What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-07-31 compared with 2024-05-06 · 263 added, 128 removed, 285 unchanged (58% of the section changed)

6 unchanged sentences

The condensed consolidated financial statements presented are:

• The financial position as of March 29, 2024 and December 31, 2023.

• The results of operations, comprehensive income and changes in stockholders’ equity for the three-month periods ended March 29, 2024 (the “first quarter” of fiscal 2024 (“2024”)) and March 31, 2023 (the “first quarter” of fiscal 2023 (“2023”)).

• The changes in cash flows for the first quarter of 2024 and the first quarter of 2023.

• The financial position as of June 28, 2024 and December 31, 2023.

• The results of operations, comprehensive income and changes in stockholders’ equity for the three-month periods ended June 28, 2024 (the “second quarter” of fiscal 2024 (“2024”)) and June 30, 2023 (the “second quarter” of fiscal 2023 (“2023”)) and the six-month periods ended June 28, 2024 (the “first half” of 2024) and June 30, 2023 (the “first half” of 2023).

• The changes in cash flows for the first half of 2024 and the first half of 2023.

Our Business and the Nonalcoholic Beverage Industry

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Executive Summary

Net sales increased 1% to $1.6 billion in the first quarter of 2024.

Sparkling and Still net sales increased 3.4% and 0.4%, respectively, compared to the first quarter of 2023.

Net sales growth was driven by our annual price increase that took effect during the quarter.

Standard physical case volume was down 0.4%, which was attributable to an extra selling day in the first quarter of 2023.

Comparable standard physical case volume, as defined in the “Comparable and Adjusted Results (Non-GAAP)” section, increased 0.7% versus the first quarter of 2023.

Comparable Sparkling category volume grew 2.0% with strong performance of multi-serve packages sold in larger retail stores.

The Sparkling category also benefited from Easter holiday sales activity shifting into the first quarter of 2024.

Comparable Still category volume declined 3.1% during the first quarter of 2024.

Gross profit in the first quarter of 2024 was $640.6 million, an increase of $16.5 million, or 3%.

Gross margin improved 50 basis points to 40.2%.

Pricing actions taken during the first quarter, stable commodity prices and higher Sparkling sales contributed to the overall improvement in gross margin.

Selling, delivery and administrative (“SD&A”) expenses in the first quarter of 2024 increased $7.1 million, or 2%.

SD&A expenses as a percentage of net sales increased 10 basis points to 26.7% in the first quarter of 2024.

The increase in SD&A expenses as compared to the first quarter of 2023 was primarily driven by an increase in labor costs related to annual wage adjustments.

Income from operations in the first quarter of 2024 was $215.4 million, compared to $206.1 million in the first quarter of 2023, an increase of 5%.

Operating margin for the first quarter of 2024 was 13.5% as compared to 13.1% for the first quarter of 2023, an increase of 40 basis points.

Net income in the first quarter of 2024 was $165.7 million, compared to $118.1 million in the first quarter of 2023, an improvement of $47.6 million.

On an adjusted basis, as defined in the “Comparable and Adjusted Results (Non-GAAP)” section, net income in the first quarter of 2024 was $162.5 million, compared to $151.8 million in the first quarter of 2023, an increase of $10.7 million.

Income tax expense for the first quarter of 2024 was $57.1 million, compared to $41.1 million in the first quarter of 2023.

The effective income tax rate for the first quarter of 2024 was 25.6%, compared to 25.8% for the first quarter of 2023.

Cash flows provided by operations for the first quarter of 2024 were $194.3 million, compared to $184.7 million for the first quarter of 2023.

Cash flows from operations reflected our strong operating performance during the first quarter of 2024.

In the first quarter of 2024, we invested $77 million in capital expenditures as we continue to enhance our supply chain and invest for future growth.

For the full year of 2024, we expect our capital expenditures to be between $300 million and $350 million.

During the first quarter of 2024, we made dividend payments of $155 million, which included a special dividend payment of $150 million.

Net sales increased 3.3% to $1.80 billion in the second quarter of 2024 and increased 2.3% to $3.39 billion in the first half of 2024.

Sparkling and Still net sales increased 4.4% and 4.2%, respectively, compared to the second quarter of 2023.

The net sales growth was driven by pricing actions taken during the first quarter of 2024.

Standard physical case volume was down 1.2% in the second quarter of 2024 and down 0.8% in the first half of the year.

For the first half of 2024, comparable standard physical case volume, as defined in the “Comparable and Adjusted Results (Non-GAAP)” section, decreased 0.3% compared to the first half of 2023, which included one additional selling day.

Sparkling category volume remained relatively flat during the second quarter of 2024 with strong performance of multi-serve can packages sold in larger retail stores.

Still category physical case volume declined 3.5% during the second quarter of 2024.

We continue to see softness in Dasani casepack water as well as BODYARMOR but we experienced strength in several key brands including Monster, POWERade, Core Power and vitaminwater.

Direct store delivery (“DSD”) is our preferred and primary route to market.

However, as our business becomes more complex with an increasing number of brands and packages, we are expanding our delivery methods to include routes to market outside our traditional DSD capabilities.

We receive fees associated with our non-DSD sales that benefit our overall profitability but the volume is not reported as part of our standard physical case volume.

For example, we have shifted the distribution of casepack Dasani water sold in Walmart stores to a non-DSD method of distribution which reduced our reported case sales by 0.8% in the second quarter of 2024.

Gross profit in the second quarter of 2024 was $716.7 million, an increase of $45.1 million, or 7%.

Gross margin in the second quarter of 2024 improved 130 basis points to 39.9%.

Pricing actions taken during the first quarter of 2024 along with steady commodity prices were the largest contributors to the overall improvement in gross margin.

Gross profit in the first half of 2024 was $1.36 billion, an increase of $61.6 million, or 4.8%.

Selling, delivery and administrative (“SD&A”) expenses in the second quarter of 2024 increased $19.7 million, or 5%.

SD&A expenses as a percentage of net sales increased 30 basis points to 25.5% in the second quarter of 2024.

The increase in SD&A expenses as compared to the second quarter of 2023 was primarily driven by an increase in labor costs, mostly related to annual wage adjustments and overall inflation.

SD&A expenses in the first half of 2024 increased $26.8 million, or 3.1%.

SD&A expenses as a percentage of net sales in the first half of 2024 increased 20 basis points to 26.1% as compared to the first half of 2023.

Income from operations in the second quarter of 2024 was $259.1 million, compared to $233.7 million in the second quarter of 2023, an increase of 11%.

For the first half of 2024, income from operations increased $34.8 million to $474.5 million, an increase of 8%.

Operating margin for the first half of 2024 was 14.0% as compared to 13.3% for the first half of 2023, an increase of 70 basis points.

Net income in the second quarter of 2024 was $172.8 million, compared to $122.3 million in the second quarter of 2023, an improvement of $50.5 million.

On an adjusted basis, as defined in the “Comparable and Adjusted Results (Non-GAAP)” section, net income in the second quarter of 2024 was $192.8 million, compared to $172.5 million in the second quarter of 2023, an increase of $20.3 million.

Income tax expense for the second quarter of 2024 was $59.4 million, compared to $42.4 million for the second quarter of 2023, resulting in an effective income tax rate of approximately 26% for both periods.

Net income in the first half of 2024 was $338.6 million, compared to $240.4 million in the first half of 2023, an improvement of $98.1 million.

Net income for the second quarter of 2023 and the first half of 2023 was adversely impacted by the partial settlement of our primary pension plan benefit liabilities during the first half of 2023, which resulted in a non-cash charge of $39.8 million.

Cash flows provided by operations for the first half of 2024 were $437.1 million, compared to $383.3 million for the first half of 2023.

Cash flows from operations reflected our strong operating performance during the first half of 2024.

In the first half of

2024, we invested approximately $159 million in capital expenditures as we continue to enhance our supply chain and invest for future growth.

For the full year of 2024, we expect our capital expenditures to be between approximately $300 million and $350 million.

Areas of Emphasis

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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.

Our typical DSD 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 towards alternative distributors in order to enhance customer service and profitability.

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

During the first quarter of 2024, more than half of our post-mix gallons and less than 10% of our bottle/can volume was delivered through alternative routes to market.

During both the second quarter of 2024 and the first half of 2024, 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 :

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Results of Operations

First Quarter Results

The Company’s results of operations for the first quarter of 2024 and the first quarter of 2023 are highlighted in the table below and discussed in the following paragraphs.

First Quarter

Second Quarter Results

The Company’s results of operations for the second quarter of 2024 and the second quarter of 2023 are highlighted in the table below and discussed in the following paragraphs.

Second Quarter

(in thousands) 2024 2023 Change

6 unchanged sentences

Mark-to-market on acquisition related contingent consideration 27,826 25,520 2,306

Pension plan settlement expense — 39,777 (39,777)

Other expense, net 709 2,268 (1,559)

2 unchanged sentences

Net income 172,812 122,319 50,493

Other comprehensive (loss) income, net of tax (153) 738 (891)

Other comprehensive income, net of tax 26 27,823 (27,797)

Comprehensive income

$ 172,838 $ 150,142 $ 22,696

Net sales increased $20.0 million, or 1.3%, to $1.59 billion in the first quarter of 2024, as compared to $1.57 billion in the first quarter of 2023.

Net sales increased $57.1 million, or 3.3%, to $1.80 billion in the second quarter of 2024, as compared to $1.74 billion in the second quarter of 2023.

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 $65 million.

The increase in net sales was partially offset by a decline in external freight revenue, which decreased net sales by approximately $10 million.

The increase in net sales was also partially offset by lower case sales volume as compared to the first quarter of 2023, which decreased net sales by approximately $5 million.

The first quarter of 2024 included one less selling day compared to the first quarter of 2023.

The increase in net sales was partially offset by a decline in external freight revenue and lower case sales volume as compared to the second quarter of 2023.

Net sales by product category were as follows:

First Quarter

Second Quarter

(in thousands) 2024 2023 % Change

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Total net sales $ 1,795,943 $ 1,738,832 3.3 %

The decline in post-mix sales and other in the first quarter of 2024 as compared to the first quarter of 2023 was related to a shift in how we deliver post-mix products to our customers.

The decline in post-mix sales and other in the second quarter of 2024 as compared to the second quarter of 2023 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.

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

More than half of the post-mix gallons sold to local customers in our franchise territory in the first quarter of 2024 were delivered using these alternative distribution methods.

More than half of the post-mix gallons sold to local customers in our franchise territory in the second quarter of 2024 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:

First Quarter

Second Quarter

(in thousands) 2024 2023 % Change

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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 nonalcoholic beverages within

our franchise territory, we receive fees for the delivery of qualified product in our territory.

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

These fees are reported in net sales.

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

Less than 10% of the bottle/can volume sold in our franchise territory in the first quarter of 2024 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:

First Quarter

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

Wal-Mart Stores, Inc.

The Kroger Company 15 % 11 %

Total approximate percent of the Company’s total bottle/can sales volume 36 % 32 %

Approximate percent of the Company’s total net sales:

Wal-Mart Stores, Inc.

The Kroger Company 12 % 9 %

Total approximate percent of the Company’s total net sales 29 % 25 %

Less than 10% of the bottle/can volume sold in our franchise territory in the second quarter of 2024 was delivered using these alternative distribution methods.

Cost of Sales

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

Cost of sales increased $3.5 million, or 0.4%, to $951.1 million in the first quarter of 2024, as compared to $947.5 million in the first quarter of 2023.

Cost of sales increased $12.0 million, or 1.1%, to $1.08 billion in the second quarter of 2024, as compared to $1.07 billion in the second quarter of 2023.

The increase in cost of sales was driven by higher input costs, including concentrate and manufacturing costs, which increased cost of sales by approximately $30 million.

The increase in cost of sales was partially offset by lower case sales volume as compared to the first quarter of 2023, which decreased cost of sales by approximately $20 million.

The increase in cost of sales was also partially offset by a decline in external freight volume, which decreased cost of sales by approximately $15 million.

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

The increase in cost of sales was partially offset by a decline in external freight volume and lower case sales volume as compared to the second quarter of 2023.

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

The Coca‑Cola Company and other beverage companies that supply concentrates, syrups and finished products to the Company make substantial marketing and advertising expenditures, including national advertising programs, to develop their brand identities and to promote sales in the Company’s territories.

Certain of these marketing and advertising expenditures are made pursuant to annual arrangements.

Total marketing funding support from The Coca‑Cola Company and other beverage companies, which includes both direct payments to the Company and payments to customers for marketing programs, was $45.3 million in the first quarter of 2024 and $37.0 million in the first quarter of 2023.

Total marketing funding support from The Coca‑Cola Company and other beverage companies, which includes both direct payments to the Company and payments to customers for marketing programs, was $49.3 million in the second quarter of 2024 and $46.1 million in the second quarter of 2023.

Selling, Delivery and Administrative Expenses

SD&A expenses include the following:

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

equipment repair costs, amortization of intangible assets and administrative support labor and operating costs.

Labor costs represent approximately 60% of total SD&A expenses on an annual basis.

SD&A expenses increased $7.1 million, or 1.7%, to $425.2 million in the first quarter of 2024, as compared to $418.1 million in the first quarter of 2023.

SD&A expenses as a percentage of net sales increased to 26.7% in the first quarter of 2024 from 26.6% in the first quarter of 2023.

The increase in SD&A expenses was primarily driven by an increase in labor costs related to annual wage adjustments.

Shipping and handling costs included in SD&A expenses were $193.0 million in the first quarter of 2024 and $193.2 million in the first quarter of 2023.

SD&A expenses increased $19.7 million, or 4.5%, to $457.6 million in the second quarter of 2024, as compared to $437.9 million in the second quarter of 2023.

SD&A expenses as a percentage of net sales increased to 25.5% in the second quarter of 2024 from 25.2% in the second quarter of 2023.

The increase in SD&A expenses was primarily driven by an increase in labor costs, mostly related to annual wage adjustments and overall inflation.

Shipping and handling costs included in SD&A expenses were $200.0 million in the second quarter of 2024 and $192.8 million in the second quarter of 2023.

Interest (Income) Expense, Net

Interest (income) expense, net changed $5.6 million, or 192.7%, to $2.7 million of interest income, net in the first quarter of 2024, as compared to $2.9 million of interest expense, net in the first quarter of 2023.

The change in interest (income) expense, net was primarily a result of an increase in interest income due to higher cash, cash equivalent and short-term investment balances and increased yields as compared to the first quarter of 2023.

Interest (income) expense, net changed $3.0 million, or 219.7%, to $1.6 million of interest income, net in the second quarter of 2024, as compared to $1.4 million of interest expense, net in the second quarter of 2023.

The change in interest (income) expense, net was primarily a result of an increase in interest income due to higher cash, cash equivalent and short-term investment balances, partially offset by an increase in interest expense on higher debt balances in the second quarter of 2024, as compared to the second quarter of 2023.

Mark-to-Market on Acquisition Related Contingent Consideration

Mark-to-market on acquisition related contingent consideration was a decrease of $5.5 million in the first quarter of 2024 as compared to an increase of $41.7 million in the first quarter of 2023, a change of $47.2 million.

Mark-to-market on acquisition related contingent consideration increased $2.3 million in the second quarter of 2024 as compared to the second quarter of 2023.

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

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

The change in the fair value of the acquisition related contingent consideration liability in the first quarter of 2024 as compared to the first quarter of 2023 was primarily driven by changes in the WACC used to calculate the fair value of the liability.

The change in the fair value of the acquisition related contingent consideration liability in the second quarter of 2024 as compared to the second quarter of 2023 was primarily driven by changes in the future cash flow projections and WACC used to calculate the fair value of the liability.

Other Expense, Net

Other expense, net decreased $1.4 million to $0.8 million in the first quarter of 2024, as compared to $2.3 million in the first quarter of 2023.

Other expense, net decreased $1.6 million to $0.7 million in the second quarter of 2024, as compared to $2.3 million in the second quarter of 2023.

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 was 25.6% for the first quarter of 2024 and 25.8% for the first quarter of 2023.

The Company’s income tax expense increased $16.0 million, or 39.0%, to $57.1 million for the first quarter of 2024, as compared to $41.1 million for the first quarter of 2023.

The increase in income tax expense was primarily attributable to higher income before taxes during the first quarter of 2024 compared to the first quarter of 2023.

The Company’s effective income tax rate was 25.6% for the second quarter of 2024 and 25.8% for the second quarter of 2023.

The Company’s income tax expense increased $17.0 million, or 40.0%, to $59.4 million for the second quarter of 2024, as compared to $42.4 million for the second quarter of 2023.

The increase in income tax expense was primarily attributable to higher income before taxes during the second quarter of 2024 compared to the second quarter of 2023.

Other Comprehensive Income, Net of Tax

Other comprehensive income, net of tax decreased $27.8 million in the second quarter of 2024 as compared to the second quarter of 2023.

The decrease was primarily related to the partial settlement of the primary Company-sponsored pension plan (the “Primary Plan”) benefit liabilities during the second quarter of 2023, which resulted in the reclassification of the gross actuarial losses associated with the Primary Plan out of accumulated other comprehensive loss during that period.

First Half Results

Our results of operations for the first half of 2024 and the first half of 2023 are highlighted in the table below and discussed in the following paragraphs.

(in thousands)

2024 2023 Change

Net sales $ 3,387,569 $ 3,310,474 $ 77,095

Cost of sales 2,030,300 2,014,791 15,509

Gross profit 1,357,269 1,295,683 61,586

Selling, delivery and administrative expenses 882,723 855,959 26,764

Income from operations 474,546 439,724 34,822

Interest (income) expense, net (4,336) 4,282 (8,618)

Mark-to-market on acquisition related contingent consideration 22,285 67,174 (44,889)

Pension plan settlement expense — 39,777 (39,777)

Other expense, net 1,537 4,537 (3,000)

Income before taxes 455,060 323,954 131,106

Income tax expense 116,507 83,508 32,999

Net income 338,553 240,446 98,107

Other comprehensive (loss) income, net of tax (127) 28,561 (28,688)

Other comprehensive (loss) income, net of tax was $0.2 million of other comprehensive loss in the first quarter of 2024 and $0.7 million of other comprehensive income in the first quarter of 2023.

Comprehensive income

$ 338,426 $ 269,007 $ 69,419

Net sales increased $77.1 million, or 2.3%, to $3.39 billion in the first half of 2024, as compared to $3.31 billion in the first half of 2023.

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 $115 million.

The increase in net sales was partially offset by lower case sales volume and a decline in external freight revenue as compared to the first half of 2023.

The first half of 2024 included one less selling day compared to the first half of 2023.

Net sales by product category were as follows:

(in thousands) 2024 2023 % Change

Bottle/can sales:

Sparkling beverages $ 1,996,385 $ 1,918,695 4.0 %

Still beverages 1,108,392 1,082,876 2.4 %

Total bottle/can sales 3,104,777 3,001,571 3.4 %

Sales to other Coca‑Cola bottlers 171,096 179,652 (4.8) %

Post-mix sales and other 111,696 129,251 (13.6) %

Total other sales 282,792 308,903 (8.5) %

Total net sales $ 3,387,569 $ 3,310,474 2.3 %

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

(in thousands) 2024 2023 % Change

Bottle/can sales volume:

Sparkling beverages 129,448 129,144 0.2 %

Still beverages 44,116 45,880 (3.8) %

Total bottle/can sales volume 173,564 175,024 (0.8) %

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

The Kroger Co.

Total approximate percent of the Company’s total bottle/can sales volume 36 % 34 %

Approximate percent of the Company’s total net sales:

The Kroger Co.

Total approximate percent of the Company’s total net sales 29 % 27 %

(1) Includes bottle/can sales volume related to the Walmart, Sam’s Club and Walmart Neighborhood Market chains.

(2) Includes bottle/can sales volume related to the Kroger and Harris Teeter chains.

Cost of Sales

Cost of sales increased $15.5 million, or 0.8%, to $2.03 billion in the first half of 2024, as compared to $2.01 billion in the first half of 2023.

The increase in cost of sales was driven by higher input costs, including concentrate and manufacturing costs, which increased cost of sales by approximately $50 million.

The increase in cost of sales was partially offset by a decline in external freight volume and lower case sales volume as compared to the first half of 2023.

Total marketing funding support from The Coca‑Cola Company and other beverage companies was $94.6 million in the first half of 2024, as compared to $83.1 million in the first half of 2023.

Selling, Delivery and Administrative Expenses

SD&A expenses increased $26.8 million, or 3.1%, to $882.7 million in the first half of 2024, as compared to $856.0 million in the first half of 2023.

SD&A expenses as a percentage of net sales increased to 26.1% in the first half of 2024 from 25.9% in the first half of 2023.

The increase in SD&A expenses was primarily driven by an increase in labor costs, mostly related to annual wage adjustments and overall inflation.

Shipping and handling costs included in SD&A expenses were $393.0 million in the first half of 2024 and $386.0 million in the first half of 2023.

Interest (Income) Expense, Net

Interest (income) expense, net changed $8.6 million, or 201.3%, to $4.3 million of interest income, net in the first half of 2024, as compared to $4.3 million of interest expense, net in the first half of 2023.

The change in interest (income) expense, net was primarily a result of an increase in interest income due to higher cash, cash equivalent and short-term investment balances, partially offset by an increase in interest expense on higher debt balances in the first half of 2024, as compared to the first half of 2023.

Mark-to-Market on Acquisition Related Contingent Consideration

Mark-to-market on acquisition related contingent consideration decreased $44.9 million in the first half of 2024 as compared to the first half of 2023.

The change in the fair value of the acquisition related contingent consideration liability in the first half of 2024 as compared to the first half of 2023 was primarily driven by changes in the WACC and future cash flow projections used to calculate the fair value of the liability.

Other Expense, Net

Other expense, net decreased $3.0 million to $1.5 million in the first half of 2024, as compared to $4.5 million in the first half of 2023.

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 was 25.6% for the first half of 2024 and 25.8% for the first half of 2023.

The Company’s income tax expense increased $33.0 million, or 39.5%, to $116.5 million for the first half of 2024, as compared to $83.5 million for the first half of 2023.

The increase in income tax expense was primarily attributable to higher income before taxes during the first half of 2024 compared to the first half of 2023.

Other Comprehensive (Loss) Income, Net of Tax

Other comprehensive loss, net of tax was $0.1 million in the first half of 2024 and other comprehensive income, net of tax was $28.6 million in the first half of 2023.

The change was primarily related to the partial settlement of the Primary Plan benefit liabilities during the first half of 2023, which resulted in the reclassification of the gross actuarial losses associated with the Primary Plan out of accumulated other comprehensive loss during that period.

Segment Operating Results

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The Company’s segment results are as follows:

First Quarter

Second Quarter First Half

(in thousands) 2024 2023 2024 2023

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

Non-GAAP financial measures should be viewed in addition to, and not as an alternative for, the Company’s reported results prepared in accordance with GAAP.

Non-GAAP financial measures

should be viewed in addition to, and not as an alternative for, the Company’s reported results prepared in accordance with GAAP.

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

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

Results for the first quarter of 2023 include one additional selling day compared to the first quarter of 2024.

For comparison purposes, the estimated impact of the additional selling day in the first quarter of 2023 has been excluded from our comparable volume results.

First Quarter

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

Second Quarter 2024

(in thousands, except per share data) Gross profit SD&A expenses Income from operations Income before taxes Net income Basic net income per share

Reported results (GAAP) $ 716,710 $ 457,570 $ 259,140 $ 232,225 $ 172,812 $ 18.57

Fair value adjustment of acquisition related contingent consideration (1)

— — — 27,826 20,950 2.25

Fair value adjustments for commodity derivative instruments (2)

(1,075) 254 (1,329) (1,329) (1,001) (0.11)

Total reconciling items (1,075) 254 (1,329) 26,497 19,949 2.14

Adjusted results (non-GAAP) $ 715,635 $ 457,824 $ 257,811 $ 258,722 $ 192,761 $ 20.71

Second Quarter 2023

(in thousands, except per share data) Gross profit SD&A expenses Income from operations Income before taxes Net income Basic net income per share

Reported results (GAAP) $ 671,577 $ 437,907 $ 233,670 $ 164,752 $ 122,319 $ 13.05

Fair value adjustment of acquisition related contingent consideration (1)

— — — 25,520 19,214 2.05

Fair value adjustments for commodity derivative instruments (2)

1,097 (224) 1,321 1,321 994 0.10

Pension plan settlement expense (3)

— — — 39,777 29,948 3.19

Total reconciling items 1,097 (224) 1,321 66,618 50,156 5.34

Adjusted results (non-GAAP) $ 672,674 $ 437,683 $ 234,991 $ 231,370 $ 172,475 $ 18.39

Results for the first half of 2023 include one additional selling day compared to the first half of 2024.

For comparison purposes, the estimated impact of the additional selling day in the first half of 2023 has been excluded from our comparable volume results.

(in thousands) 2024 2023 Change

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Comparable standard physical case volume 173,564 174,101 (0.3) %

First Quarter 2024

(in thousands, except per share data) Gross profit SD&A expenses Income from operations Income before taxes Net income Basic net income per share

First Half 2024

(in thousands, except per share data) Gross

expenses Income from

operations Income before taxes Net

income Basic net income

Reported results (GAAP) $ 1,357,269 $ 882,723 $ 474,546 $ 455,060 $ 338,553 $ 36.26

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Adjusted results (non-GAAP) $ 1,357,350 $ 882,934 $ 474,416 $ 477,215 $ 355,233 $ 38.05

First Quarter 2023

(in thousands, except per share data) Gross profit SD&A expenses Income from operations Income before taxes Net income Basic net income per share

First Half 2023

(in thousands, except per share data) Gross

expenses Income from

operations Income before taxes Net

income Basic net income

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

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

Pension plan settlement expense (3)

— — — 39,777 29,948 3.19

Total reconciling items 1,492 (2,914) 4,406 111,357 83,840 8.94

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

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

Financial Condition

Total assets were $4.30 billion as of March 29, 2024, which was an increase of $8.2 million from December 31, 2023.

Net working capital, defined as current assets less current liabilities, was $797.0 million as of March 29, 2024, which was an increase of $183.2 million from December 31, 2023.

Significant changes in net working capital as of March 29, 2024 as compared to December 31, 2023 were as follows:

• A decrease in cash and cash equivalents of $234.0 million, primarily as a result of the purchase of short-term investments of approximately $184 million and dividend payments of approximately $155 million, partially offset by our strong operating performance.

• An increase in short-term investments of $183.6 million, due to the purchase of new short-term investments during the first quarter of 2024.

• An increase in inventories of $39.2 million, primarily due to seasonal builds of inventory.

• A decrease in accounts payable, trade of $36.6 million, primarily due to the timing of cash payments.

Total assets were $5.66 billion as of June 28, 2024, which was an increase of $1.37 billion from December 31, 2023.

Net working capital, defined as current assets less current liabilities, was $1.50 billion as of June 28, 2024, which was an increase of $882.9 million from December 31, 2023.

Significant changes in net working capital as of June 28, 2024 as compared to December 31, 2023 were as follows:

• An increase in cash and cash equivalents of $1.06 billion, primarily as a result of bond proceeds received of $1.20 billion and strong operating performance, partially offset by purchases of short-term investments of $213.1 million, dividend payments of $159.4 million and capital expenditures of $159.4 million.

• An increase in short-term investments of $198.8 million, primarily due to the purchase of short-term investments during the first half of 2024.

• An increase in accounts receivable, trade of $61.9 million, driven primarily by increased net sales.

• An increase in accounts payable to The Coca-Cola Company of $109.1 million, primarily due to the timing of cash payments.

• A decrease in accrued compensation of $64.6 million, primarily as a result of the timing of bonus and incentive payments in the first quarter of 2024.

• A decrease in dividends payable of $154.7 million, primarily related to the payment of a special cash dividend during the first quarter of 2024.

• An increase in share repurchase obligation to The Coca-Cola Company of $553.7 million, due to a purchase agreement executed during the first half of 2024, as further discussed below and in Note 2 to the condensed consolidated financial statements.

• A decrease in accrued compensation of $59.4 million, primarily as a result of the timing of bonus and incentive payments in the first half of 2024.

• A decrease in dividends payable of $154.7 million, due to the payment of a special cash dividend during the first half of 2024.

Liquidity and Capital Resources

The Company’s sources of capital include cash flows from operations, available credit facilities and the issuance of debt and equity securities.

As of March 29, 2024, the Company had $401.3 million in cash and cash equivalents.

As of June 28, 2024, the Company had $1.70 billion in cash and cash equivalents.

The Company’s cash equivalent balance consisted predominantly of investments in money market funds and U.S.

Treasury securities with maturities of 90 days or less.

As of March 29, 2024, the Company had $183.6 million in short-term investments, which consisted primarily of U.S.

As of June 28, 2024, the Company had $198.8 million in short-term investments, which consisted primarily of U.S.

Treasury securities and investment-grade corporate bonds with maturities of one year or less.

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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 condensed consolidated financial statements.

The Company’s long-term debt as of March 29, 2024 and December 31, 2023 was as follows:

(in thousands) Maturity Date March 29, 2024 December 31, 2023

Senior bonds and unamortized discount on senior bonds (1)

On May 6, 2024, the Company announced its intention to purchase up to $3.10 billion in value of its Common Stock through both a modified “Dutch auction” tender offer (the “Tender Offer”) for up to $2.00 billion of its Common Stock and a separate share purchase agreement (the “Purchase Agreement”) with Carolina Coca-Cola Bottling Investments, Inc., an indirect wholly owned subsidiary of The Coca‑Cola Company (“CCCBI”).

On May 20, 2024, the Company launched its offer to purchase, for cash, shares of its Common Stock at prices specified by the tendering stockholders of not less than $850 nor greater than $925 per share, with shares having an aggregate purchase price of no more than $2.00 billion.

On June 21, 2024, the Company announced the final results of the Tender Offer, which expired on June 18, 2024.

In accordance with the terms and conditions of the Tender Offer, the Company repurchased 14,391.5 shares of its Common Stock at a price of $925 per share, for an aggregate purchase price of $13.3 million, excluding fees and expenses relating to the Tender Offer.

The shares repurchased represented 0.2% of the shares of the Company’s Common Stock that were issued and outstanding as of June 18, 2024.

Pursuant to the Purchase Agreement entered into on May 6, 2024 with CCCBI, the Company agreed to purchase and CCCBI agreed to sell, at the purchase price in the Tender Offer, a number of shares of the Company’s Common Stock (the “Share Repurchase”) such that CCCBI would beneficially own shares of the Company’s Common Stock representing 21.5% of the Company’s total outstanding shares of Common Stock and Class B Common Stock immediately following the closing of the Share Repurchase (calculated assuming all issued and outstanding shares of Class B Common Stock were converted into Common Stock and taking into account the shares of Common Stock purchased in the Tender Offer, which is referred to herein as the “fully diluted calculation”).

The Share Repurchase was conditioned on, among other things, completion of the Tender Offer and, in the case of CCCBI’s obligation to close, the purchase price being no less than $925 per share.

Based on the fully diluted calculation following the expiration of the Tender Offer, the Company announced on June 21, 2024 its intention to purchase 598,619 shares of its Common Stock from CCCBI in the Share Repurchase at a price of $925 per share, for an aggregate purchase price of $553.7 million.

The Share Repurchase closed on July 5, 2024.

The Company’s long-term debt as of June 28, 2024 and December 31, 2023 was as follows:

(in thousands) Maturity Date June 28, 2024 December 31, 2023

Senior bonds (the “2025 Senior Bonds”) net of unamortized discount (1)

11/25/2025 $ 349,988 $ 349,983

Revolving credit facility (2)

Senior notes 10/10/2026 100,000 100,000

Senior bonds (the “2029 Senior Bonds”) net of unamortized discount (2)(3)

6/1/2029 698,919 —

Revolving credit facility (4)

6/10/2029 — —

Senior notes 3/21/2030 150,000 150,000

Senior bonds (the “2034 Senior Bonds”) net of unamortized discount (3)(5)

6/1/2034 499,469 —

Debt issuance costs (13,274) (824)

Total long-term debt $ 1,785,102 $ 599,159

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

(1) The 2025 Senior Bonds were issued at 99.975% of par.

(2) The 2029 Senior Bonds were issued at 99.843% of par.

(3) The 2029 Senior Bonds and the 2034 Senior Bonds were issued in connection with the financing of the Tender Offer and the Share Repurchase initiated during the second quarter of 2024, as discussed above.

(4) 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.

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:

(5) The 2034 Senior Bonds were issued at 99.893% of par.

On May 29, 2024, the Company completed the issuance and sale of $700 million aggregate principal amount of the 2029 Senior Bonds and $500 million aggregate principal amount of the 2034 Senior Bonds.

The 2029 Senior Bonds and the 2034 Senior Bonds are the Company’s senior unsecured obligations and rank equally with the Company’s existing and future senior unsecured and unsubordinated indebtedness.

The 2029 Senior Bonds mature on June 1, 2029 and the 2034 Senior Bonds mature on June 1, 2034, in each case, unless earlier redeemed or repurchased by the Company.

The 2029 Senior Bonds bear interest at a rate of 5.250% per annum and the 2034 Senior Bonds bear interest at a rate of 5.450% per annum.

The Company will pay interest on the 2029 Senior Bonds and the 2034 Senior Bonds semi-annually in arrears on June 1 and December 1 of each year, commencing December 1, 2024.

On June 10, 2024, the Company entered into a term loan agreement, providing for a senior unsecured term loan facility in the aggregate principal amount of up to $800 million, maturing on June 10, 2027, and a senior unsecured term loan facility in the aggregate principal amount of up to $500 million, maturing on June 10, 2029 (collectively, the “Term Loan Facilities”).

The Company did not draw any loans under the Term Loan Facilities during the second quarter of 2024.

On June 20, 2024, the Company gave notice, effective as of June 27, 2024, of its permanent reduction to $0 of the commitments under the Term Loan Facilities.

Upon the effectiveness of the notice, the aggregate commitments under the Term Loan Facilities were reduced in accordance with their terms from $1.30 billion to $0.

As of June 28, 2024, there were no amounts outstanding under the Term Loan Facilities.

Also on June 10, 2024, the Company entered into an amended and restated credit agreement (the “Revolving Credit Facility Agreement”), providing for a five-year unsecured revolving credit facility with an aggregate maximum borrowing capacity of $500 million (the “Revolving Credit Facility”), maturing on June 10, 2029.

The Revolving Credit Facility Agreement replaced the Company’s previous credit agreement, dated as of July 9, 2021.

Subject to obtaining commitments from lenders and satisfying other conditions specified therein, at the Company’s option, the Revolving Credit Facility may be increased by up to $250 million.

Borrowings under the Revolving Credit Facility bear interest at a per annum rate equal to, at the Company’s option, either (i) Base Rate (as defined in the Revolving Credit Facility Agreement) plus an applicable rate or (ii) Term SOFR (as defined in the Revolving Credit Facility Agreement) plus the SOFR Adjustment (as defined in the Revolving Credit Facility Agreement) and an applicable rate, depending on the rating for the Company’s long-term senior unsecured, non-credit-enhanced debt (“Debt Rating”).

In addition, the Company must pay a facility fee on the lenders’ aggregate commitments under the Revolving Credit Facility ranging from 0.060% to 0.175% per annum, depending on the Company’s Debt Rating.

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.

The indentures under which the 2025 Senior Bonds, the 2029 Senior Bonds and the 2034 Senior Bonds were issued do not include financial covenants, but do 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, including the Revolving Credit Facility, 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 March 29, 2024.

The Company was in compliance with these covenants as of June 28, 2024.

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

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

As of March 29, 2024, the Company’s credit ratings and outlook for its long-term debt were as follows:

As of June 28, 2024, the Company’s credit ratings and outlook for its long-term debt were as follows:

Credit Rating Rating Outlook

Moody’s Baa1 Stable

Standard & Poor’s BBB+ Stable

Standard & Poor’s BBB+ Negative

The Company’s Board of Directors has declared, and the Company has paid, dividends on the Common Stock and the Class B Common Stock and each class of common stock has participated equally in all dividends each quarter for more than 30 years.

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 May 6, 2024, the Company announced that it intends to purchase up to $3.1 billion in value of its Common Stock through both a modified “Dutch auction” tender offer (the “Tender Offer”) for up to $2.0 billion of its Common Stock and a separate share purchase agreement (the “Purchase Agreement”) with a subsidiary of The Coca‑Cola Company.

The Company intends to fund the Tender Offer and repurchase of shares under the Purchase Agreement with a combination of new funded debt and cash on hand.

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.

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Following is a summary of the Level 3 activity:

First Quarter

Second Quarter First Half

(in thousands) 2024 2023 2024 2023

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Reclassification to current payables (6,200) (700) (10,700) (900)

(Decrease) increase in fair value (5,541) 41,654

Increase in fair value 27,826 25,520 22,285 67,174

Ending balance - Level 3 liability $ 657,246 $ 594,389 $ 657,246 $ 594,389

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A summary of cash-based activity is as follows:

First Quarter

(in thousands) 2024 2023

Cash Sources:

Proceeds from bond issuance $ 1,200,000 $ —

Net cash provided by operating activities (1)

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Purchases of short-term investments $ 213,123 $ —

Cash dividends paid 154,666 32,808

Additions to property, plant and equipment 159,400 92,893

Cash dividends paid 159,353 37,495

Payments of acquisition related contingent consideration 23,676 13,376

Payments related to share repurchases 14,471 —

Debt issuance fees 12,212 154

Investment in equity method investees 6,549 6,033

Payments on financing lease obligations 1,221 1,130

Debt issuance fees 53 154

Total cash uses $ 590,005 $ 151,081

Net (decrease) increase in cash during period $ (234,009) $ 92,133

(1) Net cash provided by operating activities included net income tax payments of $2.7 million in the first quarter of 2024 and $1.1 million in the first quarter of 2023.

Net increase in cash during period $ 1,064,019 $ 232,524

(1) Net cash provided by operating activities included net income tax payments of $109.8 million in the first half of 2024 and $90.2 million in the first half of 2023.

Cash Flows From Operating Activities

During the first quarter of 2024, cash provided by operating activities was $194.3 million, which was an increase of $9.6 million as compared to the first quarter of 2023.

The increase was primarily a result of our strong operating performance during the first quarter of 2024.

During the first half of 2024, cash provided by operating activities was $437.1 million, which was an increase of $53.8 million as compared to the first half of 2023.

The increase was primarily a result of our strong operating performance during the first half of 2024.

Cash Flows From Investing Activities

During the first quarter of 2024, cash used in investing activities was $263.3 million, which was an increase of $210.7 million as compared to the first quarter of 2023.

The increase was primarily a result of the purchase of short-term investments of approximately $184 million during the first quarter of 2024, as well as additions to property, plant and equipment, which were approximately $77 million during the first quarter of 2024 and approximately $53 million during the first quarter of 2023.

There were $24.3 million and $18.1 million of additions to property, plant and equipment accrued in accounts payable, trade as of March 29, 2024 and March 31, 2023, respectively.

During the first half of 2024, cash used in investing activities was $362.2 million, which was an increase of $263.5 million as compared to the first half of 2023.

The increase was primarily a result of the purchase of short-term investments of $213.1 million during the first half of 2024, as well as additions to property, plant and equipment, which were $159.4 million during the first half of 2024 and $92.9 million during the first half of 2023.

There were $29.5 million and $23.4 million of additions to property, plant and equipment accrued in accounts payable, trade as of June 28, 2024 and June 30, 2023, respectively.

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

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

Over the next five years, the Company anticipates additions to property, plant and equipment to be in the range of approximately $250 million to $300 million.

The Company anticipates additions to property, plant and equipment in 2024 to be in the range of approximately

$300 million to $350 million, with remaining anticipated expenditures in the second half of 2024 of approximately $140 million to $190 million.

Over the next five years, the Company anticipates additions to property, plant and equipment to be in the range of approximately $250 million to $300 million annually.

Cash Flows From Financing Activities

During the first quarter of 2024, cash used in financing activities was $165.0 million, which was an increase of $125.0 million as compared to the first quarter of 2023.

The increase was primarily a result of dividend payments of approximately $155 million during the first quarter of 2024 (which included a special cash dividend of $16.00 per share), as compared to dividend payments of approximately $33 million during the first quarter of 2023 (which included a special cash dividend of $3.00 per share).

The Company had cash payments for acquisition related contingent consideration of $9.7 million during the first quarter of 2024 and $6.5 million during the first quarter of 2023.

During the first half of 2024, cash provided by financing activities was $989.1 million, as compared to cash used in financing activities of $52.2 million during the first half of 2023, a change of $1.04 billion.

The change was primarily the result of bond proceeds of $1.20 billion, offset by dividend payments of $159.4 million, during the first half of 2024.

The dividend payments of $159.4 million included a special cash dividend of $16.00 per share, as compared to dividend payments of $37.5 million during the first half of 2023, which included a special cash dividend of $3.00 per share.

The Company also paid $14.5 million during the first half of 2024 related to share repurchases and associated fees.

The Company had cash payments for acquisition related contingent consideration of $23.7 million during the first half of 2024 and $13.4 million during the first half 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 $50 million to $75 million.

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

First Quarter

Second Quarter First Half

(in thousands) 2024 2023 2024 2023

Increase in cost of sales $ 1,534 $ 1,056

(Decrease) increase in cost of sales $ (1,464) $ 1,928 $ 70 $ 2,984

Increase in SD&A expenses 295 1,692 618 5,629

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our inability to meet requirements under our beverage distribution and manufacturing agreements;

changes in the inputs used to calculate our

acquisition related contingent consideration liability;

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

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;

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis