Item 1. Financial Statements
Item 1. Financial Statements.
COCA ‑ COLA CONSOLIDATED, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Third Quarter First Nine Months
(in thousands, except per share data) 2023 2022 2023 2022
Net sales $ 1,712,428 $ 1,628,589 $ 5,022,902 $ 4,628,162
Cost of sales 1,050,878 1,007,482 3,065,669 2,948,820
Gross profit 661,550 621,107 1,957,233 1,679,342
Selling, delivery and administrative expenses 445,290 431,177 1,301,249 1,211,134
Income from operations 216,260 189,930 655,984 468,208
Interest (income) expense, net ( 1,516 ) 6,083 2,766 20,928
Pension plan settlement expense 77,319 — 117,096 —
Other expense, net 19,473 24,746 91,184 27,666
Income before taxes 120,984 159,101 444,938 419,614
Income tax expense 28,891 40,340 112,399 107,901
Net income $ 92,093 $ 118,761 $ 332,539 $ 311,713
Basic net income per share:
Common Stock $ 9.82 $ 12.67 $ 35.47 $ 33.25
Weighted average number of Common Stock shares outstanding 8,369 8,369 8,369 8,032
Class B Common Stock $ 9.82 $ 12.67 $ 35.47 $ 33.29
Weighted average number of Class B Common Stock shares outstanding 1,005 1,005 1,005 1,342
Diluted net income per share:
Common Stock $ 9.80 $ 12.63 $ 35.38 $ 33.13
Weighted average number of Common Stock shares outstanding – assuming dilution 9,395 9,406 9,398 9,410
Class B Common Stock $ 9.79 $ 12.62 $ 35.29 $ 33.15
Weighted average number of Class B Common Stock shares outstanding – assuming dilution 1,026 1,037 1,029 1,378
Cash dividends per share:
Common Stock $ 0.50 $ 0.25 $ 4.50 $ 0.75
Class B Common Stock $ 0.50 $ 0.25 $ 4.50 $ 0.75
See accompanying notes to condensed consolidated financial statements.
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COCA ‑ COLA CONSOLIDATED, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
Third Quarter First Nine Months
(in thousands) 2023 2022 2023 2022
Net income $ 92,093 $ 118,761 $ 332,539 $ 311,713
Other comprehensive income, net of tax:
Defined benefit plans reclassification including pension costs:
Actuarial gain (loss) 1,183 746 ( 303 ) 2,237
Prior service credits 3 — 9 —
Pension plan settlement 56,028 — 86,069 —
Postretirement benefits reclassification including benefit costs:
Actuarial gain — 69 — 207
Other comprehensive income, net of tax 57,214 815 85,775 2,444
Comprehensive income $ 149,307 $ 119,576 $ 418,314 $ 314,157
See accompanying notes to condensed consolidated financial statements.
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COCA ‑ COLA CONSOLIDATED, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands, except share data) September 29, 2023 December 31, 2022
ASSETS
Current Assets:
Cash and cash equivalents $ 616,217 $ 197,648
Accounts receivable, trade 558,133 532,047
Allowance for doubtful accounts ( 18,134 ) ( 16,119 )
Accounts receivable from The Coca‑Cola Company 55,697 35,786
Accounts receivable, other 52,852 54,631
Inventories 320,401 347,545
Prepaid expenses and other current assets 91,309 94,263
Total current assets 1,676,475 1,245,801
Property, plant and equipment, net 1,204,843 1,183,730
Right-of-use assets - operating leases 123,635 140,588
Leased property under financing leases, net 5,196 6,431
Other assets 133,960 115,892
Goodwill 165,903 165,903
Distribution agreements, net 823,366 842,035
Customer lists, net 7,904 9,165
Total assets $ 4,141,282 $ 3,709,545
LIABILITIES AND EQUITY
Current Liabilities:
Current portion of obligations under operating leases $ 26,074 $ 27,635
Current portion of obligations under financing leases 2,440 2,303
Accounts payable, trade 348,370 351,729
Accounts payable to The Coca‑Cola Company 180,687 162,783
Other accrued liabilities 218,701 198,300
Accrued compensation 125,719 126,921
Accrued interest payable 5,842 2,677
Dividends payable — 32,808
Total current liabilities 907,833 905,156
Deferred income taxes 143,907 150,222
Pension and postretirement benefit obligations 53,294 60,323
Other liabilities 803,549 753,357
Noncurrent portion of obligations under operating leases 103,578 118,763
Noncurrent portion of obligations under financing leases 5,670 7,519
Long-term debt 599,123 598,817
Total liabilities 2,616,954 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 1,435,627 1,112,462
Accumulated other comprehensive income (loss) 938 ( 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 1,524,328 1,115,388
Total liabilities and equity $ 4,141,282 $ 3,709,545
See accompanying notes to condensed consolidated financial statements.
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COCA ‑ COLA CONSOLIDATED, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
First Nine Months
(in thousands) 2023 2022
Cash Flows from Operating Activities:
Net income $ 332,539 $ 311,713
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense from property, plant and equipment and financing leases 113,664 110,661
Amortization of intangible assets and deferred proceeds, net 17,632 17,722
Pension plan settlement expense 117,096 —
Fair value adjustment of acquisition related contingent consideration 86,038 21,132
Deferred income taxes ( 34,881 ) 10,749
Loss on sale of property, plant and equipment 5,863 2,855
Amortization of debt costs 742 768
Deferred payroll taxes under CARES Act — ( 18,739 )
Change in current assets less current liabilities 35,791 ( 61,657 )
Change in other noncurrent assets 13,417 27,806
Change in other noncurrent liabilities ( 43,352 ) ( 28,701 )
Total adjustments 312,010 82,596
Net cash provided by operating activities $ 644,549 $ 394,309
Cash Flows from Investing Activities:
Additions to property, plant and equipment $ ( 152,260 ) $ ( 183,929 )
Investment in equity method investees ( 9,044 ) ( 1,538 )
Proceeds from the sale of property, plant and equipment 441 5,348
Acquisition of distribution rights — ( 30,149 )
Net cash used in investing activities $ ( 160,863 ) $ ( 210,268 )
Cash Flows from Financing Activities:
Cash dividends paid $ ( 42,182 ) $ ( 7,030 )
Payments of acquisition related contingent consideration ( 20,979 ) ( 28,421 )
Payments on financing lease obligations ( 1,712 ) ( 2,441 )
Debt issuance fees ( 244 ) ( 219 )
Payments on term loan facility and senior notes — ( 125,000 )
Net cash used in financing activities $ ( 65,117 ) $ ( 163,111 )
Net increase in cash during period $ 418,569 $ 20,930
Cash at beginning of period 197,648 142,314
Cash at end of period $ 616,217 $ 163,244
Significant non-cash investing and financing activities:
Additions to property, plant and equipment accrued and recorded in accounts payable, trade $ 32,388 $ 20,049
Right-of-use assets obtained in exchange for operating lease obligations 4,253 18,703
Reductions to leased property under financing leases — 55,465
See accompanying notes to condensed consolidated financial statements.
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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 Income
(Loss) Treasury
Stock - Common
Stock Treasury Stock - Class B Common Stock Total
Equity
Balance on June 30, 2023 $ 11,431 $ 1,633 $ 135,953 $ 1,348,221 $ ( 56,276 ) $ ( 60,845 ) $ ( 409 ) $ 1,379,708
Net income — — — 92,093 — — — 92,093
Other comprehensive income, net of tax — — — — 57,214 — — 57,214
Dividends declared:
Common Stock ($ 0.50 per share)
— — — ( 4,184 ) — — — ( 4,184 )
Class B Common Stock ($ 0.50 per share)
— — — ( 503 ) — — — ( 503 )
Balance on September 29, 2023 $ 11,431 $ 1,633 $ 135,953 $ 1,435,627 $ 938 $ ( 60,845 ) $ ( 409 ) $ 1,524,328
Balance on December 31, 2022 $ 11,431 $ 1,633 $ 135,953 $ 1,112,462 $ ( 84,837 ) $ ( 60,845 ) $ ( 409 ) $ 1,115,388
Net income — — — 332,539 — — — 332,539
Other comprehensive income, net of tax — — — — 85,775 — — 85,775
Dividends declared:
Common Stock ($ 1.00 per share)
— — — ( 8,369 ) — — — ( 8,369 )
Class B Common Stock ($ 1.00 per share)
— — — ( 1,005 ) — — — ( 1,005 )
Balance on September 29, 2023 $ 11,431 $ 1,633 $ 135,953 $ 1,435,627 $ 938 $ ( 60,845 ) $ ( 409 ) $ 1,524,328
(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 July 1, 2022 $ 11,431 $ 1,633 $ 135,953 $ 912,751 $ ( 98,834 ) $ ( 60,845 ) $ ( 409 ) $ 901,680
Net income — — — 118,761 — — — 118,761
Other comprehensive income, net of tax — — — — 815 — — 815
Dividends declared:
Common Stock ($ 0.25 per share)
— — — ( 2,092 ) — — — ( 2,092 )
Class B Common Stock ($ 0.25 per share)
— — — ( 251 ) — — — ( 251 )
Balance on September 30, 2022 $ 11,431 $ 1,633 $ 135,953 $ 1,029,169 $ ( 98,019 ) $ ( 60,845 ) $ ( 409 ) $ 1,018,913
Balance on December 31, 2021 $ 10,204 $ 2,860 $ 135,953 $ 724,486 $ ( 100,463 ) $ ( 60,845 ) $ ( 409 ) $ 711,786
Net income — — — 311,713 — — — 311,713
Other comprehensive income, net of tax — — — — 2,444 — — 2,444
Dividends declared:
Common Stock ($ 0.75 per share)
— — — ( 5,970 ) — — — ( 5,970 )
Class B Common Stock ($ 0.75 per share)
— — — ( 1,060 ) — — — ( 1,060 )
Conversion of 1,227,546 shares of Class B Common Stock
1,227 ( 1,227 ) — — — — — —
Balance on September 30, 2022 $ 11,431 $ 1,633 $ 135,953 $ 1,029,169 $ ( 98,019 ) $ ( 60,845 ) $ ( 409 ) $ 1,018,913
See accompanying notes to condensed consolidated financial statements.
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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 September 29, 2023 and December 31, 2022.
• The results of operations, comprehensive income and changes in stockholders’ equity for the three-month periods ended September 29, 2023 (the “third quarter” of fiscal 2023 (“2023”)) and September 30, 2022 (the “third quarter” of fiscal 2022 (“2022”)) and the nine-month periods ended September 29, 2023 (the “first nine months” of 2023) and September 30, 2022 (the “first nine months” of 2022).
• The changes in cash flows for the first nine months of 2023 and the first nine months 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.
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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 September 29, 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 September 29, 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:
Third Quarter First Nine Months
(in thousands) 2023 2022 2023 2022
Payments made by the Company to The Coca-Cola Company (1)
$ 552,154 $ 481,021 $ 1,544,872 $ 1,411,300
Payments made by The Coca-Cola Company to the Company 67,890 67,540 170,824 187,810
(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
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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 $ 21.0 million in the first nine months of 2023 and $ 28.4 million in the first nine months 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) September 29, 2023 December 31, 2022
Current portion of acquisition related contingent consideration $ 55,355 $ 40,060
Noncurrent portion of acquisition related contingent consideration 550,295 501,431
Total acquisition related contingent consideration $ 605,650 $ 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 September 29, 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 $ 14.9 million as of September 29, 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 $ 6.9 million in the first nine months of 2023 and $ 6.7 million in the first nine months 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 $ 19.5 million on September 29, 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 $ 20.6 million as of September 29, 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 $ 20.6 million in the first nine months of 2023 and $ 19.9 million in the first nine months of 2022.
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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 $ 23.2 million on September 29, 2023 and $ 25.5 million on December 31, 2022.
A summary of rental payments for related party leases for the third quarter and the first nine months of 2023 and 2022 is as follows:
Third Quarter First Nine Months
(in thousands) 2023 2022 2023 2022
Company headquarters $ 983 $ 963 $ 2,949 $ 2,890
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 $ 2.3 million in both the third quarter of 2023 and the third quarter of 2022 and $ 8.0 million and $ 7.9 million in the first nine months of 2023 and the first nine months 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 nine months of 2023 and approximately 97 % of the Company’s net sales in the first nine months 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.
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The following table represents a disaggregation of revenue from contracts with customers:
Third Quarter First Nine Months
(in thousands) 2023 2022 2023 2022
Point in time net sales:
Nonalcoholic Beverages - point in time $ 1,677,221 $ 1,587,771 $ 4,911,999 $ 4,500,277
Total point in time net sales $ 1,677,221 $ 1,587,771 $ 4,911,999 $ 4,500,277
Over time net sales:
Nonalcoholic Beverages - over time $ 13,839 $ 12,294 $ 39,335 $ 35,023
All Other - over time 21,368 28,524 71,568 92,862
Total over time net sales $ 35,207 $ 40,818 $ 110,903 $ 127,885
Total net sales $ 1,712,428 $ 1,628,589 $ 5,022,902 $ 4,628,162
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 $ 4.1 million as of September 29, 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 nine months of 2023 and the first nine months of 2022:
First Nine Months
(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 4,268 1,987
Deductions ( 3,328 ) ( 3,706 )
Ending balance - allowance for credit losses $ 14,059 $ 12,617
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:
Third Quarter First Nine Months
(in thousands) 2023 2022 2023 2022
Net sales:
Nonalcoholic Beverages $ 1,691,060 $ 1,600,065 $ 4,951,334 $ 4,535,300
All Other 93,636 101,136 281,186 303,209
Eliminations (1)
( 72,268 ) ( 72,612 ) ( 209,618 ) ( 210,347 )
Consolidated net sales $ 1,712,428 $ 1,628,589 $ 5,022,902 $ 4,628,162
(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.
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Third Quarter First Nine Months
(in thousands) 2023 2022 2023 2022
Income from operations:
Nonalcoholic Beverages $ 217,405 $ 189,218 $ 661,395 $ 467,788
All Other ( 1,145 ) 712 ( 5,411 ) 420
Consolidated income from operations $ 216,260 $ 189,930 $ 655,984 $ 468,208
Depreciation and amortization:
Nonalcoholic Beverages $ 41,003 $ 39,578 $ 122,262 $ 119,635
All Other 3,108 2,953 9,034 8,748
Consolidated depreciation and amortization $ 44,111 $ 42,531 $ 131,296 $ 128,383
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:
Third Quarter First Nine Months
(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 $ 92,093 $ 118,761 $ 332,539 $ 311,713
Less dividends:
Common Stock 4,184 2,092 37,660 5,970
Class B Common Stock 503 251 4,522 1,060
Total undistributed earnings $ 87,406 $ 116,418 $ 290,357 $ 304,683
Common Stock undistributed earnings – basic $ 78,035 $ 103,937 $ 259,227 $ 261,064
Class B Common Stock undistributed earnings – basic 9,371 12,481 31,130 43,619
Total undistributed earnings – basic $ 87,406 $ 116,418 $ 290,357 $ 304,683
Common Stock undistributed earnings – diluted $ 77,861 $ 103,583 $ 258,565 $ 260,065
Class B Common Stock undistributed earnings – diluted 9,545 12,835 31,792 44,618
Total undistributed earnings – diluted $ 87,406 $ 116,418 $ 290,357 $ 304,683
Numerator for basic net income per Common Stock share:
Dividends on Common Stock $ 4,184 $ 2,092 $ 37,660 $ 5,970
Common Stock undistributed earnings – basic 78,035 103,937 259,227 261,064
Numerator for basic net income per Common Stock share $ 82,219 $ 106,029 $ 296,887 $ 267,034
Numerator for basic net income per Class B Common Stock share:
Dividends on Class B Common Stock $ 503 $ 251 $ 4,522 $ 1,060
Class B Common Stock undistributed earnings – basic 9,371 12,481 31,130 43,619
Numerator for basic net income per Class B Common Stock share $ 9,874 $ 12,732 $ 35,652 $ 44,679
Numerator for diluted net income per Common Stock share:
Dividends on Common Stock $ 4,184 $ 2,092 $ 37,660 $ 5,970
Dividends on Class B Common Stock assumed converted to Common Stock 503 251 4,522 1,060
Common Stock undistributed earnings – diluted 87,406 116,418 290,357 304,683
Numerator for diluted net income per Common Stock share $ 92,093 $ 118,761 $ 332,539 $ 311,713
Numerator for diluted net income per Class B Common Stock share:
Dividends on Class B Common Stock $ 503 $ 251 $ 4,522 $ 1,060
Class B Common Stock undistributed earnings – diluted 9,545 12,835 31,792 44,618
Numerator for diluted net income per Class B Common Stock share $ 10,048 $ 13,086 $ 36,314 $ 45,678
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Third Quarter First Nine Months
(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 8,032
Class B Common Stock weighted average shares outstanding – basic 1,005 1,005 1,005 1,342
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) 9,395 9,406 9,398 9,410
Class B Common Stock weighted average shares outstanding – diluted 1,026 1,037 1,029 1,378
Basic net income per share:
Common Stock $ 9.82 $ 12.67 $ 35.47 $ 33.25
Class B Common Stock $ 9.82 $ 12.67 $ 35.47 $ 33.29
Diluted net income per share:
Common Stock $ 9.80 $ 12.63 $ 35.38 $ 33.13
Class B Common Stock $ 9.79 $ 12.62 $ 35.29 $ 33.15
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) September 29, 2023 December 31, 2022
Finished products $ 211,128 $ 211,089
Manufacturing materials 63,939 89,300
Plastic shells, plastic pallets and other inventories 45,334 47,156
Total inventories $ 320,401 $ 347,545
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7. Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consisted of the following:
(in thousands) September 29, 2023 December 31, 2022
Repair parts $ 35,304 $ 35,088
Prepaid software 8,629 7,398
Prepaid taxes 6,918 7,829
Prepaid marketing 5,499 4,303
Commodity hedges at fair market value 1,080 4,808
Other prepaid expenses and other current assets 33,879 34,837
Total prepaid expenses and other current assets $ 91,309 $ 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) September 29, 2023 December 31, 2022 Estimated Useful Lives
Land $ 99,790 $ 88,185
Buildings 354,509 352,114 8 - 50 years
Machinery and equipment 483,003 462,640 5 - 20 years
Transportation equipment 538,446 515,752 3 - 20 years
Furniture and fixtures 101,327 102,099 3 - 10 years
Cold drink dispensing equipment 441,132 438,879 3 - 17 years
Leasehold and land improvements 168,617 177,940 5 - 20 years
Software for internal use 48,670 48,581 3 - 10 years
Construction in progress 106,878 103,803
Total property, plant and equipment, at cost 2,342,372 2,289,993
Less: Accumulated depreciation and amortization 1,137,529 1,106,263
Property, plant and equipment, net $ 1,204,843 $ 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:
September 29, 2023 December 31, 2022
Weighted average remaining lease term:
Operating leases 6.8 years 7.2 years
Financing leases 3.7 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:
Third Quarter First Nine Months
(in thousands) 2023 2022 2023 2022
Operating lease costs $ 8,293 $ 7,750 $ 24,871 $ 22,389
Short-term and variable leases 4,151 3,731 11,942 11,006
Depreciation expense from financing leases 413 411 1,235 1,903
Interest expense on financing lease obligations 109 139 346 753
Total lease cost $ 12,966 $ 12,031 $ 38,394 $ 36,051
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
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summary of future minimum lease payments for all noncancelable operating leases and financing leases as of September 29, 2023:
(in thousands) Operating Leases Financing Leases
Remainder of 2023 $ 7,690 $ 692
2024 28,915 2,808
2025 22,940 2,869
2026 19,773 1,233
2027 17,487 338
Thereafter 51,741 965
Total minimum lease payments including interest $ 148,546 $ 8,905
Less: Amounts representing interest 18,894 795
Present value of minimum lease principal payments 129,652 8,110
Less: Current portion of lease liabilities 26,074 2,440
Noncurrent portion of lease liabilities $ 103,578 $ 5,670
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 Nine Months
(in thousands) 2023 2022
Cash flows from operating activities impact:
Operating leases $ 24,666 $ 21,502
Interest payments on financing lease obligations 346 753
Total cash flows from operating activities impact $ 25,012 $ 22,255
Cash flows from financing activities impact:
Principal payments on financing lease obligations $ 1,712 $ 2,441
Total cash flows from financing activities impact $ 1,712 $ 2,441
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) September 29, 2023 December 31, 2022
Distribution agreements at cost $ 990,191 $ 990,191
Less: Accumulated amortization 166,825 148,156
Distribution agreements, net $ 823,366 $ 842,035
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Following is a summary of activity for distribution agreements, net during the first nine months of 2023 and the first nine months of 2022:
First Nine Months
(in thousands) 2023 2022
Beginning balance - distribution agreements, net $ 842,035 $ 836,777
Other distribution agreements — 30,149
Additional accumulated amortization ( 18,669 ) ( 18,669 )
Ending balance - distribution agreements, net $ 823,366 $ 848,257
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) September 29, 2023 December 31, 2022
Customer lists at cost $ 25,288 $ 25,288
Less: Accumulated amortization 17,384 16,123
Customer lists, net $ 7,904 $ 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 $ 50.5 million as of September 29, 2023 and $ 44.2 million as of December 31, 2022.
13. Other Accrued Liabilities
Other accrued liabilities consisted of the following:
(in thousands) September 29, 2023 December 31, 2022
Current portion of acquisition related contingent consideration $ 55,355 $ 40,060
Accrued insurance costs 54,025 54,180
Accrued marketing costs 38,179 33,375
Employee and retiree benefit plan accruals 33,986 31,711
Accrued taxes (other than income taxes) 8,076 7,127
All other accrued expenses 29,080 31,847
Total other accrued liabilities $ 218,701 $ 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
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certain commodity price risk. The Company uses several different financial institutions for commodity derivative instruments to 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:
Third Quarter First Nine Months
(in thousands) 2023 2022 2023 2022
Cost of sales $ ( 25 ) $ 1,100 $ ( 1,517 ) $ ( 5,069 )
Selling, delivery and administrative expenses 703 ( 4,711 ) ( 2,211 ) 2,512
Total gain (loss) $ 678 $ ( 3,611 ) $ ( 3,728 ) $ ( 2,557 )
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) September 29, 2023 December 31, 2022
Prepaid expenses and other current assets $ 1,080 $ 4,808
Total assets $ 1,080 $ 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) September 29, 2023 December 31, 2022
Gross commodity derivative instrument assets $ 1,080 $ 4,808
Gross commodity derivative instrument liabilities — —
The following table summarizes the Company’s outstanding commodity derivative instruments:
(in thousands) September 29, 2023 December 31, 2022
Notional amount of outstanding commodity derivative instruments $ 20,076 $ 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.
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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:
September 29, 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 $ 58,817 $ 58,817 $ 58,817 $ — $ —
Commodity derivative instruments 1,080 1,080 — 1,080 —
Liabilities:
Deferred compensation plan liabilities 58,817 58,817 58,817 — —
Long-term debt 599,123 568,900 — 568,900 —
Acquisition related contingent consideration 605,650 605,650 — — 605,650
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
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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:
Third Quarter First Nine Months
(in thousands) 2023 2022 2023 2022
Beginning balance - Level 3 liability $ 594,389 $ 522,259 $ 541,491 $ 542,105
Payments of acquisition related contingent consideration ( 7,603 ) ( 9,711 ) ( 20,979 ) ( 28,421 )
Reclassification to current payables — 1,800 ( 900 ) 2,100
Increase in fair value 18,864 22,568 86,038 21,132
Ending balance - Level 3 liability $ 605,650 $ 536,916 $ 605,650 $ 536,916
As of September 29, 2023 and September 30, 2022, discount rates of 9.2 % and 9.3 %, respectively, were 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 nine months of 2023 was primarily driven by higher projections of future cash flows in the distribution territories subject to acquisition related sub-bottling payments. This fair value adjustment was recorded in other expense, net in the condensed consolidated statement of operations for the first nine months of 2023.
For the next five future 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 $ 45 million to $ 65 million.
16. Income Taxes
The Company’s effective income tax rate was 25.3 % for the first nine months of 2023 and 25.7 % for the first nine months of 2022. The Company’s income tax expense was $ 112.4 million for the first nine months of 2023 and $ 107.9 million for the first nine months of 2022. The increase in income tax expense was primarily attributable to higher income before taxes during the first nine months of 2023 compared to the first nine months of 2022.
The Company had uncertain tax positions, including accrued interest, of $ 0.4 million on September 29, 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
The Company has historically sponsored two 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. In connection with the termination process, the Company offered a lump sum benefit payout option to certain plan participants. During the second quarter of 2023, payments were made to those participants who selected the lump sum benefit payout option. The Company recognized a settlement expense of $ 39.8 million in the second quarter of 2023 related primarily to pre-tax actuarial losses associated with the lump sum benefit payments that were reclassified out of accumulated other comprehensive income (loss).
The remaining assets of the Primary Plan were used to purchase a group annuity contract that transferred the remaining Primary Plan benefit liabilities to an insurance company during the third quarter of 2023. Upon full settlement of the Primary Plan benefit liabilities, the remainder of the gross actuarial losses associated with the Primary Plan were reclassified out of accumulated other
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comprehensive income (loss), resulting in a settlement expense of $ 77.3 million during the third quarter of 2023. There was no remaining liability for the unfunded portion of the Primary Plan as of September 29, 2023.
As of September 29, 2023, there were no gross actuarial losses included in accumulated other comprehensive income (loss) associated with the Primary Plan. As of December 31, 2022, there were approximately $ 117 million of gross actuarial losses included in accumulated other comprehensive income (loss) associated with the Primary Plan.
The components of total pension expense were as follows:
Third Quarter First Nine Months
(in thousands) 2023 2022 2023 2022
Service cost $ 1,099 $ 1,860 $ 3,298 $ 5,581
Interest cost 517 2,659 7,533 7,977
Expected return on plan assets ( 609 ) ( 2,036 ) ( 6,437 ) ( 6,107 )
Recognized net actuarial loss — 989 1,946 2,966
Amortization of prior service cost 4 — 12 —
Net periodic pension cost 1,011 3,472 6,352 10,417
Settlement expense 77,319 — 117,096 —
Total pension expense $ 78,330 $ 3,472 $ 123,448 $ 10,417
The Company contributed $ 12.0 million to fund the termination of the Primary Plan during the first nine months of 2023. The Company contributed $ 4.3 million to the Bargaining Plan during the first nine months of 2023 to fund the ongoing projected benefit obligation of the Bargaining Plan. The Company does not anticipate making additional contributions to the Bargaining Plan during the fourth quarter of 2023.
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:
Third Quarter First Nine Months
(in thousands) 2023 2022 2023 2022
Service cost $ 294 $ 383 $ 882 $ 1,150
Interest cost 697 474 2,092 1,423
Recognized net actuarial loss — 92 — 275
Net periodic postretirement benefit cost $ 991 $ 949 $ 2,974 $ 2,848
18. Other Liabilities
Other liabilities consisted of the following:
(in thousands) September 29, 2023 December 31, 2022
Noncurrent portion of acquisition related contingent consideration $ 550,295 $ 501,431
Accruals for executive benefit plans 143,503 137,771
Noncurrent deferred proceeds from related parties 100,942 103,240
Other 8,809 10,915
Total other liabilities $ 803,549 $ 753,357
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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 September 29,
2023 December 31,
2022
Senior bonds (1)
11/25/2025 3.80 % Semi-annually Public $ 350,000 $ 350,000
Revolving credit facility (2)(3)
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 ( 19 ) ( 26 )
Debt issuance costs ( 858 ) ( 1,157 )
Total long-term debt $ 599,123 $ 598,817
(1) The senior bonds due in 2025 were issued at 99.975 % of par.
(2) The Company’s revolving credit facility has an aggregate maximum borrowing capacity of $ 500 million. 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 nine months 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 September 29, 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 19.3 million cases and 20.1 million cases of finished product from SAC in the first nine months of 2023 and the first nine months of 2022, respectively.
The following table summarizes the Company’s purchases from these manufacturing cooperatives:
Third Quarter First Nine Months
(in thousands) 2023 2022 2023 2022
Purchases from Southeastern $ 31,087 $ 40,358 $ 113,673 $ 113,626
Purchases from SAC 47,505 48,585 150,217 144,513
Total purchases from manufacturing cooperatives $ 78,592 $ 88,943 $ 263,890 $ 258,139
The Company guarantees a portion of SAC’s debt, which expires in 2028. The amount guaranteed was $ 9.5 million on both September 29, 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.
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The Company holds no assets as collateral against the SAC guarantee, the fair value of which is immaterial to the condensed consolidated financial statements. The Company monitors its investment in SAC and would be required to write down its investment if an impairment, other than a temporary impairment, was identified. No impairment of the Company’s investment in SAC was identified as of September 29, 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 September 29, 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 September 29, 2023, the future payments related to these contractual arrangements, which expire at various dates through 2033, amounted to $ 137.3 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 third quarter of 2023 and the third quarter of 2022:
(in thousands) June 30, 2023 Pre-tax Activity Tax Effect September 29, 2023
Net pension activity:
Actuarial loss $ ( 72,626 ) $ 1,567 $ ( 384 ) $ ( 71,443 )
Prior service costs ( 99 ) 4 ( 1 ) ( 96 )
Pension plan settlement (1)
30,041 77,319 ( 36,202 ) 71,158
Net postretirement benefits activity:
Actuarial gain 6,752 — — 6,752
Prior service costs ( 624 ) — — ( 624 )
Reclassification of stranded tax effects (1)
( 19,720 ) — 14,911 ( 4,809 )
Total AOCI(L) $ ( 56,276 ) $ 78,890 $ ( 21,676 ) $ 938
(1) The stranded tax effect activity for the third quarter of 2023 is associated with the full settlement of the Primary Plan benefit liabilities.
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(in thousands) July 1, 2022 Pre-tax Activity Tax Effect September 30, 2022
Net pension activity:
Actuarial loss $ ( 77,391 ) $ 989 $ ( 243 ) $ ( 76,645 )
Prior service credits 11 — — 11
Net postretirement benefits activity:
Actuarial loss ( 1,101 ) 92 ( 23 ) ( 1,032 )
Prior service costs ( 624 ) — — ( 624 )
Foreign currency translation adjustment ( 9 ) — — ( 9 )
Reclassification of stranded tax effects ( 19,720 ) — — ( 19,720 )
Total AOCI(L) $ ( 98,834 ) $ 1,081 $ ( 266 ) $ ( 98,019 )
Following is a summary of AOCI(L) for the first nine months of 2023 and the first nine months of 2022:
(in thousands) December 31, 2022 Pre-tax Activity Tax Effect September 29, 2023
Net pension activity:
Actuarial loss $ ( 71,140 ) $ ( 401 ) $ 98 $ ( 71,443 )
Prior service costs ( 105 ) 12 ( 3 ) ( 96 )
Pension plan settlement — 117,096 ( 45,938 ) 71,158
Net postretirement benefits activity:
Actuarial gain 6,752 — — 6,752
Prior service costs ( 624 ) — — ( 624 )
Reclassification of stranded tax effects ( 19,720 ) — 14,911 ( 4,809 )
Total AOCI(L) $ ( 84,837 ) $ 116,707 $ ( 30,932 ) $ 938
(in thousands) December 31, 2021 Pre-tax Activity Tax Effect September 30, 2022
Net pension activity:
Actuarial loss $ ( 78,882 ) $ 2,966 $ ( 729 ) $ ( 76,645 )
Prior service credits 11 — — 11
Net postretirement benefits activity:
Actuarial loss ( 1,239 ) 275 ( 68 ) ( 1,032 )
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 ) $ 3,241 $ ( 797 ) $ ( 98,019 )
22. Supplemental Disclosures of Cash Flow Information
Changes in current assets and current liabilities affecting cash were as follows:
First Nine Months
(in thousands) 2023 2022
Accounts receivable, trade $ ( 26,086 ) $ ( 84,756 )
Allowance for doubtful accounts 2,015 ( 1,719 )
Accounts receivable from The Coca‑Cola Company ( 19,911 ) 10,992
Accounts receivable, other 1,779 ( 36,290 )
Inventories 27,144 ( 10,848 )
Prepaid expenses and other current assets 2,954 ( 13,891 )
Accounts payable, trade 7,628 18,927
Accounts payable to The Coca‑Cola Company 17,904 44,214
Other accrued liabilities 20,401 ( 780 )
Accrued compensation ( 1,202 ) 10,698
Accrued interest payable 3,165 1,796
Change in current assets less current liabilities $ 35,791 $ ( 61,657 )
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