Coca-Cola Consolidated, Inc. 10-Q

Item 1. Financial Statements. COCA ‑ COLA CONSOLIDATED, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Third Quarter First Nine Months (in thousands, except per share data) 2021 2020 2021 2020 Net sales $ 1,457,432 $ 1,328,484 $ 4,160,375 $ 3,728,720 Cost of sales 939,720 856,046 2,699,020 2,421,686 Gross profit 517,712 472,438 1,461,355 1,307,034 Selling, delivery and administrative expenses 380,681 368,594 1,109,279 1,087,251 Income from operations 137,031 103,844 352,076 219,783 Interest expense, net 8,097 9,033 25,208 27,778 Other expense, net 34,982 21,394 94,078 39,826 Income before income taxes 93,952 73,417 232,790 152,179 Income tax expense 25,022 18,363 62,317 38,911 Net income 68,930 55,054 170,473 113,268 Less: Net income attributable to noncontrolling interest — 3,170 — 7,153 Net income attributable to Coca‑Cola Consolidated, Inc. $ 68,930 $ 51,884 $ 170,473 $ 106,115 Basic net income per share based on net income attributable to Coca‑Cola Consolidated, Inc.: Common Stock $ 7.36 $ 5.53 $ 18.19 $ 11.32 Weighted average number of Common Stock shares outstanding 7,141 7,141 7,141 7,141 Class B Common Stock $ 7.36 $ 5.53 $ 18.19 $ 11.32 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 $ 7.32 $ 5.51 $ 18.11 $ 11.25 Weighted average number of Common Stock shares outstanding – assuming dilution 9,409 9,430 9,413 9,430 Class B Common Stock $ 7.31 $ 5.51 $ 18.10 $ 11.24 Weighted average number of Class B Common Stock shares outstanding – assuming dilution 2,268 2,289 2,272 2,289 Cash dividends per share: Common Stock $ 0.25 $ 0.25 $ 0.75 $ 0.75 Class B Common Stock $ 0.25 $ 0.25 $ 0.75 $ 0.75 See accompanying notes to condensed consolidated financial statements. 1 COCA ‑ COLA CONSOLIDATED, INC. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) Third Quarter First Nine Months (in thousands) 2021 2020 2021 2020 Net income $ 68,930 $ 55,054 $ 170,473 $ 113,268 Other comprehensive income, net of tax: Defined benefit plans reclassification including pension costs: Actuarial gains 916 896 2,745 2,689 Prior service credits 1 4 2 11 Postretirement benefits reclassification including benefits costs: Actuarial gains 140 66 419 198 Interest rate swap — 303 556 ( 710 ) Foreign currency translation adjustment ( 6 ) 11 ( 15 ) 13 Other comprehensive income, net of tax 1,051 1,280 3,707 2,201 Comprehensive income 69,981 56,334 174,180 115,469 Less: Comprehensive income attributable to noncontrolling interest — 3,170 — 7,153 Comprehensive income attributable to Coca‑Cola Consolidated, Inc. $ 69,981 $ 53,164 $ 174,180 $ 108,316 See accompanying notes to condensed consolidated financial statements. 2 COCA ‑ COLA CONSOLIDATED, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (in thousands, except share data) October 1, 2021 December 31, 2020 ASSETS Current Assets: Cash and cash equivalents $ 186,878 $ 54,793 Accounts receivable, trade 482,211 425,445 Allowance for doubtful accounts ( 16,610 ) ( 21,620 ) Accounts receivable from The Coca‑Cola Company 58,323 49,203 Accounts receivable, other 29,238 37,084 Inventories 240,495 225,757 Prepaid expenses and other current assets 84,152 74,146 Assets held for sale 6,932 6,429 Total current assets 1,071,619 851,237 Property, plant and equipment, net 1,009,325 1,022,722 Right-of-use assets - operating leases 140,410 134,383 Leased property under financing leases, net 65,625 69,867 Other assets 120,230 111,781 Goodwill 165,903 165,903 Distribution agreements, net 835,403 853,753 Customer lists, net 11,425 12,804 Total assets $ 3,419,940 $ 3,222,450 LIABILITIES AND EQUITY Current Liabilities: Current portion of obligations under operating leases $ 20,650 $ 19,766 Current portion of obligations under financing leases 6,009 5,860 Accounts payable, trade 270,937 217,560 Accounts payable to The Coca‑Cola Company 153,701 107,181 Other accrued liabilities 214,101 205,141 Accrued compensation 96,617 87,608 Accrued interest payable 6,281 3,944 Total current liabilities 768,296 647,060 Deferred income taxes 151,558 139,423 Pension and postretirement benefit obligations 110,582 113,325 Other liabilities 726,292 679,280 Noncurrent portion of obligations under operating leases 123,627 119,923 Noncurrent portion of obligations under financing leases 66,268 69,984 Long-term debt 793,177 940,465 Total liabilities 2,739,800 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 707,723 544,280 Accumulated other comprehensive loss ( 115,346 ) ( 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 680,140 512,990 Total liabilities and equity $ 3,419,940 $ 3,222,450 See accompanying notes to condensed consolidated financial statements. 3 COCA ‑ COLA CONSOLIDATED, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) First Nine Months (in thousands) 2021 2020 Cash Flows from Operating Activities: Net income $ 170,473 $ 113,268 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation expense from property, plant and equipment and financing leases 117,910 117,203 Amortization of intangible assets and deferred proceeds, net 17,431 17,286 Fair value adjustment of acquisition related contingent consideration 90,905 35,068 Deferred payroll taxes under CARES Act ( 18,739 ) 24,648 Deferred income taxes 10,907 5,302 Loss on sale of property, plant and equipment 4,017 3,656 Impairment and abandonment of property, plant and equipment 3,200 7,908 Amortization of debt costs 790 778 Change in current assets less current liabilities 60,546 57,651 Change in other noncurrent assets 10,355 16,360 Change in other noncurrent liabilities ( 27,905 ) ( 23,775 ) Other ( 15 ) 1,048 Total adjustments 269,402 263,133 Net cash provided by operating activities $ 439,875 $ 376,401 Cash Flows from Investing Activities: Additions to property, plant and equipment $ ( 119,620 ) $ ( 110,717 ) Proceeds from the sale of property, plant and equipment 4,215 2,397 Investment in CONA Services LLC ( 2,194 ) ( 1,770 ) Other distribution agreements ( 1,998 ) — Net cash used in investing activities $ ( 119,597 ) $ ( 110,090 ) Cash Flows from Financing Activities: Borrowings under revolving credit facility $ 55,000 $ 235,000 Payments on revolving credit facility ( 55,000 ) ( 280,000 ) Borrowings under term loan facility 70,000 — Payments on term loan facility ( 217,500 ) ( 22,500 ) Payments of acquisition related contingent consideration ( 28,640 ) ( 31,999 ) Cash dividends paid ( 7,030 ) ( 7,030 ) Payments on financing lease obligations ( 3,567 ) ( 4,428 ) Debt issuance fees ( 1,456 ) ( 145 ) Net cash used in financing activities $ ( 188,193 ) $ ( 111,102 ) Net increase in cash during period $ 132,085 $ 155,209 Cash at beginning of period 54,793 9,614 Cash at end of period $ 186,878 $ 164,823 Significant non-cash investing and financing activities: Right-of-use assets obtained in exchange for operating lease obligations $ 21,759 $ 38,317 Additions to property, plant and equipment accrued and recorded in accounts payable, trade 9,612 25,477 Additions to leased property under financing leases — 61,121 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 July 2, 2021 $ 10,204 $ 2,860 $ 135,953 $ 641,136 $ ( 116,397 ) $ ( 60,845 ) $ ( 409 ) $ 612,502 $ — $ 612,502 Net income — — — 68,930 — — — 68,930 — 68,930 Other comprehensive income, net of tax — — — — 1,051 — — 1,051 — 1,051 Cash dividends paid: Common Stock ($ 0.25 per share) — — — ( 1,785 ) — — — ( 1,785 ) — ( 1,785 ) Class B Common Stock ($ 0.25 per share) — — — ( 558 ) — — — ( 558 ) — ( 558 ) Balance on October 1, 2021 $ 10,204 $ 2,860 $ 135,953 $ 707,723 $ ( 115,346 ) $ ( 60,845 ) $ ( 409 ) $ 680,140 $ — $ 680,140 Balance on December 31, 2020 $ 10,204 $ 2,860 $ 135,953 $ 544,280 $ ( 119,053 ) $ ( 60,845 ) $ ( 409 ) $ 512,990 $ — $ 512,990 Net income — — — 170,473 — — — 170,473 — 170,473 Other comprehensive income, net of tax — — — — 3,707 — — 3,707 — 3,707 Cash dividends paid: Common Stock ($ 0.75 per share) — — — ( 5,356 ) — — — ( 5,356 ) — ( 5,356 ) Class B Common Stock ($ 0.75 per share) — — — ( 1,674 ) — — — ( 1,674 ) — ( 1,674 ) Balance on October 1, 2021 $ 10,204 $ 2,860 $ 135,953 $ 707,723 $ ( 115,346 ) $ ( 60,845 ) $ ( 409 ) $ 680,140 $ — $ 680,140 (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 June 28, 2020 $ 10,204 $ 2,860 $ 128,983 $ 430,706 $ ( 114,081 ) $ ( 60,845 ) $ ( 409 ) $ 397,418 $ 108,147 $ 505,565 Net income — — — 51,884 — — — 51,884 3,170 55,054 Other comprehensive income, net of tax — — — — 1,280 — — 1,280 — 1,280 Cash dividends paid: Common Stock ($ 0.25 per share) — — — ( 1,785 ) — — — ( 1,785 ) — ( 1,785 ) Class B Common Stock ($ 0.25 per share) — — — ( 559 ) — — — ( 559 ) — ( 559 ) Balance on September 27, 2020 $ 10,204 $ 2,860 $ 128,983 $ 480,246 $ ( 112,801 ) $ ( 60,845 ) $ ( 409 ) $ 448,238 $ 111,317 $ 559,555 Balance on December 29, 2019 $ 10,204 $ 2,860 $ 128,983 $ 381,161 $ ( 115,002 ) $ ( 60,845 ) $ ( 409 ) $ 346,952 $ 104,164 $ 451,116 Net income — — — 106,115 — — — 106,115 7,153 113,268 Other comprehensive income, net of tax — — — — 2,201 — — 2,201 — 2,201 Cash dividends paid: Common Stock ($ 0.75 per share) — — — ( 5,356 ) — — — ( 5,356 ) — ( 5,356 ) Class B Common Stock ($ 0.75 per share) — — — ( 1,674 ) — — — ( 1,674 ) — ( 1,674 ) Balance on September 27, 2020 $ 10,204 $ 2,860 $ 128,983 $ 480,246 $ ( 112,801 ) $ ( 60,845 ) $ ( 409 ) $ 448,238 $ 111,317 $ 559,555 See accompanying notes to condensed consolidated financial statements. 5 COCA ‑ COLA CONSOLIDATED, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. Critical Accounting Policies and Recent Accounting Pronouncements The condensed consolidated financial statements include the accounts of Coca‑Cola Consolidated, Inc. and its majority-owned subsidiaries (the “Company”). All significant intercompany accounts and transactions have been eliminated. The condensed consolidated financial statements reflect all adjustments, including normal, recurring accruals, which, in the opinion of management, are necessary for a fair statement of the results for the periods 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 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. 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 6 other areas of income tax accounting by clarifying and amending existing guidance. The new guidance is effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company 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 October 1, 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: Third Quarter First Nine Months (in thousands) 2021 2020 2021 2020 Payments made by the Company to The Coca-Cola Company (1) $ 403,889 $ 369,186 $ 1,120,042 $ 1,012,568 Payments made by The Coca-Cola Company to the Company 51,024 30,458 131,026 91,086 (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’s 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 7 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. Sub-bottling payments to CCR were $ 28.6 million in the first nine months of 2021 and $ 32.0 million in the first nine months 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) October 1, 2021 December 31, 2020 Current portion of acquisition related contingent consideration $ 47,212 $ 36,020 Noncurrent portion of acquisition related contingent consideration 449,447 398,674 Total acquisition related contingent consideration $ 496,659 $ 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 October 1, 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 October 1, 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 recorded as a reduction to cost of sales in the condensed consolidated statements of operations, were $ 6.6 million in the first nine months of 2021 and $ 6.9 million in the first nine months 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 $ 4.4 million on October 1, 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 $ 2.2 million in the first nine months of 2021 and $ 2.1 million in the first nine months 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 $ 13.3 million as of October 1, 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 $ 18.9 million in the first nine months of 2021 and $ 17.4 million in the first nine months 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 $ 28.9 million on October 1, 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 $ 59.8 million on October 1, 2021 and $ 61.9 million on December 31, 2020. A summary of rental payments for these leases related to the third quarter and the first nine months of 2021 and 2020 is as follows: Third Quarter First Nine Months (in thousands) 2021 2020 2021 2020 Company headquarters $ 944 $ 826 $ 2,834 $ 2,478 Snyder Production Center 1,112 1,112 3,338 3,338 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 $ 7.6 million in the first nine months of 2021 and $ 7.2 million in the first nine months 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 nine months of 2021 and the first nine months 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: Third Quarter First Nine Months (in thousands) 2021 2020 2021 2020 Point in time net sales: Nonalcoholic Beverages - point in time $ 1,415,643 $ 1,286,542 $ 4,029,846 $ 3,607,502 Total point in time net sales $ 1,415,643 $ 1,286,542 $ 4,029,846 $ 3,607,502 Over time net sales: Nonalcoholic Beverages - over time $ 11,328 $ 8,729 $ 32,130 $ 25,874 All Other - over time 30,461 33,213 98,399 95,344 Total over time net sales $ 41,789 $ 41,942 $ 130,529 $ 121,218 Total net sales $ 1,457,432 $ 1,328,484 $ 4,160,375 $ 3,728,720 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 $ 3.0 million as of October 1, 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 Nine Months (in thousands) 2021 2020 Beginning balance - allowance for credit losses $ 18,070 $ 10,232 Additions charged to costs and expenses 2,619 14,238 Deductions ( 7,079 ) ( 2,970 ) Ending balance - allowance for credit losses $ 13,610 $ 21,500 4. Segments The Company evaluates segment reporting in accordance with 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: Third Quarter First Nine Months (in thousands) 2021 2020 2021 2020 Net sales: Nonalcoholic Beverages $ 1,426,971 $ 1,295,271 $ 4,061,976 $ 3,633,376 All Other 88,991 84,776 272,132 246,406 Eliminations (1) ( 58,530 ) ( 51,563 ) ( 173,733 ) ( 151,062 ) Consolidated net sales $ 1,457,432 $ 1,328,484 $ 4,160,375 $ 3,728,720 (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. 10 Third Quarter First Nine Months (in thousands) 2021 2020 2021 2020 Income from operations: Nonalcoholic Beverages $ 144,130 $ 108,035 $ 363,544 $ 227,559 All Other ( 7,099 ) ( 4,191 ) ( 11,468 ) ( 7,776 ) Consolidated income from operations $ 137,031 $ 103,844 $ 352,076 $ 219,783 Depreciation and amortization: Nonalcoholic Beverages $ 44,313 $ 45,066 $ 126,088 $ 125,733 All Other 3,145 3,027 9,253 8,756 Consolidated depreciation and amortization $ 47,458 $ 48,093 $ 135,341 $ 134,489 5. Net Income Per Share The following table sets forth the computation of basic net income per share and diluted net income per share under the two-class method: Third Quarter First Nine Months (in thousands, except per share data) 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. $ 68,930 $ 51,884 $ 170,473 $ 106,115 Less dividends: Common Stock 1,785 1,785 5,356 5,356 Class B Common Stock 558 559 1,674 1,674 Total undistributed earnings $ 66,587 $ 49,540 $ 163,443 $ 99,085 Common Stock undistributed earnings – basic $ 50,731 $ 37,743 $ 124,522 $ 75,490 Class B Common Stock undistributed earnings – basic 15,856 11,797 38,921 23,595 Total undistributed earnings – basic $ 66,587 $ 49,540 $ 163,443 $ 99,085 Common Stock undistributed earnings – diluted $ 50,536 $ 37,515 $ 123,993 $ 75,034 Class B Common Stock undistributed earnings – diluted 16,051 12,025 39,450 24,051 Total undistributed earnings – diluted $ 66,587 $ 49,540 $ 163,443 $ 99,085 Numerator for basic net income per Common Stock share: Dividends on Common Stock $ 1,785 $ 1,785 $ 5,356 $ 5,356 Common Stock undistributed earnings – basic 50,731 37,743 124,522 75,490 Numerator for basic net income per Common Stock share $ 52,516 $ 39,528 $ 129,878 $ 80,846 Numerator for basic net income per Class B Common Stock share: Dividends on Class B Common Stock $ 558 $ 559 $ 1,674 $ 1,674 Class B Common Stock undistributed earnings – basic 15,856 11,797 38,921 23,595 Numerator for basic net income per Class B Common Stock share $ 16,414 $ 12,356 $ 40,595 $ 25,269 Numerator for diluted net income per Common Stock share: Dividends on Common Stock $ 1,785 $ 1,785 $ 5,356 $ 5,356 Dividends on Class B Common Stock assumed converted to Common Stock 558 559 1,674 1,674 Common Stock undistributed earnings – diluted 66,587 49,540 163,443 99,085 Numerator for diluted net income per Common Stock share $ 68,930 $ 51,884 $ 170,473 $ 106,115 Numerator for diluted net income per Class B Common Stock share: Dividends on Class B Common Stock $ 558 $ 559 $ 1,674 $ 1,674 Class B Common Stock undistributed earnings – diluted 16,051 12,025 39,450 24,051 Numerator for diluted net income per Class B Common Stock share $ 16,609 $ 12,584 $ 41,124 $ 25,725 11 Third Quarter First Nine Months (in thousands, except per share data) 2021 2020 2021 2020 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) 9,409 9,430 9,413 9,430 Class B Common Stock weighted average shares outstanding – diluted 2,268 2,289 2,272 2,289 Basic net income per share: Common Stock $ 7.36 $ 5.53 $ 18.19 $ 11.32 Class B Common Stock $ 7.36 $ 5.53 $ 18.19 $ 11.32 Diluted net income per share: Common Stock $ 7.32 $ 5.51 $ 18.11 $ 11.25 Class B Common Stock $ 7.31 $ 5.51 $ 18.10 $ 11.24 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) October 1, 2021 December 31, 2020 Finished products $ 142,715 $ 140,080 Manufacturing materials 55,296 47,081 Plastic shells, plastic pallets and other inventories 42,484 38,596 Total inventories $ 240,495 $ 225,757 12 7. Prepaid Expenses and Other Current Assets Prepaid expenses and other current assets consisted of the following: (in thousands) October 1, 2021 December 31, 2020 Repair parts $ 27,537 $ 26,811 Commodity hedges at fair market value 8,807 2,417 Prepaid software 6,185 6,650 Prepaid marketing 5,723 4,773 Prepaid taxes 4,411 8,428 Other prepaid expenses and other current assets 31,489 25,067 Total prepaid expenses and other current assets $ 84,152 $ 74,146 8. Assets Held for Sale As of October 1, 2021, certain properties owned by the Company met the accounting guidance criteria to be classified as assets held for sale. The properties primarily relate to warehousing and distribution operations that have been consolidated into new facilities. 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) October 1, 2021 December 31, 2020 Land $ 2,918 $ 2,559 Buildings and leasehold and land improvements 4,014 3,870 Total assets held for sale $ 6,932 $ 6,429 9. Property, Plant and Equipment, Net The principal categories and estimated useful lives of property, plant and equipment, net were as follows: (in thousands) October 1, 2021 December 31, 2020 Estimated Useful Lives Land $ 80,261 $ 81,981 Buildings 261,976 240,173 8 - 50 years Machinery and equipment 436,049 392,998 5 - 20 years Transportation equipment 454,999 445,218 3 - 20 years Furniture and fixtures 93,640 96,606 3 - 10 years Cold drink dispensing equipment 440,221 465,881 3 - 17 years Leasehold and land improvements 171,871 155,077 5 - 20 years Software for internal use 48,043 46,569 3 - 10 years Construction in progress 12,661 54,505 Total property, plant and equipment, at cost 1,999,721 1,979,008 Less: Accumulated depreciation and amortization 990,396 956,286 Property, plant and equipment, net $ 1,009,325 $ 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: October 1, 2021 December 31, 2020 Weighted average remaining lease term: Operating leases 8.6 years 9.4 years Financing leases 12.7 years 13.4 years Weighted average discount rate: Operating leases 3.7 % 4.0 % Financing leases 3.1 % 3.2 % Following is a summary of the Company’s leases within the condensed consolidated statements of operations: Third Quarter First Nine Months (in thousands) 2021 2020 2021 2020 Operating lease costs $ 6,828 $ 6,243 $ 19,647 $ 18,392 Short-term and variable leases 4,561 3,982 12,932 10,980 Depreciation expense from financing leases 1,414 1,415 4,242 3,264 Interest expense on financing lease obligations 575 613 1,738 1,120 Total lease cost $ 13,378 $ 12,253 $ 38,559 $ 33,756 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 October 1, 2021: (in thousands) Operating Leases Financing Leases Remainder of 2021 $ 6,212 $ 1,774 2022 24,389 7,145 2023 23,273 7,201 2024 19,211 7,396 2025 16,680 7,593 Thereafter 81,220 55,828 Total minimum lease payments including interest $ 170,985 $ 86,937 Less: Amounts representing interest 26,708 14,660 Present value of minimum lease principal payments 144,277 72,277 Less: Current portion of lease liabilities 20,650 6,009 Noncurrent portion of lease liabilities $ 123,627 $ 66,268 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 Nine Months (in thousands) 2021 2020 Cash flows from operating activities impact: Operating leases $ 21,112 $ 14,134 Interest payments on financing lease obligations 1,738 1,120 Total cash flows from operating activities impact $ 22,850 $ 15,254 Cash flows from financing activities impact: Principal payments on financing lease obligations $ 3,567 $ 4,428 Total cash flows from financing activities impact $ 3,567 $ 4,428 As of October 1, 2021, the Company had one operating lease commitment that had not yet commenced. This lease commitment has a lease term of approximately three years and is expected to commence during the fourth quarter of 2021. The additional lease liability associated with this lease commitment is expected to be $ 2.0 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) October 1, 2021 December 31, 2020 Distribution agreements at cost $ 952,547 $ 952,533 Less: Accumulated amortization 117,144 98,780 Distribution agreements, net $ 835,403 $ 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) October 1, 2021 December 31, 2020 Customer lists at cost $ 25,288 $ 25,288 Less: Accumulated amortization 13,863 12,484 Customer lists, net $ 11,425 $ 12,804 13. Other Accrued Liabilities Other accrued liabilities consisted of the following: (in thousands) October 1, 2021 December 31, 2020 Accrued insurance costs $ 51,401 $ 48,318 Current portion of acquisition related contingent consideration 47,212 36,020 Accrued marketing costs 34,559 38,539 Employee and retiree benefit plan accruals 33,707 31,653 Accrued taxes (other than income taxes) 7,662 6,178 Current deferred proceeds from related parties 3,064 3,085 Current portion of deferred payroll taxes under CARES Act — 18,706 All other accrued expenses 36,496 22,642 Total other accrued liabilities $ 214,101 $ 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. During the third quarter of 2021, the Company repaid the portion of the deferred payroll taxes classified as current as of December 31, 2020. The Company intends to 15 repay the remaining portion of the deferred payroll taxes during the fourth quarter of 2022, and, thus, classified the balance as noncurrent as of October 1, 2021. 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 are 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: Third Quarter First Nine Months (in thousands) 2021 2020 2021 2020 Cost of sales $ 3,794 $ 1,194 $ 6,210 $ 924 Selling, delivery and administrative expenses 426 575 1,491 ( 949 ) Total gain (loss) $ 4,220 $ 1,769 $ 7,701 $ ( 25 ) 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) October 1, 2021 December 31, 2020 Prepaid expenses and other current assets $ 8,807 $ 2,417 Other assets 1,367 56 Total assets $ 10,174 $ 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) October 1, 2021 December 31, 2020 Gross commodity derivative instrument assets $ 10,643 $ 2,473 Gross commodity derivative instrument liabilities 469 — The following table summarizes the Company’s outstanding commodity derivative instruments: (in thousands) October 1, 2021 December 31, 2020 Notional amount of outstanding commodity derivative instruments $ 65,541 $ 23,030 Latest maturity date of outstanding commodity derivative instruments December 2022 December 2021 16 15. Fair Values of Financial Instruments GAAP requires assets and liabilities carried at fair value to be classified and disclosed in one of the following categories: • Level 1: Quoted market prices in active markets for identical assets or liabilities. • Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data. • Level 3: Unobservable inputs that are not corroborated by market data. The below methods and assumptions were used by the Company in estimating the fair values of its financial instruments. There were no transfers of assets or liabilities between levels in any period presented. Financial Instrument Fair Value Level Methods and Assumptions Deferred compensation plan assets and liabilities Level 1 The fair value of the Company’s nonqualified deferred compensation plan for certain executives and other highly compensated employees is based on the fair values of associated assets and liabilities, which are held in mutual funds and are based on the quoted market values of the securities held within the mutual funds. Commodity derivative instruments Level 2 The fair values of the Company’s commodity derivative instruments are based on current settlement values at each balance sheet date, which represent the estimated amounts the Company would have received or paid upon termination of these instruments. The Company’s credit risk related to the commodity derivative instruments is managed by requiring high standards for its counterparties and periodic settlements. The Company considers nonperformance risk in determining the fair values of commodity derivative instruments. 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: October 1, 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 $ 57,005 $ 57,005 $ 57,005 $ — $ — Commodity derivative instruments 10,174 10,174 — 10,174 — Liabilities: Deferred compensation plan liabilities 57,005 57,005 57,005 — — Long-term debt 793,177 857,200 — 857,200 — Acquisition related contingent consideration 496,659 496,659 — — 496,659 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 subject to sub- 17 bottling fees 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. The acquisition related contingent consideration liability is the Company’s only Level 3 asset or liability. A summary of the Level 3 activity is as follows: Third Quarter First Nine Months (in thousands) 2021 2020 2021 2020 Beginning balance - Level 3 liability $ 473,055 $ 441,113 $ 434,694 $ 446,684 Payments of acquisition related contingent consideration ( 8,720 ) ( 11,468 ) ( 28,640 ) ( 31,999 ) Reclassification to current payables ( 1,600 ) ( 800 ) ( 300 ) ( 1,100 ) Increase in fair value 33,924 19,808 90,905 35,068 Ending balance - Level 3 liability $ 496,659 $ 448,653 $ 496,659 $ 448,653 As of October 1, 2021 and September 27, 2020, discount rates of 7.6 % 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 nine months of 2021 was primarily driven by higher projections of future cash flows in the distribution territories subject to sub-bottling fees. This fair value adjustment was recorded in other expense, net in the condensed consolidated statement of operations for the first nine months of 2021. 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. 16. Income Taxes 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 was $ 62.3 million for the first nine months of 2021 and $ 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. The Company had uncertain tax positions, including accrued interest, of $ 2.8 million on October 1, 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 that 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: Third Quarter First Nine Months (in thousands) 2021 2020 2021 2020 Service cost $ 1,863 $ 1,659 $ 5,589 $ 4,976 Interest cost 2,452 2,760 7,360 8,280 Expected return on plan assets ( 3,250 ) ( 3,382 ) ( 9,748 ) ( 10,148 ) Recognized net actuarial loss 1,219 1,189 3,654 3,568 Amortization of prior service cost 1 5 2 14 Net periodic pension cost $ 2,285 $ 2,231 $ 6,857 $ 6,690 The Company contributed $ 6.8 million to the two Company-sponsored pension plans during the first nine months of 2021 and does no t anticipate making additional contributions during the fourth quarter of 2021. 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: Third Quarter First Nine Months (in thousands) 2021 2020 2021 2020 Service cost $ 403 $ 376 $ 1,209 $ 1,128 Interest cost 447 504 1,342 1,511 Recognized net actuarial loss 186 88 557 263 Net periodic postretirement benefit cost $ 1,036 $ 968 $ 3,108 $ 2,902 18. Other Liabilities Other liabilities consisted of the following: (in thousands) October 1, 2021 December 31, 2020 Noncurrent portion of acquisition related contingent consideration $ 449,447 $ 398,674 Accruals for executive benefit plans 142,853 144,101 Noncurrent deferred proceeds from related parties 107,070 109,361 Noncurrent portion of deferred payroll taxes under CARES Act 18,739 18,706 Other 8,183 8,438 Total other liabilities $ 726,292 $ 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 October 1, 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 — — 2021 Term Loan Facility 7/9/2024 Variable Varies Nonpublic 70,000 — Senior bonds (2) 11/25/2025 3.80 % Semi-annually Public 350,000 350,000 2021 Revolving Credit Facility 7/9/2026 Variable Varies Nonpublic — — 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 ( 36 ) ( 43 ) Debt issuance costs ( 1,787 ) ( 1,992 ) 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. 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 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. 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 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. 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 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. 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 October 1, 2021. These covenants do not currently, and the Company does not anticipate they will, restrict its liquidity or capital resources. 20 All outstanding long-term debt has been issued by the Company and none has been issued by any of its subsidiaries. There are no guarantees of the Company’s debt. 20. Commitments and Contingencies Manufacturing Cooperatives The Company is obligated to purchase at least 80 % of its requirements of plastic bottles for certain designated territories from Southeastern. The Company is also obligated to purchase 17.5 million cases of finished product from SAC on an annual basis through June 2024. The Company purchased 21.0 million cases and 21.9 million cases of finished product from SAC in the first nine months of 2021 and the first nine months of 2020, respectively. The following table summarizes the Company’s purchases from these manufacturing cooperatives: Third Quarter First Nine Months (in thousands) 2021 2020 2021 2020 Purchases from Southeastern $ 31,417 $ 31,196 $ 92,990 $ 94,835 Purchases from SAC 41,867 37,006 125,677 119,225 Total purchases from manufacturing cooperatives $ 73,284 $ 68,202 $ 218,667 $ 214,060 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 October 1, 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 October 1, 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 October 1, 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 October 1, 2021, the future payments related to these contractual arrangements, which expire at various dates through 2033, amounted to $ 140.6 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 and the foreign currency translation for a subsidiary of the Company that performs data analysis and provides consulting services outside the United States. 21 Following is a summary of AOCI(L) for the third quarter of 2021 and the third quarter of 2020: (in thousands) July 2, 2021 Pre-tax Activity Tax Effect October 1, 2021 Net pension activity: Actuarial loss $ ( 92,018 ) $ 1,219 $ ( 303 ) $ ( 91,102 ) Prior service credits 9 1 — 10 Net postretirement benefits activity: Actuarial loss ( 4,049 ) 186 ( 46 ) ( 3,909 ) Prior service costs ( 624 ) — — ( 624 ) Foreign currency translation adjustment 5 ( 8 ) 2 ( 1 ) Reclassification of stranded tax effects ( 19,720 ) — — ( 19,720 ) Total AOCI(L) $ ( 116,397 ) $ 1,398 $ ( 347 ) $ ( 115,346 ) (in thousands) June 28, 2020 Pre-tax Activity Tax Effect September 27, 2020 Net pension activity: Actuarial loss $ ( 91,381 ) $ 1,189 $ ( 293 ) $ ( 90,485 ) Prior service credits — 5 ( 1 ) 4 Net postretirement benefits activity: Actuarial loss ( 1,059 ) 88 ( 22 ) ( 993 ) Prior service costs ( 624 ) — — ( 624 ) Interest rate swap (1) ( 1,283 ) 402 ( 99 ) ( 980 ) Foreign currency translation adjustment ( 14 ) 15 ( 4 ) ( 3 ) Reclassification of stranded tax effects ( 19,720 ) — — ( 19,720 ) Total AOCI(L) $ ( 114,081 ) $ 1,699 $ ( 419 ) $ ( 112,801 ) (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. Following is a summary of AOCI(L) for the first nine months of 2021 and the first nine months of 2020: (in thousands) December 31, 2020 Pre-tax Activity Tax Effect October 1, 2021 Net pension activity: Actuarial loss $ ( 93,847 ) $ 3,654 $ ( 909 ) $ ( 91,102 ) Prior service credits 8 2 — 10 Net postretirement benefits activity: Actuarial loss ( 4,328 ) 557 ( 138 ) ( 3,909 ) Prior service costs ( 624 ) — — ( 624 ) Interest rate swap ( 556 ) 739 ( 183 ) — Foreign currency translation adjustment 14 ( 21 ) 6 ( 1 ) Reclassification of stranded tax effects ( 19,720 ) — — ( 19,720 ) Total AOCI(L) $ ( 119,053 ) $ 4,931 $ ( 1,224 ) $ ( 115,346 ) (in thousands) December 29, 2019 Pre-tax Activity Tax Effect September 27, 2020 Net pension activity: Actuarial loss $ ( 93,174 ) $ 3,568 $ ( 879 ) $ ( 90,485 ) Prior service credits (costs) ( 7 ) 14 ( 3 ) 4 Net postretirement benefits activity: Actuarial loss ( 1,191 ) 263 ( 65 ) ( 993 ) Prior service costs ( 624 ) — — ( 624 ) Interest rate swap ( 270 ) ( 942 ) 232 ( 980 ) Foreign currency translation adjustment ( 16 ) 18 ( 5 ) ( 3 ) Reclassification of stranded tax effects ( 19,720 ) — — ( 19,720 ) Total AOCI(L) $ ( 115,002 ) $ 2,921 $ ( 720 ) $ ( 112,801 ) 22 Following is a summary of the impact of AOCI(L) on the condensed consolidated statements of operations: Third Quarter 2021 (in thousands) Net Pension Activity Net Postretirement Benefits Activity Foreign Currency Translation Adjustment Total Cost of sales $ 364 $ 97 $ — $ 461 Selling, delivery and administrative expenses 856 89 ( 8 ) 937 Subtotal pre-tax 1,220 186 ( 8 ) 1,398 Income tax expense 303 46 ( 2 ) 347 Total after tax effect $ 917 $ 140 $ ( 6 ) $ 1,051 Third Quarter 2020 (in thousands) Net Pension Activity Net Postretirement Benefits Activity Interest Rate Swap Foreign Currency Translation Adjustment Total Cost of sales $ 363 $ 55 $ — $ — $ 418 Selling, delivery and administrative expenses 831 33 402 15 1,281 Subtotal pre-tax 1,194 88 402 15 1,699 Income tax expense 294 22 99 4 419 Total after tax effect $ 900 $ 66 $ 303 $ 11 $ 1,280 First Nine Months 2021 (in thousands) Net Pension Activity Net Postretirement Benefits Activity Interest Rate Swap Foreign Currency Translation Adjustment Total Cost of sales $ 1,068 $ 304 $ — $ — $ 1,372 Selling, delivery and administrative expenses 2,588 253 739 ( 21 ) 3,559 Subtotal pre-tax 3,656 557 739 ( 21 ) 4,931 Income tax expense 909 138 183 ( 6 ) 1,224 Total after tax effect $ 2,747 $ 419 $ 556 $ ( 15 ) $ 3,707 First Nine Months 2020 (in thousands) Net Pension Activity Net Postretirement Benefits Activity Interest Rate Swap Foreign Currency Translation Adjustment Total Cost of sales $ 1,057 $ 160 $ — $ — $ 1,217 Selling, delivery and administrative expenses 2,525 103 ( 942 ) 18 1,704 Subtotal pre-tax 3,582 263 ( 942 ) 18 2,921 Income tax expense 882 65 ( 232 ) 5 720 Total after tax effect $ 2,700 $ 198 $ ( 710 ) $ 13 $ 2,201 23 22. Supplemental Disclosures of Cash Flow Information Changes in current assets and current liabilities affecting cash flows were as follows: First Nine Months (in thousands) 2021 2020 Accounts receivable, trade $ ( 56,766 ) $ ( 19,850 ) Allowance for doubtful accounts ( 5,010 ) 11,268 Accounts receivable from The Coca‑Cola Company ( 9,120 ) 7,895 Accounts receivable, other 7,846 ( 1,475 ) Inventories ( 14,738 ) 18,153 Prepaid expenses and other current assets ( 10,006 ) ( 368 ) Accounts payable, trade 62,775 40,937 Accounts payable to The Coca‑Cola Company 46,520 26,957 Other accrued liabilities 27,699 ( 14,578 ) Accrued compensation 9,009 ( 13,035 ) Accrued interest payable 2,337 1,747 Change in current assets less current liabilities $ 60,546 $ 57,651 24