What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-08-02 compared with 2023-05-03 · 231 added, 121 removed, 267 unchanged (57% of the section changed)

6 unchanged sentences

The condensed consolidated financial statements presented are:

• The financial position as of March 31, 2023 and December 31, 2022.

• The results of operations, comprehensive income and changes in stockholders’ equity for the three-month periods ended March 31, 2023 (the “first quarter” of fiscal 2023 (“2023”)) and April 1, 2022 (the “first quarter” of fiscal 2022 (“2022”)).

• The changes in cash flows for the first quarter of 2023 and the first quarter of 2022.

• The financial position as of June 30, 2023 and December 31, 2022.

• The results of operations, comprehensive income and changes in stockholders’ equity for the three-month periods ended June 30, 2023 (the “second quarter” of fiscal 2023 (“2023”)) and July 1, 2022 (the “second quarter” of fiscal 2022 (“2022”)) and the six-month periods ended June 30, 2023 (the “first half” of 2023) and July 1, 2022 (the “first half” of 2022).

• The changes in cash flows for the first half of 2023 and the first half of 2022.

Our Business and the Nonalcoholic Beverage Industry

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Executive Summary

Net sales increased 12% to $1.57 billion in the first quarter of 2023.

The increase in net sales was driven primarily by price increases taken across our product portfolio during the second half of 2022 and the beginning of 2023.

Consumer traffic patterns continue to change within our sales channels as more consumers return to pre-covid work and leisure routines.

Total shopping trips to large stores have declined as meal occasions away from home continue to increase, resulting in increased consumer activity at convenience retail stores, restaurants and other on-premise locations where consumers typically consume our products immediately after purchase.

Sales at club stores also benefited from consumers seeking value-oriented packages.

Standard physical case volume, as defined in the “Results of Operations” section, declined 3.1% in the first quarter of 2023, which included the impact of one less selling day compared to the first quarter of 2022.

On a comparable basis, as defined in the “Comparable and Adjusted Results (Non-GAAP)” section, standard physical case volume declined 2.0% with Sparkling category volume up 0.2% during the first quarter of 2023.

Still category volume declined 7.9% on a comparable basis as our sports drink brands cycled significant growth in the first quarter of 2022 and new competitors entered the category.

We experienced strong sales momentum with other Still beverages such as smartwater, Gold Peak and fairlife products.

Overall, our product portfolio continues to perform well versus historical price elasticities typically associated with higher pricing.

Gross profit in the first quarter of 2023 was $624.1 million, an increase of $116.5 million, or 23%, while gross margin improved 360 basis points to 39.7%.

On an adjusted basis, as defined in the “Comparable and Adjusted Results (Non-GAAP)” section, gross profit in the first quarter of 2023 was $624.9 million, which represented an increase of $124.8 million, or 25%.

The improvement in gross profit resulted from stable volume on our Sparkling brands, higher prices for our products and a moderation of prices for certain commodities.

Selling, delivery and administrative (“SD&A”) expenses in the first quarter of 2023 increased $41.5 million, or 11%.

SD&A expenses as a percentage of net sales decreased 20 basis points to 26.6% in the first quarter of 2023.

On an adjusted basis, SD&A expenses in the first quarter of 2023 increased $32.6 million, or 9%.

The increase in SD&A expenses related primarily to an increase in labor costs, resulting from certain compensation and benefits adjustments made during 2022 in order to remain competitive in the current, highly competitive labor environment.

Net sales increased 9% to $1.74 billion in the second quarter of 2023 and increased 10% to $3.31 billion in the first half of 2023.

The increase in net sales was driven primarily by price increases taken across our product portfolio over the last year.

Standard physical case volume declined 4.0% in the second quarter of 2023 and declined 3.6% in the first half of 2023.

Sparkling category volume decreased 2.1% during the second quarter;

however, our Sparkling portfolio continues to perform well versus historical price elasticities typically associated with higher pricing.

Sales in Immediate Consumption continue to perform well, outpacing sales of take-home packages.

Still volume declined 8.9% during the second quarter as the overall sports drinks category slowed considerably.

Other Still categories such as energy and enhanced water continue to perform well with Monster and smartwater both achieving solid growth in the quarter.

Gross profit in the second quarter of 2023 was $671.6 million, an increase of $120.9 million, or 22%, while gross margin improved 410 basis points to 38.6%.

The improvement in gross profit resulted primarily from higher prices for our products and a moderation of prices for certain commodities.

Gross profit in the first half of 2023 was $1.30 billion, an increase of $237.4 million, or 22%.

The Company continues to expect pricing growth to slow in the second half of 2023 as we hurdle 2022 price increases.

Selling, delivery and administrative (“SD&A”) expenses in the second quarter of 2023 increased $34.5 million, or 9%.

SD&A expenses as a percentage of net sales decreased 10 basis points to 25.2% in the second quarter of 2023.

The increase in SD&A expenses related primarily to an increase in labor costs, resulting from certain compensation and benefits adjustments made in the prior year to retain and reward our teammates in a challenging labor environment.

In addition, broad inflationary increases across a number of SD&A categories pushed expenses higher during the quarter.

Income from operations in the first quarter of 2023 was $206.1 million, compared to $131.0 million in the first quarter of 2022, an increase of 57%.

On an adjusted basis, income from operations in the first quarter of 2023 increased 79% as compared to the first quarter of 2022.

Net income in the first quarter of 2023 was $118.1 million, compared to $93.4 million in the first quarter of 2022, an improvement of $24.7 million.

First quarter net income was adversely impacted by routine, non-cash fair value adjustments to our acquisition related contingent consideration liability, driven by changes in the discount rate and future cash flow projections used to compute the fair value of the liability.

Income tax expense for the first quarter of 2023 was $41.1 million, compared to $33.2 million in the first quarter of 2022, resulting in an effective income tax rate of approximately 26% for both periods.

Cash flows provided by operations for first quarter 2023 were $184.7 million, compared to $130.9 million for first quarter 2022.

Cash flows from operations reflected our strong operating performance and the timing of certain working capital payments and receipts during the first quarter.

In the first quarter of 2023, we invested $52.7 million in capital expenditures as we continue to optimize our supply chain and invest for future growth.

SD&A expenses in the first half of 2023 increased $76.0 million, or 10%.

SD&A expenses as a percentage of net sales in the first half of 2023 decreased 10 basis points to 25.9% as compared to the first half of 2022.

We expect the rate of increase to slow in the second half of this year as we hurdle labor adjustments made in late 2022.

Income from operations in the second quarter of 2023 was $233.7 million, compared to $147.3 million in the second quarter of 2022, an increase of 59%.

On an adjusted basis, as defined in the “Adjusted Results (Non-GAAP)” section, income from operations in the second quarter of 2023 increased 47% as compared to the second quarter of 2022.

Operating margin for the second quarter of 2023 was 13.4% as compared to 9.2% in the second quarter of 2022, an increase of 420 basis points.

Net income in the second quarter of 2023 was $122.3 million, compared to $99.6 million in the second quarter of 2022, an improvement of $22.8 million.

On an adjusted basis, net income in the second quarter of 2023 was $172.8 million, compared to $112.2 million in the second quarter of 2022, an increase of $60.6 million.

Second quarter net income was adversely impacted by routine, non-cash fair value adjustments to our acquisition related contingent consideration liability, driven by changes in the discount rate and future cash flow projections used to compute the fair value of the liability.

Second quarter net income was also adversely impacted by the partial settlement of our primary pension plan, which resulted in a non-cash charge of $39.8 million.

In the third quarter of 2023, the Company expects to record an additional non-cash charge of approximately $79 million related to the remaining settlement of the primary pension plan.

Income tax expense for the second quarter of 2023 was $42.4 million, compared to $34.4 million in the second quarter of 2022, resulting in an effective income tax rate of approximately 26% for both periods.

For the second quarter of 2023, basic net income per share was $13.05 and adjusted basic net income per share was $18.43.

Cash flows provided by operations for first half 2023 were $383.3 million, compared to $243.5 million for first half 2022.

Cash flows from operations reflected our strong operating performance and the timing of certain working capital payments and receipts during the second quarter.

In the first half of 2023, we invested $92.9 million in capital expenditures as we continue to optimize our supply chain and invest for the future growth of small bottle PET packages and mini cans.

In fiscal year 2023, we expect our capital expenditures to be between $250 million and $300 million.

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Results of Operations

First Quarter Results

The Company’s results of operations for the first quarter of 2023 and the first quarter of 2022 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 2023 and the second quarter of 2022 are highlighted in the table below and discussed in the following paragraphs.

Second Quarter

(in thousands) 2023 2022 Change

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Interest expense, net 1,353 7,146 (5,793)

Other expense (income), net 43,923 (3,279) 47,202

Pension plan settlement expense 39,777 — 39,777

Other expense, net 27,788 6,199 21,589

Income before taxes 164,752 133,948 30,804

4 unchanged sentences

$ 150,142 $ 100,376 $ 49,766

Net sales increased $167.3 million, or 11.9%, to $1.57 billion in the first quarter of 2023, as compared to $1.40 billion in the first quarter of 2022.

Net sales increased $143.6 million, or 9.0%, to $1.74 billion in the second quarter of 2023, as compared to $1.60 billion in the second quarter of 2022.

The largest driver of the increase in net sales was higher average bottle/can sales price per unit charged to retail customers, which increased net sales by approximately $185 million.

The increase in net sales was partially offset by a decrease in case sales volume as compared to the first quarter of 2022, which decreased net sales by approximately $30 million.

The increase in net sales was partially offset by a decrease in case sales volume as compared to the second quarter of 2022, which decreased net sales by approximately $60 million.

Net sales by product category were as follows:

First Quarter

Second Quarter

(in thousands) 2023 2022 % Change

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Product category sales volume of standard physical cases (as defined below) and the percentage change by product category were as follows:

First Quarter

Second Quarter

(in thousands) 2023 2022 % Change

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Any differences are not material.

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

First Quarter

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

Wal-Mart Stores, Inc.

The Kroger Company 11 % 12 %

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

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 25 % 24 %

Cost of Sales

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

Cost of sales increased $50.8 million, or 5.7%, to $947.5 million in the first quarter of 2023, as compared to $896.8 million in the first quarter of 2022.

The increase in cost of sales was driven by approximately $60 million in increased input costs, including

aluminum, PET resin and transportation costs, largely due to the impacts of continued inflation, as well as the shift in product mix to meet consumer preferences.

This increase was partially offset by a decrease in case sales volume as compared to the first quarter of 2022, which decreased cost of sales by approximately $10 million.

Cost of sales increased $22.7 million, or 2.2%, to $1.07 billion in the second quarter of 2023, as compared to $1.04 billion in the second quarter of 2022.

Approximately $70 million of the increase in cost of sales related to increased manufacturing costs and a shift in product mix to meet consumer preferences.

This increase was partially offset by a decrease in case sales volume as compared to the second quarter of 2022, which decreased cost of sales by approximately $20 million.

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

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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 $37.0 million in the first quarter of 2023 and $34.4 million in the first quarter of 2022.

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 $46.1 million in the second quarter of 2023 and $37.3 million in the second quarter of 2022.

Selling, Delivery and Administrative Expenses

SD&A expenses include the following:

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

SD&A expenses increased $41.5 million, or 11.0%, to $418.1 million in the first quarter of 2023, as compared to $376.6 million in the first quarter of 2022.

SD&A expenses as a percentage of net sales decreased to 26.6% in the first quarter of 2023 from 26.8% in the first quarter of 2022.

Of the increase in SD&A expenses, approximately $13 million was driven by an increase in labor costs, resulting from certain compensation and benefits adjustments made during 2022 in order to remain competitive in the current, highly competitive labor environment.

In addition, approximately $13 million of the increase in SD&A expenses was driven by higher fuel costs and changes in our commodity hedge positions.

The remaining increase in SD&A expenses was primarily driven by broad inflationary increases across a number of SD&A categories as compared to the first quarter of 2022.

Shipping and handling costs included in SD&A expenses were $193.2 million in the first quarter of 2023 and $180.4 million in the first quarter of 2022.

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 $34.5 million, or 8.6%, to $437.9 million in the second quarter of 2023, as compared to $403.4 million in the second quarter of 2022.

SD&A expenses as a percentage of net sales decreased to 25.2% in the second quarter of 2023 from 25.3% in the second quarter of 2022.

Of the increase in SD&A expenses, approximately $14 million was driven by an increase in labor costs, resulting from certain compensation and benefits adjustments made in 2022 to retain and reward our teammates in a challenging labor environment.

In addition, approximately $9 million of the increase was attributable to higher transportation costs, including fuel and fleet repairs, as well as changes in our commodity hedge positions as compared to the second quarter of 2022.

Approximately $4 million of the increase in SD&A expenses was driven by an increase in commitments to various charities and donor-advised funds in light of the Company’s financial performance.

The remaining increase in SD&A expenses was primarily driven by broad inflationary increases across a number of SD&A categories as compared to the second quarter of 2022.

Interest Expense, Net

Interest expense, net decreased $4.8 million, or 62.0%, to $2.9 million in the first quarter of 2023, as compared to $7.7 million in the first quarter of 2022.

The decrease was primarily a result of an increase in interest income due to higher cash and cash equivalent balances and increased yields, as well as lower average debt balances, as compared to the first quarter of 2022.

Other Expense (Income), Net

Other expense (income), net increased $47.2 million to $43.9 million of other expense, net in the first quarter of 2023, as compared to $3.3 million of other income, net in the first quarter of 2022.

The increase in other expense (income), net was primarily driven by changes in the fair value of the acquisition related contingent consideration liability.

During 2023, the Company anticipates a significant non-cash charge related to the termination of the primary Company-sponsored pension plan (the “Primary Plan”), which will be recorded in other expense (income), net in the condensed consolidated statement of operations.

The charge will relate primarily to a reclassification of actuarial losses from accumulated other comprehensive loss.

As of December 31, 2022, the gross actuarial losses included in accumulated other comprehensive loss associated with the Primary Plan were approximately $117 million.

Interest expense, net decreased $5.8 million, or 81.1%, to $1.4 million in the second quarter of 2023, as compared to $7.1 million in the second quarter of 2022.

Pension Plan Settlement Expense

During the second quarter of 2023, the Company recognized a non-cash charge of $39.8 million related to the partial termination of the primary Company-sponsored pension plan (the “Primary Plan”), which was recorded as pension plan settlement expense in the condensed consolidated statement of operations.

The charge related primarily to a reclassification of actuarial losses from accumulated other comprehensive loss.

During the third quarter of 2023, the Company expects a non-cash charge of approximately $79 million related to the full termination of the Primary Plan, which will also be recorded as pension plan settlement expense in the condensed consolidated statement of operations.

As of June 30, 2023 and December 31, 2022, the gross actuarial losses included in accumulated other comprehensive loss associated with the Primary Plan were approximately $79 million and $117 million, respectively.

See Note 17 to the condensed consolidated financial statements for additional information related to the Company’s pension plans.

Other Expense, Net

Other expense, net increased $21.6 million to $27.8 million in the second quarter of 2023, as compared to $6.2 million in the second quarter of 2022.

The increase in other expense, net was primarily driven by changes in the fair value of the acquisition related contingent consideration liability.

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.

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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 first quarter of 2023 as compared to the first quarter of 2022 was primarily driven by changes 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 2023 as compared to the second quarter of 2022 was primarily driven by changes in the discount rate used to calculate fair value.

Income Tax Expense

The Company’s effective income tax rate was 25.8% for the first quarter of 2023 and 26.2% for the first quarter of 2022.

The Company’s income tax expense increased $7.9 million, or 23.8%, to $41.1 million for the first quarter of 2023, as compared to $33.2 million for the first quarter of 2022.

The increase in income tax expense was primarily attributable to higher income before taxes during the first quarter of 2023 compared to the first quarter of 2022.

The Company’s effective income tax rate was 25.8% for the second quarter of 2023 and 25.7% for the second quarter of 2022.

The Company’s income tax expense increased $8.0 million, or 23.4%, to $42.4 million for the second quarter of 2023, as compared to $34.4 million for the second quarter of 2022.

The increase in income tax expense was primarily attributable to higher income before taxes during the second quarter of 2023 compared to the second quarter of 2022.

Other Comprehensive Income, Net of Tax

Other comprehensive income, net of tax was $0.7 million in the first quarter of 2023 and $0.8 million in the first quarter of 2022.

As noted in the discussion of other expense (income), net above, the Company anticipates a significant non-cash charge during 2023 related to the termination of the Primary Plan, which will also impact other comprehensive income, net of tax.

Other comprehensive income, net of tax was $27.8 million in the second quarter of 2023 and $0.8 million in the second quarter of 2022.

As noted in the discussion of pension plan settlement expense above, the Company recognized a significant non-cash

charge during the second quarter of 2023 related to the partial termination of the Primary Plan.

A corresponding benefit was recognized within other comprehensive income, net of tax due to the reclassification of certain previously recognized actuarial losses from accumulated other comprehensive loss.

An additional non-cash charge is expected during the third quarter of 2023 related to the full termination of the Primary Plan.

See Note 17 to the condensed consolidated financial statements for additional information related to the Company’s pension plans.

First Half Results

Our results of operations for the first half of 2023 and the first half of 2022 are highlighted in the table below and discussed in the following paragraphs.

(in thousands)

2023 2022 Change

Net sales $ 3,310,474 $ 2,999,573 $ 310,901

Cost of sales 2,014,791 1,941,338 73,453

Gross profit 1,295,683 1,058,235 237,448

Selling, delivery and administrative expenses 855,959 779,957 76,002

Income from operations 439,724 278,278 161,446

Interest expense, net 4,282 14,845 (10,563)

Pension plan settlement expense 39,777 — 39,777

Other expense, net 71,711 2,920 68,791

Income before taxes 323,954 260,513 63,441

Income tax expense 83,508 67,561 15,947

Net income 240,446 192,952 47,494

Other comprehensive income, net of tax 28,561 1,629 26,932

Comprehensive income

$ 269,007 $ 194,581 $ 74,426

Net sales increased $310.9 million, or 10.4%, to $3.31 billion in the first half of 2023, as compared to $3.00 billion in the first half of 2022.

The largest driver of the increase in net sales was higher average bottle/can sales price per unit charged to retail customers, which increased net sales by approximately $360 million.

The increase in net sales was partially offset by a decrease in case sales volume as compared to the first half of 2022, which decreased net sales by approximately $80 million.

Net sales by product category were as follows:

(in thousands) 2023 2022 % Change

Bottle/can sales:

Sparkling beverages $ 1,918,695 $ 1,655,866 15.9 %

Still beverages 1,082,876 1,006,816 7.6 %

Total bottle/can sales 3,001,571 2,662,682 12.7 %

Sales to other Coca‑Cola bottlers 179,652 178,455 0.7 %

Post-mix sales and other 129,251 158,436 (18.4) %

Total other sales 308,903 336,891 (8.3) %

Total net sales $ 3,310,474 $ 2,999,573 10.4 %

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

(in thousands) 2023 2022 % Change

Bottle/can sales volume:

Sparkling beverages 129,144 131,757 (2.0) %

Still beverages 45,880 49,726 (7.7) %

Total bottle/can sales volume 175,024 181,483 (3.6) %

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

Wal-Mart Stores, Inc.

The Kroger Company 11 % 12 %

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

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 25 % 24 %

Cost of Sales

Cost of sales increased $73.5 million, or 3.8%, to $2.01 billion in the first half of 2023, as compared to $1.94 billion in the first half of 2022.

Approximately $120 million of the increase in cost of sales related to increased manufacturing costs and a shift in product mix to meet consumer preferences.

This increase was partially offset by a decrease in case sales volume as compared to the first half of 2022, which decreased cost of sales by approximately $30 million.

Total marketing funding support from The Coca‑Cola Company and other beverage companies was $83.1 million in the first half of 2023, as compared to $71.7 million in the first half of 2022.

Selling, Delivery and Administrative Expenses

SD&A expenses increased $76.0 million, or 9.7%, to $856.0 million in the first half of 2023, as compared to $780.0 million in the first half of 2022.

SD&A expenses as a percentage of net sales decreased to 25.9% in the first half of 2023 from 26.0% in the first half of 2022.

Of the increase in SD&A expenses, approximately $27 million was driven by an increase in labor costs, resulting from certain compensation and benefits adjustments made in 2022 to retain and reward our teammates in a challenging labor environment.

In addition, approximately $25 million of the increase was attributable to higher transportation costs, including fuel and fleet repairs, as well as changes in our commodity hedge positions as compared to the first half of 2022.

Approximately $9 million of the increase in SD&A expenses was driven by an increase in commitments to various charities and donor-advised funds in light of the Company’s financial performance.

The remaining increase in SD&A expenses was primarily driven by broad inflationary increases across a number of SD&A categories as compared to the first half of 2022.

Interest Expense, Net

Interest expense, net decreased $10.6 million, or 71.2%, to $4.3 million in the first half of 2023, as compared to $14.8 million in the first half of 2022.

Pension Plan Settlement Expense

During the first half of 2023, the Company recognized a non-cash charge of $39.8 million related to the partial termination of the Primary Plan, which was recorded as pension plan settlement expense in the condensed consolidated statement of operations.

The charge related primarily to a reclassification of actuarial losses from accumulated other comprehensive loss.

During the third quarter of 2023, the Company expects a non-cash charge of approximately $79 million related to the full termination of the

Primary Plan, which will also be recorded as pension plan settlement expense in the condensed consolidated statement of operations.

See Note 17 to the condensed consolidated financial statements for additional information related to the Company’s pension plans.

Other Expense, Net

Other expense, net increased $68.8 million to $71.7 million in the first half of 2023, as compared to $2.9 million in the first half of 2022.

The increase in other expense, net was primarily driven by changes in the fair value of the acquisition related contingent consideration liability.

The change in the fair value of the acquisition related contingent consideration liability in the first half of 2023 as compared to the first half of 2022 was primarily driven by changes in the discount rate used to calculate fair value.

Income Tax Expense

The Company’s effective income tax rate was 25.8% for the first half of 2023 and 25.9% for the first half of 2022.

The Company’s income tax expense increased $15.9 million, or 23.6%, to $83.5 million for the first half of 2023, as compared to $67.6 million for the first half of 2022.

The increase in income tax expense was primarily attributable to higher income before taxes during the first half of 2023 compared to the first half of 2022.

Other Comprehensive Income, Net of Tax

Other comprehensive income, net of tax was $28.6 million in the first half of 2023 and $1.6 million in the first half of 2022.

As noted in the discussion of pension plan settlement expense above, the Company recognized a significant non-cash charge during the second quarter of 2023 related to the partial termination of the Primary Plan.

An additional non-cash charge is expected during the third quarter of 2023 related to the full termination of the Primary Plan.

See Note 17 to the condensed consolidated financial statements for additional information related to the Company’s pension plans.

Segment Operating Results

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The Company’s segment results are as follows:

First Quarter

Second Quarter First Half

(in thousands) 2023 2022 2023 2022

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

Comparable and Adjusted Results (Non-GAAP)

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 Company’s non-GAAP financial information does not represent a comprehensive basis of accounting.

The following tables reconcile reported results (GAAP) to comparable and adjusted results (non-GAAP).

Results for the first quarter of 2022 include one additional selling day compared to the first quarter of 2023.

For comparison purposes, the estimated impact of the additional selling day in the first quarter of 2022 has been excluded from our comparable volume results.

First Quarter

(in thousands) 2023 2022 Change

Standard physical case volume 82,470 85,076 (3.1) %

Volume related to extra day in fiscal period — (935)

Comparable standard physical case volume 82,470 84,141 (2.0) %

First Quarter 2023

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

Second Quarter 2023

(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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474 — 474 474 357 0.04

Pension plan settlement expense (4)

— — — 39,777 29,948 3.19

Total reconciling items 1,571 (224) 1,795 67,092 50,513 5.38

Adjusted results (non-GAAP) $ 673,148 $ 437,683 $ 235,465 $ 231,844 $ 172,832 $ 18.43

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

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

First Half 2023

(in thousands, except per share data) Gross

expenses Income from

operations Income before taxes Net

income Basic net income

Reported results (GAAP) $ 1,295,683 $ 855,959 $ 439,724 $ 323,954 $ 240,446 $ 25.65

Fair value adjustment of acquisition related contingent consideration (1)

— — — 67,174 50,575 5.40

Fair value adjustments for commodity derivative instruments (2)

1,492 (2,914) 4,406 4,406 3,317 0.35

Supply chain optimization (3)

823 — 823 823 620 0.07

Pension plan settlement expense (4)

— — — 39,777 29,948 3.19

Total reconciling items 2,315 (2,914) 5,229 112,180 84,460 9.01

Adjusted results (non-GAAP) $ 1,297,998 $ 853,045 $ 444,953 $ 436,134 $ 324,906 $ 34.66

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

Following is an explanation of non-GAAP adjustments:

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

(4) This non-cash settlement expense relates to the partial termination of the Primary Plan during the second quarter of 2023.

Full termination of the Primary Plan is expected to occur in the third quarter of 2023.

Financial Condition

Total assets were $3.80 billion as of March 31, 2023, which was an increase of $90.2 million from December 31, 2022.

Net working capital, defined as current assets less current liabilities, was $541.1 million as of March 31, 2023, which was an increase of $200.4 million from December 31, 2022.

Significant changes in net working capital as of March 31, 2023 as compared to December 31, 2022 were as follows:

Total assets were $3.99 billion as of June 30, 2023, which was an increase of $285.0 million from December 31, 2022.

Net working capital, defined as current assets less current liabilities, was $656.0 million as of June 30, 2023, which was an increase of $315.4 million from December 31, 2022.

Significant changes in net working capital as of June 30, 2023 as compared to December 31, 2022 were as follows:

• An increase in cash and cash equivalents of $232.5 million, primarily as a result of cash receipts relating to our strong operating performance.

• An increase in accounts receivable, trade of $71.7 million, driven primarily by increased net sales and the timing of cash receipts.

• A decrease in accounts payable, trade of $41.3 million due to the timing of cash payments.

• An increase in accounts payable to The Coca-Cola Company of $32.1 million due to the timing of cash payments.

• A decrease in accrued compensation of $51.2 million, primarily as a result of the timing of bonus and incentive payments in the first quarter of 2023.

• A decrease in dividends payable of $32.8 million, primarily as a result of the timing of dividend payments in the first quarter of 2023.

• An increase in other accrued liabilities of $27.8 million, primarily due to the reclassification of the liability related to the Primary Plan from non-current to current in anticipation of the full termination of the Primary Plan during the third quarter of 2023, as well as the increase in the current portion of the acquisition related contingent consideration liability.

• A decrease in accrued compensation of $49.1 million, primarily as a result of the timing of bonus and incentive payments in the first half of 2023.

• A decrease in dividends payable of $32.8 million, primarily as a result of the timing of dividend payments in the first half of 2023.

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 March 31, 2023, the Company had $289.8 million in cash and cash equivalents.

As of June 30, 2023, the Company had $430.2 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 March 31, 2023 and December 31, 2022 was as follows:

(in thousands) Maturity Date March 31, 2023 December 31, 2022

The Company’s long-term debt as of June 30, 2023 and December 31, 2022 was as follows:

(in thousands) Maturity Date June 30, 2023 December 31, 2022

Senior bonds and unamortized discount on senior bonds (1)

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

(3) During the first quarter of 2023, the Company amended its revolving credit facility to complete the transition of the interest rate index from the London InterBank Offered Rate (LIBOR) to the Secured Overnight Financing Rate (SOFR), as contemplated in the revolving credit facility.

(3) During the first half of 2023, the Company amended its revolving credit facility to complete the transition of the interest rate index from the London InterBank Offered Rate (LIBOR) to the Secured Overnight Financing Rate (SOFR), as contemplated in the revolving credit facility.

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

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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 March 31, 2023.

The Company was in compliance with these covenants as of June 30, 2023.

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

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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 March 31, 2023, the Company’s credit ratings and outlook for its long-term debt were as follows:

As of June 30, 2023, the Company’s credit ratings and outlook for its long-term debt were as follows:

Credit Rating Rating Outlook

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Separate from those term extension actions, the Company has an agreement with a third-party financial institution to facilitate a supply chain finance (“SCF”) program, which allows qualifying suppliers to sell their receivables from the Company to the financial institution in order to negotiate shorter payment terms on outstanding receivable arrangements.

The Company’s obligations to its suppliers, including amounts due and scheduled payment terms, are not impacted by a supplier’s participation in the SCF program.

The Company’s obligations to its suppliers, including amounts due and scheduled

payment terms, are not impacted by a supplier’s participation in the SCF program.

See Note 12 to the condensed consolidated financial statements for additional information related to the Company’s SCF program.

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Following is a summary of the Level 3 activity:

First Quarter

Second Quarter First Half

(in thousands) 2023 2022 2023 2022

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A summary of cash-based activity is as follows:

First Quarter

(in thousands) 2023 2022

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Additions to property, plant and equipment $ 92,893 $ 145,182

Cash dividends paid 32,808 2,344

Payments of acquisition related contingent consideration 13,376 18,710

Cash dividends paid 37,495 4,687

Payments on financing lease obligations 1,130 1,904

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Total cash uses $ 151,081 $ 202,301

Net increase (decrease) in cash during period $ 92,133 $ (15,229)

(1) Net cash provided by operating activities included net income tax payments of $1.1 million in the first quarter of 2023 and $1.2 million in the first quarter of 2022.

Net increase in cash during period $ 232,524 $ 46,489

(1) Net cash provided by operating activities included net income tax payments of $90.2 million in the first half of 2023 and $55.7 million in the first half of 2022.

Cash Flows From Operating Activities

During the first quarter of 2023, cash provided by operating activities was $184.7 million, which was an increase of $53.8 million as compared to the first quarter of 2022.

During the first half of 2023, cash provided by operating activities was $383.3 million, which was an increase of $139.8 million as compared to the first half of 2022.

The cash flows from operations reflected our strong operating performance and the timing of certain working capital payments and receipts.

Cash Flows From Investing Activities

During the first quarter of 2023, cash used in investing activities was $52.5 million, which was a decrease of $80.0 million as compared to the first quarter of 2022.

The decrease was primarily a result of additions to property, plant and equipment, which were $52.7 million during the first quarter of 2023 and $104.4 million during the first quarter of 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 during the first quarter of 2022 for a purchase price of $60.0 million, which was included in additions to property, plant and equipment for that period.

There were $18.1 million and $12.7 million of additions to property, plant and equipment accrued in accounts payable, trade as of March 31, 2023 and April 1, 2022, respectively.

The increase in property, plant and equipment reflects the Company’s focus on optimizing its supply chain and investing for future growth.

The Company anticipates additions to property, plant and equipment in 2023 to be in the range of $250 million to $300 million.

The decrease in cash used in investing activities as compared to the first quarter of 2022 was also driven by the acquisition of $30.1 million of additional BODYARMOR distribution rights during the first quarter of 2022.

During the first half of 2023, cash used in investing activities was $98.7 million, which was a decrease of $73.0 million as compared to the first half of 2022.

The decrease was primarily a result of additions to property, plant and equipment, which were $92.9 million during the first half of 2023 and $145.2 million during the first half of 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 during the first half of 2022 for a purchase price of $60.0 million, which was included in additions to property, plant and equipment for that period.

There were $23.4 million and $19.6 million of additions to property, plant and equipment accrued in accounts payable, trade as of June 30, 2023 and July 1, 2022, respectively.

The additions to property, plant and equipment reflect the Company’s focus on optimizing its supply chain and investing for future growth.

The Company anticipates additions to property, plant and equipment in 2023 to be in the range of $250 million to $300 million, with remaining anticipated expenditures in the second half of 2023 of approximately $160 million to $210 million.

The decrease in cash used in investing activities as compared to the first half of 2022 was also driven by the acquisition of $30.1 million of additional BODYARMOR distribution rights during the first half of 2022.

Cash Flows From Financing Activities

During the first quarter of 2023, cash used in financing activities was $40.0 million, which was an increase of $26.4 million as compared to the first quarter of 2022.

The increase was primarily a result of the dividend payment of $32.8 million made during the first quarter of 2023, which included a special cash dividend of $3.00 per share.

The Company had cash payments for acquisition related contingent consideration of $6.5 million during the first quarter of 2023 and $9.8 million during the first quarter 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 $35 million to $76 million.

During the first half of 2023, cash used in financing activities was $52.2 million, which was an increase of $26.7 million as compared to the first half of 2022.

The increase was primarily a result of dividend payments of $37.5 million during the first half of 2023 (which included a special cash dividend of $3.00 per share), as compared to $4.7 million during the first half of 2022.

The Company had cash payments for acquisition related contingent consideration of $13.4 million during the first half of 2023 and $18.7 million during the first half of 2022.

For the next five years, 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 approximately $30 million to $60 million.

Hedging Activities

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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) 2023 2022 2023 2022

Increase (decrease) in cost of sales $ 1,056 $ (10,493)

Increase in cost of sales $ 1,928 $ 13,422 $ 2,984 $ 2,929

Increase (decrease) in SD&A expenses 1,692 (6,698) 5,629 (15,142)

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

changes in government regulations related to nonalcoholic beverages, including regulations related to obesity,

public health, artificial ingredients and product safety and sustainability;

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

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

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

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

decreases from historic levels of advertising, marketing and product innovation spending by The Coca‑Cola Company and other beverage companies, or

advertising campaigns that are negatively perceived by the public;

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

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and the risks discussed in “Item 1A.

Risk Factors” of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022 and elsewhere in this report.

Risk Factors” of the Company’s Annual Report on Form 10-K for 2022 and elsewhere in this report.

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

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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