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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
Page

i


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

Third QuarterFirst Nine Months
(in thousands, except per share data)2020201920202019
Net sales$1,328,484 $1,271,029 $3,728,720 $3,647,600 
Cost of sales856,046 838,805 2,421,686 2,390,289 
Gross profit472,438 432,224 1,307,034 1,257,311 
Selling, delivery and administrative expenses368,594 378,378 1,087,251 1,116,097 
Income from operations103,844 53,846 219,783 141,214 
Interest expense, net9,033 10,965 27,778 35,846 
Other expense, net21,394 20,711 39,826 67,743 
Income before income taxes73,417 22,170 152,179 37,625 
Income tax expense18,363 6,624 38,911 10,801 
Net income55,054 15,546 113,268 26,824 
Less: Net income attributable to noncontrolling interest3,170 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 outstanding7,141 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 outstanding2,232 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 dilution9,430 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 dilution2,289 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 QuarterFirst Nine Months
(in thousands)2020201920202019
Net income$55,054 $15,546 $113,268 $26,824 
Other comprehensive income, net of tax:
Defined benefit plans reclassification including pension costs:
Actuarial gains896 679 2,689 2,037 
Prior service benefits4 4 11 13 
Postretirement benefits reclassification included in benefits costs:
Actuarial gains66 148 198 443 
Prior service costs (244) (731)
Interest rate swap303 (374)(710)(374)
Foreign currency translation adjustment11 (17)13 (21)
Other comprehensive income, net of tax1,280 196 2,201 1,367 
Comprehensive income56,334 15,742 115,469 28,191 
Less: Comprehensive income attributable to noncontrolling interest3,170 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, 2020December 29, 2019
ASSETS
Current Assets:
Cash and cash equivalents$164,823 $9,614 
Accounts receivable, trade453,402 433,552 
Allowance for doubtful accounts(25,050)(13,782)
Accounts receivable from The Coca‑Cola Company54,516 62,411 
Accounts receivable, other44,569 43,094 
Inventories207,773 225,926 
Prepaid expenses and other current assets69,829 69,461 
Assets held for sale7,036  
Total current assets976,898 830,276 
Property, plant and equipment, net979,210 997,403 
Right-of-use assets - operating leases135,559 111,376 
Leased property under financing leases, net71,281 17,960 
Other assets111,775 113,269 
Goodwill165,903 165,903 
Distribution agreements, net859,003 876,096 
Customer lists and other identifiable intangible assets, net13,264 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 leases5,814 9,403 
Accounts payable, trade234,715 187,476 
Accounts payable to The Coca‑Cola Company135,656 108,699 
Other accrued liabilities207,522 208,834 
Accrued compensation74,778 87,813 
Accrued interest payable6,693 4,946 
Total current liabilities683,990 622,195 
Deferred income taxes131,218 125,130 
Pension and postretirement benefit obligations103,431 114,831 
Other liabilities679,361 668,566 
Noncurrent portion of obligations under operating leases121,288 97,765 
Noncurrent portion of obligations under financing leases71,183 17,403 
Long-term debt962,867 1,029,920 
Total liabilities2,753,338 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 value128,983 128,983 
Retained earnings480,246 381,161 
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 interest111,317 104,164 
Total equity559,555 451,116 
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)20202019
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 leases117,203 119,145 
Amortization of intangible assets and deferred proceeds, net17,286 17,271 
Fair value adjustment of acquisition related contingent consideration35,068 62,017 
Impairment of property, plant and equipment7,908 4,144 
Deferred income taxes5,302 5,254 
Loss on sale of property, plant and equipment3,656 5,474 
Amortization of debt costs778 1,032 
Stock compensation expense 2,045 
Change in current assets less current liabilities69,975 (54,263)
Change in other noncurrent assets16,360 12,581 
Change in other noncurrent liabilities(11,451)2,611 
Other1,048 448 
Total adjustments263,133 177,759 
Net cash provided by operating activities$376,401 $204,583 
Cash Flows from Investing Activities:
Additions to property, plant and equipment$(110,717)$(96,747)
Proceeds from the sale of property, plant and equipment2,397 1,028 
Investment in CONA Services LLC(1,770)(1,713)
Other distribution agreements (4,654)
Net cash used in investing activities$(110,090)$(102,086)
Cash Flows from Financing Activities:
Payments on revolving credit facility$(280,000)$(376,339)
Borrowings under revolving credit facility235,000 331,339 
Payments on term loan facility and senior notes(22,500)(132,500)
Proceeds from issuance of senior notes 100,000 
Payments of acquisition related contingent consideration(31,999)(18,784)
Cash dividends paid(7,030)(7,026)
Payments on financing lease obligations(4,428)(6,441)
Debt issuance fees(145)(305)
Net cash used in financing activities$(111,102)$(110,056)
Net increase (decrease) in cash during period$155,209 $(7,559)
Cash at beginning of period9,614 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 obligations38,317 39,213 
Additions to property, plant and equipment accrued and recorded in accounts payable, trade25,477 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 QuarterFirst Nine Months
(in thousands)2020201920202019
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 programs34,550 36,597 99,941 109,110 
Cold drink equipment parts5,965 4,519 16,345 18,568 
Brand investment programs4,359 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 fees7,555 10,873 22,990 31,507 
Presence marketing funding support on the Company’s behalf565 2,879 6,445 7,816 
Facilitating the distribution of certain brands and packages to other Coca‑Cola bottlers1,151 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, 2020December 29, 2019
Current portion of acquisition related contingent consideration$41,912 $41,087 
Noncurrent portion of acquisition related contingent consideration406,741 405,597 
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 QuarterFirst Nine Months
(in thousands)2020201920202019
Company headquarters$826 $1,132 $2,478 $3,393 
Snyder Production Center1,112 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.
9



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 QuarterFirst Nine Months
(in thousands)2020201920202019
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 time33,213 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.

10


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 QuarterFirst Nine Months
(in thousands)2020201920202019
Net sales:
Nonalcoholic Beverages$1,295,271 $1,236,261 $3,633,376 $3,547,373 
All Other84,776 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 Other3,027 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 QuarterFirst Nine Months
(in thousands, except per share data)2020201920202019
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 Stock1,785 1,786 5,356 5,356 
Class B Common Stock559 558 1,674 1,670 
Total undistributed earnings$49,540 $10,662 $99,085