Coca-Cola Consolidated, Inc. 10-Q

Item 1. Financial Statements. COCA ‑ COLA CONSOLIDATED, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Second Quarter First Half (in thousands, except per share data) 2023 2022 2023 2022 Net sales $ 1,738,832 $ 1,595,215 $ 3,310,474 $ 2,999,573 Cost of sales 1,067,255 1,044,556 2,014,791 1,941,338 Gross profit 671,577 550,659 1,295,683 1,058,235 Selling, delivery and administrative expenses 437,907 403,366 855,959 779,957 Income from operations 233,670 147,293 439,724 278,278 Interest expense, net 1,353 7,146 4,282 14,845 Pension plan settlement expense 39,777 — 39,777 — Other expense, net 27,788 6,199 71,711 2,920 Income before taxes 164,752 133,948 323,954 260,513 Income tax expense 42,433 34,386 83,508 67,561 Net income $ 122,319 $ 99,562 $ 240,446 $ 192,952 Basic net income per share: Common Stock $ 13.05 $ 10.62 $ 25.65 $ 20.58 Weighted average number of Common Stock shares outstanding 8,369 8,369 8,369 7,863 Class B Common Stock $ 13.05 $ 10.62 $ 25.65 $ 20.62 Weighted average number of Class B Common Stock shares outstanding 1,005 1,005 1,005 1,511 Diluted net income per share: Common Stock $ 13.02 $ 10.59 $ 25.59 $ 20.53 Weighted average number of Common Stock shares outstanding – assuming dilution 9,396 9,399 9,396 9,399 Class B Common Stock $ 13.01 $ 10.59 $ 25.51 $ 20.56 Weighted average number of Class B Common Stock shares outstanding – assuming dilution 1,027 1,030 1,027 1,536 Cash dividends per share: Common Stock $ 0.50 $ 0.25 $ 4.00 $ 0.50 Class B Common Stock $ 0.50 $ 0.25 $ 4.00 $ 0.50 See accompanying notes to condensed consolidated financial statements. 1 COCA ‑ COLA CONSOLIDATED, INC. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) Second Quarter First Half (in thousands) 2023 2022 2023 2022 Net income $ 122,319 $ 99,562 $ 240,446 $ 192,952 Other comprehensive income, net of tax: Defined benefit plans reclassification including pension costs: Actuarial (loss) gain ( 2,221 ) 745 ( 1,486 ) 1,491 Prior service credits 3 — 6 — Pension plan settlement 30,041 — 30,041 — Postretirement benefits reclassification including benefit costs: Actuarial gain — 69 — 138 Other comprehensive income, net of tax 27,823 814 28,561 1,629 Comprehensive income $ 150,142 $ 100,376 $ 269,007 $ 194,581 See accompanying notes to condensed consolidated financial statements. 2 COCA ‑ COLA CONSOLIDATED, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (in thousands, except share data) June 30, 2023 December 31, 2022 ASSETS Current Assets: Cash and cash equivalents $ 430,172 $ 197,648 Accounts receivable, trade 603,728 532,047 Allowance for doubtful accounts ( 17,624 ) ( 16,119 ) Accounts receivable from The Coca‑Cola Company 57,466 35,786 Accounts receivable, other 55,763 54,631 Inventories 333,874 347,545 Prepaid expenses and other current assets 84,634 94,263 Total current assets 1,548,013 1,245,801 Property, plant and equipment, net 1,176,339 1,183,730 Right-of-use assets - operating leases 128,759 140,588 Leased property under financing leases, net 5,608 6,431 Other assets 132,017 115,892 Goodwill 165,903 165,903 Distribution agreements, net 829,589 842,035 Customer lists, net 8,309 9,165 Total assets $ 3,994,537 $ 3,709,545 LIABILITIES AND EQUITY Current Liabilities: Current portion of obligations under operating leases $ 26,440 $ 27,635 Current portion of obligations under financing leases 2,393 2,303 Accounts payable, trade 361,825 351,729 Accounts payable to The Coca‑Cola Company 194,893 162,783 Other accrued liabilities 226,135 198,300 Accrued compensation 77,779 126,921 Accrued interest payable 2,517 2,677 Dividends payable — 32,808 Total current liabilities 891,982 905,156 Deferred income taxes 151,630 150,222 Pension and postretirement benefit obligations 55,784 60,323 Other liabilities 801,642 753,357 Noncurrent portion of obligations under operating leases 108,500 118,763 Noncurrent portion of obligations under financing leases 6,299 7,519 Long-term debt 598,992 598,817 Total liabilities 2,614,829 2,594,157 Commitments and Contingencies Equity: Common Stock, $ 1.00 par value: 30,000,000 shares authorized; 11,431,367 shares issued 11,431 11,431 Class B Common Stock, $ 1.00 par value: 10,000,000 shares authorized; 1,632,810 shares issued 1,633 1,633 Additional paid-in capital 135,953 135,953 Retained earnings 1,348,221 1,112,462 Accumulated other comprehensive loss ( 56,276 ) ( 84,837 ) Treasury stock, at cost: Common Stock – 3,062,374 shares ( 60,845 ) ( 60,845 ) Treasury stock, at cost: Class B Common Stock – 628,114 shares ( 409 ) ( 409 ) Total equity 1,379,708 1,115,388 Total liabilities and equity $ 3,994,537 $ 3,709,545 See accompanying notes to condensed consolidated financial statements. 3 COCA ‑ COLA CONSOLIDATED, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) First Half (in thousands) 2023 2022 Cash Flows from Operating Activities: Net income $ 240,446 $ 192,952 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization expense from property, plant and equipment and financing leases 75,415 74,037 Amortization of intangible assets and deferred proceeds, net 11,770 11,815 Fair value adjustment of acquisition related contingent consideration 67,174 ( 1,436 ) Pension plan settlement expense 39,777 — Deferred income taxes ( 7,848 ) 11,189 Loss on sale of property, plant and equipment 4,128 1,327 Amortization of debt costs 494 504 Change in current assets less current liabilities ( 41,957 ) ( 59,004 ) Change in other noncurrent assets 5,216 21,904 Change in other noncurrent liabilities ( 11,277 ) ( 9,753 ) Total adjustments 142,892 50,583 Net cash provided by operating activities $ 383,338 $ 243,535 Cash Flows from Investing Activities: Additions to property, plant and equipment $ ( 92,893 ) $ ( 145,182 ) Investment in equity method investees ( 6,033 ) ( 1,538 ) Proceeds from the sale of property, plant and equipment 267 5,255 Acquisition of distribution rights — ( 30,149 ) Net cash used in investing activities $ ( 98,659 ) $ ( 171,614 ) Cash Flows from Financing Activities: Cash dividends paid $ ( 37,495 ) $ ( 4,687 ) Payments of acquisition related contingent consideration ( 13,376 ) ( 18,710 ) Payments on financing lease obligations ( 1,130 ) ( 1,904 ) Debt issuance fees ( 154 ) ( 131 ) Net cash used in financing activities $ ( 52,155 ) $ ( 25,432 ) Net increase in cash during period $ 232,524 $ 46,489 Cash at beginning of period 197,648 142,314 Cash at end of period $ 430,172 $ 188,803 Significant non-cash investing and financing activities: Additions to property, plant and equipment accrued and recorded in accounts payable, trade $ 23,435 $ 19,626 Right-of-use assets obtained in exchange for operating lease obligations 2,286 9,345 Reductions to leased property under financing leases — 55,465 See accompanying notes to condensed consolidated financial statements. 4 COCA ‑ COLA CONSOLIDATED, INC. CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (Unaudited) (in thousands, except share data) Common Stock Class B Common Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Loss Treasury Stock - Common Stock Treasury Stock - Class B Common Stock Total Equity Balance on March 31, 2023 $ 11,431 $ 1,633 $ 135,953 $ 1,230,589 $ ( 84,099 ) $ ( 60,845 ) $ ( 409 ) $ 1,234,253 Net income — — — 122,319 — — — 122,319 Other comprehensive income, net of tax — — — — 27,823 — — 27,823 Dividends declared: Common Stock ($ 0.50 per share) — — — ( 4,185 ) — — — ( 4,185 ) Class B Common Stock ($ 0.50 per share) — — — ( 502 ) — — — ( 502 ) Balance on June 30, 2023 $ 11,431 $ 1,633 $ 135,953 $ 1,348,221 $ ( 56,276 ) $ ( 60,845 ) $ ( 409 ) $ 1,379,708 Balance on December 31, 2022 $ 11,431 $ 1,633 $ 135,953 $ 1,112,462 $ ( 84,837 ) $ ( 60,845 ) $ ( 409 ) $ 1,115,388 Net income — — — 240,446 — — — 240,446 Other comprehensive income, net of tax — — — — 28,561 — — 28,561 Dividends declared: Common Stock ($ 0.50 per share) — — — ( 4,185 ) — — — ( 4,185 ) Class B Common Stock ($ 0.50 per share) — — — ( 502 ) — — — ( 502 ) Balance on June 30, 2023 $ 11,431 $ 1,633 $ 135,953 $ 1,348,221 $ ( 56,276 ) $ ( 60,845 ) $ ( 409 ) $ 1,379,708 (in thousands, except share data) Common Stock Class B Common Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Loss Treasury Stock - Common Stock Treasury Stock - Class B Common Stock Total Equity Balance on April 1, 2022 $ 11,431 $ 1,633 $ 135,953 $ 815,532 $ ( 99,648 ) $ ( 60,845 ) $ ( 409 ) $ 803,647 Net income — — — 99,562 — — — 99,562 Other comprehensive income, net of tax — — — — 814 — — 814 Dividends declared: Common Stock ($ 0.25 per share) — — — ( 2,092 ) — — — ( 2,092 ) Class B Common Stock ($ 0.25 per share) — — — ( 251 ) — — — ( 251 ) Balance on July 1, 2022 $ 11,431 $ 1,633 $ 135,953 $ 912,751 $ ( 98,834 ) $ ( 60,845 ) $ ( 409 ) $ 901,680 Balance on December 31, 2021 $ 10,204 $ 2,860 $ 135,953 $ 724,486 $ ( 100,463 ) $ ( 60,845 ) $ ( 409 ) $ 711,786 Net income — — — 192,952 — — — 192,952 Other comprehensive income, net of tax — — — — 1,629 — — 1,629 Dividends declared: Common Stock ($ 0.50 per share) — — — ( 3,878 ) — — — ( 3,878 ) Class B Common Stock ($ 0.50 per share) — — — ( 809 ) — — — ( 809 ) Conversion of 1,227,546 shares of Class B Common Stock 1,227 ( 1,227 ) — — — — — — Balance on July 1, 2022 $ 11,431 $ 1,633 $ 135,953 $ 912,751 $ ( 98,834 ) $ ( 60,845 ) $ ( 409 ) $ 901,680 See accompanying notes to condensed consolidated financial statements. 5 COCA ‑ COLA CONSOLIDATED, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. Critical Accounting Policies The condensed consolidated financial statements include the accounts and the consolidated operations of Coca‑Cola Consolidated, Inc. and its majority-owned subsidiaries (the “Company”). All significant intercompany accounts and transactions have been eliminated. The condensed consolidated financial statements reflect all adjustments, including normal, recurring accruals, which, in the opinion of management, are necessary for a fair statement of the results for the periods presented. Each of the Company’s quarters, other than the fourth quarter, ends on the Friday closest to the last day of the corresponding quarterly calendar period. The Company’s fourth quarter and fiscal year end on December 31 regardless of the day of the week on which December 31 falls. The condensed consolidated financial statements presented are: • 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. The condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial reporting and the instructions to Form 10-Q and Article 10 of Regulation S-X. The accounting policies followed in the presentation of interim financial results are consistent with those followed on an annual basis. These policies are presented in Note 1 to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for 2022 filed with the United States Securities and Exchange Commission. The preparation of condensed consolidated financial statements, in conformity with GAAP, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Critical Accounting Estimates In the ordinary course of business, the Company has made a number of estimates and assumptions relating to the reporting of its results of operations and financial position in the preparation of its condensed consolidated financial statements in conformity with GAAP. Actual results could differ significantly from those estimates under different assumptions and conditions. The Company included in its Annual Report on Form 10-K for 2022 under the caption “Discussion of Critical Accounting Estimates” in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” a discussion of the Company’s most critical accounting estimates, which are those the Company believes to be the most important to the portrayal of its financial condition and results of operations and require management’s most difficult, subjective and complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Any changes in critical accounting estimates are discussed with the Audit Committee of the Company’s Board of Directors during the quarter in which a change is contemplated and prior to making such change. Recently Adopted Accounting Pronouncements In September 2022, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2022-04, “Liabilities-Supplier Finance Programs,” which requires additional quantitative and qualitative disclosures related to a company’s supply chain finance programs to enhance the transparency of these programs. The new guidance is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, except for the amendment on rollforward information, which is effective for fiscal years beginning after December 15, 2023. The Company adopted ASU 2022-04 in the first quarter of 2023, with the exception of the amendment on rollforward information, and the adoption did not have a material impact on its condensed consolidated financial statements. See Note 12 for disclosures related to the Company’s supply chain finance program. 6 2. Related Party Transactions The Coca‑Cola Company The Company’s business consists primarily of the distribution, marketing and manufacture of nonalcoholic beverages of The Coca‑Cola Company, which is the sole owner of the formulas under which the primary components of the Company’s soft drink products, either concentrate or syrup, are manufactured. As of June 30, 2023, J. Frank Harrison, III, Chairman of the Board of Directors and Chief Executive Officer of the Company, controlled 1,004,394 shares of the Company’s Class B Common Stock, which represented approximately 71 % of the total voting power of the Company’s outstanding Common Stock and Class B Common Stock on a consolidated basis. As of June 30, 2023, The Coca‑Cola Company owned shares of the Company’s Common Stock representing approximately 9 % of the total voting power of the Company’s outstanding Common Stock and Class B Common Stock on a consolidated basis. The number of shares of the Company’s Common Stock currently held by The Coca‑Cola Company gives it the right to have a designee proposed by the Company for nomination to the Company’s Board of Directors in the Company’s annual proxy statement. J. Frank Harrison, III and the trustees of certain trusts established for the benefit of certain relatives of the late J. Frank Harrison, Jr. have agreed to vote the shares of the Company’s Common Stock and Class B Common Stock that they control in favor of such designee. The Coca‑Cola Company does not own any shares of the Company’s Class B Common Stock. The following table summarizes the significant cash transactions between the Company and The Coca‑Cola Company: Second Quarter First Half (in thousands) 2023 2022 2023 2022 Payments made by the Company to The Coca-Cola Company (1) $ 523,191 $ 510,571 $ 992,718 $ 930,279 Payments made by The Coca-Cola Company to the Company 55,495 60,601 102,934 120,270 (1) This excludes acquisition related sub-bottling payments made by the Company to CCR (as defined below), a wholly owned subsidiary of The Coca‑Cola Company, but includes the purchase price of certain additional BODYARMOR distribution rights, each as discussed below. On January 1, 2022, the Company entered into an agreement to acquire $ 30.1 million of additional BODYARMOR distribution rights with an estimated useful life of 40 years. More than 80 % of the payments made by the Company to The Coca‑Cola Company were for concentrate, syrup, sweetener and other finished goods products, which were recorded in cost of sales in the condensed consolidated statements of operations and represent the primary components of the soft drink products the Company manufactures and distributes. Payments made by the Company to The Coca‑Cola Company also included payments for marketing programs associated with large, national customers managed by The Coca‑Cola Company on behalf of the Company, which were recorded as a reduction to net sales in the condensed consolidated statements of operations. Other payments made by the Company to The Coca‑Cola Company related to cold drink equipment parts, fees associated with the rights to distribute certain brands and other customary items. Payments made by The Coca‑Cola Company to the Company included annual funding in connection with the Company’s agreement to support certain business initiatives developed by The Coca‑Cola Company and funding associated with the delivery of post-mix products to various customers, both of which were recorded as a reduction to cost of sales in the condensed consolidated statements of operations. 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. Payments made by The Coca‑Cola Company to the Company also included transportation services and fountain product delivery and equipment repair services performed by the Company on The Coca‑Cola Company’s equipment, all of which were recorded in net sales in the condensed consolidated statements of operations. Coca‑Cola Refreshments USA, Inc. (“CCR”) The Company, The Coca‑Cola Company and CCR entered into comprehensive beverage agreements (collectively, the “CBA”), related to a multi-year series of transactions, which were completed in October 2017, through which the Company acquired and exchanged distribution territories and manufacturing plants (the “System Transformation”). The CBA requires the Company to make quarterly acquisition related sub-bottling payments to CCR on a continuing basis in exchange for the grant of exclusive rights to distribute, promote, market and sell the authorized brands of The Coca‑Cola Company and related products in certain distribution territories the Company acquired from CCR. These acquisition related sub-bottling payments are based on gross profit 7 derived from the Company’s sales of certain beverages and beverage products that are sold under the same trademarks that identify a covered beverage, a beverage product or certain cross-licensed brands applicable to the System Transformation. Acquisition related sub-bottling payments to CCR were $ 13.4 million in the first half of 2023 and $ 18.7 million in the first half of 2022. The following table summarizes the liability recorded by the Company to reflect the estimated fair value of contingent consideration related to future expected acquisition related sub-bottling payments to CCR: (in thousands) June 30, 2023 December 31, 2022 Current portion of acquisition related contingent consideration $ 45,857 $ 40,060 Noncurrent portion of acquisition related contingent consideration 548,532 501,431 Total acquisition related contingent consideration $ 594,389 $ 541,491 Southeastern Container (“Southeastern”) The Company is a shareholder of Southeastern, a plastic bottle manufacturing cooperative. The Company accounts for Southeastern as an equity method investment. The Company’s investment in Southeastern, which was classified as other assets in the condensed consolidated balance sheets, was $ 21.8 million as of June 30, 2023 and $ 21.2 million as of December 31, 2022. South Atlantic Canners, Inc. (“SAC”) The Company is a shareholder of SAC, a manufacturing cooperative located in Bishopville, South Carolina. All of SAC’s shareholders are Coca‑Cola bottlers and each has equal voting rights. The Company accounts for SAC as an equity method investment. The Company’s investment in SAC, which was classified as other assets in the condensed consolidated balance sheets, was $ 12.8 million as of June 30, 2023 and $ 8.2 million as of December 31, 2022. The Company also guarantees a portion of SAC’s debt; see Note 20 for additional information. The Company receives a fee for managing the day-to-day operations of SAC pursuant to a management agreement. Proceeds from management fees received from SAC, which were recorded as a reduction to cost of sales in the condensed consolidated statements of operations, were $ 4.6 million in the first half of 2023 and $ 4.4 million in the first half of 2022. Coca‑Cola Bottlers’ Sales & Services Company LLC (“CCBSS”) Along with all other Coca‑Cola bottlers in the United States and Canada, the Company is a member of CCBSS, a company formed to provide certain procurement and other services with the intention of enhancing the efficiency and competitiveness of the Coca‑Cola bottling system. The Company accounts for CCBSS as an equity method investment and its investment in CCBSS is not material. CCBSS negotiates the procurement for the majority of the Company’s raw materials, excluding concentrate, and the Company receives a rebate from CCBSS for the purchase of these raw materials. The Company had rebates due from CCBSS of $ 24.5 million on June 30, 2023 and $ 25.7 million on December 31, 2022, which were classified as accounts receivable, other in the condensed consolidated balance sheets. Changes in rebates receivable relate to volatility in raw material prices and the timing of cash receipts of rebates. CONA Services LLC (“CONA”) Along with certain other Coca‑Cola bottlers, the Company is a member of CONA, an entity formed to provide business process and information technology services to its members. The Company accounts for CONA as an equity method investment. The Company’s investment in CONA, which was classified as other assets in the condensed consolidated balance sheets, was $ 19.8 million as of June 30, 2023 and $ 16.9 million as of December 31, 2022. Pursuant to an amended and restated master services agreement with CONA, the Company is authorized to use the Coke One North America system (the “CONA System”), a uniform information technology system developed to promote operational efficiency and uniformity among North American Coca‑Cola bottlers. In exchange for the Company’s rights to use the CONA System and receive CONA-related services, it is charged service fees by CONA. The Company incurred service fees to CONA of $ 13.6 million in the first half of 2023 and $ 13.0 million in the first half of 2022. 8 Related Party Leases The Company leases its headquarters office facility and an adjacent office facility in Charlotte, North Carolina from Beacon Investment Corporation, of which J. Frank Harrison, III is the majority stockholder and Morgan H. Everett, Vice Chair of the Company’s Board of Directors, is a minority stockholder. The annual base rent the Company is obligated to pay under this lease is subject to an adjustment for an inflation factor and the lease expires on December 31, 2029. The principal balance outstanding under this lease was $ 24.0 million on June 30, 2023 and $ 25.5 million on December 31, 2022. A summary of rental payments for related party leases for the second quarter and the first half of 2023 and 2022 is as follows: Second Quarter First Half (in thousands) 2023 2022 2023 2022 Company headquarters $ 983 $ 964 $ 1,966 $ 1,927 Snyder Production Center (1) — — — 927 (1) The lease for the Snyder Production Center and an adjacent sales facility in Charlotte, North Carolina (together, the “Snyder Production Center”) was terminated during the first quarter of 2022 in connection with the purchase of the Snyder Production Center by CCBCC Operations, LLC, a wholly owned subsidiary of the Company. Long-Term Performance Equity Plan The Long-Term Performance Equity Plan compensates J. Frank Harrison, III based on the Company’s performance. Awards granted to Mr. Harrison under the Long-Term Performance Equity Plan are earned based on the Company’s attainment during a performance period of certain performance measures, each as specified by the Compensation Committee of the Company’s Board of Directors. These awards may be settled in cash and/or shares of the Company’s Class B Common Stock, based on the average of the closing prices of shares of the Company’s Common Stock during the last 20 trading days of the performance period. Compensation expense for the Long-Term Performance Equity Plan, which was included in selling, delivery and administrative (“SD&A”) expenses in the condensed consolidated statements of operations, was $ 3.7 million and $ 3.6 million in the second quarter of 2023 and the second quarter of 2022, respectively, and $ 5.7 million and $ 5.6 million in the first half of 2023 and the first half of 2022, respectively. 3. Revenue Recognition The Company’s sales are divided into two main categories: (i) bottle/can sales and (ii) other sales. Bottle/can sales include products packaged primarily in plastic bottles and aluminum cans. Bottle/can net pricing is based on the invoice price charged to customers reduced by any promotional allowances. 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 sales, transportation revenue and equipment maintenance revenue. The Company’s contracts are derived from customer orders, including customer sales incentives, generated through an order processing and replenishment model. Generally, the Company’s service contracts and contracts related to the delivery of specifically identifiable products have a single performance obligation. Revenues do not include sales or other taxes collected from customers. The Company has defined its performance obligations for its contracts as either at a point in time or over time. Bottle/can sales, sales to other Coca‑Cola bottlers and post-mix sales are recognized when control transfers to a customer, which is generally upon delivery and is considered a single point in time (“point in time”). Point in time sales accounted for approximately 98 % of the Company’s net sales in the first half of 2023 and approximately 97 % of the Company’s net sales in the first half of 2022. Other sales, which include revenue for service fees related to the repair of cold drink equipment and delivery fees for freight hauling and brokerage services, are recognized over time (“over time”). Revenues related to cold drink equipment repair are recognized as the respective services are completed using a cost-to-cost input method. Repair services are generally completed in less than one day but can extend up to one month . Revenues related to freight hauling and brokerage services are recognized as the delivery occurs using a miles driven output method. Generally, delivery occurs and freight charges are recognized in the same day. Over time sales orders open at the end of a financial period are not material to the condensed consolidated financial statements. 9 The following table represents a disaggregation of revenue from contracts with customers: Second Quarter First Half (in thousands) 2023 2022 2023 2022 Point in time net sales: Nonalcoholic Beverages - point in time $ 1,701,490 $ 1,550,255 $ 3,234,778 $ 2,912,506 Total point in time net sales $ 1,701,490 $ 1,550,255 $ 3,234,778 $ 2,912,506 Over time net sales: Nonalcoholic Beverages - over time $ 13,372 $ 11,759 $ 25,496 $ 22,729 All Other - over time 23,970 33,201 50,200 64,338 Total over time net sales $ 37,342 $ 44,960 $ 75,696 $ 87,067 Total net sales $ 1,738,832 $ 1,595,215 $ 3,310,474 $ 2,999,573 The Company’s allowance for doubtful accounts in the condensed consolidated balance sheets includes a reserve for customer returns and an allowance for credit losses. The Company experiences customer returns primarily as a result of damaged or out-of-date product. At any given time, the Company estimates less than 1 % of bottle/can sales and post-mix sales could be at risk for return by customers. Returned product is recognized as a reduction to net sales. The Company’s reserve for customer returns was $ 3.8 million as of June 30, 2023 and $ 3.0 million as of December 31, 2022. The Company estimates an allowance for credit losses, based on historic days’ sales outstanding trends, aged customer balances, previously written-off balances and expected recoveries up to balances previously written off, in order to present the net amount expected to be collected. Accounts receivable balances are written off when determined uncollectible and are recognized as a reduction to the allowance for credit losses. Following is a summary of activity for the allowance for credit losses during the first half of 2023 and the first half of 2022: First Half (in thousands) 2023 2022 Beginning balance - allowance for credit losses $ 13,119 $ 14,336 Additions charged to expenses and as a reduction to net sales 3,650 47 Deductions ( 2,895 ) ( 2,860 ) Ending balance - allowance for credit losses $ 13,874 $ 11,523 4. Segments The Company evaluates segment reporting in accordance with FASB Accounting Standards Codification Topic 280, Segment Reporting, each reporting period, including evaluating the reporting package reviewed by the Chief Operating Decision Maker (the “CODM”). The Company has concluded the Chief Executive Officer, the Chief Operating Officer and the Chief Financial Officer, as a group, represent the CODM. Asset information is not provided to the CODM. The Company believes three operating segments exist. Nonalcoholic Beverages represents the vast majority of the Company’s consolidated net sales and income from operations. The additional two operating segments do not meet the quantitative thresholds for separate reporting, either individually or in the aggregate, and, therefore, have been combined into “All Other.” The Company’s segment results are as follows: Second Quarter First Half (in thousands) 2023 2022 2023 2022 Net sales: Nonalcoholic Beverages $ 1,714,862 $ 1,562,014 $ 3,260,274 $ 2,935,235 All Other 95,174 105,910 187,550 202,073 Eliminations (1) ( 71,204 ) ( 72,709 ) ( 137,350 ) ( 137,735 ) Consolidated net sales $ 1,738,832 $ 1,595,215 $ 3,310,474 $ 2,999,573 (1) The entire net sales elimination represents net sales from the All Other segment to the Nonalcoholic Beverages segment. Sales between these segments are recognized at either fair market value or cost depending on the nature of the transaction. 10 Second Quarter First Half (in thousands) 2023 2022 2023 2022 Income from operations: Nonalcoholic Beverages $ 234,211 $ 144,012 $ 443,990 $ 278,570 All Other ( 541 ) 3,281 ( 4,266 ) ( 292 ) Consolidated income from operations $ 233,670 $ 147,293 $ 439,724 $ 278,278 Depreciation and amortization: Nonalcoholic Beverages $ 40,695 $ 39,771 $ 81,259 $ 80,057 All Other 2,981 2,812 5,926 5,795 Consolidated depreciation and amortization $ 43,676 $ 42,583 $ 87,185 $ 85,852 5. Net Income Per Share The following table sets forth the computation of basic net income per share and diluted net income per share under the two-class method: Second Quarter First Half (in thousands, except per share data) 2023 2022 2023 2022 Numerator for basic and diluted net income per Common Stock and Class B Common Stock share: Net income $ 122,319 $ 99,562 $ 240,446 $ 192,952 Less dividends: Common Stock 4,185 2,092 33,476 3,878 Class B Common Stock 502 251 4,019 809 Total undistributed earnings $ 117,632 $ 97,219 $ 202,951 $ 188,265 Common Stock undistributed earnings – basic $ 105,021 $ 86,796 $ 181,192 $ 157,918 Class B Common Stock undistributed earnings – basic 12,611 10,423 21,759 30,347 Total undistributed earnings – basic $ 117,632 $ 97,219 $ 202,951 $ 188,265 Common Stock undistributed earnings – diluted $ 104,775 $ 86,565 $ 180,768 $ 157,498 Class B Common Stock undistributed earnings – diluted 12,857 10,654 22,183 30,767 Total undistributed earnings – diluted $ 117,632 $ 97,219 $ 202,951 $ 188,265 Numerator for basic net income per Common Stock share: Dividends on Common Stock $ 4,185 $ 2,092 $ 33,476 $ 3,878 Common Stock undistributed earnings – basic 105,021 86,796 181,192 157,918 Numerator for basic net income per Common Stock share $ 109,206 $ 88,888 $ 214,668 $ 161,796 Numerator for basic net income per Class B Common Stock share: Dividends on Class B Common Stock $ 502 $ 251 $ 4,019 $ 809 Class B Common Stock undistributed earnings – basic 12,611 10,423 21,759 30,347 Numerator for basic net income per Class B Common Stock share $ 13,113 $ 10,674 $ 25,778 $ 31,156 Numerator for diluted net income per Common Stock share: Dividends on Common Stock $ 4,185 $ 2,092 $ 33,476 $ 3,878 Dividends on Class B Common Stock assumed converted to Common Stock 502 251 4,019 809 Common Stock undistributed earnings – diluted 117,632 97,219 202,951 188,265 Numerator for diluted net income per Common Stock share $ 122,319 $ 99,562 $ 240,446 $ 192,952 Numerator for diluted net income per Class B Common Stock share: Dividends on Class B Common Stock $ 502 $ 251 $ 4,019 $ 809 Class B Common Stock undistributed earnings – diluted 12,857 10,654 22,183 30,767 Numerator for diluted net income per Class B Common Stock share $ 13,359 $ 10,905 $ 26,202 $ 31,576 11 Second Quarter First Half (in thousands, except per share data) 2023 2022 2023 2022 Denominator for basic net income per Common Stock and Class B Common Stock share: Common Stock weighted average shares outstanding – basic 8,369 8,369 8,369 7,863 Class B Common Stock weighted average shares outstanding – basic 1,005 1,005 1,005 1,511 Denominator for diluted net income per Common Stock and Class B Common Stock share: Common Stock weighted average shares outstanding – diluted (assumes conversion of Class B Common Stock to Common Stock) 9,396 9,399 9,396 9,399 Class B Common Stock weighted average shares outstanding – diluted 1,027 1,030 1,027 1,536 Basic net income per share: Common Stock $ 13.05 $ 10.62 $ 25.65 $ 20.58 Class B Common Stock $ 13.05 $ 10.62 $ 25.65 $ 20.62 Diluted net income per share: Common Stock $ 13.02 $ 10.59 $ 25.59 $ 20.53 Class B Common Stock $ 13.01 $ 10.59 $ 25.51 $ 20.56 NOTES TO TABLE (1) For purposes of the diluted net income per share computation for Common Stock, all shares of Class B Common Stock are assumed to be converted; therefore, 100 % of undistributed earnings is allocated to Common Stock. (2) For purposes of the diluted net income per share computation for Class B Common Stock, weighted average shares of Class B Common Stock are assumed to be outstanding for the entire period and not converted. (3) For periods presented during which the Company has net income, the denominator for diluted net income per share for Common Stock and Class B Common Stock includes the dilutive effect of shares relative to the Long-Term Performance Equity Plan . For periods presented during which the Company has net loss, the unvested shares granted pursuant to the Long-Term Performance Equity Plan are excluded from the computation of diluted net loss per share, as the effect would have been anti-dilutive. See Note 2 for additional information on the Long-Term Performance Equity Plan . (4) The Long-Term Performance Equity Plan awards may be settled in cash and/or shares of the Company’s Class B Common Stock. Once an election has been made to settle an award in cash, the dilutive effect of shares relative to such award is prospectively removed from the denominator in the computation of diluted net income per share. (5) The Company did no t have anti-dilutive shares for any periods presented. 6. Inventories Inventories consisted of the following: (in thousands) June 30, 2023 December 31, 2022 Finished products $ 213,529 $ 211,089 Manufacturing materials 74,248 89,300 Plastic shells, plastic pallets and other inventories 46,097 47,156 Total inventories $ 333,874 $ 347,545 12 7. Prepaid Expenses and Other Current Assets Prepaid expenses and other current assets consisted of the following: (in thousands) June 30, 2023 December 31, 2022 Repair parts $ 34,527 $ 35,088 Prepaid software 10,148 7,398 Prepaid marketing 5,394 4,303 Prepaid taxes 3,685 7,829 Commodity hedges at fair market value 402 4,808 Other prepaid expenses and other current assets 30,478 34,837 Total prepaid expenses and other current assets $ 84,634 $ 94,263 8. Property, Plant and Equipment, Net The principal categories and estimated useful lives of property, plant and equipment, net were as follows: (in thousands) June 30, 2023 December 31, 2022 Estimated Useful Lives Land $ 88,310 $ 88,185 Buildings 341,624 352,114 8 - 50 years Machinery and equipment 474,542 462,640 5 - 20 years Transportation equipment 528,372 515,752 3 - 20 years Furniture and fixtures 98,542 102,099 3 - 10 years Cold drink dispensing equipment 436,247 438,879 3 - 17 years Leasehold and land improvements 160,834 177,940 5 - 20 years Software for internal use 48,581 48,581 3 - 10 years Construction in progress 108,797 103,803 Total property, plant and equipment, at cost 2,285,849 2,289,993 Less: Accumulated depreciation and amortization 1,109,510 1,106,263 Property, plant and equipment, net $ 1,176,339 $ 1,183,730 9. Leases Following is a summary of the weighted average remaining lease term and the weighted average discount rate for the Company’s leases: June 30, 2023 December 31, 2022 Weighted average remaining lease term: Operating leases 6.9 years 7.2 years Financing leases 3.9 years 4.3 years Weighted average discount rate: Operating leases 3.7 % 3.6 % Financing leases 5.2 % 5.2 % Following is a summary of the Company’s leases within the condensed consolidated statements of operations: Second Quarter First Half (in thousands) 2023 2022 2023 2022 Operating lease costs $ 8,305 $ 7,336 $ 16,578 $ 14,639 Short-term and variable leases 4,026 3,695 7,791 7,275 Depreciation expense from financing leases 411 412 822 1,492 Interest expense on financing lease obligations 116 144 237 614 Total lease cost $ 12,858 $ 11,587 $ 25,428 $ 24,020 13 The future minimum lease payments related to the Company’s leases include renewal options the Company has determined to be reasonably certain and exclude payments to landlords for real estate taxes and common area maintenance. Following is a summary of future minimum lease payments for all noncancelable operating leases and financing leases as of June 30, 2023: (in thousands) Operating Leases Financing Leases Remainder of 2023 $ 15,853 $ 1,383 2024 28,215 2,808 2025 22,249 2,869 2026 19,377 1,233 2027 17,487 338 Thereafter 51,741 965 Total minimum lease payments including interest $ 154,922 $ 9,596 Less: Amounts representing interest 19,982 904 Present value of minimum lease principal payments 134,940 8,692 Less: Current portion of lease liabilities 26,440 2,393 Noncurrent portion of lease liabilities $ 108,500 $ 6,299 Following is a summary of future minimum lease payments for all noncancelable operating leases and financing leases as of December 31, 2022: (in thousands) Operating Leases Financing Leases 2023 $ 31,697 $ 2,750 2024 27,663 2,808 2025 21,628 2,869 2026 19,036 1,233 2027 17,227 338 Thereafter 51,372 966 Total minimum lease payments including interest $ 168,623 $ 10,964 Less: Amounts representing interest 22,225 1,142 Present value of minimum lease principal payments 146,398 9,822 Less: Current portion of lease liabilities 27,635 2,303 Noncurrent portion of lease liabilities $ 118,763 $ 7,519 Following is a summary of the Company’s leases within the condensed consolidated statements of cash flows: First Half (in thousands) 2023 2022 Cash flows from operating activities impact: Operating leases $ 16,209 $ 14,056 Interest payments on financing lease obligations 237 614 Total cash flows from operating activities impact $ 16,446 $ 14,670 Cash flows from financing activities impact: Principal payments on financing lease obligations $ 1,130 $ 1,904 Total cash flows from financing activities impact $ 1,130 $ 1,904 10. Distribution Agreements, Net Distribution agreements, net, which are amortized on a straight-line basis and have an estimated useful life of 20 to 40 years, consisted of the following: (in thousands) June 30, 2023 December 31, 2022 Distribution agreements at cost $ 990,191 $ 990,191 Less: Accumulated amortization 160,602 148,156 Distribution agreements, net $ 829,589 $ 842,035 14 Following is a summary of activity for distribution agreements, net during the first half of 2023 and the first half of 2022: First Half (in thousands) 2023 2022 Beginning balance - distribution agreements, net $ 842,035 $ 836,777 Other distribution agreements — 30,149 Additional accumulated amortization ( 12,446 ) ( 12,446 ) Ending balance - distribution agreements, net $ 829,589 $ 854,480 11. Customer Lists, Net Customer lists, net, which are amortized on a straight-line basis and have an estimated useful life of five to 12 years, consisted of the following: (in thousands) June 30, 2023 December 31, 2022 Customer lists at cost $ 25,288 $ 25,288 Less: Accumulated amortization 16,979 16,123 Customer lists, net $ 8,309 $ 9,165 12. Supply Chain Finance Program 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. The participating suppliers negotiate their outstanding receivable arrangements and associated fees directly with the financial institution, and the Company is not party to those agreements. Once a qualifying supplier elects to participate in the SCF program and reaches an agreement with the financial institution, the supplier elects which individual Company invoices it sells to the financial institution. The supplier invoices that have been confirmed as valid under the SCF program require payment in full by the financial institution to the supplier by the original maturity date of the invoice, or discounted payment at an earlier date as agreed upon with the supplier. 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. All outstanding amounts related to suppliers participating in the SCF program are recorded in accounts payable, trade in the condensed consolidated balance sheets, and associated payments are included in operating activities in the condensed consolidated statements of cash flows. The Company’s outstanding confirmed obligations included in accounts payable, trade in the condensed consolidated balance sheets were $ 54.1 million as of June 30, 2023 and $ 44.2 million as of December 31, 2022. 13. Other Accrued Liabilities Other accrued liabilities consisted of the following: (in thousands) June 30, 2023 December 31, 2022 Accrued insurance costs $ 58,535 $ 54,180 Current portion of acquisition related contingent consideration 45,857 40,060 Employee and retiree benefit plan accruals 44,246 31,711 Accrued marketing costs 40,720 33,375 Accrued taxes (other than income taxes) 8,856 7,127 All other accrued expenses 27,921 31,847 Total other accrued liabilities $ 226,135 $ 198,300 14. Commodity Derivative Instruments The Company is subject to the risk of increased costs arising from adverse changes in certain commodity prices. In the normal course of business, the Company manages this risk through a variety of strategies, including the use of commodity derivative instruments. The Company does not use commodity derivative instruments for trading or speculative purposes. These commodity derivative instruments are not designated as hedging instruments under GAAP and are used as “economic hedges” to manage certain commodity price risk. The Company uses several different financial institutions for commodity derivative instruments to 15 minimize the concentration of credit risk. While the Company would be exposed to credit loss in the event of nonperformance by these counterparties, the Company does not anticipate nonperformance by these counterparties. Commodity derivative instruments held by the Company are marked to market on a monthly basis and are recognized in earnings consistent with the expense classification of the underlying hedged item. The Company generally pays a fee for these commodity derivative instruments, which is amortized over the corresponding period of each commodity derivative instrument. Settlements of commodity derivative instruments are included in cash flows from operating activities in the condensed consolidated statements of cash flows. The following table summarizes pre-tax changes in the fair values of the Company’s commodity derivative instruments and the classification of such changes in the condensed consolidated statements of operations: Second Quarter First Half (in thousands) 2023 2022 2023 2022 Cost of sales $ ( 1,097 ) $ ( 13,663 ) $ ( 1,492 ) $ ( 6,169 ) Selling, delivery and administrative expenses ( 224 ) 998 ( 2,914 ) 7,223 Total (loss) gain $ ( 1,321 ) $ ( 12,665 ) $ ( 4,406 ) $ 1,054 All commodity derivative instruments are recorded at fair value as either assets or liabilities in the condensed consolidated balance sheets. The Company has master agreements with the counterparties to its commodity derivative instruments that provide for net settlement of derivative transactions. Accordingly, the net amounts of derivative assets are recognized in either prepaid expenses and other current assets or other assets in the condensed consolidated balance sheets and the net amounts of derivative liabilities are recognized in either other accrued liabilities or other liabilities in the condensed consolidated balance sheets. The following table summarizes the fair values of the Company’s commodity derivative instruments and the classification of such instruments in the condensed consolidated balance sheets: (in thousands) June 30, 2023 December 31, 2022 Prepaid expenses and other current assets $ 402 $ 4,808 Total assets $ 402 $ 4,808 The following table summarizes the Company’s gross commodity derivative instrument assets and gross commodity derivative instrument liabilities in the condensed consolidated balance sheets: (in thousands) June 30, 2023 December 31, 2022 Gross commodity derivative instrument assets $ 402 $ 4,808 Gross commodity derivative instrument liabilities — — The following table summarizes the Company’s outstanding commodity derivative instruments: (in thousands) June 30, 2023 December 31, 2022 Notional amount of outstanding commodity derivative instruments $ 33,264 $ 61,128 Latest maturity date of outstanding commodity derivative instruments December 2023 December 2023 15. Fair Values of Financial Instruments GAAP requires assets and liabilities carried at fair value to be classified and disclosed in one of the following categories: • Level 1: Quoted market prices in active markets for identical assets or liabilities. • Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data. • Level 3: Unobservable inputs that are not corroborated by market data. 16 The below methods and assumptions were used by the Company in estimating the fair values of its financial instruments. There were no transfers of assets or liabilities between levels in any period presented. Financial Instrument Fair Value Level Methods and Assumptions Deferred compensation plan assets and liabilities Level 1 The fair value of the Company’s nonqualified deferred compensation plan for certain executives and other highly compensated employees is based on the fair values of associated assets and liabilities, which are held in mutual funds and are based on the quoted market values of the securities held within the mutual funds. Commodity derivative instruments Level 2 The fair values of the Company’s commodity derivative instruments are based on current settlement values at each balance sheet date, which represent the estimated amounts the Company would have received or paid upon termination of these instruments. The Company’s credit risk related to the commodity derivative instruments is managed by requiring high standards for its counterparties and periodic settlements. The Company considers nonperformance risk in determining the fair values of commodity derivative instruments. Long-term debt Level 2 The carrying amounts of the Company’s variable rate debt approximate the fair values due to variable interest rates with short reset periods. The fair values of the Company’s fixed rate debt are based on estimated current market prices. Acquisition related contingent consideration Level 3 The fair value of the Company’s acquisition related contingent consideration is based on internal forecasts and the weighted average cost of capital (“WACC”) derived from market data. The following tables summarize the carrying amounts and the fair values by level of the Company’s deferred compensation plan assets and liabilities, commodity derivative instruments, long‑term debt and acquisition related contingent consideration: June 30, 2023 (in thousands) Carrying Amount Total Fair Value Fair Value Level 1 Fair Value Level 2 Fair Value Level 3 Assets: Deferred compensation plan assets $ 59,918 $ 59,918 $ 59,918 $ — $ — Commodity derivative instruments 402 402 — 402 — Liabilities: Deferred compensation plan liabilities 59,918 59,918 59,918 — — Long-term debt 598,992 572,500 — 572,500 — Acquisition related contingent consideration 594,389 594,389 — — 594,389 December 31, 2022 (in thousands) Carrying Amount Total Fair Value Fair Value Level 1 Fair Value Level 2 Fair Value Level 3 Assets: Deferred compensation plan assets $ 51,257 $ 51,257 $ 51,257 $ — $ — Commodity derivative instruments 4,808 4,808 — 4,808 — Liabilities: Deferred compensation plan liabilities 51,257 51,257 51,257 — — Long-term debt 598,817 575,900 — 575,900 — Acquisition related contingent consideration 541,491 541,491 — — 541,491 The acquisition related contingent consideration was valued using a probability weighted discounted cash flow model based on internal forecasts and the WACC derived from market data, which are considered Level 3 inputs. 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 by discounting future expected acquisition related sub-bottling payments required under the CBA using the Company’s estimated WACC. The future expected acquisition related sub-bottling payments extend through the life of the related distribution assets acquired in each distribution territory, which is generally 40 years. As a result, the fair value of the acquisition related contingent consideration liability is impacted by the Company’s WACC, management’s estimate of the acquisition related sub-bottling payments that will be made in the future under the CBA, and current acquisition related sub-bottling payments (all Level 3 inputs). Changes in any of these Level 3 inputs, particularly the underlying risk-free interest rate used to estimate the Company’s 17 WACC, could result in material changes to the fair value of the acquisition related contingent consideration liability and could materially impact the amount of non-cash expense (or income) recorded each reporting period. The acquisition related contingent consideration liability is the Company’s only Level 3 asset or liability. A summary of the Level 3 activity is as follows: Second Quarter First Half (in thousands) 2023 2022 2023 2022 Beginning balance - Level 3 liability $ 576,446 $ 527,926 $ 541,491 $ 542,105 Payments of acquisition related contingent consideration ( 6,877 ) ( 8,888 ) ( 13,376 ) ( 18,710 ) Reclassification to current payables ( 700 ) ( 800 ) ( 900 ) 300 Increase (decrease) in fair value 25,520 4,021 67,174 ( 1,436 ) Ending balance - Level 3 liability $ 594,389 $ 522,259 $ 594,389 $ 522,259 As of both June 30, 2023 and July 1, 2022, a discount rate of 8.9 % was utilized in the valuation of the Company’s acquisition related contingent consideration liability. The increase in the fair value of the acquisition related contingent consideration liability in the first half of 2023 was driven by higher projections of future cash flows in the distribution territories subject to acquisition related sub-bottling payments and a decrease in the discount rate used to calculate fair value from 9.1 % as of December 31, 2022 to 8.9 % as of June 30, 2023. This fair value adjustment was recorded in other expense, net in the condensed consolidated statement of operations for the first half of 2023. 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. 16. Income Taxes 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 was $ 83.5 million for the first half of 2023 and $ 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. The Company had uncertain tax positions, including accrued interest, of $ 0.4 million on June 30, 2023 and $ 0.3 million on December 31, 2022, all of which would affect the Company’s effective income tax rate if recognized. While it is expected the amount of uncertain tax positions may change in the next 12 months, the Company does not expect such change would have a material impact on the condensed consolidated financial statements. Prior tax years beginning in year 2019 remain open to examination by the Internal Revenue Service, and various tax years beginning in year 1999 remain open to examination by certain state tax jurisdictions due to loss carryforwards. 17. Pension and Postretirement Benefit Obligations Pension Plans There are two Company-sponsored pension plans. The primary Company-sponsored pension plan (the “Primary Plan”) was frozen as of June 30, 2006 and no benefits accrued to participants after that date. The second Company-sponsored pension plan (the “Bargaining Plan”) is for certain employees under collective bargaining agreements. Benefits under the Bargaining Plan are determined in accordance with negotiated formulas for the respective participants. Contributions to the plans are based on actuarially determined amounts and are limited to the amounts currently deductible for income tax purposes. In 2022, the Company began the process of terminating the Primary Plan. During the first half of 2023, the Company offered a lump sum benefit payout option to certain plan participants. Settlement payments were made to those participants who selected the lump sum benefit payout option during the second quarter of 2023. Additionally, a settlement expense of $ 39.8 million was recognized related primarily to pre-tax actuarial losses that were reclassified out of accumulated other comprehensive loss associated with the lump sum benefit payout option. During the second quarter of 2023, the Company also entered into a group annuity contract that will transfer the remaining pension benefit obligation for the Primary Plan to an insurance company. With full settlement of the Primary Plan expected to occur during the third quarter of 2023, the remaining liability related to the Primary Plan was reclassified from noncurrent liabilities to current liabilities as of June 30, 2023. The liability for the unfunded 18 portion of the Primary Plan, which was classified as other accrued liabilities in the condensed consolidated balance sheets, was $ 12.9 million as of June 30, 2023. Upon final settlement of the Primary Plan, which occurred subsequent to the end of the second quarter of 2023, the remainder of the gross actuarial losses associated with the Primary Plan will be reclassified out of accumulated other comprehensive loss, resulting in additional settlement expense during the third quarter of 2023. 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. The components of total pension expense were as follows: Second Quarter First Half (in thousands) 2023 2022 2023 2022 Service cost $ 1,100 $ 1,861 $ 2,199 $ 3,721 Interest cost 3,508 2,659 7,016 5,318 Expected return on plan assets ( 2,914 ) ( 2,036 ) ( 5,828 ) ( 4,071 ) Recognized net actuarial loss 973 988 1,946 1,977 Amortization of prior service cost 4 — 8 — Net periodic pension cost 2,671 3,472 5,341 6,945 Settlement expense 39,777 — 39,777 — Total pension expense $ 42,448 $ 3,472 $ 45,118 $ 6,945 The Company did no t make any contributions to the two Company-sponsored pension plans during the first half of 2023. Subsequent to the end of the second quarter of 2023, the Company contributed approximately $ 12 million to fund the termination of the Primary Plan. The Company expects to make additional cash contributions of approximately $ 1 million to the Primary Plan during the second half of 2023 to fund the remainder of its obligation in connection with the termination of the Primary Plan. The Company also expects to make cash contributions of approximately $ 5 million to $ 10 million to the Bargaining Plan during 2023 to fund the ongoing projected benefit obligation of the Bargaining Plan. Postretirement Benefits The Company provides postretirement benefits for employees meeting specified qualifying criteria . The Company recognizes the cost of postretirement benefits, which consist principally of medical benefits, during employees’ periods of active service. The Company does not prefund these benefits and has the right to modify or terminate certain of these benefits in the future. The components of net periodic postretirement benefit cost were as follows: Second Quarter First Half (in thousands) 2023 2022 2023 2022 Service cost $ 294 $ 384 $ 588 $ 767 Interest cost 697 475 1,395 949 Recognized net actuarial loss — 91 — 183 Net periodic postretirement benefit cost $ 991 $ 950 $ 1,983 $ 1,899 18. Other Liabilities Other liabilities consisted of the following: (in thousands) June 30, 2023 December 31, 2022 Noncurrent portion of acquisition related contingent consideration $ 548,532 $ 501,431 Accruals for executive benefit plans 141,868 137,771 Noncurrent deferred proceeds from related parties 101,708 103,240 Other 9,534 10,915 Total other liabilities $ 801,642 $ 753,357 19 19. Long-Term Debt Following is a summary of the Company’s long-term debt: (in thousands) Maturity Date Interest Rate Interest Paid Public/ Nonpublic June 30, 2023 December 31, 2022 Senior bonds (1) 11/25/2025 3.80 % Semi-annually Public $ 350,000 $ 350,000 Revolving credit facility (2) 7/9/2026 Variable Varies Nonpublic — — Senior notes 10/10/2026 3.93 % Quarterly Nonpublic 100,000 100,000 Senior notes 3/21/2030 3.96 % Quarterly Nonpublic 150,000 150,000 Unamortized discount on senior bonds (1) 11/25/2025 ( 21 ) ( 26 ) Debt issuance costs ( 987 ) ( 1,157 ) Total long-term debt $ 598,992 $ 598,817 (1) The senior bonds due in 2025 were issued at 99.975 % of par. (2) 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 Company mitigates its financing risk by using multiple financial institutions and only entering into credit arrangements with institutions with investment grade credit ratings. The Company monitors counterparty credit ratings on an ongoing basis. 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. The agreements under which the Company’s nonpublic debt was issued include two financial covenants: 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 June 30, 2023. These covenants have not restricted, and are not expected to restrict, the Company’s liquidity or capital resources. All outstanding long-term debt has been issued by the Company and none has been issued by any of its subsidiaries. There are no guarantees of the Company’s long-term debt. 20. Commitments and Contingencies Manufacturing Cooperatives The Company is obligated to purchase at least 80 % of its requirements of plastic bottles for certain designated territories from Southeastern. The Company is also obligated to purchase 17.5 million cases of finished product from SAC on an annual basis through June 2024. The Company purchased 13.1 million cases and 13.4 million cases of finished product from SAC in the first half of 2023 and the first half of 2022, respectively. The following table summarizes the Company’s purchases from these manufacturing cooperatives: Second Quarter First Half (in thousands) 2023 2022 2023 2022 Purchases from Southeastern $ 39,759 $ 41,246 $ 82,586 $ 73,268 Purchases from SAC 53,107 50,562 102,712 95,928 Total purchases from manufacturing cooperatives $ 92,866 $ 91,808 $ 185,298 $ 169,196 The Company guarantees a portion of SAC’s debt, which expires in 2028. The amount guaranteed was $ 9.5 million on both June 30, 2023 and December 31, 2022. In the event SAC fails to fulfill its commitments under the related debt, the Company would be responsible for payment to the lenders up to the level of the guarantee. The Company does not anticipate SAC will fail to fulfill its commitments related to the debt. The Company further believes SAC has sufficient assets, including production equipment, facilities and working capital, and the ability to adjust the selling prices of its products to adequately mitigate the risk of material loss relating to the Company’s guarantee. The Company holds no assets as collateral against the SAC guarantee, the fair value of which is immaterial to the condensed consolidated financial statements. The Company monitors its investment in SAC and would be required to write down its 20 investment if an impairment, other than a temporary impairment, was identified. No impairment of the Company’s investment in SAC was identified as of June 30, 2023, and there was no impairment identified in 2022. Other Commitments and Contingencies The Company has standby letters of credit, primarily related to its property and casualty insurance programs. These letters of credit totaled $ 37.6 million on both June 30, 2023 and December 31, 2022. The Company participates in long-term marketing contractual arrangements with certain prestige properties, athletic venues and other locations. As of June 30, 2023, the future payments related to these contractual arrangements, which expire at various dates through 2033, amounted to $ 134.5 million. The Company is involved in various claims and legal proceedings which have arisen in the ordinary course of its business. Although it is difficult to predict the ultimate outcome of these claims and legal proceedings, management believes the ultimate disposition of these matters will not have a material adverse effect on the financial condition, results of operations or cash flows of the Company. No material amount of loss in excess of recorded amounts is believed to be reasonably possible as a result of these claims and legal proceedings. The Company is subject to audits by tax authorities in jurisdictions where it conducts business. These audits may result in assessments that are subsequently resolved with the authorities or potentially through the courts. Management believes the Company has adequately provided for any assessments likely to result from these audits; however, final assessments, if any, could be different than the amounts recorded in the condensed consolidated financial statements. 21. Accumulated Other Comprehensive Income (Loss) Accumulated other comprehensive income (loss) (“AOCI(L)”) is comprised of adjustments to the Company’s pension and postretirement medical benefit plans and the foreign currency translation for a subsidiary of the Company that performs data analysis and formerly provided consulting services outside the United States. Following is a summary of AOCI(L) for the second quarter of 2023 and the second quarter of 2022: (in thousands) March 31, 2023 Pre-tax Activity Tax Effect June 30, 2023 Net pension activity: Actuarial loss $ ( 70,405 ) $ ( 2,941 ) $ 720 $ ( 72,626 ) Prior service costs ( 102 ) 4 ( 1 ) ( 99 ) Pension plan settlement — 39,777 ( 9,736 ) 30,041 Net postretirement benefits activity: Actuarial gain 6,752 — — 6,752 Prior service costs ( 624 ) — — ( 624 ) Reclassification of stranded tax effects ( 19,720 ) — — ( 19,720 ) Total AOCI(L) $ ( 84,099 ) $ 36,840 $ ( 9,017 ) $ ( 56,276 ) (in thousands) April 1, 2022 Pre-tax Activity Tax Effect July 1, 2022 Net pension activity: Actuarial loss $ ( 78,136 ) $ 988 $ ( 243 ) $ ( 77,391 ) Prior service credits 11 — — 11 Net postretirement benefits activity: Actuarial loss ( 1,170 ) 91 ( 22 ) ( 1,101 ) Prior service costs ( 624 ) — — ( 624 ) Foreign currency translation adjustment ( 9 ) — — ( 9 ) Reclassification of stranded tax effects ( 19,720 ) — — ( 19,720 ) Total AOCI(L) $ ( 99,648 ) $ 1,079 $ ( 265 ) $ ( 98,834 ) 21 Following is a summary of AOCI(L) for the first half of 2023 and the first half of 2022: (in thousands) December 31, 2022 Pre-tax Activity Tax Effect June 30, 2023 Net pension activity: Actuarial loss $ ( 71,140 ) $ ( 1,968 ) $ 482 $ ( 72,626 ) Prior service costs ( 105 ) 8 ( 2 ) ( 99 ) Pension plan settlement — 39,777 ( 9,736 ) 30,041 Net postretirement benefits activity: Actuarial gain 6,752 — — 6,752 Prior service costs ( 624 ) — — ( 624 ) Reclassification of stranded tax effects ( 19,720 ) — — ( 19,720 ) Total AOCI(L) $ ( 84,837 ) $ 37,817 $ ( 9,256 ) $ ( 56,276 ) (in thousands) December 31, 2021 Pre-tax Activity Tax Effect July 1, 2022 Net pension activity: Actuarial loss $ ( 78,882 ) $ 1,977 $ ( 486 ) $ ( 77,391 ) Prior service credits 11 — — 11 Net postretirement benefits activity: Actuarial loss ( 1,239 ) 183 ( 45 ) ( 1,101 ) Prior service costs ( 624 ) — — ( 624 ) Foreign currency translation adjustment ( 9 ) — — ( 9 ) Reclassification of stranded tax effects ( 19,720 ) — — ( 19,720 ) Total AOCI(L) $ ( 100,463 ) $ 2,160 $ ( 531 ) $ ( 98,834 ) Following is a summary of the impact of AOCI(L) on the condensed consolidated statements of operations: Second Quarter 2023 (in thousands) Net Pension Activity Net Postretirement Benefits Activity Total Cost of sales $ 416 $ — $ 416 Selling, delivery and administrative expenses 561 — 561 Subtotal pre-tax 977 — 977 Income tax expense 239 — 239 Total after-tax effect $ 738 $ — $ 738 Second Quarter 2022 (in thousands) Net Pension Activity Net Postretirement Benefits Activity Total Cost of sales $ 266 $ 37 $ 303 Selling, delivery and administrative expenses 722 54 776 Subtotal pre-tax 988 91 1,079 Income tax expense 243 22 265 Total after-tax effect $ 745 $ 69 $ 814 First Half 2023 (in thousands) Net Pension Activity Net Postretirement Benefits Activity Total Cost of sales $ 835 $ — $ 835 Selling, delivery and administrative expenses 1,119 — 1,119 Subtotal pre-tax 1,954 — 1,954 Income tax expense 478 — 478 Total after-tax effect $ 1,476 $ — $ 1,476 22 First Half 2022 (in thousands) Net Pension Activity Net Postretirement Benefits Activity Total Cost of sales $ 544 $ 78 $ 622 Selling, delivery and administrative expenses 1,433 105 1,538 Subtotal pre-tax 1,977 183 2,160 Income tax expense 486 45 531 Total after-tax effect $ 1,491 $ 138 $ 1,629 22. Supplemental Disclosures of Cash Flow Information Changes in current assets and current liabilities affecting cash were as follows: First Half (in thousands) 2023 2022 Accounts receivable, trade $ ( 71,681 ) $ ( 82,059 ) Allowance for doubtful accounts 1,505 ( 2,813 ) Accounts receivable from The Coca‑Cola Company ( 21,680 ) 8,160 Accounts receivable, other ( 1,132 ) ( 7,711 ) Inventories 13,671 ( 688 ) Prepaid expenses and other current assets 9,629 ( 8,776 ) Accounts payable, trade 30,035 20,314 Accounts payable to The Coca‑Cola Company 32,110 53,064 Other accrued liabilities 14,888 2,629 Accrued compensation ( 49,142 ) ( 41,016 ) Accrued interest payable ( 160 ) ( 108 ) Change in current assets less current liabilities $ ( 41,957 ) $ ( 59,004 ) 23