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. All comparisons are to the corresponding period in the prior year unless specified otherwise.
The Company's fiscal year generally ends on the Sunday closest to
•The financial position as ofSeptember 27, 2020 andDecember 29, 2019 . •The results of operations and comprehensive income for the 13-week periods endedSeptember 27, 2020 (the "third quarter" of fiscal 2020 ("2020")) andSeptember 29, 2019 (the "third quarter" of fiscal 2019 ("2019")), and the 39-week periods endedSeptember 27, 2020 (the "first nine months" of 2020) andSeptember 29, 2019 (the "first nine months" of 2019). •The changes in cash flows and equity for the first nine months of 2020 and the first nine months of 2019.
The condensed consolidated financial statements include the consolidated operations of the Company and its majority-owned subsidiaries, including Piedmont CocaCola Bottling Partnership ("Piedmont"), the Company's only subsidiary with a significant noncontrolling interest. This noncontrolling interest consists of The CocaCola Company's interest in Piedmont, which was 22.7% for all periods presented.
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 84% 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, includingBA Sports Nutrition, LLC ("BodyArmor"), Keurig Dr Pepper Inc. ("Dr Pepper") andMonster Energy Company . Our purpose is to honor God in all we do, serve others, pursue excellence and grow profitably. Our 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, 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. 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. 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. 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" accounts, where products are typically consumed immediately, such as restaurants, schools, amusement parks and recreational facilities, and selling through other channels such as vending machine outlets. The 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 27 -------------------------------------------------------------------------------- space management, customer service, frequency of distribution and advertising. We believe we are competitive in our territories with respect to these methods of competition. Business seasonality results primarily from higher unit sales of the Company's products in the second and third quarters of the fiscal year. 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
Physical case volume increased 3.9% in the third quarter of 2020, as sales of multi-serve packages in larger retail stores remained strong and single-serve sales began to gradually improve in small stores and accounts where our products are consumed on-premise. Sparkling category volume increased 3.6% in the third quarter of 2020, while Still beverages grew 4.5%. Still beverage sales are more tied to smaller outlets than our Sparkling category, and sales of Still products improved as certain government-imposed restrictions were eased or lifted during the third quarter. While volume growth was strong for the third quarter of 2020, sales volume softened in the last two months of the quarter. Revenue increased 4.5% in the third quarter of 2020. Revenue from our bottle/can Sparkling beverages increased 7.0% in the third quarter of 2020, driven primarily by volume growth and price realization within this category. Sales of multi-serve PET packages were especially strong in the quarter as we adjusted our commercial plans to emphasize PET packages and limit product assortment in cans as demand for aluminum cans has exceeded supply this year. Revenue from our Still beverages increased 6.0% in the third quarter of 2020 as a result of higher sales volume in small stores and on-premise outlets. Revenue from fountain syrup, which is primarily sold through restaurants, convenience stores, amusement parks, and other on-premise outlets, declined$19.5 million , or 35.2%, during the third quarter of 2020. While the decline in fountain syrup revenue was significant, we are experiencing gradual improvement within this revenue stream as compared to the second quarter of 2020, as traffic continues to increase at our on-premise outlets. For the first nine months of 2020, revenue increased$81.1 million , or 2.2%. While sales within our Sparkling and Still categories grew 5.8% and 3.2% for the first nine months of 2020, respectively, fountain syrup sales decreased 33.8%. Gross profit increased$40.2 million , or 9.3%, in the third quarter of 2020, while gross margin increased 160 basis points to 35.6%. On an adjusted basis, as defined in the "Adjusted Non-GAAP Results" section below, gross profit increased$39.0 million , or 9.0%, in the third quarter of 2020. The improvement in gross profit and gross margin was primarily due to price realization within our Sparkling category, favorable input costs, and lower manufacturing costs. Gross profit in the first nine months of 2020 increased$49.7 million , or 4.0%, while gross margin increased 60 basis points to 35.1%. On an adjusted basis, gross profit increased$47.9 million compared to the first nine months of 2019. Selling, delivery and administrative ("SD&A") expenses in the third quarter of 2020 decreased$9.8 million , or 2.6%. SD&A expenses as a percentage of net sales decreased 210 basis points in the third quarter of 2020. Adjusted SD&A expenses in the third quarter of 2020 decreased$7.4 million , or 2.0%. The decrease in SD&A expenses related to lower labor and benefits costs as a result of adjustments we made to our operating model earlier in the year in response to COVID-19-related impacts on our business. Additionally, we generated favorable results in a number of expense categories due to the diligent management of our variable operating expenses. SD&A expenses in the first nine months of 2020 decreased$28.8 million , or 2.6%. SD&A expenses as a percentage of net sales decreased 140 basis points in the first nine months of 2020 as compared to the first nine months of 2019. Income from operations in the third quarter of 2020 was$103.8 million , compared to$53.8 million in the third quarter of 2019, an increase of 92.9%. Adjusted income from operations in the third quarter of 2020 was$105.2 million , an increase of 79.1%. For the first nine months of 2020, income from operations increased$78.6 million to$219.8 million . Adjusted income from operations in the first nine months of 2020 was$223.6 million , an increase of$66.6 million , or 42.4%, compared to the first nine months of 2019. Net income in the third quarter of 2020 was$51.9 million , compared to$13.0 million in the third quarter of 2019, an improvement of$38.9 million . Net income in the third quarter of 2020 was adversely impacted by fair value adjustments to our acquisition related contingent consideration liability, driven by changes in future cash flow projections. Fair value adjustments to this liability are non-cash in nature and a routine part of our quarterly financial closing process. Net income increased$84.6 million for the first nine months of 2020 to$106.1 million , as compared to the first nine months of 2019. 28 -------------------------------------------------------------------------------- Cash flows provided by operations for the first nine months of 2020 were$376.4 million , compared to$204.6 million for the first nine months of 2019. The significant increase in operating cash flows for the first nine months of 2020 was primarily a result of our strong operating performance and working capital improvement, primarily related to a reduction in inventory, the timing of accounts payable and the deferral of payroll taxes permitted under the Coronavirus Aid, Relief and Economic Security Act (the "CARES Act").
COVID-19 Impact on Consumer, Customer, Teammate and Community Safety
The Company continues to diligently monitor the impact of the COVID-19 pandemic on all aspects of its business, including the impact on its consumers, customers, teammates, suppliers and distribution network. Our business has been recognized by theUnited States Department of Homeland Security and state and local governments in the communities in which we operate as "essential," as all of our teammates support beverage manufacturing and distribution.
The Company has taken the following actions to protect its consumers, customers, teammates and communities, while it continues to manufacture and distribute products:
•We continue to execute our Infectious Disease Response Plan and Incident Management Crisis Response Protocols as the macro environment moves through the Response, Reopen and Recovery phases of the COVID-19 pandemic. •We have established a cross-functionalHealth & Wellness Task Force to manage and monitor all risk mitigation and safety activities related to COVID-19. In addition, a subset of leaders from theHealth & Wellness Task Force conducts case management activities that follow prescribed company and other accepted standards (e.g.,Centers for Disease Control and Prevention ("CDC") and local health authorities). •We have established a process for the reporting of COVID-19 symptoms, exposures and positive test results of teammates and of incidents in customer accounts that our teammates have serviced. This reporting process enables the Company to follow appropriate quarantine protocols and to communicate to its workforce in a timely and appropriate manner. •We have increased our communications with teammates through podcasts, meetings, videos and emails about safety protocols, Personal Protective Equipment ("PPE"), such as disposable gloves and masks, andCDC requirements and recommendations. •We have increased sanitation protocols to sanitize equipment and common areas multiple times per day in order to mitigate risk and exposure situations. •We have promoted hygiene practices recommended by theCDC , including social distancing requiring six or more feet between teammates where possible, and staggered work start and stop times and lunch breaks. •We have utilized daily health and wellness monitoring, PPE and other measures to promote workplace safety and remain in compliance with local or state regulatory requirements. •We have restricted access to our facilities for non-essential visitors, vendors and contractors. For essential visitors, vendors and contractors, we require health and wellness certifications to be completed and the use of PPE as the Company determines appropriate. •We have restricted business travel to "essential travel" to curtail exposure risk for all teammates. •We have provided sanitation solution and supplies for our front-line teammates who interact with our products, customers and communities. •We have implemented work-from-home routines for teammates whose work duties permit it and are utilizing virtual technology to replace many of our in-person meetings. •We have developed a comprehensive Return to Office Program of Guidelines to manage a phased, measured approach and to prepare our higher density locations with safety modifications, signage and process changes to promote a safe work environment. •We have offered our teammates 40 hours of supplemental sick time for non-exempt teammates to encourage our teammates to stay home if they or their family members are experiencing COVID-19 symptoms. •We have modified our healthcare plans for COVID-19-related events to cover the costs of COVID-19 treatment to remove a barrier for our teammates to receive care if they are experiencing symptoms. •We have worked with state and local elected officials in order to quickly implement newly enacted state and local government regulatory safety requirements and guidelines.
Expected COVID-19 Impact on the Company
We do not currently expect the COVID-19 pandemic to materially impact our liquidity position or access to capital in the short term. As ofSeptember 27, 2020 , we had$164.8 million of cash and cash equivalents. In addition, our revolving credit facility matures in 2023 and has an aggregate maximum borrowing capacity of$500 million , which may be increased at the Company's 29 -------------------------------------------------------------------------------- option to$750 million , subject to obtaining commitments from the lenders and satisfying other conditions specified in the credit agreement. We had no outstanding borrowings under the revolving credit facility as ofSeptember 27, 2020 . Our supply chain is dependent on aluminum as a key raw material in the production of aluminum cans, which are used to package many of our products. During the COVID-19 pandemic, beverage consumption has shifted from "on-premise" accounts, where products are typically consumed immediately, such as restaurants, schools, amusement parks and recreational facilities, to homes and consumers have favored the portability and storability of aluminum cans as they spend more time at home. Additionally, the alcoholic and nonalcoholic beverage industries continue to introduce many new canned product offerings, further increasing the demand for aluminum cans. These factors have impacted the supply of aluminum cans. We have made changes to our typical sourcing model and product offerings to address constraints in the supply of aluminum cans, including sourcing aluminum cans from international locations and limiting our canned product package offerings. We will continue to monitor and react as needed to the limited supply of aluminum cans in the marketplace. We do not expect any material impairments or adjustments to the fair values of our assets as a result of the COVID-19 pandemic. Through the normal course of business, we have assessed the collectability of our receivables, including COVID-19-related collectability risk, and have recorded any expected losses. Further, there have been no triggering events identified in the first nine months of 2020 that would indicate an impairment of our long-lived assets, goodwill or other intangible assets. We will continue to monitor the valuation of our assets and the collectability of our receivables and record any adjustments as necessary. 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 do not anticipate any material impact to our control procedures that would materially affect our internal controls over financial reporting.
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 products procurement, manufacturing conversion, transportation, warehousing and distribution, to ensure in-store execution can occur. We are investing in tools and technology to enable our teammates to operate more effectively and efficiently with our customers and drive value in our business for the long term. 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: InOctober 2017 , we completed a multi-year series of transactions through which we acquired and exchanged distribution territories and manufacturing facilities (the "System Transformation"). We are focused on optimizing our supply chain as we continue to integrate the acquired territories and facilities into our operations. We are in the process of integrating ourMemphis, Tennessee manufacturing plant with ourWest Memphis, Arkansas operations, which is expected to greatly expand ourWest Memphis production capabilities and to reduce our overall production costs. Additionally, we are planning to open a new, automated distribution center inWhitestown, Indiana by the spring of 2021, which will allow us to consolidate ourAnderson ,Bloomington ,Lafayette ,Shelbyville andSpeedway, Indiana warehousing and distribution operations into this one new facility. The increased capacity and automation inWhitestown will allow us to optimize our supply chain and to better serve our customers and consumers inIndiana and the surrounding areas. We will continue to look for opportunities to invest in our supply chain to optimize our costs. 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. 30 --------------------------------------------------------------------------------
Results of Operations
Third Quarter Results
The Company's results of operations for the third quarter of 2020 and the third quarter of 2019 are highlighted in the table below and discussed in the following paragraphs. Third Quarter (in thousands) 2020 2019 Change Net sales$ 1,328,484 $ 1,271,029 $ 57,455 Cost of sales 856,046 838,805 17,241 Gross profit 472,438 432,224 40,214 Selling, delivery and administrative expenses 368,594 378,378 (9,784) Income from operations 103,844 53,846 49,998 Interest expense, net 9,033 10,965 (1,932) Other expense, net 21,394 20,711 683 Income before income taxes 73,417 22,170 51,247 Income tax expense 18,363 6,624 11,739 Net income 55,054 15,546 39,508 Less: Net income attributable to noncontrolling interest 3,170 2,540 630
Net income attributable to CocaCola Consolidated, Inc.
$ 13,006 $ 38,878 Other comprehensive income, net of tax 1,280 196 1,084 Comprehensive income attributable to CocaCola Consolidated, Inc.$ 53,164 $ 13,202 $ 39,962 Net Sales Net sales increased$57.5 million , or 4.5%, to$1.33 billion in the third quarter of 2020, as compared to$1.27 billion in the third quarter of 2019. The increase in net sales was primarily attributable to the following (in millions): Third Quarter 2020 Attributable to: $ 53.9 Increase in net sales related to increased sales volume 34.4 Increase in net sales primarily related to an increase in average bottle/can sales price per unit to retail customers and the shift in product mix to higher revenue still products in order to meet consumer preferences (30.8) Decrease in net sales related to the decrease in fountain syrup sales mainly sold in on-premise outlets, which have been impacted by COVID-19 $ 57.5 Total increase in net sales
Net sales by product category were as follows:
Third Quarter (in thousands) 2020 2019 % Change Bottle/can sales: Sparkling beverages$ 703,549 $ 657,522 7.0 % Still beverages 464,921 438,603 6.0 % Total bottle/can sales 1,168,470 1,096,125 6.6 % Other sales: Sales to other CocaCola bottlers 84,852 83,250 1.9 % Post-mix and other 75,162 91,654 (18.0) % Total other sales 160,014 174,904 (8.5) % Total net sales$ 1,328,484 $ 1,271,029 4.5 % 31
-------------------------------------------------------------------------------- Product category sales volume of physical cases as a percentage of total bottle/can sales volume and the percentage change by product category were as follows: Bottle/Can Sales Volume Third Quarter Bottle/Can Sales Product Category 2020 2019 Volume % Change Sparkling beverages 67.5 % 67.7 % 3.6 % Still beverages 32.5 % 32.3 % 4.5 % Total bottle/can sales volume 100.0 % 100.0 % 3.9 % 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. 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 facilities 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$17.2 million , or 2.1%, to$856.0 million in the third quarter of 2020, as compared to$838.8 million in the third quarter of 2019. The increase in cost of sales was primarily attributable to the following (in millions): Third Quarter 2020 Attributable to: $ (24.3) Decrease in cost of sales related to the decrease in fountain syrup sales mainly sold in on-premise outlets, which have been impacted by COVID-19 22.5 Increase in cost of sales related to increased sales volume 12.8 Increase in cost of sales primarily related to the change in product mix to meet consumer preferences 6.2 Other $ 17.2 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 to promote sales in the Company's territories. Certain of the marketing expenditures by The CocaCola Company and other beverage companies are made pursuant to annual arrangements. The Company also benefits from national advertising programs conducted by The CocaCola Company and other beverage companies. 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$33.8 million in the third quarter of 2020, as compared to$34.8 million in the third quarter of 2019. Shipping and handling costs related to the movement of finished products from manufacturing facilities to distribution centers are included in cost of sales. The Company's cost of sales may not be comparable to other peer companies, as some peer companies include all costs related to distribution networks in cost of sales. Shipping and handling costs related to the movement of finished products from distribution centers to customer locations, including distribution center warehousing costs, are included in SD&A expenses.
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. 32 -------------------------------------------------------------------------------- SD&A expenses decreased by$9.8 million , or 2.6%, to$368.6 million in the third quarter of 2020, as compared to$378.4 million in the third quarter of 2019. SD&A expenses as a percentage of net sales decreased to 27.7% in the third quarter of 2020 from 29.8% in the third quarter of 2019. The decrease in SD&A expenses was primarily attributable to the following (in millions): Third Quarter 2020 Attributable to: $ (7.9) Decrease in payroll and employee benefit costs, primarily as a result of the elimination of certain field-based positions and reduced overtime hours (1.9) Other $ (9.8) Total decrease in SD&A expenses
Shipping and handling costs included in SD&A expenses were
Interest Expense, Net
Interest expense, net decreased$1.9 million , or 17.6%, to$9.0 million in the third quarter of 2020, as compared to$11.0 million in the third quarter of 2019. The decrease was primarily a result of lower average interest rates and lower average debt balances. Other Expense, Net
A summary of other expense, net is as follows:
Third Quarter (in thousands) 2020 2019
Increase in the fair value of the acquisition related contingent consideration liability
$ 19,808 $ 18,749 Non-service cost component of net periodic benefit cost 1,586 1,962 Total other expense, net$ 21,394 $ 20,711 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 Company's comprehensive beverage agreement, 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 of the distribution territories subject to sub-bottling fees. 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 during the third quarter of 2020 was primarily driven by changes in future cash flow projections of the distribution territories subject to sub-bottling fees. The increase in the fair value of the acquisition related contingent consideration liability during the third quarter of 2019 was primarily driven by a decrease in the discount rate used to calculate the fair value. Income Tax Expense The Company's effective income tax rate, calculated by dividing income tax expense by income before income taxes, was 25.0% for the third quarter of 2020 and 29.9% for the third quarter of 2019. The decrease in the effective income tax rate was primarily driven by improved financial results. The Company's effective income tax rate, calculated by dividing income tax expense by income before income taxes minus net income attributable to noncontrolling interest, was 26.1% for the third quarter of 2020 and 33.7% for the third quarter of 2019.
Noncontrolling Interest
The Company recorded net income attributable to noncontrolling interest of
Other Comprehensive Income, Net of Tax
Other comprehensive income, net of tax was
33 --------------------------------------------------------------------------------
First Nine Months Results
Our results of operations for the first nine months of 2020 and the first nine months of 2019 are highlighted in the table below and discussed in the following paragraphs. First Nine Months (in thousands) 2020 2019 Change Net sales$ 3,728,720 $ 3,647,600 $ 81,120 Cost of sales 2,421,686 2,390,289 31,397 Gross profit 1,307,034 1,257,311 49,723 Selling, delivery and administrative expenses 1,087,251 1,116,097 (28,846) Income from operations 219,783 141,214 78,569 Interest expense, net 27,778 35,846 (8,068) Other expense, net 39,826 67,743 (27,917) Income before income taxes 152,179 37,625 114,554 Income tax expense 38,911 10,801 28,110 Net income 113,268 26,824 86,444 Less: Net income attributable to noncontrolling interest 7,153 5,279 1,874
Net income attributable to CocaCola Consolidated, Inc.
$ 21,545 $ 84,570 Other comprehensive income, net of tax 2,201 1,367 834 Comprehensive income attributable to CocaCola Consolidated, Inc.$ 108,316 $ 22,912 $ 85,404 Net Sales Net sales increased$81.1 million , or 2.2%, to$3.73 billion in the first nine months of 2020, as compared to$3.65 billion in the first nine months of 2019. The increase in net sales was primarily attributable to the following (in millions): First Nine Months 2020 Attributable to: $ 104.7 Increase in net sales related to increased sales volume (55.2) Decrease in net sales related to the
decrease in fountain syrup sales
mainly sold in on-premise outlets, which have been impacted by COVID-19 38.5 Increase in net sales primarily related to an increase in average bottle/can sales price per unit to retail customers and the shift in product mix to higher revenue still products in order to meet consumer preferences (6.9) Other $ 81.1 Total increase in net sales
Net sales by product category were as follows:
First Nine Months (in thousands) 2020 2019 % Change Bottle/can sales: Sparkling beverages$ 2,040,139 $ 1,928,297 5.8 % Still beverages 1,239,335 1,200,971 3.2 % Total bottle/can sales 3,279,474 3,129,268 4.8 % Other sales: Sales to other CocaCola bottlers 249,994 254,200 (1.7) % Post-mix and other 199,252 264,132 (24.6) % Total other sales 449,246 518,332 (13.3) % Total net sales$ 3,728,720 $ 3,647,600 2.2 % 34
-------------------------------------------------------------------------------- Product category sales volume of physical cases as a percentage of total bottle/can sales volume and the percentage change by product category were as follows: Bottle/Can Sales Volume First Nine Months Bottle/Can Sales Product Category 2020 2019 Volume % Change Sparkling beverages 69.9 % 69.7 % 3.7 % Still beverages 30.1 % 30.3 % 2.7 % Total bottle/can sales volume 100.0 % 100.0 % 3.4 % 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:
First Nine Months
2020 2019 Approximate percent of the Company's total bottle/can sales volume: Wal-Mart Stores, Inc. 19 % 19 % The Kroger Company 13 % 12 %
Total approximate percent of the Company's total bottle/can sales volume
32 % 31 %
Approximate percent of the Company's total net sales: Wal-Mart Stores, Inc.
14 % 14 % The Kroger Company 10 % 8 % Total approximate percent of the Company's total net sales 24 % 22 % Cost of Sales Cost of sales increased$31.4 million , or 1.3%, to$2.42 billion in the first nine months of 2020, as compared to$2.39 billion in the first nine months of 2019. The increase in cost of sales was primarily attributable to the following (in millions): First Nine Months 2020 Attributable to: $ 50.4 Increase in cost of sales related to increased sales volume (42.1) Decrease in cost of sales related to the decrease in fountain syrup sales mainly sold in on-premise outlets, which have been impacted by COVID-19 17.7 Increase in cost of sales primarily
related to the change in product
mix to meet consumer preferences 5.4 Other $ 31.4 Total increase in cost of sales Total marketing funding support from The CocaCola Company and other beverage companies was$90.4 million in the first nine months of 2020, as compared to$100.8 million in the first nine months of 2019.
Selling, Delivery and Administrative Expenses
SD&A expenses decreased by$28.8 million , or 2.6%, to$1.09 billion in the first nine months of 2020, as compared to$1.12 billion in the first nine months of 2019. SD&A expenses as a percentage of net sales decreased to 29.2% in the first nine 35 --------------------------------------------------------------------------------
months of 2020 from 30.6% in the first nine months of 2019. The decrease in SD&A expenses was primarily attributable to the following (in millions):
First Nine Months 2020 Attributable to: $ (16.7) Decrease in payroll, employee benefit costs and incentive compensation, primarily as a result of the elimination of certain field-based positions and reduced overtime hours (13.8) Decrease in a number of expense categories due to reductions in discretionary spending, including travel and entertainment 1.7 Other $ (28.8) Total decrease in SD&A expenses
Shipping and handling costs included in SD&A expenses were
Interest Expense, Net
Interest expense, net decreased$8.1 million , or 22.5%, to$27.8 million in the first nine months of 2020, as compared to$35.8 million in the first nine months of 2019. The decrease was primarily a result of lower average interest rates and lower average debt balances. Other Expense, Net
A summary of other expense, net is as follows:
First Nine Months (in thousands) 2020 2019
Increase in the fair value of the acquisition related contingent consideration liability
$ 35,068 $ 62,017 Non-service cost component of net periodic benefit cost 4,758 5,882 Other - (156) Total other expense, net$ 39,826 $ 67,743 The increase in the fair value of the acquisition related contingent consideration liability during the first nine months of 2020 was primarily driven by changes in future cash flow projections of the distribution territories subject to sub-bottling fees, partially offset by an increase in the discount rate used to calculate the fair value. The increase in the fair value of the acquisition related contingent consideration liability during the first nine months of 2019 was primarily driven by a decrease in the discount rate used to calculate the fair value and changes in future cash flow projections of the distribution territories subject to sub-bottling fees.
Income Tax Expense
The Company's effective income tax rate, calculated by dividing income tax expense by income before income taxes, was 25.6% for the first nine months of 2020 and 28.7% for the first nine months of 2019. The decrease in the effective income tax rate was primarily driven by improved financial results. The Company's effective income tax rate, calculated by dividing income tax expense by income before income taxes minus net income attributable to noncontrolling interest, was 26.8% for the first nine months of 2020 and 33.4% for the first nine months of 2019. Noncontrolling Interest
The Company recorded net income attributable to noncontrolling interest of
Other Comprehensive Income, Net of Tax
Other comprehensive income, net of tax was
36 --------------------------------------------------------------------------------
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:
Third Quarter First Nine Months (in thousands) 2020 2019 2020 2019 Net sales: Nonalcoholic Beverages$ 1,295,271 $ 1,236,261 $ 3,633,376 $ 3,547,373 All Other 84,776 92,501 246,406 275,358 Eliminations(1) (51,563) (57,733) (151,062) (175,131) Consolidated net sales$ 1,328,484 $
1,271,029
Income from operations: Nonalcoholic Beverages$ 108,035 $ 48,248 $ 227,559 $ 120,613 All Other (4,191) 5,598 (7,776) 20,601 Consolidated income from operations$ 103,844 $
53,846
(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 certain non-GAAP financial measures provide users 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):
Third Quarter 2020 Basic net Gross SD&A
Income from Income before Net
income
(in thousands, except per share data) profit expenses operations income taxes income per share Reported results (GAAP)$ 472,438 $ 368,594 $ 103,844 $ 73,417 $ 51,884 $ 5.53 Fair value adjustment of acquisition related contingent consideration(1) - - - 19,808 14,895
1.59
Fair value adjustments for commodity derivative instruments(2) (1,194) 575 (1,769) (1,769) (1,330) (0.14) Supply chain and asset optimization(3) 3,122 - 3,122 3,122 2,348 0.25 Other tax adjustments(4) - - - - (421) (0.04) Total reconciling items 1,928 575 1,353 21,161 15,492 1.66 Adjusted results (non-GAAP)$ 474,366 $ 369,169 $ 105,197 $ 94,578 $ 67,376 $ 7.19 37
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Third Quarter 2019 Basic net Gross SD&A
Income from Income before Net
income
(in thousands, except per share data) profit expenses operations income taxes income per share Reported results (GAAP)$ 432,224 $ 378,378 $ 53,846 $ 22,170 $ 13,006 $ 1.39 Fair value adjustment of acquisition related contingent consideration(1) - - - 18,749 14,099
1.51
Fair value adjustments for commodity derivative instruments(2) (487) (74) (413) (413) (311) (0.04) Supply chain and asset optimization(3) 3,581 - 3,581 3,581 2,693 0.29 Capitalization threshold change for certain assets(5) - (1,732) 1,732 1,732 1,302 0.14 Other tax adjustments(4) - - - - 1,482 0.15 Total reconciling items 3,094 (1,806) 4,900 23,649 19,265 2.05 Adjusted results (non-GAAP)$ 435,318 $ 376,572 $ 58,746 $ 45,819 $ 32,271 $ 3.44 First Nine Months 2020 Basic net (in thousands, except per share Gross SD&A Income from Income before Net income data) profit expenses operations income taxes income per share Reported results (GAAP)$ 1,307,034 $ 1,087,251 $ 219,783 $ 152,179 $ 106,115 $ 11.32 Fair value adjustment of acquisition related contingent consideration(1) - - - 35,068 26,371
2.81
Fair value adjustments for commodity derivative instruments(2) (924) (949) 25 25 19 - Supply chain and asset optimization(3) 4,441 601 3,840 3,840 2,888 0.31 Other tax adjustments(4) - - - - (1,103) (0.11) Total reconciling items 3,517 (348) 3,865 38,933 28,175 3.01 Adjusted results (non-GAAP)$ 1,310,551 $ 1,086,903 $ 223,648 $ 191,112 $ 134,290 $ 14.33 First Nine Months 2019 Basic net Gross SD&A Income from Income before Net income (in thousands, except per share data) profit expenses operations income taxes income per share Reported results (GAAP)$ 1,257,311 $
1,116,097
$ 2.30 Fair value adjustment of acquisition related contingent consideration(1) - - - 62,017 46,637
4.98
Fair value adjustments for commodity derivative instruments(2) 482 2,575 (2,093) (2,093) (1,574) (0.17) Supply chain and asset optimization(3) 4,875 - 4,875 4,875 3,666 0.39 Capitalization threshold change for certain assets(5) - (6,111) 6,111 6,111 4,595 0.49 System Transformation expenses(6) - (6,915) 6,915 6,915 5,200 0.56 Other tax adjustments(4) - - - - (2,178) (0.24) Total reconciling items 5,357 (10,451) 15,808 77,825 51,146 6.01 Adjusted results (non-GAAP)$ 1,262,668 $
1,105,646$ 157,022 $ 115,450 $ 72,691 $ 8.31
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 related to the impairment and accelerated depreciation of property, plant and equipment as the Company continues to optimize efficiency opportunities across its business. 38 --------------------------------------------------------------------------------
(4)Adjustment reflects the impact from reconciling items to reported results on the annualized adjusted effective income tax rate.
(5)Adjustment reflects additional expense for the prospective change of increasing the capitalization thresholds in 2019 on certain low-cost, short-lived assets.
(6)Adjustment reflects expenses incurred during the applicable period of 2019 related to the System Transformation, which primarily includes information technology system conversions.
Financial Condition
Total assets were$3.31 billion as ofSeptember 27, 2020 , which was an increase of$186.0 million fromDecember 29, 2019 . Net working capital, defined as current assets less current liabilities, was$292.9 million as ofSeptember 27, 2020 , which was an increase of$84.8 million fromDecember 29, 2019 .
Significant changes in net working capital as of
•An increase in cash and cash equivalents of$155.2 million primarily as a result of our strong operating performance and working capital improvement, primarily related to a reduction in inventory, the timing of accounts payable and the deferral of payroll taxes permitted under the CARES Act. •A decrease in inventory of$18.2 million , primarily as a result of higher than expected sales volume and a shift in product offerings during the COVID-19 pandemic. •An increase in accounts payable, trade of$47.2 million and an increase in accounts payable to The CocaCola Company of$27.0 million , both primarily as a result of the timing of cash payments. •A decrease in other accrued compensation of$13.0 million , primarily as a result of the timing of bonus and incentive payments during the first quarter of each fiscal year.
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 ofSeptember 27, 2020 , the Company had$164.8 million of 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 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 sources of capital. The Company's long-term debt as ofSeptember 27, 2020 andDecember 29, 2019 was as follows: (in thousands) Maturity Date September 27, 2020 December 29, 2019 Term loan facility(1) 6/7/2021 $ 240,000 $ 262,500 Senior notes 2/27/2023 125,000 125,000 Revolving credit facility 6/8/2023 - 45,000 Senior notes and unamortized discount on senior notes(2) 11/25/2025 349,955 349,948 Senior notes 10/10/2026 100,000 100,000 Senior notes 3/21/2030 150,000 150,000 Debt issuance costs (2,088) (2,528) Long-term debt $ 962,867$ 1,029,920 (1)The Company intends to refinance principal payments due in the next 12 months under the term loan facility, and has the capacity to do so under its revolving credit facility, which is classified as long-term debt. As such, any amounts due in the next 12 months were classified as noncurrent. (2)The senior notes due in 2025 were issued at 99.975% of par. The Company's term loan facility matures onJune 7, 2021 . The original aggregate principal amount borrowed by the Company under the facility was$300 million and repayment of principal amounts outstanding began in 2018. The Company may request additional term loans under the term loan facility, provided the Company's aggregate borrowings under the facility do not exceed$500 million . 39 -------------------------------------------------------------------------------- In 2019, the Company entered into a$100 million fixed rate swap maturingJune 7, 2021 , to hedge a portion of the interest rate risk on the Company's term loan facility. This interest rate swap is designated as a cash flow hedging instrument and changes in its fair value are not expected to be material to the condensed consolidated balance sheets. Changes in the fair value of this interest rate swap were classified as accumulated other comprehensive loss on the condensed consolidated balance sheets and included in the condensed consolidated statements of comprehensive income. As discussed below under "Cash Flows From Financing Activities," in 2019, the Company sold$100 million aggregate principal amount of senior unsecured notes due in 2026 toMetLife Investment Advisors, LLC ("MetLife") and certain of its affiliates. The Company may request that MetLife consider the purchase of additional senior unsecured notes of the Company under the agreement in an aggregate principal amount of up to$200 million . The Company's revolving credit facility matures onJune 8, 2023 and has an aggregate maximum borrowing capacity of$500 million , which may be increased at the Company's option to$750 million , subject to obtaining commitments from the lenders and satisfying other conditions specified in the credit agreement. 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. As ofSeptember 27, 2020 , the Company had no outstanding borrowings under the revolving credit facility, and, therefore, had$500 million borrowing capacity available. The indenture under which the Company's public debt was 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 ofSeptember 27, 2020 . These covenants do not currently, and the Company does not anticipate they will, restrict its 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 Class B Common Stock each quarter since 1994. 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. During the first quarter of 2020,Standard & Poor's reaffirmed the Company's BBB rating and revised the Company's rating outlook to stable from negative. Moody's rating outlook for the Company is stable. As ofSeptember 27, 2020 , the Company's credit ratings were as follows: Long-Term DebtStandard & Poor's BBB Moody's Baa2 The Company is subject to interest rate risk on its variable rate debt, including its revolving credit facility and term loan facility. Assuming no changes in the Company's capital structure, if market interest rates average 1% more over the next 12 months than the interest rates as ofSeptember 27, 2020 , interest expense for the next 12 months would increase by approximately$1.4 million . 40 --------------------------------------------------------------------------------
The Company's only Level 3 asset or liability is the acquisition related contingent consideration liability. There were no transfers of assets or liabilities from Level 1 or Level 2 in any period presented. Fair value adjustments were non-cash, and, therefore, did not impact the Company's liquidity or capital resources. Following is a summary of the Level 3 activity:
Third Quarter First Nine Months (in thousands) 2020 2019 2020 2019 Beginning balance - Level 3 liability$ 441,113 $ 412,450 $ 446,684 $ 382,898 Payments of acquisition related contingent consideration (11,468) (5,948) (31,999) (18,784) Reclassification to current payables (800) (60) (1,100) (940) Increase in fair value 19,808 18,749 35,068 62,017 Ending balance - Level 3 liability$ 448,653 $ 425,191 $ 448,653 $ 425,191 Cash Sources and Uses
A summary of cash-based activity is as follows:
First Nine Months (in thousands) 2020 2019 Cash Sources: Net cash provided by operating activities(1)$ 376,401 $ 204,583 Borrowings under revolving credit facility 235,000
331,339
Proceeds from issuance of senior notes -
100,000
Proceeds from the sale of property, plant and equipment 2,397 1,028 Total cash sources$ 613,798 $ 636,950 Cash Uses: Payments on revolving credit facility$ 280,000 $ 376,339 Payments on term loan facility and senior notes 22,500
132,500
Additions to property, plant and equipment 110,717
96,747
Payments of acquisition related contingent consideration 31,999
18,784
Cash dividends paid 7,030
7,026
Payments on financing lease obligations 4,428 6,441 Other distribution agreements - 4,654 Other 1,915 2,018 Total cash uses$ 458,589 $ 644,509 Net increase (decrease) in cash during period$ 155,209
(1)Net cash provided by operating activities in the first nine months of 2020 included net income tax payments of$36.9 million and pension plan contributions of$16.3 million . Net cash provided by operating activities in the first nine months of 2019 included net income tax payments of$5.5 million and pension plan contributions of$4.9 million .
Cash Flows From Operating Activities
During the first nine months of 2020, cash provided by operating activities was$376.4 million , which was an increase of$171.8 million as compared to the first nine months of 2019. The increase was primarily a result of our strong operating performance and working capital improvement, primarily related to a reduction in inventory, the timing of accounts payable and the deferral of payroll taxes permitted under the CARES Act. The Company has taken advantage of certain provisions of the CARES Act, which allow an employer to defer the deposit and payment of the employer's portion of social security taxes that would otherwise be due on or afterMarch 27, 2020 and beforeJanuary 1, 2021 . The law permits an employer to deposit half of these deferred payments byDecember 31, 2021 and the other half byDecember 31, 2022 .
Cash Flows From Investing Activities
During the first nine months of 2020, cash used in investing activities was
41 -------------------------------------------------------------------------------- which were$110.7 million during the first nine months of 2020 and$96.7 million during the first nine months of 2019. There were$25.5 million and$8.9 million of additions to property, plant and equipment accrued in accounts payable, trade as ofSeptember 27, 2020 andSeptember 29, 2019 , respectively.
The Company anticipates additions to property, plant and equipment for the full
year 2020 will be
Cash Flows From Financing Activities
During the first nine months of 2020, cash used in financing activities was$111.1 million , which was an increase of$1.0 million as compared to the first nine months of 2019. The Company repaid$67.5 million of debt during the first nine months of 2020. The Company had cash payments for acquisition related contingent consideration of$32.0 million during the first nine months of 2020 and$18.8 million during the first nine months of 2019. The Company anticipates 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$28 million to$53 million . In 2019, the Company sold$100 million aggregate principal amount of senior unsecured notes due in 2026 to MetLife and certain of its affiliates pursuant to a note purchase and private shelf agreement, datedJanuary 23, 2019 , between the Company, MetLife and the other parties thereto. These notes bear interest at 3.93%, payable quarterly in arrears, and will mature onOctober 10, 2026 , unless earlier redeemed by the Company. The Company used the proceeds to refinance the senior notes due onApril 15, 2019 . The Company may request that MetLife consider the purchase of additional senior unsecured notes of the Company under the agreement in an aggregate principal amount of up to$200 million .
Critical Accounting Policies
See Note 1, Note 3 and Note 10 to the condensed consolidated financial statements for information on the Company's critical accounting policies.
Off-Balance Sheet Arrangements
The Company is a shareholder ofSouth Atlantic Canners, Inc. ("SAC"), a manufacturing cooperative inBishopville, South Carolina . All of SAC's shareholders are CocaCola bottlers and each has equal voting rights. As ofSeptember 27, 2020 , the Company had guaranteed$14.7 million of SAC's debt. In the event SAC fails to fulfill its commitments under the related debt, the Company would be responsible for payment to the lenders up to the level of the guarantee. The Company does not anticipate SAC will fail to fulfill its commitments related to the debt. The Company further believes SAC has sufficient assets, including production equipment, facilities and working capital, and the ability to adjust selling prices of its products to adequately mitigate the risk of material loss from the Company's guarantee. See Note 20 to the condensed consolidated financial statements for additional information.
Hedging Activities
The Company uses commodity derivative instruments to manage its exposure to fluctuation in certain commodity prices. Fees paid by the Company for commodity derivative instruments are amortized over the corresponding period of the instrument. The Company accounts for its commodity derivative instruments on a mark-to-market basis with any expense or income being reflected as an adjustment to cost of sales or SD&A expenses. The Company uses several different financial institutions for commodity derivative instruments to minimize the concentration of credit risk. The Company has master agreements with the counterparties to its commodity derivative instruments that provide for net settlement of derivative transactions. The net impact of the commodity derivative instruments on the condensed consolidated statements of operations was as follows: Third Quarter First Nine Months (in thousands) 2020 2019 2020
2019
Increase (decrease) in cost of sales$ (814) $ 2,984 $ 1,778 $ 8,779 Increase (decrease) in SD&A expenses 296 582 3,291 (1,403) Net impact$ (518) $ 3,566 $ 5,069 $ 7,376 42
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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," 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 our Annual Report on Form 10-K for 2019 and in "Item 1A. Risk Factors" of this report and elsewhere herein, including, without limitation, the factors described under "Critical Accounting Policies" in Note 1 to the condensed consolidated financial statements, 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 theSecurities and Exchange Commission .
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