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Item 7. Management’s Discussion and Analysis

2024-02-21 compared with 2023-02-22 · 166 added, 141 removed, 375 unchanged (45% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to help the reader understand our financial condition and results of operations and is provided as an addition to, and should be read in conjunction with, our consolidated financial statements and the accompanying notes to the consolidated financial statements.

The fiscal years presented are the periods ended December 31, 2022 (“2022”) and December 31, 2021 (“2021”).

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations of the Company is intended to help the reader understand our financial condition and results of operations and is provided as an addition to, and should be read in conjunction with, our consolidated financial statements and the accompanying notes to the consolidated financial statements.

The consolidated financial statements include the accounts and the consolidated operations of the Company and its majority-owned subsidiaries.

All comparisons are to the prior year unless specified otherwise.

The periods presented are the fiscal years ended December 31, 2023 (“2023”) and December 31, 2022 (“2022”).

Information concerning the fiscal year ended December 31, 2021 (“2021”) and a comparison of 2022 and 2021 may be found under “Item 7.

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Executive Summary

Net sales increased 11% to $6.20 billion in 2022, with physical case volume flat when compared to the prior year.

The increase in net sales was driven primarily by price increases taken across our portfolio during the year while volume continued to outperform the price elasticities we have historically experienced with higher pricing.

Net sales increased 7% to $6.65 billion in 2023, with standard physical case volume down 1.9% when compared to the prior year.

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

Volume continued to outperform the price elasticities we have historically experienced with higher pricing.

Sparkling and Still net sales increased 10.5% and 6.4%, respectively, compared to 2022.

Sparkling volume grew 0.6% in 2022, driven by strong consumer demand for our multi-serve can and small bottle PET packages, while Still volume decreased 1.3% in 2022.

Brands within the Sparkling category benefited from solid demand in our on-premise sales channels, including restaurants, universities, sports venues, amusement parks and other immediate consumption outlets.

While Sparkling volume decreased 0.3% in 2023, we experienced strong consumer demand for our multi-serve can packages as well as our Immediate Consumption products.

Brands within the Sparkling category benefited from solid performance in our on-premise sales channels, as more consumers returned to pre-COVID work and leisure routines.

Additionally, Sparkling sales at our Club store channels were strong as consumers sought value-oriented packages during 2023.

Still volume decreased 6.1% in 2023, as the overall Sports Drinks category slowed considerably.

Other Still categories such as Energy and Enhanced Water continued to perform well, with Monster Energy and glacéau smartwater both achieving solid growth in 2023.

Gross profit in 2023 increased $320.8 million, or 14%, while gross margin increased 240 basis points to 39.1%.

The improvement in gross profit resulted from higher prices for our products, stable volume and prices for certain commodities moderating from historically high levels.

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

Compared to 2022, gross margin also benefited from the increased mix of Sparkling beverages, which generally carry higher gross margins than Still packages.

Selling, delivery and administrative (“SD&A”) expenses in 2023 increased $127.4 million, or 8%.

SD&A expenses as a percentage of net sales in 2022 decreased 80 basis points to 26.4% as compared to 2021.

The increase in SD&A expenses related primarily to an increase in labor costs.

Over the last year, we have made certain investments in our teammates to reward performance for their contributions in achieving strong operating results and to remain competitive in the current labor environment.

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

SD&A expenses as a percentage of net sales in 2023 increased 10 basis points to 26.5% as compared to 2022.

The increase in SD&A expenses related primarily to an increase in labor costs and certain investments in our teammates, including incentive compensation expense, to reward their performance and contributions in achieving strong operating results.

Income from operations in 2023 increased $193.4 million to $834.5 million.

Net income increased $240.6 million in fiscal year 2022 to $430.2 million as compared to fiscal year 2021.

Net income in 2022 and 2021 was adversely impacted by fair value adjustments to our acquisition related contingent consideration liability, driven by changes in future cash flow projections and the discount rate used to compute the fair value of the liability.

Income tax expense for 2022 was $144.9 million, compared to $65.6 million in 2021.

The increase in income tax expense was the result of higher pre-tax income.

Income tax expense in 2023 was $149.1 million, compared to $144.9 million in 2022.

The effective income tax rate for 2023 was 26.7%, compared to 25.2% for 2022.

The increase in the effective income tax rate was primarily the result of lower income before taxes and an increase in certain nondeductible amounts as compared to 2022.

Net income decreased $21.8 million in 2023 to $408.4 million as compared to 2022.

Net income in 2023 was adversely impacted by fair value adjustments to our acquisition related contingent consideration liability, driven by changes in the discount rate and future cash flow projections used to calculate the fair value of the liability.

Additionally, net income in 2023 included a non-cash charge of $112.8 million related to the full settlement of our primary pension plan benefit liabilities.

Cash flows provided by operations in 2023 were $810.7 million, compared to $554.5 million in 2022.

Cash flows from operations were impacted by our strong operating performance and the timing of certain working capital payments and receipts during the current year.

During 2022, we invested $298.6 million in capital expenditures as we continue to optimize our supply chain and invest for future growth.

The Company reduced outstanding indebtedness by $125.0 million during the year.

Cash flows from operations reflected our strong operating performance during 2023.

During 2023, we invested $282.3 million in capital expenditures as we continued to optimize our supply chain and invest for future growth.

Areas of Emphasis

Key priorities for the Company include commercial execution, revenue management, supply chain optimization and cash flow generation.

Key priorities for the Company include executing our commercial strategy, executing our revenue management strategy, optimizing our supply chain, generating cash flow, determining the optimal route to market and creating a digitally enabled selling platform.

Commercial Execution:

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We are focused on execution at every step in our supply chain, including raw material and finished product procurement, manufacturing conversion, transportation, warehousing and distribution, to ensure in-store execution can occur.

We continue to invest in tools and technology to enable our teammates to operate more effectively and efficiently with our customers and drive long-term value in our business.

We continue to invest in tools and technology to enable our teammates to operate more effectively and efficiently with our customers and to drive long-term value in our business.

Revenue Management:

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We believe strengthening our balance sheet gives us the flexibility to make optimal capital allocation decisions for long-term value creation.

Optimal Route to Market:

We are focused on implementing optimal methods of distribution of our products within our territory.

Our typical direct store delivery method uses Company-owned vehicles and warehouses, but we are increasingly using alternative methods of distribution.

For example, in instances of post-mix delivery for use in fountain machines, we have shifted our delivery method to alternative distributors in order to enhance customer service and profitability.

In instances of bottle/can delivery, we are shifting certain products for certain customers and channels of business to alternative routes to market.

These alternative routes to market include third-party distributors, the manufacturer of the product or the customer’s supply chain infrastructure.

These bottle/can arrangements generally come with favorable commercial terms for the Company.

In 2023, more than half of our post-mix gallons and less than 10% of our bottle/can volume was delivered through alternative routes to market.

Digitally Enabled Selling Platform:

Through our investment in CONA, we, along with other Coca-Cola bottlers, are building a digitally enabled selling platform called MyCoke 360 that we believe will enable us to better serve our customers.

This platform will enable a more seamless order and payment platform for certain customers and we expect this platform will enable us to enhance customer service and create more selling opportunities for our teammates.

This platform is targeted to certain on-premise and small store customers.

Results of Operations

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Income from operations 834,451 641,047 193,404

Interest expense, net 24,792 33,449 (8,657)

Interest (income) expense, net (918) 24,792 (25,710)

Mark-to-market on acquisition related contingent consideration 159,354 32,301 127,053

Pension plan settlement expense 112,796 — 112,796

Other expense, net 5,738 8,867 (3,129)

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Net sales increased $452.9 million, or 7.3%, to $6.65 billion in 2023, as compared to $6.20 billion in 2022.

The largest driver of the increase in net sales was higher average bottle/can sales price per unit charged to retail customers, which led to approximately $610 million in additional net sales.

Throughout 2022, the Company executed price increases across our portfolio, which, combined with steady overall volume, led to significant growth in net sales of both Sparkling and Still beverages.

The largest driver of the increase in net sales was higher average bottle/can sales price per unit charged to retail customers, which increased net sales by approximately $515 million.

The increase in net sales was partially offset by lower case sales volume as compared to 2022, which decreased net sales by approximately $110 million.

Net sales by product category were as follows:

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Total net sales $ 6,653,858 $ 6,200,957 7.3 %

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

The decline in post-mix sales and other in 2023 as compared to 2022 was related to a shift in how we deliver post-mix products to our customers.

The Company has shifted to a broader use of alternative distributors, rather than Company-owned vehicles and warehouses, to deliver post-mix products to customers in our territory.

We receive a fee from a vendor on these post-mix gallons delivered to locally managed customers in our territory, which is recorded as a reduction to cost of sales.

This transition has occurred over the past several years but accelerated in 2023 and is expected to be more prevalent in 2024.

More than half of the post-mix gallons sold to local customers in our franchise territory in 2023 were delivered using these alternative distribution methods.

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

(in thousands) 2023 2022 % Change

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Total bottle/can sales volume 355,367 362,191 (1.9) %

As the Company introduces new products, it reassesses the category assigned to its products at the SKU level, therefore categorization could differ from previously presented results to conform with current period categorization.

A standard physical case is a volume metric used to standardize differing package configurations in order to measure delivered cases on an equivalent basis.

As the Company evaluates its volume metrics, it reassesses the way in which physical case volume is measured, which may lead to differences from previously presented results in order to conform with current period standard volume measurement techniques, as used by management.

Additionally, as the Company introduces new products, it reassesses the category assigned to its products at the SKU level, therefore categorization could differ from previously presented results in order to conform with current period categorization.

Any differences are not material.

The bottle/can sales volume above represents volume that is delivered directly to our customer outlets using Company-owned vehicles and warehouses.

In order to serve our customers in the most efficient way, as well as in response to customer demands, the Company has, in certain circumstances, shifted the delivery of our products to third-party distributors, the manufacturer of the product or the customer’s supply chain infrastructure, rather than through Company-owned vehicles and warehouses.

As a result of not physically delivering the product, the sales volume delivered using these alternative methods of distribution is not reflected in our volume metrics.

However, because we have the exclusive distribution rights for non-alcoholic beverages within our franchise territory, we receive fees for the delivery of qualified product in our territory.

These fees are reported in net sales.

Changes in the delivery of our products to our customers has impacted, and will continue to impact, our reported volume and net sales.

This transition has occurred over the past several years but accelerated in 2023 and is expected to be more prevalent in 2024.

Less than 10% of the bottle/can volume sold in our franchise territory in 2023 was delivered using these alternative routes to market.

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

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(i) purchases of finished products, (ii) raw material costs, including aluminum cans, plastic bottles, carbon dioxide and sweetener, (iii) concentrate costs and (iv) manufacturing costs, including labor, overhead and warehouse costs.

In addition, cost of sales includes shipping, handling and fuel costs related to the movement of finished products from manufacturing plants to distribution centers, amortization expense of distribution rights, distribution fees of certain products and marketing credits from brand companies.

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

Cost of sales increased $132.1 million, or 3.4%, to $4.06 billion in 2023, as compared to $3.92 billion in 2022.

The increase in cost of sales was driven by approximately $365 million in increased input costs, including aluminum, PET resin and transportation costs, largely due to the impacts of continued inflation, as well as the shift in product mix to meet consumer preferences.

The increase in cost of sales was driven by higher input costs, including concentrate and manufacturing costs, which increased cost of sales by approximately $180 million.

The increase in cost of sales was partially offset by lower case sales volume as compared to 2022, which decreased cost of sales by approximately $40 million.

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

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SD&A expenses increased $127.4 million, or 7.8%, to $1.76 billion in 2023, as compared to $1.64 billion in 2022.

SD&A expenses as a percentage of net sales decreased to 26.4% in 2022 from 27.2% in 2021.

Of the increase in SD&A expenses, approximately $75 million was driven by an increase in payroll expense due to certain investments in our teammates to reward them for their

contributions in achieving strong operating results and to remain competitive in the current labor environment.

In addition, approximately $15 million of the increase in SD&A expenses was driven by an increase in commitments to various charities and donor-advised funds in light of the Company’s financial performance.

The remaining increase in SD&A expenses was primarily driven by broad inflationary increases across a number of SD&A categories as compared to 2021.

Shipping and handling costs included in SD&A expenses were $756.9 million in 2022 and $674.3 million in 2021.

Interest Expense, Net

Interest expense, net decreased $8.7 million, or 25.9%, to $24.8 million in 2022, as compared to $33.4 million in 2021.

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

Other Expense, Net

Other expense, net decreased $109.4 million to $41.2 million in 2022, as compared to $150.6 million in 2021.

The decrease in other expense, net was driven by $114.0 million related to the change in the fair value of acquisition related contingent consideration liability.

The decrease in other expense, net was partially offset by an increase of $4.6 million in the non-service cost component of net periodic benefit cost.

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

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

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

See Note 16 to the consolidated financial statements for additional information related to the Company’s pension plans.

SD&A expenses as a percentage of net sales increased to 26.5% in 2023 from 26.4% in 2022.

Of the increase in SD&A expenses, approximately $72 million was related to an increase in labor costs and certain investments in our teammates, including incentive compensation expense, to reward their performance and contributions in achieving strong operating results.

In addition, approximately $30 million of the increase in SD&A expenses was attributable to higher transportation costs, including fleet repairs, as well as changes in our fuel commodity hedge positions as compared to 2022.

Approximately $12 million of the increase in SD&A expenses was driven by an increase in commitments to various charities and donor-advised funds in light of the Company’s financial performance.

Shipping and handling costs included in SD&A expenses were approximately $780 million in 2023 and approximately $757 million in 2022.

Interest (Income) Expense, Net

Interest (income) expense, net in 2023 totaled $0.9 million of interest income, net, as compared to $24.8 million of interest expense, net in 2022.

The change in interest (income) expense, net was primarily a result of an increase in interest income due to higher cash and cash equivalent balances and increased yields as compared to 2022.

The increase in yields was due to the rising rate environment and related to cash deposits and investments in money market funds and U.S.

Treasury securities, which contributed to additional interest income as compared to the prior year.

Mark-to-Market on Acquisition Related Contingent Consideration

Mark-to-market on acquisition related contingent consideration increased $127.1 million to $159.4 million in 2023, as compared to $32.3 million in 2022.

Each reporting period, the Company adjusts its acquisition related contingent consideration liability related to the distribution territories subject to acquisition related sub-bottling payments to fair value.

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

The change in the fair value of the acquisition related contingent consideration liability in 2022 as compared to 2021 was primarily driven by an increase in the discount rate used to calculate fair value, as well as the change in projections of future cash flows in the distribution territories subject to acquisition related sub-bottling payments.

The change in the fair value of the acquisition related contingent consideration liability in 2023 as compared to 2022 was primarily driven by changes in the discount rate and projections of future cash flows used to calculate the fair value of the liability.

Pension Plan Settlement Expense

During 2023, the Company recognized a non-cash charge of $112.8 million related to the full settlement of the primary Company-sponsored pension plan (the “Primary Plan”) benefit liabilities, including final premium adjustments, which was recorded as pension plan settlement expense in the consolidated statement of operations for that year.

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

As of December 31, 2023, there were no gross actuarial losses included in accumulated other comprehensive 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 loss associated with the Primary Plan.

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

Other Expense, Net

Other expense, net decreased $3.1 million to $5.7 million in 2023, as compared to $8.9 million in 2022.

The decrease in other expense, net was primarily driven by changes in the actuarial assumptions related to our pension and postretirement plan liabilities.

Income Tax Expense

The Company’s effective income tax rate, calculated by dividing income tax expense by income before taxes, was 25.2% for 2022 and 25.7% for 2021.

The Company’s effective income tax rate was 26.7% for 2023 and 25.2% for 2022.

The Company’s income tax expense increased $4.2 million, or 2.9%, to $149.1 million in 2023, as compared to $144.9 million in 2022.

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

The increase in the effective income tax rate was primarily attributable to lower income before taxes and an increase in certain nondeductible amounts during 2023 as compared to 2022.

Other Comprehensive Income, Net of Tax

The Company had other comprehensive income, net of tax of $15.6 million in 2022 and $18.6 million in 2021.

The decline was primarily a result of changes in actuarial gains on the Company’s pension and postretirement benefit plans in 2022 as compared to 2021.

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

Other comprehensive income, net of tax was $80.6 million in 2023 and $15.6 million in 2022.

As noted in the discussion of pension plan settlement expense above, the Company recognized a non-cash charge of $112.8 million during 2023 related to the full settlement of the Primary Plan benefit liabilities.

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

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

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

However, management believes that certain non-GAAP financial measures provide users of the financial statements with additional, meaningful financial information that should be considered when assessing the Company’s ongoing performance.

However, management believes that certain non-GAAP financial measures provide users of the financial statements with additional, meaningful financial information that should be considered, in addition to the measures reported in accordance with GAAP, when assessing the Company’s ongoing performance.

Management also uses these non-GAAP financial measures in making financial, operating and planning decisions and in evaluating the Company’s performance.

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1,296 — 1,296 1,296 975 0.10

Pension plan settlement expense (4)

— — — 112,796 84,823 9.05

Total reconciling items 76 (2,281) 2,357 274,507 206,430 22.02

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

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

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

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

Financial Condition

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Net working capital, defined as current assets less current liabilities, was $613.8 million on December 31, 2023, which was an increase of $273.1 million from December 31, 2022.

Significant changes in net working capital on December 31, 2022 from December 31, 2021 were as follows:

• An increase in cash and cash equivalents of $55.3 million primarily as a result of our strong operating performance.

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

• An increase in cash and cash equivalents of $437.6 million, primarily as a result of cash flows relating to our strong operating performance.

• An increase in accounts receivable, trade of $23.9 million, driven primarily by increased net sales and the timing of cash receipts.

• An increase in inventories of $44.7 million, driven primarily by higher inventory levels and increased input costs due to inflation.

• An increase in accounts payable, trade of $32.4 million due to the timing of cash payments.

• A decrease in other accrued liabilities of $28.5 million primarily due to the payment of the remaining deferred payroll taxes under the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) during 2022, as well as a reduction in the current portion of acquisition related contingent consideration liability.

• A decrease in inventories of $25.6 million, primarily due to lower inventory levels for certain manufacturing materials compared to December 31, 2022.

• An increase in accounts payable, trade of $31.8 million, primarily due to the timing of cash payments.

• A decrease in accounts payable to The Coca‑Cola Company of $23.3 million, primarily as a result of the timing of cash payments.

• An increase in other accrued liabilities of $37.0 million, primarily due to an increase in the current portion of the acquisition related contingent consideration liability.

Liquidity and Capital Resources

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As of December 31, 2023, the Company had $635.3 million in cash and cash equivalents.

The Company’s cash equivalents balance at December 31, 2023 consisted predominantly of investments in money market funds and U.S.

Treasury securities with maturities of 90 days or less.

The Company has obtained its long-term debt from public markets, private placements and bank facilities.

Management believes the Company has sufficient sources of capital available to finance its business plan, meet its working capital requirements and maintain an appropriate level of capital spending for at least the next 12 months from the issuance of the consolidated financial statements.

Management believes the Company has sufficient sources of capital available to finance its business plan, to meet its working capital requirements and to maintain an appropriate level of capital spending for at least the next 12 months from the issuance of the consolidated financial statements.

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

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

Senior notes (1)

2/27/2023 $ — $ 125,000

Senior bonds and unamortized discount on senior bonds (1)

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Total long-term debt $ 599,159 $ 598,817

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

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

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

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

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

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

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The Company’s credit ratings are reviewed periodically by certain nationally recognized rating agencies.

Changes in the Company’s operating results or financial position can result in changes in the Company’s credit ratings.

During 2022, Standard & Poor’s upgraded the Company’s credit rating from BBB with a positive outlook to BBB+ with a stable outlook.

Changes in the Company’s operating results or financial position could result in changes in the Company’s credit ratings.

Lower credit ratings could result in higher borrowing costs for the Company or reduced access to capital markets, which could have a material adverse impact on the Company’s operating results or financial position.

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The amount and frequency of future dividends will be determined by the Company’s Board of Directors in light of the earnings and financial condition of the Company at such time, and no assurance can be given that dividends will be declared or paid in the future.

On December 7, 2022, the Company announced that its Board of Directors had declared an increase in the regular quarterly cash dividend from $0.25 per share to $0.50 per share on the Common Stock and the Class B Common Stock of the Company, which represented an increase of 100%, beginning with the dividend payment on February 10, 2023 to stockholders of record as of the close of business on January 27, 2023.

The Company’s Board of Directors also declared a special cash dividend of $3.00 per share on the Common Stock and the Class B Common Stock of the Company, also payable on February 10, 2023 to stockholders of record as of the close of business on January 27, 2023.

The total dividends paid on February 10, 2023 were $32.8 million.

On December 5, 2023, the Company announced that its Board of Directors had declared (i) a regular quarterly cash dividend of $0.50 per share on the Common Stock and the Class B Common Stock of the Company and (ii) a special cash dividend of $16.00 per share on the Common Stock and the Class B Common Stock of the Company, each payable on February 9, 2024 to stockholders of record of

the Common Stock and the Class B Common Stock as of the close of business on January 26, 2024.

The total dividends paid on February 9, 2024 were approximately $155 million.

We review supplier terms and conditions on an ongoing basis, and have negotiated payment term extensions in recent years in connection with our efforts to improve cash flow and working capital.

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

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

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

The Company’s only Level 3 asset or liability is the acquisition related contingent consideration liability.

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Proceeds from the sale of property, plant and equipment 695 7,369

Borrowings under term loan facility — 70,000

Borrowings under revolving credit facility — 55,000

Total cash sources $ 811,385 $ 561,875

Additions to property, plant and equipment $ 282,304 $ 298,611

Payments on term loan facility and senior notes 125,000 287,500

Payments of acquisition related contingent consideration 36,515 39,097

Acquisition of distribution rights 30,649 8,993

Cash dividends paid 46,868 9,374

Payments of acquisition related contingent consideration 28,208 36,515

Investment in equity method investees 13,741 3,094

Payments on financing lease obligations 2,303 2,988

Payments on revolving credit facility — 55,000

Other 3,404 4,073

Debt issuance fees 340 310

Acquisition of distribution rights — 30,649

Payments on term loan facility and senior notes — 125,000

Total cash uses $ 373,764 $ 506,541

Net increase in cash $ 437,621 $ 55,334

(1) Net cash provided by operating activities in 2022 included net income tax payments of $141.0 million, payment of deferred payroll taxes under the CARES Act of $18.7 million and pension plan contributions of $26.0 million.

Net cash provided by operating activities in 2021 included net income tax payments of $71.0 million, payment of deferred payroll taxes under the CARES Act of $18.7 million and pension plan contributions of $6.8 million.

(1) Net cash provided by operating activities in 2023 included net income tax payments of $200.8 million and pension plan contributions of $16.3 million.

Net cash provided by operating activities in 2022 included net income tax payments of $141.0 million, pension plan contributions of $26.0 million and payment of deferred payroll taxes under the Coronavirus Aid, Relief and Economic Security Act of $18.7 million.

Cash Flows From Operating Activities

During 2023, cash provided by operating activities was $810.7 million, which was an increase of $256.2 million as compared to 2022.

The cash flows from operations were primarily the result of our strong operating performance, which the Company expects to sustain during the next 12 months.

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

As a result of the Company’s strong cash flows from operations, the Company was able to invest in property, plant and equipment and to reduce our debt obligations, as further discussed in the following sections.

The cash flows from operations were primarily the result of our strong operating performance.

As a result of the Company’s strong cash flows from operations, the Company was able to invest in property, plant and equipment and to pay a special cash dividend, as further discussed in the following sections.

Cash Flows From Investing Activities

During 2022, cash used in investing activities was $325.0 million, which was an increase of $163.0 million, as compared to 2021.

The increase was primarily a result of additions to property, plant and equipment, which were $298.6 million during 2022 and $155.7 million during 2021.

CCBCC Operations, LLC, a wholly owned subsidiary of the Company, purchased the Snyder Production Center and an adjacent sales facility in Charlotte, North Carolina on March 17, 2022 for a purchase price of $60.0 million, which was

included in additions to property, plant and equipment.

During 2023, cash used in investing activities was $295.4 million, which was a decrease of $29.6 million as compared to 2022.

The decrease was partially a result of fewer additions to property, plant and equipment, which were $282.3 million during 2023 and $298.6 million during 2022.

CCBCC Operations, LLC, a wholly owned subsidiary of the Company, purchased the Snyder Production Center and an adjacent sales facility in Charlotte, North Carolina during 2022 for a purchase price of $60.0 million, which was included in additions to property, plant and equipment for that period.

There were $59.0 million and $44.8 million of additions to property, plant and equipment accrued in accounts payable, trade as of December 31, 2023 and December 31, 2022, respectively.

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

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

The increase in cash used in investing activities as compared to 2021 was also driven by the acquisition of additional distribution rights.

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

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

The decrease in cash used in investing activities as compared to 2022 was partially offset by an increase of approximately $11 million in our investment in equity method investees.

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

The Company anticipates additions to property, plant and equipment in 2024 to be in the range of approximately $300 million to $350 million.

Cash Flows From Financing Activities

During 2023, cash used in financing activities was $77.7 million, which was a decrease of $96.5 million as compared to 2022.

The decrease was primarily a result of higher net repayments of debt during 2021 as compared to 2022.

The Company continues to prioritize the reduction of debt obligations and the strengthening of our balance sheet, as indicated by the early repayment of $125 million of senior notes during 2022.

The decrease was primarily a result of the repayment of $125.0 million of debt during 2022.

This was partially offset by dividend payments of $46.9 million during 2023 (which included a special cash dividend of $3.00 per share), as compared to $9.4 million during 2022.

The Company had cash payments for acquisition related contingent consideration of $28.2 million during 2023 and $36.5 million during 2022.

The Company anticipates that the amount it could pay annually under the acquisition related contingent consideration arrangements for the distribution territories subject to acquisition related sub-bottling payments will be in the range of $42 million to $74 million.

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 $50 million to $70 million.

Material Contractual Obligations

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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.

The Company expects to pay $40.1 million of the acquisition related contingent consideration liability in 2023, which is classified as other accrued liabilities in the consolidated balance sheets.

The Company’s short-term portion of the acquisition related contingent consideration liability was $64.5 million as of December 31, 2023 and was included within other accrued liabilities in the consolidated balance sheets.

The Company is obligated to purchase 17.5 million cases of finished product from SAC on an annual basis through June 2024.

Based on information available as of December 31, 2022, the Company estimates this purchase obligation to be $214.5 million, of which an estimated $143.0 million of purchases is expected to occur in 2023.

Based on information available as of December 31, 2023, the Company estimates this purchase obligation to be $71.1 million, all of which is expected to occur in 2024.

The Company has $146.9 million in total minimum operating lease obligations including interest, of which $29.9 million are due in 2024.

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As of December 31, 2023, the Company estimated obligations for its executive benefit plans to be $184.4 million, of which $30.9 million is expected to be paid in 2024.

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.

does not prefund these benefits and has the right to modify or terminate certain of these benefits in the future.

As of December 31, 2023, the Company had obligations related to its postretirement benefits plan of $63.8 million, of which $3.2 million is expected to be paid in 2024.

The Company is a shareholder of Southeastern Container (“Southeastern”), a plastic bottle manufacturing cooperative from which the Company is obligated to purchase at least 80% of its requirements of plastic bottles for certain designated territories.

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On December 5, 2023, the Board of Directors of the Company declared a regular quarterly cash dividend of $0.50 per share, as well as a special cash dividend of $16.00 per share, on the Common Stock and the Class B Common Stock of the Company.

Both dividends are payable on February 10, 2023 to stockholders of record as of the close of business on January 27, 2023.

Both dividends are payable on February 9, 2024 to stockholders of record of the Common Stock and the Class B Common Stock as of the close of business on January 26, 2024.

As of December 31, 2023, dividends declared but not yet paid were $154.7 million.

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(in thousands) 2023 2022

Increase (decrease) in cost of sales $ 3,335 $ (12,647)

Decrease in SD&A expenses (16,390) (4,183)

Increase in cost of sales $ 1,656 $ 3,335

Increase (decrease) in SD&A expenses 5,928 (16,390)

Net impact $ 7,584 $ (13,055)

COVID-19 Impact

The Company continues to diligently monitor and manage through the impact of the ongoing COVID-19 pandemic on all aspects of its business, including the impact on its teammates, communities and customers.

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

Such actions include following prescribed Company and other accepted health and safety standards and protocols, including those adopted by the Centers for Disease Control and Prevention (the “CDC”) and local health authorities.

Risk mitigation and safety activities continue;

examples include adhering to sanitation protocols and promoting hygiene practices recommended by the CDC;

offering supplemental sick time for non-exempt teammates;

providing access to personal protective equipment and educational resources;

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

At this time and based on current trends, we do not expect the COVID-19 pandemic to materially impact our liquidity position or access to capital in 2023.

We also have not experienced, and do not expect, any material impairments or adjustments to the fair values of our assets or the collectability of our receivables as a result of the COVID-19 pandemic.

Discussion of Critical Accounting Estimates

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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.

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.

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The Company’s goodwill impairment assessment includes a qualitative assessment to determine whether it is more likely than not that the fair value of the goodwill is below its carrying value, each year, and more often if there are significant changes in business conditions that could result in impairment.

When a quantitative analysis is considered necessary for the annual impairment analysis of goodwill, the Company develops an estimated fair value for the

reporting unit considering three different approaches:

1) market value, using the Company’s stock price plus outstanding debt;

2) discounted cash flow analysis;

and 3) multiple of earnings before interest, taxes, depreciation and amortization based upon relevant industry data.

When a quantitative analysis is considered necessary for the annual impairment analysis of goodwill, the Company develops an estimated fair value for the reporting unit considering three different approaches:

(i) market value, using the Company’s stock price plus outstanding debt;

(ii) discounted cash flow analysis;

and (iii) multiple of earnings before interest, taxes, depreciation and amortization based upon relevant industry data.

The estimated fair value of the reporting unit is then compared to its carrying amount, including goodwill.

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Pension and Postretirement Benefit Obligations

There are two Company-sponsored pension plans.

The Company has historically sponsored two pension plans.

The Primary Plan was frozen as of June 30, 2006 and no benefits accrued to participants after that date.

During 2023, the Primary Plan was fully settled, and the Company recognized a non-cash charge of $112.8 million related to the full settlement of the Primary Plan benefit liabilities, which was recorded as pension plan settlement expense in the consolidated statement of operations for that year.

There were no remaining benefit liabilities or associated estimates related to the Primary Plan as of December 31, 2023.

See Note 17 for additional discussion of the termination of the Primary Plan.

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.

Contributions to the Bargaining Plan are based on actuarially determined amounts and are limited to the amounts currently deductible for income tax purposes.

The Company also sponsors a postretirement healthcare plan for employees meeting specified qualifying criteria.

Several statistical and other factors, which attempt to anticipate future events, are used in calculating the expense and liability related to the plans.

Several statistical and other factors, which attempt to anticipate future events, are used in calculating the expense and liability related to the Bargaining Plan.

These factors include assumptions about the discount rate, expected return on plan assets, employee turnover and age at retirement, as determined by the Company, within certain guidelines.

In addition, the Company uses subjective factors such as

mortality rates to estimate the projected benefit obligation.

In addition, the Company uses subjective factors such as mortality rates to estimate the projected benefit obligation.

The actuarial assumptions used by the Company may differ materially from actual results due to changing market and economic conditions, higher or lower withdrawal rates or longer or shorter life spans of participants.

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See Note 17 to the consolidated financial statements for additional information.

The discount rate used in determining the actuarial present value of the projected benefit obligation for the Primary Plan and the Bargaining Plan was 5.33% and 5.34%, respectively, in 2022 and 2.97% and 3.31%, respectively, in 2021.

The discount rate assumption is generally the estimate which can have the most significant impact on net periodic pension cost and the projected benefit obligation for these pension plans.

Given the anticipated termination of the Primary Plan, the Company determined an appropriate discount rate for the Primary Plan in 2022 based on lump sum segment interest rates, expected lump sum election rates and estimated annuity purchase rates.

The discount rate used in determining the actuarial present value of the projected benefit obligation for the Bargaining Plan was 5.16% in 2023 and 5.34% in 2022.

The discount rate assumption is generally the estimate which can have the most significant impact on net periodic pension cost and the projected benefit obligation.

The Company determines an appropriate discount rate annually for the Bargaining Plan based on the Aon AA Above Median yield curve as of the measurement date and reviews the discount rate assumption at the end of each year.

See Note 17 to the consolidated financial statements for additional information.

Pension costs were $13.1 million in 2022 and $9.3 million in 2021.

A 0.25% increase or decrease in the discount rate assumption would have impacted the projected benefit obligation and the net periodic pension cost for the Primary Plan as indicated below.

The portion of the liability expected to be paid as a lump sum during 2023 in connection with the anticipated termination of the Primary Plan does not vary based on changes in discount rates, as the interest rate basis upon which the lump sums will be calculated is known and will not change.

(in thousands) 0.25% Increase 0.25% Decrease

Increase (decrease) in:

Projected benefit obligation for Primary Plan at December 31, 2022 $ (3,575) $ 3,722

Net periodic pension cost for Primary Plan in 2022 79 (95)

Pension costs for the Bargaining Plan were $3.7 million in 2023 and $6.8 million in 2022.

A 0.25% increase or decrease in the discount rate assumption would have impacted the projected benefit obligation and the net periodic pension cost for the Bargaining Plan as follows:

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Increase (decrease) in:

Projected benefit obligation for Bargaining Plan at December 31, 2022 $ (1,695) $ 1,814

Net periodic pension cost for Bargaining Plan in 2022 (605) 651

The weighted average expected long-term rate of return of plan assets used in computing net periodic pension cost for the Primary Plan was 3.00% in 2022 and 4.75% in 2021.

Projected benefit obligation at December 31, 2023 $ (1,996) $ 2,136

Net periodic pension cost in 2023 (194) 206

The weighted average expected long-term rate of return of plan assets used in computing net periodic pension cost for the Bargaining Plan was 7.00% in 2023 and 5.50% in 2022.

These rates reflect an estimate of long-term future returns for the pension plan assets.

This estimate is primarily a function of the asset classes (equities versus fixed income) in which the pension plan assets are invested and the analysis of past performance of these asset classes over a long period of time.

These rates reflect an estimate of long-term future returns for the pension plan assets, and the estimate is primarily a function of the asset classes (equities versus fixed income) in which the Bargaining Plan assets are invested.

This analysis includes expected long-term inflation and the risk premiums associated with equity and fixed income investments.

The analysis also includes planned changes to asset allocations related to the expected termination of the Primary Plan.

See Note 16 to the consolidated financial statements for the details by asset type of the Company’s pension plan assets and the weighted average expected long-term rate of return of each asset type.

The actual return on pension plan assets for the Primary Plan was a loss of 21.1% in 2022 and a gain of 5.0% in 2021.

The actual return on pension plan assets for the Bargaining Plan was a loss of 24.6% in 2022 and a gain of 10.5% in 2021.

See Note 17 to the consolidated financial statements for the details by asset type for the Bargaining Plan.

The actual return on pension plan assets for the Bargaining Plan was a gain of 13.5% in 2023 and a loss of 24.6% in 2022.

The Company sponsors a postretirement healthcare plan for employees meeting specified qualifying criteria.

Several statistical and other factors, which attempt to anticipate future events, are used in calculating the net periodic postretirement benefit cost and postretirement benefit obligation for this plan.

Several statistical and other factors, which attempt to anticipate future events, are used in calculating the net periodic postretirement benefit cost and the postretirement benefit obligation for this plan.

These factors include assumptions about the discount rate and the expected growth rate for the cost of healthcare benefits.

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The Company does not prefund its postretirement benefits and has the right to modify or terminate certain of these benefits in the future.

The discount rate assumption, the annual healthcare cost trend and the ultimate trend rate for healthcare costs are key estimates which can have a significant impact on the net periodic postretirement benefit cost and postretirement benefit obligation in future periods.

The discount rate assumption, the annual healthcare cost trend and the ultimate trend rate for healthcare costs are key estimates which can have a significant impact on the net periodic postretirement benefit cost and the postretirement benefit obligation in future periods.

The Company annually determines the healthcare cost trend based on recent actual medical trend experience and projected experience for subsequent years.

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changes in public and consumer perception and preferences, including concerns related to product safety and sustainability, artificial ingredients, brand reputation and obesity;

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

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

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changes in the inputs used to calculate our acquisition related contingent consideration liability;

technology failures or cyberattacks on our technology systems or our effective response to technology failures or cyberattacks on our customers’, suppliers’ or other third parties’ technology systems;

technology failures or cyberattacks on our information technology systems or our effective response to technology failures or cyberattacks on our customers’, suppliers’ or other third parties’ information technology systems;

unfavorable changes in the general economy;

changes in our top customer relationships and marketing strategies;

the concentration risks among our customers and suppliers;

lower than expected net pricing of our products resulting from continued and increased customer and competitor consolidations and marketplace competition;

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climate change or legislative or regulatory responses to such change;

the impact of any pandemic or public health situation;

and the risks discussed in “Item 1A.

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

What changed 10-K

Item 7. Management’s Discussion and Analysis