UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

~~WASHINGTON,~~Washington, D.C. 20549

FORM 10-Q

☒


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


For the quarterly period ended	September 29, 2019


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the ~~quarterly~~transition period ~~ended~~ ~~September 30, 2018~~from to

Commission File ~~Number~~ Number: 0-9286

COCA‑COLA ~~BOTTLING CO.~~ CONSOLIDATED, INC.

(Exact name of registrant as specified in its charter)

Delaware		56-0950585
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

4100 Coca‑Cola Plaza Charlotte, NC		28211
(Address of principal executive offices)		(Zip Code)

4100 Coca‑Cola Plaza
Charlotte, North Carolina 28211

~~(Address of principal executive offices) (Zip Code)~~

~~(704) 557-4400~~

(Registrant’s telephone number, including area ~~code)~~code: (704) 557-4400

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $1.00 Par Value	COKE	The NASDAQ Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

~~Indicate the number~~As of October 27, 2019, there were 7,141,447shares ~~outstanding of each~~ of the registrant’s ~~classes of common stock, as~~Common Stock, $1.00 par value, and 2,232,242 shares of the ~~latest practicable date.~~registrant’s Class B Common Stock, $1.00 par value, outstanding.


~~Class~~	~~Outstanding at October 28, 2018~~
~~Common Stock, $1.00 Par Value~~	~~7,141,447~~
~~Class B Common Stock, $1.00 Par Value~~	~~2,213,018~~

COCA‑COLA ~~BOTTLING CO.~~ CONSOLIDATED, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER ~~30, 2018~~29, 2019

INDEX

		Page

	PART I – FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)

	Condensed Consolidated ~~Condensed~~ Statements of Operations	2

	Condensed Consolidated ~~Condensed~~ Statements of Comprehensive Income	3

	Condensed Consolidated ~~Condensed~~ Balance Sheets	4

	Condensed Consolidated ~~Condensed~~ Statements of ~~Changes in Equity~~Cash Flows	5

	Condensed Consolidated ~~Condensed~~ Statements of ~~Cash Flows~~Changes in Equity	6

	Notes to Condensed Consolidated ~~Condensed~~ Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3429

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	5446

Item 4.	Controls and Procedures	5447

	PART II – OTHER INFORMATION

Item 1.	Legal Proceedings	5548

Item 1A.	Risk Factors	5548

Item 6.	Exhibits	5648

	Signatures	5749

PART I - ~~FINANCI~~ALFINANCIAL INFORMATION

Item 1.

Financial Statements.

COCA‑COLA ~~BOTTLING CO.~~ CONSOLIDATED, INC.

CONDENSED CONSOLIDATED ~~CONDENSED~~ STATEMENTS OF OPERATIONS

(Unaudited)

	Third Quarter					First Three Quarters						Third Quarter					First Nine Months
(in thousands, except per share data)	2018			2017		2018			2017			2019			2018		2019			2018
Net sales	$	1,211,661		$	1,162,526	$	3,510,997		$	3,197,519		$	1,271,029		$	1,204,033	$	3,647,600		$	3,488,793
Cost of sales		791,317			752,202		2,313,728			2,039,996			838,805			791,317		2,390,289			2,313,728
Gross profit		420,344			410,324		1,197,269			1,157,523			432,224			412,716		1,257,311			1,175,065
Selling, delivery and administrative expenses		375,940			372,852		1,152,183			1,056,446			378,378			368,312		1,116,097			1,129,979
Income from operations		44,404			37,472		45,086			101,077			53,846			44,404		141,214			45,086
Interest expense, net		12,827			10,697		37,617			30,607			10,965			12,827		35,846			37,617
Other income (expense), net		1,696			3,884		(3,612	)		(36,595	)		(20,711	)		1,696		(67,743	)		(3,612	)
Gain on exchange transactions		10,170			-		10,170			-			-			10,170		-			10,170
Income before income taxes		43,443			30,659		14,027			33,875			22,170			43,443		37,625			14,027
Income tax expense		16,493			11,748		3,387			11,800			6,624			16,493		10,801			3,387
Net income		26,950			18,911		10,640			22,075			15,546			26,950		26,824			10,640
Less: Net income attributable to noncontrolling interest		1,786			1,595		3,594			3,462			2,540			1,786		5,279			3,594
Net income attributable to Coca-Cola Bottling Co. Consolidated	$	25,164		$	17,316	$	7,046		$	18,613
Net income attributable to Coca-Cola Consolidated, Inc.												$	13,006		$	25,164	$	21,545		$	7,046

Basic net income per share based on net income attributable to Coca-Cola Bottling Co. Consolidated:
Basic net income per share based on net income attributable to Coca-Cola Consolidated, Inc.:
Common Stock	$	2.69		$	1.86	$	0.75		$	2.00		$	1.39		$	2.69	$	2.30		$	0.75
Weighted average number of Common Stock shares outstanding		7,141			7,141		7,141			7,141			7,141			7,141		7,141			7,141

Class B Common Stock	$	2.69		$	1.86	$	0.75		$	2.00		$	1.39		$	2.69	$	2.30		$	0.75
Weighted average number of Class B Common Stock shares outstanding		2,213			2,193		2,208			2,188			2,232			2,213		2,228			2,208

Diluted net income per share based on net income attributable to Coca-Cola Bottling Co. Consolidated:
Diluted net income per share based on net income attributable to Coca-Cola Consolidated, Inc.:
Common Stock	$	2.69	��	$	1.85	$	0.75		$	1.99		$	1.38		$	2.69	$	2.29		$	0.75
Weighted average number of Common Stock shares outstanding – assuming dilution		9,405			9,374		9,400			9,369			9,413			9,405		9,409			9,400

Class B Common Stock	$	2.68		$	1.84	$	0.74		$	1.97		$	1.38		$	2.68	$	2.28		$	0.74
Weighted average number of Class B Common Stock shares outstanding – assuming dilution		2,264			2,233		2,259			2,228			2,272			2,264		2,268			2,259

Cash dividends per share:
Common Stock	$	0.25		$	0.25	$	0.75		$	0.75		$	0.25		$	0.25	$	0.75		$	0.75
Class B Common Stock	$	0.25		$	0.25	$	0.75		$	0.75		$	0.25		$	0.25	$	0.75		$	0.75

See accompanying notes to condensed consolidated ~~condensed~~ financial statements.

COCA‑COLA ~~BOTTLING CO.~~ CONSOLIDATED, INC.

CONDENSED CONSOLIDATED ~~CONDENSED~~ STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

	Third Quarter						First Three Quarters						Third Quarter						First Nine Months
(in thousands)	2018			2017			2018			2017			2019			2018			2019			2018
Net income	$	26,950		$	18,911		$	10,640		$	22,075		$	15,546		$	26,950		$	26,824		$	10,640

Other comprehensive income, net of tax:
Defined benefit plans reclassification including pension costs:
Actuarial gains		703			496			2,109			1,487			679			703			2,037			2,109
Prior service benefits		4			4			13			13			4			4			13			13
Postretirement benefits reclassification included in benefits costs:
Actuarial gains		376			398			1,128			1,194			148			376			443			1,128
Prior service costs		(348	)		(458	)		(1,044	)		(1,374	)		(244	)		(348	)		(731	)		(1,044	)
Interest rate swap														(374	)		-			(374	)		-
Foreign currency translation adjustment		(1	)		7			(7	)		23			(17	)		(1	)		(21	)		(7	)
Other comprehensive income, net of tax		734			447			2,199			1,343			196			734			1,367			2,199

Comprehensive income		27,684			19,358			12,839			23,418			15,742			27,684			28,191			12,839
Less: Comprehensive income attributable to noncontrolling interest		1,786			1,595			3,594			3,462			2,540			1,786			5,279			3,594
Comprehensive income attributable to Coca-Cola Bottling Co. Consolidated	$	25,898		$	17,763		$	9,245		$	19,956
Comprehensive income attributable to Coca-Cola Consolidated, Inc.													$	13,202		$	25,898		$	22,912		$	9,245

See accompanying notes to condensed consolidated ~~condensed~~ financial statements.

COCA‑COLA ~~BOTTLING CO.~~ CONSOLIDATED, INC.

CONDENSED CONSOLIDATED ~~CONDENSED~~ BALANCE SHEETS

(Unaudited)

(in thousands, except share data)	September 30, 2018			December 31, 2017			September 29, 2019			December 30, 2018
ASSETS
Current Assets:
Cash and cash equivalents	$	9,337		$	16,902		$	5,989		$	13,548
Accounts receivable, trade		432,384			396,022			448,528			436,890
Allowance for doubtful accounts		(9,069	)		(7,606	)		(13,310	)		(9,141	)
Accounts receivable from The Coca-Cola Company		62,541			65,996			60,424			44,915
Accounts receivable, other		28,632			38,960			40,114			30,493
Inventories		229,892			183,618			231,752			210,033
Prepaid expenses and other current assets		91,514			100,646			78,397			70,680
Total current assets		845,231			794,538			851,894			797,418
Property, plant and equipment, net		998,117			1,031,388			957,197			990,532
Leased property under capital leases, net		25,208			29,837
Right of use assets - operating leases								115,981			-
Leased property under financing or capital leases, net								19,452			23,720
Other assets		119,193			116,209			111,021			115,490
Goodwill		165,903			169,316			165,903			165,903
Distribution agreements, net		901,831			913,352			882,167			900,383
Customer lists and other identifiable intangible assets, net		16,941			18,320			15,103			16,482
Total assets	$	3,072,424		$	3,072,960		$	3,118,718		$	3,009,928

LIABILITIES AND EQUITY
Current Liabilities:
Current portion of obligations under capital leases	$	8,438		$	8,221
Current portion of obligations under operating leases							$	14,929		$	-
Current portion of obligations under financing or capital leases								9,209			8,617
Accounts payable, trade		186,706			197,049			191,780			152,040
Accounts payable to The Coca-Cola Company		142,849			171,042			130,916			112,425
Other accrued liabilities		153,609			185,530			191,296			250,246
Accrued compensation		57,651			72,484			67,639			72,316
Accrued interest payable		9,363			5,126			7,404			6,093
Total current liabilities		558,616			639,452			613,173			601,737
Deferred income taxes		123,248			112,364			132,428			127,174
Pension and postretirement benefit obligations		98,738			118,392			84,361			85,682
Other liabilities		600,310			620,579			658,610			609,135
Obligations under capital leases		28,840			35,248
Noncurrent portion of obligations under operating leases								101,884			-
Noncurrent portion of obligations under financing or capital leases								19,812			26,631
Long-term debt		1,194,109			1,088,018			1,027,343			1,104,403
Total liabilities		2,603,861			2,614,053			2,637,611			2,554,762
Commitments and Contingencies
Equity:
Common Stock, $1.00 par value: 30,000,000 shares authorized; 10,203,821 shares issued		10,204			10,204			10,204			10,204
Class B Common Stock, $1.00 par value: 10,000,000 shares authorized; 2,841,132 and 2,820,836 shares issued, respectively		2,839			2,819
Class B Common Stock, $1.00 par value: 10,000,000 shares authorized; 2,860,356 and 2,841,132 shares issued, respectively								2,860			2,839
Capital in excess of par value		124,228			120,417			128,983			124,228
Retained earnings		388,750			388,718			393,674			359,435
Accumulated other comprehensive loss		(92,003	)		(94,202	)		(95,618	)		(77,265	)
Treasury stock, at cost: Common Stock – 3,062,374 shares		(60,845	)		(60,845	)		(60,845	)		(60,845	)
Treasury stock, at cost: Class B Common Stock – 628,114 shares		(409	)		(409	)		(409	)		(409	)
Total equity of Coca-Cola Bottling Co. Consolidated		372,764			366,702
Total equity of Coca-Cola Consolidated, Inc.								378,849			358,187
Noncontrolling interest		95,799			92,205			102,258			96,979
Total equity		468,563			458,907			481,107			455,166
Total liabilities and equity	$	3,072,424		$	3,072,960		$	3,118,718		$	3,009,928

See accompanying notes to condensed consolidated ~~condensed~~ financial statements.

COCA‑COLA ~~BOTTLING CO.~~ CONSOLIDATED, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	First Nine Months
(in thousands)	2019			2018
Cash Flows from Operating Activities:
Net income	$	26,824		$	10,640
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation expense from property, plant and equipment and financing or capital leases		119,145			123,542
Fair value adjustment of acquisition related contingent consideration		62,017			1,584
Amortization of intangible assets and deferred proceeds, net		17,271			16,954
Loss on sale of property, plant and equipment		5,474			6,123
Deferred income taxes		5,254			9,903
Impairment of property, plant and equipment		4,144			299
Stock compensation expense		2,045			4,494
Amortization of debt costs		1,032			1,103
Gain on exchange transactions		-			(10,170	)
Change in current assets less current liabilities		(54,263	)		(120,421	)
Change in other noncurrent assets		12,581			724
Change in other noncurrent liabilities		2,611			(18,762	)
Other		448			17
Total adjustments		177,759			15,390
Net cash provided by operating activities	$	204,583		$	26,030

Cash Flows from Investing Activities:
Additions to property, plant and equipment (exclusive of acquisitions)	$	(96,747	)	$	(113,104	)
Other distribution agreements		(4,654	)		-
Investment in CONA Services LLC		(1,713	)		(2,098	)
Proceeds from the sale of property, plant and equipment		1,028			3,555
Proceeds from cold drink equipment		-			3,789
Acquisition of distribution territories and regional manufacturing plants, net of cash acquired and purchase price settlements		-			1,811
Net cash used in investing activities	$	(102,086	)	$	(106,047	)

Cash Flows from Financing Activities:
Payments on revolving credit facility	$	(376,339	)	$	(322,000	)
Borrowings under revolving credit facility		331,339			285,000
Payments on term loan facility and senior notes		(132,500	)		(7,500	)
Proceeds from issuance of senior notes		100,000			150,000
Payments of acquisition related contingent consideration		(18,784	)		(18,312	)
Cash dividends paid		(7,026	)		(7,014	)
Payments on financing or capital lease obligations		(6,441	)		(6,191	)
Debt issuance fees		(305	)		(1,531	)
Net cash provided by (used in) financing activities	$	(110,056	)	$	72,452

Net decrease in cash	$	(7,559	)	$	(7,565	)
Cash at beginning of period		13,548			16,902
Cash at end of period	$	5,989		$	9,337

Significant noncash investing and financing activities:
Right of use assets obtained in exchange for lease obligations	$	39,213		$	-
Additions to property, plant and equipment accrued and recorded in accounts payable, trade		8,909			4,081
Issuance of Class B Common Stock in connection with stock award		4,776			3,831

See accompanying notes to condensed consolidated financial statements.

COCA‑COLA CONSOLIDATED, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Unaudited)

(in thousands, except share data)	Common Stock		Class B Common Stock		Capital in Excess of Par Value		Retained Earnings			Accumulated Other Comprehensive Loss			Treasury Stock - Common Stock			Treasury Stock - Class B Common Stock			Total Equity of Coca-Cola Bottling Co. Consolidated			Non- controlling Interest		Total Equity			Common Stock		Class B Common Stock		Capital in Excess of Par Value		Retained Earnings			Accumulated Other Comprehensive Loss			Treasury Stock - Common Stock			Treasury Stock - Class B Common Stock			Total Equity of Coca-Cola Consolidated, Inc.			Non- controlling Interest		Total Equity
Balance on December 31, 2017	$	10,204	$	2,819	$	120,417	$	388,718		$	(94,202	)	$	(60,845	)	$	(409	)	$	366,702		$	92,205	$	458,907		$	10,204	$	2,819	$	120,417	$	388,718		$	(94,202	)	$	(60,845	)	$	(409	)	$	366,702		$	92,205	$	458,907
Net income		-		-		-		7,046			-			-			-			7,046			3,594		10,640			-		-		-		7,046			-			-			-			7,046			3,594		10,640
Other comprehensive income, net of tax		-		-		-		-			2,199			-			-			2,199			-		2,199			-		-		-		-			2,199			-			-			2,199			-		2,199
Cash dividends paid:
Common Stock ($0.75 per share)		-		-		-		(5,357	)		-			-			-			(5,357	)		-		(5,357	)		-		-		-		(5,357	)		-			-			-			(5,357	)		-		(5,357	)
Class B Common Stock ($0.75 per share)		-		-		-		(1,657	)		-			-			-			(1,657	)		-		(1,657	)		-		-		-		(1,657	)		-			-			-			(1,657	)		-		(1,657	)
Issuance of 20,296 shares of Class B Common Stock		-		20		3,811		-			-			-			-			3,831			-		3,831			-		20		3,811		-			-			-			-			3,831			-		3,831
Balance on September 30, 2018	$	10,204	$	2,839	$	124,228	$	388,750		$	(92,003	)	$	(60,845	)	$	(409	)	$	372,764		$	95,799	$	468,563		$	10,204	$	2,839	$	124,228	$	388,750		$	(92,003	)	$	(60,845	)	$	(409	)	$	372,764		$	95,799	$	468,563

Balance on January 1, 2017	$	10,204	$	2,798	$	116,769	$	301,511		$	(92,897	)	$	(60,845	)	$	(409	)	$	277,131		$	85,893	$	363,024
Balance on December 30, 2018																											$	10,204	$	2,839	$	124,228	$	359,435		$	(77,265	)	$	(60,845	)	$	(409	)	$	358,187		$	96,979	$	455,166
Net income		-		-		-		18,613			-			-			-			18,613			3,462		22,075			-		-		-		21,545			-			-			-			21,545			5,279		26,824
Other comprehensive income, net of tax		-		-		-		-			1,343			-			-			1,343			-		1,343			-		-		-		-			1,367			-			-			1,367			-		1,367
Cash dividends paid:
Common Stock ($0.75 per share)		-		-		-		(5,356	)		-			-			-			(5,356	)		-		(5,356	)		-		-		-		(5,356	)		-			-			-			(5,356	)		-		(5,356	)
Class B Common Stock ($0.75 per share)		-		-		-		(1,639	)		-			-			-			(1,639	)		-		(1,639	)		-		-		-		(1,670	)		-			-			-			(1,670	)		-		(1,670	)
Issuance of 21,020 shares of Class B Common Stock		-		21		3,648		-			-			-			-			3,669			-		3,669
Balance on October 1, 2017	$	10,204	$	2,819	$	120,417	$	313,129		$	(91,554	)	$	(60,845	)	$	(409	)	$	293,761		$	89,355	$	383,116
Issuance of 19,224 shares of Class B Common Stock																												-		21		4,755		-			-			-			-			4,776			-		4,776
Reclassification of stranded tax effects																												-		-		-		19,720			(19,720	)		-			-			-			-		-
Balance on September 29, 2019																											$	10,204	$	2,860	$	128,983	$	393,674		$	(95,618	)	$	(60,845	)	$	(409	)	$	378,849		$	102,258	$	481,107

See accompanying notes to condensed consolidated ~~condensed~~ financial statements.

COCA‑COLA ~~BOTTLING CO.~~ CONSOLIDATED, INC.

~~CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS~~

~~(Unaudited)~~

First Three Quarters

(in thousands)

2018

2017

Cash Flows from Operating Activities:

Net income

$
10,640

$
22,075

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation expense

123,542

108,697

Amortization of intangible assets and deferred proceeds, net

16,954

11,596

Deferred income taxes

9,903

(24,741
)
Gain on exchange transactions

(10,170
)

-

Loss on sale of property, plant and equipment

6,123

3,420

Impairment of property, plant and equipment

299

-

Fair value adjustment of acquisition related contingent consideration

1,584

23,140

Stock compensation expense

4,494

6,473

Amortization of debt costs

1,103

806

Proceeds from Territory Conversion Fee

-

87,066

Change in current assets less current liabilities (exclusive of acquisitions)

(120,421
)

(19,036
)
Change in other noncurrent assets (exclusive of acquisitions)

724

(13,391
)
Change in other noncurrent liabilities (exclusive of acquisitions)

(18,762
)

(3,746
)
Other

17

66

Total adjustments

15,390

180,350

Net cash provided by operating activities

$
26,030

$
202,425

Cash Flows from Investing Activities:

Additions to property, plant and equipment (exclusive of acquisitions)

$
(113,104
)

$
(114,953
)
Investment in CONA Services LLC

(2,098
)

(1,976
)
Acquisition of distribution territories and regional manufacturing facilities, net of cash acquired and purchase price settlements

1,811

(227,769
)
Proceeds from cold drink equipment

3,789

8,400

Proceeds from the sale of property, plant and equipment

3,555

493

Glacéau distribution agreement consideration

-

(15,598
)
Prepayment of funds for October 2017 Expansion Transactions

-

(56,498
)
Net cash used in investing activities

$
(106,047
)

$
(407,901
)

Cash Flows from Financing Activities:

Payments on Revolving Credit Facility

$
(322,000
)

$
(238,000
)
Borrowings under Revolving Credit Facility

285,000

333,000

Proceeds from issuance of Senior Notes

150,000

125,000

Payment of acquisition related contingent consideration

(18,312
)

(11,650
)
Payment on Term Loan Facility

(7,500
)

-

Cash dividends paid

(7,014
)

(6,995
)
Principal payments on capital lease obligations

(6,191
)

(5,594
)
Debt issuance fees

(1,531
)

(213
)
Net cash provided by financing activities

$
72,452

$
195,548

Net decrease in cash

$
(7,565
)

$
(9,928
)
Cash at beginning of period

16,902

21,850

Cash at end of period

$
9,337

$
11,922

Significant noncash investing and financing activities:

Additions to property, plant and equipment accrued and recorded in accounts payable, trade

$
4,081

$
13,724

Issuance of Class B Common Stock in connection with stock award

3,831

3,669

~~See accompanying notes to consolidated condensed financial statements.~~

~~COCA‑COLA BOTTLING CO. CONSOLIDATED~~

NOTES TO CONDENSED CONSOLIDATED ~~CONDENSED~~ FINANCIAL STATEMENTS

(Unaudited)

1.Significant Accounting Policies and New Accounting Pronouncements

The condensed consolidated ~~condensed~~ financial statements include the accounts of Coca‑Cola ~~Bottling Co.~~ Consolidated, Inc. and its majority-owned subsidiaries (the “Company”). All significant intercompany accounts and transactions have been eliminated. The condensed consolidated ~~condensed~~ financial statements reflect all adjustments, including normal, recurring accruals, which, in the opinion of management, are necessary for a fair statement of the results for the interim periods presented:

~~The financial position as of September 30, 2018 and December 31, 2017.~~

•

The financial position as of September 29, 2019 and December 30, 2018.

The results of operations and comprehensive income for the 13 week periods ended September 30, 2018 (“third quarter” of fiscal 2018 (“2018”)) and October 1, 2017 (“third quarter” of fiscal 2017 (“2017”)), and the 39 week periods ended September 30, 2018 (“first three quarters” of 2018) and October 1, 2017 (“first three quarters” of 2017).

•

The results of operations and comprehensive income for the 13 week periods ended September 29, 2019 (the “third quarter” of fiscal 2019 (“2019”)) and September 30, 2018 (the “third quarter” of fiscal 2018 (“2018”)), and the 39 week periods ended September 29, 2019 (the “first nine months” of 2019) and September 30, 2018 (the “first nine months” of 2018).

~~The changes in equity and cash flows for the first three quarters of 2018 and the first three quarters of 2017.~~

•

The changes in cash flows and equity for the first nine months of 2019 and the first nine months of 2018.

The condensed consolidated ~~condensed~~ financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial reporting and the instructions to Form 10-Q and Article 10 of Regulation S-X. The accounting policies followed in the presentation of interim financial results are consistent with those followed on an annual basis. These policies are presented in Note 1 to the consolidated financial statements included in the Company’s Annual Report on Form 10‑K for ~~2017~~2018 filed with the Securities and Exchange ~~Commission (the “SEC”).~~Commission.

The preparation of condensed consolidated ~~condensed~~ financial statements, in conformity with GAAP, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities ~~the~~and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Significant Accounting Policies

In the ordinary course of business, the Company has made a number of estimates and assumptions relating to the reporting of results of operations and financial position in the preparation of its condensed consolidated ~~condensed~~ financial statements in conformity with GAAP. Actual results could differ significantly from those estimates under different assumptions and conditions. The Company included in its Annual Report on Form 10‑K for ~~2017~~2018 under the caption “Discussion of Critical Accounting Policies, Estimates and New Accounting Pronouncements” in Part II, “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” a discussion of the Company’s most critical accounting policies, which are those the Company believes to be the most important to the portrayal of its financial condition and results of operations and require management’s most difficult, subjective and complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Any changes in critical accounting policies and estimates are discussed with the Audit Committee of the Board of Directors of the Company during the quarter in which a change is contemplated and prior to making such change.

Recently Adopted Accounting Pronouncements

In ~~May 2014,~~February 2018, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2014-09 “Revenue from Contracts with Customers,” (the “revenue recognition standard”). Subsequent to the issuance of ASU 2014‑09, the FASB issued several additional accounting standards for revenue recognition to update the effective date of the revenue recognition guidance and to provide additional clarification on the updated standard. The new guidance is effective for annual and interim periods beginning after December 15, 2017. The Company adopted the revenue recognition standard in the first quarter of 2018, as discussed in Note 2.

In January 2016, the FASB issued ASU 2016-01 “Recognition and Measurement of Financial Assets and Financial Liabilities,” which revises the classification and measurement of investments in equity securities and the presentation of certain fair value changes in financial liabilities measured at fair value. The new guidance is effective for annual and interim periods beginning after December 31, 2017. The Company adopted this guidance in the first quarter of 2018 and there was no material impact to the Company’s consolidated condensed financial statements.

~~In January 2017, the FASB issued ASU 2017-01 “Clarifying the Definition of a Business,”~~ which clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions or disposals of assets or businesses. The new guidance is effective for annual periods beginning after December 15, 2017, including

~~interim periods within those periods.~~ ~~The Company adopted this guidance in the first quarter of 2018 and there was no material impact to the Company’s consolidated condensed financial statements~~.

~~In January 2017, the FASB issued ASU 2017-04 “Simplifying the Test for Goodwill Impairment,”~~ ~~which~~ simplifies how an entity is required to test goodwill for impairment by eliminating step 2 from the goodwill impairment test, which measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount. Under the new guidance, entities should instead perform annual or interim goodwill impairment tests by comparing the fair value of a reporting unit with its carrying amount and recognize an impairment charge for the excess of the carrying amount over the fair value of the respective reporting unit. ~~The new guidance is effective for the annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019.~~ ~~The Company adopted this guidance in the first quarter of 2018 and there was no material impact to the Company’s consolidated condensed financial statements.~~

In March 2017, the FASB issued ASU 2017‑07 “Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost,” which requires that the service cost component of the Company’s net periodic pension cost and net periodic postretirement benefit cost be included in the same line item as other compensation costs arising from services rendered by employees, with the non-service cost components of net periodic benefit cost being classified outside of a subtotal of income from operations. Of the components of net periodic benefit cost, only the service cost component is eligible for asset capitalization. The new guidance is effective for annual periods beginning after December 31, 2017, including interim periods within those annual periods. ~~The Company~~ ~~adopted this guidance in the first quarter of 2018~~ using the practical expedient which allows entities to use information previously disclosed in their pension and other postretirement benefit plans note as the estimation basis to apply the retrospective presentation requirements in ASU 2017-07.

With the adoption of this guidance in the first quarter of 2018, the Company recorded the non-service cost component of net periodic benefit cost, which totaled $0.6 million in the third quarter of 2018 and $2.0 million in the first three quarters of 2018, to other income (expense), net in the consolidated condensed statements of operations. The Company reclassified $1.3 million from the third quarter of 2017 and $4.0 million from the first three quarters of 2017 of non-service cost components of net periodic benefit cost and other benefit plan charges from selling, delivery and administrative (“S,D&A”) expenses to other income (expense), net in the consolidated condensed statements of operations. The non-service cost component of net periodic benefit cost is included in the Nonalcoholic Beverages segment.

~~Recently Issued Pronouncements~~

~~In February 2018, the FASB issued ASU~~ 2018‑02, “Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income,” which provides the option to reclassify stranded tax effects resulting from the Tax Cuts and Jobs Act (the “Tax Act”) from accumulated other comprehensive income to retained earnings. This standard is required to be applied either in the period of adoption or retrospectively to each period in which the changes in the U.S. federal corporate income tax rate pursuant to the Tax Act are recognized. The new guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, and can be early adopted. The Company ~~is currently evaluating whether it will adopt this guidance.~~adopted ASU 2018‑02 in the first quarter of 2019 and recognized a cumulative effect adjustment to the opening balance of retained earnings in 2019. The cumulative effect adjustment increased retained earnings by $19.7 million.

In February 2016, the FASB issued ASU 2016-02, ~~“Leases,” which~~“Leases” (the “lease standard”). The lease standard requires lessees to recognize a right-to-use asset and a lease liability for virtually all leases (other than leases meeting the definition of a short-term lease). The new guidance is effective for fiscal years beginning after December 15, 2018 and interim periods beginning the following fiscal year. The Company ~~anticipates adopting~~adopted the ~~new accounting~~lease standard ~~on December 31, 2018,~~in the first ~~day~~quarter of ~~fiscal~~ 2019 using the optional transition method, which was approved by the FASB in March 2018 and allows companies the option to use the effective date as the date of initial application on transition and to not adjust comparative period financial information or make the new required disclosures for periods priormethod. See Note 9 to the ~~effective date.~~

~~The Company has formed a project team, which is in the process of reviewing its existing lease portfolio, including certain service contracts~~condensed consolidated financial statements for ~~embedded leases, to determine the size of the Company’s lease portfolio in order to evaluate the impact of this new guidance~~additional information on the Company’s consolidated condensed financial statements. The Company anticipates the impact of adopting this new guidance will be material to its consolidated condensed balance sheets. The impact on the Company’s consolidated condensed statements of operations is still being evaluated. As the impactadoption of the new guidance is non-cash in nature, the Company does not anticipate the impact of adopting this new guidance will be material to its consolidated condensed statements of cash flows. Additionally, the Company is evaluating the impacts of ASU 2016‑02 beyond accounting, including system, data and process changes required to comply with thislease standard. The Company anticipates implementing new controls and utilizing a lease accounting software application with the adoption of this new guidance and on a go-forward basis in order to properly approve, track and account for its entire lease portfolio.

Recently Issued Pronouncements

In June 2016, the FASB issued ASU 2016‑13, “Measurement of Credit Losses on Financial Instruments,” which requires measurement and recognition of expected credit losses at the point a loss is probable to occur, rather than expected to occur, which will generally result in earlier recognition of allowances for credit losses. The new guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company is currently evaluating the impact ASU 2016‑13 will have on its condensed consolidated financial statements.

2.~~Revenue Recognition~~Related Party Transactions

The Coca‑Cola Company

The Company’s business consists primarily of the production, marketing and distribution of nonalcoholic beverages of The Coca‑Cola Company, which is the sole owner of the formulas under which the primary components of its soft drink products, either concentrate or syrup, are manufactured.

As of September 29, 2019, The Coca‑Cola Company owned approximately 27% of the Company’s total outstanding Common Stock and Class B Common Stock on a consolidated basis, representing approximately 5% of the total voting power of the Company’s Common Stock and Class B Common Stock voting together. As long as The Coca‑Cola Company holds the number of shares of the Company’s Common Stock it currently owns, it has the right to have its designee proposed by the Company for nomination to the Company’s Board of Directors, and J. Frank Harrison, III, Chairman of the Board of Directors and Chief Executive Officer of the Company, and trustees of certain trusts established for the benefit of certain relatives of J. Frank Harrison, Jr. have agreed to vote the shares of the Company’s Class B Common Stock which they control, representing approximately 86% of the total voting power of the Company’s combined Common Stock and Class B Common Stock, in favor of such designee. The Coca‑Cola Company does not own any shares of the Company’s Class B Common Stock.

The following table summarizes the significant transactions between the Company and The Coca‑Cola Company:

	Third Quarter				First Nine Months
(in thousands)	2019		2018		2019		2018
Payments made by the Company to The Coca-Cola Company for:
Concentrate, syrup, sweetener and other purchases	$	306,588	$	341,949	$	893,123	$	904,244
Customer marketing programs		36,597		34,005		109,110		110,062
Cold drink equipment parts		4,519		7,958		18,568		22,188
Brand investment programs		3,616		2,546		10,209		6,440

Payments made by The Coca-Cola Company to the Company for:
Marketing funding support payments	$	25,931	$	22,632	$	74,954	$	65,325
Fountain delivery and equipment repair fees		10,873		10,199		31,507		29,899
Presence marketing funding support on the Company’s behalf		2,879		1,108		7,816		6,203
Facilitating the distribution of certain brands and packages to other Coca-Cola bottlers		1,602		1,937		3,952		7,663
Cold drink equipment		-		-		-		3,789

As part of The Coca‑Cola Company’s plans to refranchise its North American bottling territories, the Company completed a series of transactions from April 2013 to October 2017 with The Coca‑Cola Company, Coca‑Cola Refreshments USA, Inc. (“CCR”), a wholly-owned subsidiary of The Coca‑Cola Company, and Coca‑Cola Bottling Company United, Inc., an independent bottler that is unrelated to the Company, to significantly expand the Company’s distribution and manufacturing operations (the “System Transformation”). The System Transformation included the acquisition and exchange of rights to serve distribution territories and related distribution assets, as well as the acquisition and exchange of regional manufacturing plants and related manufacturing assets.

In fiscal 2017, The Coca‑Cola Company agreed to provide the Company a fee to compensate the Company for the net economic impact of changes made by The Coca‑Cola Company to the authorized pricing on sales of covered beverages produced at certain manufacturing plants owned by Company (the “Legacy Facilities Credit”). The Company immediately recognized the portion of the Legacy Facilities Credit applicable to a regional manufacturing plant divested in fiscal 2017 and the remaining balance of the Legacy Facilities Credit will be amortized as a reduction to cost of sales over a period of 40 years. The portion of the deferred liability that is expected to be amortized in the next 12 months is classified as current.

Coca‑Cola Refreshments USA, Inc.

The Company, ~~adopted~~The Coca-Cola Company and CCR entered into a comprehensive beverage agreement on March 31, 2017 (as amended, the ~~revenue recognition standard, including all relevant amendments~~“CBA”). Pursuant to the CBA, the Company is required to make quarterly sub-bottling payments to CCR on a continuing basis for the grant of exclusive rights to distribute, promote, market and ~~practical expedients,~~sell the authorized brands of The Coca‑Cola Company and related products in distribution territories the Company acquired from CCR as part of the System Transformation, excluding territories the Company acquired in an exchange transaction. These sub-bottling payments are based on gross profit derived from sales of certain beverages and beverage products that are sold under the same trademarks that identify a covered beverage, beverage product or certain cross-licensed brands.

Sub-bottling payments to CCR were $18.8 million during the first nine months of 2019 and $18.3 million during the first nine months of 2018. The following table summarizes the liability recorded by the Company to reflect the estimated fair value of contingent consideration related to future sub‑bottling payments to CCR:

(in thousands)	September 29, 2019		December 30, 2018
Current portion of acquisition related contingent consideration	$	28,583	$	32,993
Noncurrent portion of acquisition related contingent consideration		396,608		349,905
Total acquisition related contingent consideration	$	425,191	$	382,898

Upon the conversion of the Company’s then-existing bottling agreements in fiscal 2017 pursuant to the CBA, the Company received a fee from CCR (the “Territory Conversion Fee”). The Territory Conversion Fee was recorded as a deferred liability and will be amortized as a reduction to cost of sales over a period of 40 years. The portion of the deferred liability that is expected to be amortized in the next 12 months is classified as current.

Southeastern Container (“Southeastern”)

The Company is a shareholder of Southeastern, a plastic bottle manufacturing cooperative. The Company accounts for Southeastern as an equity method investment. The Company’s investment in Southeastern, which was classified as other assets in the condensed consolidated balance sheets, was $23.2 million as of September 29, 2019 and $23.6 million as of December 30, 2018.

South Atlantic Canners, Inc. (“SAC”)

The Company is a shareholder of SAC, a manufacturing cooperative in Bishopville, South Carolina. All of SAC’s shareholders are Coca‑Cola bottlers and each has equal voting rights.The Company accounts for SAC as an equity method investment. The Company’s investment in SAC, which was classified as other assets in the condensed consolidated balance sheets, was $8.2 million as of both September 29, 2019 and December 30, 2018.

The Company receives a fee for managing the day-to-day operations of SAC pursuant to a management agreement. Proceeds from management fees received from SAC were $7.0 million in the first ~~quarter~~nine months of 2019 and $6.8 million in the first nine months of 2018.

Coca‑Cola Bottlers’ Sales and Services Company, LLC (“CCBSS”)

Along with other Coca‑Cola bottlers in the United States and Canada, the Company is a member of CCBSS, a company formed to provide certain procurement and other services with the intention of enhancing the efficiency and competitiveness of the Coca‑Cola bottling system. The Company accounts for CCBSS as an equity method investment and its investment in CCBSS is not material.

CCBSS negotiates the procurement for the majority of the Company’s raw materials, excluding concentrate, and the Company receives a rebate from CCBSS for the purchase of these raw materials. The Company had rebates due from CCBSS of $8.0 million on September 29, 2019 and $10.4 million on December 30, 2018, which were classified as accounts receivable, other in the condensed consolidated balance sheets.

In addition, the Company pays an administrative fee to CCBSS for its services. The Company incurred administrative fees to CCBSS of $1.7 million in the first nine months of 2019 and $2.2 million in the first nine months of 2018, ~~using~~which were classified as selling, delivery and administrative (“SD&A”) expenses in the ~~modified retrospective approach~~condensed consolidated statements of operations.

CONA Services LLC (“CONA”)

The Company is a member of CONA, an entity formed with The Coca‑Cola Company and certain other Coca‑Cola bottlers to provide business process and information technology services to its members. The Company accounts for ~~all contracts~~CONA as an equity method investment. The Company’s investment in CONA, which was classified as other assets in the condensed consolidated balance sheets, was $9.7 million as of September 29, 2019 and $8.0 million as of December 30, 2018.

Pursuant to an amended and restated master services agreement with CONA, the Company is authorized to use the Coke One North America system (the “CONA System”), a uniform information technology system developed to promote operational efficiency and uniformity among North American Coca‑Cola bottlers. In exchange for the Company’s rights to use the CONA System and receive CONA-related services, it is charged service fees by CONA. The Company incurred CONA service fees of $17.7 million in the first nine months of 2019 and $15.5 million in the first nine months of 2018.

Related Party Leases

The Company leases its headquarters office facility and an adjacent office facility in Charlotte, North Carolina from Beacon Investment Corporation, of which J. Frank Harrison, III, Chairman of the Board of Directors and Chief Executive Officer of the Company, is the majority stockholder and Morgan H. Everett, Senior Vice President and a director of the Company, is a minority stockholder. The annual base rent the Company is obligated to pay under this lease agreement is subject to adjustment for increases in the Consumer Price Index (the “CPI”) and the lease expires on December 31, 2021. The principal balance outstanding under this lease was $7.6 million on September 29, 2019 and $9.9 million on December 30, 2018.

The Company leases the Snyder Production Center and an adjacent sales facility in Charlotte, North Carolina from Harrison Limited Partnership One, which is directly and indirectly owned by trusts of which J. Frank Harrison, III, and Sue Anne H. Wells, a director of the Company, are trustees and beneficiaries and of which Morgan H. Everett is a permissible, discretionary beneficiary. The annual base rent the Company is obligated to pay under this lease agreement is subject to an adjustment for an inflation factor and the lease expires on December 31, 2020. The principal balance outstanding under this lease was $5.3 million on September 29, 2019 and $8.1 million on December 30, 2018.

A summary of rental payments related to these leases is as follows:

	Third Quarter				First Nine Months
(in thousands)	2019		2018		2019		2018
Company headquarters	$	1,132	$	1,110	$	3,393	$	3,346
Snyder Production Center		1,080		1,049		3,241		3,147

3.Segments

The Company evaluates segment reporting in accordance with the FASB Accounting Standards Codification 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 ~~completed at~~provided to the ~~date~~CODM. The Company believes 3 operating segments exist. Nonalcoholic Beverages represents the vast majority of ~~initial adoption, considering materiality and applicability. Upon adoption of this guidance, there was no material impact to~~ the Company’s consolidated ~~condensed financial statements.~~revenues and income from operations. The additional 2 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

The Company’s ~~contracts~~segment results are ~~derived from customer orders, including customer sales incentives, generated through an order processing and replenishment model.~~ ~~The Company has defined its performance obligations for its contracts~~ as ~~either at a point in time or over time.~~follows:

	Third Quarter						First Nine Months
(in thousands)	2019			2018			2019			2018
Net sales:
Nonalcoholic Beverages⁽¹⁾	$	1,236,261		$	1,172,584		$	3,547,373		$	3,405,288
All Other		92,501			93,493			275,358			273,490
Eliminations⁽²⁾		(57,733	)		(62,044	)		(175,131	)		(189,985	)
Consolidated net sales	$	1,271,029		$	1,204,033		$	3,647,600		$	3,488,793

Income from operations:
Nonalcoholic Beverages	$	48,248		$	39,361		$	120,613		$	32,705
All Other		5,598			5,043			20,601			12,381
Consolidated income from operations	$	53,846		$	44,404		$	141,214		$	45,086

Depreciation and amortization:
Nonalcoholic Beverages	$	43,067		$	44,050		$	128,986		$	133,095
All Other		2,521			2,539			7,430			7,401
Consolidated depreciation and amortization	$	45,588		$	46,589		$	136,416		$	140,496

(1)

The Company historically presented consideration paid to customers under certain contractual arrangements for exclusive distribution rights and sponsorship privileges as a marketing expense within SD&A expenses. The Company has now determined such amounts should be presented as a reduction to net sales and has revised the presentation of previously issued financial statements to correct for this error. Net sales and SD&A expenses were revised by $7.6 million in the third quarter of 2018 and $22.2 million in the first nine months of 2018. See Note 4 to the condensed consolidated financial statements for additional information.

(2)	The entire net sales elimination for each period presented represents net sales from All Other 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.

4.Revenue Recognition

The Company offers a range of nonalcoholic beverage products and flavors designed to meet the demands of its consumers, including both sparkling and still beverages. Sparkling beverages are carbonated beverages and the Company’s principal sparkling beverage is Coca‑Cola. Still beverages include energy products and noncarbonated beverages such as bottled water, tea, ready to drink coffee, enhanced water, juices and sports drinks.

The Company’s products are sold and distributed in the United States through various channels, which include selling directly to retail stores and other outlets such as food markets, institutional accounts and vending machine outlets. During the first three quarters of 2018, approximately 66% of the Company’s bottle/can sales volume to retail customers was sold for future consumption, while the remaining bottle/can sales volume to retail customers was sold for immediate consumption. All the Company’s beverage sales were to customers in the United States. The Company typically collects payment from customers within 30 days from the date of sale.

The Company’s sales are divided into ~~two~~2 main categories: (i) bottle/can sales and (ii) other sales. Bottle/can sales include products packaged primarily in plastic bottles and aluminum cans. Bottle/can net pricing is based on the invoice price charged to customers reduced by any promotional allowances. Bottle/can net pricing per unit is impacted by the price charged per package, the sales volume generated for each package and the channels in which those packages are sold. Other sales include sales to other Coca‑Cola bottlers, ~~“post-mix”~~“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. ~~Net sales by category were as follows:~~

Third Quarter

First Three Quarters

(in thousands)

2018

2017

2018

2017

Bottle/can sales:

Sparkling beverages (carbonated)

$
605,614

$
582,710

$
1,787,451

$
1,670,093

Still beverages (noncarbonated, including energy products)

413,282

384,495

1,142,764

1,009,508

Total bottle/can sales

1,018,896

967,205

2,930,215

2,679,601

Other sales:

Sales to other Coca-Cola bottlers

92,139

104,619

300,819

274,317

Post-mix and other

100,626

90,702

279,963

243,601

Total other sales

192,765

195,321

580,782

517,918

Total net sales

$
1,211,661

$
1,162,526

$
3,510,997

$
3,197,519

Bottle/can sales represented approximately 83% and 84% in the first three quarters of 2018 and the first three quarters of 2017, respectively. The sparkling beverage category represented approximately 61% and 62% of total bottle/can sales during the first three quarters of 2018 and the first three quarters of 2017, respectively.

The Company’s contracts are derived from customer orders, including customer sales incentives, generated through an order processing and replenishment model. Revenues do not include sales or other taxes collected from customers. The Company has defined its performance obligations for its contracts as either at a point in time or over time. Bottle/can sales, sales to other Coca‑Cola bottlers and post-mix sales are recognized when control transfers to a customer, which is generally upon delivery and is considered a single point in time (“point in time”). Point in time sales accounted for approximately 96% of the Company’s net sales in the first nine months of 2019 and approximately 97% of the Company’s net sales in ~~both~~ the first ~~three quarters~~nine months of ~~2018 and the first three quarters of 2017.~~2018. Substantially all of the Company’s revenue is recognized at a point in time and is included in the Nonalcoholic Beverages segment.

Other sales, which include revenue for service fees related to the repair of cold drink equipment and delivery fees for freight hauling and brokerage services, are recognized over time (“over time”). Revenues related to cold drink equipment repair are recognized as the respective services are completed using a cost-to-cost input method. Repair services are generally completed in less than one day but can extend up to one month. Revenues related to freight hauling and brokerage services are recognized as the delivery occurs using a miles driven output method. Generally, delivery occurs and freight charges are recognized in the same day. Over time sales orders open at the end of a financial period are not ~~considered~~ material to the Company’s condensed consolidated ~~condensed~~ financial statements.

The following table represents a disaggregation of revenue from contracts with customers:

	Third Quarter				First Nine Months
(in thousands)	2019		2018		2019		2018
Point in time net sales:
Nonalcoholic Beverages - point in time	$	1,224,653	$	1,160,648	$	3,512,901	$	3,372,049
Total point in time net sales	$	1,224,653	$	1,160,648	$	3,512,901	$	3,372,049

Over time net sales:
Nonalcoholic Beverages - over time	$	11,608	$	11,936	$	34,472	$	33,239
All Other - over time		34,768		31,449		100,227		83,505
Total over time net sales	$	46,376	$	43,385	$	134,699	$	116,744

Total net sales	$	1,271,029	$	1,204,033	$	3,647,600	$	3,488,793

The Company participates in various sales programs with The Coca‑Cola Company, other beverage companies and customers to increase the sale of its products. Programs negotiated with customers include arrangements under which allowances can be earned for attaining agreed-upon sales levels. The cost of these various sales incentives are not considered a separate performance obligation and are included as deductions to net sales.

~~Revenues do~~Allowance payments made to customers can be conditional on the achievement of sales volume targets and/or marketing commitments. Payments made in advance are recorded as prepayments and amortized in the condensed consolidated statements of operations over the relevant period for which the customer commitment is made. In the event there is no separate identifiable benefit or the fair value of such benefit cannot be established, the amortization of the prepayment is included as a reduction to net sales.

The Company historically presented consideration paid to customers under certain contractual arrangements for exclusive distribution rights and sponsorship privileges as a marketing expense within SD&A expenses. The Company has now determined such amounts should be presented as a reduction to net sales and has revised the presentation of previously issued financial statements to correct for this error. Management believes the effect on previously reported financial statements is not ~~include~~material. In addition, management believes the revised presentation provides consistency with other companies that operate in the beverage industry. Net sales and SD&A expenses were revised by $7.6 million in the third quarter of 2018 and $22.2 million in the first nine months of 2018. The revision had no impact to net income or ~~other taxes collected from customers.~~net income per share.

The majority of the Company’s contracts include multiple performance obligations related to the delivery of specifically identifiable products, which generally have a duration of less than one year. For sales contracts with multiple performance obligations, the Company allocates the contract’s transaction price to each performance obligation using stated contractual price, which represents the standalone selling price of each distinct good sold under the contract. Generally, the Company’s service contracts have a single performance obligation.

The ~~following table represents a disaggregation of revenue from contracts with customers:~~

Third Quarter

First Three Quarters

(in thousands)

2018

2017

2018

2017

Point in time net sales:

Nonalcoholic - point in time

$
1,168,276

$
1,132,181

$
3,394,253

$
3,112,777

Total point in time net sales

$
1,168,276

$
1,132,181

$
3,394,253

$
3,112,777

Over time net sales:

Nonalcoholic - over time

$
11,936

$
10,057

$
33,239

$
27,197

Other - over time

31,449

20,288

83,505

57,545

Total over time net sales

$
43,385

$
30,345

$
116,744

$
84,742

Total net sales

$
1,211,661

$
1,162,526

$
3,510,997

$
3,197,519

~~The~~ Company sells its products and extends credit, generally without requiring collateral, based on an ongoing evaluation of the customer’s business prospects and financial condition. The Company evaluates the collectability of its trade accounts receivable based on a number of factors, including the Company’s historic collections pattern and changes to a specific customer’s ability to meet its financial obligations. The Company has established an allowance for doubtful accounts to adjust the recorded receivable to the estimated amount the Company believes will ultimately be collected.

The nature of the Company’s contracts gives rise to several types of variable consideration, including prospective and retrospective rebates. The Company accounts for its prospective and retrospective rebates using the expected value method, which estimates the net price to the customer based on the customer’s expected annual sales volume projections.

The Company experiences customer returns primarily as a result of damaged or out-of-date product. At any given time, the Company estimates less than 1% of bottle/can sales and post-mix sales could be at risk for return by customers. The Company’s reserve for customer returns, which was classified as allowance for doubtful accounts in the condensed consolidated balance sheets, was $3.6 million as of September 29, 2019 and $2.3 million as of ~~September~~December 30, ~~2018 and was included in the allowance for doubtful accounts~~ ~~in the consolidated condensed balance sheet~~.2018. Returned product is recognized as a reduction of net sales.

3.~~Acquisitions and Divestitures~~

As part of The Coca‑Cola Company’s plans to refranchise its North American bottling territories, the Company and Piedmont Coca‑Cola Bottling Partnership, a partnership formed by the Company and The Coca‑Cola Company (“Piedmont”), completed a series of transactions from April 2013 to October 2017 with The Coca‑Cola Company, Coca‑Cola Refreshments USA, Inc. (“CCR”), a wholly-owned subsidiary of The Coca‑Cola Company and Coca‑Cola Bottling Company United, Inc. (“United”), an independent bottler that is unrelated to the Company, to significantly expand the Company’s distribution and manufacturing operations (the “System Transformation”). The System Transformation included the acquisition and exchange of rights to serve distribution territories and related distribution assets, as well as the acquisition and exchange of regional manufacturing facilities and related manufacturing assets.

A summary of the System Transformation transactions (the “System Transformation Transactions”) completed by the Company is included in the Company’s Annual Report on Form 10‑K for 2017. Following is a summary of the System Transformation Transactions for which final post-closing adjustments were completed during the third quarter of 2018 in accordance with the terms

and conditions of the applicable asset purchase agreement or asset exchange agreement for such transactions. As of September 30, 2018, the cash purchase prices or settlement amounts for all System Transformation Transactions have been resolved according to the terms of the transaction agreements. The post-closing adjustments made during the third quarter of 2018 resulted in a $10.2 million net adjustment to the gain on exchange transactions in the consolidated condensed statements of operations.

Acquisition of Arkansas Distribution Territories and Memphis, Tennessee and West Memphis, Arkansas Regional Manufacturing Facilities in exchange for the Company’s Deep South and Somerset Distribution Territories and Mobile, Alabama Manufacturing Facility (the “CCR Exchange Transaction”)

On October 2, 2017, the Company (i) acquired from CCR distribution rights and related assets in territories previously served by CCR through CCR’s facilities and equipment located in central and southern Arkansas and two regional manufacturing facilities located in Memphis, Tennessee and West Memphis, Arkansas and related manufacturing assets (collectively, the “CCR Exchange Business”) in exchange for which the Company (ii) transferred to CCR distribution rights and related assets in territories previously served by the Company through its facilities and equipment located in portions of southern Alabama, southeastern Mississippi, southwestern Georgia and northwestern Florida and in and around Somerset, Kentucky and a regional manufacturing facility located in Mobile, Alabama and related manufacturing assets (collectively, the “Deep South and Somerset Exchange Business”), pursuant to an asset exchange agreement entered into by the Company, certain of its wholly-owned subsidiaries and CCR on September 29, 2017.

At closing, the Company paid CCR $15.9 million toward the settlement amount for the CCR Exchange Transaction, representing an estimate of the difference between the value of the CCR Exchange Business acquired by the Company and the value of the Deep South and Somerset Exchange Business acquired by CCR. During the fourth quarter of 2017, the Company recorded certain adjustments to this settlement amount as a result of changes in estimated net working capital and other fair value adjustments. The settlement amount was included in accounts payable to The Coca‑Cola Company ~~in the consolidated condensed balance sheet~~ ~~as of December 31, 2017.~~

During the third quarter of 2018, all post-closing adjustments were finalized for the CCR Exchange Transaction, resulting in a final settlement amount for the CCR Exchange Transaction of $26.2 million. A net balance of $10.3 million related to the settlement amount for the CCR Exchange Transaction remained payable to CCR by the Company as of September 30, 2018. This balance was paid to CCR during the fourth quarter of 2018.

~~Acquisition of Memphis, Tennessee Distribution Territories (the “Memphis Transaction”)~~

On October 2, 2017, the Company acquired distribution rights and related assets in territories previously served by CCR through CCR’s facilities and equipment located in and around Memphis, Tennessee, including portions of northwestern Mississippi and eastern Arkansas (the “Memphis Territory”), pursuant to an asset purchase agreement entered by the Company and CCR on September 29, 2017 (the “September 2017 APA”). At closing, the Company paid CCR $39.6 million toward the purchase price for the Memphis Transaction. During the second and third quarters of 2018, all post-closing adjustments were finalized for the Memphis Transaction, resulting in a net increase of $2.6 million in the cash purchase price, which was paid to CCR during the third quarter of 2018.

Acquisition of Spartanburg and Bluffton, South Carolina Distribution Territories in exchange for the Company’s Florence and Laurel Territories and Piedmont’s Northeastern Georgia Territories (the “United Exchange Transaction”)

On October 2, 2017, the Company and Piedmont completed exchange transactions in which (i) the Company acquired from United distribution rights and related assets in territories previously served by United through United’s facilities and equipment located in and around Spartanburg, South Carolina and a portion of United’s territory located in and around Bluffton, South Carolina (collectively, the “United Distribution Business”) and Piedmont acquired from United similar rights, assets and liabilities, and working capital in the remainder of United’s Bluffton, South Carolina territory, in exchange for which (ii) the Company transferred to United distribution rights and related assets in territories previously served by the Company through its facilities and equipment located in parts of northwestern Alabama, south-central Tennessee and southeastern Mississippi previously served by the Company’s distribution centers located in Florence, Alabama and Laurel, Mississippi (collectively, the “Florence and Laurel Distribution Business”) and Piedmont transferred to United similar rights, assets and liabilities, and working capital of Piedmont’s in territory located in parts of northeastern Georgia (the “Northeastern Georgia Distribution Business”), pursuant to an asset exchange agreement between the Company, certain of its wholly-owned subsidiaries and United dated September 29, 2017 and an asset exchange agreement between Piedmont and United dated September 29, 2017.

At closing, the Company and Piedmont paid United $3.4 million toward the settlement amount for the United Exchange Transaction, representing an estimate of (i) the difference between the value of the United Distribution Business acquired by the Company and the value of the Florence and Laurel Distribution Business acquired by United, plus (ii) the difference between the value of the portion of

the Bluffton, South Carolina territory acquired by Piedmont and the value of the Northeastern Georgia Distribution Business acquired by United. During the third quarter of 2018, all post-closing adjustments were finalized for the United Exchange Transaction, resulting in an increase of $2.8 million in the settlement amount, which was included in accounts payable, trade ~~in the consolidated condensed balance sheet~~ ~~as of September 30, 2018. The Company anticipates this balance will be paid to United during the fourth quarter of 2018.~~

Collectively, the CCR Exchange Transaction, the Memphis Transaction and the United Exchange Transaction are the “October 2017 Transactions,” the CCR Exchange Business, the Memphis Territory and the United Distribution Business are the “October 2017 Acquisitions” and the Deep South and Somerset Exchange Business and the Florence and Laurel Distribution Business are the “October 2017 Divestitures.”

In addition to the October 2017 Transactions summarized above, the Company completed three additional System Transformation Transactions with CCR in 2017 for which all post-closing adjustments have been completed: (i) the acquisition from CCR of distribution rights and related assets for territories in Anderson, Fort Wayne, Lafayette, South Bend and Terre Haute, Indiana on January 27, 2017 (the “January 2017 Transaction”), (ii) the acquisition from CCR of distribution rights and related assets for territories in Indianapolis and Bloomington, Indiana and Columbus and Mansfield, Ohio and regional manufacturing facilities and related assets located in Indianapolis and Portland, Indiana on March 31, 2017 (the “March 2017 Transactions”), and (iii) the acquisition from CCR of distribution rights and related assets for territories in Akron, Elyria, Toledo, Willoughby and Youngstown, Ohio and a regional manufacturing facility and related assets located in Twinsburg, Ohio on April 28, 2017 (the “April 2017 Transactions”).

Post-closing adjustments for the January 2017 Transaction and the March 2017 Transactions were completed during 2017 and post-closing adjustments for the April 2017 Transactions were completed during the second quarter of 2018. During the fourth quarter of 2017, the cash purchase price for the April 2017 Transactions decreased by $4.7 million as a result of net working capital and other fair value adjustments, which was paid to the Company by The Coca‑Cola Company during the second quarter of 2018.

The fair value of acquired assets and assumed liabilities of the System Transformation Transactions that closed during 2017 (the “2017 System Transformation Transactions”), as of the acquisition dates, is summarized as follows:

(in thousands)

January 2017
Transaction

March 2017
Transactions

April 2017
Transactions

October 2017
Acquisitions

Total 2017 System
Transformation
Transactions
Acquisitions

Cash

$
107

$
211

$
103

$
191

$
612

Inventories

5,953

20,952

14,554

14,850

56,309

Prepaid expenses and other current assets

1,155

5,117

4,068

4,573

14,913

Accounts receivable from The Coca-Cola Company

1,042

1,807

2,552

1,447

6,848

Property, plant and equipment

25,708

81,638

52,263

71,589

231,198

Other assets (including deferred taxes)

1,158

3,227

3,960

1,300

9,645

Goodwill

1,544

2,527

16,941

11,442

32,454

Distribution agreements

22,000

46,750

19,500

129,450

217,700

Customer lists

1,500

1,750

1,000

4,950

9,200

Total acquired assets

$
60,167

$
163,979

$
114,941

$
239,792

$
578,879

Current liabilities (acquisition related contingent consideration)

$
1,350

$
2,958

$
1,475

$
1,501

$
7,284

Other current liabilities

324

3,760

2,860

8,311

15,255

Other liabilities (acquisition related contingent consideration)

26,377

49,739

25,616

20,676

122,408

Other liabilities

43

2,953

1,792

102

4,890

Total assumed liabilities

$
28,094

$
59,410

$
31,743

$
30,590

$
149,837

~~The fair value of acquired assets and assumed liabilities in the October 2017 Acquisitions as of the acquisition date is summarized as follows:~~

(in thousands)

CCR Exchange Business

Memphis Territory

United Exchange Business

Total October 2017 Acquisitions

Cash

$
91

$
100

$
-

$
191

Inventories

10,667

3,354

829

14,850

Prepaid expenses and other current assets

3,172

1,087

314

4,573

Accounts receivable from The Coca-Cola Company

674

563

210

1,447

Property, plant and equipment

47,484

21,321

2,784

71,589

Other assets (including deferred taxes)

753

547

-

1,300

Goodwill

3,546

5,199

2,697

11,442

Distribution agreements

80,100

35,400

13,950

129,450

Customer lists

3,200

1,200

550

4,950

Total acquired assets

$
149,687

$
68,771

$
21,334

$
239,792

Current liabilities (acquisition related contingent consideration)

$
-

$
1,501

$
-

$
1,501

Other current liabilities

3,497

4,323

491

8,311

Other liabilities (acquisition related contingent consideration)

-

20,676

-

20,676

Other liabilities

15

87

-

102

Total assumed liabilities

$
3,512

$
26,587

$
491

$
30,590

The goodwill for the 2017 System Transformation Transactions is included in the Nonalcoholic Beverages segment and is primarily attributed to operational synergies and the workforce acquired. Goodwill of $11.4 million, $3.5 million, $8.6 million and $2.7 million is expected to be deductible for tax purposes for the April 2017 Transactions, the CCR Exchange Business, the Memphis Territory and the United Exchange Business, respectively. No goodwill is expected to be deductible for tax purposes for the January 2017 Transaction or the March 2017 Transactions.

~~The carrying value of assets and liabilities divested in the October 2017 Divestitures is summarized as follows:~~

(in thousands)

October 2017
Divestitures

Cash

$
303

Inventories

13,717

Prepaid expenses and other current assets

1,199

Property, plant and equipment

44,380

Other assets (including deferred taxes)

604

Goodwill

13,073

Distribution agreements

65,043

Total divested assets

$
138,319

Other current liabilities

$
5,683

Pension and postretirement benefit obligation

16,855

Total divested liabilities

$
22,538

~~The October 2017 Divestitures were recorded in the Company’s Nonalcoholic Beverages segment prior to divestiture.~~

~~System Transformation Transactions Financial Results~~

~~The financial results of the System Transformation Transactions have been included in the Company’s consolidated condensed financial statements from their respective acquisition or exchange dates.~~ 5.Net sales and income from operations for certain territories and regional manufacturing facilities acquired and divested by the Company during 2017 are impracticable to separately calculate, as the operations were absorbed into territories and facilities owned by the Company prior to the System Transformation, and therefore have been omitted from the results below. Omission of net sales and income from operations for such territories and facilities is not

considered material to the results presented below. The remaining 2017 System Transformation Transactions contributed the following amounts to the Company’s consolidated condensed statements of operations:

Third Quarter

First Three Quarters

(in thousands)

2018

2017

2018

2017

Impact to net sales - total 2017 System Transformation Transactions acquisitions

$
308,825

$
221,034

$
896,179

$
454,174

Impact to net sales - October 2017 Divestitures

-

79,032

-

231,301

Total impact to net sales

$
308,825

$
300,066

$
896,179

$
685,475

Impact to income from operations - total 2017 System Transformation Transactions acquisitions

$
11,874

$
3,176

$
14,635

$
13,595

Impact to income from operations - October 2017 Divestitures

-

7,689

-

22,973

Total impact to income from operations

$
11,874

$
10,865

$
14,635

$
36,568

~~The Company incurred transaction related expenses for the System Transformation Transactions of $5.6 million in the first three quarters of 2017, which were included within S,D&A~~ ~~expenses on the consolidated condensed statements of operations.~~

~~System Transformation Transactions Pro Forma Financial Information~~

The purpose of the pro forma disclosure is to present the net sales and the income from operations of the combined entity as though the 2017 System Transformation Transactions had occurred as of the beginning of 2017. The pro forma combined net sales and income from operations do not necessarily reflect what the combined Company’s net sales and income from operations would have been had the acquisitions occurred at the beginning of 2017. The pro forma financial information also may not be useful in predicting the future financial results of the combined company. The actual results may differ significantly from the pro forma amounts reflected herein due to a variety of factors.Income Per Share

The following table ~~represents~~sets forth the ~~Company’s unaudited pro forma~~computation of basic net ~~sales~~income per share and ~~unaudited pro forma~~diluted net income ~~from operations for~~per share under the ~~2017 System Transformation Transactions.~~two-class method:

Third Quarter 2017

First Three Quarters 2017

(in thousands)

Net Sales

Income from Operations

Net Sales

Income from Operations

Balance as reported

$
1,162,526

$
37,472

$
3,197,519

$
101,077

Pro forma adjustments (unaudited)

1,754

55

231,183

4,262

Balance including pro forma adjustments (unaudited)

$
1,164,280

$
37,527

$
3,428,702

$
105,339

	Third Quarter				First Nine Months
(in thousands, except per share data)	2019		2018		2019		2018
Numerator for basic and diluted net income per Common Stock and Class B Common Stock share:
Net income attributable to Coca-Cola Consolidated, Inc.	$	13,006	$	25,164	$	21,545	$	7,046
Less dividends:
Common Stock		1,786		1,787		5,356		5,357
Class B Common Stock		558		556		1,670		1,657
Total undistributed earnings	$	10,662	$	22,821	$	14,519	$	32

Common Stock undistributed earnings – basic	$	8,123	$	17,422	$	11,066	$	24
Class B Common Stock undistributed earnings – basic		2,539		5,399		3,453		8
Total undistributed earnings – basic	$	10,662	$	22,821	$	14,519	$	32

Common Stock undistributed earnings – diluted	$	8,089	$	17,327	$	11,019	$	24
Class B Common Stock undistributed earnings – diluted		2,573		5,494		3,500		8
Total undistributed earnings – diluted	$	10,662	$	22,821	$	14,519	$	32

Numerator for basic net income per Common Stock share:
Dividends on Common Stock	$	1,786	$	1,787	$	5,356	$	5,357
Common Stock undistributed earnings – basic		8,123		17,422		11,066		24
Numerator for basic net income per Common Stock share	$	9,909	$	19,209	$	16,422	$	5,381

Numerator for basic net income per Class B Common Stock share:
Dividends on Class B Common Stock	$	558	$	556	$	1,670	$	1,657
Class B Common Stock undistributed earnings – basic		2,539		5,399		3,453		8
Numerator for basic net income per Class B Common Stock share	$	3,097	$	5,955	$	5,123	$	1,665

Numerator for diluted net income per Common Stock share:
Dividends on Common Stock	$	1,786	$	1,787	$	5,356	$	5,357
Dividends on Class B Common Stock assumed converted to Common Stock		558		556		1,670		1,657
Common Stock undistributed earnings – diluted		10,662		22,821		14,519		32
Numerator for diluted net income per Common Stock share	$	13,006	$	25,164	$	21,545	$	7,046

Numerator for diluted net income per Class B Common Stock share:
Dividends on Class B Common Stock	$	558	$	556	$	1,670	$	1,657
Class B Common Stock undistributed earnings – diluted		2,573		5,494		3,500		8
Numerator for diluted net income per Class B Common Stock share	$	3,131	$	6,050	$	5,170	$	1,665

Denominator for basic net income per Common Stock and Class B Common Stock share:
Common Stock weighted average shares outstanding – basic		7,141		7,141		7,141		7,141
Class B Common Stock weighted average shares outstanding – basic		2,232		2,213		2,228		2,208

The net sales pro forma and the income from operations pro forma reflect adjustments for (i) the inclusion of historic results of operations for the distribution territories and the regional manufacturing facilities acquired in the System Transformation Transactions for the period prior to the Company’s acquisition of the applicable territories or facility, for each period presented and (ii) the elimination of historic results of operations for the October 2017 Divestitures.

	Third Quarter				First Nine Months
(in thousands, except per share data)	2019		2018		2019		2018
Denominator for diluted net income per Common Stock and Class B Common Stock share:
Common Stock weighted average shares outstanding – diluted (assumes conversion of Class B Common Stock to Common Stock)		9,413		9,405		9,409		9,400
Class B Common Stock weighted average shares outstanding – diluted		2,272		2,264		2,268		2,259

Basic net income per share:
Common Stock	$	1.39	$	2.69	$	2.30	$	0.75
Class B Common Stock	$	1.39	$	2.69	$	2.30	$	0.75

Diluted net income per share:
Common Stock	$	1.38	$	2.69	$	2.29	$	0.75
Class B Common Stock	$	1.38	$	2.68	$	2.28	$	0.74

NOTES TO TABLE

⁽¹⁾	For purposes of the diluted net income per share computation for Common Stock, all shares of Class B Common Stock are assumed to be converted; therefore, 100% of undistributed losses is allocated to Common Stock.

⁽²⁾	For purposes of the diluted net income per share computation for Class B Common Stock, weighted average shares of Class B Common Stock are assumed to be outstanding for the entire period and not converted.

⁽³⁾

For periods presented during which the Company has net income, the denominator for diluted net income per share for Common Stock and Class B Common Stock included the dilutive effect of shares relative to the Long-Term Performance Equity Plan and the Performance Unit Award Agreement. For periods presented during which the Company has net loss, the unvested performance units granted pursuant to the Long-Term Performance Equity Plan and the Performance Unit Award Agreement are excluded from the calculation of diluted net loss per share, as the effect of these awards would be anti-dilutive. See Note 21 to the condensed consolidated financial statements for additional information on the Long-Term Performance Equity Plan and the Performance Unit Award Agreement.

⁽⁴⁾

The Long-Term Performance Equity Plan awards may be settled in cash and/or shares of the Company’s Class B Common Stock. Once an election has been made to settle an award in cash, the dilutive effect of shares relative to such award are prospectively removed from the denominator for the calculation of diluted net income per share.

⁽⁵⁾	The Company does 0t have anti-dilutive shares.

6.Inventories

Inventories consisted of the following:

(in thousands)	September 30, 2018		December 31, 2017		September 29, 2019		December 30, 2018
Finished products	$	156,669	$	116,354	$	155,338	$	135,561
Manufacturing materials		35,703		33,073		38,434		39,840
Plastic shells, plastic pallets and other inventories		37,520		34,191		37,980		34,632
Total inventories	$	229,892	$	183,618	$	231,752	$	210,033

5.7.Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consisted of the following:

(in thousands)	September 30, 2018		December 31, 2017		September 29, 2019		December 30, 2018
Repair parts	$	29,535	$	30,530	$	28,977	$	26,846
Prepayments for sponsorship contracts						12,873		7,557
Current portion of income taxes		22,896		35,930		8,959		6,637
Prepaid marketing						6,682		6,097
Prepaid software		5,786		5,855		5,446		6,553
Prepayments for sponsorship contracts		5,644		6,358
Commodity hedges at fair market value		1,047		4,420
Other prepaid expenses and other current assets		26,606		17,553		15,460		16,990
Total prepaid expenses and other current assets	$	91,514	$	100,646	$	78,397	$	70,680

8.Property, Plant and Equipment, Net

The principal categories and estimated useful lives of property, plant and equipment, net were as follows:

(in thousands)	September 30, 2018		December 31, 2017		Estimated Useful Lives	September 29, 2019		December 30, 2018		Estimated Useful Lives
Land	$	78,478	$	78,825		$	77,980	$	78,242
Buildings		216,821		211,308	8-50 years		221,731		218,846	8-50 years
Machinery and equipment		320,447		315,117	5-20 years		342,872		328,034	5-20 years
Transportation equipment		373,426		351,479	4-20 years		392,951		372,895	4-20 years
Furniture and fixtures		92,000		89,559	3-10 years		91,967		89,439	3-10 years
Cold drink dispensing equipment		497,008		488,208	5-17 years		497,095		491,161	5-17 years
Leasehold and land improvements		130,257		125,348	5-20 years		138,197		132,837	5-20 years
Software for internal use		120,767		113,490	3-10 years		127,020		122,604	3-10 years
Construction in progress		13,524		25,490			14,852		15,142
Total property, plant and equipment, at cost		1,842,728		1,798,824			1,904,665		1,849,200
Less: Accumulated depreciation and amortization		844,611		767,436			947,468		858,668
Property, plant and equipment, net	$	998,117	$	1,031,388		$	957,197	$	990,532

~~Depreciation expense, which includes amortization expense~~9.Leases

The Company leases office and warehouse space, machinery and other equipment under noncancelable operating lease agreements and also leases certain warehouse space under financing lease agreements. The Company adopted the lease standard using the optional transition method on December 31, 2018, the transition date, and elected to adopt the following practical expedients as accounting policy upon initial adoption of the lease standard:

•	Short-term lease exception: Allows the Company to not recognize leases with a contractual term of less than 12 months on its condensed consolidated balance sheets.

•	Election to not separate non-lease components: Allows the Company to not separate lease and non-lease components and to account for both components as a single component, recognized on its condensed consolidated balance sheets.

•

Package of practical expedients for transition: Allows the Company to not reassess (i) whether any expired or existing contracts are or contain leases, (ii) the lease classification for any expired or existing leases and (iii) any initial direct costs for any existing leases as of the transition date.

•

Additional transition method/relief: Allows the Company to apply the transition requirements in the lease standard as of the transition date, with any impact of initially applying the lease standard recognized as a cumulative effect adjustment to retained earnings in the period of adoption. This also requires the Company to maintain previous disclosure requirements for comparative periods.

Upon adoption of the lease standard on December 31, 2018, the Company recorded right of use assets for ~~leased property~~operating leases of $88.0 million and associated lease liabilities of $88.2 million. The adoption of the lease standard did not change previously reported condensed consolidated statements of operations, did not result in a cumulative effect adjustment to retained earnings in the period of adoption and did not impact cash flows.

The Company used the following policies and assumptions to evaluate its population of leases:

•

Determining a lease: The Company assesses contracts at inception to determine whether an arrangement is or includes a lease, which conveys the Company’s right to control the use of an identified asset for a period of time in exchange for consideration. Operating lease right of use assets and associated liabilities are recognized at the commencement date and initially measured based on the present value of lease payments over the defined lease term.

•

Allocating lease and non-lease components: The Company has elected the practical expedient to not separate lease and non-lease components for certain classes of underlying assets. The Company has equipment and vehicle lease agreements, which generally have the lease and associated non-lease components accounted for as a single lease component. The Company has real estate lease agreements with lease and non-lease components, which are generally accounted for separately where applicable.

•

Discount rate: The Company calculates the discount rate based on the discount rate implicit in the lease, or if the implicit rate is not readily determinable from the lease, then the Company calculates an incremental borrowing rate using a portfolio approach. The incremental borrowing rate is calculated using the contractual lease term and the Company’s borrowing rate.

•	Lease term: The Company does not recognize leases with a contractual term of less than 12 months on its condensed consolidated balance sheets. Lease expense for these short-term leases is expensed on a straight-line basis over the lease term.

•	Rent increases or escalation clauses: Certain leases contain scheduled rent increases or escalation clauses, which can be based on the CPI or other rates. The Company assesses each contract individually and applies the appropriate variable payments based on the terms of the agreement.

•

Renewal options and/or purchase options: Certain leases include renewal options to extend the lease term and/or purchase options to purchase the leased asset. The Company assesses these options using a threshold of reasonably certain, which is a high threshold and, therefore, the majority of the Company’s leases do not include renewal periods or purchase options for the measurement of the right of use asset and the associated lease liability. For leases the Company is reasonably certain to renew or purchase, those options are included within the lease term and, therefore, included in the measurement of the right of use asset and the associated lease liability.

•

Option to terminate: Certain leases include the option to terminate the lease prior to its scheduled expiration. This allows a contractually bound party to terminate its obligation under the lease contract, typically in return for an agreed-upon financial consideration. The terms and conditions of the termination options vary by contract.

•	Residual value guarantees, restrictions or covenants: The Company’s lease agreements do not contain residual value guarantees, restrictions or covenants.

Following is a summary of the weighted average remaining lease term and weighted average discount rate for the Company’s population of leases as of September 29, 2019:

	Operating Leases			Financing Leases
Weighted average remaining lease term	10.2 years			4.9 years
Weighted average discount rate		4.1	%		5.7	%

As of September 29, 2019, the Company had one real estate operating lease commitment that had not yet commenced. This lease commitment is expected to commence during the fourth quarter of 2019 and have a lease term of five years. The additional lease liability associated with this lease commitment is expected to be approximately $0.3 million.

Following is a summary of balances related to the Company’s lease portfolio within the Company’s condensed consolidated statements of operations for the third quarter and the first nine months of 2019:

(in thousands)	Third Quarter 2019		First Nine Months 2019
Cost of sales impact:
Operating leases costs	$	1,356	$	4,039
Short-term and variable leases		2,814		7,393
Depreciation expense from financing leases⁽¹⁾		353		1,060
Total cost of sales impact	$	4,523	$	12,492

Selling, delivery and administrative expenses impact:
Operating leases costs	$	3,717	$	9,639
Short-term and variable leases		838		2,676
Depreciation expense from financing leases⁽¹⁾		1,139		3,415
Total selling, delivery and administrative expenses impact	$	5,694	$	15,730

Interest expense, net impact:
Interest expense on financing lease obligations⁽²⁾	$	666	$	2,083
Total interest expense, net impact	$	666	$	2,083

Total lease cost	$	10,883	$	30,305

(1)

During the third quarter of 2018, the Company had depreciation expense from capital leases of $0.3 million and $1.1 million in cost of sales and SD&A expenses, respectively. During the first nine months of 2018, the Company had depreciation expense from capital leases of $1.0 million and $3.4 million in cost of sales and SD&A expenses, respectively.

(2)	The Company had interest expense on capital lease obligations of $0.8 million during the third quarter of 2018 and $2.6 million during the first nine months of 2018.

The future minimum lease payments related to the Company’s lease portfolio include renewal options the Company has determined to be reasonably assured and exclude payments to landlords for real estate taxes and common area maintenance. Following is a summary of future minimum lease payments for all noncancelable operating leases and financing leases as of September 29, 2019:

(in thousands)	Operating Leases		Financing Leases		Total
Remainder of 2019	$	4,556	$	2,612	$	7,168
2020		19,387		10,611		29,998
2021		17,386		6,215		23,601
2022		13,965		2,694		16,659
2023		11,702		2,750		14,452
Thereafter		78,543		8,213		86,756
Total minimum lease payments including interest	$	145,539	$	33,095	$	178,634
Less: Amounts representing interest		28,726		4,074		32,800
Present value of minimum lease principal payments		116,813		29,021		145,834
Less: Current portion of lease liabilities - operating and financing leases		14,929		9,209		24,138
Noncurrent portion of lease liabilities - operating and financing leases	$	101,884	$	19,812	$	121,696

Following is a summary of future minimum lease payments for all noncancelable operating leases and capital leases ~~was $123.5 million in~~as of December 30, 2018:

(in thousands)	Operating Leases		Capital Leases		Total
2019	$	14,146	$	10,434	$	24,580
2020		13,526		10,613		24,139
2021		12,568		6,218		18,786
2022		11,161		2,697		13,858
2023		10,055		2,753		12,808
Thereafter		33,805		8,106		41,911
Total minimum lease payments including interest	$	95,261	$	40,821	$	136,082
Less: Amounts representing interest				5,573
Present value of minimum lease principal payments				35,248
Less: Current portion of lease liabilities - capital leases				8,617
Noncurrent portion of lease liabilities - capital leases			$	26,631

Following is a summary of balances related to the Company’s lease portfolio within the Company’s condensed consolidated statement of cash flows for the first ~~three quarters~~nine months of ~~2018 and $108.7 million in the first three quarters of 2017.~~2019:

(in thousands)	First Nine Months 2019
Cash flows from operating activities impact:
Operating leases	$	13,576
Interest payments on financing lease obligations⁽¹⁾		2,083
Total cash flows from operating activities impact	$	15,659

Cash flows from financing activities impact:
Principal payments on financing lease obligations⁽¹⁾	$	6,441
Total cash flows from financing activities impact	$	6,441

(1)	During the first nine months of 2018, the Company had interest payments on capital lease obligations of $2.6 million and principal payments on capital lease obligations of $6.0 million.

10.Goodwill

A reconciliation of the activity for goodwill for the first ~~three quarters~~nine months of ~~2018~~2019 and the first ~~three quarters~~nine months of ~~2017~~2018 is as follows:

	First Three Quarters						First Nine Months
(in thousands)	2018			2017			2019		2018
Beginning balance - goodwill	$	169,316		$	144,586		$	165,903	$	169,316
System Transformation Transactions acquisitions		-			19,035
Measurement period adjustments⁽¹⁾		(3,413	)		1,807			-		(3,413	)
Balance held for sale⁽²⁾		-			(12,727	)
Ending balance - goodwill	$	165,903		$	152,701		$	165,903	$	165,903

⁽¹⁾

Measurement period adjustments relate to post-closing adjustments made in accordance with the terms and conditions of the applicable asset purchase agreement or asset exchange agreement for ~~each System Transformation Transaction. See Note 3 to~~distribution territories acquired or exchanged by the ~~consolidated condensed financial statements for additional information on~~Company in April 2017 and October 2017 as part of the System ~~Transformation Transactions.~~

⁽²⁾	~~Goodwill of $12.7 million related to the October 2017 Divestitures was classified as held~~Transformation. All final post-closing adjustments for ~~sale as of October 1, 2017.~~these transactions were completed during 2018.

The Company’s goodwill resides entirely within the Nonalcoholic Beverages segment. The Company performs its annual impairment test of goodwill as of the first day of the fourth quarter of each fiscal year. During the first ~~three quarters~~nine months of ~~2018,~~2019, the Company did not experience any triggering events or changes in circumstances indicating the carrying ~~amounts~~amount of the Company’s goodwill exceeded its fair ~~values.~~value.

8.11.Distribution Agreements, Net

Distribution agreements, net, which are amortized on a ~~straight line~~straight-line basis and have an estimated useful life of 2010 to 40 years, consisted of the following:

(in thousands)	September 30, 2018			December 31, 2017			September 29, 2019			December 30, 2018
Distribution agreements at cost	$	945,895		$	939,527		$	950,549		$	950,559
Less: Accumulated amortization		(44,064	)		(26,175	)		(68,382	)		(50,176	)
Distribution agreements, net	$	901,831		$	913,352		$	882,167		$	900,383

A reconciliation of the activity for distribution agreements, net for the first ~~three quarters~~nine months of ~~2018~~2019 and the first ~~three quarters~~nine months of ~~2017~~2018 is as follows:

	First Three Quarters						First Nine Months
(in thousands)	2018			2017			2019			2018
Beginning balance - distribution agreements, net	$	913,352		$	234,988		$	900,383		$	913,352
Conversion to distribution rights from franchise rights⁽¹⁾		-			533,040
System Transformation Transactions acquisitions		-			36,800
Measurement period adjustment⁽²⁾		4,700			-
Other distribution agreements		1,668			44			(10	)		1,668
Measurement period adjustments⁽¹⁾								-			4,700
Additional accumulated amortization		(17,889	)		(11,774	)		(18,206	)		(17,889	)
Balance held for sale⁽³⁾		-			(63,321	)
Ending balance - distribution agreements, net	$	901,831		$	729,777		$	882,167		$	901,831

⁽¹⁾

In connection with the closing of the March 2017 Transactions, the Company, The Coca-Cola Company and CCR entered into a comprehensive beverage agreement (as amended, the “CBA”) on March 31, 2017, and concurrently converted the Company’s franchise rights within the territories in which the Company distributed Coca‑Cola products prior to beginning the System Transformation to distribution agreements, net on the consolidated condensed financial statements. Prior to this conversion, the Company’s franchise rights resided entirely within the Nonalcoholic Beverages segment.

⁽²⁾

Measurement period ~~adjustment relates~~adjustments relate to post-closing adjustments made ~~in relation to the Memphis Transaction~~ in accordance with the terms and conditions of the ~~September~~applicable asset purchase agreement or asset exchange agreement for distribution territories acquired or exchanged by the Company in October 2017 APA. The adjustment to amortization expense associated with this measurement period adjustment was not material to the consolidated condensed financial statements. See Note 3 to the consolidated condensed financial statements for additional information onas part of the System ~~Transformation Transactions.~~

⁽³⁾	~~Distribution agreements, net of $63.3 million related to the October 2017 Divestitures was classified as held~~Transformation. All final post-closing adjustments for ~~sale as of October 1, 2017.~~this transaction were completed during 2018.

9.12.Customer Lists and Other Identifiable Intangible Assets, Net

Customer lists and other identifiable intangible assets, net, which are amortized on a ~~straight line~~straight-line basis and have an estimated useful life of 125 to 2012 years, consisted of the following:

(in thousands)

September 30, 2018

December 31, 2017

Customer lists and other identifiable intangible assets at cost

$
25,288

$
25,288

Less: Accumulated amortization

(8,347
)

(6,968
)
Customer lists and other identifiable intangible assets, net

$
16,941

$
18,320

~~A reconciliation of the activity for customer lists and other identifiable intangible assets, net for the first three quarters of 2018 and the first three quarters of 2017 is as follows:~~

First Three Quarters

(in thousands)

2018

2017

Beginning balance - customer lists and other identifiable intangible assets, net

$
18,320

$
10,427

System Transformation Transactions acquisitions

-

3,800

Additional accumulated amortization

(1,379
)

(965
)
Ending balance - customer lists and other identifiable intangible assets, net

$
16,941

$
13,262

(in thousands)	September 29, 2019			December 30, 2018
Customer lists and other identifiable intangible assets at cost	$	25,288		$	25,288
Less: Accumulated amortization		(10,185	)		(8,806	)
Customer lists and other identifiable intangible assets, net	$	15,103		$	16,482

~~10.~~13.Other Accrued Liabilities

Other accrued liabilities consisted of the following:

(in thousands)

September 30, 2018

December 31, 2017

Accrued insurance costs

$
39,299

$
35,433

Employee and retiree benefit plan accruals

25,950

27,024

Accrued marketing costs

25,875

33,376

Current portion of acquisition related contingent consideration

25,306

23,339

Checks and transfers yet to be presented for payment from zero balance cash accounts

11,900

37,262

Accrued taxes (other than income taxes)

5,811

6,391

Current deferred proceeds from Territory Conversion Fee⁽¹⁾

2,286

2,286

All other accrued expenses

17,182

20,419

Total other accrued liabilities

$
153,609

$
185,530

⁽¹⁾

Pursuant to a territory conversion agreement entered into by the Company, The Coca‑Cola Company and CCR in September 2015 (as amended), upon the conversion of the Company’s then-existing bottling agreements to the CBA on March 31, 2017, the Company received a one-time fee from CCR, which, after final adjustments made during the second quarter of 2017, totaled $91.5 million (the “Territory Conversion Fee”). The Territory Conversion Fee was recorded as a deferred liability and will be amortized as a reduction to cost of sales over a period of 40 years. The portion of the deferred liability that is expected to be amortized in the next twelve months was classified as current.

(in thousands)	September 29, 2019		December 30, 2018
Accrued insurance costs	$	43,610	$	37,916
Accrued marketing costs		31,550		31,475
Current portion of acquisition related contingent consideration		28,583		32,993
Employee and retiree benefit plan accruals		26,858		29,300
Checks and transfers yet to be presented for payment from zero balance cash accounts		19,669		72,701
Accrued taxes (other than income taxes)		11,087		4,577
Commodity hedges at fair market value		7,240		10,305
Current deferred proceeds from Territory Conversion Fee		2,286		2,286
All other accrued expenses		20,413		28,693
Total other accrued liabilities	$	191,296	$	250,246

~~11.Debt~~

~~Following is a summary of the Company’s debt:~~

(in thousands)

Maturity
Date

Interest
Rate

Interest
Paid

Public /
Non-public

September 30,
2018

December 31,
2017

Senior Notes⁽¹⁾

4/15/2019

7.00%

Semi-annually

Public

$
110,000

$
110,000

Term Loan Facility⁽¹⁾

6/7/2021

Variable

Varies

Non-public

292,500

300,000

Senior Notes

2/27/2023

3.28%

Semi-annually

Non-public

125,000

125,000

Revolving Credit Facility

6/8/2023

Variable

Varies

Non-public

170,000

207,000

Senior Notes

11/25/2025

3.80%

Semi-annually

Public

350,000

350,000

Senior Notes

3/21/2030

3.96%

Quarterly

Non-public

150,000

-

Unamortized discount on Senior Notes

4/15/2019

(143
)

(332
)
Unamortized discount on Senior Notes

11/25/2025

(63
)

(70
)
Debt issuance costs

(3,185
)

(3,580
)
Total debt

1,194,109

1,088,018

Less: Current portion of debt

-

-

Long-term debt

$
1,194,109

$
1,088,018

⁽¹⁾

Pursuant to the Company’s Term Loan Facility (as defined below) and the indenture under which the senior notes due in 2019 were issued, principal payments will be due in the next twelve months. The Company intends to refinance these amounts and has the capacity to do so under its Revolving Credit Facility (as defined below), which is classified as long-term debt. As such, any amounts due in the next twelve months were classified as non-current.

The Company had capital lease obligations of $37.3 million on September 30, 2018 and $43.5 million on December 31, 2017. The Company mitigates its financing risk by using multiple financial institutions and only entering into credit arrangements with institutions with investment grade credit ratings. The Company monitors counterparty credit ratings on an ongoing basis.

On June 8, 2018, the Company entered into a second amended and restated credit agreement for a five-year unsecured revolving credit facility (as amended, the “Revolving Credit Facility”), which amended and restated its prior credit agreement dated October 16, 2014. The Revolving Credit Facility 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. Borrowings under the Revolving Credit Facility bear interest at a floating base rate or a floating Eurodollar rate plus an applicable margin, at the Company’s option, dependent on the Company’s credit ratings at the time of borrowing. At the

Company’s current credit ratings, the Company must pay an annual facility fee of 0.15% of the lenders’ aggregate commitments under the Revolving Credit Facility. The Revolving Credit Facility has a scheduled maturity date of June 8, 2023.

On March 21, 2018, the Company sold $150 million aggregate principal amount of senior unsecured notes due 2030 to NYL Investors LLC (“NYL”) and certain of its affiliates pursuant to the Note Purchase and Private Shelf Agreement dated March 6, 2018 between the Company, NYL and the other parties thereto (as amended, the “NYL Shelf Facility”). These notes bear interest at 3.96%, payable quarterly in arrears on March 21, June 21, September 21 and December 21 of each year, and will mature on March 21, 2030, unless earlier redeemed by the Company.

In February 2017, the Company sold $125 million aggregate principal amount of senior unsecured notes due 2023 to PGIM, Inc. (“Prudential”) and certain of its affiliates pursuant to the Note Purchase and Private Shelf Agreement dated June 10, 2016 between the Company, Prudential and the other parties thereto (as amended, the “Prudential Shelf Facility”). These notes bear interest at 3.28%, payable semi-annually in arrears on February 27 and August 27 of each year, and will mature on February 27, 2023 unless earlier redeemed by the Company. The Company may request that Prudential consider the purchase of additional senior unsecured notes of the Company under the Prudential Shelf Facility in an aggregate principal amount of up to $175 million.

In June 2016, the Company entered into a five-year term loan agreement for a senior unsecured term loan facility (as amended, the “Term Loan Facility”) in the aggregate principal amount of $300 million, maturing June 7, 2021. The Company may request additional term loans under the agreement, provided the Company’s aggregate borrowings under the Term Loan Facility do not exceed $500 million. Borrowings under the Term Loan Facility bear interest at a floating base rate or a floating Eurodollar rate plus an applicable margin, at the Company’s option, dependent on the Company’s credit ratings.

During the third quarter of 2018, the Company amended each of the Revolving Credit Facility, the NYL Shelf Facility, the Prudential Shelf Facility and the Term Loan Facility to (i) align the calculation of the two financial covenants and certain events of default under each agreement and (ii) with regard to the Term Loan Facility, to revise the calculation of the rates at which borrowings bear interest to conform with the calculation of such rates under the Revolving Credit Facility.

The Revolving Credit Facility, the NYL Shelf Facility, the Prudential Shelf Facility and the Term Loan Facility 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 agreements. The Company was in compliance with these covenants as of September 30, 2018. 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.~~

~~12.~~14.Derivative Financial Instruments

The Company is subject to the risk of increased costs arising from adverse changes in certain commodity prices. In the normal course of business, the Company manages these risks through a variety of strategies, including the use of derivative instruments. The Company does not use derivative instruments for trading or speculative purposes. All derivative instruments are recorded at fair value as either assets or liabilities in the Company’s condensed consolidated ~~condensed~~ balance sheets. These derivative instruments are not designated as hedging instruments under GAAP and are used as “economic hedges” to manage certain commodity price risk. Derivative instruments held are marked to market on a monthly basis and recognized in earnings consistent with the expense classification of the underlying hedged item. Settlements of derivative agreements are included in cash flows from operating activities on the Company’s condensed consolidated ~~condensed~~ statements of cash flows.

The Company uses several different financial institutions for commodity derivative instruments to minimize the concentration of credit risk. While the Company would be exposed to credit loss in the event of nonperformance by these counterparties, the Company does not anticipate nonperformance by these parties.

The following table summarizes pre-tax changes in the fair value of the Company’s commodity derivative financial instruments and the classification of such changes in the condensed consolidated ~~condensed~~ statements of operations.

		Third Quarter					First Three Quarters						Third Quarter						First Nine Months
(in thousands)	Classification of Gain (Loss)	2018			2017		2018			2017		Classification of Gain (Loss)	2019			2018			2019			2018
Commodity hedges	Cost of sales	$	(260	)	$	2,042	$	(2,776	)	$	2,066	Cost of sales	$	487		$	(260	)	$	(482	)	$	(2,776	)
Commodity hedges	Selling, delivery and administrative expenses		(209	)		1,359		(363	)		475	Selling, delivery and administrative expenses		(74	)		(209	)		2,575			(363	)
Total gain (loss)		$	(469	)	$	3,401	$	(3,139	)	$	2,541		$	413		$	(469	)	$	2,093		$	(3,139	)

The following table summarizes the fair values and classification in the condensed consolidated ~~condensed~~ balance sheets of derivative instruments held by the Company:

(in thousands)	Balance Sheet Classification	September 30, 2018		December 31, 2017		Balance Sheet Classification	September 29, 2019		December 30, 2018
Assets:
Liabilities:
Commodity hedges at fair market value	Prepaid expenses and other current assets	$	1,047	$	4,420	Other accrued liabilities	$	7,240	$	10,305
Commodity hedges at fair market value	Other assets		234		-	Other liabilities		972		-
Total assets		$	1,281	$	4,420
Total liabilities							$	8,212	$	10,305

The Company has master agreements with the counterparties to its derivative financial agreements that provide for net settlement of derivative transactions. Accordingly, the net amounts of derivative assets are recognized in either prepaid expenses and other current assets or other assets in the Company’s condensed consolidated ~~condensed~~ balance sheets and the net amounts of derivative liabilities are recognized in other accrued liabilities or other liabilities in the condensed consolidated ~~condensed~~ balance sheets.

The following table summarizes the Company’s gross derivative assets and gross derivative liabilities in the condensed consolidated ~~condensed~~ balance sheets:

(in thousands)	September 30, 2018		December 31, 2017		September 29, 2019		December 30, 2018
Gross derivative assets	$	15,633	$	4,481	$	9,333	$	28,305
Gross derivative liabilities		14,352		61		17,545		38,610

The following table summarizes the Company’s outstanding commodity derivative agreements:

(in thousands)	September 30, 2018		December 31, 2017		September 29, 2019		December 30, 2018
Notional amount of outstanding commodity derivative agreements	$	143,282	$	59,564	$	138,989	$	168,388
Latest maturity date of outstanding commodity derivative agreements	December 2019		December 2018		December 2020		December 2019

~~13.~~15.Fair Values of Financial Instruments

GAAP requires assets and liabilities carried at fair value to be classified and disclosed in one of the following categories:

~~Level 1: Quoted market prices in active markets for identical assets or liabilities.~~

•	Level 1: Quoted market prices in active markets for identical assets or liabilities.

~~Level 2: Observable market based inputs or unobservable inputs that are corroborated by market data.~~

•	Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data.

~~Level 3: Unobservable inputs that are not corroborated by market data.~~

•	Level 3: Unobservable inputs that are not corroborated by market data.

The following methods and assumptions were used by the Company in estimating the fair values of its financial instruments. There were no0 transfers of assets or liabilities between levels in any period presented.

Financial Instrument	Fair Value Level	Method and Assumptions
Deferred compensation plan assets and liabilities	Level 1	The fair value of the Company’s non-qualified deferred compensation plan for certain executives and other highly compensated employees is based on the fair values of associated assets and liabilities, which are held in mutual funds and are based on the quoted market value of the securities held within the mutual funds.
Commodity hedging agreements	Level 2	The fair values of the Company’s commodity hedging agreements are based on current settlement values at each balance sheet date. The fair values of the commodity hedging agreements at each balance sheet date represent the estimated amounts the Company would have received or paid upon termination of these agreements. The Company’s credit risk related to the derivative financial instruments is managed by requiring high standards for its counterparties and periodic settlements. The Company considers nonperformance risk in determining the fair value of derivative financial instruments.
~~Non-public~~Nonpublic variable rate debt	Level 2	The carrying amounts of the Company’s ~~non-public~~nonpublic variable rate debt approximate their fair values due to variable interest rates with short reset periods.
~~Non-public~~Nonpublic fixed rate debt	Level 2	The fair values of the Company’s ~~non-public~~nonpublic fixed rate debt are based on estimated current market prices.
Public debt securities	Level 2	The fair values of the Company’s public debt securities are based on estimated current market prices.
Acquisition related contingent consideration	Level 3	The fair values of acquisition related contingent consideration are based on internal forecasts and the weighted average cost of capital (“WACC”) derived from market data.

The following tables summarize, by assets and liabilities, the carrying amounts and fair values by level of the Company’s deferred compensation plan, commodity hedging agreements, debt and acquisition related contingent consideration:

	September 30, 2018										September 29, 2019
	Carrying		Total		Fair Value		Fair Value		Fair Value		Carrying		Total		Fair Value		Fair Value		Fair Value
(in thousands)	Amount		Fair Value		Level 1		Level 2		Level 3		Amount		Fair Value		Level 1		Level 2		Level 3
Assets:
Deferred compensation plan assets	$	36,291	$	36,291	$	36,291	$	-	$	-	$	38,920	$	38,920	$	38,920	$	-	$	-
Commodity hedging agreements		1,281		1,281		-		1,281		-
Liabilities:
Deferred compensation plan liabilities		36,291		36,291		36,291		-		-		38,920		38,920		38,920		-		-
Non-public variable rate debt		462,031		462,500		-		462,500		-
Non-public fixed rate debt		274,697		256,200		-		256,200		-
Commodity hedging agreements												8,212		8,212		-		8,212		-
Nonpublic variable rate debt												304,706		305,000		-		305,000		-
Nonpublic fixed rate debt												374,710		383,700		-		383,700		-
Public debt securities		457,381		457,800		-		457,800		-		347,927		369,800		-		369,800		-
Acquisition related contingent consideration		363,836		363,836		-		-		363,836		425,191		425,191		-		-		425,191

	December 31, 2017										December 30, 2018
	Carrying		Total		Fair Value		Fair Value		Fair Value		Carrying		Total		Fair Value		Fair Value		Fair Value
(in thousands)	Amount		Fair Value		Level 1		Level 2		Level 3		Amount		Fair Value		Level 1		Level 2		Level 3
Assets:
Deferred compensation plan assets	$	33,166	$	33,166	$	33,166	$	-	$	-	$	33,160	$	33,160	$	33,160	$	-	$	-
Commodity hedging agreements		4,420		4,420		-		4,420		-
Liabilities:
Deferred compensation plan liabilities		33,166		33,166		33,166		-		-		33,160		33,160		33,160		-		-
Non-public variable rate debt		506,398		507,000		-		507,000		-
Non-public fixed rate debt		124,829		126,400		-		126,400		-
Commodity hedging agreements												10,305		10,305		-		10,305		-
Nonpublic variable rate debt												372,074		372,500		-		372,500		-
Nonpublic fixed rate debt												274,717		261,200		-		261,200		-
Public debt securities		456,791		475,100		-		475,100		-		457,612		455,400		-		455,400		-
Acquisition related contingent consideration		381,291		381,291		-		-		381,291		382,898		382,898		-		-		382,898

Under the CBA, the Company is required to make quarterly sub-bottling payments to CCR on a continuing basis for the grant of exclusive rights to distribute, promote, market and sell specified covered beverages and beverage products in the distribution territories acquired in the System Transformation, excluding territories the Company acquired in an exchange transaction. This

The acquisition related contingent consideration is valued using a probability weighted discounted cash flow model based on internal forecasts and the WACC derived from market data, which are considered Level 3 inputs. Each reporting period, the Company adjusts its acquisition related contingent consideration liability related to the distribution territories to fair value by discounting future expected sub-bottling payments required under the CBA using the Company’s estimated WACC.

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

The acquisition related contingent consideration is the Company’s only Level 3 asset or liability. A reconciliation of the Level 3 activity is as follows:

	Third Quarter						First Three Quarters						Third Quarter						First Nine Months
(in thousands)	2018			2017			2018			2017			2019			2018			2019			2018
Beginning balance - Level 3 liability	$	374,537		$	319,102		$	381,291		$	253,437		$	412,450		$	374,537		$	382,898		$	381,291
Increase due to System Transformation Transactions acquisitions		-			-			-			46,086
Measurement period adjustments⁽¹⁾		(1,279	)		-			813			-			-			(1,279	)		-			813
Payment of acquisition related contingent consideration		(7,049	)		(5,094	)		(18,312	)		(11,650	)
Payments of acquisition related contingent consideration														(5,948	)		(7,049	)		(18,784	)		(18,312	)
Reclassification to current payables		-			150			(1,540	)		(2,080	)		(60	)		-			(940	)		(1,540	)
(Favorable)/unfavorable fair value adjustment		(2,373	)		(5,225	)		1,584			23,140
Increase (decrease) in fair value														18,749			(2,373	)		62,017			1,584
Ending balance - Level 3 liability	$	363,836		$	308,933		$	363,836		$	308,933		$	425,191		$	363,836		$	425,191		$	363,836

⁽¹⁾

Measurement period adjustments relate to post-closing adjustments made ~~in relation to the April 2017 Transactions and the October 2017 Transactions~~ in accordance with the terms and conditions of the applicable asset purchase agreement or asset exchange ~~agreement. See Note 3 to~~agreement for distribution territories acquired or exchanged by the ~~consolidated condensed financial statements~~Company in April 2017 and October 2017 as part of the System Transformation. All final post-closing adjustments for ~~additional information on the~~ ~~System Transformation Transactions.~~these transactions were completed during 2018.

The increase in the fair value ~~adjustments to~~of the acquisition related contingent consideration liability during the first ~~three quarters~~nine months of ~~2018 were~~2019 was primarily driven by a decrease in the discount rate and changes ~~to the risk-free interest rate and the~~ ~~projected~~in future ~~operating results~~cash flow projections of the distribution territories ~~acquired as part of the System Transformation~~ subject to sub-bottling fees ~~partially offset by~~ ~~cash payments.~~. The increase in the fair value ~~adjustments to~~of the acquisition related contingent consideration liability during the first ~~three quarters~~nine months of ~~2017 were~~2018 was primarily driven by ~~a change in~~changes to the ~~risk-free interest rate.~~discount rate and future cash flow projections of the distribution territories subject to sub-bottling fees, partially offset by cash payments. These fair value adjustments were recorded in other income (expense), net in the condensed consolidated ~~condensed~~ statements of operations.

The anticipated amount the Company could pay annually under ~~the~~ acquisition related contingent consideration arrangements ~~for the System Transformation Transactions~~ is expected to be in the range of $25 million to ~~$47~~$49 million.

~~14.~~16.Income Taxes

The Company’s effective income tax rate, calculated by dividing income tax expense by income before income taxes, was 28.7% for the first nine months of 2019 and 24.1% for the first nine months of 2018. The increase in the effective income tax rate was primarily driven by non-recurring favorable adjustments resulting from the adoption of the Tax Act included in the Company’s 2017 federal income tax return filed during the third quarter of 2018.

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 33.4% for the first nine months of 2019 and 32.5% for the first nine months of 2018.

The Company had uncertain tax positions, including accrued interest, of $2.5 million on September 29, 2019 and $3.1 million on December 30, 2018, all of which would affect the Company’s effective income tax rate if recognized. While it is expected the amount of uncertain tax positions may change in the next 12 months, the Company does 0t expect such change would have a significant impact on the condensed consolidated financial statements.

Prior tax years beginning in year 2002 remain open to examination by the Internal Revenue Service, and various tax years beginning in year 1998 remain open to examination by certain state tax jurisdictions.

17.Pension and Postretirement Benefit Obligations

Pension Plans

There are 2 Company-sponsored pension plans. The primary Company-sponsored pension plan was frozen as of June 30, 2006 and no benefits accrued to participants after this date. The second Company-sponsored pension plan (the “Bargaining Plan”) is for certain employees under collective bargaining agreements. Benefits under the Bargaining Plan are determined in accordance with negotiated formulas for the respective participants. Contributions to the plans are based on actuarially determined amounts and are limited to the amounts currently deductible for income tax purposes.

The components of net periodic pension cost were as follows:

	Third Quarter						First Nine Months
(in thousands)	2019			2018			2019			2018
Service cost	$	1,207		$	1,412		$	3,620		$	4,237
Interest cost		3,063			2,856			9,188			8,568
Expected return on plan assets		(2,574	)		(3,853	)		(7,722	)		(11,557	)
Recognized net actuarial loss		901			934			2,702			2,800
Amortization of prior service cost		5			6			17			18
Net periodic pension cost	$	2,602		$	1,355		$	7,805		$	4,066

The Company contributed $4.9 million to the two Company-sponsored pension plans during the third quarter of 2019 and does 0t anticipate making additional contributions during the fourth quarter of 2019.

Postretirement Benefits

The Company provides postretirement benefits for a portion of its current employees. The Company recognizes the cost of postretirement benefits, which consist principally of medical benefits, during covered employees’ periods of active service. The Company does not pre-fund these benefits and has the right to modify or terminate certain of these benefits in the future.

The components of net periodic postretirement benefit cost were as follows:

	Third Quarter						First Nine Months
(in thousands)	2019			2018			2019			2018
Service cost	$	389		$	502		$	1,167		$	1,507
Interest cost		694			696			2,080			2,088
Recognized net actuarial loss		196			499			587			1,497
Amortization of prior service cost		(324	)		(462	)		(970	)		(1,386	)
Net periodic postretirement benefit cost	$	955		$	1,235		$	2,864		$	3,706

18.Other Liabilities

Other liabilities consisted of the following:

(in thousands)	September 30, 2018		December 31, 2017		September 29, 2019		December 30, 2018
Non-current portion of acquisition related contingent consideration	$	338,530	$	357,952
Noncurrent portion of acquisition related contingent consideration					$	396,608	$	349,905
Accruals for executive benefit plans		128,079		125,791		138,207		126,103
Non-current deferred proceeds from Territory Conversion Fee		85,734		87,449
Non-current deferred proceeds from Legacy Facilities Credit⁽¹⁾		30,568		29,881
Noncurrent deferred proceeds from Territory Conversion Fee						83,448		85,163
Noncurrent deferred proceeds from Legacy Facilities Credit						29,769		30,369
Other		17,399		19,506		10,578		17,595
Total other liabilities	$	600,310	$	620,579	$	658,610	$	609,135

19.Debt

Following is a summary of the Company’s debt:

(in thousands)	Maturity Date	Interest Rate	Interest Paid	Public or Nonpublic	September 29, 2019			December 30, 2018
Senior notes⁽¹⁾	4/15/2019	7.00%	Semi-annually	Public	$	-		$	110,000
Term loan facility⁽¹⁾	6/7/2021	Variable	Varies	Nonpublic		270,000			292,500
Senior notes	2/27/2023	3.28%	Semi-annually	Nonpublic		125,000			125,000
Revolving credit facility⁽²⁾	6/8/2023	Variable	Varies	Nonpublic		35,000			80,000
Senior notes	11/25/2025	3.80%	Semi-annually	Public		350,000			350,000
Senior notes	10/10/2026	3.93%	Quarterly	Nonpublic		100,000			-
Senior notes	3/21/2030	3.96%	Quarterly	Nonpublic		150,000			150,000
Unamortized discount on senior notes⁽³⁾	4/15/2019					-			(78	)
Unamortized discount on senior notes⁽³⁾	11/25/2025					(54	)		(61	)
Debt issuance costs						(2,603	)		(2,958	)
Long-term debt					$	1,027,343		$	1,104,403

⁽¹⁾

~~In December 2017,~~ The ~~Coca‑Cola Company agreed to provide~~senior notes due in 2019 were refinanced on April 10, 2019 using proceeds from the ~~Company a one-time fee, which, after final adjustments made during~~issuance of the ~~third quarter of 2018, totaled $44.3 million (the “Legacy Facilities Credit”)~~senior notes due in 2026 (as discussed below). The ~~Legacy Facilities Credit compensated the~~ Company ~~for the net economic impact of changes made by The Coca‑Cola Company~~intends to the authorized pricing on sales of covered beverages produced at the manufacturing facilities owned by Company prior to the System Transformation and sold to The Coca‑Cola Company and certain U.S. Coca‑Cola bottlers pursuant to new pricing mechanisms includedrefinance principal payments due in the ~~regional~~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 Company’s revolving credit facility 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.

⁽³⁾

~~manufacturing agreement entered into by~~The senior notes due in 2019 were issued at 98.238% of par and the ~~Company and The Coca‑Cola Company on March 31, 2017, as amended. The Company immediately recognized the portion~~senior notes due in 2025 were issued at 99.975% of the Legacy Facilities Credit applicable to a regional manufacturing facility in Mobile, Alabama which the Company transferred to CCR as part of the CCR Exchange Transaction. The remaining balance of the Legacy Facilities Credit will be amortized as a reduction to cost of sales over a period of 40 years.par.

~~15.~~

The Company mitigates its financing risk by using multiple financial institutions and only entering into credit arrangements with institutions with investment grade credit ratings. The Company monitors counterparty credit ratings on an ongoing basis.

In April 2019, the Company sold $100 million aggregate principal amount of senior unsecured notes due in 2026 to MetLife Investment Advisors, LLC (“MetLife”) and certain of its affiliates pursuant to a Note Purchase and Private Shelf Agreement dated January 23, 2019 between the Company, MetLife and the other parties thereto. These notes bear interest at 3.93%, payable quarterly in arrears on each January 10, April 10, July 10 and October 10, commencing on July 10, 2019, and will mature on October 10, 2026, unless earlier redeemed by the Company. The Company used the proceeds to refinance the senior notes due on April 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.

In July 2019, the Company entered into a $100 million fixed rate swap maturing June 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 is 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 loss on the condensed consolidated balance sheets and included in the condensed consolidated statements of comprehensive income.

The indentures under which the Company’s public debt was issued do not include financial covenants but do 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 were 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 agreements. The Company was in compliance with these covenants as of September 29, 2019. 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 NaN has been issued by any of its subsidiaries. There are 0 guarantees of the Company’s debt.

20.Commitments and Contingencies

~~Manufacturing Cooperatives~~Pension Plans

The ~~Company is a shareholder~~components of South Atlantic Canners, Inc. (“SAC”), a manufacturing cooperative in Bishopville, South Carolina. All of SAC’s shareholders are Coca‑Cola bottlers and each has equal voting rights. The Company accounts for SACnet periodic pension cost were as an equity method investment. The Company receives a fee for managing the day-to-day operations of SAC pursuant to a management agreement. Proceeds from management fees received from SAC were $6.8 million in the first three quarters of 2018 and $6.9 million in the first three quarters of 2017.

The Company is obligated to purchase 17.5 million cases of finished product from SAC on an annual basis through June 2024. The Company purchased 22.2 million cases and 22.6 million cases of finished product from SAC in the first three quarters of 2018 and the first three quarters of 2017, respectively.

The Company is also a shareholder of Southeastern Container (“Southeastern”), a plastic bottle manufacturing cooperative from which the Company is obligated to purchase at least 80% of its requirements of plastic bottles for certain designated territories. The Company accounts for Southeastern as an equity method investment.

~~The following table summarizes the Company’s purchases from these manufacturing cooperatives:~~follows:

Third Quarter

First Three Quarters

(in thousands)

2018

2017

2018

2017

Purchases from SAC

$
38,569

$
37,267

$
117,729

$
111,408

Purchases from Southeastern

32,379

29,344

92,613

80,301

Total purchases from manufacturing cooperatives

$
70,948

$
66,611

$
210,342

$
191,709

	Third Quarter						First Nine Months
(in thousands)	2019			2018			2019			2018
Service cost	$	1,207		$	1,412		$	3,620		$	4,237
Interest cost		3,063			2,856			9,188			8,568
Expected return on plan assets		(2,574	)		(3,853	)		(7,722	)		(11,557	)
Recognized net actuarial loss		901			934			2,702			2,800
Amortization of prior service cost		5			6			17			18
Net periodic pension cost	$	2,602		$	1,355		$	7,805		$	4,066

The Company ~~guarantees a portion of SAC’s debt, which expires at various dates through 2021. The amounts guaranteed were $23.9~~contributed $4.9 million ~~as of both September 30, 2018 and December 31, 2017. The Company does not anticipate SAC will fail to fulfill its commitment related~~ to the ~~debt. The Company further believes SAC has sufficient assets, including production equipment, facilities~~two Company-sponsored pension plans during the third quarter of 2019 and ~~working capital, and~~does 0t anticipate making additional contributions during the ~~ability to adjust selling prices~~fourth quarter of ~~its products to adequately mitigate the risk of material loss from the Company’s guarantee.~~

In the event SAC fails to fulfill its commitments under the related debt, the Company would be responsible for payments to the lenders up to the level of the guarantee. The following table summarizes the Company’s maximum exposure under this guarantee if SAC had borrowed up to its aggregate borrowing capacity:

(in thousands)

September 30, 2018

Maximum guaranteed debt

$
23,938

Equity investments⁽¹⁾

8,175

Maximum total exposure, including equity investments

$
32,113

⁽¹⁾	~~Recorded in other assets on the Company’s consolidated condensed balance sheets.~~

The Company holds no assets as collateral against the SAC guarantee, the fair value of which is immaterial to the Company’s consolidated condensed financial statements. The Company monitors its investments in SAC and would be required to write down its investment if an impairment was identified and the Company determined it to be other than temporary. No impairment of the Company’s investments in SAC was identified as of September 30, 2018, and there was no impairment identified in 2017.

~~Other Commitments and Contingencies~~

The Company has standby letters of credit, primarily related to its property and casualty insurance programs. These letters of credit totaled $35.6 million as of both September 30, 2018 and December 31, 2017.2019.

The Company participates in long-term marketing contractual arrangements with certain prestige properties, athletic venues and other locations. As of September 30, 2018, the future payments related to these contractual arrangements, which expire at various dates through 2033, amounted to $160.0 million.Postretirement Benefits

The Company ~~is involved in various claims~~provides postretirement benefits for a portion of its current employees. The Company recognizes the cost of postretirement benefits, which consist principally of medical benefits, during covered employees’ periods of active service. The Company does not pre-fund these benefits and ~~legal proceedings which have arisen~~has the right to modify or terminate certain of these benefits in the ordinary course of its business. Although it is difficult to predict the ultimate outcome of these claims and legal proceedings, management believes that the ultimate disposition of these matters will not have a material adverse effect on the financial condition, cash flows or results of operations of the Company. No material amount of loss in excess of recorded amounts is believed to be reasonably possible as a result of these claims and legal proceedings.future.

The Company is subject to audits by tax authorities in jurisdictions where it conducts business. These audits may result in assessments that are subsequently resolved with the authorities or potentially through the courts. Management believes the Company has adequately provided for any assessments likely to result from these audits; however, final assessments, if any, could be different than the amounts recorded in the consolidated condensed financial statements.components of net periodic postretirement benefit cost were as follows:

	Third Quarter						First Nine Months
(in thousands)	2019			2018			2019			2018
Service cost	$	389		$	502		$	1,167		$	1,507
Interest cost		694			696			2,080			2,088
Recognized net actuarial loss		196			499			587			1,497
Amortization of prior service cost		(324	)		(462	)		(970	)		(1,386	)
Net periodic postretirement benefit cost	$	955		$	1,235		$	2,864		$	3,706

18.Other Liabilities

~~16.Income Taxes~~Other liabilities consisted of the following:

(in thousands)	September 29, 2019		December 30, 2018
Noncurrent portion of acquisition related contingent consideration	$	396,608	$	349,905
Accruals for executive benefit plans		138,207		126,103
Noncurrent deferred proceeds from Territory Conversion Fee		83,448		85,163
Noncurrent deferred proceeds from Legacy Facilities Credit		29,769		30,369
Other		10,578		17,595
Total other liabilities	$	658,610	$	609,135

19.Debt

The Company’s effective income tax rate, as calculated by dividing income tax expense by income before income taxes, was 24.1% for the first three quarters of 2018 and 34.8% for the first three quarters of 2017. The decrease in the effective tax rate was primarily driven by the corporate rate reduction due to the Tax Act and its impact on prior estimates and lower income before income taxes, which was offset by an increase in certain non-deductible expenses.

The Company’s effective income tax rate, as calculated by dividing income tax expense by income before income taxes minus net income attributable to noncontrolling interest, was 32.5% for the first three quarters of 2018 and 38.8% for the first three quarters of 2017.

~~Shortly after the Tax Act was enacted, the SEC issued guidance under Staff Accounting Bulletin No. 118, Income Tax Accounting Implications~~Following is a summary of the Tax Cuts and Jobs Act (“SAB 118”) to address the application of GAAP and direct taxpayers to consider the impact of the Tax Act as “provisional” when a registrant does not have the necessary information available, prepared or analyzed (including computations) in reasonable detail to complete the accounting for the change in tax law. In accordance with SAB 118, the Company recognized a provisional tax benefit related to the re-measurement of its net deferred tax liability of $69.0 million as of December 31, 2017. During the third quarter of 2018, the Company recorded an additional provisional tax benefit of $1.9 million attributable to the re-measurement of its net deferred tax liability in connection with the filing of its 2017 federal income tax return.

The ultimate impact may differ from the provisional amounts, possibly materially, due to, among other things, the significant complexity of the Tax Act, anticipated additional regulatory guidance or related interpretations that may be issued by the Internal Revenue Service (the “IRS”), changes in accounting standards, legislative actions, future actions by states within the U.S. and changes in estimates, analysis, interpretations and assumptions made by the Company.

~~The Company had uncertain tax positions, including accrued interest, of $3.0 million on September 30, 2018 and $2.4 million on December 31, 2017, all of which would affect the~~ Company’s effective tax rate if recognized. While it is expected the amount of uncertain tax positions may change in the next 12 months, the Company does not expect such change would have a significant impact on the consolidated condensed financial statements.

~~Prior tax years beginning in year 2002 remain open to examination by the IRS, and various tax years beginning in year 1998 remain open to examination by certain state tax jurisdictions.~~

~~17.Accumulated Other Comprehensive Income (Loss)~~

Accumulated other comprehensive income (loss) (“AOCI(L)”) is comprised of adjustments relative to the Company’s pension and postretirement medical benefit plans and foreign currency translation adjustments required for a subsidiary of the Company that performs data analysis and provides consulting services outside the United States.

debt:

~~A summary of AOCI(L) for the third quarter of 2018 and the third quarter of 2017 is as follows:~~

(in thousands)

July 1, 2018

Pre-tax Activity

Tax Effect

September 30, 2018

Net pension activity:

Actuarial loss

$
(77,212
)

$
934

$
(231
)

$
(76,509
)
Prior service costs

(34
)

6

(2
)

(30
)
Net postretirement benefits activity:

Actuarial loss

(22,767
)

499

(123
)

(22,391
)
Prior service costs

1,048

(462
)

114

700

Recognized loss due to October 2017 Divestitures⁽¹⁾

6,220

-

-

6,220

Foreign currency translation adjustment

8

(2
)

1

7

Total

$
(92,737
)

$
975

$
(241
)

$
(92,003
)

(in thousands)	Maturity Date	Interest Rate	Interest Paid	Public or Nonpublic	September 29, 2019			December 30, 2018
Senior notes⁽¹⁾	4/15/2019	7.00%	Semi-annually	Public	$	-		$	110,000
Term loan facility⁽¹⁾	6/7/2021	Variable	Varies	Nonpublic		270,000			292,500
Senior notes	2/27/2023	3.28%	Semi-annually	Nonpublic		125,000			125,000
Revolving credit facility⁽²⁾	6/8/2023	Variable	Varies	Nonpublic		35,000			80,000
Senior notes	11/25/2025	3.80%	Semi-annually	Public		350,000			350,000
Senior notes	10/10/2026	3.93%	Quarterly	Nonpublic		100,000			-
Senior notes	3/21/2030	3.96%	Quarterly	Nonpublic		150,000			150,000
Unamortized discount on senior notes⁽³⁾	4/15/2019					-			(78	)
Unamortized discount on senior notes⁽³⁾	11/25/2025					(54	)		(61	)
Debt issuance costs						(2,603	)		(2,958	)
Long-term debt					$	1,027,343		$	1,104,403

⁽¹⁾

~~Recognized loss~~The senior notes due toin 2019 were refinanced on April 10, 2019 using proceeds from the ~~divestiture~~ issuance of the ~~Deep South~~senior notes due in 2026 (as discussed below). The Company intends to refinance principal payments due in the next 12 months under the term loan facility, and ~~Somerset Exchange Business and~~has the ~~Florence and Laurel Distribution Business during~~capacity to do so under its revolving credit facility, which is classified as long-term debt. As such, any amounts due in the ~~fourth quarter of 2017.~~next 12 months were classified as noncurrent.

(in thousands)

July 2, 2017

Pre-tax Activity

Tax Effect

October 1, 2017

Net pension activity:

Actuarial loss

$
(71,402
)

$
807

$
(311
)

$
(70,906
)
Prior service costs

(52
)

7

(3
)

(48
)
Net postretirement benefits activity:

Actuarial loss

(23,315
)

648

(250
)

(22,917
)
Prior service costs

2,763

(745
)

287

2,305

Foreign currency translation adjustment

5

11

(4
)

12

Total

$
(92,001
)

$
728

$
(281
)

$
(91,554
)

~~A summary of AOCI(L) for the first three quarters of 2018 and the first three quarters of 2017 is as follows:~~

(in thousands)

December 31, 2017

Pre-tax Activity

Tax Effect

September 30, 2018

Net pension activity:

Actuarial loss

$
(78,618
)

$
2,800

$
(691
)

$
(76,509
)
Prior service costs

(43
)

18

(5
)

(30
)
Net postretirement benefits activity:

Actuarial loss

(23,519
)

1,497

(369
)

(22,391
)
Prior service costs

1,744

(1,386
)

342

700

Recognized loss due to October 2017 Divestitures⁽¹⁾

6,220

-

-

6,220

Foreign currency translation adjustment

14

(10
)

3

7

Total

$
(94,202
)

$
2,919

$
(720
)

$
(92,003
)

⁽¹⁾⁽²⁾

~~Recognized loss~~The Company’s revolving credit facility 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.

⁽³⁾	The senior notes due ~~to the divestiture~~ in 2019 were issued at 98.238% of ~~the Deep South and Somerset Exchange Business~~par and the ~~Florence and Laurel Distribution Business during the fourth quarter~~senior notes due in 2025 were issued at 99.975% of ~~2017.~~par.

(in thousands)

January 1, 2017

Pre-tax Activity

Tax Effect

October 1, 2017

Net pension activity:

Actuarial loss

$
(72,393
)

$
2,421

$
(934
)

$
(70,906
)
Prior service costs

(61
)

21

(8
)

(48
)
Net postretirement benefits activity:

Actuarial loss

(24,111
)

1,944

(750
)

(22,917
)
Prior service costs

3,679

(2,237
)

863

2,305

Foreign currency translation adjustment

(11
)

37

(14
)

12

Total

$
(92,897
)

$
2,186

$
(843
)

$
(91,554
)

~~A summary~~The Company mitigates its financing risk by using multiple financial institutions and only entering into credit arrangements with institutions with investment grade credit ratings. The Company monitors counterparty credit ratings on an ongoing basis.

In April 2019, the Company sold $100 million aggregate principal amount of senior unsecured notes due in 2026 to MetLife Investment Advisors, LLC (“MetLife”) and certain of its affiliates pursuant to a Note Purchase and Private Shelf Agreement dated January 23, 2019 between the Company, MetLife and the other parties thereto. These notes bear interest at 3.93%, payable quarterly in arrears on each January 10, April 10, July 10 and October 10, commencing on July 10, 2019, and will mature on October 10, 2026, unless earlier redeemed by the Company. The Company used the proceeds to refinance the senior notes due on April 15, 2019. The Company may request that MetLife consider the purchase of additional senior unsecured notes of the ~~impact~~Company under the agreement in an aggregate principal amount of ~~AOCI(L)~~up to $200 million.

In July 2019, the Company entered into a $100 million fixed rate swap maturing June 7, 2021, to hedge a portion of the interest rate risk on ~~certain~~the Company’s term loan facility. This interest rate swap is designated as a cash flow hedging instrument and is 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 loss on the condensed consolidated balance sheets and included in the condensed consolidated statements of ~~operations line items is as follows:~~

Third Quarter 2018

(in thousands)

Net Pension
Activity

Net Postretirement
Benefits Activity

Foreign Currency
Translation Adjustment

Total

Cost of sales

$
217

$
6

$
-

$
223

Selling, delivery and administrative expenses

723

31

(2
)

752

Subtotal pre-tax

940

37

(2
)

975

Income tax expense

233

9

(1
)

241

Total after tax effect

$
707

$
28

$
(1
)

$
734

Third Quarter 2017

(in thousands)

Net Pension
Activity

Net Postretirement
Benefits Activity

Foreign Currency
Translation Adjustment

Total

Cost of sales

$
171

$
(21
)

$
-

$
150

Selling, delivery and administrative expenses

643

(76
)

11

578

Subtotal pre-tax

814

(97
)

11

728

Income tax expense

314

(37
)

4

281

Total after tax effect

$
500

$
(60
)

$
7

$
447

First Three Quarters 2018

(in thousands)

Net Pension
Activity

Net Postretirement
Benefits Activity

Foreign Currency
Translation Adjustment

Total

Cost of sales

$
648

$
19

$
-

$
667

Selling, delivery and administrative expenses

2,170

92

(10
)

2,252

Subtotal pre-tax

2,818

111

(10
)

2,919

Income tax expense

696

27

(3
)

720

Total after tax effect

$
2,122

$
84

$
(7
)

$
2,199

First Three Quarters 2017

(in thousands)

Net Pension
Activity

Net Postretirement
Benefits Activity

Foreign Currency
Translation Adjustment

Total

Cost of sales

$
497

$
(64
)

$
-

$
433

Selling, delivery and administrative expenses

1,945

(230
)

37

1,752

Subtotal pre-tax

2,442

(294
)

37

2,185

Income tax expense

942

(114
)

14

842

Total after tax effect

$
1,500

$
(180
)

$
23

$
1,343

~~18.Capital Transactions~~comprehensive income.

~~During~~The indentures under which the ~~first quarter~~Company’s public debt was issued do not include financial covenants but do 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 were issued include two financial covenants: a consolidated cash flow/fixed charges ratio and a consolidated funded indebtedness/cash flow ratio, each ~~year,~~as defined in the ~~Compensation Committee~~respective agreements. The Company was in compliance with these covenants as of September 29, 2019. 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 NaN has been issued by any of its subsidiaries. There are 0 guarantees of the Company’s Board of Directors (the “Committee”) determines whether any shares of the Company’s Class B Common Stock should be issued to J. Frank Harrison, III, in connection with his services for the prior year as Chairman of the Board of Directors and Chief Executive Officer of the Company, pursuant to a performance unit award agreement approved in 2008 (the “Performance Unit Award Agreement”). The Performance Unit Award Agreement expires at the end of 2018, with the final potential award to be issued in the first quarter of 2019 in connection with Mr. Harrison’s services during 2018.debt.

~~As permitted under the terms of the Performance Unit Award Agreement, a number of shares were settled in cash in 2018~~20.Commitments and 2017 to satisfy tax withholding obligations in connection with the vesting of the performance units. The remaining number of shares increased the total shares of Class B Common Stock outstanding. A summary of the awards issued in 2018 and 2017 is as follows:Contingencies

Fiscal Year

2018

2017

Date of approval for award

March 6, 2018

March 7, 2017

Fiscal year of service covered by award

2017

2016

Shares settled in cash to satisfy tax withholding obligations

16,504

18,980

Increase in Class B Common Stock shares outstanding

20,296

21,020

Total Class B Common Stock awarded

36,800

40,000

Compensation expense for the awards issued pursuant to the Performance Unit Award Agreement, recognized on the closing share price of the last trading day prior to the end of the fiscal period, was as follows:

First Three Quarters

(in thousands, except share price)

2018

2017

Total compensation expense

$
4,494

$
6,473

Share price for compensation expense

$
182.28

$
215.75

Share price date for compensation expense

September 28, 2018

September 29, 2017

During the second quarter of 2018, the Committee and the Company’s stockholders approved a long-term performance equity plan (the “Long-Term Performance Equity Plan”), which will compensate J. Frank Harrison, III based on the Company’s performance and will succeed the Performance Unit Award Agreement upon its expiration. Awards granted under the Long-Term Performance Equity Plan will be earned based on the Company’s attainment during a performance period of certain performance measures, each as specified by the Committee. These awards may be settled in cash and/or shares of Class B Common Stock, based on the average of the closing prices of shares of Common Stock during the last twenty trading days of the performance period. Compensation expense for the Long-Term Performance Equity Plan, which is included in S,D&A expenses on the consolidated condensed statements of operations, was $1.5 million for the first three quarters of 2018.

~~19.Pension and Postretirement Benefit Obligations~~

Pension Plans

There are ~~two~~2 Company-sponsored pension plans. The primary Company-sponsored pension plan was frozen as of June 30, 2006 and no benefits accrued to participants after this date. The second Company-sponsored pension plan (the “Bargaining Plan”) is for certain employees under collective bargaining agreements. Benefits under the Bargaining Plan are determined in accordance with negotiated formulas for the respective participants. Contributions to the plans are based on actuarially determined amounts and are limited to the amounts currently deductible for income tax purposes.

The components of net periodic pension cost were as follows:

	Third Quarter						First Three Quarters						Third Quarter						First Nine Months
(in thousands)	2018			2017			2018			2017			2019			2018			2019			2018
Service cost	$	1,412		$	150		$	4,237		$	450		$	1,207		$	1,412		$	3,620		$	4,237
Interest cost		2,856			2,978			8,568			8,936			3,063			2,856			9,188			8,568
Expected return on plan assets		(3,853	)		(3,399	)		(11,557	)		(10,197	)		(2,574	)		(3,853	)		(7,722	)		(11,557	)
Recognized net actuarial loss		934			807			2,800			2,421			901			934			2,702			2,800
Amortization of prior service cost		6			7			18			21			5			6			17			18
Net periodic pension cost	$	1,355		$	543		$	4,066		$	1,631		$	2,602		$	1,355		$	7,805		$	4,066

The Company contributed ~~$20.0~~$4.9 million to the two ~~Company sponsored~~Company-sponsored pension plans during the third quarter of ~~2018~~2019 and does ~~not~~0t anticipate making additional contributions during the fourth quarter of ~~2018.~~2019.

Postretirement Benefits

The components of net periodic postretirement benefit cost were as follows:

	Third Quarter						First Three Quarters						Third Quarter						First Nine Months
(in thousands)	2018			2017			2018			2017			2019			2018			2019			2018
Service cost	$	502		$	572		$	1,507		$	1,716		$	389		$	502		$	1,167		$	1,507
Interest cost		696			910			2,088			2,732			694			696			2,080			2,088
Recognized net actuarial loss		499			648			1,497			1,944			196			499			587			1,497
Amortization of prior service cost		(462	)		(745	)		(1,386	)		(2,237	)		(324	)		(462	)		(970	)		(1,386	)
Net periodic postretirement benefit cost	$	1,235		$	1,385		$	3,706		$	4,155		$	955		$	1,235		$	2,864		$	3,706

~~Multi-Employer Benefits~~18.Other Liabilities

~~Certain employees~~Other liabilities consisted of the following:

(in thousands)	September 29, 2019		December 30, 2018
Noncurrent portion of acquisition related contingent consideration	$	396,608	$	349,905
Accruals for executive benefit plans		138,207		126,103
Noncurrent deferred proceeds from Territory Conversion Fee		83,448		85,163
Noncurrent deferred proceeds from Legacy Facilities Credit		29,769		30,369
Other		10,578		17,595
Total other liabilities	$	658,610	$	609,135

19.Debt

Following is a summary of the Company’s debt:

(in thousands)	Maturity Date	Interest Rate	Interest Paid	Public or Nonpublic	September 29, 2019			December 30, 2018
Senior notes⁽¹⁾	4/15/2019	7.00%	Semi-annually	Public	$	-		$	110,000
Term loan facility⁽¹⁾	6/7/2021	Variable	Varies	Nonpublic		270,000			292,500
Senior notes	2/27/2023	3.28%	Semi-annually	Nonpublic		125,000			125,000
Revolving credit facility⁽²⁾	6/8/2023	Variable	Varies	Nonpublic		35,000			80,000
Senior notes	11/25/2025	3.80%	Semi-annually	Public		350,000			350,000
Senior notes	10/10/2026	3.93%	Quarterly	Nonpublic		100,000			-
Senior notes	3/21/2030	3.96%	Quarterly	Nonpublic		150,000			150,000
Unamortized discount on senior notes⁽³⁾	4/15/2019					-			(78	)
Unamortized discount on senior notes⁽³⁾	11/25/2025					(54	)		(61	)
Debt issuance costs						(2,603	)		(2,958	)
Long-term debt					$	1,027,343		$	1,104,403

⁽¹⁾

The senior notes due in 2019 were refinanced on April 10, 2019 using proceeds from the issuance of the senior notes due in 2026 (as discussed below). 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⁾

⁽³⁾	The senior notes due in 2019 were issued at 98.238% of par and the senior notes due in 2025 were issued at 99.975% of par.

In April 2019, the Company sold $100 million aggregate principal amount of senior unsecured notes due in 2026 to MetLife Investment Advisors, LLC (“MetLife”) and certain of its affiliates pursuant to a Note Purchase and Private Shelf Agreement dated January 23, 2019 between the Company, MetLife and the other parties thereto. These notes bear interest at 3.93%, payable quarterly in arrears on each January 10, April 10, July 10 and October 10, commencing on July 10, 2019, and will mature on October 10, 2026, unless earlier redeemed by the Company. The Company used the proceeds to refinance the senior notes due on April 15, 2019. The Company may request that MetLife consider the purchase of additional senior unsecured notes of the Company ~~whose employment~~under the agreement in an aggregate principal amount of up to $200 million.

In July 2019, the Company entered into a $100 million fixed rate swap maturing June 7, 2021, to hedge a portion of the interest rate risk on the Company’s term loan facility. This interest rate swap is ~~covered under collective bargaining agreements participate in~~designated as a ~~multi-employer pension plan, the Employers-Teamsters Local Union Nos. 175~~cash flow hedging instrument and ~~505 Pension Fund (the “Teamsters Plan”). The Company makes monthly contributions~~is not expected to be material to the ~~Teamsters Plan~~condensed consolidated balance sheets. Changes in the fair value of this interest rate swap were classified as accumulated other loss on ~~behalf~~the condensed consolidated balance sheets and included in the condensed consolidated statements of ~~such employees. The collective bargaining agreements covering the Teamsters Plan expire at various times by April 2020. The Company expects these agreements will be re-negotiated.~~comprehensive income.

The ~~risks~~indentures under which the Company’s public debt was issued do not include financial covenants but do limit the incurrence of ~~participating~~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 were 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 ~~Teamsters Plan~~respective agreements. The Company was in compliance with these covenants as of September 29, 2019. 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 NaN has been issued by any of its subsidiaries. There are ~~different~~0 guarantees of the Company’s debt.

20.Commitments and Contingencies

Manufacturing Cooperatives

The Company is obligated to purchase at least 80% of its requirements of plastic bottles for certain designated territories from ~~single-employer plans as contributed assets are pooled~~Southeastern. The Company is also obligated to purchase 17.5 million cases of finished product from SAC on an annual basis through June 2024. The Company purchased 22.2 million cases of finished product from SAC in both the first nine months of 2019 and ~~may~~the first nine months of 2018.

The following table summarizes the Company’s purchases from these manufacturing cooperatives:

	Third Quarter				First Nine Months
(in thousands)	2019		2018		2019		2018
Purchases from Southeastern	$	31,178	$	32,379	$	102,118	$	92,613
Purchases from SAC		42,870		38,569		120,309		117,729
Total purchases from manufacturing cooperatives	$	74,048	$	70,948	$	222,427	$	210,342

The Company guarantees a portion of SAC’s debt, which expires at various dates through 2021. The amounts guaranteed were $23.9 million on both September 29, 2019 and December 30, 2018. In the event SAC fails to fulfill its commitments under the related debt, the Company would be ~~used to provide benefits to employees of other participating employers. If a participating employer stops contributing~~responsible for payments to the ~~Teamsters Plan,~~lenders up to the ~~unfunded obligations~~level of the Teamsters Plan may be borne by the remaining participating employers. If the Company chooses to stop participating in the Teamsters Plan, the Company could be required to pay the Teamsters Plan a withdrawal liability based on the underfunded status of the Teamsters Plan.guarantee. The Company does not anticipate ~~withdrawing~~SAC will fail to fulfill its commitment 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 ~~Teamsters Plan.~~Company’s guarantee.

~~In 2015,~~The Company holds no assets as collateral against the SAC guarantee, the fair value of which is immaterial to the Company’s condensed consolidated financial statements. The Company monitors its investment in SAC and would be required to write down its investment if an impairment was identified and the Company ~~increased~~determined it to be other than temporary. NaN impairment of the Company’s investment in SAC was identified as of September 29, 2019, and there was 0 impairment identified in 2018.

Other Commitments and Contingencies

The Company has standby letters of credit, primarily related to its ~~contribution rates~~property and casualty insurance programs. These letters of credit totaled $35.6 million on both September 29, 2019 and December 30, 2018.

The Company participates in long-term marketing contractual arrangements with certain prestige properties, athletic venues and other locations. As of September 29, 2019, the future payments related to these contractual arrangements, which expire at various dates through 2033, amounted to $197.6 million.

The Company is involved in various claims and legal proceedings which have arisen in the ~~Teamsters Plan, with additional increases occurring annually,~~ordinary course of its business. Although it is difficult to predict the ultimate outcome of these claims and legal proceedings, management believes that the ultimate disposition of these matters will not have a material adverse effect on the financial condition, cash flows or results of operations of the Company. No material amount of loss in excess of recorded amounts is believed to be reasonably possible as part of a rehabilitation plan, which was incorporated into the renewal of collective bargaining agreements with the unions effective April 28, 2014 and adopted by the Company as a rehabilitation plan effective January 1, 2015. This was a result of ~~the Teamsters Plan being certified by its actuary as being in “critical” status for the plan year beginning January 1, 2013.~~

~~20.Related Party Transactions~~these claims and legal proceedings.

The ~~Coca‑Cola~~ Company is subject to audits by tax authorities in jurisdictions where it conducts business. These audits may result in assessments that are subsequently resolved with the authorities or potentially through the courts. Management believes the Company has adequately provided for any assessments likely to result from these audits; however, final assessments, if any, could be different than the amounts recorded in the condensed consolidated financial statements.

AsDuring the first quarter of September 30, 2018, The Coca‑Cola Company owned approximately 27% of the Company’s total outstanding Common Stock and Class B Common Stock on a consolidated basis, representing approximately 5% of the total voting power of the Company’s Common Stock and Class B Common Stock voting together. As long as The Coca‑Cola Company holds the number of shares of Common Stock it currently owns, it has the right to have a designee proposed by the Company for nomination to the Company’s Board of Directors, andeach year presented, J. Frank Harrison, III ~~the Chairman of the Board and Chief Executive Officer of the Company, and trustees of certain trusts established for the benefit of certain relatives of J. Frank Harrison, Jr. have agreed to vote the~~received shares of the Company’s Class B Common Stock which they control, representing approximately 86% of the total voting power of the Company’s combined Common Stock and Class B Common Stock, in favor of such designee. The Coca‑Cola Company does not own any shares of the Company’s Class B Common Stock.

~~The following table and the subsequent descriptions summarize the significant transactions between the Company and The Coca‑Cola Company:~~

Third Quarter

First Three Quarters

(in thousands)

2018

2017

2018

2017

Payments made by the Company to The Coca-Cola Company for:

Concentrate, syrup, sweetener and other purchases

$
341,949

$
317,040

$
904,244

$
806,256

Customer marketing programs

34,005

27,855

110,062

102,095

Cold drink equipment parts

7,958

6,881

22,188

18,968

Glacéau distribution agreement consideration

-

-

-

15,598

Payments made by The Coca-Cola Company to the Company for:

Proceeds from Territory Conversion Fee

$
-

$
-

$
-

$
87,066

Marketing funding support payments

22,632

22,074

65,325

62,235

Fountain delivery and equipment repair fees

10,199

9,286

29,899

26,138

Facilitating the distribution of certain brands and packages to other Coca-Cola bottlers

1,937

1,773

7,663

6,881

Presence marketing funding support on the Company’s behalf

1,108

2,707

6,203

3,844

Cold drink equipment

-

-

3,789

8,400

~~Coca‑Cola Refreshments USA, Inc.~~

The Company previously had a production arrangement with CCR to buy and sell finished products at cost and transported products for CCR to the Company’s and other Coca‑Cola bottlers’ locations. Following the completion of the October 2017 Transactions discussed in Note 3, the Company no longer transacts with CCR other than making quarterly sub-bottling payments, as discussed below. The following table summarizes purchases and sales under these arrangements between the Company and CCR prior to the closing of the October 2017 Transactions:

2017

(in thousands)

Third Quarter

First Three Quarters

Purchases from CCR

$
20,157

$
110,451

Gross sales to CCR

11,873

72,930

Pursuant to the CBA, the Company is required to make quarterly sub-bottling payments to CCR on a continuing basis for the grant of exclusive rights to distribute, promote, market and sell the authorized brands of The Coca‑Cola Company and related products in the territories acquired in the System Transformation, excluding territories the Company acquired in an exchange transaction. These sub-bottling payments are based on gross profit derived from sales of certain beverages and beverage products that are sold under the same trademarks that identify a covered beverage, beverage product or certain cross-licensed brands. Sub-bottling payments to CCR were $18.3 million during the first three quarters of 2018 and $11.7 million during the first three quarters of 2017. The following table summarizes the liability recorded by the Company to reflect the estimated fair value of contingent consideration related to future sub‑bottling payments to CCR:

(in thousands)

September 30, 2018

December 31, 2017

Current portion of acquisition related contingent consideration

$
25,306

$
23,339

Non-current portion of acquisition related contingent consideration

338,530

357,952

Total acquisition related contingent consideration

$
363,836

$
381,291

~~Glacéau Distribution Termination Agreement~~

On January 1, 2017, the Company obtained the rights to market, promote, distribute and sell glacéau vitaminwater, glacéau smartwater and glacéau vitaminwater zero drops in certain geographic territories including the District of Columbia and portions of Delaware, Maryland and Virginia, pursuant to an agreement entered into by the Company, The Coca‑Cola Company and CCR in June 2016. Pursuant to the agreement, the Company made a payment of $15.6 million to The Coca‑Cola Company during the first quarter of 2017, which represented a portion of the total payment made by The Coca‑Cola Company to terminate a distribution arrangement with a prior distributor in this territory.

~~Coca‑Cola Bottlers’ Sales and Services Company, LLC (“CCBSS”)~~

Along with all other Coca‑Cola bottlers in the United States, the Company is a member of CCBSS, a company formed in 2003 for the purpose of facilitating various procurement functions and distributing certain specified beverage products of The Coca‑Cola Company with the intention of enhancing the efficiency and competitiveness of the Coca‑Cola bottling system in the United States.

CCBSS negotiates the procurement for the majority of the Company’s raw materials, excluding concentrate, and the Company receives a rebate from CCBSS for the purchase of these raw materials. The Company had rebates due from CCBSS of $13.9 million on September 30, 2018 and $11.2 million on December 31, 2017, which were classified as ~~accounts receivable, other in the consolidated condensed balance sheets~~.

In addition, the Company pays an administrative fee to CCBSS for its services. The Company incurred administrative fees to CCBSS of $2.2 million in the first three quarters of 2018 and $2.0 million in the first three quarters of 2017, which were classified as ~~S,D&A expenses in the consolidated condensed statements of operations~~.

~~National Product Supply Group (“NPSG”)~~

The Company is a member of the NPSG, an organization comprised of The Coca‑Cola Company and other Coca‑Cola bottlers who are regional producing bottlers (“RPBs”) in The Coca‑Cola Company’s national product supply system, pursuant to a national product supply governance agreement executed in October 2015 with The Coca‑Cola Company and other RPBs (the “NPSG Governance Agreement”). The stated objectives of the NPSG include, among others, (i) Coca‑Cola system strategic infrastructure investment and divestment planning; (ii) network optimization of all plant to distribution center sourcing; and (iii) new product/packaging infrastructure planning.

Under the NPSG Governance Agreement, the NPSG members established certain governance mechanisms, including a governing board (the “NPSG Board”) comprised of a representative of (i) the Company, (ii) The Coca‑Cola Company and (iii) each other RPB. As of September 30, 2018, the NPSG Board consisted of The Coca‑Cola Company, the Company and seven other RPBs. The NPSG Board makes and/or oversees and directs certain key decisions regarding the NPSG, including decisions regarding the management and staffing of the NPSG and the funding for its ongoing operations.

Pursuant to the decisions of the NPSG Board made from time to time and subject to the terms and conditions of the NPSG Governance Agreement, each RPB is required to make investments in its respective manufacturing assets and implement Coca‑Cola system strategic investment opportunities consistent with the NPSG Governance Agreement. The Company is also obligated to pay a certain portion of the costs of operating the NPSG. The Company incurred NPSG operating costs of $0.9 million in the first three quarters of 2018 and $0.8 million in the first three quarters of 2017, which were classified as ~~S,D&A expense in the consolidated condensed statements of operations~~.

~~CONA Services LLC (“CONA”)~~

The Company is a member of CONA, an entity formed with The Coca‑Cola Company and certain other Coca‑Cola bottlers pursuant to a limited liability company agreement executed in January 2016 (as amended, the “CONA LLC Agreement”) to provide business process and information technology services to its members.

Under the CONA LLC Agreement, the business and affairs of CONA are managed by a board of directors comprised of representatives of its members (the “CONA Board”). All directors are entitled to one vote, regardless of the percentage interest in CONA held by each member. The Company currently has the right to designate one of the members of the CONA Board and has a percentage interest in CONA of approximately 20%. Most matters to be decided by the CONA Board require approval by a majority of a quorum of the directors, provided that the approval of 80% of the directors is required to, among other things, require members to make additional capital contributions, approve CONA’s annual operating and capital budgets, and approve capital expenditures in excess of certain agreed upon amounts. Each CONA member is required to make capital contributions to CONA if and when approved by the CONA Board.

The Company made capital contributions to CONA of $2.1 million in the first three quarters of 2018 and $2.0 million in the first three quarters of 2017, which were classified as other assets in the consolidated condensed balance sheets. No CONA member may transfer its membership interest (or any portion thereof) except to a purchaser of the member’s bottling business (or any portion thereof) and as permitted under the member’s comprehensive beverage agreement with The Coca‑Cola Company.

The CONA LLC Agreement further provides that, if CCR grants any major North American Coca‑Cola bottler other than a CONA member rights to (i) manufacture, produce and package or (ii) market, promote, distribute and sell Coca‑Cola products, CCR will

~~require the bottler to become a CONA member, to implement the CONA System in the bottler’s operations and to enter into a master services agreement with CONA.~~

The Company is also party to an amended and restated master services agreement with CONA (the “CONA MSA”), pursuant to which CONA agreed to make available, and the Company became authorized to use, the Coke One North America system (the “CONA System”), a uniform information technology system developed to promote operational efficiency and uniformity among North American Coca‑Cola bottlers. As part of making the CONA System available, CONA provides the Company with certain business process and information technology services, including the planning, development, management and operation of the CONA System in connection with ~~the Company’s direct store delivery and manufacture of products (collectively, the “CONA Services”).~~

The Company is also authorized under the CONA MSA to use the CONA System in connection with its distribution, promotion, marketing, sale and manufacture of beverages it is authorized to distribute or manufacture under the CBA, the Company’s regional manufacturing agreement or any other agreement with The Coca‑Cola Company, subject to the provisions of the CONA LLC Agreement and any licenses or other agreements relating to products orhis services ~~provided by third parties and used in connection with the CONA System.~~

In exchange for the Company’s rights to use the CONA System and receive the CONA Services under the CONA MSA, it is charged service fees by CONA. Currently, the service fees are based on the number of physical cases of beverages the Company distributed or manufactured during the applicable period in the portion of its territories where the CONA Services have then been implemented.

Upon the earlier of (i) all members of CONA beginning to use the CONA System in all territories in which they distribute and manufacture Coca‑Cola products (excluding certain territories of CCR that are expected to be sold to bottlers that are neither members of CONA nor users of the CONA System), or (ii) December 31, 2018, the service fees will be changed to be an amount per physical case of beverages distributed or manufactured in any portion of the Company’s territories equal to the aggregate costs incurred by CONA to maintain and operate the CONA System and provide the CONA Services divided by the total number of cases distributed or manufactured by all of the members of CONA, subject to certain exceptions and provided that the aggregate costs related to CONA’s manufacturing functionality will be borne solely amongst the CONA members who have rights to manufacture beverages of The Coca‑Cola Company.

The Company is obligated to pay the service fees under the CONA MSA even if it is not using the CONA System for all or any portion of its distribution and manufacturing operations. The Company incurred CONA services fees of $15.5 million in the first three quarters of 2018 and $9.2 million in the first three quarters of 2017.

~~Related Party Leases~~

The Company leases its headquarters office facility and an adjacent office facility in Charlotte, North Carolina from Beacon Investment Corporation, of which J. Frank Harrison, III is the majority stockholder and Morgan H. Everett is a minority stockholder. The annual base rent the Company is obligated to pay under this lease agreement is subject to adjustment for increases in the Consumer Price Index and the lease expires on December 31, 2021.

The Company leases the Snyder Production Center and an adjacent sales facility in Charlotte, North Carolina from Harrison Limited Partnership One, which is directly and indirectly owned by trusts of which J. Frank Harrison, III,as Chairman of the Board of Directors and Chief Executive Officer of the Company during the prior year, pursuant to a ten-year performance unit award agreement approved in 2008 (the “Performance Unit Award Agreement”). The Performance Unit Award Agreement expired at the end of 2018, with the final award issued in the first quarter of 2019. As permitted under the terms of the Performance Unit Award Agreement, a number of shares were settled in cash each year to satisfy tax withholding obligations in connection with the vesting of the performance units. The remaining number of shares increased the total shares of the Company’s Class B Common Stock outstanding. A summary of the awards issued in 2019 and ~~Sue Anne H. Wells,~~2018 is as follows:

	Fiscal Year
	2019		2018
Date of approval for award	March 5, 2019		March 6, 2018
Fiscal year of service covered by award	2018		2017
Shares settled in cash to satisfy tax withholding obligations		15,476		16,504
Increase in Class B Common Stock shares outstanding		19,224		20,296
Total Class B Common Stock awarded		34,700		36,800

Compensation expense for the awards issued pursuant to the Performance Unit Award Agreement, recognized based on the closing price of the Company’s Common Stock on the last trading day prior to the end of each fiscal period, was $2.0 million in the first nine months of 2019 and $4.5 million in the first nine months of 2018.

In 2018, the Compensation Committee of the Company’s Board of Directors (the “Committee”) and the Company’s stockholders approved a ~~director~~long-term performance equity plan (the “Long-Term Performance Equity Plan”), which compensates J. Frank Harrison, III based on the Company’s performance. The Long-Term Performance Equity Plan succeeded the Performance Unit Award Agreement upon its expiration. Awards granted under the Long-Term Performance Equity Plan are earned based on the Company’s attainment during a performance period of certain performance measures, each as specified by the Committee. These awards may be settled in cash and/or shares of the Company’s Class B Common Stock, based on the average of the closing prices of the Company’s Common Stock during the last 20 trading days of the performance period. Compensation expense for the Long-Term Performance Equity Plan, which is included in SD&A expenses on the condensed consolidated statements of operations, was $10.3 million in the first nine months of 2019 and $1.5 million in the first nine months of 2018.

22.Accumulated Other Comprehensive Income (Loss)

Accumulated other comprehensive income (loss) (“AOCI(L)”) is comprised of adjustments relative to the Company’s pension and postretirement medical benefit plans and foreign currency translation adjustments required for a subsidiary of the Company ~~are trustees~~that performs data analysis and ~~beneficiaries and~~provides consulting services outside the United States.

A summary of ~~which Morgan H. Everett, Vice President and a director~~AOCI(L) for the third quarter of ~~the Company, is a permissible, discretionary beneficiary. The annual base rent the Company is obligated to pay under this lease agreement is subject to an adjustment for an inflation factor~~2019 and the ~~lease expires on December 31, 2020.~~third quarter of 2018 is as follows:

(in thousands)	June 30, 2019			Pre-tax Activity			Tax Effect			September 29, 2019
Net pension activity:
Actuarial loss	$	(71,332	)	$	901		$	(222	)	$	(70,653	)
Prior service costs		(15	)		5			(1	)		(11	)
Net postretirement benefits activity:
Actuarial loss		(4,607	)		196			(48	)		(4,459	)
Prior service costs		(136	)		(324	)		80			(380	)
Interest rate swap		-			(496	)		122			(374	)
Foreign currency translation adjustment		(4	)		(23	)		6			(21	)
Reclassification of stranded tax effects		(19,720	)		-			-			(19,720	)
Total	$	(95,814	)	$	259		$	(63	)	$	(95,618	)

(in thousands)	July 1, 2018			Pre-tax Activity			Tax Effect			September 30, 2018
Net pension activity:
Actuarial loss	$	(77,212	)	$	934		$	(231	)	$	(76,509	)
Prior service costs		(34	)		6			(2	)		(30	)
Net postretirement benefits activity:
Actuarial loss		(16,547	)		499			(123	)		(16,171	)
Prior service costs		1,048			(462	)		114			700
Foreign currency translation adjustment		8			(2	)		1			7
Total	$	(92,737	)	$	975		$	(241	)	$	(92,003	)

A summary of AOCI(L) for the ~~principal balance outstanding under these related party capital leases~~first nine months of 2019 and the first nine months of 2018 is as follows:

(in thousands)

September 30, 2018

December 31, 2017

Company headquarters

$
10,597

$
12,771

Snyder Production Center

9,033

11,612

(in thousands)	December 30, 2018			Pre-tax Activity			Tax Effect			September 29, 2019
Net pension activity:
Actuarial loss	$	(72,690	)	$	2,702		$	(665	)	$	(70,653	)
Prior service costs		(24	)		17			(4	)		(11	)
Net postretirement benefits activity:
Actuarial loss		(4,902	)		587			(144	)		(4,459	)
Prior service costs		351			(970	)		239			(380	)
Interest rate swap		-			(496	)		122			(374	)
Foreign currency translation adjustment		-			(26	)		5			(21	)
Reclassification of stranded tax effects		-			-			(19,720	)		(19,720	)
Total	$	(77,265	)	$	1,814		$	(20,167	)	$	(95,618	)

(in thousands)	December 31, 2017			Pre-tax Activity			Tax Effect			September 30, 2018
Net pension activity:
Actuarial loss	$	(78,618	)	$	2,800		$	(691	)	$	(76,509	)
Prior service costs		(43	)		18			(5	)		(30	)
Net postretirement benefits activity:
Actuarial loss		(17,299	)		1,497			(369	)		(16,171	)
Prior service costs		1,744			(1,386	)		342			700
Foreign currency translation adjustment		14			(10	)		3			7
Total	$	(94,202	)	$	2,919		$	(720	)	$	(92,003	)

A summary of ~~rental payments related to these capital leases~~the impact of AOCI(L) on certain statements of operations line items is as follows:

Third Quarter

First Three Quarters

(in thousands)

2018

2017

2018

2017

Company headquarters

$
1,110

$
1,091

$
3,346

$
3,294

Snyder Production Center

1,049

1,018

3,147

3,055

~~21.Net Income Per Share~~

~~The following table sets forth the computation of basic net income per share and diluted net income per share under the two-class method:~~

Third Quarter

First Three Quarters

(in thousands, except per share data)

2018

2017

2018

2017

Numerator for basic and diluted net income per Common Stock and Class B Common Stock share:

Net income attributable to Coca-Cola Bottling Co. Consolidated

$
25,164

$
17,316

$
7,046

$
18,613

Less dividends:

Common Stock

1,787

1,785

5,357

5,356

Class B Common Stock

556

548

1,657

1,639

Total undistributed earnings

$
22,821

$
14,983

$
32

$
11,618

Common Stock undistributed earnings – basic

$
17,422

$
11,463

24

$
8,893

Class B Common Stock undistributed earnings – basic

5,399

3,520

8

2,725

Total undistributed earnings – basic

$
22,821

$
14,983

$
32

$
11,618

Common Stock undistributed earnings – diluted

$
17,327

$
11,414

24

$
8,855

Class B Common Stock undistributed earnings – diluted

5,494

3,569

8

2,763

Total undistributed earnings – diluted

$
22,821

$
14,983

$
32

$
11,618

Numerator for basic net income per Common Stock share:

Dividends on Common Stock

$
1,787

$
1,785

$
5,357

$
5,356

Common Stock undistributed earnings – basic

17,422

11,463

24

8,893

Numerator for basic net income per Common Stock share

$
19,209

$
13,248

$
5,381

$
14,249

Numerator for basic net income per Class B Common Stock share:

Dividends on Class B Common Stock

$
556

$
548

$
1,657

$
1,639

Class B Common Stock undistributed earnings – basic

5,399

3,520

8

2,725

Numerator for basic net income per Class B Common Stock share

$
5,955

$
4,068

$
1,665

$
4,364

Numerator for diluted net income per Common Stock share:

Dividends on Common Stock

$
1,787

$
1,785

$
5,357

$
5,356

Dividends on Class B Common Stock assumed converted to Common Stock

556

548

1,657

1,639

Common Stock undistributed earnings – diluted

22,821

14,983

32

11,618

Numerator for diluted net income per Common Stock share

$
25,164

$
17,316

$
7,046

$
18,613

Numerator for diluted net income per Class B Common Stock share:

Dividends on Class B Common Stock

$
556

$
548

$
1,657

$
1,639

Class B Common Stock undistributed earnings – diluted

5,494

3,569

8

2,763

Numerator for diluted net income per Class B Common Stock share

$
6,050

$
4,117

$
1,665

$
4,402

	Third Quarter 2019
(in thousands)	Net Pension Activity		Net Postretirement Benefits Activity			Interest Rate Swap			Foreign Currency Translation Adjustment			Total
Cost of sales	$	265	$	(67	)	$	-		$	-		$	198
Selling, delivery and administrative expenses		641		(61	)		(496	)		(23	)		61
Subtotal pre-tax		906		(128	)		(496	)		(23	)		259
Income tax expense		223		(32	)		(122	)		(6	)		63
Total after tax effect	$	683	$	(96	)	$	(374	)	$	(17	)	$	196

	Third Quarter 2018
(in thousands)	Net Pension Activity		Net Postretirement Benefits Activity		Foreign Currency Translation Adjustment			Total
Cost of sales	$	217	$	6	$	-		$	223
Selling, delivery and administrative expenses		723		31		(2	)		752
Subtotal pre-tax		940		37		(2	)		975
Income tax expense		233		9		(1	)		241
Total after tax effect	$	707	$	28	$	(1	)	$	734

	First Nine Months 2019
(in thousands)	Net Pension Activity		Net Postretirement Benefits Activity			Interest Rate Swap			Foreign Currency Translation Adjustment			Total
Cost of sales	$	794	$	(200	)	$	-		$	-		$	594
Selling, delivery and administrative expenses		1,925		(183	)		(496	)		(26	)		1,220
Subtotal pre-tax		2,719		(383	)		(496	)		(26	)		1,814
Income tax expense		669		(95	)		(122	)		(5	)		447
Total after tax effect	$	2,050	$	(288	)	$	(374	)	$	(21	)	$	1,367

	First Nine Months 2018
(in thousands)	Net Pension Activity		Net Postretirement Benefits Activity		Foreign Currency Translation Adjustment			Total
Cost of sales	$	648	$	19	$	-		$	667
Selling, delivery and administrative expenses		2,170		92		(10	)		2,252
Subtotal pre-tax		2,818		111		(10	)		2,919
Income tax expense		696		27		(3	)		720
Total after tax effect	$	2,122	$	84	$	(7	)	$	2,199

Third Quarter

First Three Quarters

(in thousands, except per share data)

2018

2017

2018

2017

Denominator for basic net income per Common Stock and Class B Common Stock share:

Common Stock weighted average shares outstanding – basic

7,141

7,141

7,141

7,141

Class B Common Stock weighted average shares outstanding – basic

2,213

2,193

2,208

2,188

Denominator for diluted net income per Common Stock and Class B Common Stock share:

Common Stock weighted average shares outstanding – diluted (assumes conversion of Class B Common Stock to Common Stock)

9,405

9,374

9,400

9,369

Class B Common Stock weighted average shares outstanding – diluted

2,264

2,233

2,259

2,228

Basic net income per share:

Common Stock

$
2.69

$
1.86

$
0.75

$
2.00

Class B Common Stock

$
2.69

$
1.86

$
0.75

$
2.00

Diluted net income per share:

Common Stock

$
2.69

$
1.85

$
0.75

$
1.99

Class B Common Stock

$
2.68

$
1.84

$
0.74

$
1.97

~~NOTES TO TABLE~~

~~(1)~~

For purposes of the diluted net income per share computation for Common Stock, all shares of Class B Common Stock are assumed to be converted; therefore, 100% of undistributed earnings is allocated to Common Stock.

~~(2)~~

For purposes of the diluted net income per share computation for Class B Common Stock, weighted average shares of Class B Common Stock are assumed to be outstanding for the entire period and not converted.

~~(3)~~

~~The denominator for diluted net income per share for Common Stock and Class B Common Stock includes the dilutive effect of shares relative to the Performance Unit Award Agreement.~~

~~(4)~~

~~The Company does not have anti-dilutive shares.~~

~~22.~~23.Supplemental Disclosures of Cash Flow I~~nformation~~Information

Changes in current assets and current liabilities affecting cash flows were as follows:

First Three Quarters

(in thousands)

2018

2017

Accounts receivable, trade, net

$
(34,899
)

$
(109,023
)
Accounts receivable from The Coca-Cola Company

(2,083
)

1,548

Accounts receivable, other

10,328

(8,308
)
Inventories

(46,274
)

(19,254
)
Prepaid expenses and other current assets

8,951

(281
)
Accounts payable, trade

3,749

67,058

Accounts payable to The Coca-Cola Company

(15,222
)

45,722

Other accrued liabilities

(33,712
)

7,924

Accrued compensation

(15,496
)

(10,062
)
Accrued interest payable

4,237

5,640

Change in current assets less current liabilities (exclusive of acquisitions)

$
(120,421
)

$
(19,036
)

~~23.Segments~~

The Company believes four operating segments exist. Nonalcoholic Beverages represents the vast majority of the Company’s consolidated revenues, income from operations and assets. The additional three 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 Three Quarters

(in thousands)

2018

2017

2018

2017

Net sales:

Nonalcoholic Beverages⁽¹⁾

$
1,180,212

$
1,142,238

$
3,427,492

$
3,139,974

All Other⁽¹⁾

93,493

81,439

273,490

220,734

Eliminations⁽²⁾

(62,044
)

(61,151
)

(189,985
)

(163,189
)
Consolidated net sales

$
1,211,661

$
1,162,526

$
3,510,997

$
3,197,519

Income from operations:

Nonalcoholic Beverages

$
39,361

$
33,867

$
32,705

$
90,254

All Other

5,043

3,605

12,381

10,823

Consolidated income from operations

$
44,404

$
37,472

$
45,086

$
101,077

Depreciation and amortization:

Nonalcoholic Beverages

$
44,050

$
41,151

$
133,095

$
114,166

All Other

2,539

2,095

7,401

6,127

Consolidated depreciation and amortization

$
46,589

$
43,246

$
140,496

$
120,293

⁽¹⁾

In order to correct an error in the prior year segment presentation, the Company revised net sales by $39.2 million for the third quarter of 2017 and $96.4 million for the first three quarters of 2017 to reflect sales in the Nonalcoholic Beverages segment which were previously attributed to All Other. Total net sales remain unchanged in prior periods and these revisions were not considered material to the prior periods presented.

⁽²⁾	The entire net sales elimination for each period presented represents net sales from All Other 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.

	First Nine Months
(in thousands)	2019			2018
Accounts receivable, trade, net	$	(7,469	)	$	(34,899	)
Accounts receivable from The Coca-Cola Company		(15,509	)		(2,083	)
Accounts receivable, other		(9,621	)		10,328
Inventories		(21,719	)		(46,274	)
Prepaid expenses and other current assets		(8,478	)		8,951
Accounts payable, trade		44,506			3,749
Accounts payable to The Coca-Cola Company		23,155			(15,222	)
Other accrued liabilities		(58,493	)		(33,712	)
Accrued compensation		(1,946	)		(15,496	)
Accrued interest payable		1,311			4,237
Change in current assets less current liabilities (exclusive of acquisitions)	$	(54,263	)	$	(120,421	)

I~~tem~~Item 2.

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

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations of Coca‑Cola ~~Bottling Co.~~ Consolidated, Inc., a Delaware corporation (together with its majority-owned subsidiaries, the “Company,” “we” or “our”), should be read in conjunction with the condensed consolidated ~~condensed~~ financial statements of the Company and the accompanying notes to the condensed consolidated ~~condensed~~ financial statements.

The Company’s fiscal year generally ends on the Sunday closest to December 31 of each year. The condensed consolidated ~~condensed~~ financial statements presented are:

~~The financial position as of September 30, 2018 and December 31, 2017.~~

•

The financial position as of September 29, 2019 and December 30, 2018.

•

~~The changes in equity and cash flows for the first three quarters of 2018 and the first three quarters of 2017.~~

•

The changes in cash flows and equity for the first nine months of 2019 and the first nine months of 2018.

The condensed consolidated ~~condensed~~ financial statements include the consolidated operations of the Company and its majority-owned subsidiaries including Piedmont Coca‑Cola Bottling Partnership (“Piedmont”), the Company’s only subsidiary with a significant noncontrolling interest. This noncontrolling interest consists of The Coca‑Cola Company’s interest in Piedmont, which was 22.7% for all periods presented.

Our Business and the Nonalcoholic Beverage Industry

~~Coca‑Cola Bottling Co. Consolidated, a Delaware corporation, distributes, markets~~We distribute, market and ~~manufactures~~manufacture nonalcoholic beverages in territories spanning 14 states and the District 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 ~~independent~~ Coca‑Cola bottler in the United States. Approximately ~~94%~~85% of our total bottle/can sales volume to retail customers consists of products of The Coca‑Cola Company, which include some of the most recognized and popular beverage brands in the world. We also distribute products for several other beverage ~~brands~~companies, including BA Sports Nutrition, LLC (“BodyArmor”), Keurig Dr Pepper ~~Sundrop~~Inc. (“Dr Pepper”) and Monster ~~Energy.~~Energy Company (“Monster Energy”). Our purpose is to honor God, to serve others, to pursue excellence and to 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 designed to meet the demands of our consumers, including both sparkling and still beverages. Sparkling beverages are carbonated beverages and the Company’s principal sparkling beverage is Coca‑Cola. Still beverages include energy products and noncarbonated beverages such as bottled water, tea, ready to drink coffee, enhanced water, juices and sports drinks.

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 Coca‑Cola bottlers, “post-mix” products, transportation revenue and equipment maintenance revenue. Post-mix products are dispensed through equipment that mixes fountain syrups with carbonated or still water, enabling fountain retailers to sell finished products to consumers in cups or glasses.

~~Net~~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 ~~by product category were~~volume generated for each package and the channels in which those packages are sold. The Company’s products are sold and distributed in the United States through various channels, which include selling directly to retail stores and other outlets such as ~~follows:~~food markets, institutional accounts and vending machine outlets.

The nonalcoholic beverage market 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 ~~Pepsi-Cola~~PepsiCo, Inc. products and, in some regions, local bottlers of Dr Pepper ~~Royal Crown and/or 7‑Up~~ products.

The principal methods of competition in the nonalcoholic beverage industry are point-of-sale merchandising, new product introductions, new vending and dispensing equipment, packaging changes, pricing, price 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.

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 ~~goods~~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

~~During~~Revenue grew 5.6% in the third quarter of ~~2018, our Company made meaningful progress towards the strategic priorities we set during the second quarter of 2018, even~~2019, driven primarily by a 4.6% increase in ~~the midst of continued challenges~~volume, with strong performance in ~~the commodities~~both Sparkling and ~~transportation markets. Our~~Still categories. We cycled pricing actions delivered over 4% revenue growth versus the third quarter of 2017 on relatively flat volume of almost 87 million physical cases. Our performance during the third quarter of 2018 brings our year-to-date volume growth to 5.9% and our year-to-date revenue growth to 9.8%. Our organic case volume declineinitiatives that were implemented in the third quarter of 2018, ~~was 0.4%~~thereby reducing the contribution from pricing as compared to the revenue growth in the first half of 2019. Revenue from our bottle/can Sparkling beverages increased 6.1% in the third quarter of 2019 as our Sparkling brands continue to demonstrate strength across our markets. Revenue from our Still beverages grew 9.4% in the third quarter of 2019, driven primarily by growth in our Sports Drinks category related to the introduction of BodyArmor products into our portfolio in the fourth quarter of 2018. Revenue grew 4.6% in the first nine months of 2019 through a combination of increased pricing, a continued product mix shift to higher revenue products and a 1.8% increase in physical case volume.

Gross margin declined 30 basis points in the third quarter of 2019 to 34.0%. On an adjusted basis, as defined in the “Adjusted Non‑GAAP Results” section below, gross margin declined 10 basis points versus the third quarter of ~~2017,~~2018. The slight decline in gross margin can be attributed to the continued shift in product mix from Sparkling beverages to Still products, as well as certain costs incurred to optimize our manufacturing operations. Gross margin for the first nine months of 2019 increased 80 basis points on both an actual and ~~our year-to-date organic case volume growth was 0.3% versus~~an adjusted basis. This improvement is primarily the ~~prior year period. Beginning~~result of successful pricing actions executed in the fourth quarter of 2018, we will have cycled all of the transactions completed during our system transformation initiative, and results should be comparable on a year-over-year basis. As discussed last quarter, the mid-week July 4th holiday resulted in volume being split between the second and third quarters in 2018. Additionally, Hurricane Florence impacted our operations in much of our coastal territory in September, although identified incremental costs due to the storm were immaterial.

~~Integral to the strategic priorities we set during the second quarter of 2018, we implemented numerous pricing actions throughout our territory in the third quarter~~half of 2018 to ~~address our increased~~overcome rising input costs. Gross margin in the third quarter of 2018 was 60 basis points lower than the third quarter of 2017 (34.7% in the third quarter of 2018 versus 35.3% in the third quarter of 2017), which reflects significant and sequential improvement over the gross margin declines we experienced in the first half of 2018. The primary drivers of the year-over-year margin decline remain (in order of significance): (i) rising commodity costs, (ii) the volume shift to lower-margin still products, and (iii) newly acquired territories generally experiencing margins lower than our legacy territories. We continue to refine our pricing strategies and focus on driving operating efficiencies in our supply chain to improve margin performance and address the rising input costs across the consumer products landscape.

Selling, delivery and administrative (“~~S,D~~SD&A”) expenses in the third quarter of ~~2018~~2019 increased ~~approximately $3.0~~$10.1 million, or ~~0.8%~~2.7%, ~~as compared to~~versus the third quarter of ~~2017. Notably, our S,D~~2018, largely driven by increased payroll and other benefits expenses. SD&A expenses as a ~~percent~~percentage of ~~revenue declined to 31.0%~~net sales improved 80 basis points in the third quarter of 2019 versus the third quarter of 2018, ~~from 32.1%~~due primarily to a $10.3 million reduction in expenses related to our system transformation work, which concluded in the second quarter of 2019. Adjusted SD&A expenses in the third quarter of ~~2017. We believe this leveraging of operating expenses was~~2019 increased $18.8 million, or 5.2%, versus the ~~result of our actions taken during the second~~third quarter of 2018, reflecting wage inflation and labor expense related to our ~~strong revenue performance~~higher volume. Our adjusted SD&A expenses as a percentage of net sales improved 10 basis points in the third quarter of ~~2018. These improvements were partially offset by the expenses associated with our continuing territory integration efforts. While we are pleased with our operating expense performance in~~2019 versus the third quarter ~~we will continue to refine and optimize our operating model across our Company to drive improvements in efficiency and profitability.~~of 2018 (29.6% versus 29.7%, respectively).

Income from operations in the third quarter and the first nine months of 2019 was ~~$44.4~~$53.8 million and $141.2 million, respectively. Adjusted income from operations was $58.7 million in the third quarter of 2019, an increase of $3.5 million from the third quarter of 2018. Adjusted income from operations was $157.0 million in the first nine months of 2019, an increase of $71.2 million from the same period last year.

Net income in the third quarter of 2019 was $13.0 million, compared to $25.2 million in the third quarter of 2018, ~~increasing from $37.5~~a decline of $12.2 million. For the first nine months of 2019, net income increased $14.5 million incompared to the first nine months of 2018. Net income for the third quarter and the first nine months of ~~2017. We have completed~~2019 was adversely impacted by fair value adjustments to our ~~system transformation transactions and are nearing steady state from an IT system perspective. As such, we incurred $2.7 million less in system transformation expenses~~acquisition related contingent consideration liability, driven by changes in the ~~third quarter of 2018, as compared~~discount rate and future cash flow projections. Fair value adjustments to ~~the third quarter of 2017. We~~this liability are ~~encouraged with our progress~~non-cash in ~~operating income performance~~nature and ~~recognize we have additional improvement opportunities.~~

~~During the third quarter of 2018, we spent $10.4 million on system transformation expenses, which primarily related to the implementation~~a routine part of our integrated CONA information systems platform. We anticipate spending between $6 million and $8 million on system transformation expenses in the fourth quarter of 2018 and expect to see these expenses continue to decrease over the next few quarters.quarterly financial closing process.

Capital spending for the ~~third quarter~~first nine months of 2019 was ~~approximately $27.8 million, bringing our year-to-date total capital investments to $113.1~~$96.7 million. We continue to anticipate capital spending in fiscal 2019 will be in the range of ~~$25~~$150 million to ~~$35~~$180 million as we remain focused on making prudent, long-term investments to support future growth. Cash flows provided by operations for the first nine months of 2019 were $204.6 million, compared to $26.0 million in the ~~fourth quarter~~same period of 2018. ~~Diligent capital~~Improved cash generation continues to be a key management ~~processes have been put in place~~focus area as we strive to ~~continue~~improve our ~~focus on debt reduction, while investing in the highest impact projects. In addition to~~profitability, reduce our ~~capital spending,~~financial leverage and further strengthen our balance sheet.

Areas of Emphasis

Key priorities for the Company ~~contributed $20 million to fund our pension plans during the third quarter of 2018.~~

~~We expect to begin~~include acquisition synergies and cost optimization, revenue management, free cash flow generation and debt repayment, distribution ~~of the fast-growing premium sports drink, BodyArmor, in a portion of our territories in the fourth quarter of 2018. We are excited about the addition of BodyArmor to our powerful portfolio of brands,~~network optimization and ~~while we do not expect the impact on our 2018 results to be material, we do anticipate our BodyArmor distribution rights will provide ongoing benefits and round out our sports drink portfolio.~~cost management.

~~System Transformation Transactions~~

~~As part of The Coca‑Cola Company’s plans to refranchise its North American bottling territories,~~Acquisition Synergies and Cost Optimization: In October 2017, the Company completed a series of ~~transactions from April 2013 to October 2017~~distribution territory and regional manufacturing plant acquisitions and exchanges with The Coca‑Cola Company, Coca‑Cola Refreshments USA, Inc. ~~(“CCR”)~~, a wholly-owned subsidiary of The Coca‑Cola Company, and Coca‑Cola Bottling Company United, Inc. ~~(“United”)~~, an independent bottler that is unrelated to the Company, to significantly expand the Company’s distribution and manufacturing operations (the “System Transformation”). The System Transformation included the acquisition and exchange of rights to serve distribution territories and related distribution assets, as well as the acquisition and exchange of regional manufacturing facilities and related manufacturing assets. A summary of the System Transformation transactions (the “System Transformation Transactions”) completed byAs the Company is included in the Company’s Annual Report on Form 10-K for 2017. As of September 30, 2018, the cash purchase prices or settlement amounts for all System Transformation Transactions have been resolved accordingcontinues to the terms of the transaction agreements. The post-closing adjustments made during the third quarter of 2018 resulted in a $10.2 million net adjustment to the gain on exchange transactions in the consolidated condensed statements of operations.

The financial results of the System Transformation Transactions have been included in the Company’s consolidated condensed financial statements from their respective acquisition or exchange dates. Net sales and income from operations for certain territories and regional manufacturing facilitiesintegrate these acquired ~~and divested by the Company during 2017 are impracticable to separately calculate, as the operations were absorbed into~~ territories and facilities ~~owned~~into its operations, the Company remains focused on synergy and cost optimization opportunities across its business, including opportunities across its manufacturing network, distribution network and back office functions. The successful opening of a new, automated distribution facility in Erlanger, Kentucky and the planned consolidation of the Company’s two manufacturing plants in the Memphis, Tennessee region by the ~~Company prior to the System Transformation, and therefore have been omitted from the results below. Omission~~end of net sales and income from operations for such territories and facilities is not considered material to the results presented below. The remaining System Transformation Transactions that closed during 2017 (the “2017 System Transformation Transactions”) contributed the following amounts tofiscal 2020 are two

examples of the Company’s ~~consolidated condensed statements~~commitment to drive efficiency and reinvest for long-term growth. The Company anticipates identifying, investing against and executing these synergy and cost optimization opportunities will be a key driver of ~~operations:~~

~~See Note 3 to the consolidated condensed financial statements for additional information on the October 2017 Divestitures.~~its results of operations.

~~Areas of Emphasis~~

Key priorities for the Company include integration of the territories and regional manufacturing facilities acquired during the System Transformation, revenue management, product innovation and beverage portfolio expansion, distribution cost management and productivity.

Revenue Management: Revenue management requires a strategy that reflects consideration for pricing of brands and packages within product categories and channels, highly effective working relationships with customers and disciplined fact-based decision-making. Pricing decisions are made considering a variety of factors, including brand strength, competitive environment, input costs and other market conditions. Revenue management has been and continues to be a key driver which has a significant impact on the Company’s results of operations.

~~Product Innovation~~Free Cash Flow Generation and ~~Beverage Portfolio Expansion~~Debt Repayment: ~~Innovation~~Upon completion of ~~both new brands~~the System Transformation transactions in October 2017, the Company’s debt balance exceeded $1.1 billion. Generating free cash flow and ~~packages has been and is expected to~~reducing its debt balance will continue to be ~~important~~a key focus for the Company. The Company has several initiatives in place to optimize free cash flow, improve profitability and prudently manage its capital expenditures in order to generate strong free cash flow and reduce its financial leverage. During the ~~Company’s overall revenue.~~ ~~Recent product introductions from~~first nine months of 2019, the Company and The Coca‑Cola Company include new flavor varieties within certain brands such as Sprite Cherry, POWERade Citrus Passionfruit, Monster Ultra Violet, Monster Juice Mango Loco, Peace Tea Georgia Peach, Peace Tea Razzleberry, Minute Maid 5% Berry Punch,

Dunkin’ Donuts Mocha Iced Coffee, Dunkin’ Donuts French Vanilla Iced Coffee and Coke Zero Sugar. Recent packaging introductions include the 13.7-ounce bottle for Dunkin’ Donuts Iced Coffees, 0.5-liter energy drink cans and eight-packs of 16-ounce energy drinks.reduced its net debt by more than $77 million.

Distribution Network Optimization and Cost Management: Distribution costs represent the costs of transporting finished goods from Company locations to customer outlets. Total distribution costs, including warehouse costs, were $465.7 million in the first nine months of 2019 and $458.7 million in the first ~~three quarters~~nine months of ~~2018 and $407.1 million in the first three quarters of 2017.~~ 2018. Management of these costs will continue to be a key area of emphasis for the Company. The Company believes that optimizing its expanded distribution footprint will be a key area of focus in the short term in order to manage this significant cost to its business.

~~Productivity~~: ~~A key driver in the Company’s selling, delivery and administrative (“S,D&A”) expense management relates to ongoing improvements in labor productivity and asset productivity.~~

Results of Operations

Third Quarter Results

Our results of operations for the third quarter of ~~2018~~2019 and the third quarter of ~~2017~~2018 are highlighted in the table below and discussed in the following paragraphs:

	Third Quarter										Third Quarter
(in thousands)	2018		2017		Change			% Change			2019			2018		Change
Net sales	$	1,211,661	$	1,162,526	$	49,135		4.2%			$	1,271,029		$	1,204,033	$	66,996
Cost of sales		791,317		752,202		39,115			5.2			838,805			791,317		47,488
Gross profit		420,344		410,324		10,020			2.4			432,224			412,716		19,508
Selling, delivery and administrative expenses		375,940		372,852		3,088			0.8			378,378			368,312		10,066
Income from operations		44,404		37,472		6,932			18.5			53,846			44,404		9,442
Interest expense, net		12,827		10,697		2,130			19.9			10,965			12,827		(1,862	)
Other income, net		1,696		3,884		(2,188	)		(56.3	)
Other income (expense), net												(20,711	)		1,696		(22,407	)
Gain on exchange transactions		10,170		-		10,170			-			-			10,170		(10,170	)
Income before income taxes		43,443		30,659		12,784			41.7			22,170			43,443		(21,273	)
Income tax expense		16,493		11,748		4,745			40.4			6,624			16,493		(9,869	)
Net income		26,950		18,911		8,039			42.5			15,546			26,950		(11,404	)
Less: Net income attributable to noncontrolling interest		1,786		1,595		191			12.0			2,540			1,786		754
Net income attributable to Coca-Cola Bottling Co. Consolidated	$	25,164	$	17,316	$	7,848		45.3%
Net income attributable to Coca-Cola Consolidated, Inc.											$	13,006		$	25,164	$	(12,158	)
Other comprehensive income, net of tax												196			734		(538	)
Comprehensive income attributable to Coca-Cola Consolidated, Inc.											$	13,202		$	25,898	$	(12,696	)

Items Impacting Operations and Financial Condition

~~The following items affect the comparability of the financial results:~~Third Quarter 2019

~~Third Quarter 2018~~

~~$308.8 million in net sales and $11.8 million of income from operations related to the 2017 System Transformation Transactions;~~

~~$10.4 million of expenses related to the System Transformation; and~~

~~$10.2 million net adjustment to the gain on exchange transactions as a result of final post-closing adjustments related to the 2017 System Transformation Transactions.~~

~~Third Quarter 2017~~

~~$221.1 million in net sales and $3.2 million of income from operations related to the 2017 System Transformation Transactions;~~

~~$79.0 million in net sales and $7.7 million of income from operations related to the October 2017 Divestitures;~~

•

$~~13.2~~18.7 million recorded in other income (expense), net as a result of an increase in the fair value of the Company’s acquisition related contingent consideration liability.

Third Quarter 2018

•

$10.4 million of expenses related to the ~~acquisition and transition of the distribution territories and the regional manufacturing facilities acquired as part of the~~ System Transformation; and

$5.3 million recorded in other income, net as a result of a favorable fair value adjustment to the Company’s contingent consideration liability related to the distribution territories acquired as part of the System Transformation.

•

$10.2 million net adjustment to the gain on exchange transactions as a result of final post-closing adjustments for the System Transformation transactions that closed during fiscal 2017.

Net Sales

Net sales increased ~~$49.1~~$67.0 million, or ~~4.2%~~5.6%, to ~~$1.21~~$1.27 billion in the third quarter of ~~2018,~~2019, as compared to ~~$1.16~~$1.20 billion in the third quarter of ~~2017.~~2018. The increase in net sales was primarily attributable to the following (in millions):

Third Quarter 2018			Attributable to:
Third Quarter 2019				Third Quarter 2019		Attributable to:
$	50.7		Increase in net sales primarily related to 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	46.9		Increase in net sales related to increased sales volume
	(12.6	)	Decrease in sales volume to other Coca-Cola bottlers	25.9		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
	11.0		Increase in volume of external freight revenue to external customers (other than non-alcoholic beverages)	(8.9	)	Decrease in sales volume to other Coca-Cola bottlers
				3.1		Other
$	49.1		Total increase in net sales	67.0		Total increase in net sales

~~The Company’s bottle/can~~Net sales ~~to retail customers accounted for approximately 84% of the Company’s total net sales in the third quarter of 2018,~~by product category were as compared to approximately 83% in the third quarter of 2017. Bottle/can net pricing is based on the invoice price charged to customers reduced by 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.follows:

	Third Quarter
(in thousands)	2019		2018		% Change
Bottle/can sales:
Sparkling beverages (carbonated)	$	657,507	$	619,705	6.1%
Still beverages (noncarbonated, including energy products)		438,510		400,795	9.4%
Total bottle/can sales		1,096,017		1,020,500	7.4%

Other sales:
Sales to other Coca-Cola bottlers		83,250		92,139	(9.6)%
Post-mix and other		91,762		91,394	0.4%
Total other sales		175,012		183,533	(4.6)%

Total net sales	$	1,271,029	$	1,204,033	5.6%

Product category sales volume of physical cases in the third quarter of ~~2018~~2019 and the third quarter of ~~2017~~2018 as a percentage of total bottle/can sales volume and the percentage change by product category were as follows:

	Bottle/Can Sales Volume						Bottle/Can	Bottle/Can Sales Volume
	Third Quarter						Sales Volume	Third Quarter						Bottle/Can Sales
Product Category	2018			2017			Increase / (Decrease)	2019			2018			Volume % Change
Sparkling beverages		66.0	%		65.1	%	1.3%		67.6	%		67.8	%		4.3	%
Still beverages (including energy products)		34.0	%		34.9	%	(2.7)%		32.4	%		32.2	%		5.2	%
Total bottle/can sales volume		100.0	%		100.0	%	(0.1)%		100.0	%		100.0	%		4.6	%

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

Cost of Sales

~~Cost~~Inputs representing a substantial portion of the Company’s cost of sales ~~includes the following:~~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, ~~manufacturing~~ overhead ~~including depreciation expense, manufacturing warehousing costs,~~and warehouse costs. In addition, cost of sales includes shipping and handling costs related to the movement of finished goods from manufacturing ~~locations~~plants to ~~sales~~ distribution centers, amortization expense of distribution rights, distribution fees of certain products and ~~the purchase~~marketing credits from brand companies. Raw material costs represent approximately 20% of ~~finished goods. Inputs representing a substantial portion of the Company’s~~ total cost of sales ~~include: (i) sweeteners, (ii) packaging materials, including plastic bottles and aluminum cans, and (iii) finished products purchased from other vendors.~~on an annual basis.

Cost of sales increased ~~$39.1~~$47.5 million, or ~~5.2%~~6.0%, to $838.8 million in the third quarter of 2019, as compared to $791.3 million in the third quarter of ~~2018, as compared to $752.2 million in the third quarter of 2017.~~2018. The increase in cost of sales was primarily attributable to the following (in millions):

Third Quarter 2018			Attributable to:
Third Quarter 2019				Third Quarter 2019		Attributable to:
$	42.9		Increase in cost of sales primarily related to, in order of magnitude, commodities, the change in product mix to meet consumer preferences and higher costs in the territories acquired in the System Transformation	36.2		Increase in cost of sales related to increased sales volume
	(12.7	)	Decrease in sales volume to other Coca-Cola bottlers	18.8		Increase in cost of sales primarily related to, in order of magnitude, the change in product mix to meet consumer preferences and an increase in concentrate costs
	9.8		Increase in costs related to increased volume of freight revenue to external customers (other than non-alcoholic beverages)	(10.1	)	Decrease in sales volume to other Coca-Cola bottlers
	(0.9	)	Other	2.6		Other
$	39.1		Total increase in cost of sales	47.5		Total increase in cost of sales

The Company relies extensively on advertising and sales promotion in the marketing of its products. The Coca‑Cola Company and other beverage companies that supply concentrates, syrups and finished products to the Company make substantial marketing and advertising expenditures to promote sales in the Company’s territories. Certain of the marketing expenditures by The Coca‑Cola Company and other beverage companies are made pursuant to annual arrangements. The Company also benefits from national advertising programs conducted by The Coca‑Cola Company and other beverage companies. Total marketing funding support from The Coca‑Cola Company and other

beverage companies, which includes both direct payments to the Company and payments to customers for marketing programs, was $34.8 million in the third quarter of 2019, as compared to $33.1 million in the third quarter of ~~2018, as compared to $32.5 million in the third quarter of 2017.~~2018.

The Company’s cost of sales may not be comparable to other peer companies, as some peer companies include all costs related to their distribution network in cost of sales. The Company includes a portion of these costs in ~~S,D~~SD&A expenses, as described below.

~~S,D&A~~Selling, Delivery and Administrative Expenses

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

~~S,D~~SD&A expenses increased by ~~$3.0~~$10.1 million, or ~~0.8%~~2.7%, to ~~$375.9~~$378.4 million in the third quarter of ~~2018,~~2019, as compared to ~~$372.9~~$368.3 million in the third quarter of ~~2017. S,D~~2018. SD&A expenses as a percentage of net sales ~~increased~~decreased to ~~31.0%~~29.8% in the third quarter of ~~2018~~2019 from ~~32.1%~~30.6% in the third quarter of ~~2017.~~2018. The increase in ~~S,D~~SD&A expenses was primarily attributable to the following (in millions):

Third Quarter 2018			Attributable to:
Third Quarter 2019				Third Quarter 2019		Attributable to:
$	(3.7	)	Decrease in marketing expenses primarily related to sponsorship contracts	12.1		Increase in employee benefit costs, including an increase in bonuses and incentives primarily related to improved financial results and an increase in employee salaries
	2.9		Increase in employee salaries including bonuses and incentives due to additional personnel added in the System Transformation and normal salary increases	(2.0	)	Other
	2.6		Increase in fuel costs related to the movement of finished goods from sales distribution centers to customer locations primarily as a result of territories acquired in the System Transformation
	1.2		Other individually immaterial expense increases primarily related to the System Transformation
$	3.0		Total increase in S,D&A expenses	10.1		Total increase in SD&A expenses

The Company has three primary delivery systems: (i) bulk delivery for large supermarkets, mass merchandisers and club stores, (ii) advanced sale delivery for convenience stores, drug stores, small supermarkets and on-premise accounts and (iii) full-service delivery for its full-service vending customers. Shipping and handling costs related to the movement of finished goods from manufacturing ~~locations~~plants to ~~sales~~ distribution centers are included in cost of sales. Shipping and handling costs related to the movement of finished goods from ~~sales~~ distribution centers to customer locations, including ~~warehouse~~distribution center warehousing costs, are included in ~~S,D~~SD&A expenses and totaled $161.0 million in the third quarter of 2019 and $157.5 million in the third quarter of ~~2018 and $147.9 million in the third quarter of 2017.~~

As a result of the Company adopting Accounting Standards Update 2017-07 “Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost” (“ASU 2017‑07”) issued by the Financial Accounting Standards Board in March 2017, the Company reclassified $1.3 million from the third quarter of 2017 of non-service cost components of net periodic benefit cost and other benefit plan charges from S,D&A expenses to other income, net. ~~The non-service cost component of net periodic benefit cost is included in the Nonalcoholic Beverages segment.~~2018.

Interest Expense, Net

Interest expense, net ~~increased $2.1~~decreased $1.8 million to $11.0 million in the third quarter of 2019, as compared to $12.8 million in the third quarter of ~~2018, as compared to $10.7 million in the third quarter of 2017.~~2018. The ~~increase~~decrease was primarily a result of ~~additional borrowings to finance the 2017 System Transformation Transactions~~lower average debt balances and ~~additional borrowings during 2018 to support working capital and capital expenditure needs.~~lower average interest rates.

Other Income (Expense), Net

A summary of other income (expense), net is as follows:

	Third Quarter						Third Quarter
(in thousands)	2018			2017			2019			2018
Favorable fair value adjustment to acquisition related contingent consideration	$	2,373		$	5,225
(Increase) decrease in the fair value of the acquisition related contingent consideration liability							$	(18,749	)	$	2,373
Non-service cost component of net periodic benefit cost		(677	)		(1,341	)		(1,962	)		(677	)
Total other income, net	$	1,696		$	3,884
Total other income (expense), net							$	(20,711	)	$	1,696

Each reporting period, the Company adjusts its contingent consideration liability related to the distribution territories ~~acquired as part of the System Transformation, excluding territories acquired pursuant~~subject to ~~an exchange transaction,~~sub-bottling fees to fair value. The fair value is determined by discounting future expected sub-bottling payments required under the ~~CBA,~~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; projected~~rates and future ~~operating results; and~~ ~~post-closing settlement of~~ cash ~~purchase prices for the territories acquired as part of the System Transformation.~~ ~~These future expected~~

~~sub-bottling payments extend through the~~flow projections. The life of ~~the related~~these distribution ~~asset acquired in the System Transformation, which~~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 ~~adjustments to~~of the acquisition related contingent consideration liability during the third quarter of 2019 was primarily driven by a decrease in the discount rate. The decrease in the fair value of the acquisition related contingent consideration liability during the third quarter of 2018 ~~were~~was primarily driven by changes to the ~~risk-free interest rate and the~~ ~~projected~~ future ~~operating results~~cash flow projections of the distribution territories ~~acquired as part of the System Transformation~~ subject to sub-bottling fees and an increase in the discount rate, partially offset by cash payments. ~~The fair value adjustments to the acquisition related contingent consideration liability during the third quarter of 2017 were primarily a result of~~ ~~a change in the risk-free interest rate.~~

Gain on Exchange Transactions

As a result of final post-closing adjustments for the ~~2017~~ System Transformation ~~Transactions made~~transactions that closed during ~~the third quarter of 2018,~~fiscal 2017, the Company recorded a $10.2 million net adjustment to the gain on exchange ~~transactions.~~transactions in the third quarter of 2018.

Income Tax Expense

The Company’s effective income tax rate, calculated by dividing income tax expense by income before income taxes, was ~~38.0~~29.9% for the third quarter of ~~2018~~2019 and ~~38.3%~~38.0% for the third quarter of ~~2017.~~2018. The decrease in the effective income tax rate was primarily driven by ~~higher income before income taxes for the third quarter of 2018 as compared to income before income taxes for the third quarter of 2017 and the corporate rate reduction~~a decrease in uncertain tax positions due to the ~~Tax Cuts and Jobs Act (the “Tax Act”) and its impact on prior estimates, which was offset by an increase in certain non-deductible expenses~~. expiration of the applicable statute of limitations. 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 ~~39.6~~33.7% for the third quarter of ~~2018~~2019 and ~~40.4%~~39.6% for the third quarter of ~~2017.~~2018.

Noncontrolling Interest

The Company recorded net income attributable to noncontrolling interest of $2.5 million in the third quarter of 2019 and $1.8 million in the third quarter of 2018, ~~and $1.6 million in the third quarter of 2017,~~ each related to the portion of Piedmont owned by The Coca‑Cola Company.

Other Comprehensive Income, Net of Tax

Other comprehensive income, net of tax was $0.2 million in the third quarter of 2019 and $0.7 million in the third quarter of ~~2018 and $0.4 million in the third quarter of 2017.~~2018. The ~~increase~~decrease was primarily a result of the Company entering into a fixed rate swap in July 2019 to hedge a portion of the interest rate risk on the Company’s term loan facility and a decrease in actuarial gains on the Company’s ~~pension~~postretirement benefit plans.

First ~~Three Quarters~~Nine Months Results

Our results of operations for the first ~~three quarters~~nine months of ~~2018~~2019 and the first ~~three quarters~~nine months of ~~2017~~2018 are highlighted in the table below and discussed in the following paragraphs:

	First Three Quarters												First Nine Months
(in thousands)	2018			2017			Change			% Change			2019		2018		Change
Net sales	$	3,510,997		$	3,197,519		$	313,478		9.8%			$	3,647,600	$	3,488,793	$	158,807
Cost of sales		2,313,728			2,039,996			273,732			13.4			2,390,289		2,313,728		76,561
Gross profit		1,197,269			1,157,523			39,746			3.4			1,257,311		1,175,065		82,246
Selling, delivery and administrative expenses		1,152,183			1,056,446			95,737			9.1			1,116,097		1,129,979		(13,882	)
Income from operations		45,086			101,077			(55,991	)		(55.4	)		141,214		45,086		96,128
Interest expense, net		37,617			30,607			7,010			22.9			35,846		37,617		(1,771	)
Other expense, net		(3,612	)		(36,595	)		32,983			(90.1	)		67,743		3,612		64,131
Gain on exchange transactions		10,170			-			10,170			-			-		10,170		(10,170	)
Income before income taxes		14,027			33,875			(19,848	)		(58.6	)		37,625		14,027		23,598
Income tax expense		3,387			11,800			(8,413	)		(71.3	)		10,801		3,387		7,414
Net income		10,640			22,075			(11,435	)		(51.8	)		26,824		10,640		16,184
Less: Net income attributable to noncontrolling interest		3,594			3,462			132			3.8			5,279		3,594		1,685
Net income attributable to Coca-Cola Bottling Co. Consolidated	$	7,046		$	18,613		$	(11,567	)	(62.1)%
Net income attributable to Coca-Cola Consolidated, Inc.													$	21,545	$	7,046	$	14,499
Other comprehensive income, net of tax														1,367		2,199		(832	)
Comprehensive income attributable to Coca-Cola Consolidated, Inc.													$	22,912	$	9,245	$	13,667

Items Impacting Operations and Financial Condition

~~The following items affect the comparability of the financial results:~~

First ~~Three Quarters 2018~~Nine Months 2019

~~$896.2 million in net sales and $14.6 million of income from operations related to the 2017 System Transformation Transactions;~~

•

$62.0 million recorded in other expense, net as a result of an increase in the fair value of the Company’s acquisition related contingent consideration liability;

~~$32.7 million of expenses related to the System Transformation;~~

•

$6.9 million of expenses related to the System Transformation transactions, the majority of which were information technology related costs; and

~~$10.2 million net adjustment to the gain on exchange transactions as a result of final post-closing adjustments related to the 2017 System Transformation Transactions;~~

~~$4.8 million recorded in S,D&A expenses related to~~ ~~severance and outplacement expenses~~ ~~incurred to optimize~~ ~~labor expense; and~~

~~$3.1 million pre-tax unfavorable mark-to-market adjustments related to the Company’s commodity hedging program.~~

•

$6.1 million adjustment to reflect the prospective change of increasing the capitalization thresholds on certain low-cost, short-lived assets. This change is not expected to be material to the condensed consolidated financial statements.

First ~~Three Quarters 2017~~Nine Months 2018

~~$454.2 million in net sales and $13.6 million of income from operations related to the 2017 System Transformation Transactions;~~

•

$32.7 million of expenses related to the System Transformation; and

~~$231.3 million in net sales and $23.0 million of income from operations related to the October 2017 Divestitures;~~

$32.4 million of expenses related to the acquisition and transition of the distribution territories and the regional manufacturing facilities acquired as part of the System Transformation Transactions;

$23.1 million recorded in other expense, net as a result of an unfavorable fair value adjustment to the Company’s contingent consideration liability related to the distribution territories acquired as part of the System Transformation; and

~~$9.4 million recorded in other expense, net~~ for net working capital and other fair value adjustments related to the System Transformation Transactions completed in January 2016 (the “January 2016 Transactions”) that were made beyond one year from the acquisition date.

•

$10.2 million net adjustment to the gain on exchange transactions as a result of final post-closing adjustments for the System Transformation transactions that closed during fiscal 2017.

Net Sales

Net sales increased ~~$313.5~~$158.8 million, or ~~9.8%~~4.6%, to ~~$3.51~~$3.65 billion in the first ~~three quarters~~nine months of ~~2018,~~2019, as compared to ~~$3.20~~$3.49 billion in the first ~~three quarters~~nine months of ~~2017.~~2018. The increase in net sales was primarily attributable to the following (in millions):

First Three Quarters 2018		Attributable to:
First Nine Months 2019			First Nine Months 2019		Attributable to:
$	168.4	Net sales increase related to increased volume, primarily related to the 2017 System Transformation Transactions	126.7		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
	86.4	Increase in net sales primarily related to 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	62.2		Increase in net sales related to increased sales volume
	26.5	Increase in sales volume to other Coca-Cola bottlers	(46.6	)	Decrease in sales volume to other Coca-Cola bottlers
	25.2	Increase in volume of external freight revenue to external customers (other than non-alcoholic beverages)	16.5		Other
	7.0	Other
$	313.5	Total increase in net sales	158.8		Total increase in net sales

~~The Company’s bottle/can~~

Net sales ~~to retail customers accounted for approximately 83% of the Company’s total net sales in the first three quarters of 2018,~~by product category were as ~~compared to approximately 84% in the first three quarters of 2017.~~follows:

	First Nine Months
(in thousands)	2019		2018		% Change
Bottle/can sales:
Sparkling beverages (carbonated)	$	1,927,916	$	1,832,619	5.2%
Still beverages (noncarbonated, including energy products)		1,201,564		1,108,621	8.4%
Total bottle/can sales		3,129,480		2,941,240	6.4%

Other sales:
Sales to other Coca-Cola bottlers		254,200		300,819	(15.5)%
Post-mix and other		263,920		246,734	7.0%
Total other sales		518,120		547,553	(5.4)%

Total net sales	$	3,647,600	$	3,488,793	4.6%

Product category sales volume of physical cases in the first nine months of 2019 and the first nine months of 2018 as a percentage of total bottle/can sales volume and the percentage change by product category were as follows:

	Bottle/Can Sales Volume						Bottle/Can			Bottle/Can Sales Volume
	First Three Quarters						Sales Volume			First Nine Months						Bottle/Can Sales
Product Category	2018			2017			Increase			2019			2018			Volume % Change
Sparkling beverages		68.7	%		67.9	%		7.2	%		69.7	%		70.5	%		0.7	%
Still beverages (including energy products)		31.3	%		32.1	%		3.3	%		30.3	%		29.5	%		4.4	%
Total bottle/can sales volume		100.0	%		100.0	%		5.9	%		100.0	%		100.0	%		1.8	%

~~The Company’s~~As the Company introduces new products, it reassesses the category assigned at the SKU level, therefore categorization could differ from previously presented results to conform with current period categorization. Any differences are sold and distributed through various channels, which include selling directly to retail stores and other outlets such as food markets, institutional accounts and vending machine outlets. During the first three quarters of 2018, approximately 66% of the Company’s bottle/can sales volume to retail customers was sold for future consumption, while the remaining bottle/can sales volume to retail customers was sold for immediate consumption.not considered 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 Three Quarters

2018

2017

Approximate percentage of the Company’s total bottle/can sales volume:

Wal-Mart Stores, Inc.

19
%

19
%
The Kroger Company

11
%

9
%
Food Lion, LLC

6
%

6
%
Total approximate percentage of the Company’s total bottle/can sales volume

36
%

34
%

Approximate percentage of the Company’s total net sales:

Wal-Mart Stores, Inc.

14
%

14
%
The Kroger Company

8
%

7
%
Food Lion, LLC

4
%

4
%
Total approximate percentage of the Company’s total net sales

26
%

25
%

	First Nine Months
	2019			2018
Approximate percent of the Company’s total bottle/can sales volume:
Wal-Mart Stores, Inc.		19	%		19	%
The Kroger Company		12	%		11	%
Total approximate percent of the Company’s total bottle/can sales volume		31	%		30	%

Approximate percent of the Company’s total net sales:
Wal-Mart Stores, Inc.		14	%		14	%
The Kroger Company		8	%		8	%
Total approximate percent of the Company’s total net sales		22	%		22	%

Cost of Sales

Cost of sales increased ~~$273.7~~$76.6 million, or ~~13.4%~~3.3%, to $2.39 billion in the first nine months of 2019, as compared to $2.31 billion in the first ~~three quarters~~nine months of ~~2018, as compared to $2.04 billion in the first three quarters of 2017.~~2018. The increase in cost of sales was primarily attributable to the following (in millions):

First Three Quarters 2018		Attributable to:
First Nine Months 2019			First Nine Months 2019		Attributable to:
$	118.4	Increase in cost of sales primarily related to, in order of magnitude, commodities, the change in product mix to meet consumer preferences, higher costs in the territories acquired in the System Transformation and higher transportation costs	79.1		Increase in cost of sales primarily related to, in order of magnitude, the change in product mix to meet consumer preferences, an increase in concentrate costs and an increase in commodity costs
	103.0	Cost of sales increase related to increased volume, primarily related to the 2017 System Transformation Transactions	(50.4	)	Decrease in sales volume to other Coca-Cola bottlers
	29.7	Increase in sales volume to other Coca-Cola bottlers	41.9		Increase in cost of sales related to increased sales volume
	22.6	Increase in costs related to increased volume of freight revenue to external customers (other than non-alcoholic beverages)	6.0		Other
$	273.7	Total increase in cost of sales	76.6		Total increase in cost of sales

Total marketing funding support from The Coca‑Cola Company and other beverage companies ~~which includes both direct payments~~was $100.8 million in the first nine months of 2019, as compared to ~~the Company and payments to customers for marketing programs, was~~ $96.9 million in the first ~~three quarters~~nine months of ~~2018, as compared~~2018.

Selling, Delivery and Administrative Expenses

SD&A expenses decreased by $13.9 million, or 1.2%, to ~~$89.4~~$1.12 million in the first ~~three quarters~~nine months of ~~2017.~~

~~S,D&A Expenses~~

~~S,D&A expenses increased by $95.7~~2019, as compared to $1.13 million ~~or 9.1%, to $1.15 billion~~ in the first ~~three quarters~~nine months of ~~2018, as compared to $1.06 billion in the first three quarters of 2017. S,D~~2018. SD&A expenses as a percentage of net sales decreased to ~~32.8%~~30.6% in the first ~~three quarters~~nine months of ~~2018~~2019 from ~~33.0%~~32.4% in the first ~~three quarters~~nine months of ~~2017.~~2018. The ~~increase~~decrease in ~~S,D~~SD&A expenses was primarily attributable to the following (in millions):

First Three Quarters 2018		Attributable to:
First Nine Months 2019			First Nine Months 2019		Attributable to:
$	44.6	Increase in employee salaries including bonuses and incentives due to additional personnel added in the System Transformation and normal salary increases	(25.5	)	Decrease in System Transformation transactions expenses
	11.3	Increase in employee benefit costs primarily due to additional group insurance expense, 401(k) employer matching contributions and bargaining pension plan expense for employees added in the System Transformation	8.9		Increase in employee benefit costs including employee salaries primarily as a result of an increase in bonuses and incentives primarily related to improved financial results, partially offset by workforce optimization completed in the second and fourth quarters of 2018
	7.5	Increase in depreciation and amortization of property, plant and equipment primarily due to depreciation for vending equipment, fleet, furniture and fixtures acquired in the System Transformation	2.7		Other
	6.5	Increase in software expenses primarily due to increased maintenance expense
	4.8	Increase in fuel costs related to the movement of finished goods from sales distribution centers to customer locations primarily as a result of territories acquired in the System Transformation
	4.8	Severance and outplacement expenses incurred to optimize labor expense in the Nonalcoholic Beverages segment
	3.1	Increase in employer payroll taxes primarily due to additional personnel added from the System Transformation
	13.1	Other individually immaterial expense increases primarily related to the System Transformation
$	95.7	Total increase in S,D&A expenses	(13.9	)	Total decrease in SD&A expenses

During the first three quarters of 2018, the Company incurred $32.7 million of expenses related to the System Transformation, the majority of which were information technologies related costs. The Company anticipates System Transformation expenses for the remainder of 2018 to be in the range of $6 million to $8 million.

Shipping and handling costs related to the movement of finished goods from ~~sales~~ distribution centers to customer locations, including ~~warehouse~~distribution center warehousing costs, are included in ~~S,D~~SD&A expenses and totaled $465.7 million in the first nine months of 2019 and $458.7 million in the first ~~three quarters~~nine months of ~~2018 and $407.1 million in the first three quarters of 2017.~~

As a result of the Company adopting ASU 2017‑07, the Company reclassified $4.0 million in the first three quarters of 2017 of non-service cost components of net periodic benefit cost and other benefit plan charges from S,D&A expenses to other expense, net.2018.

Interest Expense, Net

Interest expense, net ~~increased $7.0~~decreased $1.8 million to $35.8 million in the first nine months of 2019, as compared to $37.6 million in the first ~~three quarters~~nine months of ~~2018, as compared to $30.6 million in the first three quarters of 2017.~~2018. The ~~increase~~decrease was primarily a result of ~~additional borrowings to finance the 2017 System Transformation Transactions~~lower average debt balances and ~~additional borrowings during the first three quarters of 2018 to support working capital and capital expenditure needs.~~lower average interest rates.

Other Expense, Net

A summary of other expense, net is as follows:

	First Three Quarters						First Nine Months
(in thousands)	2018			2017			2019			2018
Unfavorable fair value adjustment to acquisition related contingent consideration	$	(1,584	)	$	(23,140	)
Increase in the fair value of the acquisition related contingent consideration liability							$	62,017		$	1,584
Non-service cost component of net periodic benefit cost		(2,028	)		(4,025	)		5,882			2,028
January 2016 Transactions settlement		-			(9,442	)
Other		-			12			(156	)		-
Total other expense, net	$	(3,612	)	$	(36,595	)	$	67,743		$	3,612

The increase in the fair value ~~adjustments to~~of the acquisition related contingent consideration liability during the first nine months of 2019 was primarily driven by a decrease in the discount rate and 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 first ~~three quarters~~ nine months of 2018 ~~were~~was primarily driven by changes to the ~~risk-free interest~~discount rate and ~~the~~ ~~projected~~ future ~~operating results~~cash flow projections of the distribution territories ~~acquired as part of the System Transformation~~ subject to sub-bottling fees, partially offset by cash ~~payments. The fair value adjustment to the acquisition related contingent consideration liability in the first three quarters of 2017 was primarily a result of a change in the risk-free interest rate.~~payments.

Gain on Exchange Transactions

Income Tax Expense

The Company’s effective income tax rate, calculated by dividing income tax expense by income before income taxes, was 28.7% for the first nine months of 2019 and 24.1% for the first nine months of 2018. The increase in the ~~first three quarters~~ ~~of 2018 and 34.8% in the first three quarters of 2017. The decrease in the~~ effective income tax rate was primarily driven by non-recurring favorable adjustments resulting from the ~~corporate rate reduction due to~~adoption of the Tax Cuts and Jobs Act ~~and its impact on prior estimates and lower~~included in the Company’s 2017 federal income ~~before income taxes, which was offset by an increase in certain non-deductible expenses~~. tax return filed during the third quarter of 2018. 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 33.4% for the first nine months of 2019 and 32.5% for the first nine months of 2018. The Company anticipates the annualized effective income tax rate for 2019 will be in the ~~first three quarters~~ ~~of 2018 and 38.8% in the first three quarters of 2017.~~low 30% range.

Noncontrolling Interest

The Company recorded net income attributable to noncontrolling interest of ~~$3.6 million~~ ~~in the first three quarters~~ ~~of 2018 and $3.5~~$5.3 million in the first ~~three quarters~~nine months of ~~2017,~~2019 and $3.6 million in the first nine months of 2018, each related to the portion of Piedmont owned by The Coca‑Cola Company.

Other Comprehensive Income, Net of Tax

Other comprehensive income, net of tax was ~~$2.2 million~~ ~~in the first three quarters~~ ~~of 2018 and $1.3~~$1.4 million in the first ~~three quarters~~nine months of ~~2017.~~2019 and $2.2 million in the first nine months of 2018. The ~~increase~~decrease was primarily a result of a decrease in actuarial gains on the Company’s ~~pension plans.~~postretirement benefit plans and the Company entering into a fixed rate swap in July 2019 to hedge a portion of the interest rate risk on the Company’s term loan facility.

Segment Operating Results

The Company evaluates segment reporting in accordance with the Financial Accounting Standards Board Accounting Standards Codification 280, Segment Reporting, each reporting period, including evaluating the reporting package reviewed by the Chief ~~Operation~~Operating Decision Maker ~~(“CODM”~~(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.~~ ~~In conjunction with the completion of the System Transformation Transactions in October 2017 and integration of acquired operations, management continues to assess whether changes are necessary~~CODM. Asset information is not provided to the ~~Company’s reportable segments.~~

CODM. The Company believes ~~four~~three operating segments exist. Nonalcoholic Beverages represents the vast majority of the Company’s consolidated revenues and income from ~~operations and assets.~~operations. The additional ~~three~~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)	2019			2018			2019			2018
Net sales:
Nonalcoholic Beverages⁽¹⁾	$	1,236,261		$	1,172,584		$	3,547,373		$	3,405,288
All Other		92,501			93,493			275,358			273,490
Eliminations⁽²⁾		(57,733	)		(62,044	)		(175,131	)		(189,985	)
Consolidated net sales	$	1,271,029		$	1,204,033		$	3,647,600		$	3,488,793

Income from operations:
Nonalcoholic Beverages	$	48,248		$	39,361		$	120,613		$	32,705
All Other		5,598			5,043			20,601			12,381
Consolidated income from operations	$	53,846		$	44,404		$	141,214		$	45,086

⁽¹⁾

~~In order~~The Company historically presented consideration paid to customers under certain contractual arrangements for exclusive distribution rights and sponsorship privileges as a marketing expense within SD&A expenses. The Company has now determined such amounts should be presented as a reduction to net sales and has revised the presentation of previously issued financial statements to correct ~~an error~~for this error. Net sales and SD&A expenses were revised by $7.6 million in ~~the prior year segment presentation, the Company revised net sales by $39.2 million for~~ the third quarter of ~~2017~~2018 and ~~$96.4~~$22.2 million ~~for~~in the first ~~three quarters~~nine months of 2017 to reflect sales in the Nonalcoholic Beverages segment which were previously attributed to All Other. Total net sales remain unchanged in prior periods and these revisions were not considered material2018. See Note 4 to the ~~prior periods presented.~~condensed consolidated financial statements for additional information.

⁽²⁾	The entire net sales elimination for each period presented represents net sales from All Other 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.

~~Organic /~~

Adjusted Non-GAAP Results

The Company reports its financial results in accordance with U.S. generally accepted accounting principles (“GAAP”). However, management believes that certain non-GAAP financial measures provide users with additional meaningful financial information that should be considered when assessing the Company’s ongoing performance. Further, with the ~~transformation of the Company’s business through System Transformation Transactions with The Coca‑Cola Company and the~~ conversion of its information technology systems, the Company believes these non-GAAP financial measures allow users to better appreciate the impact of ~~these transactions~~this conversion on the Company’s 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 GAAP results to ~~organic /~~ adjusted results (non-GAAP):

Third Quarter

First Three Quarters

(in thousands)

2018

2017

2018

2017

Total bottle/can sales

$
1,018,896

$
967,205

$
2,930,215

$
2,679,601

Total other sales

192,765

195,321

580,782

517,918

Total net sales

$
1,211,661

$
1,162,526

$
3,510,997

$
3,197,519

Total bottle/can sales

$
1,018,896

$
967,205

$
2,930,215

$
2,679,601

Less: Acquisition/divestiture related sales

117,684

103,171

546,284

370,992

Organic net bottle/can sales (non-GAAP)⁽¹⁾

$
901,212

$
864,034

$
2,383,931

$
2,308,609

Increase in organic net bottle/can sales

4.3
%

3.3
%

	Third Quarter 2019
(in thousands, except per share data)	Gross profit			SD&A expenses			Income from operations			Income before income taxes			Net income			Basic net 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 hedges⁽²⁾		(487	)		(74	)		(413	)		(413	)		(311	)		(0.04	)
Capitalization threshold change for certain assets⁽³⁾		-			(1,732	)		1,732			1,732			1,302			0.14
Supply chain optimization and consolidation⁽⁴⁾		3,581			-			3,581			3,581			2,693			0.29
Other tax adjustments⁽⁵⁾		-			-			-			-			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

Third Quarter

First Three Quarters

(in millions)

2018

2017

2018

2017

Physical case volume

86.7

86.8

254.8

240.5

Less: Acquisition/divestiture related physical case volume

10.6

10.4

48.7

35.1

Organic physical case volume⁽¹⁾

76.1

76.4

206.1

205.4

Increase (decrease) in organic physical case volume

(0.4)%

0.3
%

	Third Quarter 2018
(in thousands, except per share data)	Gross profit		SD&A expenses			Income from operations		Income before income taxes			Net income			Basic net income per share
Reported results (GAAP)	$	412,716	$	368,312		$	44,404	$	43,443		$	25,164		$	2.69
System Transformation transactions expenses⁽⁶⁾		112		(10,305	)		10,417		10,417			7,834			0.84
Gain on exchange transactions⁽⁷⁾		-		-			-		(10,170	)		(7,648	)		(0.82	)
Fair value adjustment of acquisition related contingent consideration⁽¹⁾		-		-			-		(2,373	)		(1,785	)		(0.19	)
Fair value adjustments for commodity hedges⁽²⁾		260		(209	)		469		469			353			0.04
Other tax adjustments⁽⁵⁾		-		-			-		-			3,918			0.41
Total reconciling items		372		(10,514	)		10,886		(1,657	)		2,672			0.28
Adjusted results (non-GAAP)	$	413,088	$	357,798		$	55,290	$	41,786		$	27,836		$	2.97

Third Quarter 2018

(in thousands, except per share data)

Net sales

Gross profit

Income from
operations

Income before
income taxes

Net income

Basic net income
per share

Reported results (GAAP)

$
1,211,661

$
420,344

$
44,404

$
43,443

$
25,164

$
2.69

System Transformation Transactions expenses⁽²⁾

-

112

10,417

10,417

7,834

0.83

Gain on exchange transactions⁽³⁾

-

-

-

(10,170
)

(7,648
)

(0.82
)
Fair value adjustment of acquisition related contingent consideration⁽⁴⁾

-

-

-

(2,373
)

(1,785
)

(0.19
)
Fair value adjustments for commodity hedges⁽⁵⁾

-

260

469

469

353

0.04

Other tax adjustment⁽⁶⁾

-

-

-

-

3,534

0.38

Total reconciling items

-

372

10,886

(1,657
)

2,288

0.24

Adjusted results (non-GAAP)

$
1,211,661

$
420,716

$
55,290

$
41,786

$
27,452

$
2.93

	First Nine Months 2019
(in thousands, except per share data)	Gross profit		SD&A expenses			Income from operations			Income before income taxes			Net income			Basic net income per share
Reported results (GAAP)	$	1,257,311	$	1,116,097		$	141,214		$	37,625		$	21,545		$	2.30
System Transformation transactions expenses⁽⁶⁾		-		(6,915	)		6,915			6,915			5,200			0.56
Fair value adjustment of acquisition related contingent consideration⁽¹⁾		-		-			-			62,017			46,637			4.98
Fair value adjustments for commodity hedges⁽²⁾		482		2,575			(2,093	)		(2,093	)		(1,574	)		(0.17	)
Capitalization threshold change for certain assets⁽³⁾		-		(6,111	)		6,111			6,111			4,595			0.49
Supply chain optimization and consolidation⁽⁴⁾		4,875		-			4,875			4,875			3,666			0.39
Other tax adjustments⁽⁵⁾		-		-			-			-			(2,178	)		(0.24	)
Total reconciling items		5,357		(10,451	)		15,808			77,825			56,346			6.01
Adjusted results (non-GAAP)	$	1,262,668	$	1,105,646		$	157,022		$	115,450		$	77,891		$	8.31

Third Quarter 2017

(in thousands, except per share data)

Net sales

Gross profit

Income from
operations

Income before
income taxes

Net income

Basic net income
per share

Reported results (GAAP)

$
1,162,526

$
410,324

$
37,472

$
30,659

$
17,316

$
1.86

System Transformation Transactions expenses⁽²⁾

-

113

13,148

13,148

9,265

0.99

Fair value adjustment of acquisition related contingent consideration⁽⁴⁾

-

-

-

(5,225
)

(2,386
)

(0.25
)
Fair value adjustments for commodity hedges⁽⁵⁾

-

(2,042
)

(3,401
)

(3,401
)

(2,187
)

(0.24
)
Other tax adjustment⁽⁶⁾

-

-

-

-

(1,690
)

(0.18
)
Total reconciling items

-

(1,929
)

9,747

4,522

3,002

0.32

Adjusted results (non-GAAP)

$
1,162,526

$
408,395

$
47,219

$
35,181

$
20,318

$
2.18

First Three Quarters 2018

(in thousands, except per share data)

Net sales

Gross profit

Income from
operations

Income before
income taxes

Net income

Basic net income
per share

Reported results (GAAP)

$
3,510,997

$
1,197,269

$
45,086

$
14,027

$
7,046

$
0.75

System Transformation Transactions expenses⁽²⁾

-

339

32,738

32,738

24,619

2.63

Gain on exchange transactions⁽³⁾

-

-

-

(10,170
)

(7,648
)

(0.82
)
Workforce optimization expenses⁽⁷⁾

-

-

4,810

4,810

3,617

0.39

Fair value adjustment of acquisition related contingent consideration⁽⁴⁾

-

-

-

1,584

1,191

0.13

Amortization of converted distribution rights, net⁽⁸⁾

-

2,231

2,231

2,231

1,678

0.18

Fair value adjustments for commodity hedges⁽⁵⁾

-

2,776

3,139

3,139

2,361

0.25

Other tax adjustment⁽⁶⁾

-

-

-

-

(2,648
)

(0.28
)
Total reconciling items

-

5,346

42,918

34,332

23,170

2.48

Adjusted results (non-GAAP)

$
3,510,997

$
1,202,615

$
88,004

$
48,359

$
30,216

$
3.23

First Three Quarters 2017

(in thousands, except per share data)

Net sales

Gross profit

Income from
operations

Income before
income taxes

Net income

Basic net income
per share

Reported results (GAAP)

$
3,197,519

$
1,157,523

$
101,077

$
33,875

$
18,613

$
2.00

System Transformation Transactions expenses⁽²⁾

-

379

32,374

32,374

21,108

2.26

January 2016 Transactions settlement⁽⁹⁾

-

-

-

9,442

5,816

0.62

Fair value adjustment of acquisition related contingent consideration⁽⁴⁾

-

-

-

23,140

15,087

1.62

Fair value adjustments for commodity hedges⁽⁵⁾

-

(2,066
)

(2,541
)

(2,541
)

(1,657
)

(0.18
)
Other tax adjustment⁽⁶⁾

-

-

-

(2,156
)

(0.23
)
Total reconciling items

-

(1,687
)

29,833

62,415

38,198

4.09

Adjusted results (non-GAAP)

$
3,197,519

$
1,155,836

$
130,910

$
96,290

$
56,811

$
6.09

	First Nine Months 2018
(in thousands, except per share data)	Gross profit		SD&A expenses			Income from operations		Income before income taxes			Net income			Basic net income per share
Reported results (GAAP)	$	1,175,065	$	1,129,979		$	45,086	$	14,027		$	7,046		$	0.75
System Transformation transactions expenses⁽⁶⁾		339		(32,399	)		32,738		32,738			24,619			2.63
Gain on exchange transactions⁽⁷⁾		-		-			-		(10,170	)		(7,648	)		(0.82	)
Workforce optimization expenses⁽⁸⁾		-		(4,810	)		4,810		4,810			3,617			0.39
Fair value adjustment of acquisition related contingent consideration⁽¹⁾		-		-			-		1,584			1,191			0.13
Fair value adjustments for commodity hedges⁽²⁾		2,776		(363	)		3,139		3,139			2,361			0.25
Other tax adjustments⁽⁵⁾		-		-			-		-			(1,880	)		(0.20	)
Total reconciling items		3,115		(37,572	)		40,687		32,101			22,260			2.38
Adjusted results (non-GAAP)	$	1,178,180	$	1,092,407		$	85,773	$	46,128		$	29,306		$	3.13

Following is an explanation of non-GAAP adjustments:

⁽¹⁾	~~Organic net bottle/can sales and organic physical case volume include results from the Company’s distribution territories not impacted by acquisition or divestiture related activity during 2017.~~

⁽²⁾	~~Adjustment reflects expenses related to the~~ ~~System Transformation, which primarily includes information technologies system conversions and professional fees and expenses related to due diligence.~~

⁽³⁾	~~Adjustment reflects gain on exchange transactions as a result of final post-closing adjustments for the 2017 System Transformation Transactions made during the third quarter of 2018.~~

⁽⁴⁾

This non-cash, fair value adjustment of acquisition related contingent consideration fluctuates based on factors such as long-term interest rates ~~projected~~and future ~~results, and final settlements~~cash flow projections of distribution territories acquired ~~territory values.~~in the System Transformation.

⁽⁵⁾⁽²⁾

The Company enters into 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 commodity hedges on a mark-to-market basis.

⁽⁶⁾⁽³⁾

~~Includes adjustments~~Adjustment reflects the prospective change of increasing the capitalization thresholds on certain low-cost, short-lived assets. This change is not expected to be material to the condensed consolidated financial statements.

⁽⁴⁾

Adjustment reflects expenses within the Nonalcoholic Beverages segment related to the ~~Tax Act~~impairment and ~~other items impacting~~accelerated depreciation of property, plant and equipment at certain of the Company’s manufacturing plants as the Company continues to optimize efficiency opportunities across its business.

⁽⁵⁾	Adjustment reflects the impact from the reconciling items to reported results on the annualized adjusted effective income tax rate.

⁽⁶⁾	Adjustment reflects expenses related to the System Transformation transactions, which primarily included information technology systems conversions.

⁽⁷⁾	Adjustment reflects gain on exchange transactions as a result of final post-closing adjustments made during the third quarter of 2018 for the System Transformation transactions that closed during fiscal 2017.

⁽⁸⁾	Adjustment reflects severance and outplacement expenses relating to the Company’s optimization of its labor ~~expense.~~

⁽⁸⁾

Concurrent with entering into the CBA on March 31, 2017, the Company converted its franchise rights for the territories the Company served prior to the System Transformation to distribution rights, to be amortized over an estimated useful life of 40 years. Adjustment reflects the net amortization expense in the ~~first quarter of 2018 associated with the conversion of the Company’s franchise rights.~~

⁽⁹⁾

Adjustment includes a charge within other income (expense), net for net working capital and other fair value adjustments related to the Company’s acquisitions in the January 2016 Transactions, as part of the System Transformation, that were made beyond one year from the acquisition date.Nonalcoholic Beverages segment.

Financial Condition

Total assets were ~~$3.07~~$3.12 billion on September ~~30, 2018,~~29, 2019, which was ~~a decrease~~an increase of ~~$0.5~~$108.8 million from December ~~31, 2017.~~30, 2018. Net working capital, defined as current assets less current liabilities, was ~~$286.6~~$238.7 million on September ~~30, 2018,~~29, 2019, which was an increase of ~~$131.5~~$43.0 million from December ~~31, 2017.~~30, 2018.

Significant changes in net working capital on September ~~30, 2018~~29, 2019 from December ~~31, 2017~~30, 2018 were as follows:

~~An increase in accounts receivable, trade of $36.4 million primarily as a result of the timing of cash receipts.~~

•

An increase in accounts receivable, trade of $11.6 million and an increase in accounts receivable from The Coca‑Cola Company of $15.5 million primarily as a result of the timing of cash receipts.

~~A decrease in accounts receivable, other of $10.3 million primarily as a result of the timing of payments received for marketing funding and rebates.~~

•

An increase in inventories of $21.7 million primarily as a result of product launches and continued inventory mix shift.

•

The addition of the current portion of obligations under operating leases of $14.9 million as a result of the Company recording balances for operating leases on its condensed consolidated balance sheets.

~~An increase in inventories of $46.3 million primarily as a result of rising commodity costs and expanded product selection offered by the Company.~~

~~A decrease in prepaid and other current assets of $9.1 million primarily as a result of a decrease in the current portion of income taxes.~~

•

An increase in accounts payable, trade of $39.7 million and an increase in accounts payable to The Coca‑Cola Company of $18.5 million primarily as a result of the timing of cash payments.

~~A decrease in accounts payable, trade of $10.3 million primarily as a result of the timing of payments.~~

~~A decrease in accounts payable to The Coca‑Cola Company of $28.2 million primarily as a result of the timing of purchases of raw materials and payments.~~

~~A decrease in other accrued liabilities of $31.9 million primarily as a result of the timing of payments.~~

~~A decrease in accrued compensation of $14.8 million primarily as a result of the timing of bonus and incentive payments in the first quarter of the fiscal year.~~

•

A decrease in other accrued liabilities of $59.0 million primarily as a result of the timing of cash payments.

Liquidity and Capital Resources

~~Capital Resources~~

The Company’s sources of capital include cash flows from operations, available credit facilities and the issuance of debt and equity securities. The Company has obtained ~~the majority of~~ its long-term debt ~~other than capital leases,~~ 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 these condensed consolidated ~~condensed~~ financial statements. 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.

OnThe Company’s total debt as of September 29, 2019 and December 30, 2018 was as follows:

(in thousands)	Maturity Date	September 29, 2019			December 30, 2018
Senior notes and unamortized discount on senior notes⁽¹⁾⁽²⁾	4/15/2019	$	-		$	109,922
Term loan facility⁽¹⁾	6/7/2021		270,000			292,500
Senior notes	2/27/2023		125,000			125,000
Revolving credit facility	6/8/2023		35,000			80,000
Senior notes and unamortized discount on senior notes⁽²⁾	11/25/2025		349,946			349,939
Senior notes	10/10/2026		100,000			-
Senior notes	3/21/2030		150,000			150,000
Debt issuance costs			(2,603	)		(2,958	)
Total debt		$	1,027,343		$	1,104,403

⁽¹⁾

⁽²⁾	The senior notes due in 2019 were issued at 98.238% of par and the senior notes due in 2025 were issued at 99.975% of par.

The Company’s term loan facility matures on June ~~8, 2018,~~7, 2021. The original aggregate principal amount borrowed by the Company under the facility was $300 million and repayment of 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.

In July 2019, the Company entered into a ~~second amended~~$100 million fixed rate swap maturing June 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 ~~restated credit~~is 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 loss on the condensed consolidated balance sheets and included in the condensed consolidated statements of comprehensive income.

As discussed below, in April 2019, the Company sold $100 million aggregate principal amount of senior unsecured notes due in 2026 to MetLife 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 ~~for a five-year unsecured~~in an aggregate principal amount of up to $200 million.

The Company’s revolving credit facility ~~(as amended, the “Revolving Credit Facility”), which amended~~matures on June 8, 2023 and ~~restated its prior credit agreement dated October 16, 2014. The Revolving Credit Facility~~ 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. Borrowings under the Revolving Credit Facility bear interest at a floating base rate or a floating Eurodollar rate, at the Company’s option, plus an applicable margin dependent on the Company’s credit ratings. At the Company’s current credit ratings,

~~the Company must pay an annual facility fee of 0.15% of the lenders’ aggregate commitments under the Revolving Credit Facility.~~ The Revolving Credit Facility has a scheduled maturity date of June 8, 2023. As of September 30, 2018, the Company had borrowed $170.0 million under the Revolving Credit Facility, and therefore had $330.0 million borrowing capacity remaining. The Company currently believes all banks participating in the ~~Revolving Credit Facility~~revolving credit facility have the ability to and will meet any funding requests from the Company.

~~On March 21, 2018,~~ As of September 29, 2019, the Company ~~sold $150~~had outstanding borrowings of $35 million aggregate principal amount of senior unsecured notes due 2030 to NYL Investors LLC (“NYL”) and certain of its affiliates pursuant to the Note Purchase and Private Shelf Agreement dated March 6, 2018 between the Company, NYL and the other parties thereto (as amended, the “NYL Shelf Facility”). These notes bear interest at 3.96%, payable quarterly in arrears on March 21, June 21, September 21 and December 21 of each year, and will mature on March 21, 2030 unless earlier redeemed by the Company. The Company used the proceeds for general corporate purposes.

In February 2017, the Company sold $125 million aggregate principal amount of senior unsecured notes due 2023 to PGIM, Inc. (“Prudential”) and certain of its affiliates pursuant to the Note Purchase and Private Shelf Agreement dated June 10, 2016 between the Company, Prudential and the other parties thereto (as amended, the “Prudential Shelf Facility”). These notes bear interest at 3.28%, payable semi-annually in arrears on February 27 and August 27 of each year, and will mature on February 27, 2023 unless earlier redeemed by the Company. The Company used the proceeds toward repayment of outstanding indebtedness under the ~~Revolving Credit Facility~~revolving credit facility, and for other general corporate purposes. The Company may request that Prudential consider the purchase of additional senior unsecured notes of the Company under the Prudential Shelf Facility in an aggregate principal amount of up to $175 million.

~~In June 2016, the Company entered into a five-year term loan agreement for a senior unsecured term loan facility (as amended, the “Term Loan Facility”) in the aggregate principal amount of $300~~therefore had $465 million ~~maturing June 7, 2021. The Company may request additional term loans under the agreement, provided the Company’s aggregate borrowings under the Term Loan Facility do not exceed $500 million.~~ Borrowings under the Term Loan Facility bear interest at a floating base rate or a floating Eurodollar rate, at the Company’s option, plus an applicable margin dependent on the Company’s credit ratings.

Pursuant to the Term Loan Facility and the indenture under which the senior notes due in 2019 were issued, principal payments will be due in the next twelve months. The Company intends to refinance these amounts and has theborrowing capacity to do so under the Revolving Credit Facility, which is classified as long-term debt. As such, any amounts due in the next twelve months were classified as non-current as of September 30, 2018. See Note 11 to the consolidated condensed financial statements for additional information on the senior notes due in 2019.

indebtedness/cash flow ratio, each as defined in the respective agreements. The Company was in compliance with these covenants as of September 29, 2019. 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 credit ratings are reviewed periodically by the respective 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 impact on the Company’s financial position or results of operations. ~~During the second quarter of 2018,~~ Standard & Poor’s ~~reaffirmed the Company’s BBB rating and revised the Company’s~~ rating outlook tofor the Company is negative ~~from stable.~~and Moody’s rating outlook for the Company is ~~currently~~ stable. As of September ~~30, 2018,~~29, 2019, the Company’s credit ratings were as follows:

		Long-Term Debt
Standard & Poor’s		BBB
Moody’s		Baa2

~~Total net debt and capital lease obligations as of September 30, 2018 and December 31, 2017 were as follows:~~

(in thousands)

September 30, 2018

December 31, 2017

Debt

$
1,194,109

$
1,088,018

Capital lease obligations

37,278

43,469

Total debt and capital lease obligations

1,231,387

1,131,487

Less: Cash and cash equivalents

9,337

16,902

Total net debt and capital lease obligations⁽¹⁾

$
1,222,050

$
1,114,585

⁽¹⁾

The non-GAAP measure “Total net debt and capital lease obligations” is used to provide investors with additional information which management believes is helpful in the evaluation of the Company’s capital structure and financial leverage. This non-GAAP financial information is not presented elsewhere in this report and may not be comparable to the similarly titled measures used by other companies. Additionally, this information should not be considered in isolation or as a substitute for performance measures calculated in accordance with GAAP.

The Company is subject to interest rate risk on its ~~floating~~variable rate debt, including the ~~Revolving Credit Facility~~revolving credit facility and the ~~Term Loan Facility.~~term loan facility. Assuming no changes in the Company’s financial structure, if market interest rates average 1% more over the next ~~twelve~~12 months than the interest rates as of September ~~30, 2018,~~29, 2019, interest expense for the next ~~twelve~~12 months would increase by approximately ~~$4.6~~$2.1 million.

The Company’s only Level 3 asset or liability is the acquisition related contingent consideration ~~liability incurred as a result of the System Transformation Transactions.~~liability. There were no transfers from Level 1 or Level 2. Fair value adjustments were noncash, and therefore did not impact the Company’s liquidity or capital resources. Following is a summary of the Level 3 activity:

	Third Quarter						First Three Quarters						Third Quarter						First Nine Months
(in thousands)	2018			2017			2018			2017			2019			2018			2019			2018
Beginning balance - Level 3 liability	$	374,537		$	319,102		$	381,291		$	253,437		$	412,450		$	374,537		$	382,898		$	381,291
Increase due to System Transformation Transactions acquisitions		-			-			-			46,086
Measurement period adjustments⁽¹⁾		(1,279	)		-			813			-			-			(1,279	)		-			813
Payment of acquisition related contingent consideration		(7,049	)		(5,094	)		(18,312	)		(11,650	)
Payments of acquisition related contingent consideration														(5,948	)		(7,049	)		(18,784	)		(18,312	)
Reclassification to current payables		-			150			(1,540	)		(2,080	)		(60	)		-			(940	)		(1,540	)
(Favorable)/unfavorable fair value adjustment		(2,373	)		(5,225	)		1,584			23,140
Increase (decrease) in fair value														18,749			(2,373	)		62,017			1,584
Ending balance - Level 3 liability	$	363,836		$	308,933		$	363,836		$	308,933		$	425,191		$	363,836		$	425,191		$	363,836

⁽¹⁾

Measurement period adjustments relate to post-closing adjustments made ~~in relation to the April 2017 Transactions and the October 2017 Transactions~~ in accordance with the terms and conditions of the applicable asset purchase agreement or asset exchange ~~agreement. See Note 3 to~~agreement for distribution territories acquired or exchanged by the ~~consolidated condensed financial statements for additional information on the~~Company in April 2017 ~~Transactions~~ and ~~the~~ October 2017 ~~Transactions.~~as part of the System Transformation. All final post-closing adjustments for these transactions were completed during 2018.

Cash Sources and Uses

The primary sources of cash for the Company in the first three quarters of 2018 were debt financings. The primary uses of cash in the first three quarters of 2018 were repayments of debt and additions to property, plant and equipment. The primary sources of cash for the Company in the first three quarters of 2017 were debt financings, the Territory Conversion Fee (as defined below) received from The Coca‑Cola Company and operating activities. The primary uses of cash in the first three quarters of 2017 were repayments of debt, acquisitions of territories and regional manufacturing facilities as part of the System Transformation and additions to property, plant and equipment. A summary of cash-based activity is as follows:

First Three Quarters

(in thousands)

2018

2017

Cash Sources:

Borrowings under Revolving Credit Facility

$
285,000

$
333,000

Proceeds from issuance of Senior Notes

150,000

125,000

Territory Conversion Fee⁽¹⁾

-

87,066

Adjusted cash provided by operating activities⁽²⁾

26,030

141,672

Refund of income tax payments

23,573

-

System Transformation acquisitions, net of cash acquired and purchase price settlements

1,811

-

Proceeds from cold drink equipment

3,789

8,400

Proceeds from the sale of property, plant and equipment

3,555

493

Other

17

66

Total cash sources

$
493,775

$
695,697

Cash Uses:

Payments on Revolving Credit Facility

$
322,000

$
238,000

System Transformation acquisitions, net of cash acquired and purchase price settlements

-

227,769

Additions to property, plant and equipment (exclusive of acquisitions)

113,104

114,953

Prepayment of funds for October 2017 Expansion Transactions

-

56,498

Pension plans contributions

20,000

11,600

Glacéau distribution agreement consideration

-

15,598

Payment of acquisition related contingent consideration

18,312

11,650

Payment on Term Loan Facility

7,500

-

Cash dividends paid

7,014

6,995

Principal payments on capital lease obligations

6,191

5,594

Income tax payments

3,590

14,779

Investment in CONA Services LLC

2,098

1,976

Debt issuance fees

1,531

213

Total cash uses

$
501,340

$
705,625

Net decrease in cash

$
(7,565
)

$
(9,928
)

	First Nine Months
(in thousands)	2019			2018
Cash Sources:
Borrowings under revolving credit facility	$	331,339		$	285,000
Net cash provided by operating activities⁽¹⁾		204,583			26,030
Proceeds from issuance of senior notes		100,000			150,000
Proceeds from the sale of property, plant and equipment		1,028			3,555
Proceeds from cold drink equipment		-			3,789
Acquisition of distribution territories and regional manufacturing plants, net of cash acquired and purchase price settlements		-			1,811
Total cash sources	$	636,950		$	470,185

Cash Uses:
Payments on revolving credit facility	$	376,339		$	322,000
Payments on term loan facility and senior notes		132,500			7,500
Additions to property, plant and equipment (exclusive of acquisitions)		96,747			113,104
Payments of acquisition related contingent consideration		18,784			18,312
Cash dividends paid		7,026			7,014
Payments on financing or capital lease obligations		6,441			6,191
Other distribution agreements		4,654			-
Investment in CONA Services LLC		1,713			2,098
Debt issuance fees		305			1,531
Total cash uses	$	644,509		$	477,750
Net decrease in cash	$	(7,559	)	$	(7,565	)

⁽¹⁾

This one-time fee (the “Territory Conversion Fee”) was paid to the Company upon the conversion of the Company’s then-existing bottling agreements to the CBA in March 2017 pursuant to a territory conversion agreement entered into by the Company, The Coca‑Cola Company and CCR in September 2015, as amended. The Territory Conversion Fee was equivalent to 0.5 times the EBITDA the Company and its subsidiaries generated during the twelve-month period ended January 1, 2017 from sales in the territories it served prior to the System Transformation of certain beverages owned by or licensed to The Coca‑Cola Company or Monster Energy Company on which the Company and its subsidiaries pay a facilitation fee to The Coca‑Cola Company.

⁽²⁾

~~Adjusted~~Net cash provided by operating activities ~~excludes amounts received with regard to~~ in the ~~Territory Conversion Fee,~~first nine months of 2019 included net income tax ~~payments/refunds~~payments of $5.5 million and pension plan ~~contributions. This line item is a non-GAAP measure and provides investors with additional information which management believes is helpful~~contributions of $4.9 million. Net cash provided by operating activities in the ~~evaluation~~first nine months of ~~the Company’s cash sources~~2018 included a net refund of income tax payments of $20.0 million and uses. This non-GAAP financial information is not presented elsewhere in this report and may not be comparable to the similarly titled measures used by other companies. Additionally, this information should not be considered in isolation or as a substitute for performance measures calculated in accordance with GAAP.pension plan contributions of $20.0 million.

Cash Flows From Operating Activities

During the first ~~three quarters~~nine months of ~~2018,~~2019, cash provided by operating activities was ~~$26.0~~$204.6 million, which was ~~a decrease~~an increase of ~~$176.4~~$178.6 million as compared to the first ~~three quarters~~nine months of ~~2017.~~2018. The ~~decrease~~increase was primarily a result of ~~the non-reoccurrence of the Territory Conversion Fee, which was received during the first quarter of 2017,~~improved financial results and ~~changes in net~~continued focus on working capital ~~as discussed above.~~needs in order to optimize free cash flow.

Cash Flows From Investing Activities

During the first ~~three quarters~~nine months of ~~2018,~~2019, cash used in investing activities was ~~$106.0~~$102.1 million, which was a decrease of ~~$301.9~~$3.9 million as compared to the first ~~three quarters~~nine months of ~~2017.~~2018. The decrease was driven primarily by a reduction in additions to property, plant and equipment, as the ~~Company’s completion of~~Company remains focused on making prudent long-term investments to support its ~~System Transformation Transactions in October 2017.~~growth.

Additions to property, plant and equipment were ~~$113.1~~$96.7 million during the first ~~three quarters~~nine months of ~~2018.~~2019. As of September ~~30, 2018, $4.1~~29, 2019, $8.9 million of additions to property, plant and equipment were accrued in accounts payable, trade. The Company anticipates additions to property, plant and equipment for the remainder of ~~2018~~2019 will be in the range of ~~$25~~$50 million to ~~$35~~$80 million.

Additions to property, plant and equipment during the first ~~three quarters~~nine months of ~~2017~~2018 were ~~$115.0~~$113.1 million. As of ~~October 1, 2017, $13.7~~September 30, 2018, $4.1 million of additions to property, plant and equipment were accrued in accounts payable, trade. ~~These additions exclude $161.2 million in property, plant and equipment acquired in System Transformation Transactions and $8.4 million in proceeds from cold drink equipment.~~

Cash Flows From Financing Activities

During the first ~~three quarters~~nine months of 2019, cash used in financing activities was $110.1 million and during the first nine months of 2018, cash provided by financing activities was $72.5 ~~million, which was a decrease of $123.0 million as compared to the first three quarters of 2017.~~million. The ~~decrease~~change was primarily driven by ~~a reduced need for capital as a result~~net repayments on borrowings in the first nine months of ~~the Company’s completion of its System Transformation Transactions in October 2017.~~2019, stemming from improved financial results.

The Company had cash payments for acquisition related contingent consideration of $18.8 million during the first nine months of 2019 and $18.3 million during the first ~~three quarters~~ nine months of 2018 ~~and $11.7 million during the first three quarters~~ ~~of 2017~~. The Company anticipates that the amount it could pay annually under the acquisition related contingent consideration arrangements for the distribution territories ~~acquired in the System Transformation, excluding territories the Company acquired in exchange transactions,~~subject to sub-bottling fees will be in the range of $25 million to ~~$47~~$49 million.

In April 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 dated January 23, 2019 between the Company, MetLife and the other parties thereto. These notes bear interest at 3.93%, payable quarterly in arrears, commencing on July 10, 2019, and will mature on October 10, 2026, unless earlier redeemed by the Company. The Company used the proceeds to refinance the senior notes due on April 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.

In 2018, the Company sold $150 million aggregate principal amount of senior unsecured notes due in 2030 to NYL Investors LLC (“NYL”) and certain of its affiliates pursuant to a Note Purchase and Private Shelf Agreement dated March 6, 2018 between the Company, NYL and the other parties thereto. These notes bear interest at 3.96%, payable quarterly in arrears, and will mature on March 21, 2030, unless earlier redeemed by the Company. The Company used the proceeds for general corporate purposes.

Significant Accounting Policies

See Note 1, Note 4 and Note 29 to the condensed consolidated ~~condensed~~ financial statements for information on the Company’s significant accounting policies.

Off-Balance Sheet Arrangements

The Company is a member of, and has equity ownership in, South Atlantic Canners, Inc. (“SAC”), a manufacturing cooperative comprised of Coca‑Cola bottlers, and has guaranteed $23.9 million of SAC’s debt as of September ~~30, 2018.~~29, 2019. 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.

~~In the event SAC fails to fulfill its commitments under the related debt, the Company would be responsible for payment~~See Note 20 to the lenders up to the level of the guarantee. As of September 30, 2018, the Company’s maximum exposure under the guarantee, if SAC borrowed up to its aggregate borrowing capacity, would have been $32.1 million, including the Company’s equity interests. ~~See Note 15 to the~~condensed consolidated ~~condensed~~ financial statements for additional information.

Hedging Activities

The Company uses derivative financial instruments to manage its exposure to movements in certain commodity prices. Fees paid by the Company for derivative instruments are amortized over the corresponding period of the instrument. The Company accounts for its commodity hedges on a mark-to-market basis with any expense or income reflected as an adjustment to cost of sales or ~~S,D~~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 derivative financial agreements that provide for net

settlement of derivative transactions. The net impact of the commodity hedges on the condensed consolidated ~~condensed~~ statements of operations was as follows:

	Third Quarter					First Three Quarters						Third Quarter				First Nine Months
(in thousands)	2018		2017			2018			2017			2019		2018		2019			2018
Cost of sales - increase/(decrease)	$	640	$	(2,446	)	$	2,843		$	(3,015	)	$	2,984	$	640	$	8,779		$	2,843
S,D&A expenses - increase/(decrease)		50		(1,575	)		(305	)		(591	)
SD&A expenses - increase/(decrease)													582		50		(1,403	)		(305	)
Net impact	$	690	$	(4,021	)	$	2,538		$	(3,606	)	$	3,566	$	690	$	7,376		$	2,538

Cautionary Information Regarding Forward-Looking Statements

Certain statements contained in this ~~report,~~Quarterly Report, or in other public filings, press releases, or other written or oral communications made by ~~Coca‑Cola Bottling Co. Consolidated~~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, ~~S,D~~SD&A expenses, gross profit, income tax rates, ~~earnings~~net income per diluted share, dividends, pension plan contributions, estimated acquisition related contingent consideration payments; or statements regarding the outcome or impact of certain new accounting pronouncements and pending or threatened litigation. These statements ~~include:~~include, among others, statements relating to:

~~the Company’s beliefs and estimates regarding the impact of the adoption of certain new accounting pronouncements~~;

•

the Company’s beliefs and estimates regarding the impact of the adoption of certain new accounting pronouncements;

~~the Company’s expectations that the adoption of Accounting Standards Update 2016~~-02 “Leases,” (i) will have a material impact on its consolidated condensed balance sheets and (ii) will not have a material impact on its consolidated condensed statements of cash flows as the new guidance is non-cash in nature;

•

the Company’s belief that, at any given time, less than 1% of bottle/can sales and post-mix sales could be at risk for return by customers;

~~the Company’s expectation that certain amounts of goodwill will, or will not, be deductible for tax purposes~~;

•

the Company’s belief that SAC, whose debt the Company guarantees, has sufficient assets and the ability to adjust selling prices of its products to adequately mitigate the risk of material loss from the Company’s guarantee and that the cooperative will perform its obligations under its debt commitments;

~~the Company’s belief that, at any given time, less than 1% of bottle/can sales and post-mix sales could be at risk for return by customers;~~

•

the Company’s belief that it has, and that other manufacturers from whom the Company purchases finished goods have, adequate production capacity to meet sales demand for sparkling and still beverages during peak periods;

•

the Company’s expectation that a real estate operating lease commitment will commence during the fourth quarter of 2019 and have a lease term of five years, and that the additional lease liability associated with this lease commitment is expected to be approximately $0.3 million;

•

the Company’s belief that the ultimate disposition of various claims and legal proceedings which have arisen in the ordinary course of its business will not have a material adverse effect on its financial condition, cash flows or results of operations and that no material amount of loss in excess of recorded amounts is reasonably possible as a result of these claims and legal proceedings;

•

the Company’s belief that it is competitive in its territories with respect to the principal methods of competition in the nonalcoholic beverage industry;

~~the Company’s belief that it is competitive in its territories with respect to the principal methods of competition in the nonalcoholic beverage industry~~;

•

the Company’s expectation that it will consolidate two manufacturing plants in the Memphis, Tennessee region by the end of fiscal 2020;

the Company’s belief that certain non-GAAP financial measures provide users with additional meaningful financial information that should be considered when assessing the Company’s ongoing performance, including information which the Company believes is helpful in the evaluation of its cash sources and uses, capital structure and financial leverage;

•

the Company’s belief that certain non-GAAP financial measures provide users with additional meaningful financial information that should be considered when assessing the Company’s ongoing performance and that such non-GAAP financial measures allow users to better appreciate the impact of the Company’s information technology systems conversion on the Company’s performance;

the Company’s belief that it 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;

•

~~the Company’s belief that all the banks participating in the Revolving Credit Facility have the ability to and will meet any funding requests from the Company~~;

•

the Company’s belief that all the banks participating in the revolving credit facility have the ability to and will meet any funding requests from the Company;

the Company’s intention to refinance amounts due in the next twelve months under the Term Loan Facility and the indenture under which the senior notes due in 2019 were issued using the capacity under the Revolving Credit Facility;

•

the Company’s intention to refinance principal payments due in the next 12 months under the term loan facility using the capacity under the revolving credit facility;

~~the Company’s estimate of the useful lives of certain acquired intangible assets and property, plant and equipment~~;

•

the Company’s estimate of the useful lives of certain acquired intangible assets and property, plant and equipment;

the Company’s estimate that a 10% increase in the market price of certain commodities included as part of its raw materials over the current market prices would cumulatively increase costs during the next 12 months by approximately $56.5 million, assuming no change in volume;

•

the Company’s expectation that amounts due to United relating to the System Transformation exchange transaction between the Company and United will be paid by the Company during the fourth quarter of 2018;

•

the Company’s expectation that the amount of uncertain tax positions may change over the next 12 months but that such changes will not have a significant impact on the condensed consolidated financial statements;

•

the Company’s belief that optimizing its expanded distribution footprint will be a key area of focus in the short term in order to manage this significant cost to its business;

the Company’s expectation that the amount of uncertain tax positions may change over the next 12 months but that such changes will not have a significant impact on the consolidated condensed financial statements;
•
the Company’s estimates of certain inputs used in its calculations, including estimated rates of return, estimates of bad debts and amounts that will ultimately be collected, and estimates of inputs used in the calculation and adjustment of the fair value of its acquisition related contingent consideration liability related to the distribution territories subject to sub-bottling fees, such as the amounts that will be paid by the Company in the future under the Company’s comprehensive beverage agreement and the Company’s WACC;

•

the Company’s belief that the range of undiscounted amounts it could pay annually under the acquisition related contingent consideration arrangements is expected to be between $25 million to $49 million;

•

the Company’s belief that the covenants in its nonpublic debt will not restrict its liquidity or capital resources;

•

the Company’s belief that other parties to certain of its contractual arrangements will perform their obligations;

•

the Company’s expectation that it will not make additional contributions to the two Company-sponsored pension plans during the fourth quarter of 2019;

•

the Company’s belief that additions to property, plant and equipment for the remainder of 2019 are expected to be in the range of $50 million to $80 million and that total additions to property, plant and equipment in 2019 are expected to be in the range of $150 million to $180 million;

•

the Company’s belief that it has adequately provided for any assessments likely to result from audits by tax authorities in the jurisdictions in which the Company conducts business;

•

the Company’s belief that key priorities include acquisition synergies and cost optimization, revenue management, free cash flow generation and debt repayment, distribution network optimization and cost management;

•

the Company’s expectation that its $100 million interest rate swap entered into in July 2019 will not be material to the condensed consolidated balance sheets;

•

the Company’s belief that the ~~ultimate impact of~~annualized effective income tax rate for 2019 will be in the Tax Act could differ from the Company’s estimates, possibly materially, due to, among other things, the significant complexity of the Tax Act, anticipated additional regulatory guidance or related interpretations that may be issued by the Internal Revenue Service, changes in accounting standards, legislative actions, future actions by states within the U.S.low 30% range; and ~~changes in estimates, analysis, interpretations and assumptions made by the Company;~~

~~the Company’s belief that innovation of both new brands and packages will continue to be important to the Company’s overall revenue;~~

the Company’s estimates of certain inputs used in its calculations, including estimated rates of return, estimates of bad debts and amounts that will ultimately be collected, and estimates of inputs used in the calculation and adjustment of the fair value of its acquisition related contingent consideration liability related to the distribution territories acquired as part of the System Transformation, such as the amounts that will be paid by the Company in the future under the CBA and the Company’s WACC;

~~the Company’s expectation that certain territories of CCR will be sold to bottlers that are neither members of CONA nor users of the CONA System;~~

the Company’s belief that the range of undiscounted amounts it could pay annually under the acquisition related contingent consideration arrangements for the System Transformation Transactions is expected to be between ~~$25 million to $47 million;~~

the Company’s belief that the covenants in the Revolving Credit Facility, the Term Loan Facility, the Prudential Shelf Facility and the NYL Shelf Facility will not restrict its liquidity or capital resources;

~~the Company’s belief that other parties to certain of its contractual arrangements will perform their obligations~~;

~~the Company’s expectation that it will not make additional contributions to the two Company-sponsored pension plans during the fourth quarter of~~ ~~2018;~~

~~the Company’s expectation that it will not withdraw from its participation in the Employers-Teamsters Local Union Nos. 175 and 505 Pension Fund (the “Teamsters Plan”);~~

~~the Company’s expectation that the collective bargaining agreements covering the Teamsters Plan that expire at various times through April 2020 will be re-negotiated;~~

~~the Company’s belief that System Transformation expenses will be in the range of $6 million to $8 million in the fourth quarter of 2018 and will decrease over the next few quarters~~;

~~the~~ ~~Company’s belief that additions to property, plant and equipment for the remainder of 2018 are expected to be in the range of $25 million to $35 million~~;

the Company’s belief that, while the addition of BodyArmor products to the Company’s portfolio of brands will not have a material impact on the Company’s 2018 results, BodyArmor will provide ongoing benefits and round out the Company’s sports drink portfolio;

~~the~~ ~~Company’s belief that it has adequately provided for any assessments likely to result from audits by tax authorities in the jurisdictions in which the Company conducts business~~;

~~the~~ Company’s belief that key priorities include territory and manufacturing integration, revenue management, product innovation and beverage portfolio expansion, distribution cost management and productivity~~; and~~

~~the Company’s hypothetical calculation that, if market interest rates average 1% more over the next twelve months than the interest rates as of~~ ~~September 30, 2018, interest expense for the next twelve months would increase by approximately $4.6 million, assuming no changes in the Company’s financial structure.~~

•

the Company’s hypothetical calculation that, if market interest rates average 1% more over the next 12 months than the interest rates as of September 29, 2019, interest expense for the next 12 months would increase by approximately $2.1 million, assuming no changes in the Company’s financial structure.

These forward-looking statements may be identified by the use of the words “believe,” “plan,” “estimate,” “expect,” “anticipate,” “probably,” “should,” “project,” “intend,” “continue,” and other similar terms and expressions. Various risks, uncertainties and other factors may cause the Company’s actual results to differ materially from those expressed or implied in any forward-looking statements. Factors, uncertainties and risks that may result in actual results differing from such forward-looking information include, but are not limited to, those listed in Part I, “Item 1A. Risk Factors” of our Annual Report on Form 10-K for ~~2017,~~2018, as well as other factors discussed throughout this ~~report,~~Quarterly Report, including, without limitation, the factors described under “Significant Accounting Policies” in ~~our~~Note 1 to the condensed consolidated ~~condensed~~ financial statements, or in other filings or statements made by the Company. All of the forward-looking statements in this ~~report~~Quarterly 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.~~Quarterly Report. The Company assumes no obligation to update any forward-looking statements, even if experience or future changes make it clear that projected results expressed or implied in such statements will not be realized, except as may be required by law. In evaluating forward-looking statements, these risks and uncertainties should be considered, together with the other risks described from time to time in the Company’s other reports and documents filed with the Securities and Exchange Commission.

I~~tem~~Item 3.Quantitative and Qualitative Disclosures About Market Risk.

The Company is exposed to certain market risks that arise in the ordinary course of business. The Company may enter into derivative financial instrument transactions to manage or reduce market risk. The Company does not enter into derivative financial instrument transactions for trading or speculative purposes. A discussion of the Company’s primary market risk exposure and interest rate risk is presented below.

Debt and Derivative Financial Instruments

The Company is subject to interest rate risk on its ~~floating~~variable rate debt, including ~~the Revolving Credit Facility~~its revolving credit facility and ~~the Term Loan Facility.~~term loan facility. Assuming no changes in the Company’s financial structure, if market interest rates average 1% more over the next ~~twelve~~12 months than the interest rates as of September ~~30, 2018,~~29, 2019, interest expense for the next ~~twelve~~12 months would increase by approximately ~~$4.6~~$2.1 million. This amount was determined by calculating the effect of the hypothetical interest rate on the unhedged portion of the Company’s variable rate debt. This calculated, hypothetical increase in interest expense for the following ~~twelve~~12 months may be different from the actual increase in interest expense from a 1% increase in interest rates due to varying interest rate reset dates on the Company’s ~~floating~~variable rate debt.

The Company’s acquisition related contingent consideration, which is adjusted to fair value at each reporting period, is also impacted by changes in interest rates. The risk-free interest rate used to estimate the Company’s WACC is a component of the discount rate used to calculate the present value of future cash flows due under the ~~CBA.~~Company’s comprehensive beverage agreement. As a result, any changes in the underlying risk-free interest rates will impact the fair value of the acquisition related contingent consideration and could materially impact the amount of noncash expense (or income) recorded each reporting period.

Raw Material and Commodity Price Risk

The Company is also subject to commodity price risk arising from price movements for certain commodities included as part of its raw materials. The Company manages this commodity price risk in some cases by entering into contracts with adjustable prices to hedge commodity purchases. The Company periodically uses derivative commodity instruments in the management of this risk. The Company estimates a 10% increase in the market prices of commodities included as part of its raw materials over the current market prices would cumulatively increase costs during the next 12 months by approximately ~~$56.5~~$58.3 million assuming no change in volume.

Fees paid by the Company for agreements to hedge commodity purchases are amortized over the corresponding period of the instruments. The Company accounts for commodity hedges on a mark-to-market basis with any expense or income being reflected as an adjustment to cost of sales or ~~S,D~~SD&A expenses.

Effects of Changing Prices

The annual rate of inflation in the United States, as measured by year-over-year changes in the Consumer Price Index (the “CPI”), was 2.4% in 2018 and 2.1% in ~~2017 and 2016.~~2017. Inflation in the prices of those commodities important to the Company’s business is reflected in changes in the CPI, but commodity prices are volatile and in recent years have moved at a faster rate of change than the CPI.

The principal effect of inflation in both commodity and consumer prices on the Company’s operating results is to increase costs, both of goods sold and ~~S,D~~SD&A expenses. Although the Company can offset these cost increases by increasing selling prices for its products, consumers may not have the buying power to cover these increased costs and may reduce their volume of purchases of those products. In that event, selling price increases may not be sufficient to offset completely the Company’s cost increases.

Item 4.Controls and Procedures.

As of the end of the period covered by this ~~report,~~Quarterly Report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s “disclosure controls and procedures” (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), pursuant to Rule 13a-15(b) of the Exchange Act. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of September ~~30, 2018.~~29, 2019.

There has been no change in the Company’s internal control over financial reporting during the quarter ended September ~~30, 2018~~29, 2019 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II - ~~OTHE~~ROTHER INFORMATION

I~~tem~~Item 1.

Legal Proceedings.

The Company is from time to time a party to various lawsuits, claims and other legal proceedings that arise in the ordinary course of business. With respect to all such lawsuits, claims and proceedings, the Company records reserves when it is probable a liability has been incurred and the amount of loss can be reasonably estimated. The Company does not believe that any of these proceedings, individually or in the aggregate, would be expected to have a material adverse effect on its results of operations, financial position or cash flows. The Company maintains liability insurance for certain risks that is subject to certain self-insurance limits.

Item 1A.

Risk Factors.

There have been no material changes in the Company’s risk factors from those disclosed in Part I, “Item 1A. Risk Factors” in the Company’s Annual Report on Form 10‑K for ~~2017.~~

2018.

Item 6.

E~~xhibits.~~Exhibits.

~~Number~~Exhibit No.	Description	Incorporated by Reference or ~~Filed~~Filed/Furnished Herewith
3.1	Restated Certificate of Incorporation of the Company.	Exhibit 3.1 to the Company’s Quarterly Report on Form 10‑Q for the quarter ended July 2, 2017 (File No. 0-9286).
3.2	~~Amended and~~Certificate of Amendment to the Restated ~~Bylaws~~Certificate of Incorporation of the Company.	Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on ~~May 15, 2017~~January 2, 2019 (File No. 0-9286).
~~4.1~~	The registrant, by signing this report, agrees to furnish the Securities and Exchange Commission, upon its request, a copy of any instrument which defines the rights of holders of long-term debt of the registrant and its consolidated subsidiaries which authorizes a total amount of securities not in excess of 10 percent of the total assets of the registrant and its subsidiaries on a consolidated basis.
~~10.1~~3.3	~~Amendment No. 1 to Term Loan Agreement, dated July 11, 2018, by~~Amended and ~~among~~Restated By-laws of the ~~Company, JPMorgan Chase Bank, N.A., as administrative agent, and the other lenders party thereto.~~Company.	Exhibit ~~10.1~~3.2 to the Company’s Current Report on Form 8-K filed on ~~July 17, 2018~~January 2, 2019 (File No. 0-9286).
~~10.2~~10.1*	Omnibus Amendment ~~No. 1~~ to ~~Second Amended and Restated Credit Agreement,~~Coca‑Cola Consolidated, Inc. Nonqualified Employee Benefit Plans, dated ~~July 11, 2018, by and among the Company, JPMorgan Chase Bank, N.A.,~~ as ~~administrative agent, and the other lenders party thereto.~~of September 6, 2019.	~~Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on July 17, 2018 (File No. 0-9286).~~Filed herewith.
~~10.3~~10.2*	~~First~~Omnibus Amendment to ~~Note Purchase and Private Shelf Agreement, dated July 20, 2018, by and among the Company, PGIM,~~Coca‑Cola Consolidated, Inc. and ~~the other parties thereto.~~CCBCC Operations, LLC Qualified Employee Benefit Plans, dated as of September 6, 2019.	~~Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on July 25, 2018 (File No. 0-9286).~~Filed herewith.
~~10.4~~10.3**	~~First Amendment to Note Purchase and Private Shelf Agreement, dated July 20, 2018, by and among the Company, NYL Investors LLC and the other parties thereto.~~	~~Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on July 25, 2018 (File No. 0-9286).~~
10.5*	~~Fifth~~Sixth Amendment to Comprehensive Beverage Agreement, dated ~~August 20, 2018,~~September 9, 2019, by and between the Company, The Coca‑Cola Company and Coca‑Cola Refreshments USA, Inc.	Filed herewith.
31.1	Certification of Chief Executive Officer pursuant to Rule 13a‑14(a)/15d‑14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	Filed herewith.
31.2	Certification of Chief Financial Officer pursuant to Rule 13a‑14(a)/15d‑14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	Filed herewith.
32	Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	Furnished (and not filed) herewith pursuant to Item 601(b)(32)(ii) of Regulation S-K.
~~101~~101.INS	~~Financial statements (unaudited) from~~Inline XBRL Instance Document – the ~~quarterly report on Form 10-Q of Coca‑Cola Bottling Co. Consolidated for~~instance document does not appear in the ~~quarter ended September 30, 2018, filed on November 8, 2018, formatted in~~Interactive Data File because its XBRL ~~(Extensible Business Reporting Language): (i)~~tags are embedded within the Consolidated Condensed Statements of Operations; (ii) the Consolidated Condensed Statements of Comprehensive Income; (iii) the Consolidated Condensed Balance Sheets; (iv) the Consolidated Condensed Statements of Changes in Equity; (v) the Consolidated Condensed Statements of Cash Flows and (vi) the Notes to the Consolidated Condensed Financial Statements.Inline XBRL document.	Filed herewith.
101.SCH	Inline XBRL Taxonomy Extension Schema Document.	Filed herewith.
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document.	Filed herewith.
101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document.	Filed herewith.
101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document.	Filed herewith.
101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document.	Filed herewith.
104	Cover Page Interactive Data File – the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.	Filed herewith.

* Indicates a management contract or compensatory plan or arrangement.

** Certain confidential portions of this exhibit have been ~~omitted pursuant to a request for confidential treatment filed~~redacted in accordance with ~~the Securities and Exchange Commission.~~Item 601(b)(10) of Regulation S‑K.

~~SIGNATURES~~SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	COCA‑COLA ~~BOTTLING CO.~~ CONSOLIDATED, INC.
	(REGISTRANT)

Date: November ~~8, 2018~~5, 2019	By:	/s/ ~~David M. Katz~~F. Scott Anthony
		~~David M. Katz~~F. Scott Anthony
		Executive Vice President and Chief Financial Officer
		(Principal Financial Officer of the Registrant)




Date: November ~~8, 2018~~5, 2019	By:	/s/ William J. Billiard
		William J. Billiard
		Senior Vice President and Chief Accounting Officer
		(Principal Accounting Officer of the Registrant)

5749

(in thousands)	January 2017 Transaction		March 2017 Transactions		April 2017 Transactions		October 2017 Acquisitions		Total 2017 System Transformation Transactions Acquisitions
Cash	$	107	$	211	$	103	$	191	$	612
Inventories		5,953		20,952		14,554		14,850		56,309
Prepaid expenses and other current assets		1,155		5,117		4,068		4,573		14,913
Accounts receivable from The Coca-Cola Company		1,042		1,807		2,552		1,447		6,848
Property, plant and equipment		25,708		81,638		52,263		71,589		231,198
Other assets (including deferred taxes)		1,158		3,227		3,960		1,300		9,645
Goodwill		1,544		2,527		16,941		11,442		32,454
Distribution agreements		22,000		46,750		19,500		129,450		217,700
Customer lists		1,500		1,750		1,000		4,950		9,200
Total acquired assets	$	60,167	$	163,979	$	114,941	$	239,792	$	578,879

Current liabilities (acquisition related contingent consideration)	$	1,350	$	2,958	$	1,475	$	1,501	$	7,284
Other current liabilities		324		3,760		2,860		8,311		15,255
Other liabilities (acquisition related contingent consideration)		26,377		49,739		25,616		20,676		122,408
Other liabilities		43		2,953		1,792		102		4,890
Total assumed liabilities	$	28,094	$	59,410	$	31,743	$	30,590	$	149,837

(in thousands)	CCR Exchange Business		Memphis Territory		United Exchange Business		Total October 2017 Acquisitions
Cash	$	91	$	100	$	-	$	191
Inventories		10,667		3,354		829		14,850
Prepaid expenses and other current assets		3,172		1,087		314		4,573
Accounts receivable from The Coca-Cola Company		674		563		210		1,447
Property, plant and equipment		47,484		21,321		2,784		71,589
Other assets (including deferred taxes)		753		547		-		1,300
Goodwill		3,546		5,199		2,697		11,442
Distribution agreements		80,100		35,400		13,950		129,450
Customer lists		3,200		1,200		550		4,950
Total acquired assets	$	149,687	$	68,771	$	21,334	$	239,792

Current liabilities (acquisition related contingent consideration)	$	-	$	1,501	$	-	$	1,501
Other current liabilities		3,497		4,323		491		8,311
Other liabilities (acquisition related contingent consideration)		-		20,676		-		20,676
Other liabilities		15		87		-		102
Total assumed liabilities	$	3,512	$	26,587	$	491	$	30,590

(in thousands)	October 2017 Divestitures
Cash	$	303
Inventories		13,717
Prepaid expenses and other current assets		1,199
Property, plant and equipment		44,380
Other assets (including deferred taxes)		604
Goodwill		13,073
Distribution agreements		65,043
Total divested assets	$	138,319

Other current liabilities	$	5,683
Pension and postretirement benefit obligation		16,855
Total divested liabilities	$	22,538

	Third Quarter 2017				First Three Quarters 2017
(in thousands)	Net Sales		Income from Operations		Net Sales		Income from Operations
Balance as reported	$	1,162,526	$	37,472	$	3,197,519	$	101,077
Pro forma adjustments (unaudited)		1,754		55		231,183		4,262
Balance including pro forma adjustments (unaudited)	$	1,164,280	$	37,527	$	3,428,702	$	105,339

(in thousands)	September 30, 2018
Maximum guaranteed debt	$	23,938
Equity investments⁽¹⁾		8,175
Maximum total exposure, including equity investments	$	32,113

(in thousands)	July 2, 2017			Pre-tax Activity			Tax Effect			October 1, 2017
Net pension activity:
Actuarial loss	$	(71,402	)	$	807		$	(311	)	$	(70,906	)
Prior service costs		(52	)		7			(3	)		(48	)
Net postretirement benefits activity:
Actuarial loss		(23,315	)		648			(250	)		(22,917	)
Prior service costs		2,763			(745	)		287			2,305
Foreign currency translation adjustment		5			11			(4	)		12
Total	$	(92,001	)	$	728		$	(281	)	$	(91,554	)

(in thousands)	January 1, 2017			Pre-tax Activity			Tax Effect			October 1, 2017
Net pension activity:
Actuarial loss	$	(72,393	)	$	2,421		$	(934	)	$	(70,906	)
Prior service costs		(61	)		21			(8	)		(48	)
Net postretirement benefits activity:
Actuarial loss		(24,111	)		1,944			(750	)		(22,917	)
Prior service costs		3,679			(2,237	)		863			2,305
Foreign currency translation adjustment		(11	)		37			(14	)		12
Total	$	(92,897	)	$	2,186		$	(843	)	$	(91,554	)

	First Three Quarters 2018
(in thousands)	Net Pension Activity		Net Postretirement Benefits Activity		Foreign Currency Translation Adjustment			Total
Cost of sales	$	648	$	19	$	-		$	667
Selling, delivery and administrative expenses		2,170		92		(10	)		2,252
Subtotal pre-tax		2,818		111		(10	)		2,919
Income tax expense		696		27		(3	)		720
Total after tax effect	$	2,122	$	84	$	(7	)	$	2,199

	First Three Quarters
(in thousands, except share price)	2018		2017
Total compensation expense	$	4,494	$	6,473
Share price for compensation expense	$	182.28	$	215.75
Share price date for compensation expense	September 28, 2018		September 29, 2017

	Third Quarter				First Three Quarters
(in millions)	2018		2017		2018			2017
Physical case volume		86.7		86.8		254.8			240.5
Less: Acquisition/divestiture related physical case volume		10.6		10.4		48.7			35.1
Organic physical case volume⁽¹⁾		76.1		76.4		206.1			205.4
Increase (decrease) in organic physical case volume	(0.4)%					0.3	%