What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-11-01 compared with 2022-08-02 · 137 added, 130 removed, 377 unchanged (41% of the section changed)

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The condensed consolidated financial statements presented are:

• 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 financial position as of September 30, 2022 and December 31, 2021.

• The results of operations, comprehensive income and changes in stockholders’ equity for the three-month periods ended September 30, 2022 (the “third quarter” of fiscal 2022 (“2022”)) and October 1, 2021 (the “third quarter” of fiscal 2021 (“2021”)) and the nine-month periods ended September 30, 2022 (the “first nine months” of 2022) and October 1, 2021 (the “first nine months” of 2021).

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

Our Business and the Nonalcoholic Beverage Industry

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

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

(“Dr Pepper”) and Monster Energy Company.

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

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Bottle/can net pricing per unit is impacted by the price charged per package, the sales volume generated for each package and the channels in which those packages are sold.

Other sales include sales to other Coca‑Cola bottlers, post-mix products, transportation revenue and equipment maintenance revenue.

Other sales include sales to other Coca‑Cola bottlers, post-mix sales, transportation revenue and equipment maintenance revenue.

Post-mix products are dispensed through equipment that mixes fountain syrups with carbonated or still water, enabling fountain retailers to sell finished products to consumers in cups or glasses.

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Executive Summary

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.

Net sales increased 12% to $1.63 billion in the third quarter of 2022, while physical case volume increased 0.6%.

The increase in net sales was driven primarily by price increases taken on our Sparkling and Still beverages during the quarter and earlier this year.

Sparkling beverage volume increased 0.8% in the quarter, outperforming the price elasticity we generally have experienced with higher pricing.

Volume growth was particularly strong in our value, club and small store sales channels.

We also experienced solid demand in our on‑premise sales channels, including restaurants, universities, sports venues, amusement parks and other immediate consumption outlets, as consumer traffic has increased compared to the prior year period.

Still beverage volume increased 0.1% in the quarter, led by growth in Monster and smartwater.

Net sales increased 11% and physical case volume increased 0.4% in the first nine months of 2022.

Gross profit in the third quarter of 2022 increased $103.4 million, or 20%, while gross margin improved 260 basis points to 38.1%.

The improvement in gross profit resulted from strong price realization and solid volume growth in our Sparkling category.

Gross margins also benefited during the quarter from a pullback in certain commodity prices.

Gross profit in the first nine months of 2022 increased $218.0 million, or 15%.

Selling, delivery and administrative (“SD&A”) expenses in the third quarter of 2022 increased $50.5 million, or 13%.

SD&A expenses as a percentage of net sales increased 40 basis points to 26.5%.

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

Over the last year, we have made certain compensation adjustments across our workforce to remain competitive in a challenging labor market and to reward our teammates for their contributions in achieving strong operating results.

In addition, we experienced broad inflationary increases across a number of SD&A categories.

SD&A expenses in the first nine months of 2022 increased $101.9 million, or 9%.

SD&A expenses as a percentage of net sales in the first nine months of 2022 decreased 50 basis points to 26.2% as compared to the first nine months of 2021.

Income from operations in the third quarter of 2022 was $189.9 million, compared to $137.0 million in the third quarter of 2021, an increase of $52.9 million, or 39%.

On an adjusted basis, as defined in the “Adjusted Results (Non-GAAP)” section, income from operations in the third quarter of 2022 was $193.9 million, an increase of 41%.

For the first nine months of 2022, income from operations increased $116.1 million to $468.2 million.

Net income in the third quarter of 2022 was $118.8 million, compared to $68.9 million in the third quarter of 2021, an improvement of $49.8 million.

Net income in the third quarter of 2022 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.

Net income increased $141.2 million in the first nine months of 2022 to $311.7 million as compared to the first nine months of 2021.

Cash flows provided by operations for the first nine months of 2022 were $394.3 million, compared to $439.9 million for the first nine months of 2021.

Cash flows from operations were impacted by the timing of certain working capital payments and receipts during the third quarter.

We continue to invest in long‑term strategic projects to optimize our supply chain and reduce our debt obligations.

During the third quarter, the Company repaid $125 million of senior notes prior to their stated maturity date of February 27, 2023.

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, 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.

The Company continues to implement its COVID-19 Response Program as dictated by current conditions, including numerous actions to protect and promote the health and safety of its consumers, customers, suppliers, teammates and communities.

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.

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Results of Operations

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

Third Quarter Results

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

Third Quarter

(in thousands) 2022 2021 Change

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$ 119,576 $ 69,981 $ 49,595

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.

Net sales increased $171.2 million, or 11.7%, to $1.63 billion in the third quarter of 2022, as compared to $1.46 billion in the third quarter of 2021.

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

Second Quarter 2022

Third Quarter 2022

Attributable to:

$ 180.9 Increase in net sales related to price increases and the shift in product mix.

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.

Approximately 90% of this increase was driven by an increase in average bottle/can sales price per unit charged to retail customers.

4.9 Increased physical case volume

5.7 Increased physical case volume to other Coca-Cola bottlers

$ 171.2 Total increase in net sales

Net sales by product category were as follows:

Second Quarter

Third Quarter

(in thousands) 2022 2021 % Change

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Sales to other Coca‑Cola bottlers 83,644 89,618 (6.7) %

Post-mix and other 81,533 90,919 (10.3) %

Post-mix sales and other 79,450 90,335 (12.0) %

Total other sales 163,094 179,953 (9.4) %

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

Second Quarter

Third Quarter

(in thousands) 2022 2021 % Change

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

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.

Cost of sales increased $67.8 million, or 7.2%, to $1.01 billion in the third quarter of 2022, as compared to $939.7 million in the third quarter of 2021.

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

Second Quarter 2022

Third Quarter 2022

Attributable to:

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2.5 Increased physical case volume

5.0 Increased physical case volume to other Coca-Cola bottlers

$ 67.8 Total increase in cost of sales

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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 $37.3 million in the second quarter of 2022 and $35.7 million in the second 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 $39.6 million in the third quarter of 2022 and $36.4 million in the third quarter of 2021.

Selling, Delivery and Administrative Expenses

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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 $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.

SD&A expenses increased $50.5 million, or 13.3%, to $431.2 million in the third quarter of 2022, as compared to $380.7 million in the third quarter of 2021.

SD&A expenses as a percentage of net sales increased to 26.5% in the third quarter of 2022 from 26.1% in the third quarter of 2021.

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

Second Quarter 2022

Third Quarter 2022

Attributable to:

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

$ 31.5 Increase in labor costs due to compensation adjustments across our workforce to remain competitive in a challenging labor market and to reward our teammates for their contributions in achieving strong operating results

8.3 Increase in fleet-related expenses, including fuel costs

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

$ 50.5 Total increase in SD&A expenses

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.

Shipping and handling costs included in SD&A expenses were $195.8 million in the third quarter of 2022 and $176.2 million in the third quarter of 2021.

Interest Expense, Net

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.

Interest expense, net decreased $2.0 million, or 24.9%, to $6.1 million in the third quarter of 2022, as compared to $8.1 million in the third quarter of 2021.

Other Expense, Net

A summary of other expense, net is as follows:

Second Quarter

Third Quarter

(in thousands) 2022 2021

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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 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.

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

The change in the fair value of the acquisition related contingent consideration liability in the third quarter of 2022 as compared to the third quarter of 2021 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.

Income Tax Expense

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.

The Company’s effective income tax rate was 25.4% for the third quarter of 2022 and 26.6% for the third quarter of 2021.

The Company’s income tax expense increased $15.3 million, or 61.2%, to $40.3 million for the third quarter of 2022, as compared to $25.0 million for the third quarter of 2021.

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

Other Comprehensive Income, Net of Tax

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.

Other comprehensive income, net of tax was $0.8 million in the third quarter of 2022 and $1.1 million in the third quarter of 2021.

First Nine Months Results

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

First Nine Months

(in thousands)

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$ 314,157 $ 174,180 $ 139,977

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.

Net sales increased $467.8 million, or 11.2%, to $4.63 billion in the first nine months of 2022, as compared to $4.16 billion in the first nine months of 2021.

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

First Half 2022

First Nine Months 2022

Attributable to:

$ 468.7 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

Approximately 90% of this increase was driven by an increase in average bottle/can sales price per unit charged to retail customers.

8.2 Increased physical case volume

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Net sales by product category were as follows:

First Nine Months

(in thousands) 2022 2021 % Change

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Sales to other Coca‑Cola bottlers 262,099 259,771 0.9 %

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

Post-mix sales and other 236,249 255,180 (7.4) %

Total other sales 498,348 514,951 (3.2) %

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

First Nine Months

(in thousands) 2022 2021 % Change

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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

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

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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.

Cost of sales increased $249.8 million, or 9.3%, to $2.95 billion in the first nine months of 2022, as compared to $2.70 billion in the first nine months of 2021.

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

First Half 2022 Attributable to:

First Nine Months 2022 Attributable to:

$ 268.3 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

4.4 Increased physical case volume

$ 249.8 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.

Total marketing funding support from The Coca‑Cola Company and other beverage companies was $111.3 million in the first nine months of 2022, as compared to $102.1 million in the first nine months 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.

SD&A expenses increased $101.9 million, or 9.2%, to $1.21 billion in the first nine months of 2022, as compared to $1.11 billion in the first nine months of 2021.

SD&A expenses as a percentage of net sales decreased to 26.2% in the first nine months of 2022 from 26.7% in the first nine months 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

First Nine Months 2022 Attributable to:

$ 70.3 Increase in labor costs due to compensation adjustments across our workforce to remain competitive in a challenging labor market and to reward our teammates for their contributions in achieving strong operating results

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

6.4 Increase in fleet-related expenses, including fuel costs

$ 101.9 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.

Shipping and handling costs included in SD&A expenses were $567.0 million in the first nine months of 2022 and $502.7 million in the first nine months 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.

Interest expense, net decreased $4.3 million, or 17.0%, to $20.9 million in the first nine months of 2022, as compared to $25.2 million in the first nine months of 2021.

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

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A summary of other expense, net is as follows:

First Nine Months

(in thousands) 2022 2021

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

Increase in the fair value of the acquisition related contingent consideration liability $ 21,132 $ 90,905

Non-service cost component of net periodic benefit cost 6,534 3,173

Total other expense, net $ 27,666 $ 94,078

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.

The change in the fair value of the acquisition related contingent consideration liability in the first nine months of 2022 as compared to the first nine months of 2021 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.

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.

The Company’s effective income tax rate was 25.7% for the first nine months of 2022 and 26.8% for the first nine months of 2021.

The Company’s income tax expense increased $45.6 million, or 73.1%, to $107.9 million for the first nine months of 2022, as compared to $62.3 million for the first nine months of 2021.

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

Other comprehensive income, net of tax was $2.4 million in the first nine months of 2022 and $3.7 million in the first nine months of 2021.

Segment Operating Results

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The Company’s segment results are as follows:

Second Quarter First Half

Third Quarter First Nine Months

(in thousands) 2022 2021 2022 2021

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Sales between these segments are recognized at either fair market value or cost depending on the nature of the transaction.

Adjusted Non-GAAP Results

Adjusted Results (Non-GAAP)

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

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

Second Quarter 2022

Third 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

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Adjusted results (non-GAAP) $ 620,376 $ 426,460 $ 193,916 $ 185,655 $ 138,756 $ 14.81

Second Quarter 2021

Third 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

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

First Half 2022

First Nine Months 2022

(in thousands, except per share data) Gross

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Adjusted results (non-GAAP) $ 1,684,869 $ 1,213,568 $ 471,301 $ 443,839 $ 329,954 $ 35.20

First Half 2021

First Nine Months 2021

(in thousands, except per share data) Gross

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Financial Condition

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.

Total assets were $3.60 billion as of September 30, 2022, which was an increase of $151.7 million from December 31, 2021.

Net working capital, defined as current assets less current liabilities, was $353.6 million as of September 30, 2022, which was an increase of $111.8 million from December 31, 2021.

Significant changes in net working capital as of September 30, 2022 as compared to December 31, 2021 were as follows:

• An increase in accounts receivable, trade of $84.8 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.

• An increase in accounts receivable, other of $36.3 million due to increased rebates due from CCBSS, primarily as a result of volatility in raw material prices and the timing of cash receipts of rebates.

• An increase in accounts payable to The Coca-Cola Company of $44.2 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 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

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 July 1, 2022 and December 31, 2021 was as follows:

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

As of September 30, 2022, the Company had $163.2 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.

The Company’s long-term debt as of September 30, 2022 and December 31, 2021 was as follows:

(in thousands) Maturity Date September 30, 2022 December 31, 2021

Senior notes 2/27/2023 $ — $ 125,000

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Debt issuance costs (1,194) (1,523)

Total debt $ 723,633 $ 723,443

Total long-term debt $ 598,778 $ 723,443

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

On September 13, 2022, the Company used cash on hand to repay the $125 million of senior notes with a stated maturity date of February 27, 2023.

There was no penalty for the early repayment of the senior notes.

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 July 1, 2022.

The Company was in compliance with these covenants as of September 30, 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.

There are no guarantees of the Company’s debt.

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

There are no guarantees of the Company’s long‑term debt.

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.

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

As of September 30, 2022, the Company’s credit ratings and outlook for its long‑term debt were as follows:

Credit Rating Rating Outlook

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Standard & Poor’s BBB Positive

Subsequent to quarter end, on October 26, 2022, Standard & Poor’s upgraded the Company’s credit rating to BBB+ with a stable outlook.

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:

Second Quarter First Half

Third Quarter First Nine Months

(in thousands) 2022 2021 2022 2021

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Reclassification to current payables 1,800 (1,600) 2,100 (300)

Increase (decrease) in fair value 4,021 45,983 (1,436) 56,981

Increase in fair value 22,568 33,924 21,132 90,905

Ending balance - Level 3 liability $ 536,916 $ 496,659 $ 536,916 $ 496,659

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A summary of cash-based activity is as follows:

First Nine Months

(in thousands) 2022 2021

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Proceeds from the sale of property, plant and equipment 5,348 4,215

Borrowings under term loan facility — 70,000

Borrowings under revolving credit facility — 55,000

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Additions to property, plant and equipment $ 183,929 $ 119,620

Payments on term loan facility and senior notes 125,000 217,500

Acquisition of BODYARMOR distribution rights 30,149 1,998

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Payments on financing lease obligations 2,441 3,567

Payments on term loan facility — 217,500

Payments on revolving credit facility — 55,000

Other 1,757 3,650

Total cash uses $ 378,727 $ 437,005

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.

Net increase in cash during period $ 20,930 $ 132,085

(1) Net cash provided by operating activities in the first nine months of 2022 included net income tax payments of $96.5 million, payment of deferred payroll taxes under the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) of $18.7 million and pension plan contributions of $26.0 million.

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.

Cash Flows From Operating Activities

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.

During the first nine months of 2022, cash provided by operating activities was $394.3 million, which was a decrease of $45.6 million as compared to the first nine months of 2021.

The cash flows from operations were impacted by the timing of certain working capital payments and receipts.

Cash Flows From Investing Activities

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.

During the first nine months of 2022, cash used in investing activities was $210.3 million, which was an increase of $90.7 million as compared to the first nine months of 2021.

The increase was primarily a result of additions to property, plant and equipment, which were $183.9 million during the first nine months of 2022 and $119.6 million during the first nine months of 2021.

There were $20.0 million and $9.6 million of additions to property, plant and equipment accrued in accounts payable, trade as of September 30, 2022 and October 1, 2021, respectively.

On January 1, 2022, the Company acquired $30.1 million of additional 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.

Cash Flows From Financing Activities

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.

During the first nine months of 2022, cash used in financing activities was $163.1 million, which was a decrease of $25.1 million as compared to the first nine months of 2021.

The decrease was primarily a result of higher repayments of debt during the first nine months of 2021 as compared to the first nine months of 2022, partially offset by borrowings under the Company’s credit facilities during the first nine months of 2021.

The Company had cash payments for acquisition related contingent consideration of $28.4 million during the first nine months of 2022 and $28.6 million during the first nine months 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 $35 million to $75 million.

On September 13, 2022, the Company used cash on hand to repay the $125 million of senior notes with a stated maturity date of February 27, 2023.

There was no penalty for the early repayment of the senior notes.

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.

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

Second Quarter First Half

Third Quarter First Nine Months

(in thousands) 2022 2021 2022 2021

Increase (decrease) in cost of sales $ 484 $ (5,923) $ 3,413 $ (12,576)

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

Increase (decrease) in SD&A expenses 683 (965) (14,459) (2,876)

Net impact $ 1,167 $ (6,888) $ (11,046) $ (15,452)

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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.

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.

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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;

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis