What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-08-02 compared with 2022-05-03 · 217 added, 102 removed, 290 unchanged (52% of the section changed)

6 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.

Our Business and the Nonalcoholic Beverage Industry

29 unchanged sentences

Executive Summary

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.

Net sales increased 11% to $1.60 billion in the second quarter of 2022, while physical case volume increased 1.0%.

The increase in net sales was driven primarily by price increases taken on most of our Sparkling and Still beverages over the last year.

Sparkling beverage volume increased 1.8% in the quarter, as consumer demand remained strong, especially for our multi-serve can packages.

Sales of Sparkling single-serve products sold in immediate consumption channels also continued to perform well, with volume increasing 1.9% in the quarter.

Still beverage volume decreased 0.6% in the quarter, as certain brands within this category were impacted by supply chain issues.

We continue to see strong sales momentum in several key brands within the Still category, including Monster, smartwater and BODYARMOR.

Net sales increased 11% and physical case volume increased 0.3% in the first half of 2022.

Gross profit in the second quarter of 2022 increased $55.7 million, or 11%, while gross margin remained flat at 34.5%.

On an adjusted basis, as defined in the “Adjusted Non-GAAP Results” section, gross profit in the second quarter of 2022 was $564.4 million, which represented an increase of $69.8 million, or 14%.

Adjusted gross margin was 35.4%, an increase of 90 basis points compared to the second quarter of 2021.

The improvement in gross profit resulted from strong price realization and solid volume growth in our Sparkling beverages, which enabled higher gross margins during this period of rising input and production costs.

Gross profit in the first half of 2022 increased $114.6 million, or 12%.

Selling, delivery and administrative (“SD&A”) expenses in the second quarter of 2022 increased $29.3 million, or 8%.

SD&A expenses as a percentage of net sales decreased 80 basis points to 25.3% in the second quarter of 2022.

The increase in SD&A expenses related primarily to an increase in labor costs as compared to the second quarter of 2021.

Over the last year, we have made compensation adjustments across our workforce to remain competitive in a tight labor market.

In addition, SD&A expenses across a number of categories increased during the quarter as a result of the current, high inflationary environment.

SD&A expenses in the first half of 2022 increased $51.4 million, or 7%.

SD&A expenses as a percentage of net sales in the first half of 2022 decreased 100 basis points to 26.0% as compared to the first half of 2021.

Income from operations in the second quarter of 2022 was $147.3 million, compared to $120.9 million in the second quarter of 2021, an increase of $26.4 million, or 22%.

On an adjusted basis, income from operations in the second quarter of 2022 was $160.1 million, an increase of 33%.

For the first half of 2022, income from operations increased $63.2 million to $278.3 million.

Net income in the second quarter of 2022 was $99.6 million, compared to $48.2 million in the second quarter of 2021, an improvement of $51.4 million.

Net income increased $91.4 million in the first half of 2022 to $193.0 million as compared to the first half of 2021.

Cash flows provided by operations for the first half of 2022 were $243.5 million, compared to $271.4 million for the first half of 2021.

Our strong operating performance, led by our top‑line growth and effective management of operating expenses, drove cash flows from operations during the period.

Cash flows from operations were impacted by changes in working capital, which reflect seasonality and the timing of certain cash payments and receipts.

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

5 unchanged sentences

offering supplemental sick time for non-exempt teammates;

providing access to personal protective equipment and educational resources;

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

16 unchanged sentences

Results of Operations

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

Second Quarter Results

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

Second Quarter

(in thousands) 2022 2021 Change

5 unchanged sentences

Interest expense, net 7,146 8,365 (1,219)

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

Other expense, net 6,199 47,041 (40,842)

Income before taxes 133,948 65,455 68,493

4 unchanged sentences

$ 100,376 $ 49,504 $ 50,872

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.

Net sales increased $162.1 million, or 11.3%, to $1.60 billion in the second quarter of 2022, as compared to $1.43 billion in the second quarter of 2021.

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

First Quarter 2022

Second Quarter 2022

Attributable to:

1 unchanged sentence

Approximately 90% of this increase was driven by an increase in average bottle/can sales price per unit charged to retail customers, while approximately 10% was related to the shift in product mix to higher revenue still products in order to meet consumer preferences.

(7.7) Decreased physical case volume

10.7 Increased physical case volume

5.7 Increased physical case volume to other Coca-Cola bottlers

$ 162.1 Total increase in net sales

Net sales by product category were as follows:

First Quarter

Second Quarter

(in thousands) 2022 2021 % Change

8 unchanged sentences

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

First Quarter

Second Quarter

(in thousands) 2022 2021 % Change

3 unchanged sentences

Total bottle/can sales volume 97,408 96,412 1.0 %

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 Quarter

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

Wal-Mart Stores, Inc.

The Kroger Company 12 % 13 %

Total approximate percent of the Company’s total bottle/can sales volume 32 % 33 %

Approximate percent of the Company’s total net sales:

Wal-Mart Stores, Inc.

The Kroger Company 9 % 9 %

Total approximate percent of the Company’s total net sales 24 % 23 %

Cost of Sales

3 unchanged sentences

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.

Cost of sales increased $106.4 million, or 11.3%, to $1.04 billion in the second quarter of 2022, as compared to $938.1 million in the second quarter of 2021.

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

First Quarter 2022

Second 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

$ 90.0 Increased input costs, including aluminum, PET resin and transportation costs, partially due to the impacts of inflation and supply chain challenges, as well as the shift in product mix to meet consumer preferences

6.3 Increased physical case volume

5.0 Increased physical case volume to other Coca-Cola bottlers

$ 106.4 Total increase in cost of sales

2 unchanged sentences

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.

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 $37.3 million in the second quarter of 2022 and $35.7 million in the second quarter of 2021.

Selling, Delivery and Administrative Expenses

1 unchanged sentence

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

SD&A expenses 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.

SD&A expenses increased $29.3 million, or 7.8%, to $403.4 million in the second quarter of 2022, as compared to $374.1 million in the second quarter of 2021.

SD&A expenses as a percentage of net sales decreased to 25.3% in the second quarter of 2022 from 26.1% in the second quarter of 2021.

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

First Quarter 2022

Second 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

$ 15.2 Increase in labor costs due to compensation adjustments across our workforce to remain competitive in a tight labor market

9.5 Increase in commitments to various charities and donor-advised funds in light of the Company’s financial performance

$ 29.3 Total increase in SD&A expenses

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.

Shipping and handling costs included in SD&A expenses were $190.8 million in the second quarter of 2022 and $169.1 million in the second quarter of 2021.

Interest Expense, Net

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.

Interest expense, net decreased $1.2 million, or 14.6%, to $7.1 million in the second quarter of 2022, as compared to $8.4 million in the second quarter of 2021.

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

Other (Income) Expense, Net

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

First Quarter

Other Expense, Net

A summary of other expense, net is as follows:

Second Quarter

(in thousands) 2022 2021

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

Increase in the fair value of the acquisition related contingent consideration liability $ 4,021 $ 45,983

Non-service cost component of net periodic benefit cost 2,178 1,058

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

Total other expense, net $ 6,199 $ 47,041

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 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.

The change in the fair value of the acquisition related contingent consideration liability in the second quarter of 2022 as compared to the second 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 26.2% 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.

The Company’s effective income tax rate was 25.7% for the second quarter of 2022 and 26.4% for the second quarter of 2021.

The Company’s income tax expense increased $17.1 million, or 99.1%, to $34.4 million for the second quarter of 2022, as compared to $17.3 million for the second quarter of 2021.

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

Other Comprehensive Income, Net of Tax

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.

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

First Half Results

Our results of operations for the first half of 2022 and the first half of 2021 are highlighted in the table below and discussed in the following paragraphs.

(in thousands)

2022 2021 Change

Net sales $ 2,999,573 $ 2,702,943 $ 296,630

Cost of sales 1,941,338 1,759,300 182,038

Gross profit 1,058,235 943,643 114,592

Selling, delivery and administrative expenses 779,957 728,598 51,359

Income from operations 278,278 215,045 63,233

Interest expense, net 14,845 17,111 (2,266)

Other expense, net 2,920 59,096 (56,176)

Income before taxes 260,513 138,838 121,675

Income tax expense 67,561 37,295 30,266

Net income 192,952 101,543 91,409

Other comprehensive income, net of tax 1,629 2,656 (1,027)

Comprehensive income

$ 194,581 $ 104,199 $ 90,382

Net sales increased $296.6 million, or 11.0%, to $3.00 billion in the first half of 2022, as compared to $2.70 billion in the first half of 2021.

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

First Half 2022

Attributable to:

$ 287.8 Increase in net sales related to price increases and the shift in product mix.

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.

8.3 Increased physical case volume to other Coca-Cola bottlers

3.4 Increased physical case volume

$ 296.6 Total increase in net sales

Net sales by product category were as follows:

(in thousands) 2022 2021 % Change

Bottle/can sales:

Sparkling beverages $ 1,655,866 $ 1,448,489 14.3 %

Still beverages 1,006,816 919,070 9.5 %

Total bottle/can sales 2,662,682 2,367,559 12.5 %

Sales to other Coca‑Cola bottlers 178,455 170,153 4.9 %

Post-mix and other 158,436 165,231 (4.1) %

Total other sales 336,891 335,384 0.4 %

Total net sales $ 2,999,573 $ 2,702,943 11.0 %

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

(in thousands) 2022 2021 % Change

Bottle/can sales volume:

Sparkling beverages 126,940 126,565 0.3 %

Still beverages 56,870 56,763 0.2 %

Total bottle/can sales volume 183,810 183,328 0.3 %

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

Wal-Mart Stores, Inc.

The Kroger Company 12 % 13 %

Total approximate percent of the Company’s total bottle/can sales volume 32 % 33 %

Approximate percent of the Company’s total net sales:

Wal-Mart Stores, Inc.

The Kroger Company 9 % 9 %

Total approximate percent of the Company’s total net sales 24 % 23 %

Cost of Sales

Cost of sales increased $182.0 million, or 10.3%, to $1.94 billion in the first half of 2022, as compared to $1.76 billion in the first half of 2021.

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

First Half 2022 Attributable to:

$ 177.5 Increased input costs, including aluminum, PET resin and transportation costs, partially due to the impacts of inflation and supply chain challenges, as well as the shift in product mix to meet consumer preferences

7.1 Increased physical case volume to other Coca-Cola bottlers

2.0 Increased physical case volume

$ 182.0 Total increase in cost of sales

Total marketing funding support from The Coca‑Cola Company and other beverage companies was $71.7 million in the first half of 2022, as compared to $65.7 million in the first half of 2021.

Selling, Delivery and Administrative Expenses

SD&A expenses increased $51.4 million, or 7.0%, to $780.0 million in the first half of 2022, as compared to $728.6 million in the first half of 2021.

SD&A expenses as a percentage of net sales decreased to 26.0% in the first half of 2022 from 27.0% in the first half of 2021.

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

First Half 2022 Attributable to:

$ 35.2 Increase in labor costs due to compensation adjustments across our workforce to remain competitive in a tight labor market

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

$ 51.4 Total increase in SD&A expenses

Shipping and handling costs included in SD&A expenses were $371.2 million in the first half of 2022 and $326.5 million in the first half of 2021.

Interest Expense, Net

Interest expense, net decreased $2.3 million, or 13.2%, to $14.8 million in the first half of 2022, as compared to $17.1 million in the first half 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:

(in thousands) 2022 2021

Increase (decrease) in the fair value of the acquisition related contingent consideration liability $ (1,436) $ 56,981

Non-service cost component of net periodic benefit cost 4,356 2,115

Total other expense, net $ 2,920 $ 59,096

The change in the fair value of the acquisition related contingent consideration liability in the first half of 2022 as compared to the first half 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 25.9% for the first half of 2022 and 26.9% for the first half of 2021.

The Company’s income tax expense increased $30.3 million, or 81.2%, to $67.6 million for the first half of 2022, as compared to $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.

Other Comprehensive Income, Net of Tax

Other comprehensive income, net of tax was $1.6 million in the first half of 2022 and $2.7 million in the first half of 2021.

Segment Operating Results

6 unchanged sentences

The Company’s segment results are as follows:

First Quarter

Second Quarter First Half

(in thousands) 2022 2021 2022 2021

17 unchanged sentences

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

First Quarter 2022

Second 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

8 unchanged sentences

Adjusted results (non-GAAP) $ 564,406 $ 404,331 $ 160,075 $ 150,751 $ 112,214 $ 11.97

First Quarter 2021

Second 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

8 unchanged sentences

Adjusted results (non-GAAP) $ 494,640 $ 373,932 $ 120,708 $ 111,285 $ 82,552 $ 8.80

First Half 2022

(in thousands, except per share data) Gross

expenses Income from

operations Income before taxes Net

income Basic net income

Reported results (GAAP) $ 1,058,235 $ 779,957 $ 278,278 $ 260,513 $ 192,952 $ 20.58

Fair value adjustment of acquisition related contingent consideration (1)

— — — (1,436) (1,081) (0.12)

Fair value adjustments for commodity derivative instruments (2)

6,169 7,223 (1,054) (1,054) (794) (0.08)

Supply chain optimization (3)

89 (72) 161 161 121 0.01

Total reconciling items 6,258 7,151 (893) (2,329) (1,754) (0.19)

Adjusted results (non-GAAP) $ 1,064,493 $ 787,108 $ 277,385 $ 258,184 $ 191,198 $ 20.39

First Half 2021

(in thousands, except per share data) Gross

expenses Income from

operations Income before taxes Net

income Basic net income

Reported results (GAAP) $ 943,643 $ 728,598 $ 215,045 $ 138,838 $ 101,543 $ 10.83

Fair value adjustment of acquisition related contingent consideration (1)

— — — 56,981 42,736 4.56

Fair value adjustments for commodity derivative instruments (2)

(2,416) 1,065 (3,481) (3,481) (2,611) (0.28)

Supply chain optimization (3)

2,104 (758) 2,862 2,862 2,147 0.23

Total reconciling items (312) 307 (619) 56,362 42,272 4.51

Adjusted results (non-GAAP) $ 943,331 $ 728,905 $ 214,426 $ 195,200 $ 143,815 $ 15.34

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 acquisition related sub-bottling payments.

(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.

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

1 unchanged sentence

Financial Condition

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.

Total assets were $3.58 billion as of July 1, 2022, which was an increase of $136.1 million from December 31, 2021.

Net working capital, defined as current assets less current liabilities, was $235.8 million as of July 1, 2022, which was a decrease of $6.0 million from December 31, 2021.

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

• An increase in cash and cash equivalents of $46.5 million, primarily as a result of our strong operating performance.

• An increase in accounts receivable, trade of $82.1 million, driven primarily by increased net sales and the timing of cash receipts.

• 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.

• An increase in accounts payable to The Coca-Cola Company of $53.1 million due to the timing of cash payments.

• A decrease in accrued compensation of $41.0 million, primarily as a result of the timing of bonus and incentive payments in the first half 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 April 1, 2022, the Company had $127.1 million in cash and cash equivalents.

As of July 1, 2022, the Company had $188.8 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 debt as of April 1, 2022 and December 31, 2021 was as follows:

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

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

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

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

10 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 have not and are not expected to restrict the Company’s 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.

5 unchanged sentences

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

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

Credit Rating Rating Outlook

5 unchanged sentences

Following is a summary of the Level 3 activity:

First Quarter

Second Quarter First Half

(in thousands) 2022 2021 2022 2021

6 unchanged sentences

A summary of cash-based activity is as follows:

First Quarter

(in thousands) 2022 2021

3 unchanged sentences

Proceeds from the sale of property, plant and equipment 5,255 1,678

Borrowings under revolving credit facility — 55,000

Total cash sources $ 248,790 $ 328,063

7 unchanged sentences

Total cash uses $ 202,301 $ 328,652

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.

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

(1) Net cash provided by operating activities included net income tax payments of $55.7 million in the first half of 2022 and $29.4 million in the first half of 2021.

Cash Flows From Operating Activities

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.

During the first half of 2022, cash provided by operating activities was $243.5 million, which was a decrease of $27.9 million as compared to the first half of 2021.

The cash flows from operations were primarily the result of our strong operating performance, led by our top‑line growth and effective management of operating expenses.

Cash flows from operations were impacted by changes in working capital, which reflect seasonality and the timing of certain cash payments and receipts.

Cash Flows From Investing Activities

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.

During the first half of 2022, cash used in investing activities was $171.6 million, which was an increase of $89.3 million as compared to the first half of 2021.

The increase was primarily a result of additions to property, plant and equipment, which were $145.2 million during the first half of 2022 and $80.3 million during the first half of 2021.

There were $19.6 million and $16.7 million of additions to property, plant and equipment accrued in accounts payable, trade as of July 1, 2022 and July 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 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.

During the first half of 2022, cash used in financing activities was $25.4 million, which was a decrease of $164.2 million as compared to the first half of 2021.

The decrease was primarily a result of payments on the Company’s term loan facility made during the first half of 2021, partially offset by borrowings under the Company’s revolving credit facility, both of which did not recur in the first half of 2022.

The Company had cash payments for acquisition related contingent consideration of $18.7 million during the first half of 2022 and $19.9 million during the first half 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 $39 million to $69 million.

2 unchanged sentences

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 2021 Revolving Credit Facility’s underlying credit agreement includes successor LIBOR 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.

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.

7 unchanged sentences

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

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 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.

1 unchanged sentence

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

First Quarter

Second Quarter First Half

(in thousands) 2022 2021 2022 2021

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

Increase (decrease) in cost of sales $ 13,422 $ (5,691) $ 2,929 $ (6,653)

Decrease in SD&A expenses (6,698) (1,067) (15,142) (1,911)

10 unchanged sentences

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;

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;

25 unchanged sentences

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.

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