# Coca-Cola Consolidated, Inc. (COKE) FY 2021 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Coca-Cola Consolidated, Inc.'s 10-K for fiscal year 2021.

SEC filing source: https://www.sec.gov/Archives/edgar/data/317540/000031754022000009/coke-20211231.htm
Accession: 0000317540-22-000009
Filing date: 2022-02-22
Report date: 2021-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Published MD&A gate trimmed front/tail over-capture.
Confidence: high

Company profile: /company/COKE/
All MD&A years: /company/COKE/mda/
Next year: /company/COKE/mda/fy2022/ (FY 2022)

Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations of the Company should be read in conjunction with the consolidated financial statements of the Company and the accompanying notes to the consolidated financial statements.

Beginning in 2020, the Company’s fiscal year ends on December 31 of the applicable calendar year. Previously, the Company’s fiscal year generally ended on the Sunday closest to December 31 of each year. The fiscal years presented are the periods ended December 31, 2021 (“2021”) and December 31, 2020 (“2020”). Information concerning the fiscal year ended December 29, 2019 (“2019”) and a comparison of 2020 and 2019 may be found under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Annual Report on Form 10‑K for 2020, filed with the SEC on February 26, 2021.

The consolidated financial statements include the consolidated operations of the Company and its majority-owned subsidiaries. During 2020, Piedmont Coca-Cola Bottling Partnership (“Piedmont”) was the Company’s only subsidiary that had a significant noncontrolling interest. On December 9, 2020, an indirect wholly owned subsidiary of the Company purchased the remaining 22.7% general partnership interest in Piedmont from an indirect wholly owned subsidiary of The Coca‑Cola Company, and Piedmont became an indirect wholly owned subsidiary of the Company.

The Company manages its business on the basis of three operating segments. 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.”

Executive Summary

Physical case volume increased 2.0% during 2021. On a comparable selling day basis, as defined in the “Comparable and Adjusted Non-GAAP Results” section below, physical case volume increased 3.0%, which included Sparkling and Still category volume growth of 1.3% and 7.1%, respectively. Still volume growth was driven primarily by BODYARMOR, smartwater and Monster, and also benefited from the re-openings of certain small stores and accounts where our products are consumed on-premise. Sparkling volume growth related to continued strong demand for multi-serve can packages sold in larger retail stores.

Net sales increased 11.1% to $5.56 billion in 2021. The increase in net sales was driven by the strong volume growth referenced above and by pricing actions taken during 2021. Price increases were taken to offset inflation on our major cost inputs, including aluminum, PET resin and transportation costs.

Gross profit in 2021 increased $185.3 million, or 10.5%, while gross margin decreased 20 basis points to 35.1%. The improvement in gross profit was primarily due to the continued strong demand for our products and the pricing actions taken during 2021 to offset cost increases. The decline in gross margin was driven primarily by the increased mix of Still beverages, which generally carry lower gross margins than Sparkling packages.

Selling, delivery and administrative (“SD&A”) expenses in 2021 increased $59.5 million, or 4.1%. SD&A expenses as a percentage of net sales decreased approximately 200 basis points to 27.2% in 2021. The increase in SD&A expenses related primarily to an increase in labor costs. During 2021, we provided incentives to attract, reward and retain our front-line teammates and we increased the base pay in certain competitive markets. Additionally, as channels of business and local economies re-opened compared to the prior year, our labor costs increased.

Income from operations in 2021 increased $125.8 million to $439.2 million. Net income increased $17.1 million in 2021 to $189.6 million as compared to 2020. Net income in 2021 was adversely impacted by fair value adjustments to our acquisition related contingent consideration liability, driven primarily by changes in future cash flow projections. Fair value adjustments to this liability are routine and non-cash in nature.

Cash flows provided by operations for 2021 were $521.8 million, compared to $494.5 million in 2020. The Company reduced outstanding indebtedness by $217.0 million during 2021.

COVID-19 Impact

As COVID-19-related quarantines and other restrictions were loosened throughout 2021, demand for products sold for immediate consumption through smaller retail stores and on-premise locations increased. We also continued to experience strong demand for our products across our take-home channels in 2021. We are optimistic about top‑line growth opportunities in 2022 as we execute a robust commercial plan with our brand partners. However, given the uncertainty related to the duration of the COVID-19 pandemic and its

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influence on our consumers, customers, suppliers, teammates and communities, the Company recognizes 2022 will be a challenging year in which to plan and operate. While we currently expect another solid year of financial performance in 2022, we face increasing uncertainty related to a constrained labor pool, increased input costs, continued delays in supply movement and future COVID-19 variants and the resulting direct and indirect impacts. The Company continues to diligently monitor and manage through the impact of the COVID-19 pandemic on all aspects of its business, including the impact on its teammates, communities and customers.

The Company continues to implement its COVID-19 Response Program, including numerous actions to protect and promote the health and safety of its consumers, customers, suppliers, teammates and communities, while it continues to manufacture and distribute products. Such actions include following prescribed Company and other accepted health and safety standards and protocols, including those adopted by the Centers for Disease Control and Prevention (the “CDC”) and local health authorities, and working closely with local health departments and appropriate agencies to manage and monitor teammate cases and exposures. Risk mitigation and safety activities continue; examples include adhering to sanitation protocols and promoting hygiene practices recommended by the CDC; implementing work-from-home routines for teammates whose work duties permit it; offering extended supplemental sick time for non-exempt teammates; and modifying our health and welfare plans for COVID-19-related events. The Company is actively monitoring the status of announced and potential regulations concerning vaccination or periodic testing for COVID-19 and the impact that such regulations, if implemented, may have on its workforce. If a significant number of our teammates are negatively impacted by regulations requiring vaccination or periodic testing of unvaccinated teammates, it may result in teammate attrition and our business operations may be adversely affected.

At this time and based on current trends, we do not currently expect the COVID-19 pandemic to materially impact our liquidity position or access to capital in 2022. We also have not experienced, and do not expect, any material impairments or adjustments to the fair values of our assets or the collectability of our receivables as a result of the COVID-19 pandemic.

We have assessed COVID-19-related circumstances around work routines, including remote work arrangements, and the impact on our internal controls over financial reporting. We have not identified, and do not anticipate, any material impact to our control procedures that would materially affect our internal controls over financial reporting. We will continue to monitor the impact of the COVID-19 pandemic on our business and make adjustments as needed.

Results of Operations

The Company’s results of operations for 2021 and 2020 are highlighted in the table below and discussed in the following paragraphs.

[[GREPCENT_TABLE]]
[["","","Fiscal Year"],["(in thousands)","","2021","","2020","","Change"],["Net sales","","$","5,562,714","","","$","5,007,357","","","$","555,357"],["Cost of sales","","3,608,527","","","3,238,448","","","370,079"],["Gross profit","","1,954,187","","","1,768,909","","","185,278"],["Selling, delivery and administrative expenses","","1,515,016","","","1,455,531","","","59,485"],["Income from operations","","439,171","","","313,378","","","125,793"],["Interest expense, net","","33,449","","","36,735","","","(3,286)"],["Other expense, net","","150,573","","","35,603","","","114,970"],["Income before taxes","","255,149","","","241,040","","","14,109"],["Income tax expense","","65,569","","","58,943","","","6,626"],["Net income","","189,580","","","182,097","","","7,483"],["Less: Net income attributable to noncontrolling interest","","\u2014","","","9,604","","","(9,604)"],["Net income attributable to Coca\u2011Cola Consolidated, Inc.","","189,580","","","172,493","","","17,087"],["Other comprehensive income (loss), net of tax","","18,590","","","(4,051)","","","22,641"],["Comprehensive income attributable to Coca\u2011Cola Consolidated, Inc.","","$","208,170","","","$","168,442","","","$","39,728"]]
[[/GREPCENT_TABLE]]

Areas of Emphasis

Key priorities for the Company include commercial execution, revenue management, supply chain optimization and cash flow generation.

Commercial Execution: Our success is dependent on our ability to execute our commercial strategy within our customers’ stores. Our ability to obtain shelf space within stores and remain in-stock across our portfolio of brands and packages in a profitable manner will have a significant impact on our results. We are focused on execution at every step in our supply chain, including raw material and finished product procurement, manufacturing conversion, transportation, warehousing and distribution, to ensure in-store execution

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can occur. We continue to invest in tools and technology to enable our teammates to operate more effectively and efficiently with our customers and drive long-term value in our business.

Revenue Management: Our revenue management strategy focuses on pricing our brands and packages optimally within product categories and channels, creating effective working relationships with our customers and making disciplined fact-based decisions. Pricing decisions are made considering a variety of factors, including brand strength, competitive environment, input costs, the roles certain brands play in our product portfolio and other market conditions.

Supply Chain Optimization: We are continually focused on optimizing our supply chain, which includes identifying nearby warehousing and distribution operations that can be consolidated into new facilities to increase capacity, expand production capabilities, reduce overall production costs and add automation to allow the Company to better serve its customers and consumers.

Cash Flow Generation: We have several initiatives in place to optimize cash flow, improve profitability and prudently manage capital expenditures, as we continue to prioritize debt repayment and to focus on strengthening our balance sheet.

Net Sales

Net sales increased $555.4 million, or 11.1%, to $5.56 billion in 2021, as compared to $5.01 billion in 2020. The increase in net sales was primarily attributable to the following (in millions):

[[GREPCENT_TABLE]]
[["Fiscal Year 2021","","Attributable to:"],["$","412.5","","","Increase in net sales related to price increases and the shift in product mix. Approximately 70% of this increase was driven by an increase in average bottle/can sales price per unit charged to retail customers, while approximately 30% was related to the shift in product mix to higher revenue still products in order to meet consumer preferences."],["95.5","","","Increased physical case volume"],["28.3","","","The increase in fountain syrup and other related sales mainly sold in on-premise locations"],["17.6","","","Increased physical case volume to other Coca-Cola bottlers"],["1.5","","","Increased volume of external freight revenue to external customers (other than nonalcoholic beverages)"],["$","555.4","","","Total increase in net sales"]]
[[/GREPCENT_TABLE]]

Net sales by product category were as follows:

[[GREPCENT_TABLE]]
[["","","Fiscal Year"],["(in thousands)","","2021","","2020","","% Change"],["Bottle/can sales:"],["Sparkling beverages","","$","3,020,887","","","$","2,760,827","","","9.4","%"],["Still beverages","","1,861,162","","","1,641,716","","","13.4","%"],["Total bottle/can sales","","4,882,049","","","4,402,543","","","10.9","%"],["Other sales:"],["Sales to other Coca\u2011Cola bottlers","","347,185","","","329,574","","","5.3","%"],["Post-mix and other","","333,480","","","275,240","","","21.2","%"],["Total other sales","","680,665","","","604,814","","","12.5","%"],["Total net sales","","$","5,562,714","","","$","5,007,357","","","11.1","%"]]
[[/GREPCENT_TABLE]]

Product category sales volume of physical cases and the percentage change by product category were as follows:

[[GREPCENT_TABLE]]
[["","","Fiscal Year"],["(in thousands)","","2021","","2020","","% Change"],["Bottle/can sales volume:"],["Sparkling beverages","","254,028","","253,389","","0.3","%"],["Still beverages","","112,008","","105,423","","6.2","%"],["Total bottle/can sales volume","","366,036","","358,812","","2.0","%"]]
[[/GREPCENT_TABLE]]

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

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

[[GREPCENT_TABLE]]
[["","","Fiscal Year"],["","","2021","","2020"],["Approximate percent of the Company\u2019s total bottle/can sales volume:"],["Wal-Mart Stores, Inc.","","20","%","","19","%"],["The Kroger Company","","13","%","","13","%"],["Total approximate percent of the Company\u2019s total bottle/can sales volume","","33","%","","32","%"],["Approximate percent of the Company\u2019s total net sales:"],["Wal-Mart Stores, Inc.","","14","%","","14","%"],["The Kroger Company","","9","%","","10","%"],["Total approximate percent of the Company\u2019s total net sales","","23","%","","24","%"]]
[[/GREPCENT_TABLE]]

Cost of Sales

Inputs representing a substantial portion of the Company’s cost of sales include: (i) purchases of finished products, (ii) raw material costs, including aluminum cans, plastic bottles and sweetener, (iii) concentrate costs and (iv) manufacturing costs, including labor, overhead and warehouse costs. In addition, cost of sales includes shipping, handling and fuel costs related to the movement of finished products from manufacturing plants to distribution centers, amortization expense of distribution rights, distribution fees of certain products and marketing credits from brand companies. Raw material costs represent approximately 20% of total cost of sales on an annual basis.

Cost of sales increased $370.1 million, or 11.4%, to $3.61 billion in 2021, as compared to $3.24 billion in 2020. The increase in cost of sales was primarily attributable to the following (in millions):

[[GREPCENT_TABLE]]
[["Fiscal Year 2021","","Attributable to:"],["$","253.6","","","Increased input costs, including aluminum, PET resin and transportation costs, partially due to the impacts of inflation, as well as the shift in product mix to meet consumer preferences"],["69.6","","","Increased physical case volume"],["21.0","","","The increase in fountain syrup and other related sales mainly sold in on-premise locations"],["17.9","","","Increased physical case volume to other Coca-Cola bottlers"],["8.0","","","Increased volume of external freight revenue to external customers (other than nonalcoholic beverages)"],["$","370.1","","","Total increase in cost of sales"]]
[[/GREPCENT_TABLE]]

The Company relies extensively on advertising and sales promotions in the marketing of its products. The Coca‑Cola Company and other beverage companies that supply concentrates, syrups and finished products to the Company make substantial marketing and advertising expenditures, including national advertising programs, to develop their brand identities and promote sales in the Company’s territories. Certain of these marketing and advertising expenditures are made pursuant to annual arrangements. Total marketing funding support from The Coca‑Cola Company and other beverage companies, which includes both direct payments to the Company and payments to customers for marketing programs, was $133.1 million in 2021, as compared to $126.2 million in 2020.

SD&A Expenses

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

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SD&A expenses increased $59.5 million, or 4.1%, to $1.52 billion in 2021, as compared to $1.46 billion in 2020. SD&A expenses as a percentage of sales decreased to 27.2% in 2021 from 29.1% in 2020. The increase in SD&A expenses was primarily attributable to the following (in millions):

[[GREPCENT_TABLE]]
[["Fiscal Year 2021","","Attributable to:"],["$","43.2","","","Increase in payroll expenses as we made adjustments to remain competitive in a challenging labor market"],["11.2","","","Increase in cash donations to various charities and donor-advised funds in light of the Company\u2019s financial performance"],["5.1","","","Other"],["$","59.5","","","Total increase in SD&A expenses"]]
[[/GREPCENT_TABLE]]

Shipping and handling costs included in SD&A expenses were $674.3 million in 2021 and $622.1 million in 2020.

Interest Expense, Net

Interest expense, net decreased $3.3 million, or 8.9%, to $33.4 million in 2021, as compared to $36.7 million in 2020. The decrease was primarily a result of lower average debt balances.

Other Expense, Net

A summary of other expense, net is as follows:

[[GREPCENT_TABLE]]
[["","","Fiscal Year"],["(in thousands)","","2021","","2020"],["Increase in the fair value of the acquisition related contingent consideration liability","","$","146,308","","","$","31,210"],["Non-service cost component of net periodic benefit cost","","4,265","","","4,393"],["Total other expense, net","","$","150,573","","","$","35,603"]]
[[/GREPCENT_TABLE]]

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

The increase in the fair value of the acquisition related contingent consideration liability in 2021 as compared to 2020 was primarily driven by higher projections of future cash flows in the distribution territories subject to sub-bottling fees and changes to the discount rate used to calculate fair value throughout 2021 as compared to 2020.

Income Tax Expense

The Company’s effective income tax rate, calculated by dividing income tax expense by income before taxes, was 25.7% for 2021 and 24.5% for 2020. The Company’s effective income tax rate, calculated by dividing income tax expense by income before taxes minus net income attributable to noncontrolling interest, was 25.5% for 2020.

The Company’s income tax expense increased $6.6 million, or 11.2%, to $65.6 million in 2021, as compared to $58.9 million in 2020. The increase in income tax expense was primarily attributable to higher income before taxes during 2021 compared to 2020.

Noncontrolling Interest

The Company recorded net income attributable to noncontrolling interest of $9.6 million in 2020 related to the portion of Piedmont owned by The Coca‑Cola Company. On December 9, 2020, an indirect wholly owned subsidiary of the Company purchased the remaining 22.7% general partnership interest in Piedmont.

Other Comprehensive Income (Loss), Net of Tax

The Company had other comprehensive income, net of tax of $18.6 million in 2021 and other comprehensive loss, net of tax of $4.1 million in 2020. The improvement was primarily a result of actuarial gains on the Company’s pension and postretirement plans.

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Segment Operating Results

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

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

The Company’s segment results are as follows:

[[GREPCENT_TABLE]]
[["","","Fiscal Year"],["(in thousands)","","2021","","2020"],["Net sales:"],["Nonalcoholic Beverages","","$","5,432,669","","","$","4,879,170"],["All Other","","366,855","","","332,728"],["Eliminations(1)","","(236,810)","","","(204,541)"],["Consolidated net sales","","$","5,562,714","","","$","5,007,357"],["Income from operations:"],["Nonalcoholic Beverages","","$","456,713","","","$","324,716"],["All Other","","(17,542)","","","(11,338)"],["Consolidated income from operations","","$","439,171","","","$","313,378"]]
[[/GREPCENT_TABLE]]

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

Comparable and Adjusted Non-GAAP Results

The Company reports its financial results in accordance with accounting principles generally accepted in the United States (“GAAP”). However, management believes certain non-GAAP financial measures provide users of the financial statements with additional, meaningful financial information that should be considered when assessing the Company’s ongoing performance. Management also uses these non-GAAP financial measures in making financial, operating and planning decisions and in evaluating the Company’s performance.

Non-GAAP financial measures should be viewed in addition to, and not as an alternative for, the Company’s reported results prepared in accordance with GAAP. The Company’s non-GAAP financial information does not represent a comprehensive basis of accounting. The following tables reconcile reported results (GAAP) to comparable and adjusted results (non-GAAP):

[[GREPCENT_TABLE]]
[["","","Fiscal Year"],["(in millions)","","2021","","2020","","Change"],["Physical case volume","","366.0","","","358.8","","","2.0","%"],["Volume related to extra days in fiscal year","","\u2014","","","3.4"],["Comparable physical case volume","","366.0","","","355.4","","","3.0","%"]]
[[/GREPCENT_TABLE]]

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[[GREPCENT_TABLE]]
[["","","Fiscal Year 2021"],["(in thousands, except per share data)","","Net sales","","Gross profit","","SD&A expenses","","Income from operations","","Income before income taxes","","Net income","","Basic net income per share"],["Reported results (GAAP)","","$","5,562,714","","","$","1,954,187","","","$","1,515,016","","","$","439,171","","","$","255,149","","","$","189,580","","","$","20.23"],["Fair value adjustment of acquisition related contingent consideration(1)","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","146,308","","","109,731","","","11.70"],["Fair value adjustments for commodity derivative instruments(2)","","\u2014","","","(3,469)","","","1,772","","","(5,241)","","","(5,241)","","","(3,931)","","","(0.42)"],["Supply chain optimization and consolidation(3)","","\u2014","","","7,542","","","(947)","","","8,489","","","8,489","","","6,367","","","0.68"],["Total reconciling items","","\u2014","","","4,073","","","825","","","3,248","","","149,556","","","112,167","","","11.96"],["Adjusted results (non-GAAP)","","$","5,562,714","","","$","1,958,260","","","$","1,515,841","","","$","442,419","","","$","404,705","","","$","301,747","","","$","32.19"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["Adjusted percentage change versus 2020","","12.1","%","","11.5","%","","4.8","%","","43.0","%"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","","Fiscal Year 2020"],["(in thousands, except per share data)","","Net sales","","Gross profit","","SD&A expenses","","Income from operations","","Income before income taxes","","Net income","","Basic net income per share"],["Reported results (GAAP)","","$","5,007,357","","","$","1,768,909","","","$","1,455,531","","","$","313,378","","","$","241,040","","","$","172,493","","","$","18.40"],["Fair value adjustment of acquisition related contingent consideration(1)","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","31,210","","","23,408","","","2.50"],["Fair value adjustments for commodity derivative instruments(2)","","\u2014","","","(1,996)","","","791","","","(2,787)","","","(2,787)","","","(2,090)","","","(0.22)"],["Supply chain optimization and consolidation(3)","","\u2014","","","4,984","","","596","","","4,388","","","4,388","","","3,291","","","0.35"],["Results of extra days in fiscal year(4)","","(44,174)","","","(16,280)","","","(10,765)","","","(5,515)","","","(5,515)","","","(4,137)","","","(0.44)"],["Total reconciling items","","(44,174)","","","(13,292)","","","(9,378)","","","(3,914)","","","27,296","","","20,472","","","2.19"],["Adjusted results (non-GAAP)","","$","4,963,183","","","$","1,755,617","","","$","1,446,153","","","$","309,464","","","$","268,336","","","$","192,965","","","$","20.59"]]
[[/GREPCENT_TABLE]]

Following is an explanation of non-GAAP adjustments:

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

(2)The Company enters into commodity derivative instruments from time to time to hedge some or all of its projected purchases of aluminum, PET resin, diesel fuel and unleaded gasoline in order to mitigate commodity risk. The Company accounts for its commodity derivative instruments on a mark-to-market basis.

(3)Adjustment reflects expenses within the Nonalcoholic Beverages segment as the Company continues to optimize efficiency opportunities across its business.

(4)Adjustment reflects three extra days in 2020, as compared to 2021.

Financial Condition

Total assets increased $223.1 million to $3.45 billion on December 31, 2021, as compared to $3.22 billion on December 31, 2020. Net working capital, defined as current assets less current liabilities, was $241.8 million on December 31, 2021, which was an increase of $37.6 million from December 31, 2020.

Significant changes in net working capital on December 31, 2021 from December 31, 2020 were as follows:

•An increase in cash and cash equivalents of $87.5 million primarily as a result of our strong operating performance.

•An increase in accounts receivable, trade of $46.8 million, driven primarily by increased net sales and the timing of cash receipts.

•An increase in inventories of $77.1 million, driven primarily by higher inventory levels to support anticipated consumer demand and increased input costs due to inflation.

•An increase in accounts payable, trade of $101.8 million due to the extension of payment terms for certain vendors and the timing of cash payments.

•An increase in accounts payable to The Coca‑Cola Company of $38.5 million primarily as a result of the timing of cash payments.

•An increase in accrued compensation of $23.3 million, primarily driven by improved financial results.

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Liquidity and Capital Resources

Capital Resources

The Company’s sources of capital include cash flows from operations, available credit facilities and the issuance of debt and equity securities. As of December 31, 2021, the Company had $142.3 million in cash and cash equivalents. The Company has obtained its long-term debt from public markets, private placements and bank facilities. Management believes the Company has sufficient sources of capital available to refinance its maturing debt, finance its business plan, meet its working capital requirements and maintain an appropriate level of capital spending for at least the next 12 months from the issuance of the consolidated financial statements. At this time, the Company does not expect the COVID-19 pandemic to have a material impact on its liquidity or access to capital.

The Company’s long-term debt as of December 31, 2021 and December 31, 2020 was as follows:

[[GREPCENT_TABLE]]
[["(in thousands)","","Maturity Date","","December 31, 2021","","December 31, 2020"],["2016 Term Loan Facility(1)","","6/7/2021","","$","\u2014","","","$","217,500"],["Senior notes","","2/27/2023","","125,000","","","125,000"],["2021 Term Loan Facility(2)","","7/9/2024","","\u2014","","","\u2014"],["Senior bonds and unamortized discount on senior bonds(3)","","11/25/2025","","349,966","","","349,957"],["2021 Revolving Credit Facility(4)","","7/9/2026","","\u2014","","","\u2014"],["Senior notes","","10/10/2026","","100,000","","","100,000"],["Senior notes","","3/21/2030","","150,000","","","150,000"],["Debt issuance costs","","","","(1,523)","","","(1,992)"],["Total long-term debt","","","","$","723,443","","","$","940,465"]]
[[/GREPCENT_TABLE]]

(1)As of December 31, 2020, the 2016 Term Loan Facility (as defined under “Cash Flows From Financing Activities”) balance was classified as long term as the Company intended to refinance outstanding principal payments due in the next 12 months using the 2018 Revolving Credit Facility (as defined under “Cash Flows From Financing Activities”), which was classified as long-term debt, and the Company was not restricted by any subjective acceleration clause within the agreement for the 2018 Revolving Credit Facility.

(2)The 2021 Term Loan Facility (as defined under “Cash Flows From Financing Activities”) was fully repaid during the fourth quarter of 2021.

(3)The senior bonds due in 2025 were issued at 99.975% of par.

(4)The Company’s revolving credit facility has an aggregate maximum borrowing capacity of $500 million. The Company currently believes all banks participating in the revolving credit facility have the ability to and will meet any funding requests from the Company.

The indenture under which the Company’s senior bonds were issued does not include financial covenants but does limit the incurrence of certain liens and encumbrances as well as indebtedness by the Company’s subsidiaries in excess of certain amounts. The agreements under which the Company’s nonpublic debt was issued include two financial covenants: a consolidated cash flow/fixed charges ratio and a consolidated funded indebtedness/cash flow ratio, each as defined in the respective agreement. The Company was in compliance with these covenants as of December 31, 2021. These covenants have not and are not expected to restrict the Company’s liquidity or capital resources.

All outstanding long-term debt has been issued by the Company and none has been issued by any of its subsidiaries. There are no guarantees of the Company’s debt.

The Company’s Board of Directors has declared, and the Company has paid, dividends on the Common Stock and the Class B Common Stock and each class of common stock has participated equally in all dividends each quarter for more than 25 years. The amount and frequency of future dividends will be determined by the Company’s Board of Directors in light of the earnings and financial condition of the Company at such time, and no assurance can be given that dividends will be declared or paid in the future.

The Company’s credit ratings are reviewed periodically by certain nationally recognized rating agencies. Changes in the Company’s operating results or financial position could result in changes in the Company’s credit ratings. Lower credit ratings could result in higher borrowing costs for the Company or reduced access to capital markets, which could have a material adverse impact on the

30

Company’s operating results or financial position. As of December 31, 2021, the Company’s credit ratings and outlook for its long‑term debt were as follows:

[[GREPCENT_TABLE]]
[["","","Credit Rating","","Rating Outlook"],["Moody\u2019s","","Baa1","","Stable"],["Standard & Poor\u2019s","","BBB","","Positive"]]
[[/GREPCENT_TABLE]]

The Company’s only Level 3 asset or liability is the acquisition related contingent consideration liability. There were no transfers from Level 1 or Level 2 in any period presented. Fair value adjustments were non-cash, and, therefore, did not impact the Company’s liquidity or capital resources. Following is a summary of the Level 3 activity:

[[GREPCENT_TABLE]]
[["","","Fiscal Year"],["(in thousands)","","2021","","2020"],["Beginning balance - Level 3 liability","","$","434,694","","","$","446,684"],["Payment of acquisition related contingent consideration","","(39,097)","","","(43,400)"],["Reclassification to current payables","","200","","","200"],["Increase in fair value","","146,308","","","31,210"],["Ending balance - Level 3 liability","","$","542,105","","","$","434,694"]]
[[/GREPCENT_TABLE]]

Material Contractual Obligations

The Company had a number of contractual obligations and commercial obligations as of December 31, 2021 that are material to an assessment of the Company’s short- and long-term cash requirements.

The Company has long-term debt of $725.0 million, none of which is contractually due in 2022. The remaining interest payments on the Company’s debt obligations is an estimated $124.5 million determined in reference to the contractual terms of such debt, of which an estimated $27.3 million is due in 2022.

The Company’s acquisition related contingent consideration liability relates to sub-bottling fees in distribution territories subject to sub-bottling payments required under the CBA and totaled $542.1 million as of December 31, 2021. The future expected sub-bottling payments extend through the life of the applicable distribution assets, which is generally 40 years. The Company expects to pay $51.5 million of the acquisition related contingent consideration liability in 2022, which is classified as other accrued liabilities in the consolidated balance sheets.

The Company is obligated to purchase 17.5 million cases of finished product from SAC on an annual basis through June 2024. The Company estimates this purchase obligation to be $298.0 million, of which an estimated $119.2 million of purchases is expected to occur in 2022.

The Company has $169.6 million in total minimum operating lease obligations including interest, of which $26.0 million are due in 2022. The Company has $85.2 million in total minimum financing lease obligations including interest, of which $7.1 million are due in 2022.

The Company estimates obligations for its executive benefit plans to be $178.4 million, of which an estimated $32.1 million of payments is expected to occur in 2022.

The Company participates in long-term marketing contractual arrangements with certain prestige properties, athletic venues and other locations. As of December 31, 2021, the future payments related to these contractual arrangements, which expire at various dates through 2033, amounted to $137.0 million. Payments for these contractual arrangements are expected to be $31.4 million in 2022.

The Company is a shareholder of Southeastern Container (“Southeastern”), a plastic bottle manufacturing cooperative from which the Company is obligated to purchase at least 80% of its requirements of plastic bottles for certain designated territories. This obligation has no minimum purchase requirements; however, purchases from Southeastern were $125.1 million during 2021 and are expected to remain material in future foreseeable periods. See Note 20 to the consolidated financial statements for additional information related to Southeastern.

31

Cash Sources and Uses

A summary of cash-based activity is as follows:

[[GREPCENT_TABLE]]
[["","","Fiscal Year"],["(in thousands)","","2021","","2020"],["Cash Sources:"],["Net cash provided by operating activities(1)","","$","521,755","","","$","494,461"],["Borrowings under term loan facility","","70,000","","","\u2014"],["Borrowings under revolving credit facility","","55,000","","","235,000"],["Proceeds from the sale of property, plant and equipment","","5,274","","","3,385"],["Total cash sources","","$","652,029","","","$","732,846"],["Cash Uses:"],["Payments on term loan facilities","","$","287,500","","","$","45,000"],["Additions to property, plant and equipment","","155,693","","","202,034"],["Payments on revolving credit facility","","55,000","","","280,000"],["Payments of acquisition related contingent consideration","","39,097","","","43,400"],["Cash dividends paid","","9,374","","","9,374"],["Other distribution agreements","","8,993","","","\u2014"],["Payments on financing lease obligations","","4,778","","","5,861"],["Purchase of noncontrolling interest in Piedmont","","\u2014","","","100,000"],["Other","","4,073","","","1,998"],["Total cash uses","","$","564,508","","","$","687,667"],["Net increase in cash","","$","87,521","","","$","45,179"]]
[[/GREPCENT_TABLE]]

(1)Net cash provided by operating activities in 2021 included net income tax payments of $71.0 million, payment of deferred payroll taxes under the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) of $18.7 million and pension plan contributions of $6.8 million. Net cash provided by operating activities in 2020 included net income tax payments of $55.8 million, deferral of payroll taxes under the CARES Act of $37.4 million and pension plan contributions of $16.3 million.

Cash Flows From Operating Activities

During 2021, cash provided by operating activities was $521.8 million, which was an increase of $27.3 million, as compared to 2020. The cash flows from operations were primarily the result of our strong operating performance.

Cash Flows From Investing Activities

During 2021, cash used in investing activities was $161.9 million, which was a decrease of $38.5 million, as compared to 2020. The decrease was primarily a result of additions to property, plant and equipment, which were $155.7 million during 2021 and $202.0 million during 2020. There were $35.8 million and $17.0 million of additions to property, plant and equipment accrued in accounts payable, trade as of December 31, 2021 and December 31, 2020, respectively.

The Company anticipates additions to property, plant and equipment in 2022 to be in the range of $200 million to $220 million.

Cash Flows From Financing Activities

During 2021, cash used in financing activities was $272.3 million, which was an increase of $23.4 million, as compared to 2020. The increase was primarily a result of net repayments of debt of $217.5 million in 2021, stemming from our improved financial results.

The Company had cash payments for acquisition related contingent consideration of $39.1 million during 2021 and $43.4 million during 2020. The Company anticipates that the amount it could pay annually under the acquisition related contingent consideration arrangements for the distribution territories subject to sub-bottling fees will be in the range of $35 million to $62 million.

On June 7, 2021, the Company used a combination of cash on hand and borrowings under its previous revolving credit facility (the “2018 Revolving Credit Facility”) to repay the remaining balance of its previous term loan facility (the “2016 Term Loan Facility”) that matured on that date.

32

On July 9, 2021, the Company entered into a credit agreement, providing for a five-year unsecured revolving credit facility with an aggregate maximum borrowing capacity of $500 million (the “2021 Revolving Credit Facility”), maturing on July 9, 2026. Borrowings under the 2021 Revolving Credit Facility bear interest at a base rate or adjusted LIBOR, at the Company’s option, plus an applicable rate, depending on the rating for the Company’s long-term senior unsecured, non-credit-enhanced debt (“Debt Rating”). The 2021 Revolving Credit Facility’s underlying credit agreement includes successor LIBOR rate provisions, providing that the SOFR will be used as the LIBOR replacement rate for borrowings under the facility after June 30, 2023, unless the Company and its lenders agree to an alternative reference rate based on prevailing market convention at the replacement date. In addition, the Company must pay a facility fee on the lenders’ aggregate commitments under the 2021 Revolving Credit Facility ranging from 0.060% to 0.175% per annum, depending on the Company’s Debt Rating. The Company currently believes all banks participating in the 2021 Revolving Credit Facility have the ability to and will meet any funding requests from the Company. The 2021 Revolving Credit Facility replaced the 2018 Revolving Credit Facility, which had a maturity date of June 8, 2023.

Also on July 9, 2021, the Company entered into a term loan agreement, providing for a three-year senior unsecured term loan facility in the aggregate principal amount of $70 million (the “2021 Term Loan Facility”), maturing on July 9, 2024. Borrowings under the 2021 Term Loan Facility bore interest at a base rate or adjusted LIBOR, at the Company’s option, plus an applicable rate, depending on the Company’s Debt Rating. The entire amount of the 2021 Term Loan Facility was fully drawn on July 9, 2021. The Company used approximately $55 million of the proceeds of the 2021 Term Loan Facility to repay outstanding indebtedness under the 2018 Revolving Credit Facility and used the remaining proceeds for general corporate purposes. During the fourth quarter of 2021, the Company repaid the $70 million of borrowings outstanding under the 2021 Term Loan Facility.

Hedging Activities

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

The Company uses several different financial institutions for commodity derivative instruments to minimize the concentration of credit risk. The Company has master agreements with the counterparties to its commodity derivative instruments that provide for net settlement of derivative transactions. The net impact of the commodity derivative instruments on the consolidated statements of operations was as follows:

[[GREPCENT_TABLE]]
[["","","Fiscal Year"],["(in thousands)","","2021","","2020"],["Decrease in cost of sales","","$","(12,647)","","","$","(518)"],["Increase (decrease) in SD&A expenses","","(4,183)","","","2,343"],["Net impact","","$","(16,830)","","","$","1,825"]]
[[/GREPCENT_TABLE]]

Discussion of Critical Accounting Estimates

In the ordinary course of business, the Company has made a number of estimates and assumptions relating to the reporting of results of operations and financial position in the preparation of its consolidated financial statements in conformity with GAAP. Actual results could differ significantly from those estimates under different assumptions and conditions. The Company believes the following discussion addresses the Company’s most critical accounting estimates, which are those most important to the portrayal of the Company’s 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 inherently uncertain matters.

Any changes in critical accounting estimates are discussed with the Audit Committee of the Board of Directors of the Company during the quarter in which a change is contemplated and prior to making such change.

Revenue Recognition

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.

33

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”).

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 consolidated financial statements.

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 typically collects payment from customers within 30 days from the date of sale.

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 Company’s allowance for doubtful accounts in the 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 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.

Valuation of Long-Lived Assets, Goodwill and Other Intangibles

Management performs recoverability and impairment tests of long-lived assets, goodwill and other intangibles in accordance with GAAP, during which management makes numerous assumptions which involve a significant amount of judgment. When performing impairment tests, management estimates the fair values of the assets using its best assumptions, which management believes would be consistent with what a hypothetical marketplace participant would use. Estimates and assumptions used in these tests are evaluated and updated as appropriate. For certain assets, recoverability and/or impairment tests are required only when conditions exist that indicate the carrying value may not be recoverable. For other assets, impairment tests are required at least annually, or more frequently if events or circumstances indicate that an asset may be impaired.

The Company evaluates the recoverability of the carrying amount of its property, plant and equipment and other intangibles when events or circumstances indicate the carrying amount of an asset or asset group may not be recoverable. These evaluations are performed at a level where independent cash flows may be attributed to either an asset or an asset group. If the Company determines the carrying amount of an asset or asset group is not recoverable based upon the expected undiscounted future cash flows of the asset or asset group, an impairment loss is recorded equal to the excess of the carrying amounts over the estimated fair values of the long-lived assets. During 2021 and 2020, the Company performed periodic reviews of property, plant and equipment and other intangibles and determined no material impairment existed.

All business combinations are accounted for using the acquisition method. All of the Company’s goodwill resides within one reporting unit within the Nonalcoholic Beverages reportable segment, and, therefore, the Company has determined it has one reporting unit for the purpose of assessing goodwill for potential impairment. The Company performs its annual goodwill impairment test as of the first day of the fourth quarter each year, and more frequently if facts and circumstances indicate such assets may be impaired, including significant declines in actual or future projected cash flows and significant deterioration of market conditions.

The Company uses its overall market capitalization as part of its estimate of fair value of the reporting unit and in assessing the reasonableness of the Company’s internal estimates of fair value. The Company’s goodwill impairment assessment includes a qualitative assessment to determine whether it is more likely than not that the fair value of the goodwill is below its carrying value, each year, and more often if there are significant changes in business conditions that could result in impairment. When a quantitative analysis is considered necessary for the annual impairment analysis of goodwill, the Company develops an estimated fair value for the

34

reporting unit considering three different approaches: 1) market value, using the Company’s stock price plus outstanding debt; 2) discounted cash flow analysis; and 3) multiple of earnings before interest, taxes, depreciation and amortization based upon relevant industry data.

The estimated fair value of the reporting unit is then compared to its carrying amount, including goodwill. If the estimated fair value exceeds the carrying amount, goodwill is not considered impaired. If the carrying amount, including goodwill, exceeds its estimated fair value, any excess of the carrying value of goodwill of the reporting unit over its fair value is recorded as an impairment. The Company performed its annual impairment test of goodwill as of the first day of the fourth quarter during both 2021 and 2020 and determined there was no impairment of the carrying values of these assets. The Company has determined there has not been an interim impairment trigger since the first day of the fourth quarter of 2021 annual test date.

Acquisition Related Contingent Consideration Liability

The acquisition related contingent consideration liability consists of the estimated amounts due to The Coca‑Cola Company under the CBA with The Coca‑Cola Company and CCR over the useful life of the related distribution rights. 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. This acquisition related contingent consideration is valued using a probability weighted discounted cash flow model based on internal forecasts and the WACC derived from market data, which are considered Level 3 inputs.

Each reporting period, the Company adjusts its acquisition related contingent consideration liability related to the distribution territories subject to sub-bottling fees to fair value by discounting future expected sub-bottling payments required under the CBA using the Company’s estimated WACC. These future expected sub-bottling payments extend through the life of the related distribution assets acquired in each distribution territory, which is generally 40 years. As a result, the fair value of the acquisition related contingent consideration liability is impacted by the Company’s WACC, management’s estimate of the amounts that will be paid in the future under the CBA and current sub-bottling payments (all Level 3 inputs). Changes in any of these Level 3 inputs, particularly the underlying risk-free interest rate used to estimate the Company’s WACC, could result in material changes to the fair value of the acquisition related contingent consideration and could materially impact the amount of non-cash expense (or income) recorded each reporting period.

Income Tax Estimates

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to operating losses and tax credit carryforwards, as well as the differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

A valuation allowance will be provided against deferred tax assets if the Company determines it is more likely than not such assets will not ultimately be realized.

The Company does not recognize a tax benefit unless it concludes that it is more likely than not that the benefit will be sustained on audit by the taxing authority based solely on the technical merits of the associated tax position. If the recognition threshold is met, the Company recognizes a tax benefit measured at the largest amount of the tax benefit that, in the Company’s judgment, is greater than 50 percent likely to be realized. The Company records interest and penalties related to uncertain tax positions in income tax expense.

Pension and Postretirement Benefit Obligations

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

Several statistical and other factors, which attempt to anticipate future events, are used in calculating the expense and liability related to the plans. These factors include assumptions about the discount rate, expected return on plan assets, employee turnover and age at retirement, as determined by the Company, within certain guidelines. In addition, the Company uses subjective factors such as mortality rates to estimate the projected benefit obligation. The actuarial assumptions used by the Company may differ materially from actual results due to changing market and economic conditions, higher or lower withdrawal rates or longer or shorter life spans of

35

participants. These differences may result in a significant impact to the amount of net periodic pension cost recorded by the Company in future periods. See Note 17 to the consolidated financial statements for additional information.

The discount rate used in determining the actuarial present value of the projected benefit obligation for the Primary Plan and the Bargaining Plan was 2.97% and 3.31%, respectively, in 2021 and 2.66% and 3.12%, respectively, in 2020. The discount rate assumption is generally the estimate which can have the most significant impact on net periodic pension cost and the projected benefit obligation for these pension plans. The Company determines an appropriate discount rate annually based on the Aon AA Above Median yield curve as of the measurement date and reviews the discount rate assumption at the end of each year.

Pension costs were $9.3 million in 2021 and $8.3 million in 2020.

A 0.25% increase or decrease in the discount rate assumption would have impacted the projected benefit obligation and net periodic pension cost of the Company-sponsored pension plans as follows:

[[GREPCENT_TABLE]]
[["(in thousands)","","0.25% Increase","","0.25% Decrease"],["Increase (decrease) in:"],["Projected benefit obligation for Primary Plan at December 31, 2021","","$","(10,250)","","","$","10,720"],["Net periodic pension cost for Primary Plan in 2021","","63","","","(89)"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(in thousands)","","0.25% Increase","","0.25% Decrease"],["Increase (decrease) in:"],["Projected benefit obligation for Bargaining Plan at December 31, 2021","","$","(2,671)","","","$","2,890"],["Net periodic pension cost for Bargaining Plan in 2021","","(647)","","","700"]]
[[/GREPCENT_TABLE]]

The weighted average expected long-term rate of return of plan assets used in computing net periodic pension costs for the Primary Plan was 4.75% in 2021 and 5.50% in 2020. The weighted average expected long-term rate of return of plan assets used in computing net periodic pension costs for the Bargaining Plan was 5.75% in 2021 and 6.25% in 2020. These rates reflect an estimate of long-term future returns for the pension plan assets. This estimate is primarily a function of the asset classes (equities versus fixed income) in which the pension plan assets are invested and the analysis of past performance of these asset classes over a long period of time. This analysis includes expected long-term inflation and the risk premiums associated with equity and fixed income investments. See Note 17 to the consolidated financial statements for the details by asset type of the Company’s pension plan assets and the weighted average expected long-term rate of return of each asset type. The actual return on pension plan assets for the Primary Plan was a gain of 5.0% in 2021 and 14.3% in 2020. The actual return on pension plan assets for the Bargaining Plan was a gain of 10.5% in 2021 and 13.9% in 2020.

The Company sponsors a postretirement healthcare plan for employees meeting specified qualifying criteria. Several statistical and other factors, which attempt to anticipate future events, are used in calculating the net periodic postretirement benefit cost and postretirement benefit obligation for this plan. These factors include assumptions about the discount rate and the expected growth rate for the cost of healthcare benefits. In addition, the Company uses subjective factors such as withdrawal and mortality rates to estimate the projected liability under this plan. The actuarial assumptions used by the Company may differ materially from actual results due to changing market and economic conditions, higher or lower withdrawal rates or longer or shorter life spans of participants. The Company does not prefund its postretirement benefits and has the right to modify or terminate certain of these benefits in the future.

The discount rate assumption, the annual healthcare cost trend and the ultimate trend rate for healthcare costs are key estimates which can have a significant impact on the net periodic postretirement benefit cost and postretirement benefit obligation in future periods. The Company annually determines the healthcare cost trend based on recent actual medical trend experience and projected experience for subsequent years.

The discount rate assumptions used to determine the pension and postretirement benefit obligations are based on the annual yield on long-term corporate bonds as of each plan’s measurement date. The discount rate used in determining the postretirement benefit obligation was 2.98% in 2021 and 2.70% in 2020. The discount rate was derived using the Aon AA Above Median yield curve. Projected benefit payouts for each plan were matched to the Aon AA Above Median yield curve and an equivalent flat rate was derived.

36

A 0.25% increase or decrease in the discount rate assumption would have impacted the postretirement benefit obligation and service cost and interest cost of the Company’s postretirement benefit plan as follows:

[[GREPCENT_TABLE]]
[["(in thousands)","","0.25% Increase","","0.25% Decrease"],["Increase (decrease) in:"],["Postretirement benefit obligation at December 31, 2021","","$","(1,941)","","","$","2,047"],["Net periodic postretirement benefit cost in 2021","","(163)","","","171"]]
[[/GREPCENT_TABLE]]

Cautionary Information Regarding Forward-Looking Statements

Certain statements contained in this report, or in other public filings, press releases, or other written or oral communications made by the Company or its representatives, which are not historical facts, are forward-looking statements subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements address, among other things, Company plans, activities or events which the Company expects will or may occur in the future and may include express or implied projections of revenue or expenditures; statements of plans and objectives for future operations, growth or initiatives; statements of future economic performance, including, but not limited to, the state of the economy, capital investment and financing plans, net sales, cost of sales, SD&A expenses, gross profit, income tax rates, net income per diluted share, dividends, pension plan contributions and estimated acquisition related contingent consideration payments; statements regarding the outcome or impact of certain recent accounting pronouncements and pending or threatened litigation; or statements regarding the impact of the COVID-19 pandemic on the Company’s business, financial condition, results of operations or cash flows.

These forward-looking statements may be identified by the use of the words “will,” “may,” “believe,” “plan,” “estimate,” “expect,” “anticipate,” “probably,” “should,” “project,” “intend,” “continue,” “could,” “strive” and other similar terms and expressions. Various factors, risks and uncertainties may cause the Company’s actual results to differ materially from those expressed or implied in any forward-looking statements. Factors, risks and uncertainties that may result in actual results differing from such forward-looking information include, but are not limited to, those listed in “Item 1A. Risk Factors” of this report and elsewhere herein, including, without limitation, the factors described under “Critical Accounting Estimates” in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation” of this report, or in other filings or statements made by the Company. All of the forward-looking statements in this report and other documents or statements are qualified by these and other factors, risks and uncertainties.

Caution should be taken not to place undue reliance on the forward-looking statements included in this report. The Company assumes no obligation to update any forward-looking statements, even if experience or future changes make it clear that projected results expressed or implied in such statements will not be realized, except as may be required by law. In evaluating forward-looking statements, these risks and uncertainties should be considered, together with the other risks described from time to time in the Company’s other reports and documents filed with the SEC.