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 losses 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)⁽¹⁾For purposes of the diluted net income (loss) per share computation for Common Stock, all shares of Class B Common Stock are assumed to be converted; therefore, 100% of undistributed earnings (losses) is allocated to Common Stock.}

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 included the dilutive effect of shares relative to the ~~Long-Term Performance Equity Plan and~~ ~~the Performance Unit Award Agreement. For periods presented during which the Company has net loss, the unvested performance units granted pursuant to the~~ ~~Long-Term Performance Equity Plan and~~ the Performance Unit Award Agreement are excluded from the calculation of diluted net loss per share, as the effect of these awards would be anti-dilutive. See Note 21 to the condensed consolidated financial statements for additional information on the ~~Long-Term Performance Equity Plan and~~ ~~the Performance Unit Award Agreement.~~

^{(4)⁽²⁾For purposes of the diluted net income (loss) 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.}

The Long-Term Performance Equity Plan awards may be settled in cash and/or shares of the Company’s Class B Common Stock. Once an election has been made to settle an award in cash, the dilutive effect of shares relative to such award are prospectively removed from the denominator for the calculation of diluted net income per share.

^{(⁽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 included the dilutive effect of shares relative to the Long-Term Performance Equity Plan. For periods presented during which the Company has net loss, the unvested performance units granted pursuant to the Long-Term Performance Equity Plan are excluded from the calculation of diluted net loss per share, as the effect of these awards would be anti-dilutive. See Note 2 for additional information on the Long-Term Performance Equity Plan.⁵⁾}

~~The Company does 0t have anti-dilutive shares.~~

⁽⁴⁾The Long-Term Performance Equity Plan awards may be settled in cash and/or shares of the Company’s Class B Common Stock. Once an election has been made to settle an award in cash, the dilutive effect of shares relative to such award is prospectively removed from the denominator for the calculation of diluted net income (loss) per share.

⁽⁵⁾The Company did 0t have anti-dilutive shares for any periods presented.

6. Inventories

~~Inventories~~

Inventories consisted of the following:

(in thousands)

September 29, 2019

December 30, 2018

Finished products

$
155,338

$
135,561

Manufacturing materials

38,434

39,840

Plastic shells, plastic pallets and other inventories

37,980

34,632

Total inventories

$
231,752

$
210,033


(in thousands)	March 29, 2020		December 29, 2019
Finished products	$	153,803	$	142,363
Manufacturing materials	40,359		45,267
Plastic shells, plastic pallets and other inventories	34,462		38,296
Total inventories	$	228,624	$	225,926

7.Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consisted of the following:

(in thousands)

September 29, 2019

December 30, 2018

Repair parts

$
28,977

$
26,846

Prepayments for sponsorship contracts

12,873

7,557

Current portion of income taxes

8,959

6,637

Prepaid marketing

6,682

6,097

Prepaid software

5,446

6,553

Other prepaid expenses and other current assets

15,460

16,990

Total prepaid expenses and other current assets

$
78,397

$
70,680


(in thousands)	March 29, 2020		December 29, 2019
Repair parts	$	32,217	$	28,967
Prepayments for sponsorship contracts	7,544		8,696
Prepaid taxes	4,088		4,359
Prepaid software	5,420		5,850
Prepaid marketing	7,440		5,658
Other prepaid expenses and other current assets	16,883		15,931
Total prepaid expenses and other current assets	$	73,592	$	69,461

8.Property, Plant and Equipment, Net

The principal categories and estimated useful lives of property, plant and equipment, net were as follows:

(in thousands)

September 29, 2019

December 30, 2018

Estimated Useful Lives
Land

$
77,980

$
78,242

Buildings

221,731

218,846

8-50 years
Machinery and equipment

342,872

328,034

5-20 years
Transportation equipment

392,951

372,895

4-20 years
Furniture and fixtures

91,967

89,439

3-10 years
Cold drink dispensing equipment

497,095

491,161

5-17 years
Leasehold and land improvements

138,197

132,837

5-20 years
Software for internal use

127,020

122,604

3-10 years
Construction in progress

14,852

15,142

Total property, plant and equipment, at cost

1,904,665

1,849,200

Less: Accumulated depreciation and amortization

947,468

858,668

Property, plant and equipment, net

$
957,197

$
990,532


(in thousands)	March 29, 2020		December 29, 2019		Estimated Useful Lives
Land	$	76,860	$	76,860
Buildings	224,137		223,500		8-50 years
Machinery and equipment	355,655		355,575		5-20 years
Transportation equipment	415,548		417,532		4-20 years
Furniture and fixtures	93,298		92,059		3-10 years
Cold drink dispensing equipment	483,772		489,050		5-17 years
Leasehold and land improvements	146,942		145,341		5-20 years
Software for internal use	128,817		128,792		3-10 years
Construction in progress	31,939		29,369
Total property, plant and equipment, at cost	1,956,968		1,958,078
Less: Accumulated depreciation and amortization	972,199		960,675
Property, plant and equipment, net	$	984,769	$	997,403

9. Leases

~~Leases~~

The Company leases office and warehouse space, machinery and other equipment under noncancelable operating lease agreements and also leases certain warehouse space under financing lease agreements. The Company adopted the lease standard using the optional transition method on December 31, 2018, the transition date, and elected to adopt the following practical expedients as accounting policy upon initial adoption of the lease standard:

•	~~Short-term lease exception:~~ ~~Allows the Company to not recognize leases with a contractual term of less than 12 months on its condensed consolidated balance sheets.~~

•	~~Election to not separate non-lease components:~~ ~~Allows the Company to not separate lease and non-lease components and to account for both components as a single component, recognized on its condensed consolidated balance sheets.~~

•

~~Package of practical expedients for transition:~~ Allows the Company to not reassess (i) whether any expired or existing contracts are or contain leases, (ii) the lease classification for any expired or existing leases and (iii) any initial direct costs for any existing leases as of the transition date.

•

~~Additional transition method/relief:~~ Allows the Company to apply the transition requirements in the lease standard as of the transition date, with any impact of initially applying the lease standard recognized as a cumulative effect adjustment to retained earnings in the period of adoption. This also requires the Company to maintain previous disclosure requirements for comparative periods.

Upon adoption of the lease standard on December 31, 2018, the Company recorded right of use assets for operating leases of $88.0 million and associated lease liabilities of $88.2 million. The adoption of the lease standard did not change previously reported condensed consolidated statements of operations, did not result in a cumulative effect adjustment to retained earnings in the period of adoption and did not impact cash flows.

~~The Company used~~uses the following policies and assumptions to evaluate its population of leases:

•

~~Determining a lease:~~ The Company assesses contracts at inception to determine whether an arrangement is or includes a lease, which conveys the Company’s right to control the use of an identified asset for a period of time in exchange for consideration. Operating lease right of use assets and associated liabilities are recognized at the commencement date and initially measured based on the present value of lease payments over the defined lease term.

•

~~Allocating lease and non-lease components:~~ The Company has elected the practical expedient to not separate lease and non-lease components for certain classes of underlying assets. The Company has equipment and vehicle lease agreements, which generally have the lease and associated non-lease components accounted for as a single lease component. The Company has real estate lease agreements with lease and non-lease components, which are generally accounted for separately where applicable.

•Determining a lease: The Company assesses contracts at inception to determine whether an arrangement is or includes a lease, which conveys the Company’s right to control the use of an identified asset for a period of time in exchange for consideration. Operating lease right-of-use assets and associated liabilities are recognized at the commencement date and initially measured based on the present value of lease payments over the defined lease term.

~~Discount rate:~~ The Company calculates the discount rate based on the discount rate implicit in the lease, or if the implicit rate is not readily determinable from the lease, then the Company calculates an incremental borrowing rate using a portfolio approach. The incremental borrowing rate is calculated using the contractual lease term and the Company’s borrowing rate.

•Allocating lease and non-lease components: The Company has elected the practical expedient to not separate lease and non-lease components for certain classes of underlying assets. The Company has equipment and vehicle lease agreements, which generally have the lease and associated non-lease components accounted for as a single lease component. The Company has real estate lease agreements with lease and non-lease components, which are generally accounted for separately where applicable.

~~Lease term:~~ The Company does not recognize leases with a contractual term of less than 12 months on its condensed consolidated balance sheets. Lease expense for these short-term leases is expensed on a straight-line basis over the lease term.

•Calculating the discount rate: The Company calculates the discount rate based on the discount rate implicit in the lease, or if the implicit rate is not readily determinable from the lease, then the Company calculates an incremental borrowing rate using a portfolio approach. The incremental borrowing rate is calculated using the contractual lease term and the Company’s borrowing rate.

~~Rent increases or escalation clauses:~~ Certain leases contain scheduled rent increases or escalation clauses, which can be based on the CPI or other rates. The Company assesses each contract individually and applies the appropriate variable payments based on the terms of the agreement.

•Recognizing leases: The Company does not recognize leases with a contractual term of less than 12 months on its condensed consolidated balance sheets. Lease expense for these short-term leases is expensed on a straight-line basis over the lease term.

~~Renewal options and/or purchase options:~~ Certain leases include renewal options to extend the lease term and/or purchase options to purchase the leased asset. The Company assesses these options using a threshold of reasonably certain, which is a high threshold and, therefore, the majority of the Company’s leases do not include renewal periods or purchase options for the measurement of the right of use asset and the associated lease liability. For leases the Company is reasonably certain to renew or purchase, those options are included within the lease term and, therefore, included in the measurement of the right of use asset and the associated lease liability.

•Including rent increases or escalation clauses: Certain leases contain scheduled rent increases or escalation clauses, which can be based on the Consumer Price Index or other rates. The Company assesses each contract individually and applies the appropriate variable payments based on the terms of the agreement.

~~Option to terminate:~~ Certain leases include the option to terminate the lease prior to its scheduled expiration. This allows a contractually bound party to terminate its obligation under the lease contract, typically in return for an agreed-upon financial consideration. The terms and conditions of the termination options vary by contract.

•Including renewal options and/or purchase options: Certain leases include renewal options to extend the lease term and/or purchase options to purchase the leased asset. The Company assesses these options using a threshold of reasonably certain, which is a high threshold and, therefore, the majority of the Company’s leases do not include renewal periods or purchase options for the measurement of the right-of-use asset and the associated lease liability. For leases the Company is reasonably certain to renew or purchase, those options are included within the lease term and, therefore, included in the measurement of the right-of-use asset and the associated lease liability.

~~Residual value guarantees, restrictions or covenants:~~ ~~The Company’s lease agreements do not contain residual value guarantees, restrictions or covenants.~~

•Including options to terminate: Certain leases include the option to terminate the lease prior to its scheduled expiration. This allows a contractually bound party to terminate its obligation under the lease contract, typically in return for an agreed-upon financial consideration. The terms and conditions of the termination options vary by contract.

•Including residual value guarantees, restrictions or covenants: The Company’s lease agreements do not contain residual value guarantees, restrictions or covenants.

Following is a summary of the weighted average remaining lease term and weighted average discount rate for the Company’s population of ~~leases as~~leases:


	March 29, 2020		December 29, 2019
Weighted average remaining lease term:
Operating leases	10.0 years		10.2 years
Financing leases	5.8 years		4.8 years
Weighted average discount rate:
Operating leases	4.1	%	4.1	%
Financing leases	5.6	%	5.7	%

During the first quarter of ~~September 29, 2019:~~

Operating Leases

Financing Leases

Weighted average remaining lease term

10.2 years

4.9 years

Weighted average discount rate

4.1
%

5.7
%

~~As of September 29, 2019,~~2020, the Company ~~had one real estate~~entered into a lease agreement, effective January 1, 2020, with Beacon to continue to lease its headquarters office facility and an adjacent office facility in Charlotte, North Carolina. The new lease has a 10-year term and expires on December 31, 2029. This lease is classified as an operating lease ~~commitment that had not yet commenced. This lease commitment is expected to commence during~~and the ~~fourth quarter of 2019 and have a lease term of five years. The~~ additional lease liability associated with this lease ~~commitment is expected~~was $32.3 million as of March 29, 2020. This lease replaced the previous lease agreement, which was classified as a financing lease and was scheduled to ~~be approximately $0.3 million.~~

expire on December 31, 2021, and had a $6.8 million principal balance outstanding as of December 29, 2019.

Following is a summary of balances related to the Company’s lease portfolio within the ~~Company’s~~ condensed consolidated statements of ~~operations for the third quarter and the first nine months of 2019:~~

(in thousands)

Third Quarter 2019

First Nine Months 2019

Cost of sales impact:

Operating leases costs

$
1,356

$
4,039

Short-term and variable leases

2,814

7,393

Depreciation expense from financing leases⁽¹⁾

353

1,060

Total cost of sales impact

$
4,523

$
12,492

Selling, delivery and administrative expenses impact:

Operating leases costs

$
3,717

$
9,639

Short-term and variable leases

838

2,676

Depreciation expense from financing leases⁽¹⁾

1,139

3,415

Total selling, delivery and administrative expenses impact

$
5,694

$
15,730

Interest expense, net impact:

Interest expense on financing lease obligations⁽²⁾

$
666

$
2,083

Total interest expense, net impact

$
666

$
2,083

Total lease cost

$
10,883

$
30,305

~~(1)~~

During the third quarter of 2018, the Company had depreciation expense from capital leases of $0.3 million and $1.1 million in cost of sales and SD&A expenses, respectively. During the first nine months of 2018, the Company had depreciation expense from capital leases of $1.0 million and $3.4 million in cost of sales and SD&A expenses, respectively.

operations:

~~(2)~~

~~The Company had interest expense on capital lease obligations of $0.8 million during the third quarter of 2018 and $2.6 million during the first nine months of 2018.~~


	First Quarter
(in thousands)	2020		2019
Cost of sales impact:
Operating lease costs	$	1,385	$	1,341
Short-term and variable leases	2,600		2,262
Depreciation expense from financing leases	354		353
Total cost of sales impact	$	4,339	$	3,956

SD&A expenses impact:
Operating lease costs	$	4,669	$	2,896
Short-term and variable leases	890		1,059
Depreciation expense from financing leases	571		1,139
Total SD&A expenses impact	$	6,130	$	5,094

Interest expense, net impact:
Interest expense on financing lease obligations	$	266	$	702
Total interest expense, net impact	$	266	$	702

Total lease cost	$	10,735	$	9,752

The future minimum lease payments related to the Company’s lease portfolio include renewal options the Company has determined to be reasonably ~~assured~~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 ~~September~~March 29, ~~2019~~2020:

(in thousands)

Operating Leases

Financing Leases

Total

Remainder of 2019

$
4,556

$
2,612

$
7,168

2020

19,387

10,611

29,998

2021

17,386

6,215

23,601

2022

13,965

2,694

16,659

2023

11,702

2,750

14,452

Thereafter

78,543

8,213

86,756

Total minimum lease payments including interest

$
145,539

$
33,095

$
178,634

Less: Amounts representing interest

28,726

4,074

32,800

Present value of minimum lease principal payments

116,813

29,021

145,834

Less: Current portion of lease liabilities - operating and financing leases

14,929

9,209

24,138

Noncurrent portion of lease liabilities - operating and financing leases

$
101,884

$
19,812

$
121,696


(in thousands)	Operating Leases		Financing Leases		Total
Remainder of 2020	$	17,092	$	5,275	$	22,367
2021	20,809		2,628		23,437
2022	18,089		2,694		20,783
2023	15,832		2,750		18,582
2024	15,192		2,808		18,000
Thereafter	89,017		5,407		94,424
Total minimum lease payments including interest	$	176,031	$	21,562	$	197,593
Less: Amounts representing interest	33,496		3,027		36,523
Present value of minimum lease principal payments	142,535		18,535		161,070
Less: Current portion of lease liabilities - operating and financing leases	17,837		5,099		22,936
Noncurrent portion of lease liabilities - operating and financing leases	$	124,698	$	13,436	$	138,134

Following is a summary of future minimum lease payments for all noncancelable operating leases and ~~capital~~financing leases as of December ~~30, 2018:~~

29, 2019:

(in thousands)

Operating Leases

Capital Leases

Total

2019

$
14,146

$
10,434

$
24,580

2020

13,526

10,613

24,139

2021

12,568

6,218

18,786

2022

11,161

2,697

13,858

2023

10,055

2,753

12,808

Thereafter

33,805

8,106

41,911

Total minimum lease payments including interest

$
95,261

$
40,821

$
136,082

Less: Amounts representing interest

5,573

Present value of minimum lease principal payments

35,248

Less: Current portion of lease liabilities - capital leases

8,617

Noncurrent portion of lease liabilities - capital leases

$
26,631


(in thousands)	Operating Leases		Financing Leases		Total
2020	$	19,236	$	10,611	$	29,847
2021	16,815		6,215		23,030
2022	14,016		2,694		16,710
2023	11,704		2,750		14,454
2024	10,989		2,808		13,797
Thereafter	67,556		5,406		72,962
Total minimum lease payments including interest	$	140,316	$	30,484	$	170,800
Less: Amounts representing interest	27,527		3,678		31,205
Present value of minimum lease principal payments	112,789		26,806		139,595
Less: Current portion of lease liabilities - operating and financing leases	15,024		9,403		24,427
Noncurrent portion of lease liabilities - operating and financing leases	$	97,765	$	17,403	$	115,168

Following is a summary of balances related to the Company’s lease portfolio within the ~~Company’s~~ condensed consolidated ~~statement~~statements of cash ~~flows for the first nine months of 2019:~~

flows:

(in thousands)

First Nine Months 2019

Cash flows from operating activities impact:

Operating leases

$
13,576

Interest payments on financing lease obligations⁽¹⁾

2,083

Total cash flows from operating activities impact

$
15,659

Cash flows from financing activities impact:

Principal payments on financing lease obligations⁽¹⁾

$
6,441

Total cash flows from financing activities impact

$
6,441

~~(1)~~

~~During the first nine months of 2018, the Company had interest payments on capital lease obligations of $2.6 million~~ ~~and principal payments on capital lease obligations of $6.0 million.~~


	First Quarter
(in thousands)	2020		2019
Cash flows from operating activities impact:
Operating leases	$	4,195	$	4,136
Interest payments on financing lease obligations	266		702
Total cash flows from operating activities impact	$	4,461	$	4,838

Cash flows from financing activities impact:
Principal payments on financing lease obligations	$	1,485	$	2,114
Total cash flows from financing activities impact	$	1,485	$	2,114

10.~~Goodwill~~

~~A reconciliation of the activity for goodwill for the first nine months of 2019 and the first nine months of 2018 is as follows:~~

First Nine Months

(in thousands)

2019

2018

Beginning balance - goodwill

$
165,903

$
169,316

Measurement period adjustments⁽¹⁾

-

(3,413
)
Ending balance - goodwill

$
165,903

$
165,903

⁽¹⁾

Measurement period adjustments relate to post-closing adjustments made in accordance with the terms and conditions of the applicable asset purchase agreement or asset exchange agreement for distribution territories acquired or exchanged by the Company in April 2017 and October 2017 as part of the System Transformation. All final post-closing adjustments for these transactions were completed during 2018.

The Company’s goodwill resides entirely within the Nonalcoholic Beverages segment. The Company performs its annual impairment test of goodwill as of the first day of the fourth quarter of each fiscal year. During the first nine months of 2019, the Company did not experience any triggering events or changes in circumstances indicating the carrying amount of the Company’s goodwill exceeded its fair value.

~~11.~~Distribution Agreements, Net

Distribution agreements, net, which are amortized on a straight-line basis and have an estimated useful life of 10 to 40 years, consisted of the following:

(in thousands)

September 29, 2019

December 30, 2018

Distribution agreements at cost

$
950,549

$
950,559

Less: Accumulated amortization

(68,382
)

(50,176
)
Distribution agreements, net

$
882,167

$
900,383

~~A reconciliation of the activity for distribution agreements, net for the first nine months of 2019 and the first nine months of 2018 is as follows:~~

First Nine Months

(in thousands)

2019

2018

Beginning balance - distribution agreements, net

$
900,383

$
913,352

Other distribution agreements

(10
)

1,668

Measurement period adjustments⁽¹⁾

-

4,700

Additional accumulated amortization

(18,206
)

(17,889
)
Ending balance - distribution agreements, net

$
882,167

$
901,831


(in thousands)	March 29, 2020		December 29, 2019
Distribution agreements at cost	$	950,549	$	950,549
Less: Accumulated amortization	80,524		74,453
Distribution agreements, net	$	870,025	$	876,096

⁽¹⁾

Measurement period adjustments relate to post-closing adjustments made in accordance with the terms and conditions of the applicable asset purchase agreement or asset exchange agreement for distribution territories acquired or exchanged by the Company in October 2017 as part of the System Transformation. All final post-closing adjustments for this transaction were completed during 2018.

~~12.~~

11. Customer Lists and Other Identifiable Intangible Assets, Net

Customer lists and other identifiable intangible assets, net, which are amortized on a straight-line basis and have an estimated useful life of 5 to 12 years, consisted of the following:

(in thousands)

September 29, 2019

December 30, 2018

Customer lists and other identifiable intangible assets at cost

$
25,288

$
25,288

Less: Accumulated amortization

(10,185
)

(8,806
)
Customer lists and other identifiable intangible assets, net

$
15,103

$
16,482


(in thousands)	March 29, 2020		December 29, 2019
Customer lists and other identifiable intangible assets at cost	$	25,288	$	25,288
Less: Accumulated amortization	11,105		10,645
Customer lists and other identifiable intangible assets, net	$	14,183	$	14,643

~~13.~~

12. Other Accrued Liabilities

Other accrued liabilities consisted of the following:

(in thousands)

September 29, 2019

December 30, 2018

Accrued insurance costs

$
43,610

$
37,916

Accrued marketing costs

31,550

31,475

Current portion of acquisition related contingent consideration

28,583

32,993

Employee and retiree benefit plan accruals

26,858

29,300

Checks and transfers yet to be presented for payment from zero balance cash accounts

19,669

72,701

Accrued taxes (other than income taxes)

11,087

4,577

Commodity hedges at fair market value

7,240

10,305

Current deferred proceeds from Territory Conversion Fee

2,286

2,286

All other accrued expenses

20,413

28,693

Total other accrued liabilities

$
191,296

$
250,246

~~14.~~


(in thousands)	March 29, 2020		December 29, 2019
Accrued insurance costs	$	46,035	$	44,584
Current portion of acquisition related contingent consideration	27,820		41,087
Accrued marketing costs	30,110		34,947
Employee and retiree benefit plan accruals	21,541		33,699
Checks and transfers yet to be presented for payment from zero balance cash accounts	23,291		20,199
Accrued taxes (other than income taxes)	9,089		6,366
Current deferred proceeds from Territory Conversion Fee	2,286		2,286
Federal income taxes	—		1,651
Commodity hedges at fair market value	4,272		1,174
All other accrued expenses	18,474		22,841
Total other accrued liabilities	$	182,918	$	208,834

13. Derivative Financial 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 these risks through a variety of strategies, including the use of derivative instruments. The Company does not use derivative instruments for trading or speculative purposes. All derivative instruments are recorded at fair value as either assets or liabilities in the ~~Company’s~~ condensed consolidated balance sheets. These derivative instruments are not designated as hedging instruments under GAAP and are used as “economic hedges” to manage certain commodity price risk. Derivative instruments held are marked to market on a monthly basis and recognized in earnings consistent with the expense classification of the underlying hedged item. Settlements of derivative agreements are included in cash flows from operating activities onin the ~~Company’s~~ condensed consolidated statements of cash flows.

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 parties.

The following table summarizes pre-tax changes in the fair value of the Company’s commodity derivative financial instruments and the classification of such changes in the condensed consolidated statements of ~~operations.~~

operations:

Third Quarter

First Nine Months

(in thousands)

Classification of Gain (Loss)

2019

2018

2019

2018

Commodity hedges

Cost of sales

$
487

$
(260
)

$
(482
)

$
(2,776
)
Commodity hedges

Selling, delivery and administrative expenses

(74
)

(209
)

2,575

(363
)
Total gain (loss)

$
413

$
(469
)

$
2,093

$
(3,139
)


		First Quarter
(in thousands)	Classification of Gain (Loss)	2020		2019
Commodity hedges	Cost of sales	$	(1,536)	$	3,905
Commodity hedges	Selling, delivery and administrative expenses	(2,329)		2,715
Total gain (loss)		$	(3,865)	$	6,620

The following table summarizes the fair values and classification in the condensed consolidated balance sheets of derivative instruments held by the Company:

(in thousands)

Balance Sheet Classification

September 29, 2019

December 30, 2018

Liabilities:

Commodity hedges at fair market value

Other accrued liabilities

$
7,240

$
10,305

Commodity hedges at fair market value

Other liabilities

972

-

Total liabilities

$
8,212

$
10,305


(in thousands)	Balance Sheet Classification	March 29, 2020		December 29, 2019
Assets:
Commodity hedges at fair market value	Prepaid expenses and other current assets	$	240	$	1,007
Total assets		$	240	$	1,007

Liabilities:
Commodity hedges at fair market value	Other accrued liabilities	$	4,272	$	1,174
Total liabilities		$	4,272	$	1,174

The Company has master agreements with the counterparties to its derivative financial agreements 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 ~~Company’s~~ condensed consolidated balance sheets and the net amounts of derivative liabilities are recognized in other accrued liabilities or other liabilities in the condensed consolidated balance sheets.

The following table summarizes the Company’s gross derivative assets and gross derivative liabilities in the condensed consolidated balance sheets:

(in thousands)

September 29, 2019

December 30, 2018

Gross derivative assets

$
9,333

$
28,305

Gross derivative liabilities

17,545

38,610


(in thousands)	March 29, 2020		December 29, 2019
Gross derivative assets	$	284	$	3,298
Gross derivative liabilities	4,316		3,465

The following table summarizes the Company’s outstanding commodity derivative agreements:

(in thousands)

September 29, 2019

December 30, 2018

Notional amount of outstanding commodity derivative agreements

$
138,989

$
168,388

Latest maturity date of outstanding commodity derivative agreements

December 2020

December 2019

~~15.~~

(in thousands)

March 29, 2020

December 29, 2019

Notional amount of outstanding commodity derivative agreements

146,498

171,699

Latest maturity date of outstanding commodity derivative agreements

December 2020

14. 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 1: Quoted market prices in active markets for identical assets or liabilities.

~~Level 3: Unobservable inputs that are not corroborated by market data.~~

•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.

The following methods and assumptions were used by the Company in estimating the fair values of its financial instruments. There were 0no transfers of assets or liabilities between levels in any period presented.

~~Financial Instrument~~

~~Fair Value~~

~~Level~~

~~Method and Assumptions~~

Financial Instrument

Fair Value

Level

Methods and Assumptions

Deferred compensation plan assets and liabilities

Level 1

The fair value of the Company’s non-qualified 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 value of the securities held within the mutual funds.

Commodity hedging agreements

Level 2

The fair values of the Company’s commodity hedging agreements are based on current settlement values at each balance sheet date. The fair values of the commodity hedging agreements at each balance sheet date represent the estimated amounts the Company would have received or paid upon termination of these agreements. The Company’s credit risk related to the derivative financial instruments is managed by requiring high standards for its counterparties and periodic settlements. The Company considers nonperformance risk in determining the fair ~~value~~values of derivative financial instruments.

Nonpublic variable rate debt

Level 2

The carrying amounts of the Company’s nonpublic variable rate debt approximate their fair values due to variable interest rates with short reset periods.

Nonpublic fixed rate debt

Level 2

The fair values of the Company’s nonpublic fixed rate debt are based on estimated current market prices.

Public debt securities

Level 2

The fair values of the Company’s public debt securities are based on estimated current market prices.

Acquisition related contingent consideration

Level 3

The fair values of acquisition related contingent consideration are based on internal forecasts and the weighted average cost of capital (“WACC”) derived from market data.

The following tables summarize, by assets and liabilities, the carrying amounts and fair values by level of the Company’s deferred compensation plan, commodity hedging agreements, debt and acquisition related contingent consideration:

	September 29, 2019
	Carrying		Total		Fair Value		Fair Value		Fair Value			March 29, 2020
(in thousands)	Amount		Fair Value		Level 1		Level 2		Level 3		(in thousands)	Carrying Amount		Total Fair Value		Fair Value Level 1		Fair Value Level 2		Fair Value Level 3
Assets:											Assets:
Deferred compensation plan assets	$	38,920	$	38,920	$	38,920	$	-	$	-	Deferred compensation plan assets	$	37,135	$	37,135	$	37,135	$	—	$	—
Commodity hedging agreements											Commodity hedging agreements	240		240		—		240		—
Liabilities:											Liabilities:
Deferred compensation plan liabilities		38,920		38,920		38,920		-		-	Deferred compensation plan liabilities	37,135		37,135		37,135		—		—
Commodity hedging agreements		8,212		8,212		-		8,212		-	Commodity hedging agreements	4,272		4,272		—		4,272		—
Nonpublic variable rate debt		304,706		305,000		-		305,000		-	Nonpublic variable rate debt	359,774		360,000		—		360,000		—
Nonpublic fixed rate debt		374,710		383,700		-		383,700		-	Nonpublic fixed rate debt	374,742		373,700		—		373,700		—
Public debt securities		347,927		369,800		-		369,800		-	Public debt securities	348,073		357,900		—		357,900		—
Acquisition related contingent consideration		425,191		425,191		-		-		425,191	Acquisition related contingent consideration	437,094		437,094		—		—		437,094

December 30, 2018

Carrying

Total

Fair Value

Fair Value

Fair Value

(in thousands)

Amount

Fair Value

Level 1

Level 2

Level 3

Assets:

Deferred compensation plan assets

$
33,160

$
33,160

$
33,160

$
-

$
-

Liabilities:

Deferred compensation plan liabilities

33,160

33,160

33,160

-

-

Commodity hedging agreements

10,305

10,305

-

10,305

-

Nonpublic variable rate debt

372,074

372,500

-

372,500

-

Nonpublic fixed rate debt

274,717

261,200

-

261,200

-

Public debt securities

457,612

455,400

-

455,400

-

Acquisition related contingent consideration

382,898

382,898

-

-

382,898


	December 29, 2019
(in thousands)	Carrying Amount		Total Fair Value		Fair Value Level 1		Fair Value Level 2		Fair Value Level 3
Assets:
Deferred compensation plan assets	$	42,543	$	42,543	$	42,543	$	—	$	—
Commodity hedging agreements	1,007		1,007		—		1,007		—
Liabilities:
Deferred compensation plan liabilities	42,543		42,543		42,543		—		—
Commodity hedging agreements	1,174		1,174		—		1,174		—
Nonpublic variable rate debt	307,250		307,500		—		307,500		—
Nonpublic fixed rate debt	374,723		383,900		—		383,900		—
Public debt securities	347,947		367,300		—		367,300		—
Acquisition related contingent consideration	446,684		446,684		—		—		446,684

The acquisition related contingent consideration is valued using a probability weighted discounted cash flow model based on internal forecasts and the WACC derived from market data, which are considered Level 3 inputs. Each reporting period, the Company adjusts its acquisition related contingent consideration liability related to the distribution territories to fair value by discounting future expected sub-bottling payments required under the CBA using the Company’s estimated WACC.

The future expected sub-bottling payments extend through the life of the applicable distribution assets acquired ~~in each System Transformation transaction,~~from CCR, which is generally 40 ~~years~~. 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 amounts that will be paid in the future under the CBA, and current 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 and could materially impact the amount of noncash income or expense recorded each reporting period.

The acquisition related contingent consideration is the Company’s only Level 3 asset or liability. A reconciliation of the Level 3 activity is as follows:

Third Quarter

First Nine Months

(in thousands)

2019

2018

2019

2018

Beginning balance - Level 3 liability

$
412,450

$
374,537

$
382,898

$
381,291

Measurement period adjustments⁽¹⁾

-

(1,279
)

-

813

Payments of acquisition related contingent consideration

(5,948
)

(7,049
)

(18,784
)

(18,312
)
Reclassification to current payables

(60
)

-

(940
)

(1,540
)
Increase (decrease) in fair value

18,749

(2,373
)

62,017

1,584

Ending balance - Level 3 liability

$
425,191

$
363,836

$
425,191

$
363,836

⁽¹⁾


	First Quarter
(in thousands)	2020		2019
Beginning balance - Level 3 liability	$	446,684	$	382,898
Payments of acquisition related contingent consideration	(10,452)		(6,237)
Reclassification to current payables	150		2,300
Increase in fair value	712		14,046
Ending balance - Level 3 liability	$	437,094	$	393,007

The increase in the fair value of the acquisition related contingent consideration liability during the first ~~nine months~~quarter of ~~2019~~2020 was primarily driven by a ~~decrease~~updates to future cash flow projections, partially offset by an increase in the discount rate ~~and changes in future cash flow projections of~~ used to calculate the ~~distribution territories subject to sub-bottling fees~~.fair values. The increase in the fair value of the acquisition related contingent consideration liability during the first ~~nine months~~quarter of ~~2018~~2019 was primarily driven by ~~changes to~~a decrease in the discount rate ~~and future cash flow projections of~~ used to calculate the ~~distribution territories subject to sub-bottling fees, partially offset by cash payments~~.fair values. These fair value adjustments were recorded in other ~~income (expense),~~expense, net in the condensed consolidated statements of operations.

The anticipated amount the Company could pay annually under acquisition related contingent consideration arrangements is expected to be in the range of ~~$25~~$28 million to ~~$49~~$51 million.

~~16.~~

15. Income Taxes

The Company’s effective income tax rate, calculated by dividing income tax expense (benefit) by income (loss) before income taxes, was ~~28.7%~~25.6% for the first ~~nine months~~quarter of ~~2019~~2020 and ~~24.1%~~35.0% for the first ~~nine months~~quarter of ~~2018.~~2019. The ~~increase~~decrease in the effective income tax rate was primarily driven by ~~non-recurring favorable adjustments resulting from~~improved financial results and the ~~adoption~~extension of ~~the Tax Act included~~certain tax credits in ~~the Company’s 2017 federal income tax return filed during the third quarter of 2018.~~

2020.

The Company’s effective income tax rate, calculated by dividing income tax expense (benefit) by income (loss) before income taxes minus net income attributable to noncontrolling interest, was ~~33.4%~~26.8% for the first ~~nine months~~quarter of ~~2019~~2020 and ~~32.5%~~30.6% for the first ~~nine months~~quarter of ~~2018.~~

2019.

The Company had uncertain tax positions, including accrued interest, of $2.6 million on March 29, 2020 and $2.5 million on ~~September~~December 29, 2019, ~~and $3.1 million on December 30, 2018,~~ 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 0tnot expect such change would have a significant impact on the condensed consolidated financial statements.

Prior tax years beginning in year 2002 remain open to examination by the Internal Revenue Service, and various tax years beginning in year 1998 remain open to examination by certain state ~~tax jurisdictions.~~

~~17.~~taxing authorities.

16. Pension and Postretirement Benefit Obligations

Pension Plans

There are 2two Company-sponsored pension plans. The primary Company-sponsored pension plan was frozen as of June 30, 2006 and no benefits accrued to participants after this date. The second Company-sponsored pension plan (the “Bargaining Plan”) is for certain employees under collective bargaining agreements. Benefits under the Bargaining Plan are determined in accordance with negotiated formulas for the respective participants. Contributions to the plans are based on actuarially determined amounts and are limited to the amounts currently deductible for income tax purposes.

The components of net periodic pension cost were as follows:

Third Quarter

First Nine Months

(in thousands)

2019

2018

2019

2018

Service cost

$
1,207

$
1,412

$
3,620

$
4,237

Interest cost

3,063

2,856

9,188

8,568

Expected return on plan assets

(2,574
)

(3,853
)

(7,722
)

(11,557
)
Recognized net actuarial loss

901

934

2,702

2,800

Amortization of prior service cost

5

6

17

18

Net periodic pension cost

$
2,602

$
1,355

$
7,805

$
4,066


	First Quarter
(in thousands)	2020		2019
Service cost	$	1,659	$	1,207
Interest cost	2,760		3,063
Expected return on plan assets	(3,383)		(2,574)
Recognized net actuarial loss	1,189		901
Amortization of prior service cost	5		5
Net periodic pension cost	$	2,230	$	2,602

The Company ~~contributed $4.9 million~~did 0t make any contributions to the ~~two~~2 Company-sponsored pension plans during the ~~third~~first quarter of ~~2019 and does 0t anticipate making additional contributions during~~2020. Contributions to the ~~fourth quarter~~2 Company-sponsored pension plans are expected to be in the range of ~~2019.~~

$7 million to $12 million for the remainder of 2020.

Postretirement Benefits

The Company provides postretirement benefits for ~~a portion of its current employees.~~employees meeting specified criteria. The Company recognizes the cost of postretirement benefits, which consist principally of medical benefits, during ~~covered~~ employees’ periods of active service. The Company does not pre-fund these benefits and has the right to modify or terminate certain of these benefits in the future.

The components of net periodic postretirement benefit cost were as follows:

Third Quarter

First Nine Months

(in thousands)

2019

2018

2019

2018

Service cost

$
389

$
502

$
1,167

$
1,507

Interest cost

694

696

2,080

2,088

Recognized net actuarial loss

196

499

587

1,497

Amortization of prior service cost

(324
)

(462
)

(970
)

(1,386
)
Net periodic postretirement benefit cost

$
955

$
1,235

$
2,864

$
3,706

~~18.~~


	First Quarter
(in thousands)	2020		2019
Service cost	$	376	$	389
Interest cost	503		693
Recognized net actuarial loss	88		196
Amortization of prior service cost	—		(324)
Net periodic postretirement benefit cost	$	967	$	954

17. Other Liabilities

Other liabilities consisted of the following:

(in thousands)

September 29, 2019

December 30, 2018

Noncurrent portion of acquisition related contingent consideration

$
396,608

$
349,905

Accruals for executive benefit plans

138,207

126,103

Noncurrent deferred proceeds from Territory Conversion Fee

83,448

85,163

Noncurrent deferred proceeds from Legacy Facilities Credit

29,769

30,369

Other

10,578

17,595

Total other liabilities

$
658,610

$
609,135

~~19.~~


(in thousands)	March 29, 2020		December 29, 2019
Noncurrent portion of acquisition related contingent consideration	$	409,274	$	405,597
Accruals for executive benefit plans	125,142		141,380
Noncurrent deferred proceeds from Territory Conversion Fee	82,305		82,877
Noncurrent deferred proceeds from Legacy Facilities Credit	29,370		29,569
Other	8,957		9,143
Total other liabilities	$	655,048	$	668,566

18. Debt

Following is a summary of the Company’s debt:

(in thousands)

Maturity
Date

Interest
Rate

Interest
Paid

Public or
Nonpublic

September 29,
2019

December 30,
2018

Senior notes⁽¹⁾

4/15/2019

7.00%

Semi-annually

Public

$
-

$
110,000

Term loan facility⁽¹⁾

6/7/2021

Variable

Varies

Nonpublic

270,000

292,500

Senior notes

2/27/2023

3.28%

Semi-annually

Nonpublic

125,000

125,000

Revolving credit facility⁽²⁾

6/8/2023

Variable

Varies

Nonpublic

35,000

80,000

Senior notes

11/25/2025

3.80%

Semi-annually

Public

350,000

350,000

Senior notes

10/10/2026

3.93%

Quarterly

Nonpublic

100,000

-

Senior notes

3/21/2030

3.96%

Quarterly

Nonpublic

150,000

150,000

Unamortized discount on senior notes⁽³⁾

4/15/2019

-

(78
)
Unamortized discount on senior notes⁽³⁾

11/25/2025

(54
)

(61
)
Debt issuance costs

(2,603
)

(2,958
)
Long-term debt

$
1,027,343

$
1,104,403

⁽¹⁾

The senior notes due in 2019 were refinanced on April 10, 2019 using proceeds from the issuance of the senior notes due in 2026 (as discussed below). The Company intends to refinance principal payments due in the next 12 months under the term loan facility, and has the capacity to do so under its revolving credit facility, which is classified as long-term debt. As such, any amounts due in the next 12 months were classified as noncurrent.

⁽²⁾

The Company’s revolving credit facility has an aggregate maximum borrowing capacity of $500 million, which may be increased at the Company’s option to $750 million, subject to obtaining commitments from the lenders and satisfying other conditions specified in the credit agreement. The Company currently believes all banks participating in the revolving credit facility have the ability to and will meet any funding requests from the Company.

⁽³⁾	~~The senior notes due in 2019 were issued at 98.238% of par and the senior notes due in 2025 were issued at 99.975% of par.~~


(in thousands)	Maturity Date	Interest Rate	Interest Paid	Public or Nonpublic	March 29, 2020		December 29, 2019
Term loan facility⁽¹⁾	6/7/2021	Variable	Varies	Nonpublic	$	255,000	$	262,500
Senior notes	2/27/2023	3.28%	Semi-annually	Nonpublic	125,000		125,000
Revolving credit facility⁽²⁾	6/8/2023	Variable	Varies	Nonpublic	105,000		45,000
Senior notes	11/25/2025	3.80%	Semi-annually	Public	350,000		350,000
Senior notes	10/10/2026	3.93%	Quarterly	Nonpublic	100,000		100,000
Senior notes	3/21/2030	3.96%	Quarterly	Nonpublic	150,000		150,000
Unamortized discount on senior notes⁽³⁾	11/25/2025				(50)		(52)
Debt issuance costs					(2,361)		(2,528)
Long-term debt					$	1,082,589	$	1,029,920

⁽¹⁾The Company intends to refinance principal payments due in the next 12 months under the term loan facility, and has the capacity to do so under its revolving credit facility, which is classified as long-term debt. As such, any amounts due in the next 12 months were classified as noncurrent.

⁽²⁾The Company’s revolving credit facility has an aggregate maximum borrowing capacity of $500 million, which may be increased at the Company’s option to $750 million, subject to obtaining commitments from the lenders and satisfying other conditions specified in the credit agreement. The Company currently believes all banks participating in the revolving credit facility have the ability to and will meet any funding requests from the Company.

⁽³⁾The senior notes due in 2025 were issued at 99.975% 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.

In April 2019, the Company sold $100 million aggregate principal amount of senior unsecured notes due in 2026 to MetLife Investment Advisors, LLC (“MetLife”) and certain of its affiliates pursuant to a Note Purchase and Private Shelf Agreement dated January 23, 2019 between the Company, MetLife and the other parties thereto. These notes bear interest at 3.93%, payable quarterly in arrears on each January 10, April 10, July 10 and October 10, commencing on July 10, 2019, and will mature on October 10, 2026, unless earlier redeemed by the Company. The Company used the proceeds to refinance the senior notes due on April 15, 2019. The Company may request that MetLife consider the purchase of additional senior unsecured notes of the Company under the agreement in an aggregate principal amount of up to $200 million.

~~In July~~ 2019, the Company entered into a $100 million fixed rate swap maturing June 7, 2021, to hedge a portion of the interest rate risk on the Company’s term loan facility. This interest rate swap is designated as a cash flow hedging instrument and is not expected to be material to the condensed consolidated balance sheets. Changes in the fair value of this interest rate swap were classified as accumulated other comprehensive loss on the condensed consolidated balance sheets and included in the condensed consolidated statements of comprehensive ~~income.~~

income (loss).

The indentures under which the Company’s public debt was 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 ~~were~~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 agreements. The Company was in compliance with these covenants as of ~~September~~March 29, ~~2019.~~2020. These covenants do not currently, and the Company does not anticipate they will, restrict its liquidity or capital resources.

All outstanding long-term debt has been issued by the Company and NaN has been issued by any of its subsidiaries. There are 0 guarantees of the Company’s debt.

~~20.~~

19. Commitments and Contingencies

Manufacturing Cooperatives

The Company is obligated to purchase at least 80% of its requirements of plastic bottles for certain designated territories from Southeastern. The Company is also obligated to purchase 17.5 million cases of finished product from SAC on an annual basis through June 2024. The Company purchased ~~22.2~~7.7 million cases and 6.8 million cases of finished product from SAC in ~~both~~ the first ~~nine months~~quarter of ~~2019~~2020 and the first ~~nine months~~quarter of ~~2018.~~

2019, respectively.

The following table summarizes the Company’s purchases from these manufacturing cooperatives:

Third Quarter

First Nine Months

(in thousands)

2019

2018

2019

2018

Purchases from Southeastern

$
31,178

$
32,379

$
102,118

$
92,613

Purchases from SAC

42,870

38,569

120,309

117,729

Total purchases from manufacturing cooperatives

$
74,048

$
70,948

$
222,427

$
210,342


	First Quarter
(in thousands)	2020		2019
Purchases from Southeastern	$	31,028	$	34,326
Purchases from SAC	41,834		37,446
Total purchases from manufacturing cooperatives	$	72,862	$	71,772

The Company guarantees a portion of SAC’s debt, which expires at various dates through ~~2021.~~2024. The ~~amounts~~amount guaranteed ~~were $23.9~~was $14.7 million on both ~~September~~March 29, ~~2019~~2020 and December ~~30, 2018.~~29, 2019. In the event SAC fails to fulfill its commitments under the related debt, the Company would be responsible for ~~payments~~payment to the lenders up to the level of the guarantee. The Company does not anticipate SAC will fail to fulfill its ~~commitment~~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 selling prices of its products to adequately mitigate the risk of material loss from the Company’s guarantee.

The Company holds no assets as collateral against the SAC guarantee, the fair value of which is immaterial to the ~~Company’s~~ condensed consolidated financial statements. The Company monitors its investment in SAC and would be required to write down its investment if an impairment was identified and the Company determined it to be other than temporary. NaN impairment of the Company’s investment in SAC was identified as of ~~September~~March 29, ~~2019,~~2020, and there was 0 impairment identified in ~~2018.~~

2019.

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 $35.6 million on ~~both September~~March 29, ~~2019~~2020 and $35.6 million on December ~~30, 2018.~~

29, 2019.

The Company participates in long-term marketing contractual arrangements with certain prestige properties, athletic venues and other locations. As of ~~September~~March 29, ~~2019,~~2020, the future payments related to these contractual arrangements, which expire at various dates through 2033, amounted to ~~$197.6~~$187.3 million.

The Company is involved in various claims and legal proceedings which have arisen in the ordinary course of its business. Although it is difficult to predict the ultimate outcome of these claims and legal proceedings, management believes that the ultimate disposition of these matters will not have a material adverse effect on the financial condition, ~~cash flows or~~ results of operations or cash flows of the Company. No material amount of loss in excess of recorded amounts is believed to be reasonably possible as a result of these claims and legal proceedings.

The Company is subject to audits by tax authorities in jurisdictions where it conducts business. These audits may result in assessments that are subsequently resolved with the authorities or potentially through the courts. Management believes the Company has adequately provided for any assessments likely to result from these audits; however, final assessments, if any, could be different than the amounts recorded in the condensed consolidated financial statements.

~~21.~~

~~Capital Transactions~~

During the first quarter of each year presented, J. Frank Harrison, III received shares of the Company’s Class B Common Stock in connection with his services as Chairman of the Board of Directors and Chief Executive Officer of the Company during the prior year, pursuant to a ten-year performance unit award agreement approved in 2008 (the “Performance Unit Award Agreement”). The Performance Unit Award Agreement expired at the end of 2018, with the final award issued in the first quarter of 2019. As permitted under the terms of the Performance Unit Award Agreement, a number of shares were settled in cash each year to satisfy tax withholding obligations in connection with the vesting of the performance units. The remaining number of shares increased the total shares of the Company’s Class B Common Stock outstanding. A summary of the awards issued in 2019 and 2018 is as follows:

Fiscal Year

2019

2018

Date of approval for award

March 5, 2019

March 6, 2018

Fiscal year of service covered by award

2018

2017

Shares settled in cash to satisfy tax withholding obligations

15,476

16,504

Increase in Class B Common Stock shares outstanding

19,224

20,296

Total Class B Common Stock awarded

34,700

36,800

Compensation expense for the awards issued pursuant to the Performance Unit Award Agreement, recognized based on the closing price of the Company’s Common Stock on the last trading day prior to the end of each fiscal period, was $2.0 million in the first nine months of 2019 and $4.5 million in the first nine months of 2018.

In 2018, the Compensation Committee of the Company’s Board of Directors (the “Committee”) and the Company’s stockholders approved a long-term performance equity plan (the “Long-Term Performance Equity Plan”), which compensates J. Frank Harrison, III based on the Company’s performance. The Long-Term Performance Equity Plan succeeded the Performance Unit Award Agreement upon its expiration. Awards granted 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 Committee. 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 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 is included in SD&A expenses on the condensed consolidated statements of operations, was $10.3 million in the first nine months of 2019 and $1.5 million in the first nine months of 2018.

~~22.~~

20. Accumulated Other Comprehensive Income (Loss)

Accumulated other comprehensive income (loss) (“AOCI(L)”) is comprised of adjustments relative to the Company’s pension and postretirement medical benefit plans and foreign currency translation adjustments required for a subsidiary of the Company that performs data analysis and provides consulting services outside the United States.

~~A summary of AOCI(L) for the third quarter of 2019 and the third quarter of 2018 is as follows:~~

(in thousands)

June 30, 2019

Pre-tax Activity

Tax Effect

September 29, 2019

Net pension activity:

Actuarial loss

$
(71,332
)

$
901

$
(222
)

$
(70,653
)
Prior service costs

(15
)

5

(1
)

(11
)
Net postretirement benefits activity:

Actuarial loss

(4,607
)

196

(48
)

(4,459
)
Prior service costs

(136
)

(324
)

80

(380
)
Interest rate swap

-

(496
)

122

(374
)
Foreign currency translation adjustment

(4
)

(23
)

6

(21
)
Reclassification of stranded tax effects

(19,720
)

-

-

(19,720
)
Total

$
(95,814
)

$
259

$
(63
)

$
(95,618
)

(in thousands)

July 1, 2018

Pre-tax Activity

Tax Effect

September 30, 2018

Net pension activity:

Actuarial loss

$
(77,212
)

$
934

$
(231
)

$
(76,509
)
Prior service costs

(34
)

6

(2
)

(30
)
Net postretirement benefits activity:

Actuarial loss

(16,547
)

499

(123
)

(16,171
)
Prior service costs

1,048

(462
)

114

700

Foreign currency translation adjustment

8

(2
)

1

7

Total

$
(92,737
)

$
975

$
(241
)

$
(92,003
)

A summary of AOCI(L) for the first ~~nine months~~quarter of ~~2019~~2020 and the first ~~nine months~~quarter of ~~2018~~2019 is as follows:

(in thousands)

December 30, 2018

Pre-tax Activity

Tax Effect

September 29, 2019

Net pension activity:

Actuarial loss

$
(72,690
)

$
2,702

$
(665
)

$
(70,653
)
Prior service costs

(24
)

17

(4
)

(11
)
Net postretirement benefits activity:

Actuarial loss

(4,902
)

587

(144
)

(4,459
)
Prior service costs

351

(970
)

239

(380
)
Interest rate swap

-

(496
)

122

(374
)
Foreign currency translation adjustment

-

(26
)

5

(21
)
Reclassification of stranded tax effects

-

-

(19,720
)

(19,720
)
Total

$
(77,265
)

$
1,814

$
(20,167
)

$
(95,618
)


(in thousands)	December 31, 2017			Pre-tax Activity			Tax Effect			September 30, 2018			(in thousands)	December 29, 2019		Pre-tax Activity		Tax Effect		March 29, 2020
Net pension activity:													Net pension activity:
Actuarial loss	$	(78,618	)	$	2,800		$	(691	)	$	(76,509	)	Actuarial loss	$	(93,174)	$	1,189	$	(293)	$	(92,278)
Prior service costs		(43	)		18			(5	)		(30	)	Prior service costs	(7)		5		(1)		(3)
Net postretirement benefits activity:													Net postretirement benefits activity:
Actuarial loss		(17,299	)		1,497			(369	)		(16,171	)	Actuarial loss	(1,191)		88		(22)		(1,125)
Prior service costs		1,744			(1,386	)		342			700		Prior service costs	(624)		—		—		(624)
Interest rate swap													Interest rate swap	(270)		(1,347)		332		(1,285)
Foreign currency translation adjustment		14			(10	)		3			7		Foreign currency translation adjustment	(16)		(1)		—		(17)
Total	$	(94,202	)	$	2,919		$	(720	)	$	(92,003	)
Reclassification of stranded tax effects													Reclassification of stranded tax effects	(19,720)		—		—		(19,720)
Total AOCI(L)													Total AOCI(L)	$	(115,002)	$	(66)	$	16	$	(115,052)


(in thousands)	December 30, 2018		Pre-tax Activity		Tax Effect		March 31, 2019
Net pension activity:
Actuarial loss	$	(72,690)	$	901	$	(222)	$	(72,011)
Prior service costs	(24)		5		(1)		(20)
Net postretirement benefits activity:
Actuarial loss	(4,902)		196		(48)		(4,754)
Prior service costs	351		(324)		80		107
Foreign currency translation adjustment	—		(10)		1		(9)
Reclassification of stranded tax effects	—		—		(19,720)		(19,720)
Total AOCI(L)	$	(77,265)	$	768	$	(19,910)	$	(96,407)

A summary of the impact of AOCI(L) on certain statements of operations line items is as follows:

Third Quarter 2019

(in thousands)

Net Pension Activity

Net Postretirement Benefits Activity

Interest Rate Swap

Foreign Currency Translation Adjustment

Total

Cost of sales

$
265

$
(67
)

$
-

$
-

$
198

Selling, delivery and administrative expenses

641

(61
)

(496
)

(23
)

61

Subtotal pre-tax

906

(128
)

(496
)

(23
)

259

Income tax expense

223

(32
)

(122
)

(6
)

63

Total after tax effect

$
683

$
(96
)

$
(374
)

$
(17
)

$
196


	Third Quarter 2018										First Quarter 2020
(in thousands)	Net Pension Activity		Net Postretirement Benefits Activity		Foreign Currency Translation Adjustment			Total		(in thousands)	Net Pension Activity		Net Postretirement Benefits Activity		Interest Rate Swap		Foreign Currency Translation Adjustment		Total
Cost of sales	$	217	$	6	$	-		$	223	Cost of sales	$	334	$	48	$	—	$	—	$	382
Selling, delivery and administrative expenses		723		31		(2	)		752	Selling, delivery and administrative expenses	860		40		(1,347)		(1)		(448)
Subtotal pre-tax		940		37		(2	)		975	Subtotal pre-tax	1,194		88		(1,347)		(1)		(66)
Income tax expense		233		9		(1	)		241
Income tax expense (benefit)										Income tax expense (benefit)	294		22		(332)		—		(16)
Total after tax effect	$	707	$	28	$	(1	)	$	734	Total after tax effect	$	900	$	66	$	(1,015)	$	(1)	$	(50)

First Nine Months 2019

(in thousands)

Net Pension Activity

Net Postretirement Benefits Activity

Interest Rate Swap

Foreign Currency Translation Adjustment

Total

Cost of sales

$
794

$
(200
)

$
-

$
-

$
594

Selling, delivery and administrative expenses

1,925

(183
)

(496
)

(26
)

1,220

Subtotal pre-tax

2,719

(383
)

(496
)

(26
)

1,814

Income tax expense

669

(95
)

(122
)

(5
)

447

Total after tax effect

$
2,050

$
(288
)

$
(374
)

$
(21
)

$
1,367


	First Nine Months 2018										First Quarter 2019
(in thousands)	Net Pension Activity		Net Postretirement Benefits Activity		Foreign Currency Translation Adjustment			Total		(in thousands)	Net Pension Activity		Net Postretirement Benefits Activity		Foreign Currency Translation Adjustment		Total
Cost of sales	$	648	$	19	$	-		$	667	Cost of sales	$	263	$	(67)	$	—	$	196
Selling, delivery and administrative expenses		2,170		92		(10	)		2,252	Selling, delivery and administrative expenses	643		(61)		(10)		572
Subtotal pre-tax		2,818		111		(10	)		2,919	Subtotal pre-tax	906		(128)		(10)		768
Income tax expense		696		27		(3	)		720
Income tax expense (benefit)										Income tax expense (benefit)	223		(32)		(1)		190
Total after tax effect	$	2,122	$	84	$	(7	)	$	2,199	Total after tax effect	$	683	$	(96)	$	(9)	$	578

~~23.~~

21. Supplemental Disclosures of Cash Flow Information

Changes in current assets and current liabilities affecting cash flows were as follows:

First Nine Months

(in thousands)

2019

2018

Accounts receivable, trade, net

$
(7,469
)

$
(34,899
)
Accounts receivable from The Coca-Cola Company

(15,509
)

(2,083
)
Accounts receivable, other

(9,621
)

10,328

Inventories

(21,719
)

(46,274
)
Prepaid expenses and other current assets

(8,478
)

8,951

Accounts payable, trade

44,506

3,749

Accounts payable to The Coca-Cola Company

23,155

(15,222
)
Other accrued liabilities

(58,493
)

(33,712
)
Accrued compensation

(1,946
)

(15,496
)
Accrued interest payable

1,311

4,237

Change in current assets less current liabilities (exclusive of acquisitions)

$
(54,263
)

$
(120,421
)


	First Quarter
(in thousands)	2020		2019
Accounts receivable, trade, net	$	(34,936)	$	13,388
Accounts receivable from The Coca-Cola Company	5,751		(11,530)
Accounts receivable, other	939		(8,961)
Inventories	(2,698)		(10,284)
Prepaid expenses and other current assets	(4,131)		562
Accounts payable, trade	29,044		24,812
Accounts payable to The Coca-Cola Company	28,067		13,017
Other accrued liabilities	(27,263)		(52,034)
Accrued compensation	(39,347)		(29,211)
Accrued interest payable	2,264		3,227
Change in current assets less current liabilities	$	(42,310)	$	(57,014)

22. Subsequent Events

In response to the rapid spread of the COVID-19 pandemic within the United States, federal, state and local governments throughout the country have imposed restrictions on social and commercial activity to promote social distancing in an effort to slow the spread of COVID-19. Certain “stay-at-home” and “shelter-in-place” orders, the cancellation of large public gatherings such as sporting events, and the closing of numerous on-premise customer outlets, including restaurants and schools, have begun to negatively impact the Company’s financial results for the second quarter of 2020.

As government-imposed public safety restrictions are eased, the Company expects its business to improve slowly as product and package mix and channel mix become more favorable. However, the pace at which that shift will occur is unknown, as it is not clear when “stay-at-home” and “shelter-in-place” orders will be lifted, what parts of the economy will be re-opened when those orders are lifted and how quickly consumer behavior will return to more typical buying patterns after those orders are lifted. Additionally, it is unclear how many outlets will re-open after the orders are lifted, which will impact the Company’s ability to attain its pre-COVID-19 business results. Also, it is uncertain how consumer behavior will change in the long run as a result of the COVID-19 pandemic and how new consumer behavior will impact the Company’s long-term results.

~~Item 2.~~

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~~Coca-Cola Consolidated, Inc., a Delaware corporation (together with its majority-owned subsidiaries, the “Company,” ~~“we”~~“we,” “us” or “our”), should be read in conjunction with the condensed consolidated financial statements of the Company and the accompanying notes to the condensed consolidated financial statements.

The Company’s fiscal year generally ends on the Sunday closest to December 31 of each year. The condensed consolidated financial statements presented are:

•

~~The financial position as of September 29, 2019 and December 30, 2018.~~

•

The results of operations and comprehensive income for the 13 week periods ended September 29, 2019 (the “third quarter” of fiscal 2019 (“2019”)) and September 30, 2018 (the “third quarter” of fiscal 2018 (“2018”)), and the 39 week periods ended September 29, 2019 (the “first nine months” of 2019) and September 30, 2018 (the “first nine months” of 2018).

•The financial position as of March 29, 2020 and December 29, 2019.

~~The changes in cash flows and equity for the first nine months of 2019 and the first nine months of 2018.~~

•The results of operations and comprehensive income (loss) for the 13-week periods ended March 29, 2020 (the “first quarter” of fiscal 2020 (“2020”)) and March 31, 2019 (the “first quarter” of fiscal 2019 (“2019”)).

•The changes in cash flows and equity for the first quarter of 2020 and the first quarter of 2019.

All comparisons are to the corresponding period in the prior year unless specified otherwise.

The condensed consolidated financial statements include the consolidated operations of the Company and its majority-owned subsidiaries, including Piedmont ~~Coca‑Cola~~Coca-Cola Bottling Partnership (“Piedmont”), the Company’s only subsidiary with a significant noncontrolling interest. This noncontrolling interest consists of The ~~Coca‑Cola~~Coca-Cola Company’s interest in Piedmont, which was 22.7% for all periods presented.

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~~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~~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 BA Sports Nutrition, LLC (“BodyArmor”), Keurig Dr Pepper Inc. (“Dr Pepper”) and Monster Energy ~~Company (“Monster Energy”).~~Company. Our purpose is to honor God, to serve others, to pursue excellence and to grow profitably. Our stock is traded on the NASDAQ Global Select Market under the symbol “COKE.”

We offer a range of nonalcoholic beverage products and flavors designed to meet the demands of our consumers, including both sparkling and still beverages. Sparkling beverages are carbonated beverages and the Company’s principal sparkling beverage is ~~Coca‑Cola.~~Coca-Cola. Still beverages include energy products and noncarbonated beverages such as bottled water, 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. Other sales include sales to other ~~Coca‑Cola~~Coca-Cola bottlers, “post-mix” products, 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.

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. The Company’s products are sold and distributed in the United States through various channels, which include selling directly to retail stores and other outlets such as food markets, institutional accounts and vending machine outlets.

The nonalcoholic beverage ~~market~~industry is highly competitive for both sparkling and s~~till~~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 product introductions,~~ new vending and dispensing equipment, packaging changes, pricing, ~~price~~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.

Business seasonality results primarily from higher unit sales of the Company’s products in the second and third quarters of the fiscal year. 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.

COVID-19 Impact on Customer, Teammate and Community Safety

~~Executive Summary~~

~~Revenue grew 5.6%~~

On March 11, 2020, the World Health Organization declared the COVID-19 outbreak to be a global pandemic. The Company is diligently monitoring the impact of the COVID-19 pandemic on all aspects of its business, including the impact on its customers, teammates, suppliers and distribution network. Our business has been recognized by the United States Department of Homeland Security and state and local governments in the ~~third~~communities in which we operate as “essential,” as all our teammates support beverage manufacturing and distribution.

The Company has taken the following actions to protect our customers, teammates and communities, while it continues to manufacture and distribute its products:

•We have increased our sanitation protocols to sanitize equipment and common areas multiple times per day.

•We have actively promoted hygiene practices recommended by the Centers for Disease Control and Prevention, including social distancing requiring six or more feet between teammates where possible, and staggered work start and stop times and lunch breaks.

•We have restricted access to our facilities for non-essential visitors, vendors and contractors.

•We have produced and bottled thousands of containers of sanitization solution for our front-line teammates who interact with our product and customers.

•We have procured and sent hundreds of thousands of disposable gloves and masks to our teammates to use in their work.

•We have implemented work-from-home routines for teammates whose work duties permit it and are utilizing virtual technology to replace in-person meetings.

•We have offered our teammates 40 hours of supplemental sick time for non-exempt teammates to encourage our teammates to stay home if they or their family members are experiencing COVID-19 symptoms.

•We have modified our healthcare plans for COVID-19-related events to cover the costs of COVID-19 treatment to remove a barrier for our teammates to receive care if they are experiencing symptoms.

•We have vendors prepared to perform additional sanitation and deep cleaning at facilities where circumstances warrant following exposure to COVID-19.

COVID-19 Impact on Results of Operations and Financial Position

The COVID-19 pandemic and related “stay-at-home” or “shelter-in-place” orders issued by state and local governments, combined with the closing of certain types of retail outlets, including restaurants and schools, and the cancelling of large public gatherings such as sporting events are expected to have a material impact on our results of operations in the short term. While the first quarter of 2020 was favorably impacted by increased consumer purchasing activity in the last three weeks of the quarter, we expect the financial results of the second quarter of 2020 to be negatively impacted.

Our historical composition of our total bottle/can physical case volume and net sales by customer selling channel for fiscal year 2019 ~~driven~~was as follows:


Customer Category	Volume		Net Sales
Large Retail (including grocery stores and mass merchandise outlets)	59.6	%	48.7	%
Small Retail (including convenience stores, drug stores and value stores)	27.7	%	35.7	%
On-premise (including restaurants, hospitals and schools)	12.7	%	15.6	%
	100.0	%	100.0	%

During the last three weeks of the first quarter of 2020, we experienced a shift of approximately 7% in our total bottle/can physical case volume and net sales from smaller retail store and on-premise outlets to larger retail store outlets.

Larger retail store outlets, including grocery stores and mass merchandise outlets, sell a much higher percentage of take home packages than smaller retail store or on-premise outlets. These take home packages generally carry lower revenue and gross profit

per case as compared to packages sold for immediate consumption through smaller retail store and on-premise outlets. As a result, our gross profit will decline significantly as long as this shift in our business continues.

Due to the closing of restaurants, schools and amusement and recreational facilities for on-premise consumption, we have seen a significant shift in our business to date in the second quarter of 2020. However, as government-imposed public safety restrictions are eased, we expect our business to improve slowly as product and package mix and channel mix become more favorable. The pace at which that shift will occur, however, is unknown, as it is not clear when “stay-at-home” and “shelter-in-place” orders will be lifted, what parts of the economy will be re-opened when those orders are lifted and how quickly consumer behavior will return to more typical buying patterns after those orders are lifted. Additionally, it is unclear how many outlets will re-open after the orders are lifted, which will impact our ability to attain our pre-COVID-19 business results. Also, it is uncertain how consumer behavior will change in the long run as a result of the COVID-19 pandemic and how new consumer behavior will impact our long-term results.

We have not experienced any material supply chain interruptions during the COVID-19 pandemic, and we do not expect any material interruptions in the short term. We have not experienced any material distribution issues in delivering our product to retail outlets that have remained open. Our supply chain is dependent on several key raw materials, including aluminum, PET resin and high-fructose corn syrup. All of these raw materials have seen significant declines in market value, but we have not currently experienced any supply issues that would impact our results materially. Additionally, we utilize carbon dioxide (“CO2”) in the production of our carbonated beverages and, while we have not experienced a shortage of CO2 in our production processes despite some supply interruptions in the marketplace, we will continue to monitor and react as needed to the supply of this critical production input.

While we expect our operations to be negatively impacted by the COVID-19 pandemic, we are taking several cost-saving actions to offset the recent decline in our revenue. We furloughed approximately 700 employees in mid-April and expect this furlough to continue through mid-June. In addition, we have taken measures to reduce or defer operating expenses, maintaining only business-critical expenses to support business operations. Lastly, we have taken measures to reduce capital expenditures to conserve cash in this time of uncertainty.

While we expect our business results to be negatively impacted, we do not currently expect the COVID-19 pandemic to materially impact our liquidity position or access to capital in the short term. Our revolving credit facility matures on June 8, 2023 and has an aggregate maximum borrowing capacity of $500 million, which may be increased at the Company’s option to $750 million, subject to obtaining commitments from the lenders and satisfying other conditions specified in the credit agreement. Borrowings under the revolving credit facility as of March 29, 2020 were $105 million.

Additionally, in response to the COVID-19 pandemic, the President signed into law the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) on March 27, 2020. The CARES Act provides numerous tax relief provisions and other economic stimulus measures, including the temporary suspension of certain payment requirements for the employer portion of Social Security payroll taxes and the creation of certain refundable employee retention credits. The Company expects the deferral of Social Security payroll taxes to have an approximately $30 million to $40 million positive impact on its cash flows from operations in 2020. Additionally, the Company is currently evaluating the impact of other provisions and measures within the CARES Act.

We do not expect any material impairments or adjustments to the fair value of our assets as a result of the COVID-19 pandemic. Through the normal course of business, we have assessed the collectability of our receivables and have recorded any expected losses as of March 29, 2020. These adjustments recorded to our receivables did not have a material impact on our results for the first quarter of 2020. Further, we have evaluated our goodwill, intangible assets and long-lived assets for impairment, noting no impairment to these assets as of the first quarter of 2020. We will continue to monitor the valuation of our assets and the collectability of our receivables and record any adjustments as necessary.

We have assessed the COVID-19-related circumstances around work routines, including remote work arrangements, and their impact on our internal controls over financial reporting. We do not anticipate any material impact to our control procedures that would materially affect our internal controls over financial reporting. In addition, we activated our Infectious Disease Response Plan and Incident Management Crisis Response procedures in early March and all aspects of that plan and those procedures are functioning as designed. We do not expect any material expenditures as a result of the plan’s and the procedures’ implementation.

Executive Summary for the First Quarter of 2020

Net sales grew 6.4% in the first quarter of 2020, primarily ~~by a 4.6%~~due to an increase in physical case volume ~~with~~of 6.1%. Physical case volume growth was strong ~~performance~~ in both Sparkling and Still ~~categories. We cycled pricing initiatives that were implemented~~categories as we introduced Coca-Cola line extensions and new products such as Coke Energy, AHA and enhanced waters. Volume growth was particularly strong in the ~~third~~last three weeks of the quarter as consumers prepared for COVID-19-related stay-at-home orders which shifted consumer buying patterns to take home multi-serve packages sold in larger retail stores. We estimate approximately two-thirds of ~~2018, thereby reducing~~our first quarter 2020 volume growth is attributable to heavy increases in demand during the ~~contribution from pricing as compared to the revenue growth in the first half~~last three weeks of ~~2019. Revenue~~March. Net sales from our bottle/can Sparkling beverages increased ~~6.1%~~6.0% in the ~~third~~first quarter of ~~2019 as our Sparkling brands continue to demonstrate strength across our markets. Revenue~~2020, driven primarily by volume growth and price realization within this category. Net sales from our Still beverages grew ~~9.4%~~10.4% in the ~~third~~first quarter of ~~2019, driven primarily by growth in our Sports Drinks category~~2020, related to the successful introduction of AHA, Coke Energy and continued strong BodyArmor ~~products into our portfolio in the fourth quarter of 2018. Revenue grew 4.6%~~performance.

Gross profit increased $16.0 million, or 4.1%, in the first ~~nine months~~quarter of ~~2019 through a combination of increased pricing, a continued~~2020, driven by higher volumes, while gross margin decreased 70 basis points to 34.6% due to the shift in our product mix ~~shift to higher revenue products~~away from single-serve sales and ~~a 1.8% increase in physical case volume.~~

~~Gross margin declined 30 basis points in the third quarter of 2019 to 34.0%.~~towards take home multi-serve sales. On an adjusted basis, as defined in the “Adjusted ~~Non‑GAAP~~Non-GAAP Results” section below, gross ~~margin declined 10 basis points versus the third quarter of 2018. The slight decline in~~profit grew $22.1 million, or 5.7%, and gross margin ~~can be attributed~~decreased 20 basis points. We continue to focus on price realization and margin improvement across our portfolio. However, the ~~continued~~higher growth rates for Still products, which generally have lower gross margins than Sparkling products, continue to put pressure on our overall gross margin. We estimate the shift in product mix from Sparkling beverages to Still products, as well as certain costs incurred to optimize our manufacturing operations. Gross margin for the first nine months of 2019 increased 80 basis points on both an actual and an adjusted basis. This improvement is primarily the result of successful pricing actions executedconsumer buying patterns in the ~~second half~~last three weeks of ~~2018 to overcome rising input costs.~~

the quarter impacted our gross margin by approximately 20 basis points.

Selling, delivery and administrative (“SD&A”) expenses in the ~~third~~first quarter of ~~2019~~2020 increased ~~$10.1~~$3.3 million, or ~~2.7%, versus the third quarter of 2018, largely driven by increased payroll and other benefits expenses.~~0.9%. SD&A expenses as a percentage of net sales ~~improved 80~~decreased 170 basis points in the ~~third~~first quarter of ~~2019 versus the third quarter of 2018, due primarily to a $10.3 million reduction in expenses related to our system transformation work, which concluded in the second quarter of 2019.~~2020. Adjusted SD&A expenses in the ~~third~~first quarter of ~~2019~~2020 increased ~~$18.8~~$6.1 million, or ~~5.2%, versus the third quarter of 2018, reflecting wage inflation and labor expense related to our higher volume. Our adjusted~~1.7%. The substantial improvement in SD&A expenses as a percentage of net sales ~~improved 10 basis points in the third quarter~~relates to our ability to leverage our operating model during such a period of ~~2019 versus the third quarter~~strong revenue growth along with diligent management of ~~2018 (29.6% versus 29.7%, respectively).~~

our variable operating expenses.

Income from operations in the ~~third~~first quarter ~~and the first nine months~~ of ~~2019~~2020 was ~~$53.8~~$32.8 million, ~~and $141.2 million, respectively. Adjusted income from operations was $58.7~~compared to $20.2 million in the ~~third~~first quarter of 2019, an increase of ~~$3.5 million from the third quarter of 2018.~~62.9%. Adjusted income from operations in the first quarter of 2020 was ~~$157.0~~$36.8 million, an increase of 77.3%.

Net income in the first quarter of 2020 was $14.7 million, compared to a net loss of $6.8 million in the first ~~nine months~~quarter of 2019, an ~~increase~~improvement of ~~$71.2 million from the same period last year.~~

~~Net income in the third quarter of 2019 was $13.0 million, compared to $25.2 million in the third quarter of 2018, a decline of $12.2~~$21.5 million. For the first nine months of 2019, net income increased $14.5 million compared to the first nine months of 2018. Net income for the third quarter and the first nine months of 2019 was adversely impacted by fair value adjustments to our acquisition related contingent consideration liability, driven by changes in the discount rate and future cash flow projections. Fair value adjustments to this liability are non-cash in nature and a routine part of our quarterly financial closing process.

Capital spending for the first nine months of 2019 was $96.7 million. We continue to anticipate capital spending in fiscal 2019 will be in the range of $150 million to $180 million as we remain focused on making prudent, long-term investments to support future growth.

Cash flows provided by operations for the first ~~nine months~~quarter of ~~2019~~2020 were ~~$204.6~~$32.3 million, compared to ~~$26.0~~$5.6 million infor the ~~same period~~first quarter of ~~2018.~~2019. Improved cash generation continues to be a key management focus area as we ~~strive~~continue to work to improve our profitability ~~reduce our financial leverage~~ and further strengthen our balance sheet.

Areas of Emphasis

Key priorities for the Company include ~~acquisition synergies and cost optimization,~~commercial execution, revenue management, ~~free~~supply chain optimization and cash flow ~~generation~~generation.

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 ~~debt repayment, distribution network optimization~~remain in-stock across our portfolio of brands and ~~cost management.~~

~~Acquisition Synergies and Cost Optimization~~: ~~In October 2017, the Company completed~~packages in a ~~series of distribution territory and regional manufacturing plant acquisitions and exchanges with The Coca‑Cola Company, Coca‑Cola Refreshments USA, Inc.,~~profitable manner will have a wholly-owned subsidiary of The Coca‑Cola Company, and Coca‑Cola Bottling Company United, Inc., an independent bottler that is unrelated to the Company, to significantly expand the Company’s distribution and manufacturing operations (the “System Transformation”). As the Company continues to integrate these acquired territories and facilities into its operations, the Company remainssignificant impact on our results. We are focused on ~~synergy~~execution at every step in our supply chain, including raw material and ~~cost optimization opportunities across its~~finished goods procurement, manufacturing conversion, transportation, warehousing and distribution, to ensure in-store execution can occur. We are investing in tools and technology to enable our teammates to operate more effectively and efficiently with our customers and drive value in our business ~~including opportunities across its manufacturing network, distribution network and back office functions. The successful opening of a new, automated distribution facility in Erlanger, Kentucky and~~for the ~~planned consolidation of the Company’s two manufacturing plants in the Memphis, Tennessee region by the end of fiscal 2020 are two~~long term.

examples of the Company’s commitment to drive efficiency and reinvest for long-term growth. The Company anticipates identifying, investing against and executing these synergy and cost optimization opportunities will be a key driver of its results of operations.

Revenue Management: ~~Revenue~~Our revenue management ~~requires a~~ strategy ~~that reflects consideration for~~focuses on the optimal pricing of our brands and packages within product categories and channels, ~~highly~~creating effective working relationships with our customers, and disciplined fact-based decision-making. 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. ~~Revenue management has been~~

Supply Chain Optimization: In October 2017, we completed a multi-year series of transactions through which we acquired and exchanged distribution territories and manufacturing facilities (the “System Transformation”). We are focused on optimizing our supply chain as we continue to integrate the acquired territories and facilities into our operations. We are in the process of integrating our Memphis, Tennessee production center with our West Memphis, Arkansas operations, which is expected to greatly

expand our West Memphis production capabilities and to reduce our overall production costs. We will continue to look for opportunities to invest in our supply chain to optimize our costs.

Cash Flow Generation: Cash flow generation continues to be a key ~~driver which has a significant impact on the Company’s results of operations.~~

~~Free Cash Flow Generation and Debt Repayment~~: ~~Upon completion of the System Transformation transactions in October 2017, the Company’s debt balance exceeded $1.1 billion. Generating free cash flow and reducing its debt balance will continue to be a key~~ focus area for ~~the Company. The Company has~~us. We have several initiatives in place to optimize ~~free~~ cash flow, improve profitability and prudently manage ~~its~~ capital expenditures, ~~in order to generate strong free cash flow and reduce its financial leverage. During the first nine months of 2019, the Company reduced its net debt by more than $77 million.~~

~~Distribution Network Optimization and Cost Management~~: Distribution costs represent the costs of transporting finished goods from Company locations to customer outlets. Total distribution costs, including warehouse costs, were $465.7 million in the first nine months of 2019 and $458.7 million in the first nine months of 2018. ~~Management of these costs will~~as we continue to ~~be a key area of emphasis for the Company. The Company believes that optimizing its expanded distribution footprint will be a key area of~~prioritize debt repayment and to focus ~~in the short term in order to manage this significant cost to its business.~~on strengthening our balance sheet.

Results of Operations

~~Third~~

First Quarter Results

~~Our~~

The Company’s results of operations for the ~~third~~first quarter of 2020 and the first quarter of 2019 ~~and the third quarter of 2018~~ are ~~highlighted~~summarized in the table below and discussed in the following ~~paragraphs:~~

paragraphs.

Third Quarter

(in thousands)

2019

2018

Change

Net sales

$
1,271,029

$
1,204,033

$
66,996

Cost of sales

838,805

791,317

47,488

Gross profit

432,224

412,716

19,508

Selling, delivery and administrative expenses

378,378

368,312

10,066

Income from operations

53,846

44,404

9,442

Interest expense, net

10,965

12,827

(1,862
)
Other income (expense), net

(20,711
)

1,696

(22,407
)
Gain on exchange transactions

-

10,170

(10,170
)
Income before income taxes

22,170

43,443

(21,273
)
Income tax expense

6,624

16,493

(9,869
)
Net income

15,546

26,950

(11,404
)
Less: Net income attributable to noncontrolling interest

2,540

1,786

754

Net income attributable to Coca-Cola Consolidated, Inc.

$
13,006

$
25,164

$
(12,158
)
Other comprehensive income, net of tax

196

734

(538
)
Comprehensive income attributable to Coca-Cola Consolidated, Inc.

$
13,202

$
25,898

$
(12,696
)


	First Quarter
(in thousands)	2020		2019		Change
Net sales	$	1,173,021	$	1,102,912	$	70,109
Cost of sales	767,726		713,604		54,122
Gross profit	405,295		389,308		15,987
Selling, delivery and administrative expenses	372,474		369,154		3,320
Income from operations	32,821		20,154		12,667
Interest expense, net	9,561		12,886		(3,325)
Other expense, net	2,298		15,851		(13,553)
Income (loss) before income taxes	20,962		(8,583)		29,545
Income tax expense (benefit)	5,361		(3,005)		8,366
Net income (loss)	15,601		(5,578)		21,179
Less: Net income attributable to noncontrolling interest	939		1,253		(314)
Net income (loss) attributable to Coca-Cola Consolidated, Inc.	$	14,662	$	(6,831)	$	21,493
Other comprehensive income (loss), net of tax	(50)		578		(628)
Comprehensive income (loss) attributable to Coca-Cola Consolidated, Inc.	$	14,612	$	(6,253)	$	20,865

Items Impacting Operations and Financial Condition

~~Third~~

First Quarter ~~2019~~2020

•$3.9 million in pre-tax unfavorable mark-to-market adjustments related to the Company’s commodity hedging program.

~~$18.7 million recorded in other income (expense), net as a result of an increase in the fair value of the Company’s acquisition related contingent consideration liability.~~

•$0.7 million recorded in other expense, net as a result of an increase in the fair value of the Company’s acquisition related contingent consideration liability.

~~Third~~•$0.1 million of net expense related to the impairment and accelerated deprecation of property, plant and equipment as the Company continues to optimize efficiency.

First Quarter ~~2018~~

•

~~$10.4 million of expenses related to the System Transformation; and~~

2019

•

~~$10.2 million net adjustment to the gain on exchange transactions as a result of final post-closing adjustments for the System Transformation transactions that closed during fiscal 2017.~~

•$14.0 million recorded in other expense, net as a result of an increase in the fair value of the Company’s acquisition related contingent consideration liability;

•$6.6 million in pre-tax favorable mark-to-market adjustments related to the Company’s commodity hedging program; and

•$4.7 million of expenses related to the System Transformation, the majority of which were information technology-related costs.

•$2.5 million of expenses due to an increase in the capitalization thresholds on certain low-cost, short-lived assets.

Net Sales

Net sales increased ~~$67.0~~$70.1 million, or ~~5.6%~~6.4%, to ~~$1.27~~$1.17 billion in the ~~third~~first quarter of ~~2019,~~2020, as compared to ~~$1.20~~$1.10 billion in the ~~third~~first quarter of ~~2018.~~2019. The increase in net sales was primarily attributable to the following (in millions):

Third Quarter 2019

Attributable to:
$
46.9

Increase in net sales related to increased sales volume

25.9

Increase in net sales primarily related to an increase in average bottle/can sales price per unit to retail customers and the shift in product mix to higher revenue still products in order to meet consumer preferences

(8.9
)

Decrease in sales volume to other Coca-Cola bottlers

3.1

Other
$
67.0

Total increase in net sales


First Quarter 2020		Attributable to:
$	53.8	Increase in net sales related to increased sales volume
12.9		Increase in net sales primarily related to an increase in average bottle/can sales price per unit to retail customers and the shift in product mix to higher revenue still products in order to meet consumer preferences
3.6		Increase in sales volume to other Coca-Cola bottlers
(0.2)		Other
$	70.1	Total increase in net sales

Net sales by product category were as follows:

Third Quarter

(in thousands)

2019

2018

% Change
Bottle/can sales:

Sparkling beverages (carbonated)

$
657,507

$
619,705

6.1%
Still beverages (noncarbonated, including energy products)

438,510

400,795

9.4%
Total bottle/can sales

1,096,017

1,020,500

7.4%

Other sales:

Sales to other Coca-Cola bottlers

83,250

92,139

(9.6)%
Post-mix and other

91,762

91,394

0.4%
Total other sales

175,012

183,533

(4.6)%

Total net sales

$
1,271,029

$
1,204,033

5.6%


	First Quarter
(in thousands)	2020		2019		% Change
Bottle/can sales:
Sparkling beverages	$	631,113	$	595,390	6.0	%
Still beverages	373,278		338,059		10.4	%
Total bottle/can sales	1,004,391		933,449		7.6	%

Other sales:
Sales to other Coca-Cola bottlers	85,239		81,673		4.4	%
Post-mix and other	83,391		87,790		(5.0)	%
Total other sales	168,630		169,463		(0.5)	%

Total net sales	$	1,173,021	$	1,102,912	6.4	%

Product category sales volume of physical cases ~~in the third quarter of 2019 and the third quarter of 2018~~ as a percentage of total bottle/can sales volume and the percentage change by product category were as follows:

Bottle/Can Sales Volume

Third Quarter

Bottle/Can Sales

Product Category

2019

2018

Volume % Change

Sparkling beverages

67.6
%

67.8
%

4.3
%
Still beverages (including energy products)

32.4
%

32.2
%

5.2
%
Total bottle/can sales volume

100.0
%

100.0
%

4.6
%


	Bottle/Can Sales Volume
	First Quarter						Bottle/Can Sales
Product Category	2020		2019		Volume % Change
Sparkling beverages	70.7	%	72.5	%	3.4	%
Still beverages	29.3	%	27.5	%	13.2	%
Total bottle/can sales volume	100.0	%	100.0	%	6.1	%

As the Company introduces new products, it reassesses the category assigned to its products at the SKU level, therefore categorization could differ from previously presented results to conform with current period categorization. Any differences are not ~~considered~~ material.

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


	First Quarter
	2020		2019
Approximate percent of the Company’s total bottle/can sales volume:
Wal-Mart Stores, Inc.	20	%	20	%
The Kroger Company	13	%	12	%
Total approximate percent of the Company’s total bottle/can sales volume	33	%	32	%

Approximate percent of the Company’s total net sales:
Wal-Mart Stores, Inc.	14	%	14	%
The Kroger Company	9	%	9	%
Total approximate percent of the Company’s total net sales	23	%	23	%

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 and sweetener, (iii) concentrate costs and (iv) manufacturing costs, including labor, overhead and warehouse costs. In addition, cost of sales includes shipping, handling and ~~handling~~fuel costs related to the movement of finished goods from manufacturing ~~plants~~facilities to distribution centers, amortization expense of distribution rights, distribution fees of certain products and marketing credits from brand companies. Raw material costs represent approximately 20% of total cost of sales on an annual basis.

Cost of sales increased ~~$47.5~~$54.1 million, or ~~6.0%~~7.6%, to ~~$838.8~~$767.7 million in the ~~third~~first quarter of ~~2019,~~2020, as compared to ~~$791.3~~$713.6 million in the ~~third~~first quarter of ~~2018.~~2019. The increase in cost of sales was primarily attributable to the following (in millions):

Third Quarter 2019

Attributable to:
$
36.2

Increase in cost of sales related to increased sales volume

18.8

Increase in cost of sales primarily related to, in order of magnitude, the change in product mix to meet consumer preferences and an increase in concentrate costs

(10.1
)

Decrease in sales volume to other Coca-Cola bottlers

2.6

Other
$
47.5

Total increase in cost of sales


First Quarter 2020		Attributable to:
$	35.2	Increase in cost of sales related to increased sales volume
5.9		Increase in cost of sales primarily related to, in order of magnitude, the change in product mix to meet consumer preferences and an increase in concentrate costs, partially offset by lower fuel prices
3.6		Increase in costs related to increased volume of freight services provided to external customers (other than nonalcoholic beverages)
3.3		Increase in sales volume to other Coca-Cola bottlers
6.1		Other
$	54.1	Total increase in cost of sales

The Company relies extensively on advertising and sales promotion in the marketing of its products. The ~~Coca‑Cola~~Coca-Cola Company and other beverage companies that supply concentrates, syrups and finished products to the Company make substantial marketing and advertising expenditures to promote sales in the Company’s territories. Certain of the marketing expenditures by The ~~Coca‑Cola~~Coca-Cola Company and other beverage companies are made pursuant to annual arrangements. The Company also benefits from national advertising programs conducted by The ~~Coca‑Cola~~Coca-Cola Company and other beverage companies. Total marketing funding support from The ~~Coca‑Cola~~Coca-Cola Company and other beverage companies, which includes both direct payments to the Company and payments to customers for marketing programs, was ~~$34.8~~$30.3 million in the ~~third~~first quarter of ~~2019,~~2020, as compared to ~~$33.1~~$31.3 million in the ~~third~~first quarter of ~~2018.~~

2019.

The Company’s cost of sales may not be comparable to other peer companies, as some peer companies include all costs related to their distribution network in cost of sales. The Company includes a portion of these costs in SD&A expenses, as described below.

Selling, Delivery and Administrative Expenses

SD&A expenses include the following: sales management labor costs, distribution costs resulting from transporting finished products from distribution centers to customer locations, distribution center overhead including depreciation expense, distribution center warehousing costs, delivery vehicles and cold drink equipment, point-of-sale expenses, advertising expenses, cold drink equipment repair costs, amortization of intangibles and administrative support labor and operating costs.

SD&A expenses increased by ~~$10.1~~$3.3 million, or ~~2.7%~~0.9%, to ~~$378.4~~$372.5 million in the ~~third~~first quarter of ~~2019,~~2020, as compared to ~~$368.3~~$369.2 million in the ~~third~~first quarter of ~~2018.~~2019. SD&A expenses as a percentage of net sales decreased to ~~29.8%~~31.8% in the ~~third~~first quarter of ~~2019~~2020 from ~~30.6%~~33.5% in the ~~third~~first quarter of ~~2018.~~2019. The increase in SD&A expenses was primarily attributable to the following (in millions):

Third Quarter 2019

Attributable to:
$
12.1

Increase in employee benefit costs, including an increase in bonuses and incentives primarily related to improved financial results and an increase in employee salaries

(2.0
)

Other
$
10.1

Total increase in SD&A expenses


First Quarter 2020		Attributable to:
$	(4.7)	Decrease in System Transformation transaction expenses
4.3		Increase in payroll costs and employee benefits including bonuses and incentives
3.7		Other
$	3.3	Total increase in SD&A expenses

The Company has three primary delivery systems: (i) bulk delivery for large supermarkets, mass merchandisers and club stores, (ii) advanced sale delivery for convenience stores, drug stores, small supermarkets and on-premise accounts and (iii) full-service delivery for its full-service vending customers. Shipping and handling costs related to the movement of finished goods from manufacturing ~~plants~~locations to distribution centers are included in cost of sales. Shipping and handling costs related to the movement of finished goods from distribution centers to customer locations, including distribution center warehousing costs, ~~are included in SD&A expenses and~~ totaled ~~$161.0~~$160.1 million in the ~~third~~first quarter of ~~2019~~2020 and ~~$157.5~~$148.9 million in the ~~third~~first quarter of ~~2018.~~

2019.

Interest Expense, Net

Interest expense, net decreased ~~$1.8~~$3.3 million, or 25.8%, to ~~$11.0~~$9.6 million in the ~~third~~first quarter of ~~2019,~~2020, as compared to ~~$12.8~~$12.9 million in the ~~third~~first quarter of ~~2018.~~2019. The decrease was primarily a result of lower average debt balances and lower average interest rates.

Other ~~Income (Expense),~~Expense, Net

A summary of other ~~income (expense),~~expense, net is as follows:

Third Quarter

(in thousands)

2019

2018

(Increase) decrease in the fair value of the acquisition related contingent consideration liability

$
(18,749
)

$
2,373

Non-service cost component of net periodic benefit cost

(1,962
)

(677
)
Total other income (expense), net

$
(20,711
)

$
1,696


	First Quarter
(in thousands)	2020		2019
Increase in the fair value of the acquisition related contingent consideration liability	$	712	$	14,046
Non-service cost component of net periodic benefit cost	1,586		1,961
Other	—		(156)
Total other expense, net	$	2,298	$	15,851

Each reporting period, the Company adjusts its contingent consideration liability related to the distribution territories subject to sub-bottling fees to fair value. The fair value is determined by discounting future expected sub-bottling payments required under the Company’s comprehensive beverage agreement, which extend through the life of the applicable distribution assets,, using the Company’s estimated weighted average cost of capital (“WACC”), which is impacted by many factors, including long-term interest rates and projections of future cash ~~flow projections.~~ flows. The life of these distribution assets is generally 40 years. The Company is required to pay the current portion of the sub-bottling fee on a quarterly basis.

The increase in the fair value of the acquisition related contingent consideration liability during the third quarter of 2019 was primarily driven by a decrease in the discount rate. The decrease in the fair value of the acquisition related contingent consideration liability during the third quarter of 2018 was primarily driven by changes to the future cash flow projections of the distribution territories subject to sub-bottling fees and an increase in the discount rate, partially offset by cash payments.

~~Gain on Exchange Transactions~~

As a result of final post-closing adjustments for the System Transformation transactions that closed during fiscal 2017, the Company recorded a $10.2 million net adjustment to the gain on exchange transactions in the third quarter of 2018.

~~Income Tax Expense~~

~~The Company’s effective income tax rate, calculated by dividing income tax expense by income before income taxes, was 29.9~~% for the third quarter of 2019 and 38.0% for the third quarter of 2018. The decrease in the effective income tax rate was primarily driven by a decrease in uncertain tax positions due to the expiration of the applicable statute of limitations. ~~The Company’s effective income tax rate, calculated by dividing income tax expense by income before income taxes minus net income attributable to noncontrolling interest, was 33.7% for the third quarter of 2019 and 39.6% for the third quarter of 2018.~~

~~Noncontrolling Interest~~

The Company recorded net income attributable to noncontrolling interest of $2.5 million in the third quarter of 2019 and $1.8 million in the third quarter of 2018, each related to the portion of Piedmont owned by The Coca‑Cola Company.

~~Other Comprehensive Income, Net of Tax~~

Other comprehensive income, net of tax was $0.2 million in the third quarter of 2019 and $0.7 million in the third quarter of 2018. The decrease was primarily a result of the Company entering into a fixed rate swap in July 2019 to hedge a portion of the interest rate risk on the Company’s term loan facility and a decrease in actuarial gains on the Company’s postretirement benefit plans.

~~First Nine Months Results~~

~~Our results of operations for the first nine months of 2019 and the first nine months of 2018 are highlighted in the table below and discussed in the following paragraphs:~~

First Nine Months

(in thousands)

2019

2018

Change

Net sales

$
3,647,600

$
3,488,793

$
158,807

Cost of sales

2,390,289

2,313,728

76,561

Gross profit

1,257,311

1,175,065

82,246

Selling, delivery and administrative expenses

1,116,097

1,129,979

(13,882
)
Income from operations

141,214

45,086

96,128

Interest expense, net

35,846

37,617

(1,771
)
Other expense, net

67,743

3,612

64,131

Gain on exchange transactions

-

10,170

(10,170
)
Income before income taxes

37,625

14,027

23,598

Income tax expense

10,801

3,387

7,414

Net income

26,824

10,640

16,184

Less: Net income attributable to noncontrolling interest

5,279

3,594

1,685

Net income attributable to Coca-Cola Consolidated, Inc.

$
21,545

$
7,046

$
14,499

Other comprehensive income, net of tax

1,367

2,199

(832
)
Comprehensive income attributable to Coca-Cola Consolidated, Inc.

$
22,912

$
9,245

$
13,667

~~Items Impacting Operations and Financial Condition~~

~~First Nine Months 2019~~

•

~~$62.0 million recorded in other expense, net as a result of an increase in the fair value of the Company’s acquisition related contingent consideration liability;~~

•

~~$6.9 million of expenses related to the System Transformation transactions, the majority of which were information technology related costs; and~~

•

$6.1 million adjustment to reflect the prospective change of increasing the capitalization thresholds on certain low-cost, short-lived assets. This change is not expected to be material to the condensed consolidated financial statements.

~~First Nine Months 2018~~

•

~~$32.7 million of expenses related to the System Transformation; and~~

•

~~$10.2 million net adjustment to the gain on exchange transactions as a result of final post-closing adjustments for the System Transformation transactions that closed during fiscal 2017.~~

~~Net Sales~~

Net sales increased $158.8 million, or 4.6%, to $3.65 billion in the first nine months of 2019, as compared to $3.49 billion in the first nine months of 2018. The increase in net sales was primarily attributable to the following (in millions):

First Nine Months 2019

Attributable to:
$
126.7

Increase in net sales primarily related to an increase in average bottle/can sales price per unit to retail customers and the shift in product mix to higher revenue still products in order to meet consumer preferences

62.2

Increase in net sales related to increased sales volume

(46.6
)

Decrease in sales volume to other Coca-Cola bottlers

16.5

Other
$
158.8

Total increase in net sales

~~Net sales by product category were as follows:~~

First Nine Months

(in thousands)

2019

2018

% Change
Bottle/can sales:

Sparkling beverages (carbonated)

$
1,927,916

$
1,832,619

5.2%
Still beverages (noncarbonated, including energy products)

1,201,564

1,108,621

8.4%
Total bottle/can sales

3,129,480

2,941,240

6.4%

Other sales:

Sales to other Coca-Cola bottlers

254,200

300,819

(15.5)%
Post-mix and other

263,920

246,734

7.0%
Total other sales

518,120

547,553

(5.4)%

Total net sales

$
3,647,600

$
3,488,793

4.6%

Product category sales volume of physical cases in the first nine months of 2019 and the first nine months of 2018 as a percentage of total bottle/can sales volume and the percentage change by product category were as follows:

Bottle/Can Sales Volume

First Nine Months

Bottle/Can Sales

Product Category

2019

2018

Volume % Change

Sparkling beverages

69.7
%

70.5
%

0.7
%
Still beverages (including energy products)

30.3
%

29.5
%

4.4
%
Total bottle/can sales volume

100.0
%

100.0
%

1.8
%

As the Company introduces new products, it reassesses the category assigned at the SKU level, therefore categorization could differ from previously presented results to conform with current period categorization. Any differences are not considered material.

First Nine Months

2019

2018

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

Wal-Mart Stores, Inc.

19
%

19
%
The Kroger Company

12
%

11
%
Total approximate percent of the Company’s total bottle/can sales volume

31
%

30
%

Approximate percent of the Company’s total net sales:

Wal-Mart Stores, Inc.

14
%

14
%
The Kroger Company

8
%

8
%
Total approximate percent of the Company’s total net sales

22
%

22
%

~~Cost of Sales~~

Cost of sales increased $76.6 million, or 3.3%, to $2.39 billion in the first nine months of 2019, as compared to $2.31 billion in the first nine months of 2018. The increase in cost of sales was primarily attributable to the following (in millions):

First Nine Months 2019

Attributable to:
$
79.1

Increase in cost of sales primarily related to, in order of magnitude, the change in product mix to meet consumer preferences, an increase in concentrate costs and an increase in commodity costs

(50.4
)

Decrease in sales volume to other Coca-Cola bottlers

41.9

Increase in cost of sales related to increased sales volume

6.0

Other
$
76.6

Total increase in cost of sales

Total marketing funding support from The Coca‑Cola Company and other beverage companies was $100.8 million in the first nine months of 2019, as compared to $96.9 million in the first nine months of 2018.

~~Selling, Delivery and Administrative Expenses~~

SD&A expenses decreased by $13.9 million, or 1.2%, to $1.12 million in the first nine months of 2019, as compared to $1.13 million in the first nine months of 2018. SD&A expenses as a percentage of net sales decreased to 30.6% in the first nine months of 2019 from 32.4% in the first nine months of 2018. The decrease in SD&A expenses was primarily attributable to the following (in millions):

First Nine Months 2019

Attributable to:
$
(25.5
)

Decrease in System Transformation transactions expenses

8.9

Increase in employee benefit costs including employee salaries primarily as a result of an increase in bonuses and incentives primarily related to improved financial results, partially offset by workforce optimization completed in the second and fourth quarters of 2018

2.7

Other
$
(13.9
)

Total decrease in SD&A expenses

Shipping and handling costs related to the movement of finished goods from distribution centers to customer locations, including distribution center warehousing costs, are included in SD&A expenses and totaled $465.7 million in the first nine months of 2019 and $458.7 million in the first nine months of 2018.

~~Interest Expense, Net~~

Interest expense, net decreased $1.8 million to $35.8 million in the first nine months of 2019, as compared to $37.6 million in the first nine months of 2018. The decrease was primarily a result of lower average debt balances and lower average interest rates.

~~Other Expense, Net~~

~~A summary of other expense, net is as follows:~~

First Nine Months

(in thousands)

2019

2018

Increase in the fair value of the acquisition related contingent consideration liability

$
62,017

$
1,584

Non-service cost component of net periodic benefit cost

5,882

2,028

Other

(156
)

-

Total other expense, net

$
67,743

$
3,612

The increase in the fair value of the acquisition related contingent consideration liability during the first ~~nine months~~quarter of ~~2019~~2020 was primarily driven by ~~a decrease~~updates to future cash flow projections, partially offset by an increase in the discount rate ~~and changes in future cash flow projections of~~used to calculate the ~~distribution territories subject to sub-bottling fees.~~fair values. The increase in the fair value of the acquisition related contingent consideration liability during the first ~~nine months~~quarter of ~~2018~~2019 was primarily driven by ~~changes to~~a decrease in the discount rate ~~and future cash flow projections of~~used to calculate the ~~distribution territories subject to sub-bottling fees, partially offset by cash payments.~~

fair values.

~~Gain on Exchange Transactions~~

Income Tax Expense

(Benefit)

The Company’s effective income tax rate, calculated by dividing income tax expense (benefit) by income (loss) before income taxes, was ~~28.7~~%25.6% for the first ~~nine months~~quarter of ~~2019~~2020 and ~~24.1%~~35.0% for the first ~~nine months~~quarter of ~~2018.~~2019. The ~~increase~~decrease in the effective income tax rate was primarily driven by ~~non-recurring favorable adjustments resulting from~~improved financial results and the ~~adoption~~extension of ~~the Tax Cuts and Jobs Act included~~certain tax credits in ~~the Company’s 2017 federal income tax return filed during the third quarter of 2018.~~ 2020. The Company’s effective income tax rate, calculated by dividing income tax expense (benefit) by income (loss) before income taxes minus net income attributable to noncontrolling interest, was ~~33.4~~%26.8% for the first ~~nine months~~quarter of ~~2019~~2020 and ~~32.5%~~30.6% for the first ~~nine months~~quarter of ~~2018. The Company anticipates the annualized effective income tax rate for 2019 will be in the low 30% range.~~2019.

Noncontrolling Interest

The Company recorded net income attributable to noncontrolling interest of ~~$5.3~~$0.9 million in the first ~~nine months~~quarter of ~~2019~~2020 and ~~$3.6~~$1.3 million in the first ~~nine months~~quarter of ~~2018,~~2019, each related to the portion of Piedmont owned by The ~~Coca‑Cola~~Coca-Cola Company.

Other Comprehensive Income (Loss), Net of Tax

Other comprehensive income, net of tax was ~~$1.4~~$0.1 million in the first ~~nine months~~quarter of ~~2019~~2020 and ~~$2.2~~other comprehensive loss, net of tax was $0.6 million in the first ~~nine months~~quarter of 2018. The decrease was primarily a result of a decrease in actuarial gains on the Company’s postretirement benefit plans and the Company entering into a fixed rate swap in July 2019 to hedge a portion of the interest rate risk on the Company’s term loan facility.

2019.

Segment Operating Results

The Company evaluates segment reporting in accordance with the 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~~.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 revenues and income from operations. The additional two operating segments do not meet the quantitative thresholds for separate reporting, either individually or in the aggregate, and, therefore, have been combined into “All Other.”

The Company’s segment results are as follows:

Third Quarter

First Nine Months

(in thousands)

2019

2018

2019

2018

Net sales:

Nonalcoholic Beverages⁽¹⁾

$
1,236,261

$
1,172,584

$
3,547,373

$
3,405,288

All Other

92,501

93,493

275,358

273,490

Eliminations⁽²⁾

(57,733
)

(62,044
)

(175,131
)

(189,985
)
Consolidated net sales

$
1,271,029

$
1,204,033

$
3,647,600

$
3,488,793

Income from operations:

Nonalcoholic Beverages

$
48,248

$
39,361

$
120,613

$
32,705

All Other

5,598

5,043

20,601

12,381

Consolidated income from operations

$
53,846

$
44,404

$
141,214

$
45,086

⁽¹⁾

The Company historically presented consideration paid to customers under certain contractual arrangements for exclusive distribution rights and sponsorship privileges as a marketing expense within SD&A expenses. The Company has now determined such amounts should be presented as a reduction to net sales and has revised the presentation of previously issued financial statements to correct for this error. Net sales and SD&A expenses were revised by $7.6 million in the third quarter of 2018 and $22.2 million in the first nine months of 2018. See Note 4 to the condensed consolidated financial statements for additional information.

⁽²⁾	The entire net sales elimination for each period presented represents net sales from All Other 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.


	First Quarter
(in thousands)	2020		2019
Net sales:
Nonalcoholic Beverages	$	1,142,581	$	1,072,227
All Other	81,301		87,915
Eliminations⁽¹⁾	(50,861)		(57,230)
Consolidated net sales	$	1,173,021	$	1,102,912

Income from operations:
Nonalcoholic Beverages	$	35,617	$	14,641
All Other	(2,796)		5,513
Consolidated income from operations	$	32,821	$	20,154

Depreciation and amortization:
Nonalcoholic Beverages	$	40,758	$	43,351
All Other	2,801		2,421
Consolidated depreciation and amortization	$	43,559	$	45,772

⁽¹⁾The entire net sales elimination for each period presented 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.

Adjusted Non-GAAP Results

The Company reports its financial results in accordance with ~~U.S.~~accounting principles generally accepted ~~accounting principles~~in the United States (“GAAP”). However, management believes that certain non-GAAP financial measures provide users with additional meaningful financial information that should be considered when assessing the Company’s ongoing performance. Further, with the conversion of its information technology systems, the Company believes these non-GAAP financial measures allow users to better appreciate the impact of this conversion on the Company’s 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 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 ~~GAAP~~ results (GAAP) to adjusted results (non-GAAP):

Third Quarter 2019

(in thousands, except per share data)

Gross profit

SD&A expenses

Income from
operations

Income before
income taxes

Net income

Basic net
income
per share

Reported results (GAAP)

$
432,224

$
378,378

$
53,846

$
22,170

$
13,006

$
1.39

Fair value adjustment of acquisition related contingent consideration⁽¹⁾

-

-

-

18,749

14,099

1.51

Fair value adjustments for commodity hedges⁽²⁾

(487
)

(74
)

(413
)

(413
)

(311
)

(0.04
)
Capitalization threshold change for certain assets⁽³⁾

-

(1,732
)

1,732

1,732

1,302

0.14

Supply chain optimization and consolidation⁽⁴⁾

3,581

-

3,581

3,581

2,693

0.29

Other tax adjustments⁽⁵⁾

-

-

-

-

1,482

0.15

Total reconciling items

3,094

(1,806
)

4,900

23,649

19,265

2.05

Adjusted results (non-GAAP)

$
435,318

$
376,572

$
58,746

$
45,819

$
32,271

$
3.44

Third Quarter 2018

(in thousands, except per share data)

Gross profit

SD&A expenses

Income from
operations

Income before
income taxes

Net
income

Basic net
income
per share

Reported results (GAAP)

$
412,716

$
368,312

$
44,404

$
43,443

$
25,164

$
2.69

System Transformation transactions expenses⁽⁶⁾

112

(10,305
)

10,417

10,417

7,834

0.84

Gain on exchange transactions⁽⁷⁾

-

-

-

(10,170
)

(7,648
)

(0.82
)
Fair value adjustment of acquisition related contingent consideration⁽¹⁾

-

-

-

(2,373
)

(1,785
)

(0.19
)
Fair value adjustments for commodity hedges⁽²⁾

260

(209
)

469

469

353

0.04

Other tax adjustments⁽⁵⁾

-

-

-

-

3,918

0.41

Total reconciling items

372

(10,514
)

10,886

(1,657
)

2,672

0.28

Adjusted results (non-GAAP)

$
413,088

$
357,798

$
55,290

$
41,786

$
27,836

$
2.97

First Nine Months 2019

(in thousands, except per share data)

Gross profit

SD&A expenses

Income from
operations

Income before
income taxes

Net income

Basic net
income
per share

Reported results (GAAP)

$
1,257,311

$
1,116,097

$
141,214

$
37,625

$
21,545

$
2.30

System Transformation transactions expenses⁽⁶⁾

-

(6,915
)

6,915

6,915

5,200

0.56

Fair value adjustment of acquisition related contingent consideration⁽¹⁾

-

-

-

62,017

46,637

4.98

Fair value adjustments for commodity hedges⁽²⁾

482

2,575

(2,093
)

(2,093
)

(1,574
)

(0.17
)
Capitalization threshold change for certain assets⁽³⁾

-

(6,111
)

6,111

6,111

4,595

0.49

Supply chain optimization and consolidation⁽⁴⁾

4,875

-

4,875

4,875

3,666

0.39

Other tax adjustments⁽⁵⁾

-

-

-

-

(2,178
)

(0.24
)
Total reconciling items

5,357

(10,451
)

15,808

77,825

56,346

6.01

Adjusted results (non-GAAP)

$
1,262,668

$
1,105,646

$
157,022

$
115,450

$
77,891

$
8.31

First Nine Months 2018

(in thousands, except per share data)

Gross profit

SD&A expenses

Income from
operations

Income before
income taxes

Net
income

Basic net
income
per share

Reported results (GAAP)

$
1,175,065

$
1,129,979

$
45,086

$
14,027

$
7,046

$
0.75

System Transformation transactions expenses⁽⁶⁾

339

(32,399
)

32,738

32,738

24,619

2.63

Gain on exchange transactions⁽⁷⁾

-

-

-

(10,170
)

(7,648
)

(0.82
)
Workforce optimization expenses⁽⁸⁾

-

(4,810
)

4,810

4,810

3,617

0.39

Fair value adjustment of acquisition related contingent consideration⁽¹⁾

-

-

-

1,584

1,191

0.13

Fair value adjustments for commodity hedges⁽²⁾

2,776

(363
)

3,139

3,139

2,361

0.25

Other tax adjustments⁽⁵⁾

-

-

-

-

(1,880
)

(0.20
)
Total reconciling items

3,115

(37,572
)

40,687

32,101

22,260

2.38

Adjusted results (non-GAAP)

$
1,178,180

$
1,092,407

$
85,773

$
46,128

$
29,306

$
3.13


	First Quarter 2020
(in thousands, except per share data)	Gross profit		SD&A expenses		Income from operations		Income before income taxes		Net income		Basic net income per share
Reported results (GAAP)	$	405,295	$	372,474	$	32,821	$	20,962	$	14,662	$	1.56
Fair value adjustment of acquisition related contingent consideration⁽¹⁾	—		—		—		712		535		0.06
Fair value adjustments for commodity hedges⁽²⁾	1,536		(2,329)		3,865		3,865		2,906		0.31
Supply chain optimization and consolidation⁽³⁾	648		571		77		77		58		0.01
Other tax adjustments⁽⁴⁾	—		—		—		—		(171)		(0.02)
Total reconciling items	2,184		(1,758)		3,942		4,654		3,328		0.36
Adjusted results (non-GAAP)	$	407,479	$	370,716	$	36,763	$	25,616	$	17,990	$	1.92


	First Quarter 2019
(in thousands, except per share data)	Gross profit		SD&A expenses		Income from operations		Income (loss) before income taxes		Net income (loss)		Basic net income (loss) per share
Reported results (GAAP)	$	389,308	$	369,154	$	20,154	$	(8,583)	$	(6,831)	$	(0.73)
System Transformation transaction expenses⁽⁵⁾	—		(4,730)		4,730		4,730		3,557		0.38
Fair value adjustment of acquisition related contingent consideration⁽¹⁾	—		—		—		14,046		10,563		1.13
Fair value adjustments for commodity hedges⁽²⁾	(3,905)		2,715		(6,620)		(6,620)		(4,978)		(0.53)
Capitalization threshold change for certain assets⁽⁶⁾	—		(2,476)		2,476		2,476		1,862		0.20
Other tax adjustments⁽⁴⁾	—		—		—		—		(845)		(0.09)
Total reconciling items	(3,905)		(4,491)		586		14,632		10,159		1.09
Adjusted results (non-GAAP)	$	385,403	$	364,663	$	20,740	$	6,049	$	3,328	$	0.36

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 distribution territories acquired in the System Transformation.~~

^{(2)⁽¹⁾This noncash, fair value adjustment of acquisition related contingent consideration fluctuates based on factors such as long-term interest rates and projections of future cash flows of distribution territories subject to sub-bottling fees.}

The Company enters into 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 risk. The Company accounts for commodity hedges on a mark-to-market basis.

⁽³⁾	Adjustment reflects the prospective change of increasing the capitalization thresholds on certain low-cost, short-lived assets. This change is not expected to be material to the condensed consolidated financial statements.

^{(4)⁽²⁾The Company enters into 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 risk. The Company accounts for its commodity hedges on a mark-to-market basis.}

Adjustment reflects expenses within the Nonalcoholic Beverages segment related to the impairment and accelerated depreciation of property, plant and equipment at certain of the Company’s manufacturing plants as the Company continues to optimize efficiency opportunities across its business.

⁽⁵⁾	~~Adjustment reflects the impact from the reconciling items to reported results on the annualized adjusted effective income tax rate.~~

^{(6)⁽³⁾Adjustment reflects expenses within the Nonalcoholic Beverages segment related to the impairment and accelerated depreciation of property, plant and equipment as the Company continues to optimize efficiency opportunities across its business.}

~~Adjustment reflects expenses related to the System Transformation transactions, which primarily included information technology systems conversions.~~

⁽⁷⁾	Adjustment reflects gain on exchange transactions as a result of final post-closing adjustments made during the third quarter of 2018 for the System Transformation transactions that closed during fiscal 2017.

^{(8)⁽⁴⁾Adjustment reflects the impact from the reconciling items to reported results on the annualized adjusted effective income tax rate.}

~~Adjustment reflects severance and outplacement expenses relating to the Company’s optimization of its labor expense in the Nonalcoholic Beverages segment.~~

⁽⁵⁾Adjustment reflects expenses incurred during 2019 related to the System Transformation transactions, which primarily includes information technology system conversions.

⁽⁶⁾Adjustment reflects the change of increasing the capitalization threshold during 2019 of certain low-cost, short-lived assets.

Financial Condition

Total assets were ~~$3.12~~$3.20 billion on ~~September~~March 29, ~~2019,~~2020, which was an increase of ~~$108.8~~$68.8 million from December ~~30, 2018.~~29, 2019. Net working capital, defined as current assets less current liabilities, was ~~$238.7~~$295.5 million on ~~September~~March 29, ~~2019,~~2020, which was an increase of ~~$43.0~~$87.4 million from December ~~30, 2018.~~

29, 2019.

Significant changes in net working capital on ~~September~~March 29, 2020 from December 29, 2019 ~~from December 30, 2018~~ were as follows:

•

~~An increase~~ ~~in accounts receivable, trade of $11.6 million and an increase in accounts receivable from The Coca‑Cola Company of $15.5 million primarily as a result of the timing of cash receipts.~~

•

~~An increase~~ ~~in inventories of $21.7 million primarily as a result of product launches and continued inventory mix shift.~~

•An increase in cash and cash equivalents of $38.1 million as a result of increased net borrowings under our revolving credit facility.

The addition of the current portion of obligations under operating leases of $14.9 million as a result of the Company recording balances for operating leases on its condensed consolidated balance sheets.

•An increase in accounts receivable, trade of $37.3 million and a decrease in accounts receivable from The Coca-Cola Company of $5.8 million, both primarily as a result of the timing of cash receipts.

~~An increase~~ ~~in accounts payable, trade of $39.7 million and an increase in accounts payable to The Coca‑Cola Company of $18.5 million primarily as a result of the timing of cash payments.~~

•An increase in accounts payable, trade of $22.2 million and an increase in accounts payable to The Coca-Cola Company of $28.1 million, both primarily as a result of the timing of cash payments.

~~A decrease~~ ~~in other accrued liabilities of $59.0 million primarily as a result of the timing of cash payments.~~

•A decrease in other accrued compensation of $39.3 million primarily as a result of the timing of bonus and incentive payments in the first quarter of 2020.

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. 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 refinance its maturing debt, finance its business plan, meet its working capital requirements and maintain an appropriate level of capital spending for at least the next 12 months from the issuance of ~~these~~the condensed consolidated financial statements. At this time, the Company does not expect the COVID-19 pandemic to have a material impact on its liquidity or sources of capital. 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.

The Company’s total debt as of ~~September~~March 29, 2020 and December 29, 2019 ~~and December 30, 2018~~ was as follows:

(in thousands)

Maturity Date

September 29, 2019

December 30, 2018

Senior notes and unamortized discount on senior notes⁽¹⁾⁽²⁾

4/15/2019

$
-

$
109,922

Term loan facility⁽¹⁾

6/7/2021

270,000

292,500

Senior notes

2/27/2023

125,000

125,000

Revolving credit facility

6/8/2023

35,000

80,000

Senior notes and unamortized discount on senior notes⁽²⁾

11/25/2025

349,946

349,939

Senior notes

10/10/2026

100,000

-

Senior notes

3/21/2030

150,000

150,000

Debt issuance costs

(2,603
)

(2,958
)
Total debt

$
1,027,343

$
1,104,403

⁽¹⁾

⁽²⁾	~~The senior notes due in 2019 were issued at 98.238% of par and the senior notes due in 2025 were issued at 99.975% of par.~~


(in thousands)	Maturity Date	March 29, 2020		December 29, 2019
Term loan facility⁽¹⁾	6/7/2021	$	255,000	$	262,500
Senior notes	2/27/2023	125,000		125,000
Revolving credit facility	6/8/2023	105,000		45,000
Senior notes and unamortized discount on senior notes⁽²⁾	11/25/2025	349,950		349,948
Senior notes	10/10/2026	100,000		100,000
Senior notes	3/21/2030	150,000		150,000
Debt issuance costs		(2,361)		(2,528)
Long-term debt		$	1,082,589	$	1,029,920

⁽²⁾The senior notes due in 2025 were issued at 99.975% of par.

The Company’s term loan facility matures on June 7, 2021. The original aggregate principal amount borrowed by the Company under the facility was $300 million and repayment of principal amounts outstanding began in 2018. The Company may request additional term loans under the term loan facility, provided the Company’s aggregate borrowings under the facility do not exceed $500 million.

In ~~July~~ 2019, the Company entered into a $100 million fixed rate swap maturing June 7, 2021, to hedge a portion of the interest rate risk on the Company’s term loan facility. This interest rate swap is designated as a cash flow hedging instrument and is not expected to be material to the condensed consolidated balance sheets. Changes in the fair value of this interest rate swap were classified as accumulated other comprehensive loss on the condensed consolidated balance sheets and included in the condensed consolidated statements of comprehensive ~~income.~~

income (loss).

As discussed below under “Cash Flows From Financing Activities,” in ~~April~~the first quarter of 2019, the Company sold $100 million aggregate principal amount of senior unsecured notes due in 2026 to MetLife Investment Advisors, LLC (“MetLife”) and certain of its affiliates. The Company may request that MetLife consider the purchase of additional senior unsecured notes of the Company under the agreement in an aggregate principal amount of up to $200 million.

The Company’s revolving credit facility matures on June 8, 2023 and has an aggregate maximum borrowing capacity of $500 million, which may be increased at the Company’s option to $750 million, subject to obtaining commitments from the lenders and satisfying other conditions specified in the credit agreement. 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. As of ~~September~~March 29, ~~2019,~~ 2020, the Company had outstanding borrowings of ~~$35~~ $105.0 million under the revolving credit facility, and, therefore, had ~~$465~~ $395.0 million borrowing capacity ~~remaining.~~available

indebtedness/cash flow ratio, each as defined in the respective agreements. The Company was in compliance with these covenants as of ~~September~~March 29, ~~2019.~~2020. These covenants do not currently, and the Company does not anticipate they will, restrict its 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 debt.

The Company’s credit ratings are reviewed periodically by ~~the respective~~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 or results~~position. During the first quarter of ~~operations.~~2020, Standard & Poor’s reaffirmed the Company’s BBB rating and revised the Company’s rating outlook ~~for the Company is negative and~~to stable from negative. Moody’s rating outlook for the Company is stable. As of ~~September~~March 29, ~~2019,~~2020, the Company’s credit ratings were as follows:

	~~Long-Term Debt~~
		Long-Term Debt
Standard & Poor’s		BBB
Moody’s		Baa2

The Company is subject to interest rate risk on its variable rate debt, including ~~the~~its revolving credit facility and ~~the~~ term loan facility. Assuming no changes in the Company’s ~~financial~~capital structure, if market interest rates average 1% more over the next 12 months than the interest rates as of ~~September~~March 29, ~~2019,~~2020, interest expense for the next 12 months would increase by approximately ~~$2.1~~$2.6 million.

The Company’s only Level 3 asset or liability is the acquisition related contingent consideration liability. There were no transfers of assets or liabilities from Level 1 or Level 2.2 in any period presented. Fair value adjustments were noncash, and, therefore, did not impact the Company’s liquidity or capital resources. Following is a summary of the Level 3 activity:

⁽¹⁾


	First Quarter
(in thousands)	2020		2019
Beginning balance - Level 3 liability	$	446,684	$	382,898
Payments of acquisition related contingent consideration	(10,452)		(6,237)
Reclassification to current payables	150		2,300
Increase in fair value	712		14,046
Ending balance - Level 3 liability	$	437,094	$	393,007

Cash Sources and Uses

A summary of cash-based activity is as follows:

First Nine Months

(in thousands)

2019

2018

Cash Sources:

Borrowings under revolving credit facility

$
331,339

$
285,000

Net cash provided by operating activities⁽¹⁾

204,583

26,030

Proceeds from issuance of senior notes

100,000

150,000

Proceeds from the sale of property, plant and equipment

1,028

3,555

Proceeds from cold drink equipment

-

3,789

Acquisition of distribution territories and regional manufacturing plants, net of cash acquired and purchase price settlements

-

1,811

Total cash sources

$
636,950

$
470,185

Cash Uses:

Payments on revolving credit facility

$
376,339

$
322,000

Payments on term loan facility and senior notes

132,500

7,500

Additions to property, plant and equipment (exclusive of acquisitions)

96,747

113,104

Payments of acquisition related contingent consideration

18,784

18,312

Cash dividends paid

7,026

7,014

Payments on financing or capital lease obligations

6,441

6,191

Other distribution agreements

4,654

-

Investment in CONA Services LLC

1,713

2,098

Debt issuance fees

305

1,531

Total cash uses

$
644,509

$
477,750

Net decrease in cash

$
(7,559
)

$
(7,565
)

⁽¹⁾

~~Net cash provided by operating activities in the~~ ~~first nine months~~ ~~of 2019 included net income tax payments of $5.5 million and pension plan contributions of $4.9 million. Net cash provided by operating activities in the~~ ~~first nine months~~ ~~of 2018 included a net refund of income tax payments of $20.0 million and pension plan contributions of $20.0 million.~~


	First Quarter
(in thousands)	2020		2019
Cash Sources:
Borrowings under revolving credit facility	$	185,000	$	131,339
Net cash provided by operating activities⁽¹⁾	32,289		5,596
Proceeds from the sale of property, plant and equipment	1,658		681
Total cash sources	$	218,947	$	137,616

Cash Uses:
Payments on revolving credit facility	$	125,000	$	82,339
Payments on term loan facility	7,500		15,000
Additions to property, plant and equipment	33,093		29,315
Payments of acquisition related contingent consideration	10,452		6,237
Cash dividends paid	2,344		2,339
Payments on financing lease obligations	1,485		2,114
Other distribution agreements	—		4,654
Other	939		669
Total cash uses	$	180,813	$	142,667
Net increase (decrease) in cash during period	$	38,134	$	(5,051)

⁽¹⁾Net cash provided by operating activities in the first quarter of 2020 included net income tax payments of $2.0 million and net cash provided by operating activities in the first quarter of 2019 included a net refund of income tax payments of $1.0 million.

Cash Flows From Operating Activities

During the first ~~nine months~~quarter of ~~2019,~~2020, cash provided by operating activities was ~~$204.6~~$32.3 million, which was an increase of ~~$178.6~~$26.7 million as compared to the first ~~nine months~~quarter of ~~2018.~~2019. The increase was primarily a result of improved financial results ~~and continued focus on working capital needs in order~~during the first quarter of 2020 as compared to ~~optimize free cash flow.~~

the first quarter of 2019.

Cash Flows From Investing Activities

During the first ~~nine months~~quarter of ~~2019,~~2020, cash used in investing activities was ~~$102.1~~$32.3 million, which was a decrease of ~~$3.9~~$1.4 million as compared to the first ~~nine months~~quarter of ~~2018. The decrease was driven primarily by a reduction in additions to property, plant and equipment, as the Company remains focused on making prudent long-term investments to support its growth.~~

2019.

Additions to property, plant and equipment were ~~$96.7~~$33.1 million during the first ~~nine months~~quarter of ~~2019.~~2020. As of ~~September~~March 29, ~~2019, $8.9~~2020, $6.7 million of additions to property, plant and equipment were accrued in accounts payable, trade. ~~The Company anticipates additions to property, plant and equipment for the remainder of 2019 will be in the range of $50 million to $80 million.~~

Additions to property, plant and equipment were $29.3 million during the first ~~nine months~~quarter of ~~2018 were $113.1 million.~~2019. As of ~~September 30, 2018, $4.1~~March 31, 2019, $5.4 million of additions to property, plant and equipment were accrued in accounts payable, trade.

Cash Flows From Financing Activities

During the first ~~nine months~~quarter of ~~2019, cash used in financing activities was $110.1 million and during the first nine months of 2018,~~2020, cash provided by financing activities was ~~$72.5 million.~~$38.2 million, which was an increase of $15.0 million as compared to the first quarter of 2019. The change was primarily driven by an increase in net ~~repayments~~borrowings under our revolving credit facility to increase cash on ~~borrowings~~hand in response to the ~~first nine months of 2019, stemming from improved financial results.~~

COVID-19 pandemic.

The Company had cash payments for acquisition related contingent consideration of ~~$18.8~~$10.5 million during the first ~~nine months~~quarter of ~~2019~~2020 and ~~$18.3~~$6.2 million during the first ~~nine months~~ quarter of ~~2018~~. 2019. The Company anticipates that the amount it could pay annually under the acquisition related contingent consideration arrangements for the distribution territories subject to sub-bottling fees will be in the range of ~~$25~~$28 million to ~~$49~~$51 million.

In ~~April~~the first quarter of 2019, the Company sold $100 million aggregate principal amount of senior unsecured notes due in 2026 to MetLife and certain of its affiliates pursuant to a Note Purchase and Private Shelf Agreement, dated January 23, 2019, between the Company, MetLife and the other parties thereto. These notes bear interest at 3.93%, payable quarterly in arrears ~~commencing on July 10, 2019,~~ and will mature on October 10, 2026, unless earlier redeemed by the Company. The Company used the proceeds to refinance the senior notes due on April 15, 2019. The Company may request that MetLife consider the purchase of additional senior unsecured notes of the Company under the agreement in an aggregate principal amount of up to $200 million.

In 2018, the Company sold $150 million aggregate principal amount of senior unsecured notes due in 2030 to NYL Investors LLC (“NYL”) and certain of its affiliates pursuant to a Note Purchase and Private Shelf Agreement dated March 6, 2018 between the Company, NYL and the other parties thereto. These notes bear interest at 3.96%, payable quarterly in arrears, and will mature on March 21, 2030, unless earlier redeemed by the Company. The Company used the proceeds for general corporate purposes.

~~Significant~~

Critical Accounting Policies

See Note 1, Note 43 and Note 9 to the condensed consolidated financial statements for information on the Company’s ~~significant~~critical accounting policies.

Off-Balance Sheet Arrangements

The Company is a ~~member~~shareholder of ~~and has equity ownership in,~~ South Atlantic Canners, Inc. (“SAC”), a manufacturing cooperative ~~comprised~~in Bishopville, South Carolina. All of ~~Coca‑Cola~~SAC’s shareholders are Coca-Cola bottlers and each has equal voting rights. As of March 29, 2020, the Company had guaranteed ~~$23.9~~$14.7 million of SAC’s ~~debt as of September 29, 2019.~~debt. 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 selling prices of its products to adequately mitigate the risk of material loss from the Company’s guarantee. See Note 2019 to the condensed consolidated financial statements for additional information.

Hedging Activities

The Company uses derivative financial instruments to manage its exposure to movements in certain commodity prices. Fees paid by the Company for derivative instruments are amortized over the corresponding period of the instrument. The Company accounts for its commodity hedges on a mark-to-market basis with any expense or income being reflected as an adjustment to cost of sales or SD&A expenses.

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 derivative financial agreements that provide for net settlement of derivative transactions. The net impact of the commodity hedges on the condensed consolidated statements of operations was as follows:

Third Quarter

First Nine Months

(in thousands)

2019

2018

2019

2018

Cost of sales - increase/(decrease)

$
2,984

$
640

$
8,779

$
2,843

SD&A expenses - increase/(decrease)

582

50

(1,403
)

(305
)
Net impact

$
3,566

$
690

$
7,376

$
2,538


	First Quarter
(in thousands)	2020		2019
Increase (decrease) in cost of sales	$	2,214	$	(1,989)
Increase (decrease) in SD&A expenses	2,776		(2,373)
Net impact	$	4,990	$	(4,362)

Cautionary Information Regarding Forward-Looking Statements

Certain statements contained in this ~~Quarterly Report,~~report, or in other public filings, press releases, or other written or oral communications made by the Company or its representatives, 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 address, among other things, Company plans, activities or events which the Company expects will or may occur in the future and may include express or implied projections of revenue or expenditures; statements of plans and objectives for future operations, growth or initiatives; statements of

future economic performance, including, but not limited to, the state of the economy, capital investment and financing plans, net sales, cost of sales, SD&A expenses, gross profit, income tax rates, ~~net income~~earnings per diluted share, dividends, pension plan contributions and estimated acquisition related contingent consideration payments; or statements regarding the outcome or impact of certain ~~new~~recent accounting pronouncements and pending or threatened ~~litigation. These~~litigation; or statements ~~include, among others, statements relating to:~~

•

~~the Company’s beliefs and estimates regarding the impact of the adoption of certain new accounting pronouncements~~;

regarding the impact of the COVID-19 pandemic on the Company’s business, financial condition, results of operations or cash flows.

•

~~the Company’s belief that, at any given time, less than 1% of bottle/can sales and post-mix sales could be at risk for return by customers;~~

•

the Company’s belief that SAC, whose debt the Company guarantees, has sufficient assets and the ability to adjust selling prices of its products to adequately mitigate the risk of material loss from the Company’s guarantee and that the cooperative will perform its obligations under its debt commitments;

•

the Company’s belief that it has, and that other manufacturers from whom the Company purchases finished goods have, adequate production capacity to meet sales demand for sparkling and still beverages during peak periods;

•

the Company’s expectation that a real estate operating lease commitment will commence during the fourth quarter of 2019 and have a lease term of five years, and that the additional lease liability associated with this lease commitment is expected to be approximately $0.3 ~~million;~~

•

the Company’s belief that the ultimate disposition of various claims and legal proceedings which have arisen in the ordinary course of its business will not have a material adverse effect on its financial condition, cash flows or results of operations and that no material amount of loss in excess of recorded amounts is reasonably possible as a result of these claims and legal proceedings;

•

~~the Company’s belief that it is competitive in its territories with respect to the principal methods of competition in the nonalcoholic beverage industry~~;

•

~~the Company’s expectation that it will consolidate two manufacturing plants in the Memphis, Tennessee region by the end of fiscal 2020~~;

•

the Company’s belief that certain non-GAAP financial measures provide users with additional meaningful financial information that should be considered when assessing the Company’s ongoing performance and that such non-GAAP financial measures allow users to better appreciate the impact of the Company’s information technology systems conversion on the Company’s performance;

•

the Company’s belief that it has sufficient sources of capital available to refinance its maturing debt, finance its business plan, meet its working capital requirements and maintain an appropriate level of capital spending for at least the next 12 months;

•

~~the Company’s belief that all the banks participating in the revolving credit facility have the ability to and will meet any funding requests from the Company~~;

•

~~the Company’s intention to refinance principal payments due in the next 12 months under the term loan facility using the capacity under the revolving credit facility;~~

•

~~the Company’s estimate of the useful lives of certain acquired intangible assets and property, plant and equipment~~;

•

the Company’s estimate that a 10% increase in the market price of certain commodities included as part of its raw materials over the current market prices would cumulatively increase costs during the next 12 months by approximately $58.3 million, assuming no change in volume;

•

the Company’s expectation that the amount of uncertain tax positions may change over the next 12 months but that such changes will not have a significant impact on the condensed consolidated financial statements;

•

~~the Company’s belief that optimizing its expanded distribution footprint will be a key area of focus in the short term in order to manage this significant cost to its business;~~

•

the Company’s estimates of certain inputs used in its calculations, including estimated rates of return, estimates of bad debts and amounts that will ultimately be collected, and estimates of inputs used in the calculation and adjustment of the fair value of its acquisition related contingent consideration liability related to the distribution territories subject to sub-bottling fees, such as the amounts that will be paid by the Company in the future under the Company’s comprehensive beverage agreement and the Company’s WACC;

•

~~the Company’s belief that the range of undiscounted amounts it could pay annually under the acquisition related contingent consideration arrangements is expected to be between~~ ~~$25 million to $49 million;~~

•

~~the Company’s belief that the covenants in its nonpublic debt will not restrict its liquidity or capital resources~~;

•

~~the Company’s belief that other parties to certain of its contractual arrangements will perform their obligations~~;

•

~~the Company’s expectation that it will not make additional contributions to the two Company-sponsored pension plans during the fourth quarter of~~ ~~2019~~;

•

~~the~~ Company’s belief that additions to property, plant and equipment for the remainder of 2019 are expected to be in the range of $50 million to $80 million and that total additions to property, plant and equipment in 2019 are expected to be in the range of $150 million to $180 million;

•

~~the~~ ~~Company’s belief that it has adequately provided for any assessments likely to result from audits by tax authorities in the jurisdictions in which the Company conducts business~~;

•

~~the~~ Company’s belief that key priorities include acquisition synergies and cost optimization, revenue management, free cash flow generation and debt repayment, distribution network optimization and cost management;

•

~~the Company’s expectation that its $100 million interest rate swap entered into in July 2019 will not be material to the condensed consolidated balance sheets;~~

•

~~the Company’s belief that the annualized effective income tax rate for 2019 will be in the low 30% range; and~~

•

~~the Company’s hypothetical calculation that, if market interest rates average 1% more over the next 12 months than the interest rates as of~~ ~~September 29, 2019, interest expense for the next 12 months would increase by approximately $2.1 million, assuming no changes in the Company’s financial structure.~~

These forward-looking statements may be identified by the use of the words “will,” “may,” “believe,” “plan,” “estimate,” “expect,” “anticipate,” “probably,” “should,” “project,” “intend,” “continue,” “could,” and other similar terms and expressions. Various factors, risks ~~uncertainties~~ and ~~other factors~~uncertainties may cause the Company’s actual results to differ materially from those expressed or implied in any forward-looking statements. Factors, ~~uncertainties~~risks and ~~risks~~uncertainties that may result in actual results differing from such forward-looking information include, but are not limited to, those listed in ~~Part I,~~ “Item 1A. Risk Factors” of our Annual Report on Form 10-K for ~~2018, as well as other factors discussed throughout~~2019 and in “Item 1A. Risk Factors” of this ~~Quarterly Report,~~report and elsewhere herein, including, without limitation, the factors described under ~~“Significant~~“Critical Accounting Policies” in Note 1 to the condensed consolidated financial statements, or in other filings or statements made by the Company. All of the forward-looking statements in this ~~Quarterly Report~~report and other documents or statements are qualified by these and other factors, risks and uncertainties.

Caution should be taken not to place undue reliance on the forward-looking statements included in this ~~Quarterly Report.~~report. The Company assumes no obligation to update any forward-looking statements, even if experience or future changes make it clear that projected results expressed or implied in such statements will not be realized, 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 other reports and documents filed with the Securities and Exchange Commission.

Item 3.Quantitative and Qualitative Disclosures About Market Risk.

The Company is exposed to certain market risks that arise in the ordinary course of business. The Company may enter into derivative financial instrument transactions to manage or reduce market risk. The Company does not enter into derivative financial instrument transactions for trading or speculative purposes. A discussion of the Company’s primary market risk exposure and interest rate risk is presented below.

Debt and Derivative Financial Instruments

The Company is subject to interest rate risk on its variable rate debt, including its revolving credit facility and term loan facility. Assuming no changes in the Company’s ~~financial~~capital structure, if market interest rates average 1% more over the next 12 months than the interest rates as of ~~September~~March 29, ~~2019,~~2020, interest expense for the next 12 months would increase by approximately ~~$2.1~~$2.6 million. This amount was determined by calculating the effect of the hypothetical interest rate on the unhedged portion of the Company’s variable rate debt. This calculated, hypothetical increase in interest expense for the following 12 months may be different from the actual increase in interest expense from a 1% increase in interest rates due to varying interest rate reset dates on the Company’s variable rate debt.

The Company’s acquisition related contingent consideration, which is adjusted to fair value each reporting period, is also impacted by changes in interest rates. The risk-free interest rate used to estimate the Company’s WACC is a component of the discount rate used to calculate the present value of future cash flows due under the Company’s comprehensive beverage agreement. As a result, any changes in the underlying risk-free interest ~~rates~~rate will impact the fair value of the acquisition related contingent consideration and could materially impact the amount of noncash expense (or income) recorded each reporting period.

Raw Material and Commodity Price Risk

The Company is also subject to commodity price risk arising from price movements for certain commodities included as part of its raw materials. The Company manages this commodity price risk in some cases by entering into contracts with adjustable prices to hedge commodity purchases. The Company periodically uses derivative commodity instruments in the management of this risk. The Company estimates a 10% increase in the market prices of commodities included as part of its raw materials over the current market prices would cumulatively increase costs during the next 12 months by approximately ~~$58.3~~$57.1 million assuming no change in volume.

Fees paid by the Company for agreements to hedge commodity purchases are amortized over the corresponding period of the ~~instruments.~~agreement. The Company accounts for its commodity hedges on a mark-to-market basis with any expense or income being reflected as an adjustment to cost of sales or SD&A expenses.

Effects of Changing Prices

The annual rate of inflation in the United States, as measured by year-over-year changes in the Consumer Price Index (the “CPI”), was 2.3% in 2019 and 2.4% in ~~2018 and 2.1% in 2017.~~2018. Inflation in the prices of those commodities important to the Company’s business is reflected in changes in the CPI, but commodity prices are volatile and in recent years have moved at a faster rate of change than the CPI.

The principal effect of inflation in both commodity and consumer prices on the Company’s operating results is to increase costs, both of goods sold and SD&A expenses. Although the Company can offset these cost increases by increasing selling prices for its products, consumers may not have the buying power to cover these increased costs and may reduce their volume of purchases of those products. In that event, selling price increases may not be sufficient to offset completely the Company’s cost increases.

Item 4.Controls and Procedures.

As of the end of the period covered by this ~~Quarterly Report,~~report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s “disclosure controls and procedures” (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), pursuant to Rule 13a-15(b) of the Exchange Act. Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of ~~September~~March 29, ~~2019.~~

2020.

There has been no change in the Company’s internal control over financial reporting during the quarter ended ~~September~~March 29, ~~2019~~2020 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II - OTHER INFORMATION

~~Item 1.~~

Item 1. Legal Proceedings.

The Company is ~~from time to time a party to~~involved in various ~~lawsuits,~~ claims and ~~other~~ legal proceedings ~~that arise~~which have arisen in the ordinary course of its business. ~~With respect~~Although it is difficult to ~~all such lawsuits,~~predict the ultimate outcome of these claims and legal proceedings, management believes that the ~~Company records reserves when it is probable a liability has been incurred and the amount of loss can be reasonably estimated. The Company does not believe that any~~ultimate disposition of these ~~proceedings, individually or in the aggregate, would be expected to~~matters will not have a material adverse effect on ~~its~~the financial condition, results of operations ~~financial position~~ or cash ~~flows. The Company maintains liability insurance for certain risks that~~flows of the Company. No material amount of loss in excess of recorded amounts is ~~subject~~believed to ~~certain self-insurance limits.~~

be reasonably possible as a result of these claims and legal proceedings.

~~Item 1A.~~

Item 1A. Risk Factors.

~~There~~

Except as set forth below, there have been no material changes in the Company’s risk factors from those disclosed in ~~Part I,~~ “Item 1A. Risk Factors” in the Company’s Annual Report on Form ~~10‑K~~10-K for ~~2018.~~

2019.

The COVID-19 pandemic and other pandemic outbreaks in the future could materially adversely affect our business, financial condition, results of operations or cash flows.

The COVID-19 pandemic has had a significant impact on our business and results of operations, as government-imposed restrictions on social and commercial activity to promote social distancing have caused significant changes to consumer purchasing behavior. Governmental and societal impositions of restrictions on public gatherings have had, and we expect will continue to have, adverse effects on our business, including, but not limited to, the following:

•Due to the closing of restaurants, schools and amusement and recreational facilities, we have seen a decrease in on-premise consumption and sales to date in the second quarter of 2020. This negative trend is likely to continue throughout the second quarter of 2020, and, if the COVID-19 pandemic continues or intensifies, its negative impacts on our sales could be more prolonged and may become more severe. While since the outbreak we have experienced increased sales in our larger retail customer outlets from pantry loading as consumers stock up on certain of our products with the expectation of spending more time at home during the crisis, such increased sales levels may not continue in the longer term and will not offset the pressure we are experiencing in our on-premise customer outlets.

•Consumer demand has shifted away from some of our more profitable products sold for immediate consumption through smaller retail store and on-premise outlets to lower margin, take home products sold in larger retail store outlets, including grocery stores and mass merchandise outlets. We expect this shift in consumer purchasing patterns is likely to continue while shelter-in-place and social distancing behaviors are mandated or encouraged, and possibly for a period of time thereafter. As a result, our profitability could decline significantly if this shift in our business continues.

•Deteriorating economic conditions in our territory affected by the COVID-19 pandemic, such as increasing unemployment, decreasing disposable income, declining consumer confidence, or economic slowdowns or recessions, could cause a further decrease in demand for our products.

•Disruptions in our concentrate suppliers’ production and distribution operations could increase concentrate costs and may create delays in delivery of concentrate, which could adversely impact our ability to manufacture and distribute certain of our products to our customers. Further, disruptions in supply chains could place constraints on our ability to procure beverage containers, such as plastic bottles and cans, which could increase our packaging costs.

•We may be required to write off obsolete inventory, accounts receivable, and balances of advanced funding provided to customers that permanently close as a result of the COVID-19 pandemic’s damaging impacts on their respective businesses.

•The current uncertain credit market conditions and their actual or perceived effects on our financial condition and results of operations, along with the current unfavorable economic environment in the United States, may increase the likelihood that one or more of the major independent credit agencies will downgrade our credit ratings, which could have a negative effect on our borrowing costs and our ability to access bank and capital markets.

•Governmental authorities in the United States may increase or impose new income taxes or indirect taxes, or revise interpretations of existing tax rules and regulations, as a means of financing the costs of stimulus and other measures enacted or taken, or that may be enacted or taken in the future, to protect populations and economies from the impact of the COVID-19 pandemic. Such actions could have an adverse effect on our results of operations or cash flows.

•We rely on third-party service providers and business partners, such as cloud data storage and other information technology service providers, suppliers, distributors, contractors, joint venture partners and other external business partners, for certain functions or for services in support of key portions of our operations. These third-party service providers and business partners are subject to risks and uncertainties related to the COVID-19 pandemic, which may interfere with their ability to fulfill their respective commitments and responsibilities to us in a timely manner and in accordance with our agreed-upon terms.

•As a result of the COVID-19 pandemic, including related governmental guidance or directives, we have required most office-based employees, including most employees based at our corporate headquarters in Charlotte, North Carolina, to work remotely. We may experience reductions in productivity and disruptions to our business routines while our remote-work policy remains in place.

•Actions we have taken or may take, or decisions we have made or may make, because of the COVID-19 pandemic may result in legal claims or litigation against us.

•The resumption of normal business operations after the disruptions caused by the COVID-19 pandemic may be delayed or constrained by its lingering effects on our consumers, customers, suppliers or third-party service providers.

Any of the negative impacts of the COVID-19 pandemic, including those described above, alone or in combination with others, may have a material adverse effect on our business, financial condition, results of operations or cash flows. Any of these negative impacts, alone or in combination with others, could exacerbate many of the risk factors discussed in “Item 1A. Risk Factors” in our Annual Report on Form 10-K for 2019. The full extent to which the COVID-19 pandemic will negatively affect our business, results of operations, financial condition or cash flows will depend on future developments that are highly uncertain and cannot be predicted, including the scope and duration of the pandemic and actions taken by governmental authorities and other third parties in response to the pandemic.Future pandemics may also pose risks similar to or more severe than the risks associated with the COVID-19 pandemic, which are impossible to predict at this time.

~~Item 6.~~

Item 6. Exhibits.

~~Exhibit No.~~

~~Description~~

Exhibit

No.

Description

Incorporated by Reference

or
Filed/Furnished Herewith

3.1

Restated Certificate of Incorporation of the Company.

Exhibit 3.1 to the Company’s Quarterly Report on Form ~~10‑Q~~10-Q for the quarter ended July 2, 2017 (File No. 0-9286).

3.2

Certificate of Amendment to ~~the~~ Restated Certificate of Incorporation of the Company.

Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on January 2, 2019 (File No. 0-9286).

3.3

Amended and Restated By-laws of the Company.

Exhibit 3.2 to the Company’s Current Report on Form 8-K filed on January 2, 2019 (File No. 0-9286).

10.1*

10.1

~~Omnibus Amendment to Coca‑Cola Consolidated, Inc. Nonqualified Employee Benefit Plans, dated as of September 6, 2019.~~

~~Filed herewith.~~

10.2*

~~Omnibus Amendment to Coca‑Cola Consolidated, Inc. and CCBCC Operations, LLC Qualified Employee Benefit Plans, dated as of September 6, 2019.~~

~~Filed herewith.~~

10.3**

~~Sixth Amendment to Comprehensive Beverage~~Lease Agreement, dated ~~September 9,~~December 30, 2019, by and between the Company ~~The Coca‑Cola~~and Beacon Investment Corporation.

Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on January 3, 2020 (File No. 0-9286).

10.2*

Consulting Agreement, dated as of March 3, 2020, by and between the Company and ~~Coca‑Cola Refreshments USA, Inc.~~Umesh M. Kasbekar.

~~Filed herewith.~~

Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on March 6, 2020 (File No. 0-9286).

31.1

Certification of ~~Chief~~Principal Executive Officer pursuant to Rule ~~13a‑14(a)~~13a-14(a)/~~15d‑14(a)~~15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Filed herewith.

31.2

Certification of ~~Chief~~Principal Financial Officer pursuant to Rule ~~13a‑14(a)~~13a-14(a)/~~15d‑14(a)~~15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Filed herewith.

Certification of ~~Chief~~ Principal Executive Officer and ~~Chief~~Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Furnished ~~(and not filed) herewith pursuant to Item 601(b)(32)(ii) of Regulation S-K.~~

herewith.

101.INS

Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

Filed herewith.

101.SCH

Inline XBRL Taxonomy Extension Schema Document.

Filed herewith.

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document.

Filed herewith.

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document.

Filed herewith.

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document.

Filed herewith.

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document.

Filed herewith.

104

Cover Page Interactive Data File – the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

Filed herewith.

^(*)Indicates a management contract or compensatory plan or arrangement.

** Certain confidential portions of this exhibit have been redacted in accordance with Item 601(b)(10) of Regulation S‑K.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	~~COCA‑COLA~~ ~~CONSOLIDATED, INC.~~
				COCA-COLA CONSOLIDATED, INC. (REGISTRANT)

Date: ~~November~~May 5, ~~2019~~ 2020			By:	/s/ F. Scott Anthony
				F. Scott Anthony
		Executive Vice President and Chief Financial Officer
		(Principal Financial Officer of the Registrant)

Date: May 5, 2020			By:


~~Date: November 5, 2019~~	~~By:~~	/s/ William J. Billiard
				William J. Billiard
		Senior Vice President and Chief Accounting Officer
		(Principal Accounting Officer of the Registrant)

~~Delaware~~	~~56-0950585~~
Delaware		56-0950585
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

4100 ~~Coca‑Cola~~Coca-Cola Plaza ~~Charlotte, NC~~			~~28211~~
Charlotte, NC		28211
(Address of principal executive offices)			(Zip Code)


Title of each class Common Stock, $1.00 Par Value			Trading Symbol(s) COKE	Name of each exchange on which registered
~~Common Stock, $1.00 Par Value~~	~~COKE~~	The NASDAQ Global Select Market

(in thousands, except share data)	September 29, 2019			December 30, 2018
ASSETS
Current Assets:
Cash and cash equivalents	$	5,989		$	13,548
Accounts receivable, trade		448,528			436,890
Allowance for doubtful accounts		(13,310	)		(9,141	)
Accounts receivable from The Coca-Cola Company		60,424			44,915
Accounts receivable, other		40,114			30,493
Inventories		231,752			210,033
Prepaid expenses and other current assets		78,397			70,680
Total current assets		851,894			797,418
Property, plant and equipment, net		957,197			990,532
Right of use assets - operating leases		115,981			-
Leased property under financing or capital leases, net		19,452			23,720
Other assets		111,021			115,490
Goodwill		165,903			165,903
Distribution agreements, net		882,167			900,383
Customer lists and other identifiable intangible assets, net		15,103			16,482
Total assets	$	3,118,718		$	3,009,928

LIABILITIES AND EQUITY
Current Liabilities:
Current portion of obligations under operating leases	$	14,929		$	-
Current portion of obligations under financing or capital leases		9,209			8,617
Accounts payable, trade		191,780			152,040
Accounts payable to The Coca-Cola Company		130,916			112,425
Other accrued liabilities		191,296			250,246
Accrued compensation		67,639			72,316
Accrued interest payable		7,404			6,093
Total current liabilities		613,173			601,737
Deferred income taxes		132,428			127,174
Pension and postretirement benefit obligations		84,361			85,682
Other liabilities		658,610			609,135
Noncurrent portion of obligations under operating leases		101,884			-
Noncurrent portion of obligations under financing or capital leases		19,812			26,631
Long-term debt		1,027,343			1,104,403
Total liabilities		2,637,611			2,554,762
Commitments and Contingencies
Equity:
Common Stock, $1.00 par value: 30,000,000 shares authorized; 10,203,821 shares issued		10,204			10,204
Class B Common Stock, $1.00 par value: 10,000,000 shares authorized; 2,860,356 and 2,841,132 shares issued, respectively		2,860			2,839
Capital in excess of par value		128,983			124,228
Retained earnings		393,674			359,435
Accumulated other comprehensive loss		(95,618	)		(77,265	)
Treasury stock, at cost: Common Stock – 3,062,374 shares		(60,845	)		(60,845	)
Treasury stock, at cost: Class B Common Stock – 628,114 shares		(409	)		(409	)
Total equity of Coca-Cola Consolidated, Inc.		378,849			358,187
Noncontrolling interest		102,258			96,979
Total equity		481,107			455,166
Total liabilities and equity	$	3,118,718		$	3,009,928


(in thousands, except share data)	March 29, 2020		December 29, 2019
ASSETS
Current Assets:
Cash and cash equivalents	$	47,748	$	9,614
Accounts receivable, trade	470,868		433,552
Allowance for doubtful accounts	(16,162)		(13,782)
Accounts receivable from The Coca-Cola Company	56,660		62,411
Accounts receivable, other	42,155		43,094
Inventories	228,624		225,926
Prepaid expenses and other current assets	73,592		69,461
Total current assets	903,485		830,276
Property, plant and equipment, net	984,769		997,403
Right-of-use assets - operating leases	138,447		111,376
Leased property under financing leases, net	12,498		17,960
Other assets	106,433		113,269
Goodwill	165,903		165,903
Distribution agreements, net	870,025		876,096
Customer lists and other identifiable intangible assets, net	14,183		14,643
Total assets	$	3,195,743	$	3,126,926

LIABILITIES AND EQUITY
Current Liabilities:
Current portion of obligations under operating leases	$	17,837	$	15,024
Current portion of obligations under financing leases	5,099		9,403
Accounts payable, trade	209,694		187,476
Accounts payable to The Coca-Cola Company	136,766		108,699
Other accrued liabilities	182,918		208,834
Accrued compensation	48,466		87,813
Accrued interest payable	7,210		4,946
Total current liabilities	607,990		622,195
Deferred income taxes	131,024		125,130
Pension and postretirement benefit obligations	116,635		114,831
Other liabilities	655,048		668,566
Noncurrent portion of obligations under operating leases	124,698		97,765
Noncurrent portion of obligations under financing leases	13,436		17,403
Long-term debt	1,082,589		1,029,920
Total liabilities	2,731,420		2,675,810
Commitments and Contingencies
Equity:
Common Stock, $1.00 par value: 30,000,000 shares authorized; 10,203,821 shares issued	10,204		10,204
Class B Common Stock, $1.00 par value: 10,000,000 shares authorized; 2,860,356 shares issued	2,860		2,860
Capital in excess of par value	128,983		128,983
Retained earnings	393,479		381,161
Accumulated other comprehensive loss	(115,052)		(115,002)
Treasury stock, at cost: Common Stock – 3,062,374 shares	(60,845)		(60,845)
Treasury stock, at cost: Class B Common Stock – 628,114 shares	(409)		(409)
Total equity of Coca-Cola Consolidated, Inc.	359,220		346,952
Noncontrolling interest	105,103		104,164
Total equity	464,323		451,116
Total liabilities and equity	$	3,195,743	$	3,126,926

	First Nine Months
(in thousands)	2019			2018
Cash Flows from Operating Activities:
Net income	$	26,824		$	10,640
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation expense from property, plant and equipment and financing or capital leases		119,145			123,542
Fair value adjustment of acquisition related contingent consideration		62,017			1,584
Amortization of intangible assets and deferred proceeds, net		17,271			16,954
Loss on sale of property, plant and equipment		5,474			6,123
Deferred income taxes		5,254			9,903
Impairment of property, plant and equipment		4,144			299
Stock compensation expense		2,045			4,494
Amortization of debt costs		1,032			1,103
Gain on exchange transactions		-			(10,170	)
Change in current assets less current liabilities		(54,263	)		(120,421	)
Change in other noncurrent assets		12,581			724
Change in other noncurrent liabilities		2,611			(18,762	)
Other		448			17
Total adjustments		177,759			15,390
Net cash provided by operating activities	$	204,583		$	26,030

Cash Flows from Investing Activities:
Additions to property, plant and equipment (exclusive of acquisitions)	$	(96,747	)	$	(113,104	)
Other distribution agreements		(4,654	)		-
Investment in CONA Services LLC		(1,713	)		(2,098	)
Proceeds from the sale of property, plant and equipment		1,028			3,555
Proceeds from cold drink equipment		-			3,789
Acquisition of distribution territories and regional manufacturing plants, net of cash acquired and purchase price settlements		-			1,811
Net cash used in investing activities	$	(102,086	)	$	(106,047	)

Cash Flows from Financing Activities:
Payments on revolving credit facility	$	(376,339	)	$	(322,000	)
Borrowings under revolving credit facility		331,339			285,000
Payments on term loan facility and senior notes		(132,500	)		(7,500	)
Proceeds from issuance of senior notes		100,000			150,000
Payments of acquisition related contingent consideration		(18,784	)		(18,312	)
Cash dividends paid		(7,026	)		(7,014	)
Payments on financing or capital lease obligations		(6,441	)		(6,191	)
Debt issuance fees		(305	)		(1,531	)
Net cash provided by (used in) financing activities	$	(110,056	)	$	72,452

Net decrease in cash	$	(7,559	)	$	(7,565	)
Cash at beginning of period		13,548			16,902
Cash at end of period	$	5,989		$	9,337

Significant noncash investing and financing activities:
Right of use assets obtained in exchange for lease obligations	$	39,213		$	-
Additions to property, plant and equipment accrued and recorded in accounts payable, trade		8,909			4,081
Issuance of Class B Common Stock in connection with stock award		4,776			3,831


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

		~~Page~~
					Page

		PART I – FINANCIAL INFORMATION

Item 1.			Financial Statements (Unaudited)

			Condensed Consolidated Statements of Operations	2 1

			Condensed Consolidated Statements of Comprehensive Income (Loss)	3 2

			Condensed Consolidated Balance Sheets	4 3

			Condensed Consolidated Statements of Cash Flows	5 4

			Condensed Consolidated Statements of Changes in Equity	6 5

			Notes to Condensed Consolidated Financial Statements	7 6

Item 2.			Management’s Discussion and Analysis of Financial Condition and Results of Operations	29 27

Item 3.			Quantitative and Qualitative Disclosures About Market Risk	46 41

Item 4.			Controls and Procedures	47 42

			PART II – OTHER INFORMATION

~~Item 1.~~	~~Legal Proceedings~~	48

~~Item 1A.~~	~~Risk Factors~~	48

~~Item 6.~~			~~Exhibits~~		48
Item 1.		Legal Proceedings			43

~~Signatures~~Item 1A.		49 Risk Factors	43

Item 6.		Exhibits	45

		Signatures	46

	Third Quarter					First Nine Months
(in thousands, except per share data)	2019			2018		2019			2018
Net sales	$	1,271,029		$	1,204,033	$	3,647,600		$	3,488,793
Cost of sales		838,805			791,317		2,390,289			2,313,728
Gross profit		432,224			412,716		1,257,311			1,175,065
Selling, delivery and administrative expenses		378,378			368,312		1,116,097			1,129,979
Income from operations		53,846			44,404		141,214			45,086
Interest expense, net		10,965			12,827		35,846			37,617
Other income (expense), net		(20,711	)		1,696		(67,743	)		(3,612	)
Gain on exchange transactions		-			10,170		-			10,170
Income before income taxes		22,170			43,443		37,625			14,027
Income tax expense		6,624			16,493		10,801			3,387
Net income		15,546			26,950		26,824			10,640
Less: Net income attributable to noncontrolling interest		2,540			1,786		5,279			3,594
Net income attributable to Coca-Cola Consolidated, Inc.	$	13,006		$	25,164	$	21,545		$	7,046

Basic net income per share based on net income attributable to Coca-Cola Consolidated, Inc.:
Common Stock	$	1.39		$	2.69	$	2.30		$	0.75
Weighted average number of Common Stock shares outstanding		7,141			7,141		7,141			7,141

Class B Common Stock	$	1.39		$	2.69	$	2.30		$	0.75
Weighted average number of Class B Common Stock shares outstanding		2,232			2,213		2,228			2,208

Diluted net income per share based on net income attributable to Coca-Cola Consolidated, Inc.:
Common Stock	$	1.38		$	2.69	$	2.29		$	0.75
Weighted average number of Common Stock shares outstanding – assuming dilution		9,413			9,405		9,409			9,400

Class B Common Stock	$	1.38		$	2.68	$	2.28		$	0.74
Weighted average number of Class B Common Stock shares outstanding – assuming dilution		2,272			2,264		2,268			2,259

Cash dividends per share:
Common Stock	$	0.25		$	0.25	$	0.75		$	0.75
Class B Common Stock	$	0.25		$	0.25	$	0.75		$	0.75

(in thousands, except share data)	Common Stock		Class B Common Stock		Capital in Excess of Par Value		Retained Earnings			Accumulated Other Comprehensive Loss			Treasury Stock - Common Stock			Treasury Stock - Class B Common Stock			Total Equity of Coca-Cola Consolidated, Inc.			Non- controlling Interest		Total Equity
Balance on December 31, 2017	$	10,204	$	2,819	$	120,417	$	388,718		$	(94,202	)	$	(60,845	)	$	(409	)	$	366,702		$	92,205	$	458,907
Net income		-		-		-		7,046			-			-			-			7,046			3,594		10,640
Other comprehensive income, net of tax		-		-		-		-			2,199			-			-			2,199			-		2,199
Cash dividends paid:
Common Stock ($0.75 per share)		-		-		-		(5,357	)		-			-			-			(5,357	)		-		(5,357	)
Class B Common Stock ($0.75 per share)		-		-		-		(1,657	)		-			-			-			(1,657	)		-		(1,657	)
Issuance of 20,296 shares of Class B Common Stock		-		20		3,811		-			-			-			-			3,831			-		3,831
Balance on September 30, 2018	$	10,204	$	2,839	$	124,228	$	388,750		$	(92,003	)	$	(60,845	)	$	(409	)	$	372,764		$	95,799	$	468,563

Balance on December 30, 2018	$	10,204	$	2,839	$	124,228	$	359,435		$	(77,265	)	$	(60,845	)	$	(409	)	$	358,187		$	96,979	$	455,166
Net income		-		-		-		21,545			-			-			-			21,545			5,279		26,824
Other comprehensive income, net of tax		-		-		-		-			1,367			-			-			1,367			-		1,367
Cash dividends paid:
Common Stock ($0.75 per share)		-		-		-		(5,356	)		-			-			-			(5,356	)		-		(5,356	)
Class B Common Stock ($0.75 per share)		-		-		-		(1,670	)		-			-			-			(1,670	)		-		(1,670	)
Issuance of 19,224 shares of Class B Common Stock		-		21		4,755		-			-			-			-			4,776			-		4,776
Reclassification of stranded tax effects		-		-		-		19,720			(19,720	)		-			-			-			-		-
Balance on September 29, 2019	$	10,204	$	2,860	$	128,983	$	393,674		$	(95,618	)	$	(60,845	)	$	(409	)	$	378,849		$	102,258	$	481,107


(in thousands)	Allowance for Credit Losses to Accounts Receivable
Balance at December 29, 2019	$	10,232
Additions charged to costs and expenses	3,167
Write-offs, net of recoveries	(787)
Balance at March 29, 2020	$	12,612

	Operating Leases			Financing Leases
Weighted average remaining lease term	10.2 years			4.9 years
Weighted average discount rate		4.1	%		5.7	%

(in thousands)	Third Quarter 2019		First Nine Months 2019
Cost of sales impact:
Operating leases costs	$	1,356	$	4,039
Short-term and variable leases		2,814		7,393
Depreciation expense from financing leases⁽¹⁾		353		1,060
Total cost of sales impact	$	4,523	$	12,492

Selling, delivery and administrative expenses impact:
Operating leases costs	$	3,717	$	9,639
Short-term and variable leases		838		2,676
Depreciation expense from financing leases⁽¹⁾		1,139		3,415
Total selling, delivery and administrative expenses impact	$	5,694	$	15,730

Interest expense, net impact:
Interest expense on financing lease obligations⁽²⁾	$	666	$	2,083
Total interest expense, net impact	$	666	$	2,083

Total lease cost	$	10,883	$	30,305

(in thousands)	Operating Leases		Capital Leases		Total
2019	$	14,146	$	10,434	$	24,580
2020		13,526		10,613		24,139
2021		12,568		6,218		18,786
2022		11,161		2,697		13,858
2023		10,055		2,753		12,808
Thereafter		33,805		8,106		41,911
Total minimum lease payments including interest	$	95,261	$	40,821	$	136,082
Less: Amounts representing interest				5,573
Present value of minimum lease principal payments				35,248
Less: Current portion of lease liabilities - capital leases				8,617
Noncurrent portion of lease liabilities - capital leases			$	26,631

	Fiscal Year
	2019		2018
Date of approval for award	March 5, 2019		March 6, 2018
Fiscal year of service covered by award	2018		2017
Shares settled in cash to satisfy tax withholding obligations		15,476		16,504
Increase in Class B Common Stock shares outstanding		19,224		20,296
Total Class B Common Stock awarded		34,700		36,800

(in thousands)	June 30, 2019			Pre-tax Activity			Tax Effect			September 29, 2019
Net pension activity:
Actuarial loss	$	(71,332	)	$	901		$	(222	)	$	(70,653	)
Prior service costs		(15	)		5			(1	)		(11	)
Net postretirement benefits activity:
Actuarial loss		(4,607	)		196			(48	)		(4,459	)
Prior service costs		(136	)		(324	)		80			(380	)
Interest rate swap		-			(496	)		122			(374	)
Foreign currency translation adjustment		(4	)		(23	)		6			(21	)
Reclassification of stranded tax effects		(19,720	)		-			-			(19,720	)
Total	$	(95,814	)	$	259		$	(63	)	$	(95,618	)

(in thousands)	July 1, 2018			Pre-tax Activity			Tax Effect			September 30, 2018
Net pension activity:
Actuarial loss	$	(77,212	)	$	934		$	(231	)	$	(76,509	)
Prior service costs		(34	)		6			(2	)		(30	)
Net postretirement benefits activity:
Actuarial loss		(16,547	)		499			(123	)		(16,171	)
Prior service costs		1,048			(462	)		114			700
Foreign currency translation adjustment		8			(2	)		1			7
Total	$	(92,737	)	$	975		$	(241	)	$	(92,003	)

	Third Quarter 2019
(in thousands)	Net Pension Activity		Net Postretirement Benefits Activity			Interest Rate Swap			Foreign Currency Translation Adjustment			Total
Cost of sales	$	265	$	(67	)	$	-		$	-		$	198
Selling, delivery and administrative expenses		641		(61	)		(496	)		(23	)		61
Subtotal pre-tax		906		(128	)		(496	)		(23	)		259
Income tax expense		223		(32	)		(122	)		(6	)		63
Total after tax effect	$	683	$	(96	)	$	(374	)	$	(17	)	$	196

Third Quarter 2019			Attributable to:
$	46.9		Increase in net sales related to increased sales volume
	25.9		Increase in net sales primarily related to an increase in average bottle/can sales price per unit to retail customers and the shift in product mix to higher revenue still products in order to meet consumer preferences
	(8.9	)	Decrease in sales volume to other Coca-Cola bottlers
	3.1		Other
$	67.0		Total increase in net sales

Third Quarter 2019			Attributable to:
$	36.2		Increase in cost of sales related to increased sales volume
	18.8		Increase in cost of sales primarily related to, in order of magnitude, the change in product mix to meet consumer preferences and an increase in concentrate costs
	(10.1	)	Decrease in sales volume to other Coca-Cola bottlers
	2.6		Other
$	47.5		Total increase in cost of sales

Third Quarter 2019			Attributable to:
$	12.1		Increase in employee benefit costs, including an increase in bonuses and incentives primarily related to improved financial results and an increase in employee salaries
	(2.0	)	Other
$	10.1		Total increase in SD&A expenses

First Nine Months 2019			Attributable to:
$	126.7		Increase in net sales primarily related to an increase in average bottle/can sales price per unit to retail customers and the shift in product mix to higher revenue still products in order to meet consumer preferences
	62.2		Increase in net sales related to increased sales volume
	(46.6	)	Decrease in sales volume to other Coca-Cola bottlers
	16.5		Other
$	158.8		Total increase in net sales

First Nine Months 2019			Attributable to:
$	79.1		Increase in cost of sales primarily related to, in order of magnitude, the change in product mix to meet consumer preferences, an increase in concentrate costs and an increase in commodity costs
	(50.4	)	Decrease in sales volume to other Coca-Cola bottlers
	41.9		Increase in cost of sales related to increased sales volume
	6.0		Other
$	76.6		Total increase in cost of sales

First Nine Months 2019			Attributable to:
$	(25.5	)	Decrease in System Transformation transactions expenses
	8.9		Increase in employee benefit costs including employee salaries primarily as a result of an increase in bonuses and incentives primarily related to improved financial results, partially offset by workforce optimization completed in the second and fourth quarters of 2018
	2.7		Other
$	(13.9	)	Total decrease in SD&A expenses