Coca-Cola Consolidated, Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. The following Management’s Discussion and Analysis of Financial Condition and Results of Operations of Coca‑Cola Consolidated, Inc., a Delaware corporation (together with its majority-owned subsidiaries, the “Company,” “we,” “us” or “our”), is intended to help the reader understand our financial condition and results of operations and is provided as an addition to, and should be read in conjunction with, our condensed consolidated financial statements and the accompanying notes to the condensed consolidated financial statements. The condensed consolidated financial statements include the accounts and the consolidated operations of the Company and its majority-owned subsidiaries. All comparisons are to the corresponding period in the prior year unless specified otherwise. 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. Our Business and the Nonalcoholic Beverage Industry We distribute, market and manufacture nonalcoholic beverages in territories spanning 14 states and the District of Columbia. The Company was incorporated in 1980 and, together with its predecessors, has been in the nonalcoholic beverage manufacturing and distribution business since 1902. We are the largest Coca‑Cola bottler in the United States. Approximately 85% of our total bottle/can sales volume to retail customers consists of products of The Coca‑Cola Company, which include some of the most recognized and popular beverage brands in the world. We also distribute products for several other beverage companies, including Keurig Dr Pepper Inc. (“Dr Pepper”) and Monster Energy Company. Our Purpose is to honor God in all we do, to serve others, to pursue excellence and to grow profitably. Our Common Stock is traded on The Nasdaq Global Select Market under the symbol “COKE.” We offer a range of nonalcoholic beverage products and flavors, including both sparkling and still beverages, designed to meet the demands of our consumers. Sparkling beverages are carbonated beverages and the Company’s principal sparkling beverage is Coca‑Cola. Still beverages include energy products and noncarbonated beverages such as bottled water, ready-to-drink tea, ready-to-drink coffee, enhanced water, juices and sports drinks. Our 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. 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. The Company’s products are sold and distributed in the United States through various channels, which include selling directly to customers, including grocery stores, mass merchandise stores, club stores, convenience stores and drug stores, selling to on-premise locations, where products are typically consumed immediately, such as restaurants, schools, amusement parks and recreational facilities, and selling through other channels such as vending machine outlets. The nonalcoholic beverage industry is highly competitive for both sparkling and still beverages. Our competitors include bottlers and distributors of nationally and regionally advertised and marketed products, as well as bottlers and distributors of private label beverages. Our principal competitors include local bottlers of PepsiCo, Inc. products and, in some regions, local bottlers of Dr Pepper products. The principal methods of competition in the nonalcoholic beverage industry are new brand and product introductions, point-of-sale merchandising, new vending and dispensing equipment, packaging changes, pricing, sales promotions, product quality, retail space management, customer service, frequency of distribution and advertising. We believe we are competitive in our territories with respect to these methods of competition. 25 Business seasonality results primarily from higher unit sales of the Company’s products in the second and third quarters of the fiscal year, as sales of our products are typically correlated with warmer weather. We believe that we and other manufacturers from whom we purchase finished products have adequate production capacity to meet sales demand for sparkling and still beverages during these peak periods. Sales volume can also be impacted by weather conditions. Fixed costs, such as depreciation expense, are not significantly impacted by business seasonality. Executive Summary 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 26 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 Key priorities for the Company include executing our commercial strategy, executing our revenue management strategy, optimizing our supply chain, generating cash flow, determining the optimal route to market and creating a digitally enabled selling platform. Commercial Execution : Our success is dependent on our ability to execute our commercial strategy within our customers’ stores. Our ability to obtain shelf space within stores and remain in-stock across our portfolio of brands and packages in a profitable manner will have a significant impact on our results. We are focused on execution at every step in our supply chain, including raw material and finished product procurement, manufacturing conversion, transportation, warehousing and distribution, to ensure in-store execution can occur. We continue to invest in tools and technology to enable our teammates to operate more effectively and efficiently with our customers and to drive long-term value in our business. Revenue Management : Our revenue management strategy focuses on pricing our brands and packages optimally within product categories and channels, creating effective working relationships with our customers and making disciplined fact-based decisions. Pricing decisions are made considering a variety of factors, including brand strength, competitive environment, input costs, the roles certain brands play in our product portfolio and other market conditions. Supply Chain Optimization : We are continually focused on optimizing our supply chain, which includes identifying nearby warehousing and distribution operations that can be consolidated into new facilities to increase capacity, expand production capabilities, reduce overall production costs and add automation to allow the Company to better serve its customers and consumers. The Company undertook significant capital expenditures to optimize our supply chain and to invest for future growth during 2023, and expects to continue to make significant investments during 2024. Over the past five years, the Company has made capital expenditures of approximately $200 million related to fleet, $125 million related to automation and $470 million related to supply chain improvements. Cash Flow Generation : We have several initiatives in place to optimize cash flow, improve profitability and prudently manage capital expenditures. We believe strengthening our balance sheet gives us the flexibility to make optimal capital allocation decisions for long-term value creation. Optimal Route to Market : We are focused on implementing optimal methods of distribution of our products within our territory. Our typical 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. In instances of bottle/can delivery, we are shifting certain products for certain customers and channels of business to alternative routes to market. These alternative routes to market include third-party distributors, the manufacturer of the product or the customer’s supply chain infrastructure. These bottle/can arrangements generally come with favorable commercial terms for the Company. 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 : Through our investment in CONA Services LLC, we, along with other Coca-Cola bottlers, are building a digitally enabled selling platform called MyCoke 360 that we believe will enable us to better serve our customers. This platform will enable a more seamless order and payment platform for certain customers and we expect this platform will enable us to enhance customer service and create more selling opportunities for our teammates. This platform is targeted to certain on-premise and small store customers. 27 Results of Operations 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 Net sales $ 1,795,943 $ 1,738,832 $ 57,111 Cost of sales 1,079,233 1,067,255 11,978 Gross profit 716,710 671,577 45,133 Selling, delivery and administrative expenses 457,570 437,907 19,663 Income from operations 259,140 233,670 25,470 Interest (income) expense, net (1,620) 1,353 (2,973) 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) Income before taxes 232,225 164,752 67,473 Income tax expense 59,413 42,433 16,980 Net income 172,812 122,319 50,493 Other comprehensive income, net of tax 26 27,823 (27,797) Comprehensive income $ 172,838 $ 150,142 $ 22,696 Net Sales 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 and lower case sales volume as compared to the second quarter of 2023. Net sales by product category were as follows: Second Quarter (in thousands) 2024 2023 % Change Bottle/can sales: Sparkling beverages $ 1,048,874 $ 1,004,438 4.4 % Still beverages 597,485 573,641 4.2 % Total bottle/can sales 1,646,359 1,578,079 4.3 % Other sales: Sales to other Coca‑Cola bottlers 92,393 93,207 (0.9) % Post-mix sales and other 57,191 67,546 (15.3) % Total other sales 149,584 160,753 (6.9) % Total net sales $ 1,795,943 $ 1,738,832 3.3 % 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. We receive a fee from a vendor on these post-mix gallons delivered to locally managed customers in our territory, which is recorded as a reduction to cost of sales. This transition has occurred over the past several years but accelerated in 2023 and is expected to 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 second quarter of 2024 were delivered using these alternative distribution methods. 28 Product category sales volume of standard physical cases (as defined below) and the percentage change by product category were as follows: Second Quarter (in thousands) 2024 2023 % Change Bottle/can sales volume: Sparkling beverages 67,662 67,900 (0.4) % Still beverages 23,791 24,655 (3.5) % Total bottle/can sales volume 91,453 92,555 (1.2) % A standard physical case is a volume metric used to standardize differing package configurations in order to measure delivered cases on an equivalent basis. As the Company evaluates its volume metrics, it reassesses the way in which physical case volume is measured, which may lead to differences from previously presented results in order to conform with current period standard volume measurement techniques, as used by management. Additionally, as the Company introduces new products, it reassesses the category assigned to its products at the SKU level, therefore categorization could differ from previously presented results in order to conform with current period categorization. Any differences are not material. The bottle/can sales volume above represents volume that is delivered directly to our customer outlets using Company-owned vehicles and warehouses. In order to serve our customers in the most efficient way, as well as in response to customer demands, the Company has, in certain circumstances, shifted the delivery of our products to third-party distributors, the manufacturer of the product or the customer’s supply chain infrastructure, rather than through Company-owned vehicles and warehouses. As a result of not physically delivering the product, the sales volume delivered using these alternative methods of distribution is not reflected in our volume metrics. However, because we have the exclusive distribution rights for 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. Changes in the delivery of our products to our customers has impacted, and will continue to impact, our reported volume and net sales. This transition has occurred over the past several years but accelerated in 2023 and is expected to continue to be more prevalent throughout 2024. 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 Inputs representing a substantial portion of the Company’s cost of sales include: (i) purchases of finished products, (ii) raw material costs, including aluminum cans, plastic bottles, carbon dioxide and sweetener, (iii) concentrate costs and (iv) manufacturing costs, including labor, overhead and warehouse costs. In addition, cost of sales includes shipping, handling and fuel costs related to the movement of finished products from manufacturing plants to distribution centers, amortization expense of distribution rights, distribution fees of certain products and marketing credits and post-mix funding from brand companies. Raw material costs, excluding concentrate, represent approximately 20% of total cost of sales on an annual basis. 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 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 $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 29 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 $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 $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 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. The fair value is determined by discounting future expected acquisition related sub-bottling payments required under the Company’s comprehensive beverage agreements, which extend through the life of the related distribution assets acquired in each distribution territory, using the Company’s estimated weighted average cost of capital (“WACC”), which is impacted by many factors, including long-term interest rates and future cash flow projections. The life of these distribution assets is generally 40 years. 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 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 $1.6 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 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. 30 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. First Half (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) Comprehensive income $ 338,426 $ 269,007 $ 69,419 Net Sales 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: First Half (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 % Other sales: 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: First Half (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) % 31 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 Half 2024 2023 Approximate percent of the Company’s total bottle/can sales volume: Walmart Inc. (1) 21 % 21 % The Kroger Co. (2) 15 % 13 % Total approximate percent of the Company’s total bottle/can sales volume 36 % 34 % Approximate percent of the Company’s total net sales: Walmart Inc. (1) 17 % 16 % The Kroger Co. (2) 12 % 11 % 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. 32 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 The Company evaluates segment reporting in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 280, Segment Reporting, each reporting period, including evaluating the reporting package reviewed by the Chief Operating Decision Maker (the “CODM”). The Company has concluded the Chief Executive Officer, the Chief Operating Officer and the Chief Financial Officer, as a group, represent the CODM. Asset information is not provided to the CODM. The Company believes three operating segments exist. Nonalcoholic Beverages represents the vast majority of the Company’s consolidated net sales and income from operations. The additional two operating segments do not meet the quantitative thresholds for separate reporting, either individually or in the aggregate, and, therefore, have been combined into “All Other.” The Company’s segment results are as follows: Second Quarter First Half (in thousands) 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 (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. Comparable and Adjusted Results (Non-GAAP) The Company reports its financial results in accordance with accounting principles generally accepted in the United States (“GAAP”). However, management believes that certain non-GAAP financial measures provide users of the financial statements with additional, meaningful financial information that should be considered, in addition to the measures reported in accordance with GAAP, when assessing the Company’s ongoing performance. Management also uses these non-GAAP financial measures in making financial, operating and planning decisions and in evaluating the Company’s performance. Non-GAAP financial measures 33 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 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. First Half (in thousands) 2024 2023 Change Standard physical case volume 173,564 175,024 (0.8) % Volume related to extra day in fiscal period — (923) Comparable standard physical case volume 173,564 174,101 (0.3) % First Half 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) $ 1,357,269 $ 882,723 $ 474,546 $ 455,060 $ 338,553 $ 36.26 Fair value adjustment of acquisition related contingent consideration (1) — — — 22,285 16,778 1.80 Fair value adjustments for commodity derivative instruments (2) 81 211 (130) (130) (98) (0.01) Total reconciling items 81 211 (130) 22,155 16,680 1.79 Adjusted results (non-GAAP) $ 1,357,350 $ 882,934 $ 474,416 $ 477,215 $ 355,233 $ 38.05 34 First Half 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) $ 1,295,683 $ 855,959 $ 439,724 $ 323,954 $ 240,446 $ 25.65 Fair value adjustment of acquisition related contingent consideration (1) — — — 67,174 50,575 5.40 Fair value adjustments for commodity derivative instruments (2) 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 Adjusted results (non-GAAP) $ 1,297,175 $ 853,045 $ 444,130 $ 435,311 $ 324,286 $ 34.59 Following is an explanation of non-GAAP adjustments: (1) This non-cash, fair value adjustment of acquisition related contingent consideration fluctuates based on factors such as long-term interest rates and future cash flow projections of the distribution territories subject to acquisition related sub-bottling payments. (2) The Company enters into commodity derivative instruments from time to time to hedge some or all of its projected purchases of aluminum, PET resin, diesel fuel and unleaded gasoline in order to mitigate commodity price risk. 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 $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. • 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 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 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. The Company has obtained its long-term debt from public markets, private placements and bank facilities. Management believes the Company has sufficient sources of capital available to finance its business plan, 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. 35 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 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 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. (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. 36 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 June 28, 2024. These covenants have not restricted, and are not expected to restrict, the Company’s liquidity or capital resources. All outstanding long-term debt has been issued by the Company and none has been issued by any of its subsidiaries. There are no guarantees of the Company’s long-term debt. The Company’s credit ratings are reviewed periodically by certain nationally recognized rating agencies. Changes in the Company’s operating results or financial position could result in changes in the Company’s credit ratings. Lower credit ratings could result in higher borrowing costs for the Company or reduced access to capital markets, which could have a material adverse impact on the Company’s operating results or financial position. 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+ 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. We review supplier terms and conditions on an ongoing basis, and have negotiated payment term extensions in recent years in connection with our efforts to improve cash flow and working capital. Separate from those term extension actions, the Company has an agreement with a third-party financial institution to facilitate a supply chain finance (“SCF”) program, which allows qualifying suppliers to sell their receivables from the Company to the financial institution in order to negotiate shorter payment terms on outstanding receivable arrangements. The Company’s obligations to its suppliers, including amounts due and scheduled payment terms, are not impacted by a supplier’s participation in the SCF program. See Note 13 to the condensed consolidated financial statements for additional information related to the Company’s SCF program. 37 The Company’s only Level 3 asset or liability is the acquisition related contingent consideration liability. There were no transfers from Level 1 or Level 2 in any period presented. Fair value adjustments were non-cash and, therefore, did not impact the Company’s liquidity or capital resources. Following is a summary of the Level 3 activity: 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 Cash Sources and Uses A summary of cash-based activity is as follows: First Half (in thousands) 2024 2023 Cash Sources: Proceeds from bond issuance $ 1,200,000 $ — Net cash provided by operating activities (1) 437,131 383,338 Proceeds from the disposal of short-term investments 16,643 — Proceeds from the sale of property, plant and equipment 250 267 Total cash sources $ 1,654,024 $ 383,605 Cash Uses: Purchases of short-term investments $ 213,123 $ — 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 Total cash uses $ 590,005 $ 151,081 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 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 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 38 $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 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. Hedging Activities The Company uses commodity derivative instruments to manage its exposure to fluctuations in certain commodity prices. Fees paid by the Company for commodity derivative instruments are amortized over the corresponding period of the instrument. The Company accounts for its commodity derivative instruments on a mark-to-market basis with any expense or income being reflected as an adjustment to cost of sales or SD&A expenses, consistent with the expense classification of the underlying hedged item. The Company uses several different financial institutions for commodity derivative instruments to minimize the concentration of credit risk. The Company has master agreements with the counterparties to its commodity derivative instruments that provide for net settlement of derivative transactions. The net impact of the commodity derivative instruments on the condensed consolidated statements of operations was as follows: Second Quarter First Half (in thousands) 2024 2023 2024 2023 (Decrease) increase in cost of sales $ (1,464) $ 1,928 $ 70 $ 2,984 Increase in SD&A expenses 295 1,692 618 5,629 Net impact $ (1,169) $ 3,620 $ 688 $ 8,613 Cautionary Note Regarding Forward-Looking Statements Certain statements made in this report, or in other public filings, press releases, or other written or oral communications made by the Company, which are not historical facts, are forward-looking statements subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve risks and uncertainties which we expect will or may occur in the future and may impact our business, financial condition and results of operations. The words “anticipate,” “believe,” “expect,” “intend,” “project,” “may,” “will,” “should,” “could” and similar expressions are intended to identify those forward-looking statements. These forward-looking statements reflect the Company’s best judgment based on current information, and, although we base these statements on circumstances that we believe to be reasonable when made, there can be no assurance that future events will not affect the accuracy of such forward-looking information. As such, the forward-looking statements are not guarantees of future performance, and actual results may vary materially from the projected results and expectations discussed in this report. Factors that might cause the Company’s actual results to differ materially from those anticipated in forward-looking statements include, but are not limited to: increased costs (including due to inflation), disruption of supply or unavailability or shortages of raw materials, fuel and other supplies; the reliance on purchased finished products from external sources; changes in public and consumer perception and preferences, including concerns related to product safety and sustainability, artificial ingredients, brand reputation and obesity; changes in government regulations related to nonalcoholic beverages, including regulations related to obesity, public health, artificial ingredients and product safety and sustainability; decreases from historic levels of marketing funding support provided to us by The Coca‑Cola Company and other beverage companies; material changes in the performance requirements for marketing funding support or our inability to meet such requirements; decreases from historic levels of advertising, marketing and product innovation spending by The Coca‑Cola Company and other beverage companies, or advertising campaigns that are negatively perceived by the public; 39 any failure of the several Coca‑Cola system governance entities of which we are a participant to function efficiently or on our best behalf and any failure or delay of ours to receive anticipated benefits from these governance entities; provisions in our beverage distribution and manufacturing agreements with The Coca‑Cola Company that could delay or prevent a change in control of us or a sale of our Coca‑Cola distribution or manufacturing businesses; the concentration of our capital stock ownership; 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; technology failures or cyberattacks on our information technology systems or our effective response to technology failures or cyberattacks on our customers’, suppliers’ or other third parties’ information technology systems; unfavorable changes in the general economy; the concentration risks among our customers and suppliers; lower than expected net pricing of our products resulting from continued and increased customer and competitor consolidations and marketplace competition; the effect of changes in our level of debt, borrowing costs and credit ratings on our access to capital and credit markets, operating flexibility and ability to obtain additional financing to fund future needs; the failure to attract, train and retain qualified employees while controlling labor costs, and other labor issues; the failure to maintain productive relationships with our employees covered by collective bargaining agreements, including failing to renegotiate collective bargaining agreements; changes in accounting standards; our use of estimates and assumptions; changes in tax laws, disagreements with tax authorities or additional tax liabilities; changes in legal contingencies; natural disasters, changing weather patterns and unfavorable weather; climate change or legislative or regulatory responses to such change; the impact of any pandemic or public health situation; and the risks discussed in “Item 1A. Risk Factors” of the Company’s Annual Report on Form 10-K for 2023 and elsewhere in this report. Caution should be taken not to place undue reliance on the forward-looking statements included in this report. The Company assumes no obligation to update any forward-looking statements, except as may be required by law. In evaluating forward-looking statements, these risks and uncertainties should be considered, together with the other risks described from time to time in the Company’s reports and other filings with the United States Securities and Exchange Commission.