COCA-COLA CONSOLIDATED, INC. The following Management's Discussion and Analysis of Financial Condition and Results of Operations of CocaCola Consolidated, Inc., aDelaware corporation (together with its majority-owned subsidiaries, the "Company," "we," "us" or "our"), should be read in conjunction with the condensed consolidated financial statements of the Company and the accompanying notes to the condensed consolidated financial statements. The condensed consolidated financial statements include the consolidated operations of the Company and its majority-owned subsidiaries. All comparisons are to the corresponding period in the prior year unless specified otherwise. Each of the Company's quarters, other than the fourth quarter, ends on the Friday closest to the last day of the corresponding quarterly calendar period. The Company's fourth quarter and fiscal year end onDecember 31 regardless of the day of the week on whichDecember 31 falls. The condensed consolidated financial statements presented are: •The financial position as ofApril 1, 2022 andDecember 31, 2021 . •The results of operations, comprehensive income and changes in stockholders' equity for the three-month periods endedApril 1, 2022 (the "first quarter" of fiscal 2022 ("2022")) andApril 2, 2021 (the "first quarter" of fiscal 2021 ("2021")). •The changes in cash flows for the first quarter of 2022 and the first quarter of 2021.
Our Business and the Nonalcoholic Beverage Industry
We distribute, market and manufacture nonalcoholic beverages in territories spanning 14 states and theDistrict of Columbia . The Company was incorporated in 1980 and, together with its predecessors, has been in the nonalcoholic beverage manufacturing and distribution business since 1902. We are the largest CocaCola bottler inthe United States . Approximately 86% of our total bottle/can sales volume to retail customers consists of products of The CocaCola Company, which include some of the most recognized and popular beverage brands in the world. We also distribute products for several other beverage companies, including Keurig Dr Pepper Inc. ("Dr Pepper") andMonster Energy Company ("Monster Energy"). Our purpose is to honor God in all we do, serve others, pursue excellence and grow profitably. Our Common Stock is traded on the NASDAQ Global Select Market under the symbol COKE. We offer a range of nonalcoholic beverage products and flavors, including both sparkling and still beverages, designed to meet the demands of our consumers. Sparkling beverages are carbonated beverages and the Company's principal sparkling beverage is CocaCola. Still beverages include energy products and noncarbonated beverages such as bottled water, ready to drink tea, ready to drink coffee, enhanced water, juices and sports drinks. Our sales are divided into two main categories: (i) bottle/can sales and (ii) other sales. Bottle/can sales include products packaged primarily in plastic bottles and aluminum cans. 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 CocaCola 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 products are sold and distributed inthe 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 locations, 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 nonalcoholic beverage industry is highly competitive for both sparkling and still beverages. Our competitors include bottlers and distributors of nationally and regionally advertised and marketed products, as well as bottlers and distributors of private label beverages. Our principal competitors include local bottlers of PepsiCo, Inc. products and, in some regions, local bottlers of Dr Pepper products. The principal methods of competition in the nonalcoholic beverage industry are new brand and product introductions, point-of-sale merchandising, new vending and dispensing equipment, packaging changes, pricing, sales promotions, product quality, retail space management, customer service, frequency of distribution and advertising. We believe we are competitive in our territories with respect to these methods of competition. 24 -------------------------------------------------------------------------------- Business seasonality results primarily from higher unit sales of the Company's products in the second and third quarters of the fiscal year, as sales of our products are typically correlated with warmer weather. We believe that we and other manufacturers from whom we purchase finished products have adequate production capacity to meet sales demand for sparkling and still beverages during these peak periods. Sales volume can also be impacted by weather conditions. Fixed costs, such as depreciation expense, are not significantly impacted by business seasonality.
Executive Summary
Net sales increased 11% to$1.40 billion in the first quarter of 2022, while physical case volume decreased 0.6%. The increase in net sales was driven primarily by pricing actions taken on most of our Sparkling and Still beverages during the second half of 2021 and the beginning of 2022. While Sparkling beverage volume decreased 1.5% in the quarter, category demand remained strong when considering the higher pricing in the marketplace. Sales of single-serve products sold in small stores and other immediate consumption channels continued to perform well as on-premise outlets return to pre-pandemic operating levels. Sparkling immediate consumption packages were up 4.6% in the quarter. Still beverage volume increased 1.6% in the quarter driven primarily by BODYARMOR, which we began distributing in our Mid-Atlantic territory at the beginning of 2022. Gross profit in the first quarter of 2022 increased$58.9 million , or 13%, while gross margin improved 80 basis points to 36.1%. On an adjusted basis, as defined in the "Adjusted Non-GAAP Results" section, gross profit in the first quarter of 2022 was$500.1 million , which represented an increase of$51.4 million or 12%. Adjusted gross margin was 35.6%, an increase of 30 basis points compared to the first quarter of 2021. The improvement in gross profit was primarily due to strong price realization which led to improved gross margins during this period of high commodity price inflation. Selling, delivery and administrative ("SD&A") expenses in the first quarter of 2022 increased$22.1 million , or 6%. SD&A expenses as a percentage of net sales decreased 110 basis points to 26.8% in the first quarter of 2022. The increase in SD&A expenses related primarily to an increase in payroll expenses as a result of compensation adjustments made in 2021 in order to remain competitive in a tight labor market. In addition, higher levels of inflation contributed to the overall increase in SD&A expenses across a number of spending categories.
Income from operations in the first quarter of 2022 was
Net income in the first quarter of 2022 was
Cash flows provided by operations for the first quarter of 2022 were$130.9 million , compared to$81.9 million for the first quarter of 2021. The significant increase in operating cash flows for the first quarter of 2022 was a result of our strong operating performance. We continue to invest in long-term strategic projects to optimize our supply chain and broaden our brand portfolio. Two investments made during the first quarter were the purchase of ourCharlotte, N.C. production facility for$60.0 million and the acquisition of the BODYARMOR distribution rights in our Mid-Atlantic territory for$30.1 million .
COVID-19 Impact
The Company continues to diligently monitor and manage through the impact of the ongoing 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. Such actions include following prescribed Company and other accepted health and safety standards and protocols, including those adopted by theCenters for Disease Control and Prevention (the "CDC") and local health authorities. Risk mitigation and safety activities continue; examples include adhering to sanitation protocols and promoting hygiene practices recommended by theCDC ; offering supplemental sick time for non-exempt teammates; and modifying our health and welfare plans for COVID-19-related events. At this time and based on current trends, we do not 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. 25 --------------------------------------------------------------------------------
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 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.
Results of Operations
First Quarter Results
The Company's results of operations for the first quarter of 2022 and the first
quarter of 2021 are highlighted in the table below and discussed in the
following paragraphs.
First Quarter
(in thousands) 2022 2021 Change
Net sales $ 1,404,358 $ 1,269,857 $ 134,501
Cost of sales 896,782 821,154 75,628
Gross profit 507,576 448,703 58,873
Selling, delivery and administrative expenses 376,591 354,519 22,072
Income from operations 130,985 94,184 36,801
Interest expense, net 7,699 8,746 (1,047)
Other (income) expense, net (3,279) 12,055 (15,334)
Income before taxes 126,565 73,383 53,182
Income tax expense 33,175 20,020 13,155
Net income 93,390 53,363 40,027
Other comprehensive income, net of tax 815 1,332 (517)
Comprehensive income $ 94,205 $ 54,695 $ 39,510
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Net sales increased$134.5 million , or 10.6%, to$1.40 billion in the first quarter of 2022, as compared to$1.27 billion in the first quarter of 2021. The increase in net sales was primarily attributable to the following (in millions): First Quarter 2022 Attributable to: $ 140.0 Increase in net sales related to price increases and the shift in product mix. Approximately 80% of this increase was driven by an increase in average bottle/can sales price per unit charged to retail customers, while approximately 20% was related to the shift in product mix to higher revenue still products in order to meet consumer preferences. (7.7) Decreased physical case volume 2.2 Other $ 134.5 Total increase in net sales
Net sales by product category were as follows:
First Quarter
(in thousands) 2022 2021 % Change
Bottle/can sales:
Sparkling beverages $ 775,584 $ 694,179 11.7 %
Still beverages 467,933 420,056 11.4 %
Total bottle/can sales 1,243,517 1,114,235 11.6 %
Other sales:
Sales to other CocaCola bottlers 84,296 81,658 3.2 %
Post-mix and other 76,545 73,964 3.5 %
Total other sales 160,841 155,622 3.4 %
Total net sales $ 1,404,358 $ 1,269,857 10.6 %
Product category sales volume of physical cases and the percentage change by product category were as follows:
First Quarter
(in thousands) 2022 2021 % Change
Bottle/can sales volume:
Sparkling beverages 60,182 61,116 (1.5) %
Still beverages 26,220 25,801 1.6 %
Total bottle/can sales volume 86,402 86,917 (0.6) %
The following table summarizes the percentage of the Company's total bottle/can sales volume to its largest customers, as well as the percentage of the Company's total net sales that such volume represents:
First Quarter
2022 2021
Approximate percent of the Company's total bottle/can
sales volume:
Wal-Mart Stores, Inc. 20 % 20 %
The Kroger Company 12 % 13 %
Total approximate percent of the Company's total
bottle/can sales volume 32 % 33 %
Approximate percent of the Company's total net sales: Wal-Mart Stores, Inc.
15 % 14 %
The Kroger Company 9 % 9 %
Total approximate percent of the Company's total net
sales 24 % 23 %
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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$75.6 million , or 9.2%, to$896.8 million in the first quarter of 2022, as compared to$821.2 million in the first quarter of 2021. The increase in cost of sales was primarily attributable to the following (in millions): First Quarter 2022 Attributable to: $ 87.3 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
(4.3) Decreased physical case volume
(7.4) Other
$ 75.6 Total increase in cost of sales
The Company relies extensively on advertising and sales promotions in the
marketing of its products. The CocaCola 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 CocaCola Company and other beverage companies, which includes both direct
payments to the Company and payments to customers for marketing programs, was
$34.4 million in the first quarter of 2022 and $30.0 million in the first
quarter of 2021.
Selling, Delivery and Administrative Expenses
SD&A expenses include the following: sales management labor costs, distribution costs resulting from transporting finished products from distribution centers to customer locations, distribution center overhead including depreciation expense, distribution center warehousing costs, delivery vehicles and cold drink equipment, point-of-sale expenses, advertising expenses, cold drink equipment repair costs, amortization of intangible assets and administrative support labor and operating costs. SD&A expenses increased$22.1 million , or 6.2%, to$376.6 million in the first quarter of 2022, as compared to$354.5 million in the first quarter of 2021. SD&A expenses as a percentage of net sales decreased to 26.8% in the first quarter of 2022 from 27.9% in the first quarter of 2021. The increase in SD&A expenses was primarily attributable to the following (in millions): First Quarter 2022 Attributable to: $ 20.0 Increase in payroll expenses as a result of compensation adjustments which were made in order to remain competitive in a tight labor market 2.1 Other $ 22.1 Total increase in SD&A expenses
Shipping and handling costs included in SD&A expenses were
Interest Expense, Net
Interest expense, net decreased$1.0 million , or 12.0%, to$7.7 million in the first quarter of 2022, as compared to$8.7 million in the first quarter of 2021. The decrease was primarily a result of lower average debt balances. 28 --------------------------------------------------------------------------------
Other (Income) Expense, Net
A summary of other (income) expense, net is as follows:
First Quarter
(in thousands) 2022 2021
Increase (decrease) in the fair value of the acquisition $ (5,457) $ 10,998
related contingent consideration liability
Non-service cost component of net periodic benefit cost 2,178 1,057
Total other (income) expense, net $
(3,279)
Each reporting period, the Company adjusts its acquisition related contingent
consideration liability related to the distribution territories subject to
acquisition related sub-bottling payments to fair value. The fair value is
determined by discounting future expected acquisition related sub-bottling
payments required under the Company's comprehensive beverage agreements, 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 acquisition related
sub-bottling payment on a quarterly basis.
The decrease in the fair value of the acquisition related contingent
consideration liability in the first quarter of 2022 as compared to the first
quarter of 2021 was primarily driven by an increase in the discount rate used to
calculate fair value.
Income Tax Expense
The Company's effective income tax rate was 26.2% for the first quarter of 2022
and 27.3% for the first quarter of 2021. The Company's income tax expense
increased $13.2 million , or 65.7%, to $33.2 million for the first quarter of
2022, as compared to $20.0 million for the first quarter of 2021. The increase
in income tax expense was primarily attributable to higher income before taxes
during the first quarter of 2022 compared to the first quarter of 2021.
Other Comprehensive Income, Net of Tax
Other comprehensive income, net of tax was
Segment Operating Results
The Company evaluates segment reporting in accordance with 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."
29
--------------------------------------------------------------------------------The Company's segment results are as follows:
First Quarter
(in thousands) 2022 2021
Net sales:
Nonalcoholic Beverages $ 1,373,221 $ 1,235,090
All Other 96,163 89,949
Eliminations(1) (65,026) (55,182)
Consolidated net sales $ 1,404,358 $ 1,269,857
Income from operations:
Nonalcoholic Beverages $ 134,558 $ 95,042
All Other (3,573) (858)
Consolidated income from operations
(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. Adjusted Non-GAAP Results The Company reports its financial results in accordance with accounting principles generally accepted inthe United States ("GAAP"). However, management believes that 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 adjusted results (non-GAAP):
First Quarter 2022
(in thousands, except per Income from Income before Basic net income
share data) Gross profit SD&A expenses operations taxes Net income per share
Reported results (GAAP) $ 507,576 $ 376,591 $ 130,985 $ 126,565 $ 93,390 $ 9.96
Fair value adjustment of
acquisition related contingent
consideration(1) - - - (5,457) (4,109) (0.44)
Fair value adjustments for
commodity derivative
instruments(2) (7,494) 6,225 (13,719) (13,719) (10,330) (1.10)
Supply chain optimization(3) 5 (39) 44 44 33 -
Total reconciling items (7,489) 6,186 (13,675) (19,132) (14,406) (1.54)
Adjusted results (non-GAAP)
$ 117,310 $ 107,433 $ 78,984 $ 8.42 First Quarter 2021
(in thousands, except per Income from Income before Basic net income share data) Gross profit SD&A expenses operations taxes Net income per share Reported results (GAAP)$ 448,703 $ 354,519 $ 94,184 $ 73,383 $ 53,363 $ 5.69 Fair value adjustment of acquisition related contingent consideration(1) - - - 10,998 8,249 0.89 Fair value adjustments for commodity derivative instruments(2) (288) 560 (848) (848) (636) (0.07) Supply chain optimization(3) 276 (106) 382 382 287 0.03 Total reconciling items (12) 454 (466) 10,532 7,900 0.85 Adjusted results (non-GAAP)$ 448,691 $ 354,973 $ 93,718 $ 83,915 $ 61,263 $ 6.54 30
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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 acquisition related sub-bottling payments. (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.
Financial Condition
Total assets were$3.43 billion as ofApril 1, 2022 , which was a decrease of$19.6 million fromDecember 31, 2021 . Net working capital, defined as current assets less current liabilities, was$157.1 million as ofApril 1, 2022 , which was a decrease of$84.7 million fromDecember 31, 2021 .
Significant changes in net working capital as of
•A decrease in inventories of$26.6 million primarily as a result of consumption of higher inventory levels, which were built in anticipation of increased input costs due to inflation, as ofDecember 31, 2021 . •An increase in current portion of debt of$125.0 million due to the Company's senior notes maturing onFebruary 27, 2023 . •A decrease in accounts payable, trade of$45.6 million due to the timing of cash payments. •A decrease in accrued compensation of$37.6 million , primarily as a result of the timing of bonus and incentive payments in the first quarter of 2022.
Liquidity and Capital Resources
The Company's sources of capital include cash flows from operations, available credit facilities and the issuance of debt and equity securities. As ofApril 1, 2022 , the Company had$127.1 million in cash and cash equivalents. The Company has obtained its debt from public markets, private placements and bank facilities. Management believes the Company has sufficient sources of capital available to repay its maturing debt, finance its business plan, meet its working capital requirements and maintain an appropriate level of capital spending for at least the next 12 months from the issuance of the condensed consolidated financial statements. At this time, the Company does not expect the COVID-19 pandemic to have a material impact on its liquidity or access to capital. The Company's debt as ofApril 1, 2022 andDecember 31, 2021 was as follows: (in thousands) Maturity Date April 1, 2022 December 31, 2021 Senior notes 2/27/2023$ 125,000 $ 125,000 Senior bonds and unamortized discount on senior bonds(1) 11/25/2025 349,968 349,966 2021 Revolving Credit Facility 7/9/2026 - - Senior notes 10/10/2026 100,000 100,000 Senior notes 3/21/2030 150,000 150,000 Debt issuance costs (1,394) (1,523) Total debt$ 723,574 $ 723,443
(1)The senior bonds due in 2025 were issued at 99.975% of par.
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 ofApril 1, 2022 . These covenants have not and are not expected to restrict the Company's liquidity or capital resources.
All outstanding 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.
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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 Company's operating results or financial position. As of April 1, 2022 , the
Company's credit ratings and outlook for its debt were as follows:
Credit Rating Rating Outlook
Moody's Baa1 Stable
Standard & Poor's BBB Positive
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:
First Quarter
(in thousands) 2022
2021
Beginning balance - Level 3 liability$ 542,105 $ 434,694 Payments of acquisition related contingent consideration (9,822)
(10,046)
Reclassification to current payables 1,100
100
Increase (decrease) in fair value (5,457)
10,998
Ending balance - Level 3 liability$ 527,926 $ 435,746 Cash Sources and Uses
A summary of cash-based activity is as follows:
First Quarter
(in thousands) 2022 2021
Cash Sources:
Net cash provided by operating activities(1) $ 130,881 Proceeds from the sale of property, plant and equipment 2,178 74 Total cash sources$ 133,059 $ 81,984 Cash Uses: Additions to property, plant and equipment$ 104,353 $ 37,204 Acquisition of BODYARMOR distribution rights 30,149
1,998
Payments of acquisition related contingent consideration 9,822
10,046
Cash dividends paid 2,344
2,343
Payments on financing lease obligations 1,375
1,447
Payments on term loan facility - 31,250 Other 245 661 Total cash uses$ 148,288 $ 84,949 Net decrease in cash during period$ (15,229)
(1)Net cash provided by operating activities included net income tax payments of$1.2 million in the first quarter of 2022 and$0.6 million in the first quarter of 2021. 32 --------------------------------------------------------------------------------
Cash Flows From Operating Activities
During the first quarter of 2022, cash provided by operating activities was$130.9 million , which was an increase of$49.0 million as compared to the first quarter of 2021. The cash flows from operations were primarily the result of our strong operating performance.
Cash Flows From Investing Activities
During the first quarter of 2022, cash used in investing activities was$132.5 million , which was an increase of$92.9 million as compared to the first quarter of 2021. The increase was primarily a result of additions to property, plant and equipment, which were$104.4 million during the first quarter of 2022 and$37.2 million during the first quarter of 2021. There were$12.7 million and$16.2 million of additions to property, plant and equipment accrued in accounts payable, trade as ofApril 1, 2022 andApril 2, 2021 , respectively. OnJanuary 1, 2022 , the Company acquired$30.1 million of BODYARMOR distribution rights. OnMarch 17, 2022 ,CCBCC Operations, LLC , a wholly owned subsidiary of the Company, purchased the Snyder Production Center and an adjacent sales facility inCharlotte, North Carolina for a purchase price of$60.0 million , which was included in additions to property, plant and equipment.
The Company anticipates additions to property, plant and equipment in 2022 to be
in the range of
Cash Flows From Financing Activities
During the first quarter of 2022, cash used in financing activities was$13.6 million , which was a decrease of$31.6 million as compared to the first quarter of 2021. The decrease was primarily a result of payments on the Company's term loan facility made during the first quarter of 2021 that did not recur in the first quarter of 2022. The Company had cash payments for acquisition related contingent consideration of$9.8 million during the first quarter of 2022 and$10.0 million during the first quarter of 2021. The Company anticipates that the amount it could pay annually under the acquisition related contingent consideration arrangements for the distribution territories subject to acquisition related sub-bottling payments will be in the range of$38 million to$64 million . During 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 that matured onJune 7, 2021 . Also during 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 onJuly 9, 2026 . Borrowings under the 2021 Revolving Credit Facility bear interest at a base rate or adjusted London InterBank Offered Rate ("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 Secured Overnight Financing Rate will be used as the LIBOR replacement rate for borrowings under the facility afterJune 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. Also during 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 onJuly 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 and subsequently repaid during 2021.
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
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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 condensed consolidated
statements of operations was as follows:
First Quarter
(in thousands) 2022 2021
Decrease in cost of sales $ (10,493) $ (962)
Decrease in SD&A expenses (8,444) (844)
Net impact $ (18,937) $ (1,806) Cautionary Note Regarding Forward-Looking Statements
Certain statements made in this report, or in other public filings, press releases, or other written or oral communications made by the Company, 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 involve risks and uncertainties which we expect will or may occur in the future and may impact our business, financial condition and results of operations. The words "anticipate," "believe," "expect," "intend," "project," "may," "will," "should," "could" and similar expressions are intended to identify those forward-looking statements. These forward-looking statements reflect the Company's best judgment based on current information, and, although we base these statements on circumstances that we believe to be reasonable when made, there can be no assurance that future events will not affect the accuracy of such forward-looking information. As such, the forward-looking statements are not guarantees of future performance, and actual results may vary materially from the projected results and expectations discussed in this report. Factors that might cause the Company's actual results to differ materially from those anticipated in forward-looking statements include, but are not limited to: increased costs (including due to inflation), disruption of supply or unavailability or shortages of raw materials, fuel and other supplies; the inability to attract and retain front-line employees in a tight labor market; the reliance on purchased finished products from external sources; changes in public and consumer perception and preferences, including concerns related to product safety and sustainability, artificial ingredients, brand reputation and obesity; the COVID-19 pandemic and other pandemic outbreaks in the future; changes in government regulations related to nonalcoholic beverages, including regulations related to obesity, public health, artificial ingredients and product safety and sustainability; decreases from historic levels of marketing funding support provided to us by The CocaCola Company and other beverage companies; material changes in the performance requirements for marketing funding support or our inability to meet such requirements; decreases from historic levels of advertising, marketing and product innovation spending by The CocaCola Company and other beverage companies, or advertising campaigns that are negatively perceived by the public; any failure of the several CocaCola system governance entities of which we are a participant to function efficiently or on our best behalf and any failure or delay of ours to receive anticipated benefits from these governance entities; provisions in our beverage distribution and manufacturing agreements with The CocaCola Company that could delay or prevent a change in control of us or a sale of our CocaCola distribution or manufacturing businesses; the concentration of our capital stock ownership; our inability to meet requirements under our beverage distribution and manufacturing agreements; changes in the inputs used to calculate our acquisition related contingent consideration liability; technology failures or cyberattacks on our technology systems or our effective response to technology failures or cyberattacks on our customers', suppliers' or other third parties' technology systems; unfavorable changes in the general economy; changes in our top customer relationships and marketing strategies; lower than expected net pricing of our products resulting from continued and increased customer and competitor consolidations and marketplace competition; the effect of changes in our level of debt, borrowing costs and credit ratings on our access to capital and credit markets, operating flexibility and ability to obtain additional financing to fund future needs; the failure to attract, train and retain qualified employees while controlling labor costs, and other labor issues; the failure to maintain productive relationships with our employees covered by collective bargaining agreements, including failing to renegotiate collective bargaining agreements; changes in accounting standards; our use of estimates and assumptions; changes in tax laws, disagreements with tax authorities or additional tax liabilities; changes in legal contingencies; natural disasters, changing weather patterns and unfavorable weather; climate change or legislative or regulatory responses to such change; and the risks discussed in "Item 1A. Risk Factors" of the Company's Annual Report on Form 10-K for the fiscal year endedDecember 31, 2021 and elsewhere in this report. 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 except as may be required by law. In evaluating forward-looking 34
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statements, these risks and uncertainties should be considered, together with the other risks described from time to time in the Company's reports and other filings with theUnited States Securities and Exchange Commission .
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