or 8.1%.

SD&A expenses as a percentage of net sales decreased 210 basis points in the second quarter of 2021.

The increase in SD&A expenses related primarily to an increase in labor costs as compared to the second quarter of 2020.

As channels of business and local economies have re-opened compared to the prior year period, our labor expenses have increased.

SD&A expenses in the first half of 2021 increased $9.9 million, or 1.4%.

SD&A expenses as a percentage of net sales in the first half of 2021 decreased 290 basis points as compared to the first half of 2020.

Income from operations in the second quarter of 2021 was $120.9 million, compared to $83.1 million in the second quarter of 2020, an increase of 45.4%.

On an adjusted basis, as defined in the “Adjusted Non-GAAP Results” section below, income from operations in the second quarter of 2021 was $120.7 million, an increase of 47.8%.

For the first half of 2021, income from operations increased $99.1 million to $215.0 million.

Net income in the second quarter of 2021 was $48.2 million, compared to $39.6 million in the second quarter of 2020, an improvement of $8.6 million.

Net income in the second 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.

Net sales increased 10% to $1.46 billion in the third quarter, while physical case volume decreased 0.6%.

The increase in net sales was driven primarily by pricing actions taken throughout the third quarter of 2021 on most of our Sparkling and Still beverages.

These pricing actions were taken to help offset increases to our major input costs including aluminum, PET resin and transportation costs.

Sparkling volume decreased 0.6% in the third quarter of 2021, outperforming the price elasticity historically associated with higher pricing.

Still volume decreased 0.7%, while net sales increased 8%.

We experienced significant supply chain challenges with several of our Still beverage brands during the third quarter of 2021, which negatively impacted our growth trend in the Still beverage category.

Physical case volume and net sales increased 3.3% and 12%, respectively, for the first nine months of 2021.

Gross profit in the third quarter of 2021 increased $45.3 million, or 10%, while gross margin decreased 10 basis points to 35.5%.

The improvement in gross profit was primarily due to the pricing actions taken throughout the third quarter of 2021.

As we anticipated, the benefit of increased selling prices was partially offset by higher input costs, which resulted in relatively stable gross margin when compared to the third quarter of 2020.

We expect higher input costs to continue in the fourth quarter of 2021 as commodity markets continue to be volatile and supply chains continue to be challenged.

Gross profit in the first nine months of 2021 increased $154.3 million, or 12%.

Selling, delivery and administrative (“SD&A”) expenses in the third quarter of 2021 increased $12.1 million, or 3%.

SD&A expenses as a percentage of net sales decreased 160 basis points in the third quarter of 2021.

The increase in SD&A expenses related primarily to an increase in labor costs as compared to the third quarter of 2020.

During the third quarter of 2021, we provided incentives to attract, reward and retain our front-line teammates and we increased the base pay in certain competitive markets.

We also experienced higher overtime in the quarter as the labor pool for our front-line positions continues to be challenging.

SD&A expenses in the first nine months of 2021 increased $22.0 million, or 2%.

SD&A expenses as a percentage of net sales in the first nine months of 2021 decreased 250 basis points as compared to the first nine months of 2020.

Income from operations in the third quarter of 2021 was $137.0 million, compared to $103.8 million in the third quarter of 2020, an increase of 32%.

On an adjusted basis, as defined in the “Adjusted Non-GAAP Results” section below, income from operations in the third quarter of 2021 was $137.2 million, an increase of 30%.

For the first nine months of 2021, income from operations increased $132.3 million to $352.1 million.

Net income in the third quarter of 2021 was $68.9 million, compared to $51.9 million in the third quarter of 2020, an improvement of $17.0 million.

Net income in the third 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.

Fair value adjustments to this liability are routine and non-cash in nature.

Income tax expense in the second quarter of 2021 was $17.3 million, compared to $15.2 million in the second quarter of 2020.

Net income increased $47.3 million in the first half of 2021 to $101.5 million as compared to the first half of 2020.

Cash flows provided by operations for the first half of 2021 were $271.4 million, compared to $229.0 million for the first half of 2020.

The significant increase in operating cash flows for the first half of 2021 was a result of our strong operating performance.

The Company reduced outstanding indebtedness by $162 million during the first half of 2021.

Income tax expense in the third quarter of 2021 was $25.0 million, compared to $18.4 million in the third quarter of 2020.

Net income increased $64.4 million in the first nine months of 2021 to $170.5 million as compared to the first nine months of 2020.

Cash flows provided by operations for the first nine months of 2021 were $439.9 million, compared to $376.4 million for the first nine months of 2020.

The significant increase in operating cash flows for the first nine months of 2021 was a result of our strong operating performance.

The Company reduced outstanding indebtedness by $147.3 million during the first nine months of 2021.

We remain focused on the effective management of our working capital and continue to invest in long-term strategic projects to optimize our supply chain and better serve our customers.

8 unchanged sentences

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

The Company is actively monitoring announced and potential regulations concerning vaccination for COVID-19 and the impact that such regulations may have on its workforce.

If a significant number of our teammates are negatively impacted by regulations requiring vaccination or periodic testing of unvaccinated teammates, it may result in teammate attrition and our business operations may be adversely effected.

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.

16 unchanged sentences

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

During the second 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 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.

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

This optimization includes identifying nearby warehousing and distribution operations that can be consolidated into new facilities, which is expected to increase capacity, expand production capabilities, reduce overall production costs and add automation to allow the Company to better serve its customers and consumers.

Cash Flow Generation :

1 unchanged sentence

Results of Operations

Second Quarter Results

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

Second Quarter

Third Quarter Results

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

Third Quarter

(in thousands) 2021 2020 Change

15 unchanged sentences

$ 69,981 $ 53,164 $ 16,817

Net sales increased $205.9 million, or 16.8%, to $1.43 billion in the second quarter of 2021, as compared to $1.23 billion in the second quarter of 2020.

Net sales increased $128.9 million, or 9.7%, to $1.46 billion in the third quarter of 2021, as compared to $1.33 billion in the third quarter of 2020.

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

Second Quarter 2021

Third Quarter 2021

Attributable to:

$ 96.5 Increase in net sales related to product mix and price increases.

Approximately 60% of this increase was related to the shift in product mix to higher revenue still products in order to meet consumer preferences, while approximately 40% was driven by an increase in average bottle/can sales price per unit charged to retail customers.

77.2 Increase in net sales related to increased sales volume

22.2 Increase in net sales related to the increase in fountain syrup and other related sales mainly sold in on-premise locations

8.6 Increase in net sales related to increased sales volume to other Coca-Cola bottlers

1.4 Increase in net sales related to increased volume of external freight revenue to external customers (other than nonalcoholic beverages)

$ 115.3 Increase in net sales related to price increases and the shift in product mix.

Approximately 75% of this increase was driven by an increase in average bottle/can sales price per unit charged to retail customers, while approximately 25% was related to the shift in product mix to higher revenue still products in order to meet consumer preferences.

9.4 The increase in fountain syrup and other related sales mainly sold in on-premise locations

$ 128.9 Total increase in net sales

Net sales by product category were as follows:

Second Quarter

Third Quarter

(in thousands) 2021 2020 % Change

9 unchanged sentences

Bottle/Can Sales Volume

Second Quarter Bottle/Can Sales Volume

Third Quarter Bottle/Can Sales Volume

Product Category 2021 2020 % Change

9 unchanged sentences

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

Cost of sales increased $140.2 million, or 17.6%, to $938.1 million in the second quarter of 2021, as compared to $797.9 million in the second quarter of 2020.

Cost of sales increased $83.7 million, or 9.8%, to $939.7 million in the third quarter of 2021, as compared to $856.0 million in the third quarter of 2020.

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

Second Quarter 2021

Third Quarter 2021

Attributable to:

$ 61.0 Increase in cost of sales primarily related to increased input costs and the change in product mix to meet consumer preferences

49.8 Increase in cost of sales related to increased sales volume

16.2 Increase in cost of sales related to the increase in fountain syrup sales mainly sold in on-premise locations

9.1 Increase in cost of sales related to increased sales volume to other Coca-Cola bottlers

4.1 Increase in cost of sales related to increased volume of external freight revenue to external customers (other than nonalcoholic beverages)

$ 69.7 Increased input costs, including aluminum, PET resin and transportation costs, and the shift in product mix to meet consumer preferences

6.6 The increase in fountain syrup and other related sales mainly sold in on-premise locations

$ 83.7 Total increase in cost of sales

2 unchanged sentences

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

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 $35.7 million in the second quarter of 2021 and $26.3 million in the second quarter of 2020.

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 $36.4 million in the third quarter of 2021 and $33.8 million in the third quarter of 2020.

Selling, Delivery and Administrative Expenses

1 unchanged sentence

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 increased by $27.9 million, or 8.1%, to $374.1 million in the second quarter of 2021, as compared to $346.2 million in the second quarter of 2020.

SD&A expenses as a percentage of net sales decreased to 26.1% in the second quarter of 2021 from 28.2% in the second quarter of 2020.

SD&A expenses increased by $12.1 million, or 3.3%, to $380.7 million in the third quarter of 2021, as compared to $368.6 million in the third quarter of 2020.

SD&A expenses as a percentage of net sales decreased to 26.1% in the third quarter of

2021 from 27.7% in the third quarter of 2020.

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

Second Quarter 2021

Third Quarter 2021

Attributable to:

$ 9.5 Increase in labor costs as channels of business and local economies have re-opened compared to the prior year.

In addition, investments were made in the second quarter to attract, reward and retain front-line employees in this challenging labor environment.

In addition, investments were made to attract, reward and retain front-line employees in this challenging labor environment.

$ 12.1 Total increase in SD&A expenses

Shipping and handling costs included in SD&A expenses were $169.1 million in the second quarter of 2021 and $149.1 million in the second quarter of 2020.

Shipping and handling costs included in SD&A expenses were $176.2 million in the third quarter of 2021 and $155.8 million in the third quarter of 2020.

Interest Expense, Net

Interest expense, net decreased $0.8 million, or 8.9%, to $8.4 million in the second quarter of 2021, as compared to $9.2 million in the second quarter of 2020.

Interest expense, net decreased $0.9 million, or 10.4%, to $8.1 million in the third quarter of 2021, as compared to $9.0 million in the third quarter of 2020.

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

1 unchanged sentence

A summary of other expense, net is as follows:

Second Quarter

Third Quarter

(in thousands) 2021 2020

6 unchanged sentences

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 in the second quarter of 2021 as compared to the second quarter of 2020 was primarily driven by higher projections of future cash flows in the distribution territories subject to sub-bottling fees.

The increase in the fair value of the acquisition related contingent consideration liability in the third quarter of 2021 as compared to the third quarter of 2020 was primarily driven by higher projections of future cash flows in the distribution territories subject to sub-bottling fees.

Income Tax Expense

The Company’s effective income tax rate was 26.4% for the second quarter of 2021 and 26.3% for the second quarter of 2020.

The Company’s income tax expense increased $2.1 million, or 13.7%, to $17.3 million for the second quarter of 2021, as compared to $15.2 million for the second quarter of 2020.

The increase in income tax expense was primarily attributable to improved financial results during the second quarter of 2021 compared to the second quarter of 2020.

The Company’s effective income tax rate was 26.6% for the third quarter of 2021 and 25.0% for the third quarter of 2020.

The Company’s income tax expense increased $6.7 million, or 36.3%, to $25.0 million for the third quarter of 2021, as compared to $18.4 million for the third quarter of 2020.

The increase in income tax expense was primarily attributable to improved financial results during the third quarter of 2021 compared to the third quarter of 2020.

Noncontrolling Interest

The Company recorded net income attributable to noncontrolling interest of $3.0 million in the second 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.

The Company recorded net income attributable to noncontrolling interest of $3.2 million in the third 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, Net of Tax

Other comprehensive income, net of tax was $1.3 million in the second quarter of 2021 and $1.0 million in the second quarter of 2020.

The improvement was primarily related to the Company’s interest rate swap on the 2016 Term Loan Facility (as defined below), which matured on June 7, 2021.

First Half Results

Our results of operations for the first half of 2021 and the first half of 2020 are highlighted in the table below and discussed in the following paragraphs.

Other comprehensive income, net of tax was $1.1 million in the third quarter of 2021 and $1.3 million in the third quarter of 2020.

First Nine Months Results

Our results of operations for the first nine months of 2021 and the first nine months of 2020 are highlighted in the table below and discussed in the following paragraphs.

First Nine Months

(in thousands)

16 unchanged sentences

$ 174,180 $ 108,316 $ 65,864

Net sales increased $302.7 million, or 12.6%, to $2.70 billion in the first half of 2021, as compared to $2.40 billion in the first half of 2020.

Net sales increased $431.7 million, or 11.6%, to $4.16 billion in the first nine months of 2021, as compared to $3.73 billion in the first nine months of 2020.

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

First Half 2021

First Nine Months 2021

Attributable to:

$ 147.5 Increase in net sales related to price increases and product mix.

$ 262.4 Increase in net sales related to price increases and the shift in product mix.

Approximately 65% of this increase was driven by an increase in average bottle/can sales price per unit charged to retail customers, while approximately 35% was related to the shift in product mix to higher revenue still products in order to meet consumer preferences.

131.4 Increase in net sales related to increased sales volume

13.3 Increase in net sales related to the increase in fountain syrup and other related sales mainly sold in on-premise locations

5.5 Increase in net sales related to increased volume of external freight revenue to external customers (other than nonalcoholic beverages)

5.0 Increase in net sales related to increased sales volume to other Coca-Cola bottlers

133.3 Increased sales volume

23.3 The increase in fountain syrup and other related sales mainly sold in on-premise locations

9.8 Increased sales volume to other Coca-Cola bottlers

2.9 Increased volume of external freight revenue to external customers (other than nonalcoholic beverages)

$ 431.7 Total increase in net sales

Net sales by product category were as follows:

First Nine Months

(in thousands) 2021 2020 % Change

9 unchanged sentences

Bottle/Can Sales Volume

First Half Bottle/Can Sales Volume

First Nine Months Bottle/Can Sales Volume

Product Category 2021 2020 % Change

5 unchanged sentences

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 Nine Months

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

7 unchanged sentences

Cost of Sales

Cost of sales increased $193.7 million, or 12.4%, to $1.76 billion in the first half of 2021, as compared to $1.57 billion in the first half of 2020.

Cost of sales increased $277.3 million, or 11.5%, to $2.70 billion in the first nine months of 2021, as compared to $2.42 billion in the first nine months of 2020.

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

First Half 2021 Attributable to:

$ 92.7 Increase in cost of sales primarily related to increased input costs and the change in product mix to meet consumer preferences

82.5 Increase in cost of sales related to increased sales volume

6.8 Increase in cost of sales related to increased volume of external freight revenue to external customers (other than nonalcoholic beverages)

6.6 Increase in cost of sales related to the increase in fountain syrup sales mainly sold in on-premise locations

5.1 Increase in cost of sales related to increased sales volume to other Coca-Cola bottlers

First Nine Months 2021 Attributable to:

$ 156.1 Increased input costs, including aluminum, PET resin and transportation costs, and the shift in product mix to meet consumer preferences

89.2 Increased sales volume

13.3 The increase in fountain syrup and other related sales mainly sold in on-premise locations

10.7 Increased sales volume to other Coca-Cola bottlers

8.0 Increased volume of external freight revenue to external customers (other than nonalcoholic beverages)

$ 277.3 Total increase in cost of sales

Total marketing funding support from The Coca‑Cola Company and other beverage companies was $65.7 million in the first half of 2021, as compared to $56.6 million in the first half of 2020.

Total marketing funding support from The Coca‑Cola Company and other beverage companies was $102.1 million in the first nine months of 2021, as compared to $90.4 million in the first nine months of 2020.

Selling, Delivery and Administrative Expenses

SD&A expenses increased by $9.9 million, or 1.4%, to $728.6 million in the first half of 2021, as compared to $718.7 million in the first half of 2020.

SD&A expenses as a percentage of net sales decreased to 27.0% in the first half of 2021 from 29.9% in the first half of 2020.

SD&A expenses increased by $22.0 million, or 2.0%, to $1.11 billion in the first nine months of 2021, as compared to $1.09 billion in the first nine months of 2020.

SD&A expenses as a percentage of net sales decreased to 26.7% in the first nine

months of 2021 from 29.2% in the first nine months of 2020.

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

First Half 2021 Attributable to:

First Nine Months 2021 Attributable to:

$ 25.7 Increase in labor costs as channels of business and local economies have re-opened compared to the prior year.

In addition, investments were made in the second quarter to attract, reward and retain front-line employees in this challenging labor environment.

(4.4) Decrease in fleet-related repair expenses

In addition, investments were made to attract, reward and retain front-line employees in this challenging labor environment.

$ 22.0 Total increase in SD&A expenses

Shipping and handling costs included in SD&A expenses were $326.5 million in the first half of 2021 and $309.2 million in the first half of 2020.

Shipping and handling costs included in SD&A expenses were $502.7 million in the first nine months of 2021 and $465.0 million in the first nine months of 2020.

Interest Expense, Net

Interest expense, net decreased $1.6 million, or 8.7%, to $17.1 million in the first half of 2021, as compared to $18.7 million in the first half of 2020.

Interest expense, net decreased $2.6 million, or 9.3%, to $25.2 million in the first nine months of 2021, as compared to $27.8 million in the first nine months of 2020.

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

1 unchanged sentence

A summary of other expense, net is as follows:

First Nine Months

(in thousands) 2021 2020

2 unchanged sentences

Total other expense, net $ 94,078 $ 39,826

The increase in the fair value of the acquisition related contingent consideration liability in the first half of 2021 as compared to the first half of 2020 was primarily driven by higher projections of future cash flows in the distribution territories subject to sub-bottling fees.

The increase in the fair value of the acquisition related contingent consideration liability in the first nine months of 2021 as compared to the first nine months of 2020 was primarily driven by higher projections of future cash flows in the distribution territories subject to sub-bottling fees.

Income Tax Expense

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 increased $16.7 million, or 81.5%, to $37.3 million for the first half of 2021, as compared to

$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’s effective income tax rate was 26.8% for the first nine months of 2021 and 25.6% for the first nine months of 2020.

The Company’s income tax expense increased $23.4 million, or 60.2%, to $62.3 million for the first nine months of 2021, as compared to $38.9 million for the first nine months of 2020.

The increase in income tax expense was primarily attributable to improved financial results during the first nine months of 2021 compared to the first nine months of 2020.

Noncontrolling Interest

The Company recorded net income attributable to noncontrolling interest of $4.0 million in the first half 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.

The Company recorded net income attributable to noncontrolling interest of $7.2 million in the first nine months 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, Net of Tax

Other comprehensive income, net of tax was $2.7 million in the first half of 2021 and $0.9 million in the first half of 2020.

The improvement was primarily related to the Company’s interest rate swap on the 2016 Term Loan Facility, which matured on June 7, 2021.

Other comprehensive income, net of tax was $3.7 million in the first nine months of 2021 and $2.2 million in the first nine months of 2020.

The improvement was primarily related to the Company’s interest rate swap on the 2016 Term Loan Facility (as defined below), which matured during the second quarter of 2021.

Segment Operating Results

6 unchanged sentences

The Company’s segment results are as follows:

Second Quarter First Half

Third Quarter First Nine Months

(in thousands) 2021 2020 2021 2020

17 unchanged sentences

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

Second Quarter 2021

Third Quarter 2021

(in thousands, except per share data) Gross

12 unchanged sentences

Adjusted results (non-GAAP) $ 518,278 $ 381,072 $ 137,206 $ 128,051 $ 94,548 $ 10.09

Second Quarter 2020

Third Quarter 2020

(in thousands, except per share data) Gross

12 unchanged sentences

Adjusted results (non-GAAP) $ 474,366 $ 369,169 $ 105,197 $ 94,578 $ 67,797 $ 7.24

First Half 2021

First Nine Months 2021

(in thousands, except per share data) Gross

12 unchanged sentences

Adjusted results (non-GAAP) $ 1,461,609 $ 1,109,977 $ 351,632 $ 323,251 $ 238,363 $ 25.43

First Half 2020

First Nine Months 2020

(in thousands, except per share data) Gross

18 unchanged sentences

Financial Condition

Total assets were $3.28 billion as of July 2, 2021, which was an increase of $59.8 million from December 31, 2020.

Net working capital, defined as current assets less current liabilities, was $182.9 million as of July 2, 2021, which was a decrease of $21.3 million from December 31, 2020.

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

Total assets were $3.42 billion as of October 1, 2021, which was an increase of $197.5 million from December 31, 2020.

Net working capital, defined as current assets less current liabilities, was $303.3 million as of October 1, 2021, which was an increase of $99.1 million from December 31, 2020.

Significant changes in net working capital as of October 1, 2021 as compared to December 31, 2020 were as follows:

• An increase in cash and cash equivalents of $132.1 million primarily as a result of our strong operating performance.

• An increase in accounts receivable of $56.8 million, driven primarily by increased sales volume and the timing of cash receipts.

1 unchanged sentence

• An increase in accounts payable to The Coca‑Cola Company of $46.5 million primarily as a result of the timing of cash payments.

• An increase in other accrued liabilities of $17.9 million, driven primarily by the non-cash increase in the fair value of the current portion of the acquisition related contingent consideration liability.

• A decrease in other accrued compensation of $19.8 million, primarily as a result of the timing of bonus and incentive payments in the first quarter of 2021 and 2020.

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 July 2, 2021, the Company had $54.2 million in cash and cash equivalents.

As of October 1, 2021, the Company had $186.9 million in cash and cash equivalents.

The Company has obtained its long-term debt from public markets, private placements and bank facilities.

1 unchanged sentence

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 July 2, 2021 and December 31, 2020 was as follows:

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

The Company’s long-term debt as of October 1, 2021 and December 31, 2020 was as follows:

(in thousands) Maturity Date October 1, 2021 December 31, 2020

2016 Term Loan Facility (1)

2 unchanged sentences

2018 Revolving Credit Facility 6/8/2023 — —

2021 Term Loan Facility 7/9/2024 70,000 —

Senior bonds and unamortized discount on senior bonds (2)

11/25/2025 349,964 349,957

2021 Revolving Credit Facility 7/9/2026 — —

Senior notes 10/10/2026 100,000 100,000

1 unchanged sentence

Debt issuance costs (1,787) (1,992)

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 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.

Total long-term debt $ 793,177 $ 940,465

(1) As of December 31, 2020, the 2016 Term Loan Facility (as defined below) balance was classified as long term as the Company intended to refinance outstanding principal payments due in the next 12 months 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.

(2) The senior bonds due in 2025 were issued at 99.975% of par.

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, 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.

On June 7, 2021, the Company used a combination of cash on hand and borrowings under its previous revolving credit facility (the “2018 Revolving Credit Facility”) to repay the remaining balance of its previous term loan facility (the “2016 Term Loan Facility”) that matured on that date.

On July 9, 2021, the Company entered into a credit 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.

Borrowings under the 2021 Revolving Credit Facility bear interest at a base rate or adjusted LIBOR, at the Company’s option, plus an applicable rate, depending on the 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.

The Company currently believes all banks participating in the 2021 Revolving Credit Facility have the ability to and will meet any funding requests from the Company.

The 2021 Revolving Credit Facility Agreement replaced the 2018 Revolving Credit Facility.

Also subsequent to the end of the second quarter of 2021, 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.

The 2021 Revolving Credit Facility replaced the 2018 Revolving Credit Facility, which had a maturity date of June 8, 2023.

Also on July 9, 2021, the Company entered into a term loan agreement, providing for a three-year 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 t o $120 million.

Borrowings under the 2021 Term Loan Facility bear interest at a base rate or adjusted LIBOR, at the Company’s option, plus an applicable rate, depending on the Company’s Debt Rating.

The entire amount of the 2021 Term Loan Facility was fully drawn on July 9, 2021.

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.

The Company used approximately $55 million of the proceeds of the 2021 Term Loan Facility to repay outstanding indebtedness under the 2018 Revolving Credit Facility and used the remaining proceeds for general corporate purposes.

Subsequent to the end of the third quarter of 2021, the Company notified the lender of its intent to repay the $70 million of borrowings outstanding under the 2021 Term Loan Facility during the fourth quarter of 2021.

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.

1 unchanged sentence

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.

The Company was in compliance with these covenants as of October 1, 2021.

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

6 unchanged sentences

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.

As of July 2, 2021, the Company’s credit ratings and outlook for its long-term debt were as follows:

As of October 1, 2021, the Company’s credit ratings and outlook for its long-term debt were as follows:

Credit Rating Rating Outlook

1 unchanged sentence

Moody’s Baa1 Stable

The Company is subject to interest rate risk on its variable rate debt, including the 2018 Revolving Credit 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 July 2, 2021, interest expense for the next 12 months would increase by approximately $0.6 million.

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

2 unchanged sentences

Following is a summary of the Level 3 activity:

Second Quarter First Half

Third Quarter First Nine Months

(in thousands) 2021 2020 2021 2020

6 unchanged sentences

A summary of cash-based activity is as follows:

First Nine Months

(in thousands) 2021 2020

2 unchanged sentences

$ 439,875 $ 376,401

Borrowings under term loan facility 70,000 —

Borrowings under revolving credit facility 55,000 235,000

3 unchanged sentences

Additions to property, plant and equipment 119,620 110,717

Payments on revolving credit facility 55,000 280,000

Payments of acquisition related contingent consideration 28,640 31,999

2 unchanged sentences

Other distribution agreements 1,998 —

Payments on revolving credit facility — 280,000

Other 3,650 1,915

Total cash uses $ 437,005 $ 458,589

Net increase (decrease) in cash during period $ (589) $ 67,936

(1) Net cash provided by operating activities included net income tax payments of $29.4 million in the first half of 2021 and $2.9 million in the first half of 2020.

Net increase in cash during period $ 132,085 $ 155,209

(1) Net cash provided by operating activities in the first nine months of 2021 included net income tax payments of $45.6 million, payment of deferred payroll taxes under the CARES Act of $18.7 million and pension plan contributions of $6.8 million.

Net cash provided by operating activities in the first nine months of 2020 included net income tax payments of $36.9 million, deferral of payroll taxes under the CARES Act of $24.6 million and pension plan contributions of $16.3 million.

Cash Flows From Operating Activities

During the first half of 2021, cash provided by operating activities was $271.4 million, which was an increase of $42.4 million as compared to the first half of 2020.

During the first nine months of 2021, cash provided by operating activities was $439.9 million, which was an increase of $63.5 million as compared to the first nine months of 2020.

The increase was primarily the result of strong operating performance.

Cash Flows From Investing Activities

During the first half of 2021, cash used in investing activities was $82.4 million, which was an increase of $9.6 million as compared to the first half of 2020.

The increase was primarily a result of additions to property, plant and equipment, which were $80.3 million during the first half of 2021 and $72.9 million during the first half of 2020.

There were $16.7 million and $11.9 million of additions to property, plant and equipment accrued in accounts payable, trade as of July 2, 2021 and June 28, 2020, respectively.

The Company anticipates additions to property, plant and equipment for the full year 2021 to be in the range of $180 million to $200 million, with remaining anticipated expenditures in the second half of 2021 of $100 million to $120 million.

During the first nine months of 2021, cash used in investing activities was $119.6 million, which was an increase of $9.5 million as compared to the first nine months of 2020.

The increase was primarily a result of additions to property, plant and equipment, which were $119.6 million during the first nine months of 2021 and $110.7 million during the first nine months of 2020.

There were $9.6 million and $25.5 million of additions to property, plant and equipment accrued in accounts payable, trade as of October 1, 2021 and September 27, 2020, respectively.

The Company anticipates additions to property, plant and equipment for 2021 to be in the range of $170 million to $190 million, with remaining anticipated expenditures in the fourth quarter of 2021 of $50 million to $70 million.

Cash Flows From Financing Activities

During the first half of 2021, cash used in financing activities was $189.6 million, which was an increase of $101.3 million as compared to the first half of 2020.

The increase was primarily a result of the repayment of $217.5 million on the 2016 Term Loan Facility during the first half of 2021, partially offset by borrowings of $55 million under the 2018 Revolving Credit Facility.

The Company had cash payments for acquisition related contingent consideration of $19.9 million during the first half of 2021 and $20.5 million during the first half of 2020.

During the first nine months of 2021, cash used in financing activities was $188.2 million, which was an increase of $77.1 million as compared to the first nine months of 2020.

The increase was primarily a result of the repayment of $217.5 million on the 2016 Term Loan Facility during the first nine months of 2021, partially offset by borrowings of $70.0 million under the 2021 Term Loan Facility.

The Company had cash payments for acquisition related contingent consideration of $28.6 million during the first nine months of 2021 and $32.0 million during the first nine months 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 $32 million to $59 million.

5 unchanged sentences

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

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

As of October 1, 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.

9 unchanged sentences

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

Second Quarter First Half

Third Quarter First Nine Months

(in thousands) 2021 2020 2021 2020

10 unchanged sentences

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.

All of the forward-looking statements in this report and other filings or statements are qualified by these and other factors, risks and uncertainties.

Caution should be taken not to place undue reliance on the forward-looking statements included in this report.

2 unchanged sentences

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