Coca-Cola Consolidated(COKE) - 2022 Q4 - Annual Report

FORM 10-K Filing Information This report is the annual report of Coca-Cola Consolidated, Inc. for the fiscal year ended December 31, 2022, with the company being a Delaware corporation and a large accelerated filer that has submitted all required reports - The company is a Delaware corporation and a large accelerated filer as defined by the U.S. Securities and Exchange Commission (SEC)[25] - The company has filed all required reports within the past 12 months and has complied with filing requirements within the past 90 days[25] Company Basic Information | Metric | Information | | :--- | :--- | | Company Name | COCA-COLA CONSOLIDATED, INC. | | Jurisdiction of Incorporation | Delaware | | Employer Identification Number | 56-0950585 | | Headquarters Address | 4100 Coca-Cola Plaza Charlotte, NC 28211 | | Telephone Number | (980) 392-8298 | | Trading Symbol | COKE | | Listing Market | The Nasdaq Global Select Market | | Market Value of Non-Affiliate Common Stock as of July 1, 2022 | $3,385,395,472 | | Common Stock Outstanding as of January 27, 2023 | 8,368,993 | | Class B Common Stock Outstanding as of January 27, 2023 | 1,004,696 | TABLE OF CONTENTS This report's table of contents lists all chapters and their corresponding page numbers, covering business, risk factors, financial statements, executive information, and exhibits across Part I, Part II, Part III, and Part IV - The table of contents provides a structural overview of the report, including major sections such as business, risk factors, legal proceedings, executive information, financial statements, internal controls, and exhibits[29][30][7][8] PART I Item 1. Business Coca-Cola Consolidated, Inc. is the largest Coca-Cola bottler in the United States, primarily distributing, marketing, and producing non-alcoholic beverages across 14 states and the District of Columbia - The company is the largest Coca-Cola bottler in the United States, engaged in the manufacturing and distribution of non-alcoholic beverages since 1902[12] - Approximately 86% of bottle/can sales volume comes from The Coca-Cola Company's products, while also distributing products from other beverage companies like Keurig Dr Pepper Inc. and Monster Energy Company[12][17][476] - The company's core business objectives are commercial execution, revenue management, supply chain optimization, and cash flow generation[304][326][327][328] Introduction - The company distributes, markets, and manufactures non-alcoholic beverages across 14 states and the District of Columbia, making it the largest Coca-Cola bottler in the United States[12] - The company's purpose is to honor God in all it does, serve others, pursue excellence, and grow profitably[12][64] Ownership - As of December 31, 2022, J. Frank Harrison, III (Chairman and Chief Executive Officer) controlled approximately 71% of the company's total voting power[32][151][536] - As of December 31, 2022, The Coca-Cola Company owned common stock representing approximately 9% of the company's total voting power[32][563] Beverage Products - The company offers both sparkling and still beverages to meet consumer demand, with Coca-Cola as the primary sparkling product and still beverages including energy drinks, bottled water, ready-to-drink teas, coffees, enhanced water, juices, and sports drinks[33][444] - Sales are categorized into bottle/can sales (plastic bottles and aluminum cans) and other sales (to other Coca-Cola bottlers, fountain sales, transportation revenue, and equipment maintenance revenue)[34][389][547][791] Major Product List | Sparkling Beverages | Still Beverages | Other Company Licensed Products | | :--- | :--- | :--- | | Barqs Root Beer | AHA | Diet Dr Pepper | | Cherry Coca-Cola | BODYARMOR products | Diet Sundrop | | Cherry Coca-Cola Zero | Core Power | Dr Pepper | | Coca-Cola | Dasani | Dunkin' Donuts products | | Coca-Cola Vanilla | fairlife products | Full Throttle | | Coca-Cola Zero Sugar | glacéau smartwater | Monster Energy products | | Diet Coke | glacéau vitaminwater | NOS® | | Fanta | Gold Peak Tea | Reign products | | Fanta Zero | Minute Maid Juices To Go | Sundrop | | Fresca | Peace Tea | | | Mello Yello | POWERade | | | Mello Yello Zero | POWERade Zero | | | Minute Maid Sparkling | Tum-E Yummies | | | Pibb Xtra | | | | Seagrams Ginger Ale | | | | Sprite | | | | Sprite Zero Sugar | | | Beverage Distribution and Manufacturing Agreements - The company has a Comprehensive Beverage Agreement (CBA) with The Coca-Cola Company, granting exclusive rights to distribute, promote, market, and sell Coca-Cola Company authorized brands in specific territories, requiring quarterly acquisition-related sub-bottling payments[15][249][486] - Regional Manufacturing Agreements (RMAs) authorize the company to produce Coca-Cola Company branded beverages at its manufacturing facilities for self-distribution or sale to other U.S. Coca-Cola bottlers, with prices unilaterally determined by The Coca-Cola Company[16] - The company also holds manufacturing and/or distribution agreements with other beverage companies like Dr Pepper and Monster Energy, which accounted for 14% of total bottle/can sales volume in 2022[17] - The company is a member of the National Product Supply Group (NPSG), participating in strategic infrastructure investments, network optimization, and new product/packaging planning within the Coca-Cola system[39][44] - The company is a member of CONA Services LLC, utilizing the Coke One North America system for operational efficiency and uniformity, for which it pays service fees[71][543][571] Markets Served and Facilities - As of January 27, 2023, the company's principal properties include its corporate headquarters, subsidiary headquarters, 60 distribution centers, and 10 manufacturing facilities[4] - The company owns 47 distribution centers and 9 manufacturing facilities, and leases its corporate headquarters, subsidiary headquarters, 13 distribution centers, and one manufacturing facility[4] - As of December 31, 2022, the company served approximately 60 million consumers across its five primary markets[49] Manufacturing Facility Utilization (as of December 31, 2022) | Location | Utilization | | :--- | :--- | | Roanoke, VA | 96 % | | Charlotte, NC | 89 % | | Nashville, TN | 89 % | | Baltimore, MD | 83 % | | West Memphis, AR | 82 % | | Indianapolis, IN | 77 % | | Cincinnati, OH | 75 % | | Silver Spring, MD | 70 % | | Sandston, VA | 68 % | | Twinsburg, OH | 59 % | - In 2022, the company acquired the Snyder Production Center in Charlotte, North Carolina, which includes a distribution center/manufacturing facility combination[197][354][572] Raw Materials - The company procures all plastic bottles from two jointly owned manufacturing cooperatives, Southeastern Container and Western Container, and all aluminum cans from two domestic suppliers[49][98][717] - The company faces price risks for commodities such as aluminum, corn, and PET resin, which impact finished product production costs, and manages these risks through commodity hedging and risk mitigation programs[50][95][742] Customers and Marketing - The company's products are sold and distributed through various channels, including direct sales to grocery stores, mass merchandisers, club stores, convenience stores, and drugstores, as well as to immediate consumption outlets like restaurants, schools, amusement parks, and vending machines[77][477] Key Customer Sales Volume and Net Sales Percentage (2022) | Customer | Bottle/Can Sales Volume % | Net Sales % | | :--- | :--- | :--- | | Wal-Mart Stores, Inc. | 20 % | 16 % | | The Kroger Company | 12 % | 10 % | | Total | 32 % | 26 % | - The company invests significantly in local sales promotions and benefits from marketing funding support provided by The Coca-Cola Company and other beverage companies, though this support is not mandatory[53][79][109][334] - In 2022, the company donated approximately $37 million to various charities and donor-advised funds to support the communities it serves[80][361] Seasonality - The seasonality of the company's business is primarily characterized by higher product sales volumes in the second and third fiscal quarters, which are typically associated with warmer weather[81] Competition - The non-alcoholic beverage industry is highly competitive, with key competitors including local bottlers and distributors of PepsiCo, Inc. and Dr Pepper products, as well as bottlers and distributors of private label beverages[82] - Competition primarily occurs in new brand and product introductions, point-of-sale promotions, new vending and distribution equipment, packaging changes, pricing, sales promotions, product quality, retail space management, customer service, distribution frequency, and advertising[57] Government Regulation - The company's operations are subject to various laws and regulations from federal, state, and local government agencies, covering product production, storage, distribution, sale, advertising, marketing, packaging, labeling, content, quality, and safety[58][83][132] - Under the U.S. Soft Drink Interbrand Competition Act, the company is permitted to have exclusive manufacturing, distribution, and sales rights for soft drink products within specific geographic territories[59] - Some jurisdictions have implemented or are considering taxes, labeling requirements, or other restrictions on certain products, ingredients, or packaging, such as sugar-sweetened beverages or single-use plastics[61][85][106][107] - The company must also comply with federal, state, and local environmental laws, including those related to water consumption and treatment, wastewater discharge, and air emissions[62][87] Human Capital Resources - As of December 31, 2022, the company employed approximately 17,000 teammates, with about 15,000 full-time and 2,000 part-time[114] - Approximately 13% of employees are covered by collective bargaining agreements, and the company has been successful in renewing these agreements without significant operational disruption[114][181][719] - The company is committed to attracting, developing, and retaining a high-quality, diverse workforce of servant leaders, achieving talent goals through key strategies in recruiting, onboarding, and learning and development[65][89][90][91] - The company assesses employee satisfaction and engagement through annual employee engagement surveys and develops action plans based on results to improve job performance, satisfaction, and retention[67] - The company is dedicated to protecting the health and safety of its employees, reducing workplace injuries and risks through safety committees, company policies, and training programs[92][118] - The company has a Diversity Working Group, led by the President and Chief Operating Officer, focused on fostering diversity across four pillars: communication, accountability, empowerment, and partnership[68][119] Exchange Act Reports - The company provides free access to its annual reports (Form 10-K), quarterly reports (Form 10-Q), current reports (Form 8-K), and proxy statements through its investor relations website[69][93] Item 1A. Risk Factors The company faces various business and macroeconomic risks, including fluctuating raw material and fuel costs, supply chain disruptions, reliance on key customers, changing consumer preferences, tightening government regulations, and risks associated with Coca-Cola system agreements - Fluctuations in raw material costs (such as plastic bottles, aluminum cans, PET resin, corn syrup) and fuel costs, along with supply chain disruptions, could adversely affect the company's profitability[95][96][121] - The company's sales are highly concentrated with a few major customers, such as Wal-Mart Stores, Inc. and The Kroger Company, and the loss of these customers could materially adversely affect the company's performance[159][166] - Changes in consumer preferences (e.g., concerns about product safety, sustainability, artificial ingredients, and obesity) and government regulations (e.g., taxes on sugar-sweetened beverages, restrictions on school sales) could lead to decreased product demand and impaired profitability[100][104][127][130][132][133] - The company relies on marketing funding support from The Coca-Cola Company and other beverage companies, and a decrease in support levels or failure to meet performance requirements could adversely affect the business[109][136] - The company's increasing reliance on information technology systems means that technical failures or cyberattacks could disrupt operations, damage reputation, and incur significant costs[146][152][153][154] - A tight labor market, high employee turnover, and wage inflation could lead to increased labor costs, and the inability to attract and retain sufficient frontline employees could adversely affect business operations[103][116][131][176][177] Risks Related to Our Business - Raw material costs (such as plastic bottles, aluminum cans, PET resin, carbon dioxide, and high fructose corn syrup) and fuel costs face significant price fluctuations, which may be exacerbated by increased demand, supply constraints, or high inflation[95][97][121] - The company relies on a few suppliers for key raw materials (such as plastic bottles and aluminum cans), and a supplier's inability to meet demand could result in unfulfilled customer orders and production disruptions[98][123] - The company relies on external sources for finished products, facing risks related to product quality, availability, price fluctuations, and insufficient production capacity, which could impact profitability and customer relationships[99][126] - Changes in consumer perceptions and preferences (e.g., concerns about product safety, sustainability, artificial ingredients, and obesity) could reduce product demand and profitability[100][127][128][130] - Changes in government regulation of non-alcoholic beverages (e.g., obesity, public health, artificial ingredients, and product safety) could reduce product demand and profitability[104][105][106][107][108][132][133][135] - Marketing funding support provided by The Coca-Cola Company and other beverage companies is not mandatory, and a decrease in its level or the company's failure to meet performance requirements could adversely affect the business[109][136][137] - The company's participation in Coca-Cola system governance entities (such as NPSG and CONA) means that decisions made by these entities may not align with the company's individual decisions, or system failures could impact company operations[110][111][138] - Failure to meet the requirements of beverage agreements (CBA and RMA) could result in the loss of distribution and manufacturing rights[140][141][142] - The valuation of the acquisition-related contingent consideration liability (valued at $541.5 million as of December 31, 2022) is subject to changes in future cash flow projections and the discount rate (WACC), which could materially impact financial condition and operating results[143][144][161][249][250][251] - Terms in the CBA and RMA with The Coca-Cola Company may delay or prevent a change in control of the company or the sale of Coca-Cola distribution or manufacturing operations[148][149] - The concentration of the company's capital stock ownership in Chairman and Chief Executive Officer J. Frank Harrison, III, limits the influence of other shareholders over company affairs[139][150][151] General Risk Factors - Technical failures or cyberattacks could disrupt company operations, damage reputation, and negatively impact financial condition and operating results[146][152][153][154][163] - Adverse macroeconomic conditions (such as high inflation or economic slowdowns) could temporarily reduce product demand, lead to a shift in product mix towards lower-margin products, and increase the risk of customer delinquencies and bankruptcies[155] - The company's sales are highly concentrated with a few major customers (Wal-Mart Stores, Inc. and The Kroger Company), and any changes in these customer relationships or ineffective marketing strategies could affect sales volume and net sales[159][165][166][170] - The company's debt level (totaling $598.8 million as of December 31, 2022) requires a significant portion of future cash flows for principal and interest payments, potentially limiting its operational flexibility and ability to obtain additional financing[169][172][175] - Failure to attract, train, and retain qualified employees, as well as rising labor costs and other labor issues, could adversely affect the company's reputation, business, and financial performance[176][177][179][180][181] - Changes in tax laws, disagreements with tax authorities, or additional tax burdens could materially adversely affect the company's financial condition and operating results[182][184][192][193] - Litigation or legal proceedings could expose the company to significant liabilities and harm its reputation[1][194] - Natural disasters, changing weather patterns, and adverse weather could negatively impact the company's revenue and profitability, and climate change may also lead to increased energy, transportation, and raw material costs[2][185][186][195] Item 1B. Unresolved Staff Comments As of the filing date of this report, the company has no unresolved staff comments - The company has no unresolved staff comments[3][187] Item 2. Properties The company's primary properties include its corporate headquarters, subsidiary headquarters, 60 distribution centers, and 10 manufacturing facilities, most of which are company-owned - As of January 27, 2023, the company's principal properties include its corporate headquarters, subsidiary headquarters, 60 distribution centers, and 10 manufacturing facilities[4] - The company owns 47 distribution centers and 9 manufacturing facilities, and leases its corporate headquarters, subsidiary headquarters, 13 distribution centers, and one manufacturing facility[4] - The company believes all facilities are in good condition, sufficient for current operational needs, and have the production capacity to meet current operating requirements[189] Manufacturing Facility Utilization (as of December 31, 2022) | Location | Utilization | | :--- | :--- | | Roanoke, VA | 96 % | | Charlotte, NC | 89 % | | Nashville, TN | 89 % | | Baltimore, MD | 83 % | | West Memphis, AR | 82 % | | Indianapolis, IN | 77 % | | Cincinnati, OH | 75 % | | Silver Spring, MD | 70 % | | Sandston, VA | 68 % | | Twinsburg, OH | 59 % | - In 2022, the company's wholly-owned subsidiary, CCBCC Operations, LLC, acquired the Snyder Production Center, which includes a distribution center/manufacturing facility combination[197] Item 3. Legal Proceedings The company is involved in various claims and legal proceedings in the ordinary course of business, with management believing their ultimate disposition will not materially adversely affect the company's financial condition, results of operations, or cash flows - The company is involved in various claims and legal proceedings in the ordinary course of business, including advertising and marketing practices, product claims and labeling, intellectual property and commercial disputes, and environmental and employment matters[22][194] - Management believes the ultimate disposition of these matters will not materially adversely affect the company's financial condition, results of operations, or cash flows, and no material losses beyond recorded amounts are reasonably possible[22][194] Item 4. Mine Safety Disclosures This item is not applicable - This item is not applicable[14] Information About Our Executive Officers This section provides information on the company's key executive officers, including their names, ages, positions, and principal occupations for the past five years Company Executive Officer List | Name | Position | Age | | :--- | :--- | :--- | | J. Frank Harrison, III | Chairman and Chief Executive Officer | 68 | | David M. Katz | President and Chief Operating Officer | 54 | | F. Scott Anthony | Executive Vice President and Chief Financial Officer | 59 | | Matthew J. Blickley | Senior Vice President, Financial Planning and Chief Accounting Officer | 41 | | Robert G. Chambless | Executive Vice President, Franchise Beverage Operations | 57 | | Donell W. Etheridge | Executive Vice President, Product Supply Operations | 54 | | Morgan H. Everett | Vice Chairman of the Board | 41 | | E. Beauregarde Fisher III | Executive Vice President, General Counsel and Secretary | 54 | | Christine A. Motherwell | Senior Vice President, Human Resources | 44 | | Jeffrey L. Turney | Senior Vice President, Strategy and Business Transformation | 55 | - J. Frank Harrison, III has served as Chief Executive Officer since May 1994 and as Chairman of the Board since December 1996[287] - Jeffrey L. Turney has informed the company of his retirement during the second quarter of fiscal year 2023[316] PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on the Nasdaq Global Select Market, while Class B common stock has no public trading market but is convertible 1:1 into common stock - The company's common stock trades on the Nasdaq Global Select Market under the symbol COKE; Class B common stock has no public trading market but is convertible 1:1 into common stock[318][530][556] - As of January 27, 2023, there were 1,008 registered holders of common stock and 6 registered holders of Class B common stock[25][319] - On December 7, 2022, the company's Board of Directors declared an increase of 100% in the regular quarterly cash dividend for common stock and Class B common stock, from $0.25 to $0.50 per share, and a special cash dividend of $3.00 per share[384][404] - Since 1994, common stock and Class B common stock have had equal rights in all dividends[558] Item 6. [Reserved] This item is reserved - This item is reserved[321] Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations In fiscal year 2022, net sales grew by 11.5% to $6.20 billion, driven by product price increases despite flat sales volume, with significant increases in gross profit, operating income, and net income 2022 Fiscal Year Key Financial Data (vs. 2021) | Metric | 2022 (thousands of dollars) | 2021 (thousands of dollars) | Change (thousands of dollars) | Change % | | :--- | :--- | :--- | :--- | :--- | | Net Sales | 6,200,957 | 5,562,714 | 638,243 | 11.5 % | | Cost of Sales | 3,923,003 | 3,608,527 | 314,476 | 8.7 % | | Gross Profit | 2,277,954 | 1,954,187 | 323,767 | 17.0 % | | Selling, Delivery and Administrative Expenses | 1,636,907 | 1,515,016 | 121,891 | 8.0 % | | Operating Income | 641,047 | 439,171 | 201,876 | 46.0 % | | Net Income | 430,158 | 189,580 | 240,578 | 127.0 % | | Cash Flow from Operating Activities | 554,506 | 521,755 | 32,751 | 6.3 % | | Capital Expenditures | 298,611 | 155,693 | 142,918 | 91.8 % | | Debt Repayment | 125,000 | 287,500 | (162,500) | -56.5 % | - In 2022, net sales growth was primarily driven by an increase of approximately $610 million in average bottle/can sales price, with sparkling and still beverage net sales growing by 16.6% and 8.5% respectively[330][301][357] - Selling, delivery, and administrative expenses as a percentage of net sales decreased from 27.2% in 2021 to 26.4% in 2022, primarily due to increased labor costs and charitable contributions[302][335][361] - Net other expenses decreased by $109.4 million, primarily due to a $114 million decrease in the fair value change of acquisition-related contingent consideration liability[362] - The company expects to incur approximately $117 million in non-cash expenses in 2023 due to the termination of its primary pension plan[337] - The company invested $298.6 million in capital expenditures in 2022 to optimize its supply chain and invest in future growth, with projected capital expenditures between $250 million and $300 million in 2023[303][355] - The company repaid $125 million of its senior notes early in 2022 to reduce debt obligations and strengthen its balance sheet[350][409] Executive Summary - Net sales grew by 11% to $6.20 billion in 2022, primarily driven by product price increases, with sales volume remaining flat[301] - Gross profit increased by 17% to $2.28 billion in 2022, with gross margin improving by 160 basis points to 36.7%, benefiting from product price increases, stable sales volume, and a modest decline in commodity prices[324] - Operating income increased by $201.9 million to $641 million, and net income increased by $240.6 million to $430.2 million in 2022[325] - Cash flow from operating activities was $554.5 million in 2022, with the company investing $298.6 million in capital expenditures and reducing outstanding debt by $125 million[303] Areas of Emphasis - The company focuses on commercial execution, revenue management, supply chain optimization, and cash flow generation[304][326][327][328] - Supply chain optimization includes consolidating warehouse and distribution operations, increasing capacity, expanding production capabilities, reducing production costs, and increasing automation to better serve customers[306] Results of Operations Net Sales by Product Category (2022 vs. 2021) | Product Category | 2022 (thousands of dollars) | 2021 (thousands of dollars) | Change % | | :--- | :--- | :--- | :--- | | Sparkling Beverage Bottle/Can Sales | 3,521,273 | 3,020,887 | 16.6 % | | Still Beverage Bottle/Can Sales | 2,020,100 | 1,861,162 | 8.5 % | | Total Bottle/Can Sales | 5,541,373 | 4,882,049 | 13.5 % | | Sales to Other Coca-Cola Bottlers | 349,837 | 347,185 | 0.8 % | | Fountain Sales and Other | 309,747 | 333,480 | (7.1) % | | Total Other Sales | 659,584 | 680,665 | (3.1) % | | Total Net Sales | 6,200,957 | 5,562,714 | 11.5 % | Bottle/Can Sales Volume by Product Category (2022 vs. 2021) | Product Category | 2022 (thousands of cases) | 2021 (thousands of cases) | Change % | | :--- | :--- | :--- | :--- | | Sparkling Beverages | 255,514 | 254,028 | 0.6 % | | Still Beverages | 110,601 | 112,008 | (1.3) % | | Total Bottle/Can Sales Volume | 366,115 | 366,036 | — % | - Cost of sales increased by $314.5 million (8.7%) in 2022, primarily due to an approximate $365 million increase in input costs such as aluminum, PET resin, and transportation, largely driven by ongoing inflation and changes in product mix[359] - Selling, delivery, and administrative expenses increased by $121.9 million (8.0%) in 2022, with approximately $75 million due to increased wage expenses from investments in employees and approximately $15 million due to increased commitments to charities[335][361] - Net interest expense decreased by $8.7 million (25.9%) in 2022, primarily due to a lower average debt balance and increased interest income from higher cash and cash equivalents balances and improved yields[312] - Net other expenses decreased by $109.4 million in 2022, mainly due to a $114 million decrease in the fair value change of acquisition-related contingent consideration liability[362] - Income tax expense increased by $79.4 million (121.0%) to $144.9 million in 2022, primarily due to higher income before taxes[339] - The company segments its business into non-alcoholic beverages and "all other" operating segments, with non-alcoholic beverages accounting for the vast majority of net sales and operating income[341][342][597][598][599] Adjusted Results (Non-GAAP) 2022 Fiscal Year Adjusted Results (Non-GAAP) | Metric | GAAP Reported Results (thousands of dollars) | Adjustments (thousands of dollars) | Non-GAAP Adjusted Results (thousands of dollars) | Adjusted Change % vs. 2021 | | :--- | :--- | :--- | :--- | :--- | | Gross Profit | 2,277,954 | 3,866 | 2,281,820 | 16.5 % | | Selling, Delivery and Administrative Expenses | 1,636,907 | 354 | 1,637,261 | 8.0 % | | Operating Income | 641,047 | 3,512 | 644,559 | 45.7 % | | Income Before Taxes | 575,087 | 35,813 | 610,900 | | | Net Income | 430,158 | 26,949 | 457,107 | | | Basic Net Income Per Share | 45.88 | 2.87 | 48.75 | | - Non-GAAP adjustments include fair value adjustments for acquisition-related contingent consideration, fair value adjustments for commodity derivative instruments, and supply chain optimization expenses[345][346][369] Financial Condition - As of December 31, 2022, total assets increased by $264 million to $3.71 billion, and net working capital increased by $98.8 million to $340.6 million[347] - Changes in net working capital primarily include a $55.3 million increase in cash and cash equivalents, a $59.8 million increase in accounts receivable, a $44.7 million increase in inventories, a $32.4 million increase in accounts payable, and a $28.5 million decrease in other accrued liabilities[348] Liquidity and Capital Resources - The company's capital sources include cash flow from operating activities, available credit facilities, and the issuance of debt and equity securities, with $197.6 million in cash and cash equivalents as of December 31, 2022[349] Long-Term Debt (as of December 31, 2022) | Debt Type | Maturity Date | 2022 (thousands of dollars) | 2021 (thousands of dollars) | | :--- | :--- | :--- | :--- | | Senior Notes | 2/27/2023 | — | 125,000 | | Senior Bonds | 11/25/2025 | 349,974 | 349,966 | | Revolving Credit Facility | 7/9/2026 | — | — | | Senior Notes | 10/10/2026 | 100,000 | 100,000 | | Senior Notes | 3/21/2030 | 150,000 | 150,000 | | Debt Issuance Costs | | (1,157) | (1,523) | | Total Long-Term Debt | | 598,817 | 723,443 | - In 2022, S&P upgraded the company's credit rating from BBB (positive outlook) to BBB+ (stable outlook)[351][373][404] Cash Flow Summary (2022 vs. 2021) | Category | 2022 (thousands of dollars) | 2021 (thousands of dollars) | | :--- | :--- | :--- | | Cash Flow from Operating Activities | 554,506 | 521,755 | | Cash Flow from Investing Activities | (324,985) | (161,943) | | Cash Flow from Financing Activities | (174,187) | (272,291) | | Net Increase in Cash | 55,334 | 87,521 | - Cash outflow from investing activities in 2022 was $325 million, primarily due to $298.6 million in property, plant, and equipment additions and $30.1 million for the acquisition of additional BODYARMOR distribution rights[216][354] - The company expects annual payments for acquisition-related contingent consideration in 2023 to range between $42 million and $74 million[379][645] - The company has significant purchasing obligations with Southeastern Container and South Atlantic Canners, Inc. (SAC), with projected purchases from SAC of $143 million in 2023[217][411][736] - The company uses commodity derivative instruments to manage commodity price risk, with a net negative impact of $13.055 million in 2022[385][386][414] - The company does not anticipate the COVID-19 pandemic to have a material impact on its liquidity or access to capital in 2023[218][414] Discussion of Critical Accounting Estimates - The company makes several estimates and assumptions in preparing its consolidated financial statements regarding operating results and financial condition, and actual results may differ significantly from these estimates[415][505] - For revenue recognition, bottle/can sales, sales to other Coca-Cola bottlers, and fountain sales are recognized when control transfers to the customer (typically upon delivery), while equipment maintenance and freight service revenue are recognized as services are completed or deliveries occur[389][390][519][548][574][782][791] - The company performs recoverability and impairment tests for long-lived assets, goodwill, and other intangible assets, which involve significant management judgment and assumptions regarding the fair value of assets[392][393][420][511][756] - The fair value of acquisition-related contingent consideration liability is estimated using a probability-weighted discounted cash flow model based on internal projections and the weighted average cost of capital (WACC), where a 10 basis point change in WACC could result in an approximate $5 million change in the liability[396][423][453][516][785][790] - The company's estimates for pension and postretirement benefit obligations rely on key assumptions such as discount rates, expected return on plan assets, healthcare cost trends, and mortality rates, with the termination of the primary pension plan expected to result in a significant non-cash expense in 2023[221][337][399][401][425][426][428][455][456][633][757][763] Item 7A. Quantitative and Qualitative Disclosures About Market Risk The company faces interest rate and commodity price risks, managing the latter through derivative instruments, with a 10% commodity price increase potentially raising costs by $74 million over 12 months - The company faces interest rate risk, primarily impacting its revolving credit facility, contingent consideration liability, and pension and postretirement medical benefits[173][432][785] - The company faces commodity price risk related to raw materials such as aluminum, corn, and PET resin, as well as fuel (crude oil) used for product transportation[50][433][742] - The company manages commodity price risk through commodity derivative instruments, estimating that a 10% increase in commodity market prices could lead to an aggregate cost increase of approximately $74 million over the next 12 months[433][463][464][792] - The annual U.S. inflation rate, as measured by the Consumer Price Index, was 6.5% in 2022, 7.0% in 2021, and 1.4% in 2020[434] Item 8. Financial Statements and Supplementary Data This section includes the company's consolidated financial statements for the fiscal year ended December 31, 2022, and the preceding two fiscal years, along with management's report on internal control and the independent auditor's report - This section provides the company's consolidated financial statements for the fiscal year ended December 31, 2022, and the preceding two fiscal years, including statements of operations, comprehensive income, balance sheets, cash flows, and changes in stockholders' equity[435][438][441][442][466][469][471][472][474][751] - Management assessed and concluded that the company's internal control over financial reporting was effective as of December 31, 2022[210][725] - PricewaterhouseCoopers LLP, the independent registered public accounting firm, issued an unqualified opinion on the company's consolidated financial statements and the effectiveness of its internal control[212][751] - The valuation of acquisition-related contingent consideration liability was identified as a critical audit matter due to the significant management judgment involved in estimating fair value and the complexity for auditors in performing procedures and evaluating assumptions[215][249][250][251][755][781] Consolidated Statements of Operations Consolidated Statements of Operations (2022, 2021, 2020) | (thousands of dollars) | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Net Sales | 6,200,957 | 5,562,714 | 5,007,357 | | Cost of Sales | 3,923,003 | 3,608,527 | 3,238,448 | | Gross Profit | 2,277,954 | 1,954,187 | 1,768,909 | | Selling, Delivery and Administrative Expenses | 1,636,907 | 1,515,016 | 1,455,531 | | Operating Income | 641,047 | 439,171 | 313,378 | | Net Interest Expense | 24,792 | 33,449 | 36,735 | | Net Other Expenses | 41,168 | 150,573 | 35,603 | | Income Before Taxes | 575,087 | 255,149 | 241,040 | | Income Tax Expense | 144,929 | 65,569 | 58,943 | | Net Income | 430,158 | 189,580 | 182,097 | | Net Income Attributable to Coca-Cola Consolidated, Inc. | 430,158 | 189,580 | 172,493 | | Basic Net Income Per Share (Common Stock) | 45.88 | 20.23 | 18.40 | | Diluted Net Income Per Share (Common Stock) | 45.74 | 20.17 | 18.30 | Consolidated Statements of Comprehensive Income Consolidated Statements of Comprehensive Income (2022, 2021, 2020) | (thousands of dollars) | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Net Income | 430,158 | 189,580 | 182,097 | | Other Comprehensive Income (Loss), Net of Tax | 15,626 | 18,590 | (4,051) | | Comprehensive Income | 445,784 | 208,170 | 178,046 | | Comprehensive Income Attributable to Coca-Cola Consolidated, Inc. | 445,784 | 208,170 | 168,442 | Consolidated Balance Sheets Consolidated Balance Sheets (as of December 31, 2022 and December 31, 2021) | (thousands of dollars) | 2022-12-31 | 2021-12-31 | | :--- | :--- | :--- | | Assets | | | | Cash and Cash Equivalents | 197,648 | 142,314 | | Trade Accounts Receivable | 532,047 | 472,270 | | Inventories | 347,545 | 302,851 | | Property, Plant and Equipment, Net | 1,183,730 | 1,030,688 | | Goodwill | 165,903 | 165,903 | | Distribution Agreements, Net | 842,035 | 836,777 | | Total Assets | 3,709,545 | 3,445,570 | | Liabilities and Equity | | | | Trade Accounts Payable | 351,729 | 319,318 | | Other Accrued Liabilities | 198,300 | 226,769 | | Long-Term Debt | 598,817 | 723,443 | | Pension and Postretirement Benefit Obligations | 60,323 | 93,391 | | Other Liabilities | 753,357 | 758,610 | | Total Liabilities | 2,594,157 | 2,733,784 | | Total Equity | 1,115,388 | 711,786 | | Total Liabilities and Equity | 3,709,545 | 3,445,570 | Consolidated Statements of Cash Flows Consolidated Statements of Cash Flows (2022, 2021, 2020) | (thousands of dollars) | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Cash Flow from Operating Activities | 554,506 | 521,755 | 494,461 | | Cash Flow from Investing Activities | (324,985) | (161,943) | (200,419) | | Cash Flow from Financing Activities | (174,187) | (272,291) | (248,863) | | Net Increase in Cash | 55,334 | 87,521 | 45,179 | | Cash Balance at Year-End | 197,648 | 142,314 | 54,793 | Consolidated Statements of Changes in Stockholders' Equity Consolidated Statements of Changes in Stockholders' Equity (Year-End 2019 to Year-End 2022) | (thousands of dollars) | 2019 Year-End Balance | 2020 Change | 2020 Year-End Balance | 2021 Change | 2021 Year-End Balance | 2022 Change | 2022 Year-End Balance | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Common Stock | 10,204 | — | 10,204 | — | 10,204 | 1,227 | 11,431 | | Class B Common Stock | 2,860 | — | 2,860 | — | 2,860 | (1,227) | 1,633 | | Additional Paid-in Capital | 128,983 | 6,970 | 135,953 | — | 135,953 | — | 135,953 | | Retained Earnings | 381,161 | 163,119 | 544,280 | 180,206 | 724,486 | 387,976 | 1,112,462 | | Accumulated Other Comprehensive Loss | (115,002) | (4,051) | (119,053) | 18,590 | (100,463) | 15,626 | (84,837) | | Treasury Stock (Common Stock) | (60,845) | — | (60,845) | — | (60,845) | — | (60,845) | | Treasury Stock (Class B Common Stock) | (409) | — | (409) | — | (409) | — | (409) | | Total Equity Attributable to Coca-Cola Consolidated, Inc. | 346,952 | 166,038 | 512,990 | 198,590 | 711,786 | 403,602 | 1,115,388 | | Noncontrolling Interests | 104,164 | (113,768) | — | — | — | — | — | | Total Equity | 451,116 | (106,798) | 512,990 | 198,590 | 711,786 | 403,602 | 1,115,388 | Notes to Consolidated Financial Statements 1. Description of Business and Summary of Critical Accounting Policies - The company primarily distributes, markets, and manufactures non-alcoholic beverages, with approximately 86% of bottle/can sales volume derived from The Coca-Cola Company's products[476] - The company has three operating segments, with the non-alcoholic beverages segment accounting for the vast majority of the company's consolidated net sales and operating income[445][578] - For revenue recognition, bottle/can sales, sales to other Coca-Cola bottlers, and fountain sales are recognized when control transfers to the customer (point-in-time recognition), while equipment maintenance and freight service revenue are recognized as services are completed or deliveries occur (over-time recognition)[519][548][574] - The company maintains allowances for doubtful accounts for trade receivables, including customer return allowances and credit loss allowances, with customer returns primarily due to damaged or expired products[480][506][576][761] - The company performs periodic impairment tests for property, plant, and equipment and goodwill, with no material impairment identified in 2022, 2021, and 2020[513][583] - The fair value of acquisition-related contingent consideration liability is estimated using a probability-weighted discounted cash flow model based on internal projections and the weighted average cost of capital (WACC)[486][487][516] - The company accounts for income taxes using the asset and liability method and provides a valuation allowance for deferred tax assets to reflect amounts that may not be realized in the future[489][517] - The company uses commodity derivative instruments to hedge commodity price risk, which are marked to market, with gains and losses recognized in cost of sales or selling, delivery, and administrative expenses[495][523][637][638] - The company's common stock trades on the Nasdaq Global Select Market, while Class B common stock has no public trading market but carries 20 votes per share and a 1:1 conversion right[530][556][766] - The company uses the two-class method to calculate net income per share, determining earnings per share for each class of common stock based on declared or accumulated dividends and participation rights in undistributed earnings[501][533][559] 2. Related Party Transactions Significant Cash Transactions Between the Company and The Coca-Cola Company (2022, 2021, 2020) | (thousands of dollars) | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Payments from Company to The Coca-Cola Company | 1,867,727 | 1,558,784 | 1,444,492 | | Payments from The Coca-Cola Company to Company | 256,333 | 207,073 | 128,749 | - Payments from the company to The Coca-Cola Company are primarily for concentrates, syrups, and other finished products, while payments from The Coca-Cola Company to the company are for business plan support, fountain product distribution, transportation services, and equipment maintenance services[565][795] - The company makes quarterly acquisition-related sub-bottling payments to Coca-Cola Refreshments USA, Inc. (CCR) under the Comprehensive Beverage Agreement (CBA), with $36.5 million paid in 2022 and a related contingent consideration liability of $541.5 million as of December 31, 2022[568][798] - The company is a shareholder of Southeastern Container and South Atlantic Canners, Inc. (SAC), engaging in purchasing transactions with them; in 2022, the company purchased $154 million from Southeastern and $193.3 million from SAC[568][569][711] - The company is a member of Coca-Cola Bottlers' Sales & Services Company LLC (CCBSS), through which it procures most raw materials and receives rebates, and is also a member of CONA Services LLC (CONA), using the CONA system and paying service fees[570][571] - The company leases its headquarters facility from Beacon Investment Corporation, a majority-owned entity of J. Frank Harrison, III; in 2022, the company acquired the Snyder Production Center for $60 million, terminating its lease agreement with Harrison Limited Partnership One[545][572] - The Long-Term Performance Equity Plan compensates J. Frank Harrison, III based on company performance, with related compensation expense of $10.1 million in 2022[546] 3. Revenue Recognition - The company's contracts primarily originate from customer orders, including customer sales incentives; bottle/can sales, sales to other Coca-Cola bottlers, and fountain sales are recognized when control transfers to the customer (typically upon delivery), accounting for approximately 97% of net sales in 2022, 2021, and 2020[574] - Other sales, including cold drink equipment repair service fees and freight service fees, are recognized over time, typically as services are completed or deliveries occur[548] Net Sales by Point in Time and Over Time (2022, 2021, 2020) | (thousands of dollars) | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Net Sales at a Point in Time | 6,034,914 | 5,389,444 | 4,842,934 | | Net Sales Over Time | 166,043 | 173,270 | 164,423 | | Total Net Sales | 6,200,957 | 5,562,714 | 5,007,357 | - The company maintains allowances for doubtful accounts for trade receivables, including customer return allowances and credit loss allowances; customer return allowances were $3 million in both 2022 and 2021[576] Summary of Credit Loss Allowance Changes (2022, 2021, 2020) | (thousands of dollars) | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Beginning Balance | 14,336 | 18,070 | 10,232 | | Charged to Expense and Net Sales Reductions | 4,326 | 4,638 | 14,265 | | Deductions | (5,543) | (8,372) | (6,427) | | Ending Balance | 13,119 | 14,336 | 18,070 | 4. Segments - The company has three operating segments, with the non-alcoholic beverages segment accounting for the vast majority of the company's consolidated net sales and operating income; the other two operating segments do not meet the quantitative thresholds for separate reporting and are therefore combined into "all other"[578][597] Segment Operating Results (2022, 2021, 2020) | (thousands of dollars) | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Net Sales: | | | | | Non-Alcoholic Beverages | 6,081,357 | 5,432,669 | 4,879,170 | | All Other | 399,359 | 366,855 | 332,728 | | Eliminations | (279,759) | (236,810) | (204,541) | | Consolidated Net Sales | 6,200,957 | 5,562,714 | 5,007,357 | | Operating Income: | | | | | Non-Alcoholic Beverages | 639,136 | 456,713 | 324,716 | | All Other | 1,911 | (17,542) | (11,338) | | Consolidated Operating Income | 641,047 | 439,171 | 313,378 | | Depreciation and Amortization: | | | | | Non-Alcoholic Beverages | 159,845 | 168,206 | 167,355 | | All Other | 11,745 | 12,359 | 11,662 | | Consolidated Depreciation and Amortization | 171,590 | 180,565 | 179,017 | 5. Net Income Per Share - The company calculates and presents net income per share using the two-class method, determining earnings per share for each class of common stock based on declared or accumulated dividends and participation rights in undistributed earnings[501][559] Net Income Per Share Calculation (2022, 2021, 2020) | (thousands of dollars, except per share data) | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Net Income Attributable to Coca-Cola Consolidated, Inc. | 430,158 | 189,580 | 172,493 | | Basic Net Income Per Share (Common Stock) | 45.88 | 20.23 | 18.40 | | Basic Net Income Per Share (Class B Common Stock) | 45.93 | 20.23 | 18.40 | | Diluted Net Income Per Share (Common Stock) | 45.74 | 20.17 | 18.30 | | Diluted Net Income Per Share (Class B Common Stock) | 45.76 | 20.16 | 18.28 | - On March 17, 2022, 1,227,546 shares of Class B common stock were converted to common stock on a 1:1 basis[562][581] 6. Inventories Inventory Composition (as of December 31, 2022 and December 31, 2021) | (thousands of dollars) | 2022-12-31 | 2021-12-31 | | :--- | :--- | :--- | | Finished Goods | 211,089 | 181,751 | | Manufacturing Materials | 89,300 | 81,183 | | Plastic Shells, Plastic Pallets and Other Inventories | 47,156 | 39,917 | | Total Inventories | 347,545 | 302,851 | - Inventories are measured at the lower of cost or net realizable value; finished goods and manufacturing materials use the first-in, first-out method, while plastic shells, plastic pallets, and other inventories use the average cost method[448][481] 7. Prepaid Expenses and Other Current Assets Prepaid Expenses and Other Current Assets Composition (as of December 31, 2022 and December 31, 2021) | (thousands of dollars) | 2022-12-31 | 2021-12-31 | | :--- | :--- | :--- | | Repair Parts | 35,088 | 26,643 | | Prepaid Taxes | 7,829 | 4,079 | | Prepaid Software | 7,398 | 7,038 | | Commodity Hedges at Fair Market Value | 4,808 | 7,714 | | Prepaid Marketing Expenses | 4,303 | 4,380 | | Other Prepaid Expenses and Other Current Assets | 34,837 | 28,214 | | Total Prepaid Expenses and Other Current Assets | 94,263 | 78,068 | 8. Property, Plant and Equipment, Net Property, Plant and Equipment, Net (as of December 31, 2022 and December 31, 2021) | (thousands of dollars) | 2022-12-31 | 2021-12-31 | Estimated Useful Life | | :--- | :--- | :--- | :--- | | Land | 88,185 | 80,261 | | | Buildings | 352,114 | 265,070 | 8-50 years | | Machinery and Equipment | 462,640 | 443,592 | 5-20 years | | Transportation Equipment | 515,752 | 466,238 | 3-20 years | | Furniture and Fixtures | 102,099 | 95,062 | 3-10 years | | Cold Drink Distribution Equipment | 438,879 | 436,954 | 3-17 years | | Leasehold and Land Improvements | 177,940 | 178,809 | 5-20 years | | Software for Internal Use | 48,581 | 47,982 | 3-10 years | | Construction in Progress | 103,803 | 23,496 | | | Total Property, Plant and Equipment (at cost) | 2,289,993 | 2,037,464 | | | Less: Accumulated Depreciation and Amortization | 1,106,263 | 1,006,776 | | | Property, Plant and Equipment, Net | 1,183,730 | 1,030,688 | | - The company conducted periodic reviews of property, plant, and equipment in 2022, 2021, and 2020, and found no material impairment[583] 9. Leases Lease Weighted-Average Remaining Term and Discount Rate (as of December 31, 2022 and December 31, 2021) | Metric | 2022-12-31 | 2021-12-31 | | :--- | :--- | :--- | | Weighted-Average Remaining Lease Term (Operating Leases) | 7.2 years | 8.3 years | | Weighted-Average Remaining Lease Term (Finance Leases) | 4.3 years | 12.5 years | | Weighted-Average Discount Rate (Operating Leases) | 3.6 % | 3.6 % | | Weighted-Average Discount Rate (Finance Leases) | 5.2 % | 3.1 % | Lease Cost Summary (2022, 2021, 2020) | (thousands of dollars) | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Operating Lease Cost | 30,484 | 26,385 | 24,823 | | Short-Term and Variable Leases | 15,065 | 17,245 | 15,305 | | Finance Lease Depreciation Expense | 2,315 | 5,656 | 4,678 | | Finance Lease Obligation Interest Expense | 884 | 2,301 | 1,728 | | Total Lease Cost | 48,748 | 51,587 | 46,534 | Future Minimum Lease Payments (as of December 31, 2022) | (thousands of dollars) | Operating Leases | Finance Leases | | :--- | :--- | :--- | | 2023 | 31,697 | 2,750 | | 2024 | 27,663 | 2,808 | | 2025 | 21,628 | 2,869 | | 2026 | 19,036 | 1,233 | | 2027 | 17,227 | 338 | | Thereafter | 51,372 | 966 | | Total Minimum Lease Payments (including interest) | 168,623 | 10,964 | | Less: Amount Representing Interest | 22,225 | 1,142 | | Present Value of Minimum Lease Principal Payments | 146,398 | 9,822 | | Less: Current Portion of Lease Liabilities | 27,635 | 2,303 | | Noncurrent Portion of Lease Liabilities | 118,763 | 7,519 | - On March 17, 2022, the company terminated the finance lease for the Snyder Production Center, which was originally scheduled to expire on December 31, 2035[584] 10. Distribution Agreements, Net Distribution Agreements, Net (as of December 31, 2022 and December 31, 2021) | (thousands of dollars) | 2022-12-31 | 2021-12-31 | | :--- | :--- | :--- | | Distribution Agreement Cost | 990,191 | 960,042 | | Less: Accumulated Amortization | 148,156 | 123,265 | | Distribution Agreements, Net | 842,035 | 836,777 | - Distribution agreements, net, are amortized on a straight-line basis over an estimated useful life of 20 to 40 years, with estimated annual amortization expense of approximately $25 million from 2023 to 2027[608] 11. Customer Lists, Net Customer Lists, Net (as of December 31, 2022 and December 31, 2021) | (thousands of dollars) | 2022-12-31 | 2021-12-31 | | :--- | :--- | :--- | | Customer List Cost | 25,288 | 25,288 | | Less: Accumulated Amortization | 16,123 | 14,322 | | Customer Lists, Net | 9,165 | 10,966 | - Customer lists, net, are amortized on a straight-line basis over an estimated useful life of 5 to 12 years, with estimated annual amortization expense of approximately $2 million from 2023 to 2027[609] 12. Other Accrued Liabilities Other Accrued Liabilities Composition (as of December 31, 2022 and December 31, 2021) | (thousands of dollars) | 2022-12-31 | 2021-12-31 | | :--- | :--- | :--- | | Accrued Insurance Costs | 54,180 | 51