What changed in this filing

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Item 1A. Risk Factors

2022-02-22 compared with 2021-02-26 · 61 added, 55 removed, 185 unchanged (39% of the section changed)

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Risks Related to Our Business

The Company’s business and results of operations may be adversely affected by increased costs, disruption of supply or shortages of raw materials, fuel and other supplies.

Raw material costs, including the costs for plastic bottles, aluminum cans, PET resin and high fructose corn syrup, are subject to significant price volatility.

The Company’s business and results of operations may be adversely affected by increased costs, disruption of supply or unavailability or shortages of raw materials, fuel and other supplies.

Raw material costs, including the costs for plastic bottles, aluminum cans, PET resin, carbon dioxide and high fructose corn syrup, are subject to significant price volatility, which may be worsened by periods of increased demand, supply constraints or high inflation.

International or domestic geopolitical or other events, including the imposition of tariffs and/or quotas by the U.S.

government on any of these raw materials, could adversely impact the supply and cost of these raw materials to the Company.

The COVID-19 pandemic has resulted in certain raw materials not being available at commercially favorable terms or at all, and other similar pandemics may have such an effect in the future.

In addition, there are no limits on the prices The Coca‑Cola Company and other beverage companies can charge for concentrate.

If the Company cannot offset higher raw material costs with higher selling prices, effective commodity price hedging, increased sales volume or reductions in other costs, the Company’s results of operations and profitability could be adversely affected.

Continued consolidation among suppliers of certain of the Company’s raw materials could have an adverse effect on the Company’s ability to negotiate the lowest costs and, in light of the Company’s relatively low in-plant raw material inventory levels, has the potential for causing interruptions in the Company’s supply of raw materials and in its manufacture of finished goods.

Limited suppliers for certain of the Company’s raw materials could have an adverse effect on the Company’s ability to negotiate the lowest costs and, in light of the Company’s relatively low in-plant raw material inventory levels, has the potential for causing interruptions in the Company’s supply of raw materials and in its manufacture of finished goods.

The Company uses significant amounts of fuel for its delivery fleet and other vehicles used in the distribution of its products.

International or domestic geopolitical or other events could impact the supply and cost of fuel and the timely delivery of the Company’s products to its customers.

Although the Company strives to reduce fuel consumption and uses commodity hedges to manage the Company’s fuel costs, there can be no assurance the Company will succeed in limiting the impact of fuel price increases or price volatility on the Company’s business or future cost increases, which could reduce the profitability of the Company’s operations.

The Company uses a combination of internal and external freight shipping and transportation services to transport and deliver products.

The Company’s freight cost and the timely delivery of its products may be adversely impacted by a number of factors which could reduce the profitability of the Company’s operations, including driver shortages, reduced availability of independent contractor drivers, higher fuel costs, weather conditions, traffic congestion, increased government regulation and other matters.

The Company purchases all of the plastic bottles used in its manufacturing plants from Southeastern Container and Western Container, two manufacturing cooperatives the Company co-owns with several other Coca‑Cola bottlers, and a majority of its aluminum cans from two domestic suppliers.

In 2020, the COVID-19 pandemic caused significant tightening in the domestic market for aluminum cans due to changing consumer purchasing patterns and, as a result, the Company changed its typical sourcing model and sourced aluminum cans from international locations and may continue to do so if the domestic supply of aluminum cans remains constrained.

In 2020, the COVID-19 pandemic caused significant tightening in the domestic market for aluminum cans due to changing consumer purchasing patterns and, as a result, the Company changed its typical sourcing model and began to source aluminum cans from international locations.

The inability of these plastic bottle or aluminum can suppliers to meet the Company’s requirements for containers could result in the Company not being able to fulfill customer orders and production demand until alternative sources of supply are located.

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Failure of the plastic bottle or aluminum can suppliers to meet the Company’s purchase requirements could negatively impact inventory levels, customer confidence and results of operations, including sales levels and profitability.

The Company uses a combination of internal and external freight shipping and transportation services to transport and deliver products.

In addition, the Company uses significant amounts of fuel for its delivery fleet and other vehicles used in the distribution of its products.

International or domestic geopolitical or other events could impact the supply and cost of fuel and the timely delivery of the Company’s products to its customers.

Although the Company strives to reduce fuel consumption and uses commodity hedges to manage the Company’s fuel costs, there can be no assurance the Company will succeed in limiting the impact of fuel price volatility on the Company’s business or future cost increases, which could reduce the profitability of the Company’s operations.

The Company continues to make significant reinvestments in its business in order to evolve its operating model and to accommodate future growth and portfolio expansion, including supply chain optimization.

The increased costs associated with these reinvestments, the potential for disruption in manufacturing and distribution and the risk the Company may not realize a satisfactory return on its investments could adversely affect the Company’s business, financial condition or results of operations.

The Company’s business and results of operations may be adversely affected by the inability to attract and retain front-line employees in a tight labor market.

In 2021, the U.S.

economy experienced unusually tight labor market conditions as the supply of available workers frequently fell short of the number of workers necessary to fill all available jobs.

As a result, the Company experienced difficulty in attracting and retaining front-line workers and significant turnover.

Tight labor markets and a lack of available workers has led, and may lead in the future, to increased labor costs in the form of higher salaries and increased overtime.

If the Company cannot retain adequate front-line

employees to produce and deliver its products, its business operations may be adversely affected and higher labor costs have had, and may have in the future, an adverse effect on our results of operations.

Moreover, the supply of front-line workers, and the Company’s ability to retain such workers, may be adversely impacted by future COVID-19 regulations and policies.

The Company is actively monitoring the status of announced and potential regulations concerning vaccination or periodic testing for COVID-19 and the impact that such regulations, if implemented, 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 affected.

The reliance on purchased finished products from external sources could have an adverse impact on the Company’s profitability.

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As a result, the Company is subject to incremental risk, including, but not limited to, product quality and availability, price variability and production capacity shortfalls for externally purchased finished products, which could have an impact on the Company’s profitability and customer relationships.

Particularly, the Company is subject to the risk of unavailability of still products that it acquires from other manufacturers, leading to an inability to meet consumer demand for these products.

In most instances, the Company’s ability to negotiate the prices at which it purchases finished products from other U.S.

Coca‑Cola bottlers is limited pursuant to The Coca‑Cola Company’s right to unilaterally establish the prices, or certain elements of the formulas used to determine the prices, for such finished products under the RMA, which could have an adverse impact on the Company’s profitability.

Changes in public and consumer perception and preferences, including concerns related to obesity, artificial ingredients, product safety and sustainability and brand reputation, could reduce demand for the Company’s products and reduce profitability.

The Company’s business depends substantially on consumer tastes, preferences and shopping habits that change in often unpredictable ways.

As a result of certain health and wellness trends, consumer preferences over the past several years have shifted from sugar-sweetened sparkling beverages to diet sparkling beverages, tea, sports drinks, enhanced water and bottled water.

Due to the COVID-19 pandemic, consumer demand shifted in 2020 from products sold for immediate consumption through smaller retail stores and on‑premise locations to take-home products sold in grocery stores, mass merchandise stores and club stores.

In addition, consumers, public health officials, public health advocates and government officials have become increasingly concerned about the public health consequences associated with obesity.

As the Company distributes, markets and manufactures beverage brands owned by others, the success of the Company’s business depends in large measure on the ability of The Coca‑Cola Company and other beverage companies to develop and introduce product innovations to meet the changing preferences of the broad consumer market, and failure to satisfy these consumer preferences could adversely affect the Company’s profitability.

Changes in public and consumer perception and preferences, including concerns related to product safety and sustainability, artificial ingredients, brand reputation and obesity, could reduce demand for the Company’s products and reduce profitability.

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Likewise, negative postings or comments on social media or networking websites about the Company, The Coca‑Cola Company or one of the products the Company carries, even if inaccurate or malicious, could generate adverse publicity that could damage the reputation of the Company’s brands or the Company.

The Company’s business depends substantially on consumer tastes, preferences and shopping habits that change in often unpredictable ways.

As a result of certain health and wellness trends, including concern over the public health consequences associated with obesity, consumer preferences over the past several years have shifted from sugar-sweetened sparkling beverages to diet sparkling beverages, tea, sports drinks, enhanced water and bottled water.

The COVID-19 pandemic and other pandemic outbreaks in the future could materially adversely affect our business, financial condition, results of operations or cash flows.

The COVID-19 pandemic has had a significant impact on our business.

Future pandemics may also pose risks similar to, or more severe than, the risks associated with the COVID-19 pandemic and such risks are impossible to predict with certainty at this time.

Any of the negative impacts of the COVID-19 pandemic, including those described below, alone or in combination with others, may have a material adverse effect on our business, financial condition, results of operations or cash flows.

• The closing or restricted operations of many public locations, which caused a decrease in sales volume in on-premise locations during 2020 and parts of 2021.

• Consumer demand may shift from higher margin products sold for immediate consumption through smaller retail stores and on-premise locations to lower margin, take-home products sold in grocery stores, mass merchandise stores and club stores, as experienced during the onset of the COVID-19 pandemic.

• Disruptions in our concentrate suppliers’ production and distribution operations could increase concentrate costs and create delays in delivery of concentrate, which could adversely impact our ability to manufacture and distribute certain products.

Further, disruptions in supply chains have placed, and may continue to place, constraints on our ability to procure beverage containers, such as plastic bottles and aluminum cans.

These supply chain disruptions have increased, and in the future could increase further, our packaging costs and alter the product offerings to our customers.

• Actions we have taken or may take, or decisions we have made or may make, because of the COVID-19 pandemic may result in legal claims or litigation against us.

• The resumption of normal business operations may be delayed or constrained by the persistence of the COVID-19 pandemic, including variants of the disease, and lingering effects on our consumers, customers, suppliers and/or third-party service providers and business partners.

Changes in government regulations related to nonalcoholic beverages, including regulations related to obesity, public health, artificial ingredients and product safety and sustainability, could reduce demand for the Company’s products and reduce profitability.

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Restrictive legislation, if widely enacted, could have an adverse impact on the Company’s products, sales and reputation.

Legislation has been proposed in Congress and by certain state and local governments which would prohibit the sale of soft drink products in non-refillable bottles and cans or require a mandatory deposit as a means of encouraging the return of such containers,

each in an attempt to reduce solid waste and litter.

Similarly, the Company is aware of proposed legislation that would impose fees or taxes on various types of containers used in its business.

The Company is not currently impacted by the policies in these types of proposed legislation, but it is possible that similar or more restrictive legal requirements may be proposed or enacted within its distribution territories in the future.

Concerns about perceived negative safety and quality consequences of certain ingredients in the Company’s products, such as non-nutritive sweeteners or ingredients in energy drinks, could result in additional governmental regulations concerning the production, marketing, labeling or availability of the Company’s products or the ingredients in such products, possible new taxes or negative publicity resulting from actual or threatened legal actions against the Company or other companies in the same industry, any of which could damage the reputation of the Company or reduce demand for the Company’s products, which could adversely affect the Company’s profitability.

could damage the reputation of the Company or reduce demand for the Company’s products, which could adversely affect the Company’s profitability.

The FDA occasionally proposes major changes to the nutrition labels required on all packaged foods and beverages, including those for most of the Company’s products, which could require the Company and its competitors to revise nutrition labels to include updated serving sizes, information about total calories in a beverage product container and information about any added sugars or nutrients.

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Regulators may restrict the use of benefit programs, including SNAP, to purchase certain beverages and foods currently classified as food or food products.

The COVID-19 pandemic and other pandemic outbreaks in the future could materially adversely affect our business, financial condition, results of operations or cash flows.

The COVID-19 pandemic has had, and is continuing to have, a significant impact on our business and results of operations, as government-imposed restrictions on social and commercial activity to promote social distancing has caused significant changes to consumer purchasing behavior.

Future pandemics may also pose risks similar to, or more severe than, the risks associated with the COVID-19 pandemic.

Such risks are impossible to predict at this time.

• The closing or restricted operations of many public locations caused a decrease in sales volume in on-premise locations.

This negative trend is likely to continue during 2021, and, if the COVID‑19 pandemic continues or intensifies, its negative impact on our net sales may persist or become more severe.

In 2020, we experienced increased sales volume in our larger retail customer outlets as consumers stocked up on certain of our products with the expectation of spending more time at home during the pandemic;

however, such increased sales volume may not continue in the long term and may not offset the margin pressure we are experiencing in our on-premise locations.

• Consumer demand shifted from higher margin products sold for immediate consumption through smaller retail stores and on-premise locations to lower margin, take-home products sold in grocery stores, mass merchandise stores and club stores.

We expect this shift in consumer purchasing behavior to continue while shelter-in-place and social distancing behaviors are mandated or encouraged, and possibly for a period of time thereafter.

• The COVID-19 pandemic caused, and future pandemics may cause, deteriorating economic conditions in our territories, such as increasing unemployment, declining consumer confidence, or economic slowdowns or recessions, which could cause an overall decrease in demand for our products or a shift in the types of products sold.

Further, disruptions in supply chains have placed, and may continue to place, constraints on our ability to procure beverage containers, such as plastic bottles and aluminum cans.

These supply chain disruptions have increased, and in the future could increase further, our packaging costs and alter the product offerings to our customers.

• We may be required to write off obsolete inventory, accounts receivable and balances of advanced funding provided to customers that permanently close or suffer financial hardships as a result of the COVID-19 pandemic or future pandemics.

• Governmental authorities in the United States may increase or impose new income taxes or indirect taxes, or revise interpretations of existing tax rules and regulations, as a means to finance the cost of stimulus packages and other relief measures enacted or taken, or that may be enacted or taken in the future, to protect populations and economies from the impact of the COVID-19 pandemic.

Alternatively, concerns about the difficulty or desirability of financing additional fiscal stimulus at the federal level could prevent such stimulus from being authorized in a timely manner or at all.

Such actions could have an adverse effect on our results of operations or cash flows.

• We rely on third-party service providers and business partners, such as cloud data storage and other information technology service providers, suppliers, distributors, contractors, joint venture partners and other external business partners, for certain functions or for services in support of key portions of our operations.

These third-party service providers and business partners are subject to risks and uncertainties related to the COVID-19 pandemic, which may interfere with their ability to fulfill their respective commitments and responsibilities to us in a timely manner and in accordance with our agreed-upon terms.

• As a result of the COVID-19 pandemic, including related governmental guidance or directives, we have encouraged, and in some cases required, most office-based employees, including most employees based at our corporate headquarters in Charlotte, North Carolina, to work remotely.

We may experience reductions in productivity and disruptions to our business routines while our remote-work policy remains in place.

• Actions we have taken or may take, or decisions we have made or may make, because of the COVID-19 pandemic may result in legal claims or litigation against us.

• The resumption of normal business operations after the disruptions caused by the COVID-19 pandemic may be delayed or constrained by its lingering effects on our consumers, customers, suppliers and/or third-party service providers and business partners.

The Company relies on The Coca‑Cola Company and other beverage companies to invest in the Company through marketing funding and to promote their own company brand identity through external advertising, marketing spending and product innovation.

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Any service interruptions of the CONA System could result in increased costs or adversely impact the Company’s results of operations.

In addition, because other Coca‑Cola bottlers are also users of the

CONA System and would likely experience similar service interruptions, the Company may not be able to have another bottler process orders on its behalf during any such interruption.

In addition, because other Coca‑Cola bottlers are also users of the CONA System and would likely experience similar service interruptions, the Company may not be able to have another bottler process orders on its behalf during any such interruption.

The Company is also a member of the NPSG, which is comprised of The Coca‑Cola Company, the Company and certain other Coca‑Cola bottlers who are regional producing bottlers in The Coca‑Cola Company’s national product supply system.

Pursuant to the NPSG Governance Agreement, the Company has agreed to abide by decisions made by the NPSG Board, which include decisions regarding strategic infrastructure investment and divestment planning, optimal national product supply sourcing and new product or packaging infrastructure planning.

Pursuant to the NPSG Agreement, the Company has agreed to abide by decisions made by the NPSG Board, which include decisions regarding strategic infrastructure investment and divestment planning, optimal national product supply sourcing and new product or packaging infrastructure planning.

Although the Company has a representative on the NPSG Board, the Company cannot exercise sole decision-making authority relating to the decisions of the NPSG Board, and the interests of other members of the NPSG Board may diverge from those of the Company.

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The Company increasingly relies on information technology systems to process, transmit and store electronic information.

Like most companies, the Company’s information technology systems may be vulnerable to interruption due to a variety of events beyond the Company’s control, including, but not limited to, power outages, computer and telecommunications failures, computer viruses, other malicious computer programs and cyberattacks, denial-of-service attacks, security breaches, catastrophic events such as fires, tornadoes, earthquakes and hurricanes, usage errors by employees and other security issues.

In addition, third-party providers of data hosting or cloud services, as well as customers and suppliers, could experience cybersecurity incidents involving data the Company shares with them.

Like most companies, the Company’s information technology systems are vulnerable to interruption due to a variety of events beyond the Company’s control, including, but not limited to, power outages, computer and telecommunications failures, computer viruses, other malicious computer programs and cyberattacks, denial-of-service attacks, security breaches, catastrophic events such as fires,

tornadoes, earthquakes and hurricanes, usage errors by employees and other security issues.

In addition, third-party providers of data hosting or cloud services, as well as other vendors, customers and suppliers, are vulnerable to cybersecurity incidents involving data the Company shares with them.

The third-party service provider for our employee digital timekeeping system suffered a cybersecurity incident that prevented us from accessing the information contained therein during the fourth quarter of 2021 and continuing through the beginning of 2022.

The Company immediately responded and implemented mitigation measures to reduce disruptions to our normal operations during the period we could not access the system.

While the information technology system and data incidents we have experienced in the past (including the incident involving our employee digital timekeeping system) have not materially impacted our business operations, we expect to continue experiencing these types of incidents in the future, one or more of which could significantly impact the Company.

The Company depends heavily upon the efficient operation of technological resources and a failure in these technology systems or controls could negatively impact the Company’s business, financial condition or results of operations.

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however, these measures may not be adequate or implemented properly to ensure that the Company’s operations are not disrupted.

If the Company’s technology systems are damaged, breached or cease to function properly, it may incur significant financial and other resources to upgrade, repair or replace them, and the Company may suffer interruptions in its business operations, resulting in lost revenues and potential delays in reporting its financial results.

If the Company’s technology systems, or those of its third-party service providers or business partners, are damaged, breached or cease to function properly, the Company may incur significant financial and other resources to mitigate, upgrade, repair or replace them, and the Company may suffer interruptions in its business operations, resulting in lost revenues and potential delays in reporting its financial results.

Further, misuse, leakage or falsification of the Company’s information could result in violations of data privacy laws and regulations and damage the reputation and credibility of the Company.

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For example, economic forces may cause consumers to shift away from purchasing higher-margin products and packages sold through immediate consumption and other highly profitable channels.

Periods of sustained high inflation may have adverse impacts on demand for the Company’s products and on the Company’s ability to sustain margins due to higher input costs.

Adverse economic conditions could also increase the likelihood of customer delinquencies and bankruptcies, which would increase the risk of uncollectability of certain accounts.

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The Company faces concentration risks related to a few customers comprising a large portion of the Company’s annual sales volume and net revenue.

The Company’s business, financial condition and results of operations could be adversely affected if revenue from

one or more of these significant customers is materially reduced or if the cost of complying with the customers’ demands is significant.

The Company’s business, financial condition and results of operations could be adversely affected if revenue from one or more of these significant customers is materially reduced or if the cost of complying with the customers’ demands is

Additionally, if receivables from one or more of these significant customers become uncollectible, the Company’s financial condition and results of operations may be adversely impacted.

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Further, a decline in the interest rates used to discount the Company’s pension and postretirement medical liabilities could increase the cost of these benefits and the amount of the liabilities.

In 2017, the United Kingdom’s Financial Conduct Authority announced that it will not require banks to submit rates for the London InterBank Offered Rate (“LIBOR”) after 2021.

The Company has identified its revolving credit facility as its only LIBOR-indexed financial instrument which extends after 2021 and has included language in the underlying loan agreement which allows the Company and its lenders to agree to an alternative reference rate upon the discontinuation of LIBOR.

The use of alternative reference rates or other reforms could cause the interest rate calculated for the Company’s revolving credit facility to be materially different than

The Company continues to evaluate the impact of and mitigate the risk associated with the expected discontinuation of LIBOR on the Company’s business, financial condition and results of operations.

In 2017, the United Kingdom’s Financial Conduct Authority (the “FCA”) announced that it will not require banks to submit rates for the London InterBank Offered Rate (“LIBOR”) after 2021.

In March 2021, the FCA extended the transition dates of certain LIBOR tenors (including all U.S.

dollar LIBOR tenors other than one-week and two-month U.S.

dollar LIBOR tenors) to June 30, 2023, after which LIBOR reference rates will cease to be provided.

The Company has identified its $500 million revolving credit facility as its only LIBOR-indexed financial instrument which extends after 2023 and has included successor LIBOR rate provisions in the underlying loan agreement based on the Alternative Reference Rates Committee’s suggested fallback language.

The revolving credit facility’s underlying loan agreement provides that the Secured Overnight Funding Rate (the “SOFR”) will be used as the LIBOR

replacement rate for borrowings under the facility unless the Company and its lenders agree to an alternative reference rate based on prevailing market convention at the replacement date.

The use of alternative reference rates or other reforms could cause the interest rate calculated for the Company’s revolving credit facility to be materially different than expected.

As of December 31, 2021, the Company did not have any outstanding borrowings under its revolving credit facility and currently does not expect the discontinuation of LIBOR to have a material effect on the Company’s business, financial condition or results of operations.

In assessing the Company’s credit strength, credit rating agencies consider the Company’s capital structure, financial policies, consolidated balance sheet and other financial information, and may also consider financial information of other bottling and beverage companies.

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Excise or other taxes imposed on the sale of certain of the Company’s products by the federal government and certain state and local governments, particularly any taxes incorporated into shelf prices and passed along to consumers, could cause consumers to shift away from purchasing products of the Company, which could have a material adverse impact on the Company’s business and financial results.

Governmental authorities in the United States may increase or impose new income taxes or indirect taxes, or revise interpretations of existing tax rules and regulations, as a means to finance the cost of stimulus packages and other relief measures enacted or taken, or that may be enacted or taken in the future, to protect populations and economies from the impact of the COVID-19 pandemic.

Such actions could have an adverse effect on our results of operations or cash flows.

In addition, an assessment of additional taxes resulting from audits of the Company’s tax filings could have an adverse impact on the Company’s profitability, cash flows and financial condition.

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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-K

Item 1A. Risk Factors