What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2022-02-22 compared with 2021-02-26 · 181 added, 255 removed, 350 unchanged (55% of the section changed)

1 unchanged sentence

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations of the Company should be read in conjunction with the consolidated financial statements of the Company and the accompanying notes to the consolidated financial statements.

During the fourth quarter of 2020, the Company’s Board of Directors approved a change in the Company’s fiscal year so that each fiscal year will end on December 31 of the applicable calendar year.

This change was not considered a change in fiscal year under the rules of the SEC as the new fiscal year commenced within seven days of the prior fiscal year-end and the new fiscal year commenced with the end of the prior fiscal year.

Beginning in 2020, the Company’s fiscal year ends on December 31 of the applicable calendar year.

Previously, the Company’s fiscal year generally ended on the Sunday closest to December 31 of each year.

The fiscal years discussed in this management’s discussion and analysis are the fiscal years ended December 31, 2020 (“2020”) and December 29, 2019 (“2019”).

The fiscal years presented are the periods ended December 31, 2021 (“2021”) and December 31, 2020 (“2020”).

Information concerning the fiscal year ended December 29, 2019 (“2019”) and a comparison of 2020 and 2019 may be found under “Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Annual Report on Form 10‑K for 2020, filed with the SEC on February 26, 2021.

The consolidated financial statements include the consolidated operations of the Company and its majority-owned subsidiaries, including Piedmont Coca-Cola Bottling Partnership (“Piedmont”), the Company’s only subsidiary that had a significant noncontrolling interest in 2020.

The Company and The Coca‑Cola Company formed Piedmont in 1993 to distribute and market nonalcoholic beverages primarily in portions of North Carolina and South Carolina.

The 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.

Piedmont was subsequently merged with and into CCBCC Operations, LLC, a wholly owned subsidiary of the Company, effective December 28, 2020.

The Company manages its business on the basis of three operating segments.

Nonalcoholic Beverages represents the vast majority of the Company’s consolidated revenues and income from operations.

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.”

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

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

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

The Company has taken the following actions to protect and promote the health and safety of its consumers, customers, teammates and communities, while it continues to manufacture and distribute products:

• We continue to execute our Infectious Disease Response Plan and Incident Management Crisis Response Protocols as the macro environment moves through the Response, Reopen, Recovery and Vaccine Administration and Deployment phases of the COVID-19 pandemic.

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

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

• We have established a process for the reporting of COVID-19 symptoms, exposures and positive test results of teammates and of incidents in customer accounts that our teammates have serviced.

This reporting process enables the Company to follow appropriate quarantine protocols and to communicate to its workforce in a timely and appropriate manner.

• We have increased our communications with teammates through podcasts, meetings, videos, secure, online company app postings and emails about safety protocols, Personal Protective Equipment (“PPE”), such as disposable gloves and masks, state and local guidance and CDC requirements and recommendations.

• We have increased sanitation protocols to sanitize equipment and common areas multiple times per day in order to mitigate risk and exposure situations.

• We have promoted hygiene practices recommended by the CDC, including social distancing requiring six or more feet between teammates where possible, and staggered work start and stop times and lunch breaks.

• We have utilized daily health and wellness monitoring, PPE and other measures to promote workplace safety and remain in compliance with local or state regulatory requirements.

• We have restricted access to our facilities for non-essential visitors, vendors and contractors.

For essential visitors, vendors and contractors, we require health and wellness certifications to be completed and the use of PPE as the Company determines appropriate.

• We have restricted business travel to “essential travel” to curtail exposure risk for all teammates.

• We have provided sanitation solution and supplies for our front-line teammates who interact with our products, customers and communities.

• We have implemented work-from-home routines for teammates whose work duties permit it and are utilizing virtual technology to replace many of our in-person meetings and gatherings.

• We have developed comprehensive return to office guidelines to manage a phased, measured approach and to prepare our higher density locations with safety modifications, signage, technology and process changes to promote a safe work environment.

• We have offered our teammates supplemental sick time in years 2020 and 2021 for non-exempt teammates to encourage our teammates to stay home if they or their family members are experiencing COVID-19 symptoms.

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

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

• As the U.S.

COVID vaccine program continues to evolve through its phases, we will partner with government and healthcare organizations to provide aid in the awareness of the vaccines and protocols for our teammates, including timing of phase eligibility by states across our territories.

Expected COVID-19 Impact on the Company

COVID-19-related quarantines and other restrictions in 2020 caused a severe downturn in parts of our business, but they also resulted in a significant increase in demand for our products across our take-home channels.

In response, our team worked diligently throughout 2020 to meet this elevated demand and optimize our commercial plan as well as our manufacturing and distribution network.

Our full-year financial results reflect the strong benefit of price realization, manufacturing efficiencies and cost savings we achieved throughout the year.

Some of these cost savings were achieved through lower marketing and sponsorship fees as sports and entertainment venues were closed, lower healthcare costs as teammates deferred elective procedures, reduced travel and entertainment expenses and lower labor costs due to less demand in certain channels of our business such as on-premise and convenience retail.

The combination of these factors along with favorable input costs, drove our operating income up more than $100 million to $313 million for the full year.

Executive Summary

Physical case volume increased 2.0% during 2021.

On a comparable selling day basis, as defined in the “Comparable and Adjusted Non-GAAP Results” section below, physical case volume increased 3.0%, which included Sparkling and Still category volume growth of 1.3% and 7.1%, respectively.

Still volume growth was driven primarily by BODYARMOR, smartwater and Monster, and also benefited from the re-openings of certain small stores and accounts where our products are consumed on-premise.

Sparkling volume growth related to continued strong demand for multi-serve can packages sold in larger retail stores.

Net sales increased 11.1% to $5.56 billion in 2021.

The increase in net sales was driven by the strong volume growth referenced above and by pricing actions taken during 2021.

Price increases were taken to offset inflation on our major cost inputs, including aluminum, PET resin and transportation costs.

Gross profit in 2021 increased $185.3 million, or 10.5%, while gross margin decreased 20 basis points to 35.1%.

The improvement in gross profit was primarily due to the continued strong demand for our products and the pricing actions taken during 2021 to offset cost increases.

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

Selling, delivery and administrative (“SD&A”) expenses in 2021 increased $59.5 million, or 4.1%.

SD&A expenses as a percentage of net sales decreased approximately 200 basis points to 27.2% in 2021.

The increase in SD&A expenses related primarily to an increase in labor costs.

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

Additionally, as channels of business and local economies re-opened compared to the prior year, our labor costs increased.

Income from operations in 2021 increased $125.8 million to $439.2 million.

Net income increased $17.1 million in 2021 to $189.6 million as compared to 2020.

Net income in 2021 was adversely impacted by fair value adjustments to our acquisition related contingent consideration liability, driven primarily by changes in future cash flow projections.

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

Cash flows provided by operations for 2021 were $521.8 million, compared to $494.5 million in 2020.

The Company reduced outstanding indebtedness by $217.0 million during 2021.

COVID-19 Impact

As COVID-19-related quarantines and other restrictions were loosened throughout 2021, demand for products sold for immediate consumption through smaller retail stores and on-premise locations increased.

We also continued to experience strong demand for our products across our take-home channels in 2021.

We are optimistic about top‑line growth opportunities in 2022 as we execute a robust commercial plan with our brand partners.

However, given the uncertainty related to the duration of the COVID-19 pandemic and its influence on our customers, suppliers, communities and consumers, the Company recognizes 2021 will be a challenging year to plan and operate.

As impacted business channels reopen and consumer buying patterns begin to normalize, we expect our operating costs to increase as we adjust our business model to properly grow and service our full portfolio of customers.

While we expect to achieve another solid year of financial performance in 2021, the combination of higher operating expenses and expected input cost inflation will likely result in 2021 income from operations below the performance we achieved in 2020.

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

As of December 31, 2020, we had $54.8 million of cash and cash equivalents.

In addition, our revolving credit facility matures in 2023 and has an aggregate maximum borrowing capacity of $500 million, which may be increased at the Company’s option to $750 million, subject to obtaining commitments from the lenders and satisfying other conditions specified in the credit agreement.

We had no outstanding borrowings under the revolving credit facility as of December 31, 2020.

Our supply chain is dependent on aluminum as a key raw material in the production of aluminum cans, which are used to package many of our products.

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, and consumers have favored the portability and storability of aluminum cans as they spend more time at home.

Additionally, the alcoholic and nonalcoholic beverage industries continue to introduce many new canned product offerings, further increasing the demand for aluminum cans.

These factors have impacted the domestic supply of aluminum cans.

We have made changes to our typical sourcing model and product offerings to address constraints in the supply of aluminum cans, including sourcing aluminum cans from international manufacturers and limiting our canned product package offerings.

We continue to monitor the supply of aluminum cans in the marketplace.

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

Through the normal course of business, we have assessed the collectability of our receivables, including COVID-19-related collectability risk, and have recorded any expected losses.

Further, there were no triggering events identified in 2020 that would indicate an impairment of our long-lived assets, goodwill or other intangible assets.

We will continue to monitor the valuation of our assets and the collectability of our receivables and record any adjustments as necessary.

However, given the uncertainty related to the duration of the COVID-19 pandemic and its

influence on our consumers, customers, suppliers, teammates and communities, the Company recognizes 2022 will be a challenging year in which to plan and operate.

While we currently expect another solid year of financial performance in 2022, we face increasing uncertainty related to a constrained labor pool, increased input costs, continued delays in supply movement and future COVID-19 variants and the resulting direct and indirect impacts.

The Company continues to diligently monitor and manage through the impact of the COVID-19 pandemic on all aspects of its business, including the impact on its teammates, communities and customers.

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

Such actions include following prescribed Company and other accepted health and safety standards and protocols, including those adopted by the Centers for Disease Control and Prevention (the “CDC”) and local health authorities, and working closely with local health departments and appropriate agencies to manage and monitor teammate cases and exposures.

Risk mitigation and safety activities continue;

examples include adhering to sanitation protocols and promoting hygiene practices recommended by the CDC;

implementing work-from-home routines for teammates whose work duties permit it;

offering extended supplemental sick time for non-exempt teammates;

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

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.

At this time and based on current trends, we do not currently expect the COVID-19 pandemic to materially impact our liquidity position or access to capital in 2022.

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

We have assessed COVID-19-related circumstances around work routines, including remote work arrangements, and the impact on our internal controls over financial reporting.

We have not identified, and do not anticipate, any material impact to our control procedures that would materially affect our internal controls over financial reporting.

Areas of Emphasis

Key priorities for the Company include commercial execution, revenue management, supply chain optimization and cash flow generation.

Commercial Execution :

Our success is dependent on our ability to execute our commercial strategy within our customers’ stores.

Our ability to obtain shelf space within stores and remain in-stock across our portfolio of brands and packages in a profitable manner will have a significant impact on our results.

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

We are investing in tools and technology to enable our teammates to operate more effectively and efficiently with our customers and drive value in our business for the long term.

Revenue Management :

Our revenue management strategy focuses on pricing our brands and packages optimally within product categories and channels, creating effective working relationships with our customers and making disciplined fact-based decisions.

Pricing decisions are made considering a variety of factors, including brand strength, competitive environment, input costs, the roles certain brands play in our product portfolio and other market conditions.

Supply Chain Optimization :

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

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

We are in the process of integrating our Memphis, Tennessee manufacturing plant with our West Memphis, Arkansas operations, which is expected to greatly expand our West Memphis production capabilities and to reduce our overall production costs.

Additionally, we are planning to open a new, automated distribution center in Whitestown, Indiana by the spring of 2021, which will allow us to consolidate our Anderson, Bloomington, Lafayette, Shelbyville and Speedway, Indiana warehousing and distribution operations into this one new facility.

The increased capacity and automation in Whitestown will allow us to optimize our supply chain and to better serve our customers and consumers in Indiana and the surrounding areas.

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

Cash Flow Generation :

We have several initiatives in place to optimize cash flow, improve profitability and prudently manage capital expenditures, as we continue to prioritize debt repayment and to focus on strengthening our balance sheet.

We will continue to monitor the impact of the COVID-19 pandemic on our business and make adjustments as needed.

Results of Operations

14 unchanged sentences

189,580 172,493 17,087

Other comprehensive loss, net of tax (4,051) (18,017) 13,966

Comprehensive income (loss) attributable to Coca‑Cola Consolidated, Inc.

Other comprehensive income (loss), net of tax 18,590 (4,051) 22,641

Comprehensive income attributable to Coca‑Cola Consolidated, Inc.

$ 208,170 $ 168,442 $ 39,728

Areas of Emphasis

Key priorities for the Company include commercial execution, revenue management, supply chain optimization and cash flow generation.

Commercial Execution :

Our success is dependent on our ability to execute our commercial strategy within our customers’ stores.

Our ability to obtain shelf space within stores and remain in-stock across our portfolio of brands and packages in a profitable manner will have a significant impact on our results.

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

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

Revenue Management :

Supply Chain Optimization :

We are continually focused on optimizing our supply chain, which includes identifying nearby warehousing and distribution operations that can be consolidated into new facilities to increase capacity, expand production capabilities, reduce overall production costs and add automation to allow the Company to better serve its customers and consumers.

Cash Flow Generation :

Net sales increased $555.4 million, or 11.1%, to $5.56 billion in 2021, as compared to $5.01 billion in 2020.

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

2020 Attributable to:

$ 191.2 Increase in net sales related to increased sales volume

74.3 Increase in net sales related to an increase in average bottle/can sales price per unit to retail customers

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

(12.5) Decrease in sales volume to other Coca-Cola bottlers

Fiscal Year 2021 Attributable to:

$ 412.5 Increase in net sales related to price increases and the shift in product mix.

Approximately 70% of this increase was driven by an increase in average bottle/can sales price per unit charged to retail customers, while approximately 30% was related to the shift in product mix to higher revenue still products in order to meet consumer preferences.

95.5 Increased physical case volume

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

17.6 Increased physical case volume to other Coca-Cola bottlers

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

$ 555.4 Total increase in net sales

9 unchanged sentences

Total net sales $ 5,562,714 $ 5,007,357 11.1 %

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

Bottle/Can Sales Volume Bottle/Can Sales

Product Category 2020 2019 Volume % Change

Product category sales volume of physical cases and the percentage change by product category were as follows:

(in thousands) 2021 2020 % Change

Bottle/can sales volume:

Sparkling beverages 254,028 253,389 0.3 %

19 unchanged sentences

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

2020 Attributable to:

$ 100.8 Increase in cost of sales related to increased sales volume

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

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

(13.2) Decrease in sales volume to other Coca-Cola bottlers

Fiscal Year 2021 Attributable to:

$ 253.6 Increased input costs, including aluminum, PET resin and transportation costs, partially due to the impacts of inflation, as well as the shift in product mix to meet consumer preferences

69.6 Increased physical case volume

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

17.9 Increased physical case volume to other Coca-Cola bottlers

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

$ 370.1 Total increase in cost of sales

The Company relies extensively on advertising and sales promotions in the marketing of its products.

The Coca‑Cola Company and other beverage companies that supply concentrates, syrups and finished products to the Company make substantial marketing and advertising expenditures to develop their brand identities and promote sales in the Company’s territories.

Certain of the marketing expenditures by The Coca‑Cola Company and other beverage companies are made pursuant to annual arrangements.

The Company also benefits from national advertising programs conducted by The Coca‑Cola Company and other beverage companies.

The Coca‑Cola Company and other beverage companies that supply concentrates, syrups and finished products to the Company make substantial marketing and advertising expenditures, including national advertising programs, to develop their brand identities and promote sales in the Company’s territories.

Certain of these marketing and advertising expenditures are made pursuant to annual arrangements.

Total marketing funding support from The Coca‑Cola Company and other beverage companies, which includes both direct payments to the Company and payments to customers for marketing programs, was $133.1 million in 2021, as compared to $126.2 million in 2020.

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

Shipping and handling costs related to the movement of finished products from distribution centers to customer locations, including distribution center warehousing costs, are included in SD&A expenses.

As a result, the Company’s cost of sales may not be comparable to other peer companies, as some peer companies include all costs related to distribution networks in cost of sales.

SD&A Expenses

1 unchanged sentence

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

SD&A expenses decreased $34.2 million, or 2.3%, to $1.46 billion in 2020, as compared to $1.49 billion in 2019.

SD&A expenses increased $59.5 million, or 4.1%, to $1.52 billion in 2021, as compared to $1.46 billion in 2020.

SD&A expenses as a percentage of sales decreased to 27.2% in 2021 from 29.1% in 2020.

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

2020 Attributable to:

$ (27.6) Decrease in a number of expense categories due to COVID-19-related reductions in discretionary spending, including travel and entertainment and marketing-related expenses

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

$ (34.2) Total decrease in SD&A expenses

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

Fiscal Year 2021 Attributable to:

$ 43.2 Increase in payroll expenses as we made adjustments to remain competitive in a challenging labor market

11.2 Increase in cash donations to various charities and donor-advised funds in light of the Company’s financial performance

$ 59.5 Total increase in SD&A expenses

Shipping and handling costs included in SD&A expenses were $674.3 million in 2021 and $622.1 million in 2020.

1 unchanged sentence

Interest expense, net decreased $3.3 million, or 8.9%, to $33.4 million in 2021, as compared to $36.7 million in 2020.

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

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

Other Expense, Net

3 unchanged sentences

Non-service cost component of net periodic benefit cost 4,265 4,393

Other — (156)

Other expense, net $ 35,603 $ 100,539

Total other expense, net $ 150,573 $ 35,603

Each reporting period, the Company adjusts its acquisition related contingent consideration liability related to the distribution territories subject to sub-bottling fees to fair value.

2 unchanged sentences

The Company is required to pay the current portion of the sub-bottling fee on a quarterly basis.

As of December 31, 2020 and December 29, 2019, discount rates of 7.5% and 7.1%, respectively, were utilized in the valuation of the Company’s acquisition related contingent consideration liability.

The decrease in the fair value of the acquisition related contingent consideration liability in 2020, as compared to 2019, was primarily driven by the increase in the discount rate used to calculate fair value and changes in future cash flow projections of the distribution territories subject to sub-bottling fees.

The increase in the fair value of the acquisition related contingent consideration liability in 2019 was primarily driven by changes in future cash flow projections of the distribution territories subject to sub-bottling fees and a decrease in the discount rate used to calculate fair value.

The increase in the fair value of the acquisition related contingent consideration liability in 2021 as compared to 2020 was primarily driven by higher projections of future cash flows in the distribution territories subject to sub-bottling fees and changes to the discount rate used to calculate fair value throughout 2021 as compared to 2020.

Income Tax Expense

The Company’s effective income tax rate, calculated by dividing income tax expense by income before income taxes, was 24.5% for 2020 and 45.8% for 2019.

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

The Company’s effective income tax rate, calculated by dividing income tax expense by income before income taxes minus net income attributable to noncontrolling interest, was 25.5% for 2020 and 57.9% for 2019.

The Company’s effective income tax rate, calculated by dividing income tax expense by income before taxes, was 25.7% for 2021 and 24.5% for 2020.

The Company’s effective income tax rate, calculated by dividing income tax expense by income before taxes minus net income attributable to noncontrolling interest, was 25.5% for 2020.

The Company’s income tax expense increased $6.6 million, or 11.2%, to $65.6 million in 2021, as compared to $58.9 million in 2020.

The increase in income tax expense was primarily attributable to higher income before taxes during 2021 compared to 2020.

Noncontrolling Interest

The Company recorded net income attributable to noncontrolling interest of $9.6 million in 2020 and $7.2 million in 2019 related to the portion of Piedmont owned by The Coca‑Cola Company prior to the purchase by an indirect wholly owned subsidiary of the Company of the remaining 22.7% general partnership interest in Piedmont on December 9, 2020.

Other Comprehensive Loss, Net of Tax

The Company had other comprehensive loss, net of tax of $4.1 million in 2020 and $18.0 million in 2019.

The improvement was primarily a result of a net decrease in actuarial losses on the Company’s pension and postretirement plans.

The Company recorded net income attributable to noncontrolling interest of $9.6 million in 2020 related to the portion of Piedmont owned by The Coca‑Cola Company.

On December 9, 2020, an indirect wholly owned subsidiary of the Company purchased the remaining 22.7% general partnership interest in Piedmont.

Other Comprehensive Income (Loss), Net of Tax

The Company had other comprehensive income, net of tax of $18.6 million in 2021 and other comprehensive loss, net of tax of $4.1 million in 2020.

The improvement was primarily a result of actuarial gains on the Company’s pension and postretirement plans.

Segment Operating Results

The Company evaluates segment reporting in accordance with the Financial Accounting Standards Board (the “FASB”) Accounting Standards Codification Topic 280, Segment Reporting, each reporting period, including evaluating the reporting package reviewed by the Chief Operating Decision Maker (the “CODM”).

The Company evaluates segment reporting in accordance with the Financial Accounting Standards Board 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.

40 unchanged sentences

— 7,542 (947) 8,489 8,489 6,367 0.68

Results of extra days in fiscal year (4)

(58,899) (21,707) (14,353) (7,354) (7,354) (5,516) (0.59)

Total reconciling items — 4,073 825 3,248 149,556 112,167 11.96

14 unchanged sentences

— 4,984 596 4,388 4,388 3,291 0.35

Capitalization threshold change for certain assets (5)

— — (7,305) 7,305 7,305 5,479 0.58

System Transformation expenses (6)

Results of extra days in fiscal year (4)

(44,174) (16,280) (10,765) (5,515) (5,515) (4,137) (0.44)

5 unchanged sentences

The Company accounts for its commodity derivative instruments on a mark-to-market basis.

(3) Adjustment reflects expenses within the Nonalcoholic Beverages segment related to the impairment and accelerated depreciation of property, plant and equipment as the Company continues to optimize efficiency opportunities across its business.

(4) Adjustment reflects four extra days in 2020, as compared to 2019.

(5) Adjustment reflects additional expense for the prospective change of increasing the capitalization thresholds in 2019 on certain low-cost, short-lived assets.

(6) Adjustment reflects expenses incurred during the applicable period of 2019 related to the System Transformation, which primarily includes information technology system conversions.

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

(4) Adjustment reflects three extra days in 2020, as compared to 2021.

Financial Condition

Total assets increased $223.1 million to $3.45 billion on December 31, 2021, as compared to $3.22 billion on December 31, 2020.

Net working capital, defined as current assets less current liabilities, was $204.2 million on December 31, 2020, which was a decrease of $3.9 million from December 29, 2019.

Net working capital, defined as current assets less current liabilities, was $241.8 million on December 31, 2021, which was an increase of $37.6 million from December 31, 2020.

Significant changes in net working capital on December 31, 2021 from December 31, 2020 were as follows:

• An increase in cash and cash equivalents of $87.5 million primarily as a result of our strong operating performance.

• A decrease in accounts receivable from The Coca‑Cola Company of $13.2 million primarily as a result of the timing of cash receipts.

• An increase in accounts payable, trade of $30.1 million primarily as a result of the timing of cash payments.

• An increase in accounts receivable, trade of $46.8 million, driven primarily by increased net sales and the timing of cash receipts.

• An increase in inventories of $77.1 million, driven primarily by higher inventory levels to support anticipated consumer demand and increased input costs due to inflation.

• An increase in accounts payable, trade of $101.8 million due to the extension of payment terms for certain vendors and the timing of cash payments.

• An increase in accounts payable to The Coca‑Cola Company of $38.5 million primarily as a result of the timing of cash payments.

• An increase in accrued compensation of $23.3 million, primarily driven by improved financial results.

Liquidity and Capital Resources

1 unchanged sentence

The Company’s sources of capital include cash flows from operations, available credit facilities and the issuance of debt and equity securities.

As of December 31, 2020, the Company had $54.8 million of cash and cash equivalents.

As of December 31, 2021, the Company had $142.3 million in cash and cash equivalents.

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

Management believes the Company has sufficient sources of capital available to refinance its maturing debt, finance its business plan, meet its working capital requirements and maintain an appropriate level of capital spending for at least the next 12 months from the issuance of the consolidated financial statements.

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

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

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

3 unchanged sentences

Senior notes 2/27/2023 125,000 125,000

Revolving credit facility 6/8/2023 — 45,000

2021 Term Loan Facility (2)

Senior bonds and unamortized discount on senior bonds (3)

11/25/2025 349,966 349,957

2021 Revolving Credit Facility (4)

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

1 unchanged sentence

Debt issuance costs (1,523) (1,992)

Long-term debt $ 940,465 $ 1,029,920

(1) The Company intends to refinance principal payments due in the next 12 months under the term loan facility, and has the capacity to do so under its revolving credit facility, which is classified as long-term debt, and the Company is not restricted by any subjective acceleration clause within the revolving credit agreement.

As such, any amounts due in the next 12 months were classified as noncurrent.

Total long-term debt $ 723,443 $ 940,465

(1) As of December 31, 2020, the 2016 Term Loan Facility (as defined under “Cash Flows From Financing Activities”) 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 under “Cash Flows From Financing Activities”), 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 2021 Term Loan Facility (as defined under “Cash Flows From Financing Activities”) was fully repaid during the fourth quarter of 2021.

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

The Company’s term loan facility matures on June 7, 2021.

The original aggregate principal amount borrowed by the Company under the facility was $300 million and repayment of principal amounts outstanding began in 2018.

The Company may request additional term loans under the term loan facility, provided the Company’s aggregate borrowings under the facility do not exceed $500 million.

In 2019, the Company entered into a $100 million fixed rate swap maturing June 7, 2021, to hedge a portion of the interest rate risk on the Company’s term loan facility.

This interest rate swap is designated as a cash flow hedging instrument and changes in its fair value are not expected to be material to the consolidated balance sheets.

Changes in the fair value of this interest rate swap were classified as accumulated other comprehensive loss on the consolidated balance sheets and included in the consolidated statements of comprehensive income.

As discussed below under “Cash Flows From Financing Activities,” in 2019, the Company sold $100 million aggregate principal amount of senior unsecured notes due in 2026 to MetLife Investment Advisors, LLC (“MetLife”) and certain of its affiliates.

The Company may request that MetLife consider the purchase of additional senior unsecured notes of the Company under the agreement in an aggregate principal amount of up to $200 million.

The Company’s revolving credit facility matures on June 8, 2023 and has an aggregate maximum borrowing capacity of $500 million, which may be increased at the Company’s option to $750 million, subject to obtaining commitments from the lenders and satisfying other conditions specified in the credit agreement.

(4) The Company’s revolving credit facility has an aggregate maximum borrowing capacity of $500 million.

The Company currently believes all banks participating in the revolving credit facility have the ability to and will meet any funding requests from the Company.

As of December 31, 2020, the Company had no borrowings outstanding under the revolving credit facility, and therefore had $500 million borrowing capacity available under the revolving credit facility.

The indenture under which the Company’s senior bonds were issued does not include financial covenants but does limit the incurrence of certain liens and encumbrances as well as indebtedness by the Company’s subsidiaries in excess of certain amounts.

2 unchanged sentences

The Company was in compliance with these covenants as of December 31, 2021.

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

These covenants have not and are not expected to restrict the Company’s liquidity or capital resources.

All outstanding long-term debt has been issued by the Company and none has been issued by any of its subsidiaries.

There are no guarantees of the Company’s debt.

The Company’s Board of Directors has declared, and the Company has paid, $0.25 in dividends on both the Common Stock and Class B Common Stock each quarter since 1994.

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

The amount and frequency of future dividends will be determined by the Company’s Board of Directors in light of the earnings and financial condition of the Company at such time, and no assurance can be given that dividends will be declared or paid in the future.

1 unchanged sentence

Changes in the Company’s operating results or financial position could result in changes in the Company’s credit ratings.

Lower credit ratings could result in higher borrowing costs for the Company or reduced access to capital markets, which could have a material adverse impact on the Company’s operating results or financial position.

During 2020, Standard & Poor’s reaffirmed the Company’s BBB rating and revised

the Company’s rating outlook to stable from negative.

Moody’s rating outlook for the Company is stable.

As of December 31, 2020, the Company’s credit ratings were as follows:

Long-Term Debt

Standard & Poor’s BBB

The Company is subject to interest rate risk on its variable rate debt, including its revolving credit facility and term loan facility.

Assuming no changes in the Company’s capital structure, if market interest rates average 1% more over the next 12 months than the interest rates as of December 31, 2020, interest expense for the next 12 months would increase by approximately $1.2 million.

See “Item 7A.

Quantitative and Qualitative Disclosures About Market Risk” for additional information.

Lower credit ratings could result in higher borrowing costs for the Company or reduced access to capital markets, which could have a material adverse impact on the

Company’s operating results or financial position.

As of December 31, 2021, the Company’s credit ratings and outlook for its long‑term debt were as follows:

Credit Rating Rating Outlook

Moody’s Baa1 Stable

Standard & Poor’s BBB Positive

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

8 unchanged sentences

Ending balance - Level 3 liability $ 542,105 $ 434,694

Material Contractual Obligations

The Company had a number of contractual obligations and commercial obligations as of December 31, 2021 that are material to an assessment of the Company’s short- and long-term cash requirements.

The Company has long-term debt of $725.0 million, none of which is contractually due in 2022.

The remaining interest payments on the Company’s debt obligations is an estimated $124.5 million determined in reference to the contractual terms of such debt, of which an estimated $27.3 million is due in 2022.

The Company’s acquisition related contingent consideration liability relates to sub-bottling fees in distribution territories subject to sub-bottling payments required under the CBA and totaled $542.1 million as of December 31, 2021.

The future expected sub-bottling payments extend through the life of the applicable distribution assets, which is generally 40 years.

The Company expects to pay $51.5 million of the acquisition related contingent consideration liability in 2022, which is classified as other accrued liabilities in the consolidated balance sheets.

The Company is obligated to purchase 17.5 million cases of finished product from SAC on an annual basis through June 2024.

The Company estimates this purchase obligation to be $298.0 million, of which an estimated $119.2 million of purchases is expected to occur in 2022.

The Company has $169.6 million in total minimum operating lease obligations including interest, of which $26.0 million are due in 2022.

The Company has $85.2 million in total minimum financing lease obligations including interest, of which $7.1 million are due in 2022.

The Company estimates obligations for its executive benefit plans to be $178.4 million, of which an estimated $32.1 million of payments is expected to occur in 2022.

The Company participates in long-term marketing contractual arrangements with certain prestige properties, athletic venues and other locations.

As of December 31, 2021, the future payments related to these contractual arrangements, which expire at various dates through 2033, amounted to $137.0 million.

Payments for these contractual arrangements are expected to be $31.4 million in 2022.

The Company is a shareholder of Southeastern Container (“Southeastern”), a plastic bottle manufacturing cooperative from which the Company is obligated to purchase at least 80% of its requirements of plastic bottles for certain designated territories.

This obligation has no minimum purchase requirements;

however, purchases from Southeastern were $125.1 million during 2021 and are expected to remain material in future foreseeable periods.

See Note 20 to the consolidated financial statements for additional information related to Southeastern.

Cash Sources and Uses

4 unchanged sentences

$ 521,755 $ 494,461

Borrowings under term loan facility 70,000 —

Borrowings under revolving credit facility 55,000 235,000

Proceeds from the sale of property, plant and equipment 5,274 3,385

Proceeds from issuance of senior notes — 100,000

Total cash sources $ 652,029 $ 732,846

Payments on revolving credit facility $ 280,000 $ 550,339

Payments on term loan facilities $ 287,500 $ 45,000

Additions to property, plant and equipment 155,693 202,034

Purchase of noncontrolling interest in Piedmont 100,000 —

Payments on term loan facility and senior bonds 45,000 140,000

Payments on revolving credit facility 55,000 280,000

Payments of acquisition related contingent consideration 39,097 43,400

Cash dividends paid 9,374 9,374

Payments on financing or capital lease obligations 5,861 8,656

Other distribution agreements 8,993 —

Payments on financing lease obligations 4,778 5,861

Purchase of noncontrolling interest in Piedmont — 100,000

Other 4,073 1,998

Total cash uses $ 564,508 $ 687,667

Net increase (decrease) in cash $ 45,179 $ (3,934)

(1) Net cash provided by operating activities in 2020 included net income tax payments of $55.8 million and pension plan contributions of $16.3 million.

Net cash provided by operating activities in 2019 included net income tax payments of $6.3 million and pension plan contributions of $4.9 million.

Net increase in cash $ 87,521 $ 45,179

(1) Net cash provided by operating activities in 2021 included net income tax payments of $71.0 million, payment of deferred payroll taxes under the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) of $18.7 million and pension plan contributions of $6.8 million.

Net cash provided by operating activities in 2020 included net income tax payments of $55.8 million, deferral of payroll taxes under the CARES Act of $37.4 million and pension plan contributions of $16.3 million.

Cash Flows From Operating Activities

During 2021, cash provided by operating activities was $521.8 million, which was an increase of $27.3 million, as compared to 2020.

The increase was a result of our strong operating performance and cash provided by the change in current assets less current liabilities,

primarily related to the timing of accounts receivable and the deferral of payroll taxes permitted under the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”).

The Company has taken advantage of certain provisions of the CARES Act, which allow an employer to defer the deposit and payment of the employer’s portion of social security taxes that would otherwise be due on or after March 27, 2020 and before January 1, 2021.

The law permits an employer to deposit half of these deferred payments by December 31, 2021 and the other half by December 31, 2022.

The cash flows from operations were primarily the result of our strong operating performance.

Cash Flows From Investing Activities

During 2020, cash used in investing activities was $200.4 million, which was an increase of $26.7 million, as compared to 2019.

The increase was primarily a result of additions to property, plant and equipment, which were $202.0 million during 2020 and $171.4 million during 2019.

During 2021, cash used in investing activities was $161.9 million, which was a decrease of $38.5 million, as compared to 2020.

The decrease was primarily a result of additions to property, plant and equipment, which were $155.7 million during 2021 and $202.0 million during 2020.

There were $35.8 million and $17.0 million of additions to property, plant and equipment accrued in accounts payable, trade as of December 31, 2021 and December 31, 2020, respectively.

2 unchanged sentences

During 2021, cash used in financing activities was $272.3 million, which was an increase of $23.4 million, as compared to 2020.

The increase was primarily driven by the purchase by an indirect wholly owned subsidiary of the Company of the remaining 22.7% general partnership interest in Piedmont for $100 million and net repayments of debt of $90 million in 2020, stemming from improved financial results.

The increase was primarily a result of net repayments of debt of $217.5 million in 2021, stemming from our improved financial results.

The Company had cash payments for acquisition related contingent consideration of $39.1 million during 2021 and $43.4 million during 2020.

The Company anticipates that the amount it could pay annually under the acquisition related contingent consideration arrangements for the distribution territories subject to sub-bottling fees will be in the range of $35 million to $62 million.

In 2019, the Company sold $100 million aggregate principal amount of senior unsecured notes due in 2026 to MetLife and certain of its affiliates pursuant to a note purchase and private shelf agreement, dated January 23, 2019, between the Company, MetLife and the other parties thereto.

These notes bear interest at 3.93%, payable quarterly in arrears, and will mature on October 10, 2026, unless earlier redeemed by the Company.

The Company used the proceeds to refinance senior bonds due on April 15, 2019.

The Company may request that MetLife consider the purchase of additional senior unsecured notes of the Company under the agreement in an aggregate principal amount of up to $200 million.

Off-Balance Sheet Arrangements

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.

As of December 31, 2020, the Company had guaranteed $14.7 million of SAC’s debt.

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

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.

See Note 21 to the consolidated financial statements for additional information.

Aggregate Contractual Obligations

The following table summarizes the Company’s contractual obligations and commercial commitments as of December 31, 2020:

Contractual Obligation Payments Due During

(in thousands) Total Fiscal 2021 Fiscal 2022 Fiscal 2023 Fiscal 2024 Fiscal 2025 Thereafter

Total debt, net of interest $ 942,500 $ 217,500 $ — $ 125,000 $ — $ 350,000 $ 250,000

Estimated interest on debt obligations (1)

153,036 28,488 27,270 23,853 23,170 22,062 28,193

Acquisition related contingent consideration 434,694 36,020 27,723 28,368 28,912 29,463 284,208

SAC purchase obligation (2)

362,068 103,448 103,448 103,448 51,724 — —

Executive benefit plans 174,481 32,681 22,606 14,582 9,442 10,045 85,125

Operating lease obligations 169,581 24,056 20,970 18,125 15,330 13,747 77,353

Long-term marketing contractual arrangements (3)

164,895 35,224 30,314 21,302 16,974 15,110 45,971

Financing lease obligations 92,241 7,079 7,145 7,201 7,396 7,593 55,827

Purchase orders (4)

84,921 84,921 — — — — —

Postretirement benefit obligations (5)

67,665 2,886 2,983 3,151 3,341 3,494 51,810

Obligation for exiting multiemployer pension plan 5,836 974 974 974 974 974 966

Total contractual obligations $ 2,651,918 $ 573,277 $ 243,433 $ 346,004 $ 157,263 $ 452,488 $ 879,453

(1) Includes interest payments based on contractual terms.

(2) Represents an estimate of the Company’s obligation to purchase 17.5 million cases of finished product from SAC on an annual basis through June 2024.

(3) Includes long-term marketing contractual arrangements with certain prestige properties, athletic venues and other locations.

(4) Purchase orders include commitments in which a written purchase order has been issued to a vendor, but the goods have not been received or the services performed.

(5) Includes the liability for postretirement benefit obligations only.

The unfunded portion of the Company’s pension plan is excluded as the timing and/or amount of any cash payment is uncertain.

The Company had uncertain tax positions, including accrued interest, of $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 consolidated financial statements.

See Note 17 to the consolidated financial statements for additional information.

This obligation is not included in the Company’s table of contractual obligations and commercial commitments as there are no minimum purchase requirements.

See Note 21 to the consolidated financial statements for additional information related to Southeastern.

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 December 31, 2020.

See Note 21 to the consolidated financial statements for additional information related to commercial commitments, guarantees, legal and tax matters.

The Company contributed $16.3 million to the two Company-sponsored pension plans during 2020.

Contributions to the two Company-sponsored pension plans are expected to be in the range of $8 million to $12 million in 2021.

Postretirement medical care payments are expected to be approximately $3 million in 2021.

See Note 18 to the consolidated financial statements for additional information related to pension and postretirement benefit obligations.

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”).

The 2021 Revolving Credit Facility’s underlying credit agreement includes successor LIBOR rate provisions, providing that the SOFR will be used as the LIBOR replacement rate for borrowings under the facility after June 30, 2023, unless the Company and its lenders agree to an alternative reference rate based on prevailing market convention at the replacement date.

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 bore 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.

During the fourth quarter of 2021, the Company repaid the $70 million of borrowings outstanding under the 2021 Term Loan Facility.

Hedging Activities

3 unchanged sentences

The Company uses several different financial institutions for commodity derivative instruments to minimize the concentration of credit risk.

The Company has master agreements with the counterparties to its commodity derivative instruments that provide for net

settlement of derivative transactions.

The Company has master agreements with the counterparties to its commodity derivative instruments that provide for net settlement of derivative transactions.

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

(in thousands) 2021 2020

Increase (decrease) in cost of sales $ (518) $ 8,318

Decrease in cost of sales $ (12,647) $ (518)

Increase (decrease) in SD&A expenses (4,183) 2,343

Net impact $ (16,830) $ 1,825

Discussion of Critical Accounting Policies and Estimates and Recent Accounting Pronouncements

Critical Accounting Policies and Estimates

Discussion of Critical Accounting Estimates

In the ordinary course of business, the Company has made a number of estimates and assumptions relating to the reporting of results of operations and financial position in the preparation of its consolidated financial statements in conformity with GAAP.

Actual results could differ significantly from those estimates under different assumptions and conditions.

The Company believes the following discussion addresses the Company’s most critical accounting policies, which are those most important to the portrayal of the Company’s 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 inherently uncertain matters.

Any changes in critical accounting policies and estimates are discussed with the Audit Committee of the Board of Directors of the Company during the quarter in which a change is contemplated and prior to making such change.

The Company believes the following discussion addresses the Company’s most critical accounting estimates, which are those most important to the portrayal of the Company’s 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 inherently uncertain matters.

Any changes in critical accounting estimates are discussed with the Audit Committee of the Board of Directors of the Company during the quarter in which a change is contemplated and prior to making such change.

Revenue Recognition

42 unchanged sentences

The Company’s goodwill impairment assessment includes a qualitative assessment to determine whether it is more likely than not that the fair value of the goodwill is below its carrying value, each year, and more often if there are significant changes in business conditions that could result in impairment.

When a quantitative analysis is considered necessary for the annual impairment analysis of goodwill, the Company develops an estimated fair value for the reporting unit considering three different approaches:

When a quantitative analysis is considered necessary for the annual impairment analysis of goodwill, the Company develops an estimated fair value for the

reporting unit considering three different approaches:

1) market value, using the Company’s stock price plus outstanding debt;

8 unchanged sentences

The acquisition related contingent consideration liability consists of the estimated amounts due to The Coca‑Cola Company under the CBA with The Coca‑Cola Company and CCR over the useful life of the related distribution rights.

Under the CBA, the Company is required 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.

Pursuant to the CBA, the Company is required 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.

This acquisition related contingent consideration is 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.

1 unchanged sentence

These future expected sub-bottling payments extend through the life of the related distribution assets acquired in each distribution territory, 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).

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 and could materially impact the amount of non-cash expense (or income) recorded each reporting period.

9 unchanged sentences

There are two Company-sponsored pension plans.

The primary Company-sponsored pension plan (the “Primary Plan”) was frozen as of June 30, 2006 and no benefits accrued to participants after this date.

The primary Company-sponsored pension plan (the “Primary 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.

5 unchanged sentences

In addition, the Company uses subjective factors such as mortality rates to estimate the projected benefit obligation.

The actuarial assumptions used by the Company may differ materially from actual results due to changing market and economic conditions, higher or lower withdrawal rates or longer or shorter life spans of participants.

participants.

These differences may result in a significant impact to the amount of net periodic pension cost recorded by the Company in future periods.

38 unchanged sentences

Net periodic postretirement benefit cost in 2021 (163) 171

Recently Adopted Accounting Pronouncements

In June 2016, the FASB issued Accounting Standards Update (“ASU”) 2016‑13, “Measurement of Credit Losses on Financial Instruments,” which requires measurement and recognition of expected credit losses at the point a loss is probable to occur, rather than expected to occur, which will generally result in earlier recognition of allowances for credit losses.

The new guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.

The Company adopted ASU 2016‑13 in 2020 and the adoption did not have a material impact on its consolidated financial statements.

In August 2018, the FASB issued ASU 2018‑13, “Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement,” which removes, modifies and adds certain disclosure requirements in Accounting Standards Codification Topic 820, Fair Value Measurement.

This ASU is effective for annual and interim reporting periods beginning after December 15, 2019.

Certain amendments must be applied prospectively while others are to be applied on a retrospective basis to all periods presented.

The Company adopted ASU 2018‑13 in 2020 and has updated disclosures in this report.

See Note 16 to the consolidated financial statements for additional information.

In August 2018, the FASB issued ASU 2018‑14, “Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans,” which is effective for fiscal years ending after December 15, 2020.

Under this guidance, removed disclosures include the amounts in accumulated other comprehensive income expected to be recognized as components of net periodic benefit cost over the next fiscal year, the amount and timing of assets expected to be returned to the employer, certain related party disclosures, and the effects of a one-percentage-point change in the assumed health care cost trend rates.

Additional disclosures include an explanation of

the reasons for significant gains and losses related to the benefit obligation for the period.

The Company adopted ASU 2018‑14 in 2020 and has updated disclosures in this report.

See Note 18 to the consolidated financial statements for additional information.

Recently Issued Accounting Pronouncements

In December 2019, the FASB issued ASU 2019‑12, “Simplifying the Accounting for Income Taxes,” which will simplify the accounting for income taxes by removing certain exceptions to the general principles in income tax accounting and improve consistent application of and simplify GAAP for 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 evaluated the impact ASU 2019‑12 will have on its consolidated financial statements and does not expect a material impact upon adoption in 2021.

Cautionary Information Regarding Forward-Looking Statements

5 unchanged sentences

Factors, risks and uncertainties that may result in actual results differing from such forward-looking information include, but are not limited to, those listed in “Item 1A.

Risk Factors” of this report and elsewhere herein, including, without limitation, the factors described under “Critical Accounting Policies and Estimates” in Item 7 of this report, or in other filings or statements made by the Company.

Risk Factors” of this report and elsewhere herein, including, without limitation, the factors described under “Critical Accounting Estimates” in “Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operation” of this report, or in other filings or statements made by the Company.

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

3 unchanged sentences

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

What changed 10-K

Item 7. Management’s Discussion and Analysis