What changed in this filing

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Item 1. Financial Statements

2022-08-02 compared with 2022-05-03 · 156 added, 100 removed, 707 unchanged (27% of the section changed)

2 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

First Quarter

Second Quarter First Half

(in thousands, except per share data) 2022 2021 2022 2021

5 unchanged sentences

Interest expense, net 7,146 8,365 14,845 17,111

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

Other expense, net 6,199 47,041 2,920 59,096

Income before taxes 133,948 65,455 260,513 138,838

17 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

First Quarter

Second Quarter First Half

(in thousands) 2022 2021 2022 2021

13 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data) April 1, 2022 December 31, 2021

(in thousands, except share data) July 1, 2022 December 31, 2021

Current Assets:

56 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

First Quarter

(in thousands) 2022 2021

3 unchanged sentences

Depreciation and amortization expense from property, plant and equipment and financing leases 74,037 76,264

Deferred income taxes 33,130 19,980

Amortization of intangible assets and deferred proceeds, net 11,815 11,619

Deferred income taxes 11,189 2,293

Fair value adjustment of acquisition related contingent consideration ( 1,436 ) 56,981

5 unchanged sentences

Change in other noncurrent liabilities ( 9,753 ) ( 14,178 )

Other — ( 37 )

Total adjustments 50,583 169,842

12 unchanged sentences

Payments on term loan facility — ( 217,500 )

Borrowings under revolving credit facility — 55,000

Net cash used in financing activities $ ( 25,432 ) $ ( 189,622 )

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

Net increase (decrease) in cash during period $ 46,489 $ ( 589 )

Cash at beginning of period 142,314 54,793

16 unchanged sentences

Stock Treasury Stock - Class B Common Stock Total

Balance on April 1, 2022 $ 11,431 $ 1,633 $ 135,953 $ 815,532 $ ( 99,648 ) $ ( 60,845 ) $ ( 409 ) $ 803,647

Net income — — — 99,562 — — — 99,562

Other comprehensive income, net of tax — — — — 814 — — 814

Cash dividends paid:

Common Stock ($ 0.25 per share)

— — — ( 2,092 ) — — — ( 2,092 )

Class B Common Stock ($ 0.25 per share)

— — — ( 251 ) — — — ( 251 )

Balance on July 1, 2022 $ 11,431 $ 1,633 $ 135,953 $ 912,751 $ ( 98,834 ) $ ( 60,845 ) $ ( 409 ) $ 901,680

Balance on December 31, 2021 $ 10,204 $ 2,860 $ 135,953 $ 724,486 $ ( 100,463 ) $ ( 60,845 ) $ ( 409 ) $ 711,786

8 unchanged sentences

1,227 ( 1,227 ) — — — — — —

Balance on April 1, 2022 $ 11,431 $ 1,633 $ 135,953 $ 815,532 $ ( 99,648 ) $ ( 60,845 ) $ ( 409 ) $ 803,647

Balance on July 1, 2022 $ 11,431 $ 1,633 $ 135,953 $ 912,751 $ ( 98,834 ) $ ( 60,845 ) $ ( 409 ) $ 901,680

(in thousands, except share data) Common

7 unchanged sentences

Stock Treasury Stock - Class B Common Stock Total

Balance on April 2, 2021 $ 10,204 $ 2,860 $ 135,953 $ 595,300 $ ( 117,721 ) $ ( 60,845 ) $ ( 409 ) $ 565,342

Net income — — — 48,180 — — — 48,180

Other comprehensive income, net of tax — — — — 1,324 — — 1,324

Cash dividends paid:

Common Stock ($ 0.25 per share)

— — — ( 1,786 ) — — — ( 1,786 )

Class B Common Stock ($ 0.25 per share)

— — — ( 558 ) — — — ( 558 )

Balance on July 2, 2021 $ 10,204 $ 2,860 $ 135,953 $ 641,136 $ ( 116,397 ) $ ( 60,845 ) $ ( 409 ) $ 612,502

Balance on December 31, 2020 $ 10,204 $ 2,860 $ 135,953 $ 544,280 $ ( 119,053 ) $ ( 60,845 ) $ ( 409 ) $ 512,990

6 unchanged sentences

— — — ( 1,116 ) — — — ( 1,116 )

Balance on April 2, 2021 $ 10,204 $ 2,860 $ 135,953 $ 595,300 $ ( 117,721 ) $ ( 60,845 ) $ ( 409 ) $ 565,342

Balance on July 2, 2021 $ 10,204 $ 2,860 $ 135,953 $ 641,136 $ ( 116,397 ) $ ( 60,845 ) $ ( 409 ) $ 612,502

See accompanying notes to condensed consolidated financial statements.

9 unchanged sentences

The condensed consolidated financial statements presented are:

• 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.

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

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

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

The condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial reporting and the instructions to Form 10-Q and Article 10 of Regulation S-X.

The accounting policies followed in the presentation of interim financial results are consistent with those followed on an annual basis.

These policies are presented in Note 1 to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for 2021 filed with the United States Securities and Exchange Commission.

The preparation of condensed consolidated financial statements, in conformity with GAAP, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

11 unchanged sentences

Wells, the JFH Family Limited Partnership—DH1 and the Anne Lupton Carter Trust f/b/o Deborah S.

Harrison (collectively, the “Converting Stockholders”), pursuant to which the Company and the Converting Stockholders agreed upon the process for converting an aggregate of 1,227,546 shares of the Company’s Class B Common Stock owned by the Converting Stockholders on a one share for one share

basis into shares of the Company’s Common Stock, effective as of March 17, 2022 (the “Converted Shares”).

Harrison (collectively, the “Converting Stockholders”), pursuant to which the Company and the Converting Stockholders agreed upon the process for converting an aggregate of

1,227,546 shares of the Company’s Class B Common Stock owned by the Converting Stockholders on a one share for one share basis into shares of the Company’s Common Stock, effective as of March 17, 2022 (the “Converted Shares”).

In the Stockholder Conversion Agreement, the Company agreed to cause the Converted Shares to be registered for resale pursuant to the Company’s existing automatic shelf registration statement and the Converting Stockholders agreed to certain restrictions on their resale of the Converted Shares, including a trade volume limitation that prohibits the sale of more than 175,000 of the Converted Shares in the aggregate during any three -consecutive month period.

On June 21, 2022, the Company filed a prospectus supplement with the SEC pursuant to the Company’s existing automatic shelf registration statement, registering the Converted Shares for resale by the Converting Stockholders.

The Company will not receive any proceeds from any resale of the Converted Shares by the Converting Stockholders.

Frank Harrison, III, Chairman of the Board of Directors and Chief Executive Officer of the Company, controls 1,004,394 shares of the Company’s Class B Common Stock, which represent approximately 71 % of the total voting power of the Company’s outstanding Common Stock and Class B Common Stock on a consolidated basis.

In addition, other members of the Harrison family control shares of the Company’s Common Stock representing approximately 4 % of the total voting power of the Company’s outstanding Common Stock and Class B Common Stock on a consolidated basis.

As of April 1, 2022, The Coca‑Cola Company owned shares of the Company’s Common Stock representing approximately 9 % of the total voting power of the Company’s outstanding Common Stock and Class B Common Stock on a consolidated basis.

As of July 1, 2022, The Coca‑Cola Company owned shares of the Company’s Common Stock representing approximately 9 % of the total voting power of the Company’s outstanding Common Stock and Class B Common Stock on a consolidated basis.

The number of shares of the Company’s Common Stock currently held by The Coca‑Cola Company gives it the right to have a designee proposed by the Company for nomination to the Company’s Board of Directors in the Company’s annual proxy statement.

3 unchanged sentences

The following table summarizes the significant cash transactions between the Company and The Coca‑Cola Company:

First Quarter

Second Quarter First Half

(in thousands) 2022 2021 2022 2021

11 unchanged sentences

Coca‑Cola Refreshments USA, Inc.

The Company, The Coca‑Cola Company and CCR entered into comprehensive beverage agreements (collectively, the “CBA”), related to a multi-year series of transactions, which were completed in October 2017, through which the Company acquired and exchanged distribution territories and manufacturing plants (the “System Transformation”).

exchanged distribution territories and manufacturing plants (the “System Transformation”).

The CBA requires the Company to make quarterly sub-bottling payments to CCR on a continuing basis in exchange for the grant of exclusive rights to distribute, promote, market and sell the authorized brands of The Coca‑Cola Company and related products in certain distribution territories the Company acquired from CCR.

These sub-bottling payments are based on gross profit derived from the Company’s sales of

certain beverages and beverage products that are sold under the same trademarks that identify a covered beverage, a beverage product or certain cross-licensed brands applicable to the System Transformation (“acquisition related sub-bottling payments”).

Acquisition related sub-bottling payments to CCR were $ 9.8 million in the first quarter of 2022 and $ 10.0 million in the first quarter of 2021.

These sub-bottling payments are based on gross profit derived from the Company’s sales of certain beverages and beverage products that are sold under the same trademarks that identify a covered beverage, a beverage product or certain cross-licensed brands applicable to the System Transformation (“acquisition related sub-bottling payments”).

Acquisition related sub-bottling payments to CCR were $ 18.7 million in the first half of 2022 and $ 19.9 million in the first half of 2021.

The following table summarizes the liability recorded by the Company to reflect the estimated fair value of contingent consideration related to future expected acquisition related sub‑bottling payments to CCR:

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

(in thousands) July 1, 2022 December 31, 2021

Current portion of acquisition related contingent consideration $ 40,321 $ 51,518

4 unchanged sentences

The Company accounts for Southeastern as an equity method investment.

The Company’s investment in Southeastern, which was classified as other assets in the condensed consolidated balance sheets, was $ 21.8 million as of April 1, 2022 and $ 21.7 million as of December 31, 2021.

The Company’s investment in Southeastern, which was classified as other assets in the condensed consolidated balance sheets, was $ 21.8 million as of July 1, 2022 and $ 21.7 million as of December 31, 2021.

South Atlantic Canners, Inc.

2 unchanged sentences

The Company accounts for SAC as an equity method investment.

The Company’s investment in SAC, which was classified as other assets in the condensed consolidated balance sheets, was $ 8.2 million as of both April 1, 2022 and December 31, 2021.

The Company’s investment in SAC, which was classified as other assets in the condensed consolidated balance sheets, was $ 8.2 million as of both July 1, 2022 and December 31, 2021.

The Company also guarantees a portion of SAC’s debt;

1 unchanged sentence

The Company receives a fee for managing the day-to-day operations of SAC pursuant to a management agreement.

Proceeds from management fees received from SAC, which were recorded as a reduction to cost of sales in the condensed consolidated statements of operations, were $ 2.1 million in the first quarter of 2022 and $ 2.3 million in the first quarter of 2021.

Proceeds from management fees received from SAC, which were recorded as a reduction to cost of sales in the condensed consolidated statements of operations, were $ 4.4 million in the first half of 2022 and $ 4.5 million in the first half of 2021.

Coca‑Cola Bottlers’ Sales & Services Company LLC (“CCBSS”)

2 unchanged sentences

CCBSS negotiates the procurement for the majority of the Company’s raw materials, excluding concentrate, and the Company receives a rebate from CCBSS for the purchase of these raw materials.

The Company had rebates due from CCBSS of $ 8.9 million on April 1, 2022 and $ 7.9 million on December 31, 2021, which were classified as accounts receivable, other in the condensed consolidated balance sheets.

The Company had rebates due from CCBSS of $ 16.7 million on July 1, 2022 and $ 7.9 million on December 31, 2021, which were classified as accounts receivable, other in the condensed consolidated balance sheets.

Changes in rebates receivable relate to volatility in raw material prices.

In addition, the Company pays an administrative fee to CCBSS for its services.

The Company incurred administrative fees to CCBSS of $ 0.3 million in the first quarter of 2022 and $ 0.6 million in the first quarter of 2021, which were classified as selling, delivery and administrative (“SD&A”) expenses in the condensed consolidated statements of operations.

The Company incurred administrative fees to CCBSS of $ 1.1 million in the first half of 2022 and $ 1.4 million in the first half of 2021, which were classified as selling, delivery and administrative (“SD&A”) expenses in the condensed consolidated statements of operations.

CONA Services LLC (“CONA”)

1 unchanged sentence

The Company accounts for CONA as an equity method investment.

The Company’s investment in CONA, which was classified as other assets in the condensed consolidated balance sheets, was $ 14.7 million as of April 1, 2022 and $ 13.7 million as of December 31, 2021.

The Company’s investment in CONA, which was classified as other assets in the condensed consolidated balance sheets, was $ 15.4 million as of July 1, 2022 and $ 13.7 million as of December 31, 2021.

Pursuant to an amended and restated master services agreement with CONA, the Company is authorized to use the Coke One North America system (the “CONA System”), a uniform information technology system developed to promote operational efficiency and uniformity among North American Coca‑Cola bottlers.

In exchange for the Company’s rights to use the CONA System and receive CONA-related services, it is charged service fees by CONA.

The Company incurred CONA service fees of $ 6.0 million in the first quarter of 2022 and $ 5.9 million in the first quarter of 2021.

The Company incurred CONA service fees of $ 13.0 million in the first half of 2022 and $ 12.4 million in the first half of 2021.

Related Party Leases

3 unchanged sentences

The annual base rent the Company is obligated to pay under this lease is subject to an adjustment for an inflation factor and the lease expires on December 31, 2029.

The principal balance outstanding under this lease was $ 27.6 million on April 1, 2022 and $ 28.2 million on December 31, 2021.

The principal balance outstanding under this lease was $ 26.9 million on July 1, 2022 and $ 28.2 million on December 31, 2021.

The Company previously leased the Snyder Production Center and an adjacent sales facility in Charlotte, North Carolina (the “Snyder Production Center”) from Harrison Limited Partnership One (“HLP”), which is directly and indirectly owned by trusts of which J.

4 unchanged sentences

This lease, which was scheduled to expire on December 31, 2035, was terminated in connection with the purchase of the Snyder Production Center by Operations.

There was no principal balance outstanding under this lease on April 1, 2022 and there was a principal balance outstanding of $ 59.1 million on December 31, 2021.

A summary of rental payments for these leases related to the first quarter of 2022 and the first quarter of 2021 is as follows:

First Quarter

There was no principal balance outstanding under this lease on July 1, 2022 and there was a principal balance outstanding of $ 59.1 million on December 31, 2021.

A summary of rental payments for these leases related to the second quarter and the first half of 2022 and 2021 is as follows:

Second Quarter First Half

(in thousands) 2022 2021 2022 2021

7 unchanged sentences

These awards may be settled in cash and/or shares of the Company’s Class B Common Stock, based on the average of the closing prices of shares of the Company’s Common Stock during the last 20 trading days of the performance period.

Compensation expense for the Long-Term Performance Equity Plan, which was included in SD&A expenses in the condensed consolidated statements of operations, was $ 2.0 million in the first quarter of 2022 and $ 1.9 million in the first quarter of 2021.

Compensation expense for the Long-Term Performance Equity Plan, which was included in SD&A expenses in the condensed consolidated statements of operations, was $ 3.6 million in both the second quarter of 2022 and the second quarter of 2021 and $ 5.6 million and $ 5.5 million in the first half of 2022 and the first half of 2021, respectively.

Revenue Recognition

10 unchanged sentences

Bottle/can sales, sales to other Coca‑Cola bottlers and post-mix sales are recognized when control transfers to a customer, which is generally upon delivery and is considered a single point in time (“point in time”).

Point in time sales accounted for approximately 97 % of the Company’s net sales in the first quarter of 2022 and approximately 96 % of the Company’s net sales in the first quarter of 2021.

Point in time sales accounted for approximately 97 % of the Company’s net sales in both the first half of 2022 and the first half of 2021.

Other sales, which include revenue for service fees related to the repair of cold drink equipment and delivery fees for freight hauling and brokerage services, are recognized over time (“over time”).

2 unchanged sentences

Revenues related to freight hauling and brokerage services are recognized as the delivery occurs using a miles driven output method.

Generally, delivery occurs and freight charges are recognized in the same

Generally, delivery occurs and freight charges are recognized in the same day.

Over time sales orders open at the end of a financial period are not material to the condensed consolidated financial statements.

The following table represents a disaggregation of revenue from contracts with customers:

First Quarter

Second Quarter First Half

(in thousands) 2022 2021 2022 2021

11 unchanged sentences

Returned product is recognized as a reduction to net sales.

The Company’s reserve for customer returns was $ 3.0 million as of both April 1, 2022 and December 31, 2021.

The Company’s reserve for customer returns was $ 3.0 million as of both July 1, 2022 and December 31, 2021.

The Company estimates an allowance for credit losses, based on historic days’ sales outstanding trends, aged customer balances, previously written-off balances and expected recoveries up to balances previously written off, in order to present the net amount expected to be collected.

Accounts receivable balances are written off when determined uncollectible and are recognized as a reduction to the allowance for credit losses.

Following is a summary of activity for the allowance for credit losses during the first quarter of 2022 and the first quarter of 2021:

First Quarter

Following is a summary of activity for the allowance for credit losses during the first half of 2022 and the first half of 2021:

(in thousands) 2022 2021

10 unchanged sentences

The Company’s segment results are as follows:

First Quarter

Second Quarter First Half

(in thousands) 2022 2021 2022 2021

16 unchanged sentences

The following table sets forth the computation of basic net income per share and diluted net income per share under the two-class method:

First Quarter

Second Quarter First Half

(in thousands, except per share data) 2022 2021 2022 2021

19 unchanged sentences

Numerator for basic net income per Class B Common Stock share $ 10,674 $ 11,473 $ 31,156 $ 24,180

First Quarter

Second Quarter First Half

(in thousands, except per share data) 2022 2021 2022 2021

33 unchanged sentences

Inventories consisted of the following:

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

(in thousands) July 1, 2022 December 31, 2021

Finished products $ 193,590 $ 181,751

4 unchanged sentences

Prepaid expenses and other current assets consisted of the following:

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

(in thousands) July 1, 2022 December 31, 2021

Repair parts $ 33,185 $ 26,643

6 unchanged sentences

Assets Held for Sale

As of April 1, 2022, certain properties owned by the Company met the accounting guidance criteria to be classified as assets held for sale.

As of July 1, 2022, certain properties owned by the Company met the accounting guidance criteria to be classified as assets held for sale.

The properties primarily relate to warehousing and distribution operations that have been consolidated into new facilities.

2 unchanged sentences

Following is a summary of the assets held for sale:

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

(in thousands) July 1, 2022 December 31, 2021

Land $ 1,691 $ 2,906

3 unchanged sentences

The principal categories and estimated useful lives of property, plant and equipment, net were as follows:

(in thousands) April 1, 2022 December 31, 2021 Estimated Useful Lives

(in thousands) July 1, 2022 December 31, 2021 Estimated Useful Lives

Land $ 87,037 $ 80,261

11 unchanged sentences

Following is a summary of the weighted average remaining lease term and the weighted average discount rate for the Company’s leases:

April 1, 2022 December 31, 2021

July 1, 2022 December 31, 2021

Weighted average remaining lease term:

4 unchanged sentences

Financing leases 5.2 % 3.1 %

During the first quarter of 2022, the Company terminated its financing lease for the Snyder Production Center, which was scheduled to expire on December 31, 2035.

On March 17, 2022, the Company terminated its financing lease for the Snyder Production Center, which was scheduled to expire on December 31, 2035.

See Note 2 for additional information on the lease termination.

Following is a summary of the Company’s leases within the condensed consolidated statements of operations:

First Quarter

Second Quarter First Half

(in thousands) 2022 2021 2022 2021

5 unchanged sentences

The future minimum lease payments related to the Company’s leases include renewal options the Company has determined to be reasonably certain and exclude payments to landlords for real estate taxes and common area maintenance.

Following is a summary of future minimum lease payments for all noncancelable operating leases and financing leases as of April 1, 2022:

Following is a summary of future minimum lease payments for all noncancelable operating leases and financing leases as of July 1, 2022:

(in thousands) Operating Leases Financing Leases

24 unchanged sentences

Following is a summary of the Company’s leases within the condensed consolidated statements of cash flows:

First Quarter

(in thousands) 2022 2021

6 unchanged sentences

Total cash flows from financing activities impact $ 1,904 $ 2,368

As of April 1, 2022, the Company had three operating lease commitments that had not yet commenced.

These lease commitments have a lease term of approximately three to five years and are expected to commence during the second quarter of 2022.

The additional lease liability associated with these lease commitments is expected to be $ 2.5 million.

Subsequent to quarter-end, the Company entered into an operating lease commitment with a lease term of five years .

This lease commitment is expected to commence during the third quarter of 2022.

The additional lease liability associated with this lease commitment is expected to be approximately $ 9.8 million.

Distribution Agreements, Net

Distribution agreements, net, which are amortized on a straight-line basis and have an estimated useful life of 20 to 40 years, consisted of the following:

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

(in thousands) July 1, 2022 December 31, 2021

Distribution agreements at cost $ 990,191 $ 960,042

1 unchanged sentence

Distribution agreements, net $ 854,480 $ 836,777

Following is a summary of activity for distribution agreements, net during the first quarter of 2022 and the first quarter of 2021:

First Quarter

Following is a summary of activity for distribution agreements, net during the first half of 2022 and the first half of 2021:

(in thousands) 2022 2021

5 unchanged sentences

Customer lists, net, which are amortized on a straight-line basis and have an estimated useful life of five to 12 years, consisted of the following:

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

(in thousands) July 1, 2022 December 31, 2021

Customer lists at cost $ 25,288 $ 25,288

3 unchanged sentences

Other accrued liabilities consisted of the following:

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

(in thousands) July 1, 2022 December 31, 2021

Accrued insurance costs $ 51,800 $ 51,645

20 unchanged sentences

The following table summarizes pre-tax changes in the fair values of the Company’s commodity derivative instruments and the classification of such changes in the condensed consolidated statements of operations:

First Quarter

Second Quarter First Half

(in thousands) 2022 2021 2022 2021

1 unchanged sentence

Selling, delivery and administrative expenses 998 505 7,223 1,065

Total gain $ 13,719 $ 848

Total gain (loss) $ ( 12,665 ) $ 2,633 $ 1,054 $ 3,481

All commodity derivative instruments are recorded at fair value as either assets or liabilities in the condensed consolidated balance sheets.

2 unchanged sentences

following table summarizes the fair values of the Company’s commodity derivative instruments and the classification of such instruments in the condensed consolidated balance sheets:

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

(in thousands) July 1, 2022 December 31, 2021

Prepaid expenses and other current assets $ 10,036 $ 7,714

Total assets $ 10,036 $ 7,714

Other accrued liabilities $ 1,268 $ —

Total liabilities $ 1,268 $ —

The following table summarizes the Company’s gross commodity derivative instrument assets and gross commodity derivative instrument liabilities in the condensed consolidated balance sheets:

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

(in thousands) July 1, 2022 December 31, 2021

Gross commodity derivative instrument assets $ 10,493 $ 9,200

1 unchanged sentence

The following table summarizes the Company’s outstanding commodity derivative instruments:

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

(in thousands) July 1, 2022 December 31, 2021

Notional amount of outstanding commodity derivative instruments $ 41,074 $ 74,558

17 unchanged sentences

The following tables summarize the carrying amounts and fair values by level of the Company’s deferred compensation plan assets and liabilities, commodity derivative instruments, debt and acquisition related contingent consideration:

April 1, 2022

(in thousands) Carrying

5 unchanged sentences

Deferred compensation plan liabilities 49,535 49,535 49,535 — —

Commodity derivative instruments 1,268 1,268 — 1,268 —

Debt 723,633 718,400 — 718,400 —

17 unchanged sentences

A summary of the Level 3 activity is as follows:

First Quarter

Second Quarter First Half

(in thousands) 2022 2021 2022 2021

4 unchanged sentences

Ending balance - Level 3 liability $ 522,259 $ 473,055 $ 522,259 $ 473,055

As of April 1, 2022 and April 2, 2021, discount rates of 8.1 % and 7.9 %, 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 the first quarter of 2022 was primarily driven by an increase in the discount rate used to calculate fair value, partially offset by higher projections of future cash flows in the distribution territories subject to acquisition related sub-bottling payments.

This fair value adjustment was recorded in other (income) expense, net in the condensed consolidated statement of operations for the first quarter of 2022.

As of July 1, 2022 and July 2, 2021, discount rates of 8.9 % and 7.7 %, 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 the first half of 2022 was primarily driven by an increase in the discount rate used to calculate fair value, partially offset by higher projections of future cash flows in the distribution territories subject to acquisition related sub-bottling payments.

This fair value adjustment was recorded in other expense, net in the condensed consolidated statement of operations for the first half of 2022.

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 $ 39 million to $ 69 million.

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 was $ 33.2 million for the first quarter of 2022 and $ 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.

The Company had uncertain tax positions, including accrued interest, of $ 1.7 million on both April 1, 2022 and December 31, 2021, all of which would affect the Company’s effective income tax rate if recognized.

The Company’s effective income tax rate was 25.9 % for the first half of 2022 and 26.9 % for the first half of 2021.

The Company’s income tax expense was $ 67.6 million for the first half of 2022 and $ 37.3 million for the first half of 2021.

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

The Company had uncertain tax positions, including accrued interest, of $ 1.7 million on both July 1, 2022 and December 31, 2021, 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 material impact on the condensed consolidated financial statements.

3 unchanged sentences

There are two Company-sponsored pension plans.

The primary Company-sponsored pension plan was frozen as of June 30, 2006 and no benefits accrued to participants after that date.

The 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.

2 unchanged sentences

The components of net periodic pension cost were as follows:

First Quarter

Second Quarter First Half

(in thousands) 2022 2021 2022 2021

5 unchanged sentences

Net periodic pension cost $ 3,472 $ 2,286 $ 6,945 $ 4,572

The Company did not make any contributions to the two Company-sponsored pension plans during the first quarter of 2022.

The Company did not make any contributions to the two Company-sponsored pension plans during the first half of 2022.

Contributions to the two Company-sponsored pension plans in 2022 are expected to be in the range of $ 20 million to $ 30 million.

During the first half of 2022, the Company began the process of terminating the Primary Plan.

The Company expects to offer a lump sum benefit payout option to certain plan participants prior to completing the purchase of group annuity contracts that will transfer the pension benefit obligation to an insurance company.

Postretirement Benefits

3 unchanged sentences

The components of net periodic postretirement benefit cost were as follows:

First Quarter

Second Quarter First Half

(in thousands) 2022 2021 2022 2021

5 unchanged sentences

Other liabilities consisted of the following:

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

(in thousands) July 1, 2022 December 31, 2021

Noncurrent portion of acquisition related contingent consideration $ 481,938 $ 490,587

7 unchanged sentences

Rate Interest

Nonpublic April 1,

Nonpublic July 1,

2022 December 31,

17 unchanged sentences

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 April 1, 2022.

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

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

These covenants have not restricted, 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.

4 unchanged sentences

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

The Company purchased 6.5 million cases and 7.2 million cases of finished product from SAC in the first quarter of 2022 and the first quarter of 2021, respectively.

The Company purchased 13.4 million cases and 14.3 million cases of finished product from SAC in the first half of 2022 and the first half of 2021, respectively.

The following table summarizes the Company’s purchases from these manufacturing cooperatives:

First Quarter

Second Quarter First Half

(in thousands) 2022 2021 2022 2021

3 unchanged sentences

The Company guarantees a portion of SAC’s debt, which expires in 2024.

The amount guaranteed was $ 9.5 million on both April 1, 2022 and December 31, 2021.

The amount guaranteed was $ 9.5 million on both July 1, 2022 and December 31, 2021.

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

The Company does not anticipate SAC will fail to fulfill its commitments related to the debt.

The Company further believes SAC has sufficient assets, including production equipment, facilities and working capital, and the ability to adjust selling prices of its products to adequately mitigate the risk of material loss from the Company’s guarantee.

The Company further believes SAC has sufficient assets, including production equipment, facilities and working capital, and the ability to adjust the selling prices of its products to adequately mitigate the risk of material loss from the Company’s guarantee.

The Company holds no assets as collateral against the SAC guarantee, the fair value of which is immaterial to the condensed consolidated financial statements.

The Company monitors its investment in SAC and would be required to write down its investment if an impairment, other than a temporary impairment, was identified.

No impairment of the Company’s investment in SAC was identified as of April 1, 2022, and there was no impairment identified in 2021.

No impairment of the Company’s investment in SAC was identified as of July 1, 2022, and there was no impairment identified in 2021.

Other Commitments and Contingencies

The Company has standby letters of credit, primarily related to its property and casualty insurance programs.

These letters of credit totaled $ 37.6 million on both April 1, 2022 and December 31, 2021.

These letters of credit totaled $ 37.6 million on both July 1, 2022 and December 31, 2021.

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

As of April 1, 2022, the future payments related to these contractual arrangements, which expire at various dates through 2033, amounted to $ 139.7 million.

As of July 1, 2022, the future payments related to these contractual arrangements, which expire at various dates through 2033, amounted to $ 139.2 million.

The Company is involved in various claims and legal proceedings which have arisen in the ordinary course of its business.

7 unchanged sentences

Accumulated other comprehensive income (loss) (“AOCI(L)”) is comprised of adjustments to the Company’s pension and postretirement medical benefit plans and the foreign currency translation for a subsidiary of the Company that performs data analysis and provides consulting services outside the United States.

Following is a summary of AOCI(L) for the first quarter of 2022 and the first quarter of 2021:

(in thousands) December 31, 2021 Pre-tax Activity Tax Effect April 1, 2022

Following is a summary of AOCI(L) for the second quarter of 2022 and the second quarter of 2021:

(in thousands) April 1, 2022 Pre-tax Activity Tax Effect July 1, 2022

Net pension activity:

7 unchanged sentences

Total AOCI(L) $ ( 99,648 ) $ 1,079 $ ( 265 ) $ ( 98,834 )

(in thousands) December 31, 2020 Pre-tax Activity Tax Effect April 2, 2021

(in thousands) April 2, 2021 Pre-tax Activity Tax Effect July 2, 2021

Net pension activity:

11 unchanged sentences

This interest rate swap was designated as a cash flow hedging instrument and changes in its fair value were not material to the condensed consolidated balance sheets.

Following is a summary of AOCI(L) for the first half of 2022 and the first half of 2021:

(in thousands) December 31, 2021 Pre-tax Activity Tax Effect July 1, 2022

Net pension activity:

Actuarial loss $ ( 78,882 ) $ 1,977 $ ( 486 ) $ ( 77,391 )

Prior service credits 11 — — 11

Net postretirement benefits activity:

Actuarial loss ( 1,239 ) 183 ( 45 ) ( 1,101 )

Prior service costs ( 624 ) — — ( 624 )

Foreign currency translation adjustment ( 9 ) — — ( 9 )

Reclassification of stranded tax effects ( 19,720 ) — — ( 19,720 )

Total AOCI(L) $ ( 100,463 ) $ 2,160 $ ( 531 ) $ ( 98,834 )

(in thousands) December 31, 2020 Pre-tax Activity Tax Effect July 2, 2021

Net pension activity:

Actuarial loss $ ( 93,847 ) $ 2,435 $ ( 606 ) $ ( 92,018 )

Prior service credits 8 1 — 9

Net postretirement benefits activity:

Actuarial loss ( 4,328 ) 371 ( 92 ) ( 4,049 )

Prior service costs ( 624 ) — — ( 624 )

Interest rate swap ( 556 ) 739 ( 183 ) —

Foreign currency translation adjustment 14 ( 13 ) 4 5

Reclassification of stranded tax effects ( 19,720 ) — — ( 19,720 )

Total AOCI(L) $ ( 119,053 ) $ 3,533 $ ( 877 ) $ ( 116,397 )

Following is a summary of the impact of AOCI(L) on the condensed consolidated statements of operations:

First Quarter 2022

Second Quarter 2022

(in thousands) Net Pension Activity Net Postretirement Benefits Activity Total

1 unchanged sentence

Selling, delivery and administrative expenses 722 54 776

Subtotal before taxes 989 92 1,081

Subtotal pre-tax 988 91 1,079

Income tax expense 243 22 265

Total after tax effect $ 745 $ 69 $ 814

First Quarter 2021

Second Quarter 2021

(in thousands) Net Pension Activity Net Postretirement Benefits Activity Interest Rate Swap Foreign Currency Translation Adjustment Total

1 unchanged sentence

Selling, delivery and administrative expenses 860 81 324 36 1,301

Subtotal before taxes 1,220 186 415 ( 49 ) 1,772

Income tax expense (benefit) 303 46 103 ( 12 ) 440

Subtotal pre-tax 1,216 185 324 36 1,761

Income tax expense 303 46 80 8 437

Total after tax effect $ 913 $ 139 $ 244 $ 28 $ 1,324

First Half 2022

(in thousands) Net Pension Activity Net Postretirement Benefits Activity Total

Cost of sales $ 544 $ 78 $ 622

Selling, delivery and administrative expenses 1,433 105 1,538

Subtotal pre-tax 1,977 183 2,160

Income tax expense 486 45 531

Total after tax effect $ 1,491 $ 138 $ 1,629

First Half 2021

(in thousands) Net Pension Activity Net Postretirement Benefits Activity Interest Rate Swap Foreign Currency Translation Adjustment Total

Cost of sales $ 704 $ 207 $ — $ — $ 911

Selling, delivery and administrative expenses 1,732 164 739 ( 13 ) 2,622

Subtotal pre-tax 2,436 371 739 ( 13 ) 3,533

Income tax expense 606 92 183 ( 4 ) 877

Total after tax effect $ 1,830 $ 279 $ 556 $ ( 9 ) $ 2,656

Supplemental Disclosures of Cash Flow Information

Changes in current assets and current liabilities affecting cash were as follows:

First Quarter

(in thousands) 2022 2021

12 unchanged sentences

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

What changed 10-Q

Item 1. Financial Statements