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Item 2. Management’s Discussion and Analysis

2022-05-03 compared with 2021-11-09 · 182 added, 335 removed, 210 unchanged (71% of the section changed)

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The following Management’s Discussion and Analysis of Financial Condition and Results of Operations of Coca‑Cola Consolidated, Inc., a Delaware corporation (together with its majority-owned subsidiaries, the “Company,” “we,” “us” or “our”), should be read in conjunction with the condensed consolidated financial statements of the Company and the accompanying notes to the condensed consolidated financial statements.

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

All comparisons are to the corresponding period in the prior year unless specified otherwise.

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The condensed consolidated financial statements presented are:

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

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

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

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

During 2020, Piedmont Coca-Cola Bottling Partnership (“Piedmont”) was the Company’s only subsidiary that had a significant noncontrolling interest.

On December 9, 2020, an indirect wholly owned subsidiary of the Company purchased the remaining 22.7% general partnership interest in Piedmont from an indirect wholly owned subsidiary of The Coca‑Cola Company, and Piedmont became an indirect wholly owned subsidiary of the Company.

• The financial position as of April 1, 2022 and December 31, 2021.

• The results of operations, comprehensive income and changes in stockholders’ equity for the three-month periods ended April 1, 2022 (the “first quarter” of fiscal 2022 (“2022”)) and April 2, 2021 (the “first quarter” of fiscal 2021 (“2021”)).

• The changes in cash flows for the first quarter of 2022 and the first quarter of 2021.

Our Business and the Nonalcoholic Beverage Industry

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Approximately 86% of our total bottle/can sales volume to retail customers consists of products of The Coca‑Cola Company, which include some of the most recognized and popular beverage brands in the world.

We also distribute products for several other beverage companies, including BA Sports Nutrition, LLC (“BODYARMOR”), Keurig Dr Pepper Inc.

We also distribute products for several other beverage companies, including Keurig Dr Pepper Inc.

(“Dr Pepper”) and Monster Energy Company (“Monster Energy”).

Our purpose is to honor God in all we do, serve others, pursue excellence and grow profitably.

Our stock is traded on the NASDAQ Global Select Market under the symbol COKE.

Our Common Stock is traded on the NASDAQ Global Select Market under the symbol COKE.

We offer a range of nonalcoholic beverage products and flavors, including both sparkling and still beverages, designed to meet the demands of our consumers.

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Executive Summary

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Net sales increased 11% to $1.40 billion in the first quarter of 2022, while physical case volume decreased 0.6%.

The increase in net sales was driven primarily by pricing actions taken on most of our Sparkling and Still beverages during the second half of 2021 and the beginning of 2022.

While Sparkling beverage volume decreased 1.5% in the quarter, category demand remained strong when considering the higher pricing in the marketplace.

Sales of single-serve products sold in small stores and other immediate consumption channels continued to perform well as on-premise outlets return to pre-pandemic operating levels.

Sparkling immediate consumption packages were up 4.6% in the quarter.

Still beverage volume increased 1.6% in the quarter driven primarily by BODYARMOR, which we began distributing in our Mid-Atlantic territory at the beginning of 2022.

Gross profit in the first quarter of 2022 increased $58.9 million, or 13%, while gross margin improved 80 basis points to 36.1%.

On an adjusted basis, as defined in the “Adjusted Non-GAAP Results” section, gross profit in the first quarter of 2022 was $500.1 million, which represented an increase of $51.4 million or 12%.

Adjusted gross margin was 35.6%, an increase of 30 basis points compared to the first quarter of 2021.

The improvement in gross profit was primarily due to strong price realization which led to improved gross margins during this period of high commodity price inflation.

Selling, delivery and administrative (“SD&A”) expenses in the first quarter of 2022 increased $22.1 million, or 6%.

SD&A expenses as a percentage of net sales decreased 110 basis points to 26.8% in the first quarter of 2022.

The increase in SD&A expenses related primarily to an increase in payroll expenses as a result of compensation adjustments made in 2021 in order to remain competitive in a tight labor market.

In addition, higher levels of inflation contributed to the overall increase in SD&A expenses across a number of spending categories.

Income from operations in the first quarter of 2022 was $131.0 million, compared to $94.2 million in the first quarter of 2021, an increase of 39%.

On an adjusted basis, income from operations in the first quarter of 2022 was $117.3 million, an increase of 25%.

Net income in the first quarter of 2022 was $93.4 million, compared to $53.4 million in the first quarter of 2021, an improvement of $40.0 million.

Cash flows provided by operations for the first quarter of 2022 were $130.9 million, compared to $81.9 million for the first quarter of 2021.

The significant increase in operating cash flows for the first quarter of 2022 was a result of our strong operating performance.

We continue to invest in long-term strategic projects to optimize our supply chain and broaden our brand portfolio.

Two investments made during the first quarter were the purchase of our Charlotte, N.C.

production facility for $60.0 million and the acquisition of the BODYARMOR distribution rights in our Mid-Atlantic territory for $30.1 million.

COVID-19 Impact

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

The Company continues to diligently monitor and manage through the impact of the ongoing 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.

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 supplemental sick time for non-exempt teammates;

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

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

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

At this time and based on current trends, we do not currently expect the COVID-19 pandemic to materially impact our liquidity position or access to capital in 2021.

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

At this time and based on current trends, we do not 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.

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

Areas of Emphasis

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Supply Chain Optimization :

In fiscal 2017, we completed a multi-year series of transactions through which we acquired and exchanged distribution territories and manufacturing plants.

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

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

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 :

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Results of Operations

Third Quarter Results

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

Third Quarter

First Quarter Results

The Company’s results of operations for the first quarter of 2022 and the first quarter of 2021 are highlighted in the table below and discussed in the following paragraphs.

First Quarter

(in thousands) 2022 2021 Change

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Interest expense, net 7,699 8,746 (1,047)

Other expense, net 34,982 21,394 13,588

Income before income taxes 93,952 73,417 20,535

Other (income) expense, net (3,279) 12,055 (15,334)

Income before taxes 126,565 73,383 53,182

Income tax expense 33,175 20,020 13,155

Net income 93,390 53,363 40,027

Net income attributable to noncontrolling interest — 3,170 (3,170)

Net income attributable to Coca‑Cola Consolidated, Inc.

$ 68,930 $ 51,884 $ 17,046

Other comprehensive income, net of tax 815 1,332 (517)

Comprehensive income attributable to Coca‑Cola Consolidated, Inc.

Comprehensive income

$ 94,205 $ 54,695 $ 39,510

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

Net sales increased $134.5 million, or 10.6%, to $1.40 billion in the first quarter of 2022, as compared to $1.27 billion in the first quarter of 2021.

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

Third Quarter 2021

First Quarter 2022

Attributable to:

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Approximately 80% of this increase was driven by an increase in average bottle/can sales price per unit charged to retail customers, while approximately 20% was related to the shift in product mix to higher revenue still products in order to meet consumer preferences.

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

(7.7) Decreased physical case volume

$ 134.5 Total increase in net sales

Net sales by product category were as follows:

Third Quarter

First Quarter

(in thousands) 2022 2021 % Change

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Total net sales $ 1,404,358 $ 1,269,857 10.6 %

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

Third Quarter Bottle/Can Sales Volume

Product Category 2021 2020 % Change

Sparkling beverages 67.5 % 67.5 % (0.6) %

Still beverages 32.5 % 32.5 % (0.7) %

Total bottle/can sales volume 100.0 % 100.0 % (0.6) %

As the Company introduces new products, it reassesses the category assigned to its products at the SKU level, therefore categorization could differ from previously presented results to conform with current period categorization.

Any differences are not material.

Cost of Sales

Inputs representing a substantial portion of the Company’s cost of sales include:

(i) purchases of finished products, (ii) raw material costs, including aluminum cans, plastic bottles and sweetener, (iii) concentrate costs and (iv) manufacturing costs, including labor, overhead and warehouse costs.

In addition, cost of sales includes shipping, handling and fuel costs related to the movement of finished products from manufacturing plants to distribution centers, amortization expense of distribution rights, distribution fees of certain products and marketing credits from brand companies.

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

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

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

Third Quarter 2021

Attributable to:

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

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

$ 83.7 Total increase in cost of sales

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.

Total marketing funding support from The Coca‑Cola Company and other beverage companies, which includes both direct payments to the Company and payments to customers for marketing programs, was $36.4 million in the third quarter of 2021 and $33.8 million in the third quarter of 2020.

Selling, Delivery and Administrative Expenses

SD&A expenses include the following:

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

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

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

2021 from 27.7% in the third quarter of 2020.

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

Third Quarter 2021

Attributable to:

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

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

$ 12.1 Total increase in SD&A expenses

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

Interest Expense, Net

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

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

Other Expense, Net

A summary of other expense, net is as follows:

Third Quarter

(in thousands) 2021 2020

Increase in the fair value of the acquisition related contingent consideration liability $ 33,924 $ 19,808

Non-service cost component of net periodic benefit cost 1,058 1,586

Total other expense, net $ 34,982 $ 21,394

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.

The fair value is determined by discounting future expected sub-bottling payments required under the Company’s comprehensive beverage agreements, which extend through the life of the applicable distribution assets, using the Company’s estimated weighted average cost of capital (“WACC”), which is impacted by many factors, including long-term interest rates and future cash flow projections.

The life of these distribution assets is generally 40 years.

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

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

Income Tax Expense

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

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

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

Noncontrolling Interest

The Company recorded net income attributable to noncontrolling interest of $3.2 million in the third quarter of 2020 related to the portion of Piedmont owned by The Coca‑Cola Company prior to the purchase by an indirect wholly owned subsidiary of the Company of the remaining 22.7% general partnership interest in Piedmont on December 9, 2020.

Other Comprehensive Income, Net of Tax

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

First Nine Months Results

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

First Nine Months

(in thousands)

2021 2020 Change

Net sales $ 4,160,375 $ 3,728,720 $ 431,655

Cost of sales 2,699,020 2,421,686 277,334

Gross profit 1,461,355 1,307,034 154,321

Selling, delivery and administrative expenses 1,109,279 1,087,251 22,028

Income from operations 352,076 219,783 132,293

Interest expense, net 25,208 27,778 (2,570)

Other expense, net 94,078 39,826 54,252

Income before income taxes 232,790 152,179 80,611

Income tax expense 62,317 38,911 23,406

Net income 170,473 113,268 57,205

Net income attributable to noncontrolling interest — 7,153 (7,153)

Net income attributable to Coca‑Cola Consolidated, Inc.

$ 170,473 $ 106,115 $ 64,358

Other comprehensive income, net of tax 3,707 2,201 1,506

Comprehensive income attributable to Coca‑Cola Consolidated, Inc.

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

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

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

First Nine Months 2021

Attributable to:

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

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

133.3 Increased sales volume

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

9.8 Increased sales volume to other Coca-Cola bottlers

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

$ 431.7 Total increase in net sales

Net sales by product category were as follows:

First Nine Months

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

First Quarter

(in thousands) 2022 2021 % Change

Bottle/can sales:

Sparkling beverages $ 2,221,355 $ 2,040,139 8.9 %

Still beverages 1,424,069 1,239,335 14.9 %

Total bottle/can sales 3,645,424 3,279,474 11.2 %

Sales to other Coca‑Cola bottlers 259,771 249,994 3.9 %

Post-mix and other 255,180 199,252 28.1 %

Total other sales 514,951 449,246 14.6 %

Total net sales $ 4,160,375 $ 3,728,720 11.6 %

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:

First Nine Months Bottle/Can Sales Volume

Product Category 2021 2020 % Change

Sparkling beverages 60,182 61,116 (1.5) %

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Total bottle/can sales volume 86,402 86,917 (0.6) %

Any differences are not material.

The following table summarizes the percentage of the Company’s total bottle/can sales volume to its largest customers, as well as the percentage of the Company’s total net sales that such volume represents:

First Nine Months

First Quarter

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

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Cost of Sales

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

Inputs representing a substantial portion of the Company’s cost of sales include:

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

Cost of sales increased $75.6 million, or 9.2%, to $896.8 million in the first quarter of 2022, as compared to $821.2 million in the first quarter of 2021.

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

First Nine Months 2021 Attributable to:

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

89.2 Increased sales volume

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

10.7 Increased sales volume to other Coca-Cola bottlers

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

First Quarter 2022

Attributable to:

$ 87.3 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

(4.3) Decreased physical case volume

$ 75.6 Total increase in cost of sales

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

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, 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 $34.4 million in the first quarter of 2022 and $30.0 million in the first quarter of 2021.

Selling, Delivery and Administrative Expenses

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

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

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

SD&A expenses include the following:

SD&A expenses increased $22.1 million, or 6.2%, to $376.6 million in the first quarter of 2022, as compared to $354.5 million in the first quarter of 2021.

SD&A expenses as a percentage of net sales decreased to 26.8% in the first quarter of 2022 from 27.9% in the first quarter of 2021.

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

First Nine Months 2021 Attributable to:

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

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

First Quarter 2022

Attributable to:

$ 20.0 Increase in payroll expenses as a result of compensation adjustments which were made in order to remain competitive in a tight labor market

$ 22.1 Total increase in SD&A expenses

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

Shipping and handling costs included in SD&A expenses were $180.4 million in the first quarter of 2022 and $157.4 million in the first quarter of 2021.

Interest Expense, Net

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

Interest expense, net decreased $1.0 million, or 12.0%, to $7.7 million in the first quarter of 2022, as compared to $8.7 million in the first quarter of 2021.

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

Other Expense, Net

A summary of other expense, net is as follows:

First Nine Months

Other (Income) Expense, Net

A summary of other (income) expense, net is as follows:

First Quarter

(in thousands) 2022 2021

Increase in the fair value of the acquisition related contingent consideration liability $ 90,905 $ 35,068

Increase (decrease) in the fair value of the acquisition related contingent consideration liability $ (5,457) $ 10,998

Non-service cost component of net periodic benefit cost 2,178 1,057

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

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

Total other (income) expense, net $ (3,279) $ 12,055

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

The fair value is determined by discounting future expected acquisition related sub-bottling payments required under the Company’s comprehensive beverage agreements, which extend through the life of the applicable distribution assets, using the Company’s estimated weighted average cost of capital (“WACC”), which is impacted by many factors, including long-term interest rates and future cash flow projections.

The life of these distribution assets is generally 40 years.

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

The decrease in the fair value of the acquisition related contingent consideration liability in the first quarter of 2022 as compared to the first quarter of 2021 was primarily driven by an increase in the discount rate used to calculate fair value.

Income Tax Expense

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

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

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

Noncontrolling Interest

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

The Company’s effective income tax rate was 26.2% for the first quarter of 2022 and 27.3% for the first quarter of 2021.

The Company’s income tax expense increased $13.2 million, or 65.7%, to $33.2 million for the first quarter of 2022, as compared to $20.0 million for the first quarter of 2021.

The increase in income tax expense was primarily attributable to higher income before taxes during the first quarter of 2022 compared to the first quarter of 2021.

Other Comprehensive Income, Net of Tax

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

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

Other comprehensive income, net of tax was $0.8 million in the first quarter of 2022 and $1.3 million in the first quarter of 2021.

Segment Operating Results

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 evaluates segment reporting in accordance with 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.

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The Company’s segment results are as follows:

Third Quarter First Nine Months

First Quarter

(in thousands) 2022 2021

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The Company reports its financial results in accordance with accounting principles generally accepted in the United States (“GAAP”).

However, management believes certain non-GAAP financial measures provide users of the financial statements with additional, meaningful financial information that should be considered when assessing the Company’s ongoing performance.

However, management believes that certain non-GAAP financial measures provide users of the financial statements with additional, meaningful financial information that should be considered when assessing the Company’s ongoing performance.

Management also uses these non-GAAP financial measures in making financial, operating and planning decisions and in evaluating the Company’s performance.

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

Third Quarter 2021

(in thousands, except per share data) Gross

expenses Income from

operations Income before

income taxes Net

income Basic net income

Reported results (GAAP) $ 517,712 $ 380,681 $ 137,031 $ 93,952 $ 68,930 $ 7.36

Fair value adjustment of acquisition related contingent consideration (1)

— — — 33,924 25,488 2.72

Fair value adjustments for commodity derivative instruments (2)

(3,794) 426 (4,220) (4,220) (3,169) (0.34)

Supply chain optimization (3)

4,360 (35) 4,395 4,395 3,299 0.35

Total reconciling items 566 391 175 34,099 25,618 2.73

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

Third Quarter 2020

(in thousands, except per share data) Gross

expenses Income from

operations Income before

income taxes Net

income Basic net income

Reported results (GAAP) $ 472,438 $ 368,594 $ 103,844 $ 73,417 $ 51,884 $ 5.53

Fair value adjustment of acquisition related contingent consideration (1)

— — — 19,808 14,895 1.60

Fair value adjustments for commodity derivative instruments (2)

(1,194) 575 (1,769) (1,769) (1,330) (0.14)

Supply chain optimization (3)

3,122 — 3,122 3,122 2,348 0.25

Total reconciling items 1,928 575 1,353 21,161 15,913 1.71

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

First Nine Months 2021

(in thousands, except per share data) Gross

expenses Income from

operations Income before

income taxes Net

income Basic net income

First Quarter 2022

(in thousands, except per share data) Gross profit SD&A expenses Income from operations Income before taxes Net income Basic net income per share

Reported results (GAAP) $ 507,576 $ 376,591 $ 130,985 $ 126,565 $ 93,390 $ 9.96

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Adjusted results (non-GAAP) $ 500,087 $ 382,777 $ 117,310 $ 107,433 $ 78,984 $ 8.42

First Nine Months 2020

(in thousands, except per share data) Gross

expenses Income from

operations Income before

income taxes Net

income Basic net income

First Quarter 2021

(in thousands, except per share data) Gross profit SD&A expenses Income from operations Income before taxes Net income Basic net income per share

Reported results (GAAP) $ 448,703 $ 354,519 $ 94,184 $ 73,383 $ 53,363 $ 5.69

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Following is an explanation of non-GAAP adjustments:

(1) This non-cash, fair value adjustment of acquisition related contingent consideration fluctuates based on factors such as long-term interest rates and future cash flow projections of the distribution territories subject to sub-bottling fees.

(2) The Company enters into commodity derivative instruments from time to time to hedge some or all of its projected purchases of aluminum, PET resin, diesel fuel and unleaded gasoline in order to mitigate commodity risk.

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Financial Condition

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

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

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

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

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

• An increase in accounts payable, trade of $53.4 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 $46.5 million primarily as a result of the timing of cash payments.

Total assets were $3.43 billion as of April 1, 2022, which was a decrease of $19.6 million from December 31, 2021.

Net working capital, defined as current assets less current liabilities, was $157.1 million as of April 1, 2022, which was a decrease of $84.7 million from December 31, 2021.

Significant changes in net working capital as of April 1, 2022 as compared to December 31, 2021 were as follows:

• A decrease in inventories of $26.6 million primarily as a result of consumption of higher inventory levels, which were built in anticipation of increased input costs due to inflation, as of December 31, 2021.

• An increase in current portion of debt of $125.0 million due to the Company’s senior notes maturing on February 27, 2023.

• A decrease in accounts payable, trade of $45.6 million due to the timing of cash payments.

• A decrease in accrued compensation of $37.6 million, primarily as a result of the timing of bonus and incentive payments in the first quarter of 2022.

Liquidity and Capital Resources

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

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

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

Management believes the Company has sufficient sources of capital available to 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 condensed consolidated financial statements.

As of April 1, 2022, the Company had $127.1 million in cash and cash equivalents.

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

Management believes the Company has sufficient sources of capital available to repay 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 condensed consolidated financial statements.

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 October 1, 2021 and December 31, 2020 was as follows:

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

2016 Term Loan Facility (1)

6/7/2021 $ — $ 217,500

The Company’s debt as of April 1, 2022 and December 31, 2021 was as follows:

(in thousands) Maturity Date April 1, 2022 December 31, 2021

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

2018 Revolving Credit Facility 6/8/2023 — —

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

Senior bonds and unamortized discount on senior bonds (1)

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Debt issuance costs (1,394) (1,523)

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

(1) As of December 31, 2020, the 2016 Term Loan Facility (as defined below) balance was classified as long term as the Company intended to refinance outstanding principal payments due in the next 12 months using the 2018 Revolving Credit Facility (as defined below), which was classified as long-term debt, and the Company was not restricted by any subjective acceleration clause within the agreement for the 2018 Revolving Credit Facility.

Total debt $ 723,574 $ 723,443

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

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

On July 9, 2021, the Company entered into a credit agreement, providing for a five-year unsecured revolving credit facility with an aggregate maximum borrowing capacity of $500 million (the “2021 Revolving Credit Facility”), maturing on July 9, 2026.

Subject to obtaining commitments from the lenders and satisfying other conditions specified in the 2021 Revolving Credit Facility Agreement, at the Company’s option, additional incremental revolving commitments of up to $250 million may be established under the 2021 Revolving Credit Facility to increase the aggregate revolving commitments under the 2021 Revolving Credit Facility to up to $750 million.

Borrowings under the 2021 Revolving Credit Facility bear interest at a base rate or adjusted LIBOR, at the Company’s option, plus an applicable rate, depending on the rating for the Company’s long-term senior unsecured, non-credit-enhanced debt (“Debt Rating”).

In addition, the Company must pay a facility fee on the lenders’ aggregate commitments under the 2021 Revolving Credit Facility ranging from 0.060% to 0.175% per annum, depending on the Company’s Debt Rating.

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

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

Also on July 9, 2021, the Company entered into a term loan agreement, providing for a three-year senior unsecured term loan facility in the aggregate principal amount of $70 million (the “2021 Term Loan Facility”), maturing on July 9, 2024.

Subject to obtaining commitments from the lenders and satisfying other conditions specified in the 2021 Term Loan Facility Agreement, at the Company’s option, additional incremental term loans of up to $50 million may be established under the 2021 Term Loan Facility to increase the aggregate principal amount of term loans under the 2021 Term Loan Facility to up t o $120 million.

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

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

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

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

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

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a consolidated cash flow/fixed charges ratio and a consolidated funded indebtedness/cash flow ratio, each as defined in the respective agreement.

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

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

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

The Company was in compliance with these covenants as of April 1, 2022.

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

All outstanding 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, dividends on the Common Stock and Class B Common Stock and each class of common stock has participated equally in all dividends each quarter for more than 25 years.

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.

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

As of April 1, 2022, the Company’s credit ratings and outlook for its debt were as follows:

Credit Rating Rating Outlook

Standard & Poor’s BBB Positive

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.

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Following is a summary of the Level 3 activity:

Third Quarter First Nine Months

First Quarter

(in thousands) 2022 2021

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Reclassification to current payables 1,100 100

Increase in fair value 33,924 19,808 90,905 35,068

Increase (decrease) in fair value (5,457) 10,998

Ending balance - Level 3 liability $ 527,926 $ 435,746

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A summary of cash-based activity is as follows:

First Nine Months

First Quarter

(in thousands) 2022 2021

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$ 130,881 $ 81,910

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 2,178 74

Total cash sources $ 133,059 $ 81,984

Payments on term loan facility $ 217,500 $ 22,500

Additions to property, plant and equipment $ 104,353 $ 37,204

Payments on revolving credit facility 55,000 280,000

Acquisition of BODYARMOR distribution rights 30,149 1,998

Payments of acquisition related contingent consideration 9,822 10,046

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Payments on financing lease obligations 1,375 1,447

Other distribution agreements 1,998 —

Payments on term loan facility — 31,250

Other 245 661

Total cash uses $ 148,288 $ 84,949

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

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

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

Net decrease in cash during period $ (15,229) $ (2,965)

(1) Net cash provided by operating activities included net income tax payments of $1.2 million in the first quarter of 2022 and $0.6 million in the first quarter of 2021.

Cash Flows From Operating Activities

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

The increase was primarily the result of strong operating performance.

During the first quarter of 2022, cash provided by operating activities was $130.9 million, which was an increase of $49.0 million as compared to the first quarter of 2021.

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

Cash Flows From Investing Activities

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

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

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

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

During the first quarter of 2022, cash used in investing activities was $132.5 million, which was an increase of $92.9 million as compared to the first quarter of 2021.

The increase was primarily a result of additions to property, plant and equipment, which were $104.4 million during the first quarter of 2022 and $37.2 million during the first quarter of 2021.

There were $12.7 million and $16.2 million of additions to property, plant and equipment accrued in accounts payable, trade as of April 1, 2022 and April 2, 2021, respectively.

On January 1, 2022, the Company acquired $30.1 million of BODYARMOR distribution rights.

On March 17, 2022, CCBCC Operations, LLC, a wholly owned subsidiary of the Company, purchased the Snyder Production Center and an adjacent sales facility in Charlotte, North Carolina for a purchase price of $60.0 million, which was included in additions to property, plant and equipment.

The Company anticipates additions to property, plant and equipment in 2022 to be in the range of $200 million to $220 million.

Cash Flows From Financing Activities

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

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

The Company had cash payments for acquisition related contingent consideration of $28.6 million during the first nine months of 2021 and $32.0 million during the first nine months of 2020.

The Company anticipates that the amount it could pay annually under the acquisition related contingent consideration arrangements for the distribution territories subject to sub-bottling fees will be in the range of $32 million to $59 million.

Critical Accounting Policies

See Note 1 to the condensed consolidated financial statements for information on the Company’s critical accounting policies.

Off-Balance Sheet Arrangements

The Company is a shareholder of South Atlantic Canners, Inc.

(“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 October 1, 2021, the Company had guaranteed $14.7 million of SAC’s debt.

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

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 20 to the condensed consolidated financial statements for additional information.

During the first quarter of 2022, cash used in financing activities was $13.6 million, which was a decrease of $31.6 million as compared to the first quarter of 2021.

The decrease was primarily a result of payments on the Company’s term loan facility made during the first quarter of 2021 that did not recur in the first quarter of 2022.

The Company had cash payments for acquisition related contingent consideration of $9.8 million during the first quarter of 2022 and $10.0 million during the first quarter of 2021.

The Company anticipates that the amount it could pay annually under the acquisition related contingent consideration arrangements for the distribution territories subject to acquisition related sub-bottling payments will be in the range of $38 million to $64 million.

During 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 that matured on June 7, 2021.

Also during 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 London InterBank Offered Rate (“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 Secured Overnight Financing Rate 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.

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.

Also during 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 and subsequently repaid during 2021.

Hedging Activities

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Fees paid by the Company for commodity derivative instruments are amortized over the corresponding period of the instrument.

The Company accounts for its commodity derivative instruments on a mark-to-market basis with any expense or income being reflected as an adjustment to cost of sales or SD&A expenses, consistent with the expense classification of the underlying hedged item.

Company accounts for its commodity derivative instruments on a mark-to-market basis with any expense or income being reflected as an adjustment to cost of sales or SD&A expenses, consistent with the expense classification of the underlying hedged item.

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

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

Third Quarter First Nine Months

First Quarter

(in thousands) 2022 2021

Increase (decrease) in cost of sales $ (5,923) $ (814) $ (12,576) $ 1,778

Increase (decrease) in SD&A expenses (965) 296 (2,876) 3,291

Decrease in cost of sales $ (10,493) $ (962)

Decrease in SD&A expenses (8,444) (844)

Net impact $ (18,937) $ (1,806)

Cautionary Information Regarding Forward-Looking Statements

Certain statements contained in this report, or in other public filings, press releases, or other written or oral communications made by the Company or its representatives, which are not historical facts, are forward-looking statements subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.

These forward-looking statements address, among other things, Company plans, activities or events which the Company expects will or may occur in the future and may include express or implied projections of revenue or expenditures; statements of plans and objectives for future operations, growth or initiatives; statements of future economic performance, including, but not limited to, the state of the economy, capital investment and financing plans, net sales, cost of sales, SD&A expenses, gross profit, income tax rates, net income per diluted share, dividends, pension plan contributions and estimated acquisition related contingent consideration payments; statements regarding the outcome or impact of certain recent accounting pronouncements and pending or threatened litigation;

or statements regarding the impact of the COVID-19 pandemic on the Company’s business, financial condition, results of operations or cash flows.

These forward-looking statements may be identified by the use of the words “will,” “may,” “believe,” “plan,” “estimate,” “expect,” “anticipate,” “probably,” “should,” “project,” “intend,” “continue,” “could,” “strive” and other similar terms and expressions.

Various factors, risks and uncertainties may cause the Company’s actual results to differ materially from those expressed or implied in any forward-looking statements.

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 our Annual Report on Form 10-K for 2020, as well as other factors discussed throughout this report, including, without limitation, the factors described under “Critical Accounting Policies” in Note 1 to the condensed consolidated financial statements, or in other filings or statements made by the Company.

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

Cautionary Note Regarding Forward-Looking Statements

Certain statements made in this report, or in other public filings, press releases, or other written or oral communications made by the Company, which are not historical facts are forward-looking statements subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.

These forward-looking statements involve risks and uncertainties which we expect will or may occur in the future and may impact our business, financial condition and results of operations.

The words “anticipate,” “believe,” “expect,” “intend,” “project,” “may,” “will,” “should,” “could” and similar expressions are intended to identify those forward-looking statements.

These forward-looking statements reflect the Company’s best judgment based on current information, and, although we base these statements on circumstances that we believe to be reasonable when made, there can be no assurance that future events will not affect the accuracy of such forward-looking information.

As such, the forward-looking statements are not guarantees of future performance, and actual results may vary materially from the projected results and expectations discussed in this report.

Factors that might cause the Company’s actual results to differ materially from those anticipated in forward-looking statements include, but are not limited to:

increased costs (including due to inflation), disruption of supply or unavailability or shortages of raw materials, fuel and other supplies;

the inability to attract and retain front-line employees in a tight labor market;

the reliance on purchased finished products from external sources;

changes in public and consumer perception and preferences, including concerns related to product safety and sustainability, artificial ingredients, brand reputation and obesity;

the COVID-19 pandemic and other pandemic outbreaks in the future;

changes in government regulations related to nonalcoholic beverages, including regulations related to obesity, public health, artificial ingredients and product safety and sustainability;

decreases from historic levels of marketing funding support provided to us by The Coca‑Cola Company and other beverage companies;

material changes in the performance requirements for marketing funding support or our inability to meet such requirements;

decreases from historic levels of advertising, marketing and product innovation spending by The Coca‑Cola Company and other beverage companies, or advertising campaigns that are negatively perceived by the public;

any failure of the several Coca‑Cola system governance entities of which we are a participant to function efficiently or on our best behalf and any failure or delay of ours to receive anticipated benefits from these governance entities;

provisions in our beverage distribution and manufacturing agreements with The Coca‑Cola Company that could delay or prevent a change in control of us or a sale of our Coca‑Cola distribution or manufacturing businesses;

the concentration of our capital stock ownership;

our inability to meet requirements under our beverage distribution and manufacturing agreements;

changes in the inputs used to calculate our acquisition related contingent consideration liability;

technology failures or cyberattacks on our technology systems or our effective response to technology failures or cyberattacks on our customers’, suppliers’ or other third parties’ technology systems;

unfavorable changes in the general economy;

changes in our top customer relationships and marketing strategies;

lower than expected net pricing of our products resulting from continued and increased customer and competitor consolidations and marketplace competition;

the effect of changes in our level of debt, borrowing costs and credit ratings on our access to capital and credit markets, operating flexibility and ability to obtain additional financing to fund future needs;

the failure to attract, train and retain qualified employees while controlling labor costs, and other labor issues;

the failure to maintain productive relationships with our employees covered by collective bargaining agreements, including failing to renegotiate collective bargaining agreements;

changes in accounting standards;

our use of estimates and assumptions;

changes in tax laws, disagreements with tax authorities or additional tax liabilities;

changes in legal contingencies;

natural disasters, changing weather patterns and unfavorable weather;

climate change or legislative or regulatory responses to such change;

and the risks discussed in “Item 1A.

Risk Factors” of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021 and elsewhere in this report.

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

The Company assumes no obligation to update any forward-looking statements, even if experience or future changes make it clear that projected results expressed or implied in such statements will not be realized, except as may be required by law.

In evaluating forward-looking statements, these risks and uncertainties should be considered, together with the other risks described from time to time in the Company’s other reports and documents filed with the United States Securities and Exchange Commission.

The Company assumes no obligation to update any forward-looking statements except as may be required by law.

In evaluating forward-looking

statements, these risks and uncertainties should be considered, together with the other risks described from time to time in the Company’s reports and other filings with the United States Securities and Exchange Commission.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis