Item 1. Financial Statements
Item 1. Financial Statements.
COCA ‑ COLA CONSOLIDATED, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Second Quarter First Half
(in thousands, except per share data) 2024 2023 2024 2023
Net sales $ 1,795,943 $ 1,738,832 $ 3,387,569 $ 3,310,474
Cost of sales 1,079,233 1,067,255 2,030,300 2,014,791
Gross profit 716,710 671,577 1,357,269 1,295,683
Selling, delivery and administrative expenses 457,570 437,907 882,723 855,959
Income from operations 259,140 233,670 474,546 439,724
Interest (income) expense, net ( 1,620 ) 1,353 ( 4,336 ) 4,282
Mark-to-market on acquisition related contingent consideration 27,826 25,520 22,285 67,174
Pension plan settlement expense — 39,777 — 39,777
Other expense, net 709 2,268 1,537 4,537
Income before taxes 232,225 164,752 455,060 323,954
Income tax expense 59,413 42,433 116,507 83,508
Net income $ 172,812 $ 122,319 $ 338,553 $ 240,446
Basic net income per share:
Common Stock $ 18.57 $ 13.05 $ 36.26 $ 25.65
Weighted average number of Common Stock shares outstanding 8,302 8,369 8,335 8,369
Class B Common Stock $ 18.56 $ 13.05 $ 36.18 $ 25.65
Weighted average number of Class B Common Stock shares outstanding 1,005 1,005 1,005 1,005
Diluted net income per share:
Common Stock $ 18.54 $ 13.02 $ 36.19 $ 25.59
Weighted average number of Common Stock shares outstanding – assuming dilution 9,321 9,396 9,354 9,396
Class B Common Stock $ 18.53 $ 13.01 $ 35.92 $ 25.51
Weighted average number of Class B Common Stock shares outstanding – assuming dilution 1,019 1,027 1,019 1,027
Cash dividends per share:
Common Stock $ 0.50 $ 0.50 $ 17.00 $ 4.00
Class B Common Stock $ 0.50 $ 0.50 $ 17.00 $ 4.00
See accompanying notes to condensed consolidated financial statements.
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COCA ‑ COLA CONSOLIDATED, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
Second Quarter First Half
(in thousands) 2024 2023 2024 2023
Net income $ 172,812 $ 122,319 $ 338,553 $ 240,446
Other comprehensive income (loss), net of tax:
Defined benefit plans reclassification including pension costs:
Actuarial loss — ( 2,221 ) — ( 1,486 )
Prior service credits 3 3 6 6
Pension plan settlement — 30,041 — 30,041
Postretirement benefits reclassification including benefit costs:
Actuarial gain 20 — 40 —
Unrealized gain (loss) on short-term investments 3 — ( 173 ) —
Other comprehensive income (loss), net of tax 26 27,823 ( 127 ) 28,561
Comprehensive income $ 172,838 $ 150,142 $ 338,426 $ 269,007
See accompanying notes to condensed consolidated financial statements.
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COCA ‑ COLA CONSOLIDATED, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands, except share data) June 28, 2024 December 31, 2023
ASSETS
Current Assets:
Cash and cash equivalents $ 1,699,288 $ 635,269
Short-term investments 198,771 —
Accounts receivable, trade 617,839 555,933
Allowance for doubtful accounts ( 15,276 ) ( 16,060 )
Accounts receivable from The Coca‑Cola Company 72,440 51,936
Accounts receivable, other 41,808 67,533
Inventories 338,249 321,932
Prepaid expenses and other current assets 83,225 88,585
Total current assets 3,036,344 1,705,128
Property, plant and equipment, net 1,366,054 1,320,563
Right-of-use assets - operating leases 110,139 122,708
Leased property under financing leases, net 3,962 4,785
Other assets 162,285 145,213
Goodwill 165,903 165,903
Distribution agreements, net 804,697 817,143
Customer lists, net 6,688 7,499
Total assets $ 5,656,072 $ 4,288,942
LIABILITIES AND EQUITY
Current Liabilities:
Current portion of obligations under operating leases $ 23,923 $ 26,194
Current portion of obligations under financing leases 2,584 2,487
Accounts payable, trade 368,598 383,562
Accounts payable to The Coca‑Cola Company 248,640 139,499
Share repurchase obligation to The Coca-Cola Company 553,723 —
Other accrued liabilities 254,649 237,994
Accrued compensation 87,496 146,932
Dividends payable — 154,666
Total current liabilities 1,539,613 1,091,334
Deferred income taxes 130,658 128,435
Pension and postretirement benefit obligations 61,892 60,614
Other liabilities 847,651 866,499
Noncurrent portion of obligations under operating leases 92,248 102,271
Noncurrent portion of obligations under financing leases 3,714 5,032
Long-term debt 1,785,102 599,159
Total liabilities 4,460,878 2,853,344
Commitments and Contingencies
Equity:
Common Stock, $ 1.00 par value: 30,000,000 shares authorized; 11,431,367 shares issued
11,431 11,431
Class B Common Stock, $ 1.00 par value: 10,000,000 shares authorized; 1,632,810 shares issued
1,633 1,633
Additional paid-in capital 135,953 135,953
Retained earnings 1,685,977 1,352,111
Accumulated other comprehensive loss ( 4,403 ) ( 4,276 )
Treasury stock, at cost: Common Stock – 3,675,384 and 3,062,374 shares, respectively
( 634,988 ) ( 60,845 )
Treasury stock, at cost: Class B Common Stock – 628,114 shares
( 409 ) ( 409 )
Total equity 1,195,194 1,435,598
Total liabilities and equity $ 5,656,072 $ 4,288,942
See accompanying notes to condensed consolidated financial statements.
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COCA ‑ COLA CONSOLIDATED, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
First Half
(in thousands) 2024 2023
Cash Flows from Operating Activities:
Net income $ 338,553 $ 240,446
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense from property, plant and equipment and financing leases 82,684 75,415
Amortization of intangible assets and deferred proceeds, net 11,725 11,770
Fair value adjustment of acquisition related contingent consideration 22,285 67,174
Deferred income taxes 2,264 ( 7,848 )
Loss on sale of property, plant and equipment 2,257 4,128
Amortization of debt costs 689 494
Pension plan settlement expense — 39,777
Change in current assets less current liabilities 257 ( 41,957 )
Change in other noncurrent assets 3,758 5,216
Change in other noncurrent liabilities ( 27,341 ) ( 11,277 )
Total adjustments 98,578 142,892
Net cash provided by operating activities $ 437,131 $ 383,338
Cash Flows from Investing Activities:
Purchases of short-term investments $ ( 213,123 ) $ —
Additions to property, plant and equipment ( 159,400 ) ( 92,893 )
Proceeds from the disposal of short-term investments 16,643 —
Investment in equity method investees ( 6,549 ) ( 6,033 )
Proceeds from the sale of property, plant and equipment 250 267
Net cash used in investing activities $ ( 362,179 ) $ ( 98,659 )
Cash Flows from Financing Activities:
Proceeds from bond issuance $ 1,200,000 $ —
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 )
Payments on financing lease obligations ( 1,221 ) ( 1,130 )
Net cash provided by (used in) financing activities $ 989,067 $ ( 52,155 )
Net increase in cash during period $ 1,064,019 $ 232,524
Cash at beginning of period 635,269 197,648
Cash at end of period $ 1,699,288 $ 430,172
Significant non-cash investing and financing activities:
Share repurchase obligation to The Coca-Cola Company $ 553,723 $ —
Additions to property, plant and equipment accrued and recorded in accounts payable, trade 29,542 23,435
Right-of-use assets obtained in exchange for operating lease obligations 459 2,286
See accompanying notes to condensed consolidated financial statements.
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COCA ‑ COLA CONSOLIDATED, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(Unaudited)
(in thousands, except per share data) Common
Stock Class B
Common
Stock Additional
Paid-in
Capital Retained
Earnings Accumulated
Other
Comprehensive
Loss Treasury
Stock - Common
Stock Treasury Stock - Class B Common Stock Total
Equity
Balance on March 29, 2024 $ 11,431 $ 1,633 $ 135,953 $ 1,517,852 $ ( 4,429 ) $ ( 60,845 ) $ ( 409 ) $ 1,601,186
Net income — — — 172,812 — — — 172,812
Other comprehensive income, net of tax — — — — 26 — — 26
Dividends declared:
Common Stock ($ 0.50 per share)
— — — ( 4,185 ) — — — ( 4,185 )
Class B Common Stock ($ 0.50 per share)
— — — ( 502 ) — — — ( 502 )
Share repurchases (1)
— — — — — ( 574,143 ) — ( 574,143 )
Balance on June 28, 2024 $ 11,431 $ 1,633 $ 135,953 $ 1,685,977 $ ( 4,403 ) $ ( 634,988 ) $ ( 409 ) $ 1,195,194
Balance on December 31, 2023 $ 11,431 $ 1,633 $ 135,953 $ 1,352,111 $ ( 4,276 ) $ ( 60,845 ) $ ( 409 ) $ 1,435,598
Net income — — — 338,553 — — — 338,553
Other comprehensive loss, net of tax — — — — ( 127 ) — — ( 127 )
Dividends declared:
Common Stock ($ 0.50 per share)
— — — ( 4,185 ) — — — ( 4,185 )
Class B Common Stock ($ 0.50 per share)
— — — ( 502 ) — — — ( 502 )
Share repurchases (1)
— — — — — ( 574,143 ) — ( 574,143 )
Balance on June 28, 2024 $ 11,431 $ 1,633 $ 135,953 $ 1,685,977 $ ( 4,403 ) $ ( 634,988 ) $ ( 409 ) $ 1,195,194
(1) The share repurchases relate to shares repurchased in a tender offer and a separate share repurchase obligation to The Coca‑Cola Company, both of which are further discussed in Note 2 below.
(in thousands, except per share data) Common
Stock Class B
Common
Stock Additional
Paid-in
Capital Retained
Earnings Accumulated
Other
Comprehensive
Loss Treasury
Stock - Common
Stock Treasury Stock - Class B Common Stock Total
Equity
Balance on March 31, 2023 $ 11,431 $ 1,633 $ 135,953 $ 1,230,589 $ ( 84,099 ) $ ( 60,845 ) $ ( 409 ) $ 1,234,253
Net income — — — 122,319 — — — 122,319
Other comprehensive income, net of tax — — — — 27,823 — — 27,823
Dividends declared:
Common Stock ($ 0.50 per share)
— — — ( 4,185 ) — — — ( 4,185 )
Class B Common Stock ($ 0.50 per share)
— — — ( 502 ) — — — ( 502 )
Balance on June 30, 2023 $ 11,431 $ 1,633 $ 135,953 $ 1,348,221 $ ( 56,276 ) $ ( 60,845 ) $ ( 409 ) $ 1,379,708
Balance on December 31, 2022 $ 11,431 $ 1,633 $ 135,953 $ 1,112,462 $ ( 84,837 ) $ ( 60,845 ) $ ( 409 ) $ 1,115,388
Net income — — — 240,446 — — — 240,446
Other comprehensive income, net of tax — — — — 28,561 — — 28,561
Dividends declared:
Common Stock ($ 0.50 per share)
— — — ( 4,185 ) — — — ( 4,185 )
Class B Common Stock ($ 0.50 per share)
— — — ( 502 ) — — — ( 502 )
Balance on June 30, 2023 $ 11,431 $ 1,633 $ 135,953 $ 1,348,221 $ ( 56,276 ) $ ( 60,845 ) $ ( 409 ) $ 1,379,708
See accompanying notes to condensed consolidated financial statements.
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COCA ‑ COLA CONSOLIDATED, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Critical Accounting Policies
The condensed consolidated financial statements include the accounts and the consolidated operations of Coca‑Cola Consolidated, Inc. and its majority-owned subsidiaries (collectively referred to herein as the “Company”). All significant intercompany accounts and transactions have been eliminated. The condensed consolidated financial statements reflect all adjustments, including normal, recurring accruals, which, in the opinion of management, are necessary for a fair statement of the results for the periods presented.
Each of the Company’s quarters, other than the fourth quarter, ends on the Friday closest to the last day of the corresponding quarterly calendar period. The Company’s fourth quarter and fiscal year end on December 31 regardless of the day of the week on which December 31 falls. The condensed consolidated financial statements presented are:
• The financial position as of June 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.
The condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial reporting and the instructions to Form 10-Q and Article 10 of Regulation S-X. The accounting policies followed in the presentation of interim financial results are consistent with those followed on an annual basis. These policies are presented in Note 1 to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for 2023 filed with the United States Securities and Exchange Commission.
The preparation of condensed consolidated financial statements, in conformity with GAAP, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Critical Accounting Estimates
In the ordinary course of business, the Company has made a number of estimates and assumptions relating to the reporting of its results of operations and financial position in the preparation of its condensed consolidated financial statements in conformity with GAAP. Actual results could differ significantly from those estimates under different assumptions and conditions. The Company included in its Annual Report on Form 10-K for 2023 under the caption “Discussion of Critical Accounting Estimates” in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” a discussion of the Company’s most critical accounting estimates, which are those the Company believes to be the most important to the portrayal of its financial condition and results of operations and that require management’s most difficult, subjective and complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.
Any changes in critical accounting estimates are discussed with the Audit Committee of the Company’s Board of Directors during the quarter in which a change is contemplated and prior to making such change.
Recently Issued Accounting Pronouncements
In November 2023, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures,” which requires additional disclosure of significant segment expenses included in the reported measure of segment profit or loss and regularly provided to the Chief Operating Decision Maker (the “CODM”). It also requires disclosure and a description of the composition of other amounts by reportable segment, disclosure of a reportable segment’s profit or loss and assets currently required by Topic 280 in interim periods and disclosure of the CODM’s title and process for assessing a reportable segment’s profit or loss. The new guidance is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years beginning after December 15, 2024. The Company has evaluated the impact ASU 2023-07 will have on its consolidated financial statements and does not expect a material impact upon adoption.
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In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures,” which requires disclosure of specific categories in the rate reconciliation, including additional information for reconciling items that meet a quantitative threshold, and specific disaggregation of income taxes paid and tax expense. The amendment is effective for annual periods beginning after December 15, 2024. The Company has evaluated the impact ASU 2023-09 will have on its consolidated financial statements and does not expect a material impact upon adoption.
2. Related Party Transactions
J. Frank Harrison, III
As of June 28, 2024, J. Frank Harrison, III, Chairman of the Board of Directors and Chief Executive Officer of the Company, controlled 1,004,394 shares of the Company’s Class B Common Stock, which represented approximately 71 % of the total voting power of the Company’s outstanding Common Stock and Class B Common Stock on a consolidated basis.
The Coca‑Cola Company
The Company’s business consists primarily of the distribution, marketing and manufacture of nonalcoholic beverages of The Coca‑Cola Company, which is the sole owner of the formulas under which the primary components of the Company’s soft drink products, either concentrate or syrup, are manufactured.
As of June 28, 2024, The Coca‑Cola Company owned shares of the Company’s Common Stock representing approximately 9 % of the total voting power of the Company’s outstanding Common Stock and Class B Common Stock on a consolidated basis. The number of shares of the Company’s Common Stock currently held by The Coca‑Cola Company gives it the right to have a designee proposed by the Company for nomination to the Company’s Board of Directors in the Company’s annual proxy statement. J. Frank Harrison, III and the trustees of certain trusts established for the benefit of certain relatives of the late J. Frank Harrison, Jr. have agreed to vote the shares of the Company’s Common Stock and Class B Common Stock that they control in favor of such designee. The Coca‑Cola Company does not own any shares of the Company’s Class B Common Stock.
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 $ 553.7 million aggregate purchase price is reflected as share repurchase obligation to The Coca‑Cola Company in the condensed consolidated balance sheet as of June 28, 2024. The shares repurchased pursuant to the Purchase Agreement are classified as treasury stock in the condensed consolidated balance sheet as of June 28, 2024.
The closing of the Share Repurchase occurred on July 5, 2024, the 11 th business day after the expiration of the Tender Offer. After the Share Repurchase was completed, The Coca‑Cola Company beneficially owned 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 and approximately 7 % of the total voting power of the Company’s outstanding Common Stock and Class B Common Stock on a consolidated basis.
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The following table summarizes the significant cash transactions between the Company and The Coca‑Cola Company:
Second Quarter First Half
(in thousands) 2024 2023 2024 2023
Payments made by the Company to The Coca-Cola Company (1)
$ 538,789 $ 523,191 $ 996,033 $ 992,718
Payments made by The Coca-Cola Company to the Company 63,804 55,495 119,202 102,934
(1) This excludes acquisition related sub-bottling payments made by the Company to CCR (as defined below), a wholly owned subsidiary of The Coca‑Cola Company.
More than 80 % of the payments made by the Company to The Coca‑Cola Company were for concentrate, syrup, sweetener and other finished goods products, which were recorded in cost of sales in the condensed consolidated statements of operations and represent the primary components of the soft drink products the Company manufactures and distributes. Payments made by the Company to The Coca‑Cola Company also included payments for marketing programs associated with large, national customers managed by The Coca‑Cola Company on behalf of the Company, which were recorded as a reduction to net sales in the condensed consolidated statements of operations. Other payments made by the Company to The Coca‑Cola Company related to cold drink equipment parts, fees associated with the rights to distribute certain brands and other customary items.
Payments made by The Coca‑Cola Company to the Company included annual funding in connection with the Company’s agreement to support certain business initiatives developed by The Coca‑Cola Company and funding associated with the delivery of post-mix products to various customers, both of which were recorded as a reduction to cost of sales in the condensed consolidated statements of operations. Post-mix products are dispensed through equipment that mixes fountain syrups with carbonated or still water, enabling fountain retailers to sell finished products to consumers in cups or glasses. Payments made by The Coca‑Cola Company to the Company also included fountain product delivery and equipment repair services performed by the Company on The Coca‑Cola Company’s equipment, all of which were recorded in net sales in the condensed consolidated statements of operations.
Coca‑Cola Refreshments USA, Inc. (“CCR”)
The Company, The Coca‑Cola Company and CCR entered into comprehensive beverage agreements (collectively, the “CBA”), related to a multi-year series of transactions, which were completed in October 2017, through which the Company acquired and exchanged distribution territories and manufacturing plants (the “System Transformation”). The CBA requires the Company to make quarterly acquisition related sub-bottling payments to CCR on a continuing basis in exchange for the grant of exclusive rights to distribute, promote, market and sell the authorized brands of The Coca‑Cola Company and related products in certain distribution territories the Company acquired from CCR. These acquisition related sub-bottling payments are based on gross profit derived from the Company’s sales of certain beverages and beverage products that are sold under the same trademarks that identify a covered beverage, a beverage product or certain cross-licensed brands applicable to the System Transformation.
Acquisition related sub-bottling payments to CCR were $ 23.7 million in the first half of 2024 and $ 13.4 million in the first half of 2023. The following table summarizes the liability recorded by the Company to reflect the estimated fair value of contingent consideration related to future expected acquisition related sub-bottling payments to CCR:
(in thousands) June 28, 2024 December 31, 2023
Current portion of acquisition related contingent consideration $ 74,313 $ 64,528
Noncurrent portion of acquisition related contingent consideration 582,933 604,809
Total acquisition related contingent consideration $ 657,246 $ 669,337
Southeastern Container (“Southeastern”)
The Company is a shareholder of Southeastern, a plastic bottle manufacturing cooperative. The Company accounts for Southeastern as an equity method investment. The Company’s investment in Southeastern, which was classified as other assets in the condensed consolidated balance sheets, was $ 21.4 million as of June 28, 2024 and $ 20.9 million as of December 31, 2023.
South Atlantic Canners, Inc. (“SAC”)
The Company is a shareholder of SAC, a manufacturing cooperative located in Bishopville, South Carolina. All of SAC’s shareholders are Coca‑Cola bottlers and each has equal voting rights. The Company accounts for SAC as an equity method
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investment. The Company’s investment in SAC, which was classified as other assets in the condensed consolidated balance sheets, was $ 21.0 million as of June 28, 2024 and $ 17.2 million as of December 31, 2023.
The Company receives a fee for managing the day-to-day operations of SAC pursuant to a management agreement. Proceeds from management fees received from SAC, which were recorded as a reduction to cost of sales in the condensed consolidated statements of operations, were $ 4.5 million in the first half of 2024 and $ 4.6 million in the first half of 2023.
Coca‑Cola Bottlers’ Sales & Services Company LLC (“CCBSS”)
Along with all other Coca‑Cola bottlers in the United States and Canada, the Company is a member of CCBSS, a company formed to provide certain procurement and other services with the intention of enhancing the efficiency and competitiveness of the Coca‑Cola bottling system. The Company accounts for CCBSS as an equity method investment and its investment in CCBSS is not material.
CCBSS negotiates the procurement for the majority of the Company’s raw materials, excluding concentrate, and the Company receives a rebate from CCBSS for the purchase of these raw materials. The Company had rebates due from CCBSS of $ 12.0 million as of June 28, 2024 and $ 14.3 million as of December 31, 2023, which were classified as accounts receivable, other in the condensed consolidated balance sheets. Changes in rebates receivable relate to volatility in raw material prices and the timing of cash receipts of rebates.
CONA Services LLC (“CONA”)
Along with certain other Coca‑Cola bottlers, the Company is a member of CONA, an entity formed to provide business process and information technology services to its members. The Company accounts for CONA as an equity method investment. The Company’s investment in CONA, which was classified as other assets in the condensed consolidated balance sheets, was $ 23.6 million as of June 28, 2024 and $ 22.1 million as of December 31, 2023.
Pursuant to an amended and restated master services agreement with CONA, the Company is authorized to use the Coke One North America system (the “CONA System”), a uniform information technology system developed to promote operational efficiency and uniformity among North American Coca‑Cola bottlers. In exchange for the Company’s rights to use the CONA System and receive CONA-related services, it is charged service fees by CONA. The Company incurred service fees to CONA of $ 13.0 million in the first half of 2024 and $ 13.6 million in the first half of 2023.
Related Party Leases
The Company leases its headquarters office facility and an adjacent office facility in Charlotte, North Carolina from Beacon Investment Corporation, of which J. Frank Harrison, III is the majority stockholder and Morgan H. Everett, Vice Chair of the Company’s Board of Directors, is a minority stockholder. The annual base rent the Company is obligated to pay under this lease is subject to an adjustment for an inflation factor and the lease expires on December 31, 2029. The principal balance outstanding under this lease was $ 20.9 million on June 28, 2024 and $ 22.5 million on December 31, 2023. Rental payments for this lease were $ 1.0 million in both the second quarter of 2024 and the second quarter of 2023 and $ 2.0 million in both the first half of 2024 and the first half of 2023.
Long-Term Performance Equity Plan
The Long-Term Performance Equity Plan compensates J. Frank Harrison, III based on the Company’s performance. Awards granted to Mr. Harrison under the Long-Term Performance Equity Plan are earned based on the Company’s attainment during a performance period of certain performance measures, each as specified by the Compensation Committee of the Company’s Board of Directors. These awards may be settled in cash and/or shares of the Company’s Class B Common Stock, based on the average of the closing prices of shares of the Company’s Common Stock during the last 20 trading days of the performance period. Compensation expense for the Long-Term Performance Equity Plan, which was included in selling, delivery and administrative expenses in the condensed consolidated statements of operations, was $ 3.8 million and $ 3.7 million in the second quarter of 2024 and the second quarter of 2023, respectively, and $ 5.8 million and $ 5.7 million in the first half of 2024 and the first half of 2023, respectively.
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3. Revenue Recognition
The Company’s sales are divided into two main categories: (i) bottle/can sales and (ii) other sales. Bottle/can sales include products packaged primarily in plastic bottles and aluminum cans. Bottle/can net pricing is based on the invoice price charged to customers reduced by any promotional allowances. Bottle/can net pricing per unit is impacted by the price charged per package, the sales volume generated for each package and the channels in which those packages are sold. Other sales include sales to other Coca‑Cola bottlers, post-mix sales, transportation revenue and equipment maintenance revenue.
The Company’s contracts are derived from customer orders, including customer sales incentives, generated through an order processing and replenishment model. Generally, the Company’s service contracts and contracts related to the delivery of specifically identifiable products have a single performance obligation. Revenues do not include sales or other taxes collected from customers. The Company has defined its performance obligations for its contracts as either at a point in time or over time. Bottle/can sales, sales to other Coca‑Cola bottlers and post-mix sales are recognized when control transfers to a customer, which is generally upon delivery and is considered a single point in time (“point in time”). Point in time sales accounted for approximately 98 % of the Company’s net sales in both the first half of 2024 and the first half of 2023.
Other sales, which include revenue for service fees related to the repair of cold drink equipment and delivery fees for freight hauling and brokerage services, are recognized over time (“over time”). Revenues related to cold drink equipment repair are recognized as the respective services are completed using a cost-to-cost input method. Repair services are generally completed in less than one day but can extend up to one month . Revenues related to freight hauling and brokerage services are recognized as the delivery occurs using a miles driven output method. Generally, delivery occurs and freight charges are recognized in the same day. Over time sales orders open at the end of a financial period are not material to the condensed consolidated financial statements.
The following table represents a disaggregation of revenue from contracts with customers:
Second Quarter First Half
(in thousands) 2024 2023 2024 2023
Point in time net sales:
Nonalcoholic Beverages - point in time $ 1,766,391 $ 1,701,490 $ 3,327,536 $ 3,234,778
Total point in time net sales $ 1,766,391 $ 1,701,490 $ 3,327,536 $ 3,234,778
Over time net sales:
Nonalcoholic Beverages - over time $ 13,761 $ 13,372 $ 27,328 $ 25,496
All Other - over time 15,791 23,970 32,705 50,200
Total over time net sales $ 29,552 $ 37,342 $ 60,033 $ 75,696
Total net sales $ 1,795,943 $ 1,738,832 $ 3,387,569 $ 3,310,474
The Company’s allowance for doubtful accounts in the condensed consolidated balance sheets includes a reserve for customer returns and an allowance for credit losses. The Company experiences customer returns primarily as a result of damaged or out-of-date product. At any given time, the Company estimates less than 1 % of bottle/can sales and post-mix sales could be at risk for return by customers. Returned product is recognized as a reduction to net sales. The Company’s reserve for customer returns was $ 5.0 million as of June 28, 2024 and $ 4.5 million as of December 31, 2023.
The Company estimates an allowance for credit losses, based on historic days’ sales outstanding trends, aged customer balances, previously written-off balances and expected recoveries up to balances previously written off, in order to present the net amount expected to be collected. Accounts receivable balances are written off when determined uncollectible and are recognized as a reduction to the allowance for credit losses. Following is a summary of activity for the allowance for credit losses during the first half of 2024 and the first half of 2023:
First Half
(in thousands) 2024 2023
Beginning balance - allowance for credit losses $ 11,560 $ 13,119
Additions charged to expenses and as a reduction to net sales 1,353 3,650
Deductions ( 2,637 ) ( 2,895 )
Ending balance - allowance for credit losses $ 10,276 $ 13,874
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4. Segments
The Company evaluates segment reporting in accordance with FASB Accounting Standards Codification Topic 280, Segment Reporting, each reporting period, including evaluating the reporting package reviewed by the CODM. The Company has concluded the Chief Executive Officer, the Chief Operating Officer and the Chief Financial Officer, as a group, represent the CODM. Asset information is not provided to the CODM.
The Company believes three operating segments exist. Nonalcoholic Beverages represents the vast majority of the Company’s consolidated net sales and income from operations. The additional two operating segments do not meet the quantitative thresholds for separate reporting, either individually or in the aggregate, and, therefore, have been combined into “All Other.”
The Company’s segment results are as follows:
Second Quarter First Half
(in thousands) 2024 2023 2024 2023
Net sales:
Nonalcoholic Beverages $ 1,780,152 $ 1,714,862 $ 3,354,864 $ 3,260,274
All Other 86,598 95,174 174,700 187,550
Eliminations (1)
( 70,807 ) ( 71,204 ) ( 141,995 ) ( 137,350 )
Consolidated net sales $ 1,795,943 $ 1,738,832 $ 3,387,569 $ 3,310,474
Income from operations:
Nonalcoholic Beverages $ 255,025 $ 234,211 $ 467,167 $ 443,990
All Other 4,115 ( 541 ) 7,379 ( 4,266 )
Consolidated income from operations $ 259,140 $ 233,670 $ 474,546 $ 439,724
Depreciation and amortization:
Nonalcoholic Beverages $ 43,723 $ 40,695 $ 86,821 $ 81,259
All Other 3,935 2,981 7,588 5,926
Consolidated depreciation and amortization $ 47,658 $ 43,676 $ 94,409 $ 87,185
(1) The entire net sales elimination represents net sales from the All Other segment to the Nonalcoholic Beverages segment. Sales between these segments are recognized at either fair market value or cost depending on the nature of the transaction.
5. Net Income Per Share
The following table sets forth the computation of basic net income per share and diluted net income per share under the two-class method:
Second Quarter First Half
(in thousands, except per share data) 2024 2023 2024 2023
Numerator for basic and diluted net income per Common Stock and Class B Common Stock share:
Net income $ 172,812 $ 122,319 $ 338,553 $ 240,446
Less dividends:
Common Stock 4,185 4,185 142,273 33,476
Class B Common Stock 502 502 17,080 4,019
Total undistributed earnings $ 168,125 $ 117,632 $ 179,200 $ 202,951
Common Stock undistributed earnings – basic $ 149,970 $ 105,021 $ 159,918 $ 181,192
Class B Common Stock undistributed earnings – basic 18,155 12,611 19,282 21,759
Total undistributed earnings – basic $ 168,125 $ 117,632 $ 179,200 $ 202,951
Common Stock undistributed earnings – diluted $ 149,745 $ 104,775 $ 159,678 $ 180,768
Class B Common Stock undistributed earnings – diluted 18,380 12,857 19,522 22,183
Total undistributed earnings – diluted $ 168,125 $ 117,632 $ 179,200 $ 202,951
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Second Quarter First Half
(in thousands, except per share data) 2024 2023 2024 2023
Numerator for basic net income per Common Stock share:
Dividends on Common Stock $ 4,185 $ 4,185 $ 142,273 $ 33,476
Common Stock undistributed earnings – basic 149,970 105,021 159,918 181,192
Numerator for basic net income per Common Stock share $ 154,155 $ 109,206 $ 302,191 $ 214,668
Numerator for basic net income per Class B Common Stock share:
Dividends on Class B Common Stock $ 502 $ 502 $ 17,080 $ 4,019
Class B Common Stock undistributed earnings – basic 18,155 12,611 19,282 21,759
Numerator for basic net income per Class B Common Stock share $ 18,657 $ 13,113 $ 36,362 $ 25,778
Numerator for diluted net income per Common Stock share:
Dividends on Common Stock $ 4,185 $ 4,185 $ 142,273 $ 33,476
Dividends on Class B Common Stock assumed converted to Common Stock 502 502 17,080 4,019
Common Stock undistributed earnings – diluted 168,125 117,632 179,200 202,951
Numerator for diluted net income per Common Stock share $ 172,812 $ 122,319 $ 338,553 $ 240,446
Numerator for diluted net income per Class B Common Stock share:
Dividends on Class B Common Stock $ 502 $ 502 $ 17,080 $ 4,019
Class B Common Stock undistributed earnings – diluted 18,380 12,857 19,522 22,183
Numerator for diluted net income per Class B Common Stock share $ 18,882 $ 13,359 $ 36,602 $ 26,202
Denominator for basic net income per Common Stock and Class B Common Stock share:
Common Stock weighted average shares outstanding – basic 8,302 8,369 8,335 8,369
Class B Common Stock weighted average shares outstanding – basic 1,005 1,005 1,005 1,005
Denominator for diluted net income per Common Stock and Class B Common Stock share:
Common Stock weighted average shares outstanding – diluted (assumes conversion of Class B Common Stock to Common Stock) 9,321 9,396 9,354 9,396
Class B Common Stock weighted average shares outstanding – diluted 1,019 1,027 1,019 1,027
Basic net income per share:
Common Stock $ 18.57 $ 13.05 $ 36.26 $ 25.65
Class B Common Stock $ 18.56 $ 13.05 $ 36.18 $ 25.65
Diluted net income per share:
Common Stock $ 18.54 $ 13.02 $ 36.19 $ 25.59
Class B Common Stock $ 18.53 $ 13.01 $ 35.92 $ 25.51
NOTES TO TABLE
(1) For purposes of the diluted net income per share computation for Common Stock, all shares of Class B Common Stock are assumed to be converted; therefore, 100 % of undistributed earnings is allocated to Common Stock.
(2) For purposes of the diluted net income per share computation for Class B Common Stock, weighted average shares of Class B Common Stock are assumed to be outstanding for the entire period and not converted.
(3) For periods presented during which the Company has net income, the denominator for diluted net income per share for Common Stock and Class B Common Stock includes the dilutive effect of unvested performance shares relative to the Long-Term Performance Equity Plan . For periods presented during which the Company has net loss, the unvested performance shares granted pursuant to the Long-Term Performance Equity Plan are excluded from the computation of diluted net loss per share, as the effect would have been anti-dilutive. See Note 2 for additional information on the Long-Term Performance Equity Plan .
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(4) The Long-Term Performance Equity Plan awards may be settled in cash and/or shares of the Company’s Class B Common Stock. Once an election has been made to settle an award in cash, the dilutive effect of unvested performance shares relative to such award is prospectively removed from the denominator in the computation of diluted net income per share.
(5) The Company did no t have anti-dilutive unvested performance shares for any periods presented.
(6) The Company repurchased 14,391.5 shares of its Common Stock in the Tender Offer, which expired on June 18, 2024, and was obligated to repurchase 598,619 shares of its Common Stock pursuant to the Purchase Agreement. See Note 2 for additional information on the Tender Offer and the Purchase Agreement.
6. Short-Term Investments
Short-term investments that the Company has the positive intent and ability to hold to maturity are carried at amortized cost and classified as held-to-maturity. Short-term investments that are not classified as held-to-maturity are carried at fair value and classified as available-for-sale. As of June 28, 2024, all of the Company’s short-term investments were classified as available-for-sale. As of December 31, 2023, the Company did not have any short-term investments. Realized gains and losses on available-for-sale investments are included in net income. Unrealized gains and losses, net of tax, on available-for-sale investments are included in the condensed consolidated balance sheet as a component of accumulated other comprehensive income (loss).
As of June 28, 2024, the Company’s available-for-sale investments consisted of the following cost, unrealized positions and estimated fair value, disaggregated by class of instrument:
Gross Unrealized
(in thousands) Cost Gains Losses Estimated Fair Value
U.S. Treasury securities $ 116,209 $ 3 $ ( 178 ) $ 116,034
Corporate bonds 76,638 6 ( 52 ) 76,592
Commercial paper instruments 3,574 — ( 1 ) 3,573
Asset-backed securities 2,578 — ( 6 ) 2,572
Total short-term investments $ 198,999 $ 9 $ ( 237 ) $ 198,771
As of June 28, 2024, all of the Company’s available-for-sale investments were classified as short-term investments in the condensed consolidated balance sheet and had weighted average maturities of less than one year. The Company did not identify any other-than-temporary impairment on its available-for-sale investments during the first half of 2024.
The sale and/or maturity of available-for-sale investments resulted in the following realized activity during the second quarter of 2024 and the first half of 2024:
Second Quarter First Half
(in thousands) 2024 2024
Gross realized gains $ — $ —
Gross realized losses — —
Proceeds 15,527 16,643
There was no realized activity during the second quarter of 2023 or the first half of 2023, as the Company did not have any short-term investments during those periods.
7. Inventories
Inventories consisted of the following:
(in thousands) June 28, 2024 December 31, 2023
Finished products $ 220,046 $ 207,912
Manufacturing materials 73,688 71,560
Plastic shells, plastic pallets and other inventories 44,515 42,460
Total inventories $ 338,249 $ 321,932
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8. Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consisted of the following:
(in thousands) June 28, 2024 December 31, 2023
Repair parts $ 32,137 $ 35,256
Prepaid software 11,423 9,427
Prepaid marketing 5,925 4,703
Commodity hedges at fair market value 3,574 3,747
Prepaid taxes 1,412 9,020
Other prepaid expenses and other current assets 28,754 26,432
Total prepaid expenses and other current assets $ 83,225 $ 88,585
9. Property, Plant and Equipment, Net
The principal categories and estimated useful lives of property, plant and equipment, net were as follows:
(in thousands) June 28, 2024 December 31, 2023 Estimated Useful Lives
Land $ 99,858 $ 99,858
Buildings 397,546 390,852 8 - 50 years
Machinery and equipment 536,817 498,737 5 - 20 years
Transportation equipment 650,287 611,001 3 - 20 years
Furniture and fixtures 107,701 107,072 3 - 10 years
Cold drink dispensing equipment 451,058 449,508 3 - 17 years
Leasehold and land improvements 179,424 179,146 5 - 20 years
Software for internal use 49,626 49,611 3 - 10 years
Construction in progress 110,348 95,623
Total property, plant and equipment, at cost 2,582,665 2,481,408
Less: Accumulated depreciation and amortization 1,216,611 1,160,845
Property, plant and equipment, net $ 1,366,054 $ 1,320,563
10. Leases
Following is a summary of the weighted average remaining lease term and the weighted average discount rate for the Company’s leases:
June 28, 2024 December 31, 2023
Weighted average remaining lease term:
Operating leases 6.5 years 6.7 years
Financing leases 3.1 years 3.5 years
Weighted average discount rate:
Operating leases 3.9 % 3.8 %
Financing leases 5.2 % 5.2 %
Following is a summary of the Company’s leases within the condensed consolidated statements of operations:
Second Quarter First Half
(in thousands) 2024 2023 2024 2023
Operating lease costs $ 7,475 $ 8,305 $ 15,264 $ 16,578
Short-term and variable leases 3,369 4,026 6,399 7,791
Depreciation expense from financing leases 411 411 823 822
Interest expense on financing lease obligations 84 116 176 237
Total lease cost $ 11,339 $ 12,858 $ 22,662 $ 25,428
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The future minimum lease payments related to the Company’s leases include renewal options the Company has determined to be reasonably certain and exclude payments to landlords for real estate taxes and common area maintenance. Following is a summary of future minimum lease payments for all noncancelable operating leases and financing leases as of June 28, 2024:
(in thousands) Operating Leases Financing Leases
Remainder of 2024 $ 14,976 $ 1,412
2025 24,428 2,869
2026 21,205 1,233
2027 18,701 338
2028 13,969 345
Thereafter 39,096 620
Total minimum lease payments including interest $ 132,375 $ 6,817
Less: Amounts representing interest 16,204 519
Present value of minimum lease principal payments 116,171 6,298
Less: Current portion of lease liabilities 23,923 2,584
Noncurrent portion of lease liabilities $ 92,248 $ 3,714
Following is a summary of future minimum lease payments for all noncancelable operating leases and financing leases as of December 31, 2023:
(in thousands) Operating Leases Financing Leases
2024 $ 29,932 $ 2,808
2025 24,329 2,869
2026 21,115 1,233
2027 18,614 338
2028 13,890 345
Thereafter 39,022 620
Total minimum lease payments including interest $ 146,902 $ 8,213
Less: Amounts representing interest 18,437 694
Present value of minimum lease principal payments 128,465 7,519
Less: Current portion of lease liabilities 26,194 2,487
Noncurrent portion of lease liabilities $ 102,271 $ 5,032
Following is a summary of the Company’s leases within the condensed consolidated statements of cash flows:
First Half
(in thousands) 2024 2023
Cash flows from operating activities impact:
Operating leases $ 14,989 $ 16,209
Interest payments on financing lease obligations 176 237
Total cash flows from operating activities impact $ 15,165 $ 16,446
Cash flows from financing activities impact:
Principal payments on financing lease obligations $ 1,221 $ 1,130
Total cash flows from financing activities impact $ 1,221 $ 1,130
11. Distribution Agreements, Net
Distribution agreements, net, which are amortized on a straight-line basis and have estimated useful lives of 20 to 40 years, consisted of the following:
(in thousands) June 28, 2024 December 31, 2023
Distribution agreements at cost $ 990,191 $ 990,191
Less: Accumulated amortization 185,494 173,048
Distribution agreements, net $ 804,697 $ 817,143
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12. Customer Lists, Net
Customer lists, net, which are amortized on a straight-line basis and have estimated useful lives of five to 12 years, consisted of the following:
(in thousands) June 28, 2024 December 31, 2023
Customer lists at cost $ 25,288 $ 25,288
Less: Accumulated amortization 18,600 17,789
Customer lists, net $ 6,688 $ 7,499
13. Supply Chain Finance Program
The Company has an agreement with a third-party financial institution to facilitate a supply chain finance (“SCF”) program, which allows qualifying suppliers to sell their receivables from the Company to the financial institution. The participating suppliers negotiate their outstanding receivable arrangements and associated fees directly with the financial institution, and the Company is not party to those agreements. Once a qualifying supplier elects to participate in the SCF program and reaches an agreement with the financial institution, the supplier elects which individual Company invoices it sells to the financial institution. The supplier invoices that have been confirmed as valid under the SCF program require payment in full by the financial institution to the supplier by the original maturity date of the invoice, or discounted payment at an earlier date as agreed upon with the supplier. The Company’s obligations to its suppliers, including amounts due and scheduled payment terms, are not impacted by a supplier’s participation in the SCF program.
All outstanding amounts related to suppliers participating in the SCF program are recorded in accounts payable, trade in the condensed consolidated balance sheets, and associated payments are included in operating activities in the condensed consolidated statements of cash flows. The Company’s outstanding confirmed obligations included in accounts payable, trade in the condensed consolidated balance sheets were $ 55.4 million as of June 28, 2024 and $ 55.1 million as of December 31, 2023.
14. Other Accrued Liabilities
Other accrued liabilities consisted of the following:
(in thousands) June 28, 2024 December 31, 2023
Current portion of acquisition related contingent consideration $ 74,313 $ 64,528
Accrued insurance costs 56,543 54,040
Accrued marketing costs 42,635 55,799
Employee and retiree benefit plan accruals 33,323 34,203
Accrued taxes (other than income taxes) 8,174 7,474
Accrued interest payable 7,967 2,520
All other accrued expenses 31,694 19,430
Total other accrued liabilities $ 254,649 $ 237,994
15. Commodity Derivative Instruments
The Company is subject to the risk of increased costs arising from adverse changes in certain commodity prices. In the normal course of business, the Company manages this risk through a variety of strategies, including the use of commodity derivative instruments. The Company does not use commodity derivative instruments for trading or speculative purposes. These commodity derivative instruments are not designated as hedging instruments under GAAP and are used as “economic hedges” to manage certain commodity price risk. The Company uses several different financial institutions for commodity derivative instruments to minimize the concentration of credit risk. While the Company would be exposed to credit loss in the event of nonperformance by these counterparties, the Company does not anticipate nonperformance by these counterparties.
Commodity derivative instruments held by the Company are marked to market on a quarterly basis and are recognized in earnings consistent with the expense classification of the underlying hedged item. The Company generally pays a fee for these commodity derivative instruments, which is amortized over the corresponding period of each commodity derivative instrument. Settlements of commodity derivative instruments are included in cash flows from operating activities in the condensed consolidated
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statements of cash flows. The following table summarizes pre-tax changes in the fair values of the Company’s commodity derivative instruments and the classification of such changes in the condensed consolidated statements of operations:
Second Quarter First Half
(in thousands) 2024 2023 2024 2023
Cost of sales $ 1,075 $ ( 1,097 ) $ ( 81 ) $ ( 1,492 )
Selling, delivery and administrative expenses 254 ( 224 ) 211 ( 2,914 )
Total gain (loss) $ 1,329 $ ( 1,321 ) $ 130 $ ( 4,406 )
All commodity derivative instruments are recorded at fair value as either assets or liabilities in the condensed consolidated balance sheets. The Company has master agreements with the counterparties to its commodity derivative instruments that provide for net settlement of derivative transactions. Accordingly, the net amounts of derivative assets are recognized in either prepaid expenses and other current assets or other assets in the condensed consolidated balance sheets and the net amounts of derivative liabilities are recognized in either other accrued liabilities or other liabilities in the condensed consolidated balance sheets. The following table summarizes the fair values of the Company’s commodity derivative instruments and the classification of such instruments in the condensed consolidated balance sheets:
(in thousands) June 28, 2024 December 31, 2023
Assets:
Prepaid expenses and other current assets $ 3,574 $ 3,747
Other assets 303 —
Total assets $ 3,877 $ 3,747
The following table summarizes the Company’s gross commodity derivative instrument assets and gross commodity derivative instrument liabilities in the condensed consolidated balance sheets:
(in thousands) June 28, 2024 December 31, 2023
Gross commodity derivative instrument assets $ 3,877 $ 3,747
Gross commodity derivative instrument liabilities — —
The following table summarizes the Company’s outstanding commodity derivative instruments:
(in thousands) June 28, 2024 December 31, 2023
Notional amount of outstanding commodity derivative instruments $ 52,445 $ 50,187
Latest maturity date of outstanding commodity derivative instruments December 2025 December 2024
16. Fair Values of Financial Instruments
GAAP requires assets and liabilities carried at fair value to be classified and disclosed in one of the following categories:
• Level 1: Quoted market prices in active markets for identical assets or liabilities.
• Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data.
• Level 3: Unobservable inputs that are not corroborated by market data.
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The below methods and assumptions were used by the Company in estimating the fair values of its financial instruments. There were no transfers of assets or liabilities between levels in any period presented.
Financial Instrument Fair Value
Level Methods and Assumptions
Deferred compensation plan assets and liabilities Level 1 The fair value of the Company’s nonqualified deferred compensation plan for certain executives and other highly compensated employees is based on the fair values of associated assets and liabilities, which are held in mutual funds and are based on the quoted market values of the securities held within the mutual funds.
Short-term investments Level 1 The fair values of the Company’s Level 1 short-term investments, which are U.S. Treasury securities, corporate bonds and asset-backed securities, are based on the quoted market prices of those securities which are actively traded on national exchanges.
Short-term investments Level 2 The fair values of the Company’s Level 2 short-term investments, which are commercial paper instruments, are based on estimated current market prices and have readily determinable fair market values.
Commodity derivative instruments Level 2 The fair values of the Company’s commodity derivative instruments are based on current settlement values at each balance sheet date, which represent the estimated amounts the Company would have received or paid upon termination of these instruments. The Company’s credit risk related to the commodity derivative instruments is managed by requiring high standards for its counterparties and periodic settlements. The Company considers nonperformance risk in determining the fair values of commodity derivative instruments.
Long-term debt Level 2 The carrying amounts of the Company’s variable rate debt approximate the fair values due to variable interest rates with short reset periods. The fair values of the Company’s fixed rate debt are based on estimated current market prices.
Acquisition related contingent consideration Level 3 The fair value of the Company’s acquisition related contingent consideration is based on internal forecasts and the weighted average cost of capital (“WACC”) derived from market data.
The following tables summarize the carrying amounts and the fair values by level of the Company’s deferred compensation plan assets and liabilities, short-term investments, commodity derivative instruments, long‑term debt and acquisition related contingent consideration:
June 28, 2024
(in thousands) Carrying
Amount Total
Fair Value Fair Value
Level 1 Fair Value
Level 2 Fair Value
Level 3
Assets:
Deferred compensation plan assets $ 75,179 $ 75,179 $ 75,179 $ — $ —
Short-term investments 198,771 198,771 195,198 3,573 —
Commodity derivative instruments 3,877 3,877 — 3,877 —
Liabilities:
Deferred compensation plan liabilities 75,179 75,179 75,179 — —
Long-term debt 1,785,102 1,790,500 — 1,790,500 —
Acquisition related contingent consideration 657,246 657,246 — — 657,246
December 31, 2023
(in thousands) Carrying
Amount Total
Fair Value Fair Value
Level 1 Fair Value
Level 2 Fair Value
Level 3
Assets:
Deferred compensation plan assets $ 64,769 $ 64,769 $ 64,769 $ — $ —
Commodity derivative instruments 3,747 3,747 — 3,747 —
Liabilities:
Deferred compensation plan liabilities 64,769 64,769 64,769 — —
Long-term debt 599,159 579,000 — 579,000 —
Acquisition related contingent consideration 669,337 669,337 — — 669,337
The acquisition related contingent consideration was valued using a probability weighted discounted cash flow model based on internal forecasts and the WACC derived from market data, which are considered Level 3 inputs. Each reporting period, the
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Company adjusts its acquisition related contingent consideration liability related to the distribution territories subject to acquisition related sub-bottling payments to fair value by discounting future expected acquisition related sub-bottling payments required under the CBA using the Company’s estimated WACC.
The future expected acquisition related sub-bottling payments extend through the life of the related distribution assets acquired in each distribution territory, which is generally 40 years. As a result, the fair value of the acquisition related contingent consideration liability is impacted by the Company’s WACC, management’s estimate of the acquisition related sub-bottling payments that will be made in the future under the CBA, and current acquisition related sub-bottling payments (all Level 3 inputs). Changes in any of these Level 3 inputs, particularly the underlying risk-free interest rate used to estimate the Company’s WACC, could result in material changes to the fair value of the acquisition related contingent consideration liability and could materially impact the amount of non-cash expense (or income) recorded each reporting period.
The acquisition related contingent consideration liability is the Company’s only Level 3 asset or liability. A summary of the Level 3 activity is as follows:
Second Quarter First Half
(in thousands) 2024 2023 2024 2023
Beginning balance - Level 3 liability $ 649,596 $ 576,446 $ 669,337 $ 541,491
Payments of acquisition related contingent consideration ( 13,976 ) ( 6,877 ) ( 23,676 ) ( 13,376 )
Reclassification to current payables ( 6,200 ) ( 700 ) ( 10,700 ) ( 900 )
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
As of June 28, 2024 and June 30, 2023, a WACC of 9.0 % and 8.9 %, respectively, was utilized in the valuation of the Company’s acquisition related contingent consideration liability. The increase in the fair value of the acquisition related contingent consideration liability in the first half of 2024 was primarily driven by higher projections of future cash flows in the distribution territories subject to acquisition related sub-bottling payments, partially offset by an increase in the WACC used to calculate the fair value of the liability. This fair value adjustment was recorded in mark-to-market on acquisition related contingent consideration in the condensed consolidated statement of operations for the first half of 2024.
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.
17. Income Taxes
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 was $ 116.5 million for the first half of 2024 and $ 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.
The Company had uncertain tax positions, including accrued interest, of $ 0.4 million on both June 28, 2024 and December 31, 2023, all of which would affect the Company’s effective income tax rate if recognized. While it is expected the amount of uncertain tax positions may change in the next 12 months, the Company does not expect such change would have a material impact on the condensed consolidated financial statements.
Prior tax years beginning in year 2020 remain open to examination by the Internal Revenue Service, and various tax years beginning in year 2000 remain open to examination by certain state tax jurisdictions due to loss carryforwards.
18. Pension and Postretirement Benefit Obligations
Pension Plans
The Company has historically sponsored two pension plans. The primary Company-sponsored pension plan (the “Primary Plan”) was frozen as of June 30, 2006 and no benefits accrued to participants after that date. The Primary Plan was terminated during 2023, as discussed below. 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.
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During the second quarter of 2023, the Company began recognizing the termination of the Primary Plan. The Company recognized settlement expense of $ 112.8 million during the final three quarters of 2023 in conjunction with the full settlement of the Primary Plan benefit liabilities. This settlement expense related primarily to the reclassification of the gross actuarial losses associated with the Primary Plan out of accumulated other comprehensive loss and was recorded as pension plan settlement expense in the consolidated statement of operations for 2023. See Note 22 for additional information related to the impact on accumulated other comprehensive loss of the Primary Plan termination during 2023.
The components of total pension expense were as follows:
Second Quarter First Half
(in thousands) 2024 2023 2024 2023
Service cost $ 1,091 $ 1,100 $ 2,182 $ 2,199
Interest cost 588 3,508 1,177 7,016
Expected return on plan assets ( 762 ) ( 2,914 ) ( 1,525 ) ( 5,828 )
Recognized net actuarial loss — 973 — 1,946
Amortization of prior service cost 4 4 8 8
Net periodic pension cost 921 2,671 1,842 5,341
Settlement expense — 39,777 — 39,777
Total pension expense $ 921 $ 42,448 $ 1,842 $ 45,118
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 did not make any contributions to the Bargaining Plan during the first half of 2024. The Company does not expect cash contributions to the Bargaining Plan to exceed $ 2 million during 2024.
Postretirement Benefits
The Company provides postretirement benefits for employees meeting specified qualifying criteria . The Company recognizes the cost of postretirement benefits, which consist principally of medical benefits, during employees’ periods of active service. The Company does not prefund these benefits and has the right to modify or terminate certain of these benefits in the future.
The components of net periodic postretirement benefit cost were as follows:
Second Quarter First Half
(in thousands) 2024 2023 2024 2023
Service cost $ 310 $ 294 $ 620 $ 588
Interest cost 781 697 1,562 1,395
Recognized net actuarial loss 26 — 52 —
Net periodic postretirement benefit cost $ 1,117 $ 991 $ 2,234 $ 1,983
19. Other Liabilities
Other liabilities consisted of the following:
(in thousands) June 28, 2024 December 31, 2023
Noncurrent portion of acquisition related contingent consideration $ 582,933 $ 604,809
Accruals for executive benefit plans 155,494 153,428
Noncurrent deferred proceeds from related parties 98,644 100,176
Other 10,580 8,086
Total other liabilities $ 847,651 $ 866,499
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20. Long-Term Debt
Following is a summary of the Company’s long-term debt:
(in thousands) Maturity
Date Interest
Rate Interest
Paid Public/
Nonpublic June 28,
2024 December 31,
2023
Senior bonds (the “2025 Senior Bonds”) (1)
11/25/2025 3.800 % Semi-annually Public $ 350,000 $ 350,000
Senior notes 10/10/2026 3.930 % Quarterly Nonpublic 100,000 100,000
Senior bonds (the “2029 Senior Bonds”) (2)
6/1/2029 5.250 % Semi-annually Public 700,000 —
Revolving credit facility (3)
6/10/2029 Variable Varies Nonpublic — —
Senior notes 3/21/2030 3.960 % Quarterly Nonpublic 150,000 150,000
Senior bonds (the “2034 Senior Bonds”) (4)
6/1/2034 5.450 % Semi-annually Public 500,000 —
Unamortized discount on senior bonds (1)(2)(4)
Various ( 1,624 ) ( 17 )
Debt issuance costs ( 13,274 ) ( 824 )
Total long-term debt $ 1,785,102 $ 599,159
(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 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.
(4) The 2034 Senior Bonds were issued at 99.893 % of par.
The Company mitigates its financing risk by using multiple financial institutions and only entering into credit arrangements with institutions with investment grade credit ratings. The Company monitors counterparty credit ratings on an ongoing basis.
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 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.
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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 June 28, 2024. These covenants have not restricted the Company’s liquidity or capital resources.
All outstanding long-term debt has been issued by the Company and none has been issued by any of its subsidiaries. There are no guarantees of the Company’s long-term debt.
21. Commitments and Contingencies
Manufacturing Cooperatives
The Company is obligated to purchase at least 80 % of its requirements of plastic bottles for certain designated territories from Southeastern. The Company was also obligated to purchase 17.5 million cases of finished product from SAC on an annual basis through June 2024. Beginning in July 2024, the Company is also obligated to purchase 16.0 million cases of finished product from SAC on an annual basis through June 2034. The Company purchased 11.9 million cases and 13.1 million cases of finished product from SAC in the first half of 2024 and the first half of 2023, respectively.
The following table summarizes the Company’s purchases from these manufacturing cooperatives:
Second Quarter First Half
(in thousands) 2024 2023 2024 2023
Purchases from Southeastern $ 37,132 $ 39,759 $ 74,096 $ 82,586
Purchases from SAC 49,369 53,107 99,925 102,712
Total purchases from manufacturing cooperatives $ 86,501 $ 92,866 $ 174,021 $ 185,298
The Company guarantees a portion of SAC’s debt, which matures in 2028, based on the ratio of SAC’s total liabilities to SAC’s shareholders’ equity as of December 31 of each year. As of June 28, 2024 and December 31, 2023, the amount of the Company’s guarantee of SAC’s debt was $ 0 and $ 9.5 million, respectively. In the event SAC fails to fulfill its commitments under the related debt, the Company would be responsible for payment to the lenders up to the level of the guarantee. The Company does not anticipate SAC will fail to fulfill its commitments related to the debt. The Company further believes SAC has sufficient assets, including production equipment, facilities and working capital, and the ability to adjust the selling prices of its products to adequately mitigate the risk of material loss relating to the Company’s guarantee.
The Company holds no assets as collateral against the SAC guarantee, the fair value of which is immaterial to the condensed consolidated financial statements. The Company monitors its investment in SAC and would be required to write down its investment if an impairment, other than a temporary impairment, was identified. No impairment of the Company’s investment in SAC was identified as of June 28, 2024, and there was no impairment identified in 2023.
Other Commitments and Contingencies
The Company has standby letters of credit, primarily related to its property and casualty insurance programs. These letters of credit totaled $ 39.0 million on June 28, 2024 and $ 37.6 million on December 31, 2023.
The Company participates in long-term marketing contractual arrangements with certain prestige properties, athletic venues and other locations. As of June 28, 2024, the future payments related to these contractual arrangements, which expire at various dates through 2033, amounted to $ 141.1 million.
As further discussed in Note 2, as of the end of the second quarter of 2024, the Company was obligated 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 $ 553.7 million aggregate purchase price is reflected as share repurchase obligation to The Coca‑Cola Company in the condensed consolidated balance sheet as of June 28, 2024. The closing of the Share Repurchase occurred on July 5, 2024.
The Company is involved in various claims and legal proceedings which have arisen in the ordinary course of its business. Although it is difficult to predict the ultimate outcome of these claims and legal proceedings, management believes the ultimate
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disposition of these matters will not have a material adverse effect on the financial condition, results of operations or cash flows of the Company. No material amount of loss in excess of recorded amounts is believed to be reasonably possible as a result of these claims and legal proceedings.
The Company is subject to audits by tax authorities in jurisdictions where it conducts business. These audits may result in assessments that are subsequently resolved with the authorities or potentially through the courts. Management believes the Company has adequately provided for any assessments likely to result from these audits; however, final assessments, if any, could be different than the amounts recorded in the condensed consolidated financial statements.
22. Accumulated Other Comprehensive Income (Loss)
Accumulated other comprehensive income (loss) (“AOCI(L)”) is comprised of adjustments to the Company’s pension and postretirement medical benefit plans and unrealized gains/losses on the Company’s short-term investments.
Following is a summary of AOCI(L) for the second quarter of 2024 and the second quarter of 2023:
(in thousands) March 29, 2024 Pre-tax Activity Tax Effect June 28, 2024
Net pension activity:
Actuarial gain $ 533 $ — $ — $ 533
Prior service costs ( 94 ) 4 ( 1 ) ( 91 )
Net postretirement benefits activity:
Actuarial gain 741 26 ( 6 ) 761
Prior service costs ( 624 ) — — ( 624 )
Unrealized loss on short-term investments ( 176 ) 4 ( 1 ) ( 173 )
Reclassification of stranded tax effects ( 4,809 ) — — ( 4,809 )
Total AOCI(L) $ ( 4,429 ) $ 34 $ ( 8 ) $ ( 4,403 )
As of June 28, 2024, there were no gross actuarial losses or prior service costs included in accumulated other comprehensive loss associated with the Primary Plan, as the Primary Plan settlement was completed during 2023. All pension activity during 2024 was related to the Bargaining Plan.
(in thousands) March 31, 2023 Pre-tax Activity Tax Effect June 30, 2023
Net pension activity:
Actuarial loss $ ( 70,405 ) $ ( 2,941 ) $ 720 $ ( 72,626 )
Prior service costs ( 102 ) 4 ( 1 ) ( 99 )
Pension plan settlement — 39,777 ( 9,736 ) 30,041
Net postretirement benefits activity:
Actuarial gain 6,752 — — 6,752
Prior service costs ( 624 ) — — ( 624 )
Reclassification of stranded tax effects ( 19,720 ) — — ( 19,720 )
Total AOCI(L) $ ( 84,099 ) $ 36,840 $ ( 9,017 ) $ ( 56,276 )
Following is a summary of AOCI(L) for the first half of 2024 and the first half of 2023:
(in thousands) December 31, 2023 Pre-tax Activity Tax Effect June 28, 2024
Net pension activity:
Actuarial gain $ 533 $ — $ — $ 533
Prior service costs ( 97 ) 8 ( 2 ) ( 91 )
Net postretirement benefits activity:
Actuarial gain 721 52 ( 12 ) 761
Prior service costs ( 624 ) — — ( 624 )
Unrealized loss on short-term investments — ( 228 ) 55 ( 173 )
Reclassification of stranded tax effects ( 4,809 ) — — ( 4,809 )
Total AOCI(L) $ ( 4,276 ) $ ( 168 ) $ 41 $ ( 4,403 )
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(in thousands) December 31, 2022 Pre-tax Activity Tax Effect June 30, 2023
Net pension activity:
Actuarial loss $ ( 71,140 ) $ ( 1,968 ) $ 482 $ ( 72,626 )
Prior service costs ( 105 ) 8 ( 2 ) ( 99 )
Pension plan settlement — 39,777 ( 9,736 ) 30,041
Net postretirement benefits activity:
Actuarial gain 6,752 — — 6,752
Prior service costs ( 624 ) — — ( 624 )
Reclassification of stranded tax effects ( 19,720 ) — — ( 19,720 )
Total AOCI(L) $ ( 84,837 ) $ 37,817 $ ( 9,256 ) $ ( 56,276 )
23. Supplemental Disclosures of Cash Flow Information
Changes in current assets and current liabilities affecting cash were as follows:
First Half
(in thousands) 2024 2023
Short-term investments $ ( 2,518 ) $ —
Accounts receivable, trade ( 61,861 ) ( 71,681 )
Allowance for doubtful accounts ( 784 ) 1,505
Accounts receivable from The Coca‑Cola Company ( 20,504 ) ( 21,680 )
Accounts receivable, other 25,725 ( 1,132 )
Inventories ( 16,317 ) 13,671
Prepaid expenses and other current assets 5,360 9,629
Accounts payable, trade 4,796 30,035
Accounts payable to The Coca‑Cola Company 109,141 32,110
Other accrued liabilities 16,655 14,728
Accrued compensation ( 59,436 ) ( 49,142 )
Change in current assets less current liabilities $ 257 $ ( 41,957 )
24. Subsequent Events
As further discussed in Note 2, based on the shares of the Company’s Common Stock the Company repurchased in the Tender Offer, which expired on June 18, 2024, 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. On July 5, 2024, the Company completed the repurchase of 598,619 shares of its Common Stock from CCCBI in the Share Repurchase for an aggregate purchase price of $ 553.7 million. After the completion of the Share Repurchase, The Coca-Cola Company beneficially owns 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 and approximately 7 % of the total voting power of the Company’s outstanding Common Stock and Class B Common Stock on a consolidated basis.
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Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.