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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________________________________________________________________________
FORM 10-Q
______________________________________________________________________________________________
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 27, 2020
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission File Number: 0-9286
______________________________________________________________________________________________
COCA-COLA CONSOLIDATED, INC.
(Exact name of registrant as specified in its charter)
______________________________________________________________________________________________
Delaware
56-0950585
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
4100 CocaCola Plaza

Charlotte, NC
28211
(Address of principal executive offices)
(Zip Code)
Registrant’s telephone number, including area code: (704) 557-4400
______________________________________________________________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, $1.00 Par Value
Trading Symbol(s)
COKE
Name of each exchange on which registered
The NASDAQ Global Select Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes   No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes   No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No  
As of October 25, 2020, there were 7,141,447 shares of the registrant’s Common Stock, $1.00 par value, and 2,232,242 shares of the registrant’s Class B Common Stock, $1.00 par value, outstanding.




COCACOLA CONSOLIDATED, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 27, 2020
TABLE OF CONTENTS

i


PART I - FINANCIAL INFORMATION
Item 1.    Financial Statements.
COCACOLA CONSOLIDATED, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

Third Quarter First Nine Months
(in thousands, except per share data) 2020 2019 2020 2019
Net sales $ 1,328,484  $ 1,271,029  $ 3,728,720  $ 3,647,600 
Cost of sales 856,046  838,805  2,421,686  2,390,289 
Gross profit 472,438  432,224  1,307,034  1,257,311 
Selling, delivery and administrative expenses 368,594  378,378  1,087,251  1,116,097 
Income from operations 103,844  53,846  219,783  141,214 
Interest expense, net 9,033  10,965  27,778  35,846 
Other expense, net 21,394  20,711  39,826  67,743 
Income before income taxes 73,417  22,170  152,179  37,625 
Income tax expense 18,363  6,624  38,911  10,801 
Net income 55,054  15,546  113,268  26,824 
Less: Net income attributable to noncontrolling interest 3,170  2,540  7,153  5,279 
Net income attributable to Coca‑Cola Consolidated, Inc. $ 51,884  $ 13,006  $ 106,115  $ 21,545 
Basic net income per share based on net income attributable to Coca‑Cola Consolidated, Inc.:
Common Stock $ 5.53  $ 1.39  $ 11.32  $ 2.30 
Weighted average number of Common Stock shares outstanding 7,141  7,141  7,141  7,141 
Class B Common Stock $ 5.53  $ 1.39  $ 11.32  $ 2.30 
Weighted average number of Class B Common Stock shares outstanding 2,232  2,232  2,232  2,228 
Diluted net income per share based on net income attributable to Coca‑Cola Consolidated, Inc.:
Common Stock $ 5.51  $ 1.38  $ 11.25  $ 2.29 
Weighted average number of Common Stock shares outstanding – assuming dilution 9,430  9,413  9,430  9,409 
Class B Common Stock $ 5.51  $ 1.38  $ 11.24  $ 2.28 
Weighted average number of Class B Common Stock shares outstanding – assuming dilution 2,289  2,272  2,289  2,268 
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 





See accompanying notes to condensed consolidated financial statements.
1


COCACOLA CONSOLIDATED, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)

Third Quarter First Nine Months
(in thousands) 2020 2019 2020 2019
Net income $ 55,054  $ 15,546  $ 113,268  $ 26,824 
Other comprehensive income, net of tax:
Defined benefit plans reclassification including pension costs:
Actuarial gains 896  679  2,689  2,037 
Prior service benefits 11  13 
Postretirement benefits reclassification included in benefits costs:
Actuarial gains 66  148  198  443 
Prior service costs —  (244) —  (731)
Interest rate swap 303  (374) (710) (374)
Foreign currency translation adjustment 11  (17) 13  (21)
Other comprehensive income, net of tax 1,280  196  2,201  1,367 
Comprehensive income 56,334  15,742  115,469  28,191 
Less: Comprehensive income attributable to noncontrolling interest 3,170  2,540  7,153  5,279 
Comprehensive income attributable to Coca‑Cola Consolidated, Inc. $ 53,164  $ 13,202  $ 108,316  $ 22,912 































See accompanying notes to condensed consolidated financial statements.
2


COCACOLA CONSOLIDATED, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands, except share data) September 27, 2020 December 29, 2019
ASSETS
Current Assets:
Cash and cash equivalents $ 164,823  $ 9,614 
Accounts receivable, trade 453,402  433,552 
Allowance for doubtful accounts (25,050) (13,782)
Accounts receivable from The Coca‑Cola Company 54,516  62,411 
Accounts receivable, other 44,569  43,094 
Inventories 207,773  225,926 
Prepaid expenses and other current assets 69,829  69,461 
Assets held for sale 7,036  — 
Total current assets 976,898  830,276 
Property, plant and equipment, net 979,210  997,403 
Right-of-use assets - operating leases 135,559  111,376 
Leased property under financing leases, net 71,281  17,960 
Other assets 111,775  113,269 
Goodwill 165,903  165,903 
Distribution agreements, net 859,003  876,096 
Customer lists and other identifiable intangible assets, net 13,264  14,643 
Total assets $ 3,312,893  $ 3,126,926 
LIABILITIES AND EQUITY
Current Liabilities:
Current portion of obligations under operating leases $ 18,812  $ 15,024 
Current portion of obligations under financing leases 5,814  9,403 
Accounts payable, trade 234,715  187,476 
Accounts payable to The Coca‑Cola Company 135,656  108,699 
Other accrued liabilities 207,522  208,834 
Accrued compensation 74,778  87,813 
Accrued interest payable 6,693  4,946 
Total current liabilities 683,990  622,195 
Deferred income taxes 131,218  125,130 
Pension and postretirement benefit obligations 103,431  114,831 
Other liabilities 679,361  668,566 
Noncurrent portion of obligations under operating leases 121,288  97,765 
Noncurrent portion of obligations under financing leases 71,183  17,403 
Long-term debt 962,867  1,029,920 
Total liabilities 2,753,338  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 480,246  381,161 
Accumulated other comprehensive loss (112,801) (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. 448,238  346,952 
Noncontrolling interest 111,317  104,164 
Total equity 559,555  451,116 
Total liabilities and equity $ 3,312,893  $ 3,126,926 


See accompanying notes to condensed consolidated financial statements.
3


COCACOLA CONSOLIDATED, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

First Nine Months
(in thousands) 2020 2019
Cash Flows from Operating Activities:
Net income $ 113,268  $ 26,824 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation expense from property, plant and equipment and financing leases 117,203  119,145 
Amortization of intangible assets and deferred proceeds, net 17,286  17,271 
Fair value adjustment of acquisition related contingent consideration 35,068  62,017 
Impairment of property, plant and equipment 7,908  4,144 
Deferred income taxes 5,302  5,254 
Loss on sale of property, plant and equipment 3,656  5,474 
Amortization of debt costs 778  1,032 
Stock compensation expense —  2,045 
Change in current assets less current liabilities 69,975  (54,263)
Change in other noncurrent assets 16,360  12,581 
Change in other noncurrent liabilities (11,451) 2,611 
Other 1,048  448 
Total adjustments 263,133  177,759 
Net cash provided by operating activities $ 376,401  $ 204,583 
Cash Flows from Investing Activities:
Additions to property, plant and equipment $ (110,717) $ (96,747)
Proceeds from the sale of property, plant and equipment 2,397  1,028 
Investment in CONA Services LLC (1,770) (1,713)
Other distribution agreements —  (4,654)
Net cash used in investing activities $ (110,090) $ (102,086)
Cash Flows from Financing Activities:
Payments on revolving credit facility $ (280,000) $ (376,339)
Borrowings under revolving credit facility 235,000  331,339 
Payments on term loan facility and senior notes (22,500) (132,500)
Proceeds from issuance of senior notes —  100,000 
Payments of acquisition related contingent consideration (31,999) (18,784)
Cash dividends paid (7,030) (7,026)
Payments on financing lease obligations (4,428) (6,441)
Debt issuance fees (145) (305)
Net cash used in financing activities $ (111,102) $ (110,056)
Net increase (decrease) in cash during period $ 155,209  $ (7,559)
Cash at beginning of period 9,614  13,548 
Cash at end of period $ 164,823  $ 5,989 
Significant non-cash investing and financing activities:
Additions to leased property under financing leases $ 61,121  $ — 
Right-of-use assets obtained in exchange for operating lease obligations 38,317  39,213 
Additions to property, plant and equipment accrued and recorded in accounts payable, trade 25,477  8,909 
Issuance of Class B Common Stock in connection with stock award —  4,776 



See accompanying notes to condensed consolidated financial statements.
4


COCACOLA CONSOLIDATED, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Unaudited)

(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 CocaCola
Consolidated,
Inc.
Non-
controlling
Interest
Total
Equity
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 
Balance on December 29, 2019 $ 10,204  $ 2,860  $ 128,983  $ 381,161  $ (115,002) $ (60,845) $ (409) $ 346,952  $ 104,164  $ 451,116 
Net income —  —  —  106,115  —  —  —  106,115  7,153  113,268 
Other comprehensive loss, net of tax —  —  —  —  2,201  —  —  2,201  —  2,201 
Cash dividends paid:
Common Stock
($0.75 per share)
—  —  —  (5,356) —  —  —  (5,356) —  (5,356)
Class B Common Stock
($0.75 per share)
—  —  —  (1,674) —  —  —  (1,674) —  (1,674)
Balance on September 27, 2020 $ 10,204  $ 2,860  $ 128,983  $ 480,246  $ (112,801) $ (60,845) $ (409) $ 448,238  $ 111,317  $ 559,555 

























See accompanying notes to condensed consolidated financial statements.
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COCACOLA CONSOLIDATED, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1.    Critical Accounting Policies and Recent Accounting Pronouncements

The condensed consolidated financial statements include the accounts of Coca‑Cola Consolidated, Inc. and its majority-owned subsidiaries (the “Company”). All significant intercompany accounts and transactions have been eliminated. The condensed consolidated financial statements reflect all adjustments, including normal, recurring accruals, which, in the opinion of management, are necessary for a fair statement of the results for the interim periods presented:

The financial position as of September 27, 2020 and December 29, 2019.
The results of operations and comprehensive income for the 13-week periods ended September 27, 2020 (the “third quarter” of fiscal 2020 (“2020”)) and September 29, 2019 (the “third quarter” of fiscal 2019 (“2019”)), and the 39-week periods ended September 27, 2020 (the “first nine months” of 2020) and September 29, 2019 (the “first nine months” of 2019).
The changes in cash flows and equity for the first nine months of 2020 and the first nine months of 2019.

The condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial reporting and the instructions to Form 10-Q and Article 10 of Regulation S-X. The accounting policies followed in the presentation of interim financial results are consistent with those followed on an annual basis. These policies are presented in Note 1 to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for 2019 filed with the Securities and Exchange Commission.

The preparation of condensed consolidated financial statements, in conformity with GAAP, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Critical Accounting Policies

In the ordinary course of business, the Company has made a number of estimates and assumptions relating to the reporting of its results of operations and financial position in the preparation of its condensed consolidated financial statements in conformity with GAAP. Actual results could differ significantly from those estimates under different assumptions and conditions. The Company included in its Annual Report on Form 10-K for 2019 under the caption “Discussion of Critical Accounting Policies and Estimates and Recent Accounting Pronouncements” in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” a discussion of the Company’s most critical accounting policies, which are those the Company believes to be the most important to the portrayal of its financial condition and results of operations and require management’s most difficult, subjective and complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Any changes in critical accounting policies and estimates are discussed with the Audit Committee of the Company’s Board of Directors during the quarter in which a change is contemplated and prior to making such change.

Recently Adopted Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2016-13, “Measurement of Credit Losses on Financial Instruments,” which requires measurement and recognition of expected credit losses at the point a loss is probable to occur, rather than expected to occur, which will generally result in earlier recognition of allowances for credit losses. The new guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company adopted ASU 2016-13 in the first quarter of 2020 and the adoption did not have a material impact on its condensed consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13, “Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement,” which removes, modifies and adds certain disclosure requirements in Accounting Standards Codification Topic 820, Fair Value Measurement. This ASU is effective for annual and interim reporting periods beginning after December 15, 2019. Certain amendments must be applied prospectively while others are to be applied on a retrospective basis to all periods presented. The Company adopted ASU 2018-13 in the first quarter of 2020. See Note 15 for additional information.

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Recently Issued Accounting Pronouncements

In August 2018, the FASB issued ASU 2018-14, “Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans,” which is effective for fiscal years ending after December 15, 2020. Under this guidance, disclosures will be removed for the amounts in accumulated other comprehensive income expected to be recognized as components of net periodic benefit cost over the next fiscal year, the amount and timing of assets expected to be returned to the employer, certain related party disclosures, and the effects of a one-percentage-point change in the assumed health care cost trend rates. Additional disclosures will include the weighted average interest crediting rate for plans with promised crediting interest rates and an explanation of the reasons for significant gains and losses related to the benefit obligation for the period.

In December 2019, the FASB issued ASU 2019-12, “Simplifying the Accounting for Income Taxes,” which will simplify the accounting for income taxes by removing certain exceptions to the general principles in income tax accounting and improve consistent application of and simplify GAAP for other areas of income tax accounting by clarifying and amending existing guidance. The new guidance is effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company is currently evaluating the impact ASU 2019-12 will have on its condensed consolidated financial statements.

2.    Related Party Transactions

The Coca‑Cola Company

The Company’s business consists primarily of the production, marketing and distribution of nonalcoholic beverages of The Coca‑Cola Company, which is the sole owner of the formulas under which the primary components of its soft drink products, either concentrate or syrup, are manufactured.

J. Frank Harrison, III, the Chairman of the Board of Directors and Chief Executive Officer of the Company, together with the trustees of certain trusts established for the benefit of certain relatives of the late J. Frank Harrison, Jr., control shares representing approximately 86% of the total voting power of the Company’s total outstanding Common Stock and Class B Common Stock on a consolidated basis.

As of September 27, 2020, The Coca‑Cola Company owned approximately 27% of the Company’s total outstanding Common Stock and Class B Common Stock on a consolidated basis, representing approximately 5% of the total voting power of the Company’s Common Stock and Class B Common Stock voting together. As long as The Coca‑Cola Company holds the number of shares of the Company’s Common Stock it currently owns, it has the right to have its designee proposed by the Company for nomination to the Company’s Board of Directors, and J. Frank Harrison, III and the trustees of the J. Frank Harrison, Jr. family trusts described above, have agreed to vote the shares of the Company’s Class B Common Stock which they control in favor of such designee. The Coca‑Cola Company does not own any shares of the Company’s Class B Common Stock.

The following table summarizes the significant transactions between the Company and The Coca‑Cola Company:

Third Quarter First Nine Months
(in thousands) 2020 2019 2020 2019
Payments made by the Company to The Coca‑Cola Company for:
Concentrate, syrup, sweetener and other purchases $ 324,312  $ 306,588  $ 873,827  $ 893,123 
Customer marketing programs 34,550  36,597  99,941  109,110 
Cold drink equipment parts 5,965  4,519  16,345  18,568 
Brand investment programs 4,359  3,616  11,609  10,209 
Payments made by The Coca‑Cola Company to the Company for:
Marketing funding support payments $ 21,187  $ 25,931  $ 58,182  $ 74,954 
Fountain delivery and equipment repair fees 7,555  10,873  22,990  31,507 
Presence marketing funding support on the Company’s behalf 565  2,879  6,445  7,816 
Facilitating the distribution of certain brands and packages to other Coca‑Cola bottlers 1,151  1,602  3,469  3,952 

In fiscal 2017 (“2017”), The Coca‑Cola Company agreed to provide the Company a fee to compensate the Company for the net economic impact of changes made by The Coca‑Cola Company to the authorized pricing on sales of covered beverages produced at certain manufacturing facilities owned by the Company (the “Legacy Facilities Credit”). The Company immediately recognized
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the portion of the Legacy Facilities Credit applicable to a regional manufacturing facility divested in 2017 and the remaining balance of the Legacy Facilities Credit will be amortized as a reduction to cost of sales over a period of 40 years. The portion of the deferred liability that is expected to be amortized in the next 12 months is classified as current.

Coca‑Cola Refreshments USA, Inc. (“CCR”)

The Company, The Coca‑Cola Company and CCR, a wholly owned subsidiary of The Coca‑Cola Company, entered into a comprehensive beverage agreement in 2017 (as amended, the “CBA”). Pursuant to the CBA, the Company is required to make quarterly sub-bottling payments to CCR on a continuing basis in exchange for the grant of exclusive rights to distribute, promote, market and sell the authorized brands of The Coca‑Cola Company and related products in certain distribution territories the Company acquired from CCR. These sub-bottling payments are based on gross profit derived from sales of certain beverages and beverage products that are sold under the same trademarks that identify a covered beverage, beverage product or certain cross-licensed brands.

Sub-bottling payments to CCR were $32.0 million during the first nine months of 2020 and $18.8 million during the first nine months of 2019. The following table summarizes the liability recorded by the Company to reflect the estimated fair value of contingent consideration related to future sub-bottling payments to CCR:

(in thousands) September 27, 2020 December 29, 2019
Current portion of acquisition related contingent consideration $ 41,912  $ 41,087 
Noncurrent portion of acquisition related contingent consideration 406,741  405,597 
Total acquisition related contingent consideration $ 448,653  $ 446,684 

Upon the conversion of the Company’s then-existing bottling agreements in 2017 pursuant to the CBA, the Company received a fee from CCR (the “Territory Conversion Fee”). The Territory Conversion Fee was recorded as a deferred liability and will be amortized as a reduction to cost of sales over a period of 40 years. The portion of the deferred liability that is expected to be amortized in the next 12 months is classified as current.

Southeastern Container (“Southeastern”)

The Company is a shareholder of Southeastern, a plastic bottle manufacturing cooperative. The Company accounts for Southeastern as an equity method investment. The Company’s investment in Southeastern, which was classified as other assets in the condensed consolidated balance sheets, was $22.8 million as of September 27, 2020 and $23.2 million as of December 29, 2019.

South Atlantic Canners, Inc. (“SAC”)

The Company is a shareholder of SAC, a manufacturing cooperative in Bishopville, South Carolina. All of SAC’s shareholders are Coca‑Cola bottlers and each has equal voting rights. The Company accounts for SAC as an equity method investment. The Company’s investment in SAC, which was classified as other assets in the condensed consolidated balance sheets, was $8.0 million as of September 27, 2020 and $8.2 million as of December 29, 2019.

The Company receives a fee for managing the day-to-day operations of SAC pursuant to a management agreement. Proceeds from management fees received from SAC, which were classified as a reduction to cost of sales in the condensed consolidated statements of operations, were $6.9 million in the first nine months of 2020 and $7.0 million in the first nine months of 2019.

Coca‑Cola Bottlers’ Sales and Services Company, LLC (“CCBSS”)

Along with other Coca‑Cola bottlers in the United States and Canada, the Company is a member of CCBSS, a company formed to provide certain procurement and other services with the intention of enhancing the efficiency and competitiveness of the Coca‑Cola bottling system. The Company accounts for CCBSS as an equity method investment and its investment in CCBSS is not material.

CCBSS negotiates the procurement for the majority of the Company’s raw materials, excluding concentrate, and the Company receives a rebate from CCBSS for the purchase of these raw materials. The Company had rebates due from CCBSS of $13.8 million on September 27, 2020 and $10.0 million on December 29, 2019, which were classified as accounts receivable, other in the condensed consolidated balance sheets.

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In addition, the Company pays an administrative fee to CCBSS for its services. The Company incurred administrative fees to CCBSS of $2.1 million in the first nine months of 2020 and $1.7 million in the first nine months of 2019, which were classified as selling, delivery and administrative (“SD&A”) expenses in the condensed consolidated statements of operations.

CONA Services LLC (“CONA”)

The Company is a member of CONA, an entity formed with The Coca‑Cola Company and certain other Coca‑Cola bottlers to provide business process and information technology services to its members. The Company accounts for CONA as an equity method investment. The Company’s investment in CONA, which was classified as other assets in the condensed consolidated balance sheets, was $11.5 million as of September 27, 2020 and $10.5 million as of December 29, 2019.

Pursuant to an amended and restated master services agreement with CONA, the Company is authorized to use the Coke One North America system (the “CONA System”), a uniform information technology system developed to promote operational efficiency and uniformity among North American Coca‑Cola bottlers. In exchange for the Company’s rights to use the CONA System and receive CONA-related services, it is charged service fees by CONA. The Company incurred CONA service fees of $17.4 million in the first nine months of 2020 and $17.7 million in the first nine months of 2019.

Related Party Leases

The Company leases its headquarters office facility and an adjacent office facility in Charlotte, North Carolina from Beacon Investment Corporation (“Beacon”), of which J. Frank Harrison, III is the majority stockholder and Morgan H. Everett, Vice Chair of the Company’s Board of Directors, is a minority stockholder. During the first quarter of 2020, the Company entered into a new lease agreement, effective January 1, 2020, with Beacon to continue to lease its corporate facilities. The new lease expires on December 31, 2029. The principal balance outstanding under the new operating lease was $31.3 million on September 27, 2020 and the principal balance outstanding under the previous financing lease, which was replaced by the new operating lease, was $6.8 million on December 29, 2019.

The Company leases the Snyder Production Center and an adjacent sales facility in Charlotte, North Carolina from Harrison Limited Partnership One (“HLP”), which is directly and indirectly owned by trusts of which J. Frank Harrison, III and Sue Anne H. Wells, a director of the Company, are trustees and beneficiaries and of which Morgan H. Everett is a permissible, discretionary beneficiary. During the third quarter of 2020, the Company entered into an amendment to this lease, effective June 30, 2020, with HLP to extend the term of the original lease agreement by 15 years from December 31, 2020 through December 31, 2035. The principal balance outstanding under the amended lease was $62.6 million on September 27, 2020 and the principal balance outstanding under the lease, prior to being amended, was $4.3 million on December 29, 2019.

A summary of rental payments related to these leases is as follows:

Third Quarter First Nine Months
(in thousands) 2020 2019 2020 2019
Company headquarters $ 826  $ 1,132  $ 2,478  $ 3,393 
Snyder Production Center 1,112  1,080  3,338  3,241 

Long-Term Performance Equity Plan

The Long-Term Performance Equity Plan compensates J. Frank Harrison, III based on the Company’s performance. 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 Compensation Committee of the Company’s Board of Directors. These awards may be settled in cash and/or shares of the Company’s Class B Common Stock, based on the average of the closing prices of the Company’s Common Stock during the last 20 trading days of the performance period. Compensation expense for the Long-Term Performance Equity Plan, which was included in SD&A expenses in the condensed consolidated statements of operations, was $7.2 million in the first nine months of 2020 and $10.3 million in the first nine months of 2019.

3.    Revenue Recognition

The Company offers a range of nonalcoholic beverage products and flavors, including both sparkling and still beverages, designed to meet the demands of its consumers. Sparkling beverages are carbonated beverages and the Company’s principal sparkling beverage is Coca‑Cola. Still beverages include energy products and noncarbonated beverages such as bottled water, tea, ready to drink coffee, enhanced water, juices and sports drinks.
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The Company’s products are sold and distributed in the United States through various channels, which include selling directly to customers, including grocery stores, mass merchandise stores, club stores, convenience stores and drug stores, selling to “on-premise” accounts, where products are typically consumed immediately, such as restaurants, schools, amusement parks and recreational facilities, and selling through other channels such as vending machine outlets. The Company typically collects payment from customers within 30 days from the date of sale.

The Company’s sales are divided into two main categories: (i) bottle/can sales and (ii) other sales. Bottle/can sales include products packaged primarily in plastic bottles and aluminum cans. Bottle/can net pricing is based on the invoice price charged to customers reduced by any promotional allowances. Bottle/can net pricing per unit is impacted by the price charged per package, the sales volume generated for each package and the channels in which those packages are sold. Other sales include sales to other Coca‑Cola bottlers, “post-mix” 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.

The Company’s contracts are derived from customer orders, including customer sales incentives, generated through an order processing and replenishment model. Generally, the Company’s service contracts and contracts related to the delivery of specifically identifiable products have a single performance obligation. Revenues do not include sales or other taxes collected from customers. The Company has defined its performance obligations for its contracts as either at a point in time or over time. Bottle/can sales, sales to other Coca‑Cola bottlers and post-mix sales are recognized when control transfers to a customer, which is generally upon delivery and is considered a single point in time (“point in time”). Point in time sales accounted for approximately 97% of the Company’s net sales in the first nine months of 2020 and approximately 96% of the Company’s net sales in the first nine months of 2019.

Other sales, which include revenue for service fees related to the repair of cold drink equipment and delivery fees for freight hauling and brokerage services, are recognized over time (“over time”). Revenues related to cold drink equipment repair are recognized as the respective services are completed using a cost-to-cost input method. Repair services are generally completed in less than one day but can extend up to one month. Revenues related to freight hauling and brokerage services are recognized as the delivery occurs using a miles driven output method. Generally, delivery occurs and freight charges are recognized in the same day. Over time sales orders open at the end of a financial period are not material to the condensed consolidated financial statements.

The following table represents a disaggregation of revenue from contracts with customers:

Third Quarter First Nine Months
(in thousands) 2020 2019 2020 2019
Point in time net sales:
Nonalcoholic Beverages - point in time $ 1,286,542  $ 1,224,653  $ 3,607,502  $ 3,512,901 
Total point in time net sales $ 1,286,542  $ 1,224,653  $ 3,607,502  $ 3,512,901 
Over time net sales:
Nonalcoholic Beverages - over time $ 8,729  $ 11,608  $ 25,874  $ 34,472 
All Other - over time 33,213  34,768  95,344  100,227 
Total over time net sales $ 41,942  $ 46,376  $ 121,218  $ 134,699 
Total net sales $ 1,328,484  $ 1,271,029  $ 3,728,720  $ 3,647,600 

The Company participates in various sales programs with The Coca‑Cola Company, other beverage companies and customers to increase the sale of its products. Programs negotiated with customers include arrangements under which allowances can be earned for attaining agreed-upon sales levels. The cost of these various sales incentives is not considered a separate performance obligation and is included as a deduction to net sales.

Allowance payments made to customers can be conditional on the achievement of volume targets and/or marketing commitments. Payments made in advance are recorded as prepayments and amortized in the condensed consolidated statements of operations over the relevant period for which the customer commitment is made. In the event there is no separate identifiable benefit or the fair value of such benefit cannot be established, the amortization of the prepayment is included as a deduction to net sales.

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The Company sells its products and extends credit, generally without requiring collateral, based on an ongoing evaluation of the customer’s business prospects and financial condition. The Company evaluates the collectability of its trade accounts receivable based on a number of factors, including the Company’s historic collections pattern and changes to a specific customer’s ability to meet its financial obligations. The Company has established an allowance for doubtful accounts to adjust the recorded receivable to the estimated amount the Company believes will ultimately be collected.

The nature of the Company’s contracts gives rise to several types of variable consideration, including prospective and retrospective rebates. The Company accounts for its prospective and retrospective rebates using the expected value method, which estimates the net price to the customer based on the customer’s expected annual sales volume projections.

The Company’s allowance for doubtful accounts in the condensed consolidated balance sheets includes a reserve for customer returns and an allowance for credit losses. The Company experiences customer returns primarily as a result of damaged or out-of-date product. At any given time, the Company estimates less than 1% of bottle/can sales and post-mix sales could be at risk for return by customers. Returned product is recognized as a reduction to net sales. The Company’s reserve for customer returns was $3.6 million as of both September 27, 2020 and December 29, 2019.

The Company estimates an allowance for credit losses, based on historic days’ sales outstanding trends, aged customer balances, previously written-off balances and expected recoveries up to balances previously written off, in order to present the net amount expected to be collected. Accounts receivable balances are written off when determined uncollectible and are recognized as a reduction to the allowance for credit losses. Following is a summary of activity for the allowance for credit losses during the first nine months of 2020:

(in thousands) First Nine Months 2020
Balance at beginning of year - allowance for credit losses $ 10,232 
Additions charged to costs and expenses(1)
14,238 
Write-offs, net of recoveries (2,970)
Balance at end of period - allowance for credit losses $ 21,500 

(1)Includes an allowance for credit losses for COVID-19-related collectability risk.

4.    Segments

The Company evaluates segment reporting in accordance with the FASB Accounting Standards Codification Topic 280, Segment Reporting, each reporting period, including evaluating the reporting package reviewed by the Chief Operating Decision Maker (the “CODM”). The Company has concluded the Chief Executive Officer, the Chief Operating Officer and the Chief Financial Officer, as a group, represent the CODM. Asset information is not provided to the CODM.

The Company believes three operating segments exist. Nonalcoholic Beverages represents the vast majority of the Company’s consolidated net sales and income from operations. The additional two operating segments do not meet the quantitative thresholds for separate reporting, either individually or in the aggregate, and, therefore, have been combined into “All Other.”

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The Company’s segment results are as follows:

Third Quarter First Nine Months
(in thousands) 2020 2019 2020 2019
Net sales:
Nonalcoholic Beverages $ 1,295,271  $ 1,236,261  $ 3,633,376  $ 3,547,373 
All Other 84,776  92,501  246,406  275,358 
Eliminations(1)
(51,563) (57,733) (151,062) (175,131)
Consolidated net sales $ 1,328,484  $ 1,271,029  $ 3,728,720  $ 3,647,600 
Income from operations:
Nonalcoholic Beverages $ 108,035  $ 48,248  $ 227,559  $ 120,613 
All Other (4,191) 5,598  (7,776) 20,601 
Consolidated income from operations $ 103,844  $ 53,846  $ 219,783  $ 141,214 
Depreciation and amortization:
Nonalcoholic Beverages $ 45,066  $ 43,067  $ 125,733  $ 128,986 
All Other 3,027  2,521  8,756  7,430 
Consolidated depreciation and amortization $ 48,093  $ 45,588  $ 134,489  $ 136,416 

(1)The entire net sales elimination represents net sales from the All Other segment to the Nonalcoholic Beverages segment. Sales between these segments are recognized at either fair market value or cost depending on the nature of the transaction.

5.    Net Income Per Share

The following table sets forth the computation of basic net income per share and diluted net income per share under the two-class method:

Third Quarter First Nine Months
(in thousands, except per share data) 2020 2019 2020 2019
Numerator for basic and diluted net income per Common Stock and Class B Common Stock share:
Net income attributable to Coca‑Cola Consolidated, Inc. $ 51,884  $ 13,006  $ 106,115  $ 21,545 
Less dividends:
Common Stock 1,785  1,786  5,356  5,356 
Class B Common Stock 559  558  1,674  1,670 
Total undistributed earnings $ 49,540  $ 10,662  $ 99,085  $ 14,519 
Common Stock undistributed earnings – basic $ 37,743  $ 8,123  $ 75,490  $ 11,066 
Class B Common Stock undistributed earnings – basic 11,797  2,539  23,595  3,453 
Total undistributed earnings – basic $ 49,540  $ 10,662  $ 99,085  $ 14,519 
Common Stock undistributed earnings – diluted $ 37,515  $ 8,089  $ 75,034  $ 11,019 
Class B Common Stock undistributed earnings – diluted 12,025  2,573  24,051  3,500 
Total undistributed earnings – diluted $ 49,540  $ 10,662  $ 99,085  $ 14,519 
Numerator for basic net income per Common Stock share:
Dividends on Common Stock $ 1,785  $ 1,786  $ 5,356  $ 5,356 
Common Stock undistributed earnings – basic 37,743  8,123  75,490  11,066 
Numerator for basic net income per Common Stock share $ 39,528  $ 9,909  $ 80,846  $ 16,422 
Numerator for basic net income per Class B Common Stock share:
Dividends on Class B Common Stock $ 559  $ 558  $ 1,674  $ 1,670 
Class B Common Stock undistributed earnings – basic 11,797  2,539  23,595  3,453 
Numerator for basic net income per Class B Common Stock share $ 12,356  $ 3,097  $ 25,269  $ 5,123 

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Third Quarter First Nine Months
(in thousands, except per share data) 2020 2019 2020 2019
Numerator for diluted net income per Common Stock share:
Dividends on Common Stock $ 1,785  $ 1,786  $ 5,356  $ 5,356 
Dividends on Class B Common Stock assumed converted to Common Stock 559  558  1,674  1,670 
Common Stock undistributed earnings – diluted 49,540  10,662  99,085  14,519 
Numerator for diluted net income per Common Stock share $ 51,884  $ 13,006  $ 106,115  $ 21,545 
Numerator for diluted net income per Class B Common Stock share:
Dividends on Class B Common Stock $ 559  $ 558  $ 1,674  $ 1,670 
Class B Common Stock undistributed earnings – diluted 12,025  2,573  24,051  3,500 
Numerator for diluted net income per Class B Common Stock share $ 12,584  $ 3,131  $ 25,725  $ 5,170 
Denominator for basic net income per Common Stock and Class B Common Stock share:
Common Stock weighted average shares outstanding – basic 7,141  7,141  7,141  7,141 
Class B Common Stock weighted average shares outstanding – basic 2,232  2,232  2,232  2,228 
Denominator for diluted net income per Common Stock and Class B Common Stock share:
Common Stock weighted average shares outstanding – diluted (assumes conversion of Class B Common Stock to Common Stock) 9,430  9,413  9,430  9,409 
Class B Common Stock weighted average shares outstanding – diluted 2,289  2,272  2,289  2,268 
Basic net income per share:
Common Stock $ 5.53  $ 1.39  $ 11.32  $ 2.30 
Class B Common Stock $ 5.53  $ 1.39  $ 11.32  $ 2.30 
Diluted net income per share:
Common Stock $ 5.51  $ 1.38  $ 11.25  $ 2.29 
Class B Common Stock $ 5.51  $ 1.38  $ 11.24  $ 2.28 

NOTES TO TABLE

(1)For purposes of the diluted net income per share computation for Common Stock, all shares of Class B Common Stock are assumed to be converted; therefore, 100% of undistributed earnings is allocated to Common Stock.
(2)For purposes of the diluted net income per share computation for Class B Common Stock, weighted average shares of Class B Common Stock are assumed to be outstanding for the entire period and not converted.
(3)For periods presented during which the Company had net income, the denominator for diluted net income per share for Common Stock and Class B Common Stock includes the dilutive effect of shares relative to the Long-Term Performance Equity Plan. For periods presented during which the Company had net loss, the unvested shares granted pursuant to the Long-Term Performance Equity Plan are excluded from the computation of diluted net loss per share, as the effect would have been anti-dilutive. See Note 2 for additional information on the Long-Term Performance Equity Plan.
(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 in the computation of diluted net income per share.
(5)The Company did not have anti-dilutive shares for any periods presented.

6.    Inventories

Inventories consisted of the following:

(in thousands)
September 27, 2020 December 29, 2019
Finished products
$ 125,388  $ 142,363 
Manufacturing materials
45,425  45,267 
Plastic shells, plastic pallets and other inventories
36,960  38,296 
Total inventories
$ 207,773  $ 225,926 
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7.    Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consisted of the following:

(in thousands) September 27, 2020 December 29, 2019
Repair parts $ 28,342  $ 28,967 
Prepaid taxes 8,099  4,359 
Prepaid software 6,462  5,850 
Prepaid marketing 6,134  5,658 
Prepayments for sponsorship contracts 2,462  8,696 
Other prepaid expenses and other current assets 18,330  15,931 
Total prepaid expenses and other current assets $ 69,829  $ 69,461 

8.    Assets Held for Sale

The Company is in the process of integrating its Memphis, Tennessee manufacturing plant with its West Memphis, Arkansas operations, which is expected to greatly expand its West Memphis production capabilities and to reduce its overall production costs. Additionally, the Company is planning to open a new, automated distribution center in Whitestown, Indiana by the spring of 2021, which will allow the Company to consolidate its Anderson, Bloomington, Lafayette, Shelbyville and Speedway, Indiana warehousing and distribution operations into this one new facility. The increased capacity and automation in Whitestown will allow the Company to optimize its supply chain and to better serve its customers and consumers in Indiana and the surrounding areas.

As of September 27, 2020, certain locations of the Company, which are primarily those included in the Company’s supply chain optimization discussed above, met the accounting guidance criteria to be classified as assets held for sale. All locations classified as held for sale are included in the Nonalcoholic Beverages segment. There are not any liabilities held for sale associated with these locations and none meet the accounting guidance criteria to be classified as discontinued operations.

Following is a summary of the assets held for sale:

(in thousands) September 27, 2020
Land $ 2,017 
Buildings and leasehold and land improvements 5,019 
Assets held for sale $ 7,036 

An impairment of $1.6 million was recorded for these locations as a result of the net book value exceeding the agreed upon purchase price of one of the locations. This impairment was recorded within cost of sales on the condensed consolidated statements of operations and within impairment of property, plant and equipment on the condensed consolidated statements of cash flows.
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9.    Property, Plant and Equipment, Net

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

(in thousands) September 27, 2020 December 29, 2019 Estimated Useful Lives
Land $ 81,151  $ 76,860 
Buildings 232,828  223,500 
8-50 years
Machinery and equipment 370,116  355,575 
5-20 years
Transportation equipment 436,604  417,532 
4-20 years
Furniture and fixtures 97,298  92,059 
3-10 years
Cold drink dispensing equipment 471,607  489,050 
5-17 years
Leasehold and land improvements 150,800  145,341 
5-20 years
Software for internal use 129,429  128,792 
3-10 years
Construction in progress 37,234  29,369 
Total property, plant and equipment, at cost 2,007,067  1,958,078 
Less:  Accumulated depreciation and amortization 1,027,857  960,675 
Property, plant and equipment, net $ 979,210  $ 997,403 

10.    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 uses the following policies and assumptions to evaluate its 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.
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.
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.
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.
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.
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.

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

September 27, 2020 December 29, 2019
Weighted average remaining lease term:
Operating leases 9.7 years 10.2 years
Financing leases 13.6 years 4.8 years
Weighted average discount rate:
Operating leases 4.0  % 4.1  %
Financing leases 3.2  % 5.7  %

As of September 27, 2020, the Company had one real estate and two vehicle operating lease commitments that had not yet commenced. These lease commitments are expected to commence during the fourth quarter of 2020 and have lease terms of approximately three years. The additional lease liability associated with these lease commitments is expected to be $2.1 million.

Following is a summary of the Company’s leases within the condensed consolidated statements of operations:

Third Quarter First Nine Months
(in thousands) 2020 2019 2020 2019
Cost of sales impact:
Operating lease costs $ 1,397  $ 1,356  $ 4,167  $ 4,039 
Short-term and variable leases 3,711  2,814  9,368  7,393 
Depreciation expense from financing leases 643  353  1,350  1,060 
Total cost of sales impact $ 5,751  $ 4,523  $ 14,885  $ 12,492 
SD&A expenses impact:
Operating lease costs $ 4,846  $ 3,717  $ 14,225  $ 9,639 
Short-term and variable leases 271  838  1,612  2,676 
Depreciation expense from financing leases 772  1,139  1,914  3,415 
Total SD&A expenses impact $ 5,889  $ 5,694  $ 17,751  $ 15,730 
Interest expense, net impact:
Interest expense on financing lease obligations $ 613  $ 666  $ 1,120  $ 2,083 
Total interest expense, net impact $ 613  $ 666  $ 1,120  $ 2,083 
Total lease cost $ 12,253  $ 10,883  $ 33,756  $ 30,305 

The future minimum lease payments related to the Company’s leases include renewal options the Company has determined to be reasonably certain and exclude payments to landlords for real estate taxes and common area maintenance. Following is a summary of future minimum lease payments for all noncancelable operating leases and financing leases as of September 27, 2020:

(in thousands) Operating
Leases
Financing
Leases
Total
Remainder of 2020 $ 5,882  $ 1,760  $ 7,642 
2021 22,603  7,079  29,682 
2022 19,535  7,145  26,680 
2023 16,839  7,201  24,040 
2024 15,336  7,396  22,732 
Thereafter 91,125  63,421  154,546 
Total minimum lease payments including interest $ 171,320  $ 94,002  $ 265,322 
Less:  Amounts representing interest 31,220  17,005  48,225 
Present value of minimum lease principal payments 140,100  76,997  217,097 
Less:  Current portion of lease liabilities - operating and financing leases 18,812  5,814  24,626 
Noncurrent portion of lease liabilities - operating and financing leases $ 121,288  $ 71,183  $ 192,471 

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Following is a summary of future minimum lease payments for all noncancelable operating leases and financing leases as of December 29, 2019:

(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 the Company’s leases within the condensed consolidated statements of cash flows:

First Nine Months
(in thousands) 2020 2019
Cash flows from operating activities impact:
Operating leases $ 14,134  $ 13,576 
Interest payments on financing lease obligations 1,120  2,083 
Total cash flows from operating activities impact $ 15,254  $ 15,659 
Cash flows from financing activities impact:
Principal payments on financing lease obligations $ 4,428  $ 6,441 
Total cash flows from financing activities impact $ 4,428  $ 6,441 

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 27, 2020 December 29, 2019
Distribution agreements at cost
$ 951,677  $ 950,549 
Less: Accumulated amortization
92,674  74,453 
Distribution agreements, net
$ 859,003  $ 876,096 

12.    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 five to 12 years, consisted of the following:

(in thousands)
September 27, 2020 December 29, 2019
Customer lists and other identifiable intangible assets at cost
$ 25,288  $ 25,288 
Less: Accumulated amortization
12,024  10,645 
Customer lists and other identifiable intangible assets, net
$ 13,264  $ 14,643 

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13.    Other Accrued Liabilities

Other accrued liabilities consisted of the following:

(in thousands) September 27, 2020 December 29, 2019
Accrued insurance costs $ 47,775  $ 44,584 
Current portion of acquisition related contingent consideration 41,912  41,087 
Accrued marketing costs 35,906  34,947 
Employee and retiree benefit plan accruals 27,819  33,699 
Current portion of deferred payroll taxes under CARES Act 12,324  — 
Accrued taxes (other than income taxes) 9,076  6,366 
Checks and transfers yet to be presented for payment from zero balance cash accounts 3,140  20,199 
Current deferred proceeds from Territory Conversion Fee 2,286  2,286 
Commodity derivative instruments at fair market value 1,376  1,174 
Federal income taxes —  1,651 
All other accrued expenses 25,908  22,841 
Total other accrued liabilities $ 207,522  $ 208,834 

The Company has taken advantage of certain provisions of the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”), which allow an employer to defer the deposit and payment of the employer’s portion of social security taxes that would otherwise be due on or after March 27, 2020 and before January 1, 2021. The law permits an employer to deposit half of these deferred payments by December 31, 2021 and the other half by December 31, 2022. The Company intends to repay a portion of the deferred payroll taxes in the next 12 months and has classified this portion as current.

14.    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 commodity derivative instruments. The Company does not use commodity derivative instruments for trading or speculative purposes. These commodity derivative instruments are not designated as hedging instruments under GAAP and are used as “economic hedges” to manage certain commodity price risk. The Company uses several different financial institutions for commodity derivative instruments to minimize the concentration of credit risk. While the Company would be exposed to credit loss in the event of nonperformance by these counterparties, the Company does not anticipate nonperformance by these parties.

Commodity derivative instruments held by the Company are marked to market on a monthly basis and recognized in earnings consistent with the expense classification of the underlying hedged item. Settlements of commodity derivative instruments are included in cash flows from operating activities in the condensed consolidated statements of cash flows. The following table summarizes pre-tax changes in the fair values of the Company’s commodity derivative instruments and the classification of such changes in the condensed consolidated statements of operations:

Third Quarter First Nine Months
(in thousands) 2020 2019 2020 2019
Cost of sales $ 1,194  $ 487  $ 924  $ (482)
Selling, delivery and administrative expenses 575  (74) (949) 2,575 
Total gain (loss) $ 1,769  $ 413  $ (25) $ 2,093 

All commodity derivative instruments are recorded at fair value as either assets or liabilities in the condensed consolidated balance sheets. The Company has master agreements with the counterparties to its commodity derivative instruments that provide for net settlement of derivative transactions. Accordingly, the net amounts of derivative assets are recognized in either prepaid expenses and other current assets or other assets in the condensed consolidated balance sheets and the net amounts of derivative liabilities are recognized in either other accrued liabilities or other liabilities in the condensed consolidated balance sheets. The
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following table summarizes the fair values of the Company’s commodity derivative instruments and the classification of such instruments in the condensed consolidated balance sheets:

(in thousands) September 27, 2020 December 29, 2019
Assets:
Prepaid expenses and other current assets $ 1,049  $ 1,007 
Total assets $ 1,049  $ 1,007 
Liabilities:
Other accrued liabilities $ 1,376  $ 1,174 
Total liabilities $ 1,376  $ 1,174 

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

(in thousands) September 27, 2020 December 29, 2019
Gross commodity derivative instrument assets $ 1,049  $ 3,298 
Gross commodity derivative instrument liabilities 1,376  3,465 

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

(in thousands) September 27, 2020 December 29, 2019
Notional amount of outstanding commodity derivative instruments $ 73,010  $ 171,699 
Latest maturity date of outstanding commodity derivative instruments December 2020 December 2020

15.    Fair Values of Financial Instruments

GAAP requires assets and liabilities carried at fair value to be classified and disclosed in one of the following categories:

Level 1: Quoted market prices in active markets for identical assets or liabilities.
Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data.
Level 3: Unobservable inputs that are not corroborated by market data.

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

Financial Instrument
Fair Value
Level
Methods and Assumptions
Deferred compensation plan assets and liabilities Level 1 The fair value of the Company’s nonqualified deferred compensation plan for certain executives and other highly compensated employees is based on the fair values of associated assets and liabilities, which are held in mutual funds and are based on the quoted market values of the securities held within the mutual funds.
Commodity derivative instruments Level 2 The fair values of the Company’s commodity derivative instruments are based on current settlement values at each balance sheet date, which represent the estimated amounts the Company would have received or paid upon termination of these instruments. The Company’s credit risk related to the commodity derivative instruments is managed by requiring high standards for its counterparties and periodic settlements. The Company considers nonperformance risk in determining the fair values of commodity derivative instruments.
Nonpublic variable rate debt Level 2 The carrying amounts of the Company’s nonpublic variable rate debt approximate the 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 value of the Company’s acquisition related contingent consideration is based on internal forecasts and the weighted average cost of capital (“WACC”) derived from market data.
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The following tables summarize the carrying amounts and fair values by level of the Company’s deferred compensation plan, commodity derivative instruments, debt and acquisition related contingent consideration:

September 27, 2020
(in thousands)
Carrying
Amount
Total
Fair Value
Fair Value
Level 1
Fair Value
Level 2
Fair Value
Level 3
Assets:
Deferred compensation plan assets $ 46,602  $ 46,602  $ 46,602  $ —  $ — 
Commodity derivative instruments 1,049  1,049  —  1,049  — 
Liabilities:
Deferred compensation plan liabilities 46,602  46,602  46,602  —  — 
Commodity derivative instruments 1,376  1,376  —  1,376  — 
Nonpublic variable rate debt 239,882  240,000  —  240,000  — 
Nonpublic fixed rate debt 374,747  402,500  —  402,500  — 
Public debt securities 348,238  390,200  —  390,200  — 
Acquisition related contingent consideration 448,653  448,653  —  —  448,653 

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 derivative instruments 1,007  1,007  —  1,007  — 
Liabilities:
Deferred compensation plan liabilities 42,543  42,543  42,543  —  — 
Commodity derivative instruments 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 was valued using a probability weighted discounted cash flow model based on internal forecasts and the WACC derived from market data, which are considered Level 3 inputs. Each reporting period, the 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 applicable distribution assets acquired from CCR, which is generally 40 years. As a result, the fair value of the acquisition related contingent consideration liability is impacted by the Company’s WACC, management’s estimate of the 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 liability and could materially impact the amount of non-cash income or expense recorded each reporting period.

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

Third Quarter First Nine Months
(in thousands) 2020 2019 2020 2019
Beginning balance - Level 3 liability $ 441,113  $ 412,450  $ 446,684  $ 382,898 
Payments of acquisition related contingent consideration (11,468) (5,948) (31,999) (18,784)
Reclassification to current payables (800) (60) (1,100) (940)
Increase in fair value 19,808  18,749  35,068  62,017 
Ending balance - Level 3 liability $ 448,653  $ 425,191  $ 448,653  $ 425,191 

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The increase in the fair value of the acquisition related contingent consideration liability during the first nine months of 2020 was primarily driven by changes in future cash flow projections of the distribution territories subject to sub-bottling fees, partially offset by an increase in the discount rate used to calculate the fair value. The increase in the fair value of the acquisition related contingent consideration liability during the first nine months of 2019 was primarily driven by a decrease in the discount rate used to calculate the fair value and changes in future cash flow projections of the distribution territories subject to sub-bottling fees. These fair value adjustments were recorded in other 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 $28 million to $53 million.

16.    Income Taxes

The Company’s effective income tax rate, calculated by dividing income tax expense by income before income taxes, was 25.6% for the first nine months of 2020 and 28.7% for the first nine months of 2019. The decrease in the effective income tax rate was primarily driven by improved financial results.

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 26.8% for the first nine months of 2020 and 33.4% for the first nine months of 2019.

The Company had uncertain tax positions, including accrued interest, of $3.4 million on September 27, 2020 and $2.5 million on December 29, 2019, all of which would affect the Company’s effective income tax rate if recognized. While it is expected the amount of uncertain tax positions may change in the next 12 months, the Company does not expect such change would have a 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 taxing authorities.

17.    Pension and Postretirement Benefit Obligations

Pension Plans

There are two 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 amounts currently deductible for income tax purposes.

The components of net periodic pension cost were as follows:

Third Quarter First Nine Months
(in thousands) 2020 2019 2020 2019
Service cost $ 1,659  $ 1,207  $ 4,976  $ 3,620 
Interest cost 2,760  3,063  8,280  9,188 
Expected return on plan assets (3,382) (2,574) (10,148) (7,722)
Recognized net actuarial loss 1,189  901  3,568  2,702 
Amortization of prior service cost 14  17 
Net periodic pension cost $ 2,231  $ 2,602  $ 6,690  $ 7,805 

The Company contributed $16.3 million to the two Company-sponsored pension plans during the first nine months of 2020 and does not anticipate making additional contributions during the fourth quarter of 2020.

Postretirement Benefits

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

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

Third Quarter First Nine Months
(in thousands) 2020 2019 2020 2019
Service cost $ 376  $ 389  $ 1,128  $ 1,167 
Interest cost 504  694  1,511  2,080 
Recognized net actuarial loss 88  196  263  587 
Amortization of prior service cost —  (324) —  (970)
Net periodic postretirement benefit cost $ 968  $ 955  $ 2,902  $ 2,864 

18.    Other Liabilities

Other liabilities consisted of the following:

(in thousands) September 27, 2020 December 29, 2019
Noncurrent portion of acquisition related contingent consideration $ 406,741  $ 405,597 
Accruals for executive benefit plans 140,795  141,380 
Noncurrent deferred proceeds from Territory Conversion Fee 81,162  82,877 
Noncurrent deferred proceeds from Legacy Facilities Credit 28,970  29,569 
Noncurrent portion of deferred payroll taxes under CARES Act 12,324  — 
Other 9,369  9,143 
Total other liabilities
$ 679,361  $ 668,566 

19.    Long-Term Debt

Following is a summary of the Company’s long-term debt:

(in thousands) Maturity
Date
Interest
Rate
Interest
Paid
Public or
Nonpublic
September 27,
2020
December 29,
2019