e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended July 3, 2011
Commission File Number 0-9286
COCA-COLA BOTTLING CO. CONSOLIDATED
(Exact name of registrant as specified in its charter)
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Delaware
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56-0950585 |
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(State or other jurisdiction of incorporation or
organization)
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(I.R.S. Employer Identification No.) |
4100 Coca-Cola Plaza, Charlotte, North Carolina 28211
(Address of principal executive offices) (Zip Code)
(704) 557-4400
(Registrants telephone number, including area code)
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 þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
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 and post such files).
Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act.
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Large accelerated filer o
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Accelerated filer þ
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Non-accelerated filer o
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Smaller reporting company o |
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(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes o No þ
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of
the latest practicable date.
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Class |
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Outstanding at July 29, 2011 |
Common Stock, $1.00 Par Value
Class B Common Stock, $1.00 Par Value
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7,141,447
2,066,522 |
COCA-COLA BOTTLING CO. CONSOLIDATED
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JULY 3, 2011
INDEX
2
PART I FINANCIAL INFORMATION
Item 1. Financial Statements.
Coca-Cola Bottling Co. Consolidated
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
In Thousands (Except Per Share Data)
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Second Quarter |
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First Half |
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2011 |
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2010 |
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2011 |
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2010 |
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Net sales |
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$ |
422,893 |
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$ |
417,361 |
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$ |
782,522 |
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$ |
764,859 |
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Cost of sales |
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257,320 |
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249,353 |
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467,788 |
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450,148 |
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Gross margin |
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165,573 |
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168,008 |
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314,734 |
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314,711 |
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Selling, delivery and administrative expenses |
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137,153 |
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138,190 |
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267,135 |
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267,234 |
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Income from operations |
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28,420 |
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29,818 |
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47,599 |
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47,477 |
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Interest expense, net |
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9,042 |
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8,802 |
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17,811 |
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17,612 |
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Income before income taxes |
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19,378 |
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21,016 |
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29,788 |
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29,865 |
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Income tax expense |
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7,394 |
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7,612 |
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11,335 |
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11,326 |
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Net income |
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11,984 |
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13,404 |
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18,453 |
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18,539 |
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Less: Net income attributable to the
noncontrolling interest |
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883 |
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1,361 |
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1,439 |
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1,836 |
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Net income attributable to Coca-Cola Bottling Co.
Consolidated |
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$ |
11,101 |
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$ |
12,043 |
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$ |
17,014 |
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$ |
16,703 |
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Basic net income per share based on
net income attributable to
Coca-Cola Bottling Co. Consolidated: |
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Common Stock |
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$ |
1.21 |
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$ |
1.31 |
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$ |
1.85 |
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$ |
1.82 |
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Weighted average number of Common Stock
shares outstanding |
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7,141 |
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7,141 |
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7,141 |
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7,141 |
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Class B Common Stock |
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$ |
1.21 |
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$ |
1.31 |
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$ |
1.85 |
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$ |
1.82 |
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Weighted average number of Class B Common
Stock shares outstanding |
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2,067 |
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2,044 |
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2,059 |
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2,036 |
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Diluted net income per share based on
net income attributable to
Coca-Cola Bottling Co. Consolidated: |
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Common Stock |
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$ |
1.20 |
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$ |
1.31 |
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$ |
1.84 |
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$ |
1.81 |
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Weighted average number of Common Stock
shares outstanding assuming dilution |
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9,248 |
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9,225 |
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9,240 |
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9,217 |
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Class B Common Stock |
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$ |
1.20 |
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$ |
1.30 |
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$ |
1.83 |
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$ |
1.80 |
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Weighted average number of Class B Common
Stock shares outstanding assuming dilution |
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2,107 |
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2,084 |
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2,099 |
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2,076 |
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Cash dividends per share: |
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Common Stock |
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$ |
.25 |
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$ |
.25 |
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$ |
.50 |
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$ |
.50 |
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Class B Common Stock |
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$ |
.25 |
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$ |
.25 |
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$ |
.50 |
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$ |
.50 |
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See Accompanying Notes to Consolidated Financial Statements.
3
Coca-Cola Bottling Co. Consolidated
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
In Thousands (Except Share Data)
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July 3, |
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Jan. 2, |
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July 4, |
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2011 |
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2011 |
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2010 |
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ASSETS |
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Current Assets: |
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Cash and cash equivalents |
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$ |
26,169 |
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$ |
45,872 |
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$ |
14,301 |
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Restricted cash |
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3,000 |
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3,500 |
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3,500 |
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Accounts receivable, trade, less allowance for
doubtful accounts of $1,576, $1,300 and $2,051,
respectively |
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126,228 |
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96,787 |
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133,034 |
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Accounts receivable from The Coca-Cola Company |
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26,153 |
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12,081 |
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20,897 |
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Accounts receivable, other |
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9,390 |
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15,829 |
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18,855 |
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Inventories |
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75,157 |
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64,870 |
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72,105 |
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Prepaid expenses and other current assets |
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24,822 |
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25,760 |
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30,583 |
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Total current assets |
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290,919 |
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264,699 |
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293,275 |
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Property, plant and equipment, net |
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319,121 |
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322,143 |
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317,140 |
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Leased property under capital leases, net |
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62,796 |
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46,856 |
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49,202 |
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Other assets |
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52,316 |
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46,332 |
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41,034 |
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Franchise rights |
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520,672 |
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520,672 |
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520,672 |
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Goodwill |
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102,049 |
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102,049 |
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102,049 |
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Other identifiable intangible assets, net |
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4,645 |
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4,871 |
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5,105 |
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Total |
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$ |
1,352,518 |
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$ |
1,307,622 |
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$ |
1,328,477 |
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See Accompanying Notes to Consolidated Financial Statements.
4
Coca-Cola Bottling Co. Consolidated
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
In Thousands (Except Share Data)
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July 3, |
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Jan. 2, |
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July 4, |
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2011 |
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2011 |
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2010 |
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LIABILITIES AND EQUITY |
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Current Liabilities: |
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Current portion of debt |
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$ |
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$ |
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$ |
5,000 |
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Current portion of obligations under capital leases |
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4,174 |
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3,866 |
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3,856 |
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Accounts payable, trade |
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46,546 |
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41,878 |
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46,944 |
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Accounts payable to The Coca-Cola Company |
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48,990 |
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25,058 |
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52,573 |
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Other accrued liabilities |
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65,488 |
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69,471 |
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66,606 |
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Accrued compensation |
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20,955 |
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30,944 |
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18,001 |
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Accrued interest payable |
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5,529 |
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5,523 |
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5,522 |
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Total current liabilities |
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191,682 |
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176,740 |
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198,502 |
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Deferred income taxes |
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141,253 |
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143,962 |
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149,622 |
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Pension and postretirement benefit obligations |
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111,737 |
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114,163 |
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88,465 |
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Other liabilities |
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112,537 |
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109,882 |
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110,004 |
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Obligations under capital leases |
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71,828 |
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55,395 |
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57,361 |
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Long-term debt |
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523,139 |
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523,063 |
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537,988 |
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Total liabilities |
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1,152,176 |
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1,123,205 |
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1,141,942 |
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Commitments and Contingencies (Note 14) |
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Equity: |
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Common Stock, $1.00 par value: |
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Authorized 30,000,000 shares; |
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Issued 10,203,821 shares |
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10,204 |
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10,204 |
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10,204 |
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Class B Common Stock, $1.00 par value: |
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Authorized 10,000,000 shares; |
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Issued 2,694,636, 2,672,316 and 2,672,316 shares,
respectively |
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2,693 |
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2,671 |
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|
2,671 |
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Capital in excess of par value |
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106,140 |
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104,835 |
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|
104,758 |
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Retained earnings |
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|
147,287 |
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|
134,872 |
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|
120,111 |
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Accumulated other comprehensive loss |
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(62,689 |
) |
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(63,433 |
) |
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(44,595 |
) |
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|
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|
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203,635 |
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|
189,149 |
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|
193,149 |
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Less-Treasury stock, at cost: |
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Common 3,062,374 shares |
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60,845 |
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|
60,845 |
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|
60,845 |
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Class B Common 628,114 shares |
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|
409 |
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|
409 |
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|
409 |
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Total equity of Coca-Cola Bottling Co. Consolidated |
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142,381 |
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|
127,895 |
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|
131,895 |
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Noncontrolling interest |
|
|
57,961 |
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|
56,522 |
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|
54,640 |
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|
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|
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|
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Total equity |
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200,342 |
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|
|
184,417 |
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|
|
186,535 |
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Total |
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$ |
1,352,518 |
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$ |
1,307,622 |
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|
$ |
1,328,477 |
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|
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|
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|
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|
See Accompanying Notes to Consolidated Financial Statements.
5
Coca-Cola Bottling Co. Consolidated
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(UNAUDITED)
In Thousands (Except Share Data)
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Capital |
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Accumulated |
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Class B |
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in |
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Other |
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Total |
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Common |
|
|
Common |
|
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Excess of |
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Retained |
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Comprehensive |
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Treasury |
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Equity |
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Noncontrolling |
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Total |
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|
|
Stock |
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Stock |
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Par Value |
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Earnings |
|
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Loss |
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Stock |
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of CCBCC |
|
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Interest |
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|
Equity |
|
|
|
|
Balance on Jan. 3, 2010 |
|
$ |
10,204 |
|
|
$ |
2,649 |
|
|
$ |
103,464 |
|
|
$ |
107,995 |
|
|
$ |
(46,767 |
) |
|
$ |
(61,254 |
) |
|
$ |
116,291 |
|
|
$ |
52,804 |
|
|
$ |
169,095 |
|
Comprehensive income: |
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|
|
|
|
|
|
|
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|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,703 |
|
|
|
|
|
|
|
|
|
|
|
16,703 |
|
|
|
1,836 |
|
|
|
18,539 |
|
Ownership share of
Southeastern OCI |
|
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|
|
|
|
|
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|
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|
|
30 |
|
|
|
|
|
|
|
30 |
|
|
|
|
|
|
|
30 |
|
Foreign currency translation
adjustments, net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8 |
) |
|
|
|
|
|
|
(8 |
) |
|
|
|
|
|
|
(8 |
) |
Pension and postretirement
benefit adjustments,
net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,150 |
|
|
|
|
|
|
|
2,150 |
|
|
|
|
|
|
|
2,150 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive
income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,875 |
|
|
|
1,836 |
|
|
|
20,711 |
|
Cash dividends paid
Common ($.50 per share) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,571 |
) |
|
|
|
|
|
|
|
|
|
|
(3,571 |
) |
|
|
|
|
|
|
(3,571 |
) |
Class B Common
($.50 per share) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,016 |
) |
|
|
|
|
|
|
|
|
|
|
(1,016 |
) |
|
|
|
|
|
|
(1,016 |
) |
Issuance of 22,320 shares of
Class B Common Stock |
|
|
|
|
|
|
22 |
|
|
|
1,294 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,316 |
|
|
|
|
|
|
|
1,316 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance on July 4, 2010 |
|
$ |
10,204 |
|
|
$ |
2,671 |
|
|
$ |
104,758 |
|
|
$ |
120,111 |
|
|
$ |
(44,595 |
) |
|
$ |
(61,254 |
) |
|
$ |
131,895 |
|
|
$ |
54,640 |
|
|
$ |
186,535 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance on Jan. 2, 2011 |
|
$ |
10,204 |
|
|
$ |
2,671 |
|
|
$ |
104,835 |
|
|
$ |
134,872 |
|
|
$ |
(63,433 |
) |
|
$ |
(61,254 |
) |
|
$ |
127,895 |
|
|
$ |
56,522 |
|
|
$ |
184,417 |
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,014 |
|
|
|
|
|
|
|
|
|
|
|
17,014 |
|
|
|
1,439 |
|
|
|
18,453 |
|
Foreign currency translation
adjustments, net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5 |
) |
|
|
|
|
|
|
(5 |
) |
|
|
|
|
|
|
(5 |
) |
Pension and postretirement
benefit adjustments,
net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
749 |
|
|
|
|
|
|
|
749 |
|
|
|
|
|
|
|
749 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive
income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,758 |
|
|
|
1,439 |
|
|
|
19,197 |
|
Cash dividends paid
Common ($.50 per share) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,571 |
) |
|
|
|
|
|
|
|
|
|
|
(3,571 |
) |
|
|
|
|
|
|
(3,571 |
) |
Class B Common
($.50 per share) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,028 |
) |
|
|
|
|
|
|
|
|
|
|
(1,028 |
) |
|
|
|
|
|
|
(1,028 |
) |
Issuance of 22,320 shares of
Class B Common Stock |
|
|
|
|
|
|
22 |
|
|
|
1,305 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,327 |
|
|
|
|
|
|
|
1,327 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance on July 3, 2011 |
|
$ |
10,204 |
|
|
$ |
2,693 |
|
|
$ |
106,140 |
|
|
$ |
147,287 |
|
|
$ |
(62,689 |
) |
|
$ |
(61,254 |
) |
|
$ |
142,381 |
|
|
$ |
57,961 |
|
|
$ |
200,342 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Accompanying Notes to Consolidated Financial Statements.
6
Coca-Cola Bottling Co. Consolidated
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
In Thousands
|
|
|
|
|
|
|
|
|
|
|
First Half |
|
|
|
2011 |
|
|
2010 |
|
Cash Flows from Operating Activities |
|
|
|
|
|
|
|
|
Net income |
|
$ |
18,453 |
|
|
$ |
18,539 |
|
Adjustments to reconcile net income to net cash
provided by operating activities: |
|
|
|
|
|
|
|
|
Depreciation expense |
|
|
30,096 |
|
|
|
29,286 |
|
Amortization of intangibles |
|
|
226 |
|
|
|
245 |
|
Deferred income taxes |
|
|
160 |
|
|
|
2,303 |
|
Loss on sale of property, plant and equipment |
|
|
451 |
|
|
|
992 |
|
Net gain on property, plant and equipment damaged in flood |
|
|
|
|
|
|
(612 |
) |
Amortization of debt costs |
|
|
1,141 |
|
|
|
1,170 |
|
Amortization of deferred gain related to terminated
interest rate agreements |
|
|
(609 |
) |
|
|
(604 |
) |
Stock compensation expense |
|
|
1,347 |
|
|
|
925 |
|
Insurance proceeds received for flood damage |
|
|
|
|
|
|
1,450 |
|
Increase in current assets less current liabilities |
|
|
(24,493 |
) |
|
|
(18,994 |
) |
(Increase) decrease in other noncurrent assets |
|
|
(6,925 |
) |
|
|
4,538 |
|
Decrease in other noncurrent liabilities |
|
|
(1,279 |
) |
|
|
(15,316 |
) |
Other |
|
|
(8 |
) |
|
|
(13 |
) |
|
|
|
|
|
|
|
Total adjustments |
|
|
107 |
|
|
|
5,370 |
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
18,560 |
|
|
|
23,909 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities |
|
|
|
|
|
|
|
|
Additions to property, plant and equipment |
|
|
(32,187 |
) |
|
|
(28,125 |
) |
Proceeds from the sale of property, plant and equipment |
|
|
53 |
|
|
|
1,312 |
|
Decrease in restricted cash |
|
|
500 |
|
|
|
1,000 |
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(31,634 |
) |
|
|
(25,813 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities |
|
|
|
|
|
|
|
|
Proceeds from lines of credit, net |
|
|
|
|
|
|
5,000 |
|
Cash dividends paid |
|
|
(4,599 |
) |
|
|
(4,587 |
) |
Principal payments on capital lease obligations |
|
|
(1,904 |
) |
|
|
(1,890 |
) |
Other |
|
|
(126 |
) |
|
|
(88 |
) |
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
(6,629 |
) |
|
|
(1,565 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash |
|
|
(19,703 |
) |
|
|
(3,469 |
) |
Cash at beginning of period |
|
|
45,872 |
|
|
|
17,770 |
|
|
|
|
|
|
|
|
Cash at end of period |
|
$ |
26,169 |
|
|
$ |
14,301 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Significant non-cash investing and financing activities: |
|
|
|
|
|
|
|
|
Issuance of Class B Common Stock in connection with stock award |
|
$ |
1,327 |
|
|
$ |
1,316 |
|
Capital lease obligations incurred |
|
|
18,644 |
|
|
|
|
|
See Accompanying Notes to Consolidated Financial Statements.
7
Coca-Cola Bottling Co. Consolidated
Notes to Consolidated Financial Statements (Unaudited)
1. Significant Accounting Policies
The consolidated financial statements include the accounts of Coca-Cola Bottling Co. Consolidated
and its majority-owned subsidiaries (the Company). All intercompany accounts and transactions
have been eliminated.
The consolidated financial statements reflect all adjustments which, in the opinion of management,
are necessary for a fair statement of the results for the interim periods presented. All such
adjustments are of a normal, recurring nature.
The consolidated financial statements have been prepared in accordance with United States generally
accepted accounting principles (GAAP) for interim financial reporting and the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all information and
footnotes required by GAAP. The preparation of consolidated financial statements requires
management to make estimates and assumptions that affect the reported amounts of assets and
liabilities 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.
Certain prior year amounts have been reclassified to conform to current classifications.
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 Companys Annual Report on Form 10-K for the year ended
January 2, 2011 filed with the United States Securities and Exchange Commission.
Revision of Prior Period Financial Statements
In connection with the preparation of the consolidated financial statements for the second quarter
of 2011, the Company identified an error in the treatment of accrued additions for property, plant
and equipment in the Consolidated Statements of Cash Flows. This error affected the year-to-date
Consolidated Statements of Cash Flows presented in each of the quarters of 2010, including the
year-end consolidated financial statements for 2010, as well as the first quarter of 2011 and
resulted in an understatement of net cash provided by operating activities and net cash used in
investing activities for each of the impacted periods. In accordance with accounting guidance
presented in ASC 250-10 (SEC Staff Accounting Bulletin No. 99, Materiality), the Company assessed
the materiality of the error and concluded that the error was not material to any of the Companys
previously issued financial statements taken as a whole. The Company will revise previously issued
financial statements to correct the effect of this error. This revision did not impact the
Companys Consolidated Statements of Operations or Consolidated Balance Sheets for any of these
periods.
The following tables present the effect of this correction on the Companys Consolidated
Statements of Cash Flows for all periods affected:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter Ended April 3, 2011 |
|
Year Ended January 2, 2011 |
|
|
(In Thousands) |
|
|
As |
|
|
|
|
|
|
|
|
|
As |
|
|
|
|
|
|
|
|
Previously |
|
|
|
|
|
As |
|
Previously |
|
|
|
|
|
As |
|
|
Reported |
|
Adjustment |
|
Revised |
|
Reported |
|
Adjustment |
|
Revised |
Cash Flows from Operating Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Increase)
decrease in current assets
less current liabilities |
|
$ |
(23,356 |
) |
|
$ |
10,433 |
|
|
$ |
(12,923 |
) |
|
$ |
(9,709 |
) |
|
$ |
11,629 |
|
|
$ |
1,920 |
|
Total adjustments |
|
|
(9,549 |
) |
|
|
10,433 |
|
|
|
884 |
|
|
|
58,585 |
|
|
|
11,629 |
|
|
|
70,214 |
|
Net cash provided by (used in)
operating activities |
|
|
(3,080 |
) |
|
|
10,433 |
|
|
|
7,353 |
|
|
|
98,127 |
|
|
|
11,629 |
|
|
|
109,756 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to property, plant and
equipment |
|
|
(9,069 |
) |
|
|
(10,433 |
) |
|
|
(19,502 |
) |
|
|
(46,169 |
) |
|
|
(11,629 |
) |
|
|
(57,798 |
) |
Net cash used in investing activities |
|
|
(9,047 |
) |
|
|
(10,433 |
) |
|
|
(19,480 |
) |
|
|
(41,988 |
) |
|
|
(11,629 |
) |
|
|
(53,617 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First 9 Months Ended Oct. 3, 2010 |
|
First Half Ended July 4, 2010 |
|
|
(In Thousands) |
|
|
As |
|
|
|
|
|
|
|
|
|
As |
|
|
|
|
|
|
|
|
Previously |
|
|
|
|
|
As |
|
Previously |
|
|
|
|
|
As |
|
|
Reported |
|
Adjustment |
|
Revised |
|
Reported |
|
Adjustment |
|
Revised |
Cash Flows from Operating
Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in current assets
less current liabilities |
|
$ |
(22,043 |
) |
|
$ |
11,629 |
|
|
$ |
(10,414 |
) |
|
$ |
(30,623 |
) |
|
$ |
11,629 |
|
|
$ |
(18,994 |
) |
Total adjustments |
|
|
28,374 |
|
|
|
11,629 |
|
|
|
40,003 |
|
|
|
(6,259 |
) |
|
|
11,629 |
|
|
|
5,370 |
|
Net cash provided by operating
activities |
|
|
64,124 |
|
|
|
11,629 |
|
|
|
75,753 |
|
|
|
12,280 |
|
|
|
11,629 |
|
|
|
23,909 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing
Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to property, plant
and equipment |
|
|
(29,011 |
) |
|
|
(11,629 |
) |
|
|
(40,640 |
) |
|
|
(16,496 |
) |
|
|
(11,629 |
) |
|
|
(28,125 |
) |
Net cash used in investing
activities |
|
|
(26,638 |
) |
|
|
(11,629 |
) |
|
|
(38,267 |
) |
|
|
(14,184 |
) |
|
|
(11,629 |
) |
|
|
(25,813 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter Ended Apr. 4, 2010 |
|
|
(In Thousands) |
|
|
As |
|
|
|
|
|
|
|
|
Previously |
|
|
|
|
|
As |
|
|
Reported |
|
Adjustment |
|
Revised |
Cash Flows from Operating Activities |
|
|
|
|
|
|
|
|
|
|
|
|
Increase in current assets less current
liabilities |
|
$ |
(19,321 |
) |
|
$ |
11,629 |
|
|
$ |
(7,692 |
) |
Total adjustments |
|
|
583 |
|
|
|
11,629 |
|
|
|
12,212 |
|
Net cash provided by operating activities |
|
|
5,718 |
|
|
|
11,629 |
|
|
|
17,347 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
Additions to property, plant and
equipment |
|
|
(7,977 |
) |
|
|
(11,629 |
) |
|
|
(19,606 |
) |
Net cash used in investing activities |
|
|
(6,915 |
) |
|
|
(11,629 |
) |
|
|
(18,544 |
) |
2. Seasonality of Business
Historically, operating results for the second quarter and the first half of the fiscal year have
not been representative of results for the entire fiscal year. Business seasonality results
primarily from higher unit sales of the Companys products in the second and third quarters versus
the first and fourth quarters of the fiscal year. Fixed costs, such as depreciation expense, are
not significantly impacted by business seasonality.
3. Piedmont Coca-Cola Bottling Partnership
On July 2, 1993, the Company and The Coca-Cola Company formed Piedmont Coca-Cola Bottling
Partnership (Piedmont) to distribute and market nonalcoholic beverages primarily in portions of
North Carolina and South Carolina. The Company provides a portion of the nonalcoholic
beverage products to Piedmont at cost and receives a fee for managing the operations of
Piedmont pursuant to a management agreement. These intercompany transactions are eliminated in the
consolidated financial statements.
Noncontrolling interest as of July 3, 2011, January 2, 2011 and July 4, 2010 primarily represents
the portion of Piedmont owned by The Coca-Cola Company. The Coca-Cola Companys interest in
Piedmont was 22.7% for all periods presented.
8
Coca-Cola Bottling Co. Consolidated
Notes to Consolidated Financial Statements (Unaudited)
4. Inventories
Inventories were summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 3, |
|
Jan. 2, |
|
July 4, |
In Thousands |
|
2011 |
|
2011 |
|
2010 |
|
Finished products |
|
$ |
46,398 |
|
|
$ |
36,484 |
|
|
$ |
41,384 |
|
Manufacturing materials |
|
|
10,777 |
|
|
|
10,619 |
|
|
|
10,898 |
|
Plastic shells, plastic pallets and other inventories |
|
|
17,982 |
|
|
|
17,767 |
|
|
|
19,823 |
|
|
Total inventories |
|
$ |
75,157 |
|
|
$ |
64,870 |
|
|
$ |
72,105 |
|
|
5. Property, Plant and Equipment
The principal categories and estimated useful lives of property, plant and equipment were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 3, |
|
Jan. 2, |
|
July 4, |
|
Estimated |
In Thousands |
|
2011 |
|
2011 |
|
2010 |
|
Useful Lives |
|
Land |
|
$ |
12,751 |
|
|
$ |
12,965 |
|
|
$ |
12,671 |
|
|
|
|
|
Buildings |
|
|
120,473 |
|
|
|
119,471 |
|
|
|
113,740 |
|
|
10-50 years |
Machinery and equipment |
|
|
138,057 |
|
|
|
136,821 |
|
|
|
132,525 |
|
|
5-20 years |
Transportation equipment |
|
|
152,139 |
|
|
|
147,960 |
|
|
|
151,175 |
|
|
4-17 years |
Furniture and fixtures |
|
|
39,271 |
|
|
|
37,120 |
|
|
|
35,749 |
|
|
4-10 years |
Cold drink dispensing equipment |
|
|
315,607 |
|
|
|
312,176 |
|
|
|
314,282 |
|
|
6-15 years |
Leasehold and land improvements |
|
|
72,901 |
|
|
|
69,996 |
|
|
|
67,007 |
|
|
5-20 years |
Software for internal use |
|
|
70,212 |
|
|
|
70,891 |
|
|
|
68,057 |
|
|
3-10 years |
Construction in progress |
|
|
5,662 |
|
|
|
8,733 |
|
|
|
3,541 |
|
|
|
|
|
|
Total property, plant and equipment, at cost |
|
|
927,073 |
|
|
|
916,133 |
|
|
|
898,747 |
|
|
|
|
|
Less: Accumulated depreciation
and amortization |
|
|
607,952 |
|
|
|
593,990 |
|
|
|
581,607 |
|
|
|
|
|
|
Property, plant and equipment, net |
|
$ |
319,121 |
|
|
$ |
322,143 |
|
|
$ |
317,140 |
|
|
|
|
|
|
Depreciation and amortization expense was $15.3 million and $14.8 million in the second quarter of
2011 (Q2 2011) and the second quarter of 2010 (Q2 2010), respectively. Depreciation and
amortization expense was $30.1 million and $29.3 million in the first half of 2011 (YTD 2011) and
the first half of 2010 (YTD 2010), respectively. These amounts included amortization expense for
leased property under capital leases.
9
Coca-Cola Bottling Co. Consolidated
Notes to Consolidated Financial Statements (Unaudited)
6. Leased Property Under Capital Leases
Leased property under capital leases was summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 3, |
|
Jan. 2, |
|
July 4, |
|
Estimated |
In Thousands |
|
2011 |
|
2011 |
|
2010 |
|
Useful Lives |
|
Leased property under capital leases |
|
$ |
95,521 |
|
|
$ |
76,877 |
|
|
$ |
76,877 |
|
|
3-20 years |
Less: Accumulated amortization |
|
|
32,725 |
|
|
|
30,021 |
|
|
|
27,675 |
|
|
|
|
|
|
Leased property under capital leases, net |
|
$ |
62,796 |
|
|
$ |
46,856 |
|
|
$ |
49,202 |
|
|
|
|
|
|
As of July 3, 2011, real estate represented $62.5 million of the leased property under capital
leases and $43.0 million of this real estate is leased from related parties as described in Note
19 to the consolidated financial statements.
In the first quarter of 2011, the Company entered into leases for two sales distribution centers.
Each lease has a term of fifteen years with various monthly rental payments. The two leases added
$18.6 million, at inception, to the leased property under capital leases balance.
The Companys outstanding obligations for capital leases were $76.0 million, $59.2 million and
$61.2 million as of July 3, 2011, January 2, 2011 and July 4, 2010, respectively.
7. Franchise Rights and Goodwill
There was no change in the carrying amounts of franchise rights and goodwill in the periods
presented. The Company performs its annual impairment test of franchise rights and goodwill as of
the first day of the fourth quarter. During YTD 2011, the Company did not experience any
triggering events or changes in circumstances that indicated the carrying amounts of the Companys
franchise rights or goodwill exceeded fair values. As such, the Company has not recognized any
impairments of franchise rights or goodwill.
8. Other Identifiable Intangible Assets
Other identifiable intangible assets were summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 3, |
|
Jan. 2, |
|
July 4, |
|
Estimated |
In Thousands |
|
2011 |
|
2011 |
|
2010 |
|
Useful Lives |
|
Other identifiable intangible assets |
|
$ |
8,675 |
|
|
$ |
8,675 |
|
|
$ |
8,665 |
|
|
1-20 years |
Less: Accumulated amortization |
|
|
4,030 |
|
|
|
3,804 |
|
|
|
3,560 |
|
|
|
|
|
|
Other identifiable intangible assets, net |
|
$ |
4,645 |
|
|
$ |
4,871 |
|
|
$ |
5,105 |
|
|
|
|
|
|
Other identifiable intangible assets primarily represent customer relationships and
distribution rights.
10
Coca-Cola Bottling Co. Consolidated
Notes to Consolidated Financial Statements (Unaudited)
9. Other Accrued Liabilities
Other accrued liabilities were summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 3, |
|
Jan. 2, |
|
July 4, |
In Thousands |
|
2011 |
|
2011 |
|
2010 |
|
Accrued marketing costs |
|
$ |
14,069 |
|
|
$ |
15,894 |
|
|
$ |
13,152 |
|
Accrued insurance costs |
|
|
18,465 |
|
|
|
18,005 |
|
|
|
19,052 |
|
Accrued taxes (other than income taxes) |
|
|
2,928 |
|
|
|
2,023 |
|
|
|
2,927 |
|
Accrued income taxes |
|
|
9,922 |
|
|
|
4,839 |
|
|
|
5,766 |
|
Employee benefit plan accruals |
|
|
11,246 |
|
|
|
9,790 |
|
|
|
9,842 |
|
Checks and transfers yet to be presented for
payment from zero balance cash accounts |
|
|
|
|
|
|
8,532 |
|
|
|
9,364 |
|
All other accrued liabilities |
|
|
8,858 |
|
|
|
10,388 |
|
|
|
6,503 |
|
|
Total other accrued liabilities |
|
$ |
65,488 |
|
|
$ |
69,471 |
|
|
$ |
66,606 |
|
|
10. Debt
Debt was summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest |
|
Interest |
|
July 3, |
|
Jan. 2, |
|
July 4, |
In Thousands |
|
Maturity |
|
Rate |
|
Paid |
|
2011 |
|
2011 |
|
2010 |
|
Revolving Credit Facility |
|
|
2012 |
|
|
|
|
|
|
Varies |
|
$ |
|
|
|
$ |
|
|
|
$ |
15,000 |
|
Line of Credit |
|
|
|
|
|
|
|
|
|
Varies |
|
|
|
|
|
|
|
|
|
|
5,000 |
|
Senior Notes |
|
|
2012 |
|
|
|
5.00 |
% |
|
Semi-annually |
|
|
150,000 |
|
|
|
150,000 |
|
|
|
150,000 |
|
Senior Notes |
|
|
2015 |
|
|
|
5.30 |
% |
|
Semi-annually |
|
|
100,000 |
|
|
|
100,000 |
|
|
|
100,000 |
|
Senior Notes |
|
|
2016 |
|
|
|
5.00 |
% |
|
Semi-annually |
|
|
164,757 |
|
|
|
164,757 |
|
|
|
164,757 |
|
Senior Notes |
|
|
2019 |
|
|
|
7.00 |
% |
|
Semi-annually |
|
|
110,000 |
|
|
|
110,000 |
|
|
|
110,000 |
|
Unamortized discount on
Senior Notes |
|
|
2019 |
|
|
|
|
|
|
|
|
|
|
|
(1,618 |
) |
|
|
(1,694 |
) |
|
|
(1,769 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
523,139 |
|
|
|
523,063 |
|
|
|
542,988 |
|
Less: Current portion of debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,000 |
|
|
Long-term debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
523,139 |
|
|
$ |
523,063 |
|
|
$ |
537,988 |
|
|
11
Coca-Cola Bottling Co. Consolidated
Notes to Consolidated Financial Statements (Unaudited)
10. Debt
On March 8, 2007, the Company entered into a $200 million revolving credit facility ($200 million
facility). The $200 million facility matures in March 2012 and includes an option to extend the
term for an additional year at the discretion of the participating banks. The $200 million
facility bears interest at a floating base rate or a floating rate of LIBOR plus an interest rate
spread of .35%, dependent on the length of the term of the interest period. The Company must pay
an annual facility fee of .10% of the lenders aggregate commitments under the facility. Both the
interest rate spread and the facility fee are determined from a commonly-used pricing grid based
on the Companys long-term senior unsecured debt rating. The $200 million facility contains two
financial covenants: a fixed charges coverage ratio and a debt to operating cash flow ratio, each
as defined in the credit agreement. The fixed charges coverage ratio requires the Company to
maintain a consolidated cash flow to fixed charges ratio of 1.5 to 1 or higher. The operating
cash flow ratio requires the Company to maintain a debt to cash flow ratio of 6.0 to 1 or lower.
The Company is currently in compliance with these covenants. These covenants do not currently,
and the Company does not anticipate they will, restrict its liquidity or capital resources. On
July 3, 2011 and January 2, 2011, the Company had no outstanding borrowings on the $200 million
facility. On July 4, 2010, the Company had $15.0 million of outstanding borrowings on the $200
million facility. The Company intends to refinance the revolving credit facility on a long-term
basis in 2011.
On February 10, 2010, the Company entered into an agreement for an uncommitted line of credit.
Under this agreement, the Company may borrow up to a total of $20 million for periods of 7 days,
30 days, 60 days or 90 days at the discretion of the
participating bank. On July 3, 2011 and
January 2, 2011, the Company had no outstanding borrowings under the uncommitted line of credit.
On July 4, 2010, the Company had $5.0 million of outstanding borrowings on the uncommitted line of
credit.
The Company had a weighted average interest rate of 5.9%, 5.8% and 5.7% for its debt and capital
lease obligations as of July 3, 2011, January 2, 2011 and July 4, 2010, respectively. The
Companys overall weighted average interest rate on its debt and capital lease obligations was 6.0%
for YTD 2011 compared to 5.8% for YTD 2010. As of July 3, 2011, none of the Companys debt and
capital lease obligations of $599.1 million were subject to changes in short-term interest rates.
The Companys public debt is not subject to financial covenants but does limit the incurrence of
certain liens and encumbrances as well as the incurrence of indebtedness by the Companys
subsidiaries in excess of certain amounts.
All of the outstanding long-term debt has been issued by the Company with none being issued by any
of the Companys subsidiaries. There are no guarantees of the Companys debt.
12
Coca-Cola Bottling Co. Consolidated
Notes to Consolidated Financial Statements (Unaudited)
11. Derivative Financial Instruments
Interest
The Company periodically uses interest rate hedging products to modify risk from interest rate
fluctuations. The Company has historically altered its fixed/floating rate mix based upon
anticipated cash flows from operations relative to the Companys debt level and the potential
impact of changes in interest rates on the Companys overall financial condition. Sensitivity
analyses are performed to review the impact on the Companys financial position and coverage of
various interest rate movements. The Company does not use derivative financial instruments for
trading purposes nor does it use leveraged financial instruments.
On September 18, 2008, the Company terminated six outstanding interest rate swap agreements with a
notional amount of $225 million receiving $6.2 million in cash proceeds including $1.1 million for
previously accrued interest receivable. After accounting for the previously accrued interest
receivable, the Company began amortizing a gain of $5.1 million over the remaining term of the
underlying debt. As of July 3, 2011, the remaining amount to be amortized was $2.0 million. All
of the Companys interest rate swap agreements were LIBOR-based.
During both YTD 2011 and YTD 2010, the Company amortized deferred gains related to terminated
interest rate swap agreements and forward interest rate agreements by $.6 million, which was
recorded as a reduction to interest expense.
The Company had no interest rate swap agreements outstanding at July 3, 2011, January 2, 2011 and
July 4, 2010.
Commodities
The Company is subject to the risk of loss arising from adverse changes in 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 Companys consolidated balance sheets. These derivative instruments
are not designated as hedging instruments under GAAP and are used as economic hedges to manage
commodity price risk. Currently the Company has derivative instruments to hedge some or all of its
projected diesel fuel, unleaded gasoline and aluminum purchase requirements. These derivative
instruments 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 Companys consolidated 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 is exposed to credit loss in the
event of nonperformance by these counterparties, the Company does not anticipate nonperformance by
these parties. The Company has master agreements with the counterparties to its derivative
financial agreements that provide for net settlement of derivative transactions.
13
Coca-Cola Bottling Co. Consolidated
Notes to Consolidated Financial Statements (Unaudited)
11. Derivative Financial Instruments
The Company used derivative instruments to hedge substantially all of the diesel fuel purchases
for 2010 and is using derivative instruments to hedge all of the Companys projected diesel fuel
and unleaded gasoline purchases for the second, third and fourth quarters of 2011. These
derivative instruments relate to diesel fuel and unleaded gasoline used by the Companys delivery
fleet and other vehicles. The Company used derivative instruments to hedge approximately 75% of
its aluminum purchase requirements in 2010 and is using derivative instruments to hedge
approximately 75% of the Companys projected aluminum purchase requirements for 2011.
The following table summarizes Q2 2011 and Q2 2010 net gains and losses on the Companys fuel and
aluminum derivative financial instruments and the classification, either as cost of sales or
selling, delivery and administrative (S,D&A) expenses, of such net gains and losses in the
consolidated statements of operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter |
In Thousands |
|
Classification of Gain (Loss) |
|
2011 |
|
2010 |
|
Fuel hedges contract premium
and contract settlement |
|
S,D&A expenses |
|
$ |
(105 |
) |
|
$ |
79 |
|
Fuel hedges mark-to-market
adjustment |
|
S,D&A expenses |
|
|
(25 |
) |
|
|
(1,064 |
) |
Aluminum hedges contract
premium and contract settlement |
|
Cost of sales |
|
|
783 |
|
|
|
534 |
|
Aluminum hedges mark-to-market
adjustment |
|
Cost of sales |
|
|
(1,708 |
) |
|
|
(6,749 |
) |
|
Total Net Loss |
|
|
|
$ |
(1,055 |
) |
|
$ |
(7,200 |
) |
|
The following table summarizes YTD 2011 and YTD 2010 net gains and losses on the Companys
fuel and aluminum derivative financial instruments and the classification, either as cost of sales
or S,D&A expenses, of such net gains and losses in the consolidated statements of operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Half |
In Thousands |
|
Classification of Gain (Loss) |
|
2011 |
|
2010 |
|
Fuel hedges contract premium
and contract settlement |
|
S,D&A expenses |
|
$ |
66 |
|
|
$ |
(30 |
) |
Fuel hedges mark-to-market
adjustment |
|
S,D&A expenses |
|
|
(171 |
) |
|
|
(1,356 |
) |
Aluminum hedges contract
premium and contract settlement |
|
Cost of sales |
|
|
1,304 |
|
|
|
511 |
|
Aluminum hedges mark-to-market
adjustment |
|
Cost of sales |
|
|
(2,216 |
) |
|
|
(6,213 |
) |
|
Total Net Loss |
|
|
|
$ |
(1,017 |
) |
|
$ |
(7,088 |
) |
|
14
Coca-Cola Bottling Co. Consolidated
Notes to Consolidated Financial Statements (Unaudited)
11. Derivative Financial Instruments
The following table summarizes the fair values and classification in the consolidated balance
sheets of derivative instruments held by the Company as of July 3, 2011, January 2, 2011 and July
4, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet |
|
July 3, |
|
Jan. 2, |
|
July 4, |
In Thousands |
|
Classification |
|
2011 |
|
2011 |
|
2010 |
|
Fuel hedges at fair market value |
|
Prepaid expenses and other current assets |
|
$ |
|
|
|
$ |
171 |
|
|
$ |
261 |
|
Unamortized cost of fuel
hedging agreements |
|
Prepaid expenses and other current assets |
|
|
526 |
|
|
|
|
|
|
|
473 |
|
Aluminum hedges at fair market
value |
|
Prepaid expenses and other current assets |
|
|
4,450 |
|
|
|
6,666 |
|
|
|
2,936 |
|
Unamortized cost of aluminum
hedging agreements |
|
Prepaid expenses and other current assets |
|
|
1,316 |
|
|
|
2,453 |
|
|
|
1,842 |
|
|
Total |
|
|
|
$ |
6,292 |
|
|
$ |
9,290 |
|
|
$ |
5,512 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aluminum hedges at fair market value |
|
Other assets |
|
$ |
|
|
|
$ |
|
|
|
$ |
1,303 |
|
Unamortized cost of aluminum
hedging agreements |
|
Other assets |
|
|
|
|
|
|
|
|
|
|
1,316 |
|
|
Total |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
2,619 |
|
The following table summarizes the Companys outstanding derivative agreements as of July 3, 2011:
|
|
|
|
|
|
|
|
|
Notional |
|
Latest |
In Millions |
|
Amount |
|
Maturity |
|
Fuel hedging agreements |
|
$ |
13.9 |
|
|
December 2011 |
Aluminum hedging agreements |
|
|
14.7 |
|
|
December 2011 |
12. Fair Value of Financial Instruments
The following methods and assumptions were used by the Company in estimating the fair values of
its financial instruments:
Cash and Cash Equivalents, Restricted Cash, Accounts Receivable and Accounts Payable
The fair values of cash and cash equivalents, restricted cash, accounts receivable and accounts
payable approximate carrying values due to the short maturity of these items.
Public Debt Securities
The fair values of the Companys public debt securities are based on estimated current market
prices.
15
Coca-Cola Bottling Co. Consolidated
Notes to Consolidated Financial Statements (Unaudited)
12. Fair Value of Financial Instruments
Non-Public Variable Rate Debt
The carrying amounts of the Companys variable rate borrowings approximate their fair values.
Deferred Compensation Plan Assets/Liabilities
The fair values of deferred compensation plan assets and liabilities, which are held in mutual
funds, are based upon the quoted market value of the securities held within the mutual funds.
Derivative Financial Instruments
The fair values for the Companys fuel hedging and aluminum hedging agreements are based on
current settlement values. The fair values of the fuel hedging and aluminum hedging agreements at
each balance sheet date represent the estimated amounts the Company would have received or paid
upon termination of these agreements. 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.
The carrying amounts and fair values of the Companys debt, deferred compensation plan assets and
liabilities, and derivative financial instruments were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 3, 2011 |
|
Jan. 2, 2011 |
|
July 4, 2010 |
|
|
Carrying |
|
Fair |
|
Carrying |
|
Fair |
|
Carrying |
|
Fair |
In Thousands |
|
Amount |
|
Value |
|
Amount |
|
Value |
|
Amount |
|
Value |
|
Public debt securities |
|
$ |
(523,139 |
) |
|
$ |
(569,324 |
) |
|
$ |
(523,063 |
) |
|
$ |
(564,671 |
) |
|
$ |
(522,988 |
) |
|
$ |
(576,897 |
) |
Non-public variable rate debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(20,000 |
) |
|
|
(20,000 |
) |
Deferred compensation plan
assets |
|
|
11,133 |
|
|
|
11,133 |
|
|
|
9,780 |
|
|
|
9,780 |
|
|
|
8,335 |
|
|
|
8,335 |
|
Deferred compensation plan
liabilities |
|
|
(11,133 |
) |
|
|
(11,133 |
) |
|
|
(9,780 |
) |
|
|
(9,780 |
) |
|
|
(8,335 |
) |
|
|
(8,335 |
) |
Fuel hedging agreements |
|
|
|
|
|
|
|
|
|
|
171 |
|
|
|
171 |
|
|
|
261 |
|
|
|
261 |
|
Aluminum hedging agreements |
|
|
4,450 |
|
|
|
4,450 |
|
|
|
6,666 |
|
|
|
6,666 |
|
|
|
4,239 |
|
|
|
4,239 |
|
The fair values of the fuel hedging and aluminum hedging agreements at July 3, 2011, January 2,
2011 and July 4, 2010 represented the estimated amount the Company would have received upon
termination of these agreements.
GAAP requires that assets and liabilities carried at fair value be classified and disclosed in one
of the following categories:
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 3: Unobservable inputs that are not corroborated by market data.
16
Coca-Cola Bottling Co. Consolidated
Notes to Consolidated Financial Statements (Unaudited)
12. Fair Value of Financial Instruments
The following table summarizes, by assets and liabilities, the valuation of the Companys deferred
compensation plan, fuel hedging agreements and aluminum hedging agreements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 3, 2011 |
|
Jan. 2, 2011 |
|
July 4, 2010 |
In Thousands |
|
Level 1 |
|
Level 2 |
|
Level 1 |
|
Level 2 |
|
Level 1 |
|
Level 2 |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation plan assets |
|
$ |
11,133 |
|
|
|
|
|
|
$ |
9,780 |
|
|
|
|
|
|
$ |
8,335 |
|
|
|
|
|
Fuel hedging agreements |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
171 |
|
|
|
|
|
|
$ |
261 |
|
Aluminum hedging agreements |
|
|
|
|
|
|
4,450 |
|
|
|
|
|
|
|
6,666 |
|
|
|
|
|
|
|
4,239 |
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation plan liabilities |
|
|
11,133 |
|
|
|
|
|
|
|
9,780 |
|
|
|
|
|
|
|
8,335 |
|
|
|
|
|
The Company maintains a non-qualified deferred compensation plan for certain executives and
other highly compensated employees. The investment assets are held in mutual funds. The fair
value of the mutual funds is based on the quoted market value of the securities held within the
funds (Level 1). The related deferred compensation liability represents the fair value of the
investment assets.
The Companys fuel hedging agreements are based upon NYMEX rates that are observable and quoted
periodically over the full term of the agreement and are considered Level 2 items.
The Companys aluminum hedging agreements are based upon LME rates that are observable and quoted
periodically over the full term of the agreement and are considered Level 2 items.
The Company does not have Level 3 assets or liabilities. Also, there were no transfers of assets
or liabilities between Level 1 and Level 2 for any of the periods presented.
13. Other Liabilities
Other liabilities were summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 3, |
|
Jan. 2, |
|
July 4, |
In Thousands |
|
2011 |
|
2011 |
|
2010 |
|
Accruals for executive benefit plans |
|
$ |
93,423 |
|
|
$ |
90,906 |
|
|
$ |
89,042 |
|
Other |
|
|
19,114 |
|
|
|
18,976 |
|
|
|
20,962 |
|
|
Total other liabilities |
|
$ |
112,537 |
|
|
$ |
109,882 |
|
|
$ |
110,004 |
|
|
17
Coca-Cola Bottling Co. Consolidated
Notes to Consolidated Financial Statements (Unaudited)
14. Commitments and Contingencies
The Company is a member of South Atlantic Canners, Inc. (SAC), a manufacturing cooperative from
which it is obligated to purchase 17.5 million cases of finished product on an annual basis
through May 2014. The Company is also a member of Southeastern Container (Southeastern), a
plastic bottle manufacturing cooperative from which it is obligated to purchase at least 80% of
its requirements of plastic bottles for certain designated territories. See Note 19 to the
consolidated financial statements for additional information concerning SAC and Southeastern.
The Company guarantees a portion of SACs and Southeasterns debt and lease obligations. The
amounts guaranteed were $41.1 million, $29.0 million and $40.5 million as of July 3, 2011, January
2, 2011 and July 4, 2010, respectively. The Company has not recorded any liability associated with
these guarantees and holds no assets as collateral against these guarantees. The guarantees
relate to the debt and lease obligations of SAC and Southeastern, which resulted primarily from
the purchase of production equipment and facilities. These guarantees expire at various dates
through 2021. The members of both cooperatives consist solely of Coca-Cola bottlers. The Company
does not anticipate either of these cooperatives will fail to fulfill its commitments. The
Company further believes each of these cooperatives has sufficient assets, including production
equipment, facilities and working capital, and the ability to adjust selling prices of their
products to adequately mitigate the risk of material loss from the Companys guarantees. In the
event either of these cooperatives fails to fulfill its commitments under the related debt and
lease obligations, the Company would be responsible for payments to the lenders up to the level of
the guarantees. If these cooperatives had borrowed up to their borrowing capacity, the Companys
maximum exposure under these guarantees on July 3, 2011 would have been $25.2 million for SAC and
$25.2 million for Southeastern and the Companys maximum total exposure, including its equity
investment, would have been $32.0 million for SAC and $43.1 million for Southeastern.
The Company has been purchasing plastic bottles from Southeastern and finished products from SAC
for more than ten years and has never had to pay against these guarantees.
The Company has an equity ownership in each of the entities in addition to the guarantees of
certain indebtedness and records its investment in each under the equity method. As of July 3,
2011, SAC had total assets of approximately $47.7 million and total debt of approximately $24.4
million. SAC had total revenues for YTD 2011 of approximately $90.9 million. As of July 3, 2011,
Southeastern had total assets of approximately $373.2 million and total debt of approximately
$198.4 million. Southeastern had total revenue for YTD 2011 of approximately $345.3 million.
The Company has standby letters of credit, primarily related to its property and casualty
insurance programs. On July 3, 2011, these letters of credit totaled $21.0 million. The Company
was required to maintain $4.5 million of restricted cash for letters of credit beginning in the
second quarter of 2009 which was reduced to $3.5 million in Q2 2010 and to $3.0 million in Q2
2011. As of July 3, 2011, the Company maintained $3.0 million of restricted cash for these
letters of credit.
The Company participates in long-term marketing contractual arrangements with certain prestige
properties, athletic venues and other locations. The future payments related to these contractual
arrangements as of July 3, 2011 amounted to $22.1 million and expire at various dates through
2020.
18
Coca-Cola Bottling Co. Consolidated
Notes to Consolidated Financial Statements (Unaudited)
14. Commitments and Contingencies
During May 2010, Nashville, Tennessee experienced a severe rain storm which caused extensive flood
damage in the area. The Company has a production/sales distribution facility located in the
flooded area. Due to damage incurred during this flood, the Company recorded a loss of
approximately $.2 million on uninsured cold drink equipment. This loss was offset by gains of
approximately $.8 million for the excess of insurance proceeds received as compared to the net book
value of production equipment damaged as a result of the flood. In Q2 2010, the Company recorded a
receivable of $6.2 million for insured losses of which
$1.5 million had already been paid by the
end of Q2 2010. All receivables were recorded for insured losses during fiscal year 2010 and were
collected in 2010.
The Company is involved in various claims and legal proceedings which have arisen in the ordinary
course of its business. Although it is difficult to predict the ultimate outcome of these claims
and legal proceedings, management believes 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.
The Company is subject to audit by tax authorities in jurisdictions where it conducts business.
These audits may result in assessments that are subsequently resolved with the tax authorities or
potentially through the courts. Management believes the Company has adequately provided for any
assessments that are likely to result from these audits; however, final assessments, if any, could
be different than the amounts recorded in the consolidated financial statements.
15. Income Taxes
The Companys effective tax rate, as calculated by dividing income tax expense by income before
income taxes, for YTD 2011 and YTD 2010 was 38.1% and 37.9%, respectively. The Companys effective
tax rate, as calculated by dividing income tax expense by the difference of income before income
taxes minus net income attributable to the noncontrolling interest, for YTD 2011 and YTD 2010 was
40.0% and 40.4%, respectively.
The following table provides a reconciliation of the income tax expense at the statutory federal
rate to actual income tax expense.
|
|
|
|
|
|
|
|
|
|
|
First Half |
In Thousands |
|
2011 |
|
2010 |
|
Statutory expense |
|
$ |
9,922 |
|
|
$ |
9,810 |
|
State income taxes, net of federal effect |
|
|
1,236 |
|
|
|
1,186 |
|
Manufacturing deduction benefit |
|
|
(867 |
) |
|
|
(1,200 |
) |
Meals and entertainment |
|
|
442 |
|
|
|
435 |
|
Adjustment for uncertain tax positions |
|
|
363 |
|
|
|
365 |
|
Tax law change related to Medicare Part D subsidy |
|
|
|
|
|
|
464 |
|
Other, net |
|
|
239 |
|
|
|
266 |
|
|
Income tax expense |
|
$ |
11,335 |
|
|
$ |
11,326 |
|
|
19
Coca-Cola Bottling Co. Consolidated
Notes to Consolidated Financial Statements (Unaudited)
15. Income Taxes
As of July 3, 2011, the Company had $5.2 million of uncertain tax positions, including accrued
interest, of which $2.8 million would affect the Companys effective tax rate if recognized. The
Company had $4.8 million of uncertain tax positions as of January 2, 2011, including accrued
interest, of which $2.5 million would affect the Companys effective tax rate if recognized. The
Company had $5.9 million of uncertain tax positions as of July 4, 2010, including accrued interest,
of which $3.8 million would affect the Companys effective tax rate if recognized. While it is
expected that the amount of uncertain tax positions may change in the next 12 months, the Company
does not expect any change to have a significant impact on the consolidated financial statements.
The Company recognizes potential interest and penalties related to uncertain tax positions in
income tax expense. As of July 3, 2011, the Company had approximately $.5 million of accrued
interest related to uncertain tax positions. As of January 2, 2011, the Company had approximately
$.4 million of accrued interest related to uncertain tax positions. As of July 4, 2010, the
Company had approximately $1.0 million of accrued interest related to uncertain tax positions.
Income tax expense included interest expense of approximately $.1 million in both YTD 2011 and YTD
2010.
The Patient Protection and Affordable Care Act enacted on March 23, 2010 and the Health Care and
Education Reconciliation Act of 2010 enacted on March 30, 2010 include provisions that will reduce
the tax benefits available to employers that receive Medicare Part D subsidies. As a result,
during the first quarter of 2010, the Company recorded tax expense totaling $.5 million related to
changes made to the tax deductibility of Medicare Part D subsidies.
Various tax years from 1992 remain open to examination by taxing jurisdictions to which the
Company is subject due to loss carryforwards.
The Companys income tax assets and liabilities are subject to adjustment in future periods based
on the Companys ongoing evaluations of such assets and liabilities and new information that
becomes available to the Company.
20
Coca-Cola Bottling Co. Consolidated
Notes to Consolidated Financial Statements (Unaudited)
16. Accumulated Other Comprehensive Loss
Accumulated other comprehensive loss is comprised of adjustments relative to the Companys pension
and postretirement medical benefit plans, foreign currency translation adjustments required for a
subsidiary of the Company that performs data analysis and provides consulting services outside the
United States and the Companys share of Southeasterns other comprehensive loss.
A summary of accumulated other comprehensive loss for Q2 2011 and Q2 2010 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 3, |
|
Pre-tax |
|
Tax |
|
July 3, |
In Thousands |
|
2011 |
|
Activity |
|
Effect |
|
2011 |
|
Net pension activity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial loss |
|
$ |
(51,508 |
) |
|
$ |
518 |
|
|
$ |
(204 |
) |
|
$ |
(51,194 |
) |
Prior service costs |
|
|
(41 |
) |
|
|
4 |
|
|
|
(1 |
) |
|
|
(38 |
) |
Net postretirement benefits activity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial loss |
|
|
(17,554 |
) |
|
|
530 |
|
|
|
(209 |
) |
|
|
(17,233 |
) |
Prior service costs |
|
|
6,032 |
|
|
|
(429 |
) |
|
|
169 |
|
|
|
5,772 |
|
Transition asset |
|
|
8 |
|
|
|
(5 |
) |
|
|
2 |
|
|
|
5 |
|
Foreign currency translation adjustment |
|
|
|
|
|
|
(2 |
) |
|
|
1 |
|
|
|
(1 |
) |
|
Total |
|
$ |
(63,063 |
) |
|
$ |
616 |
|
|
$ |
(242 |
) |
|
$ |
(62,689 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 4, |
|
Pre-tax |
|
Tax |
|
July 4, |
In Thousands |
|
2010 |
|
Activity |
|
Effect |
|
2010 |
|
Net pension activity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial loss |
|
$ |
(39,718 |
) |
|
$ |
1,495 |
|
|
$ |
(586 |
) |
|
$ |
(38,809 |
) |
Prior service costs |
|
|
(34 |
) |
|
|
4 |
|
|
|
(2 |
) |
|
|
(32 |
) |
Net postretirement benefits activity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial loss |
|
|
(12,799 |
) |
|
|
341 |
|
|
|
(134 |
) |
|
|
(12,592 |
) |
Prior service costs |
|
|
7,105 |
|
|
|
(446 |
) |
|
|
175 |
|
|
|
6,834 |
|
Transition asset |
|
|
22 |
|
|
|
(7 |
) |
|
|
3 |
|
|
|
18 |
|
Ownership share of Southeastern OCI |
|
|
(34 |
) |
|
|
25 |
|
|
|
(10 |
) |
|
|
(19 |
) |
Foreign currency translation adjustment |
|
|
9 |
|
|
|
(6 |
) |
|
|
2 |
|
|
|
5 |
|
|
Total |
|
$ |
(45,449 |
) |
|
$ |
1,406 |
|
|
$ |
(552 |
) |
|
$ |
(44,595 |
) |
|
21
Coca-Cola Bottling Co. Consolidated
Notes to Consolidated Financial Statements (Unaudited)
16. Accumulated Other Comprehensive Loss
A summary of accumulated other comprehensive loss for YTD 2011 and YTD 2010 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jan. 2, |
|
Pre-tax |
|
Tax |
|
July 3, |
In Thousands |
|
2011 |
|
Activity |
|
Effect |
|
2011 |
|
Net pension activity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial loss |
|
$ |
(51,822 |
) |
|
$ |
1,036 |
|
|
$ |
(408 |
) |
|
$ |
(51,194 |
) |
Prior service costs |
|
|
(43 |
) |
|
|
8 |
|
|
|
(3 |
) |
|
|
(38 |
) |
Net postretirement benefits activity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial loss |
|
|
(17,875 |
) |
|
|
1,060 |
|
|
|
(418 |
) |
|
|
(17,233 |
) |
Prior service costs |
|
|
6,292 |
|
|
|
(858 |
) |
|
|
338 |
|
|
|
5,772 |
|
Transition asset |
|
|
11 |
|
|
|
(10 |
) |
|
|
4 |
|
|
|
5 |
|
Foreign currency translation adjustment |
|
|
4 |
|
|
|
(8 |
) |
|
|
3 |
|
|
|
(1 |
) |
|
Total |
|
$ |
(63,433 |
) |
|
$ |
1,228 |
|
|
$ |
(484 |
) |
|
$ |
(62,689 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jan. 3, |
|
Pre-tax |
|
Tax |
|
July 4, |
In Thousands |
|
2010 |
|
Activity |
|
Effect |
|
2010 |
|
Net pension activity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial loss |
|
$ |
(40,626 |
) |
|
$ |
2,990 |
|
|
$ |
(1,173 |
) |
|
$ |
(38,809 |
) |
Prior service costs |
|
|
(37 |
) |
|
|
8 |
|
|
|
(3 |
) |
|
|
(32 |
) |
Net postretirement benefits activity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial loss |
|
|
(13,470 |
) |
|
|
682 |
|
|
|
196 |
|
|
|
(12,592 |
) |
Prior service costs |
|
|
7,376 |
|
|
|
(892 |
) |
|
|
350 |
|
|
|
6,834 |
|
Transition asset |
|
|
26 |
|
|
|
(13 |
) |
|
|
5 |
|
|
|
18 |
|
Ownership share of Southeastern OCI |
|
|
(49 |
) |
|
|
49 |
|
|
|
(19 |
) |
|
|
(19 |
) |
Foreign currency translation adjustment |
|
|
13 |
|
|
|
(13 |
) |
|
|
5 |
|
|
|
5 |
|
|
Total |
|
$ |
(46,767 |
) |
|
$ |
2,811 |
|
|
$ |
(639 |
) |
|
$ |
(44,595 |
) |
|
17. Capital Transactions
The Company has two classes of common stock outstanding, Common Stock and Class B Common Stock.
The Common Stock is traded on the NASDAQ Global Select Marketsm under the symbol COKE.
There is no established public trading market for the Class B Common Stock. Shares of the Class B
Common Stock are convertible on a share-for-share basis into shares of Common Stock at any time at
the option of the holders of Class B Common Stock.
No cash dividend or dividend of property or stock other than stock of the Company, as specifically
described in the Companys certificate of incorporation, may be declared and paid on the Class B
Common Stock unless an equal or greater dividend is declared and paid on the Common Stock. During
YTD 2011 and YTD 2010, dividends of $.50 per share were declared and paid on both the Common Stock
and Class B Common Stock.
22
Coca-Cola Bottling Co. Consolidated
Notes to Consolidated Financial Statements (Unaudited)
17. Capital Transactions
Each share of Common Stock is entitled to one vote per share and each share of Class B Common
Stock is entitled to 20 votes per share at all meetings of stockholders. Except as otherwise
required by law, holders of the Common Stock and Class B Common Stock vote together as a single
class on all matters brought before the Companys stockholders. In the event of liquidation,
there is no preference between the two classes of common stock.
On April 29, 2008, the stockholders of the Company approved a Performance Unit Award Agreement for
J. Frank Harrison, III, the Companys Chairman of the Board of Directors and Chief Executive
Officer, consisting of 400,000 performance units (Units). Each Unit represents the right to
receive one share of the Companys Class B Common Stock, subject to certain terms and conditions.
The Units vest in annual increments over a ten-year period starting in fiscal year 2009. The
number of Units that vest each year equals the product of 40,000 multiplied by the overall goal
achievement factor (not to exceed 100%) under the Companys Annual Bonus Plan.
Each annual 40,000 Unit tranche has an independent performance requirement as it is not
established until the Companys Annual Bonus Plan targets are approved each year by the Companys
Board of Directors. As a result, each 40,000 Unit tranche is considered to have its own service
inception date, grant-date and requisite service period. The Companys Annual Bonus Plan targets,
which establish the performance requirements for the Performance Unit Award Agreement, are
approved by the Compensation Committee of the Board of Directors in the first quarter of each
year. The Performance Unit Award Agreement does not entitle Mr. Harrison, III to participate in
dividends or voting rights until each installment has vested and the shares are issued. Mr.
Harrison, III may satisfy tax withholding requirements in whole or in part by requiring the
Company to settle in cash such number of Units otherwise payable in Class B Common Stock to meet
the maximum statutory tax withholding requirements.
On March 9, 2010, the Compensation Committee determined that 40,000 shares of the Companys Class B
Common Stock, should be issued pursuant to the Performance Unit Award Agreement to J. Frank
Harrison, III, in connection with his services in 2009 as Chairman of the Board of Directors and
Chief Executive Officer of the Company. As permitted under the terms of the Performance Unit Award
Agreement, 17,680 of such shares were settled in cash to satisfy tax withholding obligations in
connection with the vesting of the performance units.
On March 8, 2011, the Compensation Committee determined that 40,000 shares of the Companys Class
B Common Stock, should be issued pursuant to the Performance Unit Award Agreement to J. Frank
Harrison, III, in connection with his services in 2010 as Chairman of the Board of Directors and
Chief Executive Officer of the Company. As permitted under the terms of the Performance Unit
Award Agreement, 17,680 of such shares were settled in cash to satisfy tax withholding obligations
in connection with the vesting of the performance units.
Compensation expense for the Performance Unit Award Agreement recognized in YTD 2011 was $1.3
million, which was based upon a share price of $67.33 on July 1, 2011. Compensation expense
recognized in YTD 2010 was $.9 million, which was based upon a share price of $46.24 on July 2,
2010.
The increase in the total number of shares outstanding in YTD 2011 was due to the issuance of the
22,320 shares of Class B Common Stock related to the Performance Unit Award Agreement. The
increase in the total number
23
Coca-Cola Bottling Co. Consolidated
Notes to Consolidated Financial Statements (Unaudited)
17. Capital Transactions
of shares outstanding in YTD 2010 was due to the issuance of 22,320 shares of Class B Common Stock
related to the Performance Unit Award Agreement.
18. Benefit Plans
Pension Plans
Retirement benefits under the two Company-sponsored pension plans are based on the employees
length of service, average compensation over the five consecutive years that give the highest
average compensation and average Social Security taxable wage base during the 35-year period
before reaching Social Security retirement age. Contributions to the plans are based on the
projected unit credit actuarial funding method and are limited to the amounts currently deductible
for income tax purposes. On February 22, 2006, the Board of Directors of the Company approved an
amendment to the principal Company-sponsored pension plan to cease further benefit accruals under
the plan effective June 30, 2006.
The components of net periodic pension cost were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter |
|
First Half |
In Thousands |
|
2011 |
|
2010 |
|
2011 |
|
2010 |
|
Service cost |
|
$ |
25 |
|
|
$ |
19 |
|
|
$ |
50 |
|
|
$ |
38 |
|
Interest cost |
|
|
3,085 |
|
|
|
2,857 |
|
|
|
6,170 |
|
|
|
5,714 |
|
Expected return on plan assets |
|
|
(2,922 |
) |
|
|
(2,868 |
) |
|
|
(5,844 |
) |
|
|
(5,736 |
) |
Amortization of prior service cost |
|
|
4 |
|
|
|
4 |
|
|
|
8 |
|
|
|
8 |
|
Recognized net actuarial loss |
|
|
518 |
|
|
|
1,495 |
|
|
|
1,036 |
|
|
|
2,990 |
|
|
Net periodic pension cost |
|
$ |
710 |
|
|
$ |
1,507 |
|
|
$ |
1,420 |
|
|
$ |
3,014 |
|
|
The Company contributed $2.5 million to its Company-sponsored pension plans during YTD 2011.
The Company has made additional payments of $1.7 million subsequent to the end of Q2 2011.
24
Coca-Cola Bottling Co. Consolidated
Notes to Consolidated Financial Statements (Unaudited)
18. Benefit Plans
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 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter |
|
First Half |
In Thousands |
|
2011 |
|
2010 |
|
2011 |
|
2010 |
|
Service cost |
|
$ |
242 |
|
|
$ |
195 |
|
|
$ |
484 |
|
|
$ |
390 |
|
Interest cost |
|
|
708 |
|
|
|
626 |
|
|
|
1,416 |
|
|
|
1,252 |
|
Amortization of unrecognized transitional assets |
|
|
(5 |
) |
|
|
(6 |
) |
|
|
(10 |
) |
|
|
(12 |
) |
Recognized net actuarial loss |
|
|
530 |
|
|
|
341 |
|
|
|
1,060 |
|
|
|
682 |
|
Amortization of prior service cost |
|
|
(429 |
) |
|
|
(446 |
) |
|
|
(858 |
) |
|
|
(892 |
) |
|
Net periodic postretirement benefit cost |
|
$ |
1,046 |
|
|
$ |
710 |
|
|
$ |
2,092 |
|
|
$ |
1,420 |
|
|
401(k) Savings Plan
The Company provides a 401(k) Savings Plan for substantially all of its employees who are not part
of collective bargaining agreements. The Company matched the first 3% of its employees
contributions for 2010 and 2011. The Company maintains the option to increase the matching
contributions by an additional 2%, for a total of 5%, for the Companys employees based on the
financial results. Based on the financial results of the first quarter of 2010, the Company
decided to increase the matching contributions an additional 2% for that quarter, which was
approved and paid in Q2 2010. Based on the financial results of Q2 2010, the Company decided to
increase the matching contributions an additional 2% for that quarter, which was approved and paid
in the third quarter of 2010. The 2% matching contributions have been accrued during YTD 2011.
The total cost, including the estimate for the additional 2%
matching contributions, for this benefit in YTD 2011 and YTD 2010 was $4.3 million and $4.5
million, respectively.
Multi-Employer Benefits
The Company entered into a new agreement in the third quarter of 2008 after one of its collective
bargaining contracts expired in July 2008. The new agreement allowed the Company to freeze its
liability to Central States Southeast and Southwest Areas Pension Plan (Central States), a
multi-employer defined benefit pension fund, while preserving the pension benefits previously
earned by the employees. As a result of freezing the Companys liability to Central States, the
Company recorded a charge of $13.6 million in the second half of 2008. The Company paid $3.0
million in the fourth quarter of 2008 to the Southern States Savings and Retirement Plan (Southern
States) under the agreement to freeze the Central States liability. The remaining $10.6 million
was the present value amount, using a discount rate of 7% that will be paid to Central States over
the next 20 years and was recorded in other liabilities. Including the $3.0 million paid to
Southern States in 2008, the Company has paid
25
Coca-Cola Bottling Co. Consolidated
Notes to Consolidated Financial Statements (Unaudited)
18. Benefit Plans
approximately $5.5 million from the fourth quarter of 2008 through Q2 2011 and will pay
approximately $1 million annually over the next 17 1/4 years.
19. Related Party Transactions
The Companys business consists primarily of the production, marketing and distribution of
nonalcoholic beverages of The Coca-Cola Company, which is the sole owner of the secret formulas
under which the primary components (either concentrate or syrup) of its beverage products are
manufactured. As of July 3, 2011, The Coca-Cola Company had a 34.8% interest in the Companys
total outstanding Common Stock, representing 5.1% of the total voting power of the Companys Common
Stock and Class B Common Stock voting together as a single class. The Coca-Cola Company does not
own any shares of the Companys Class B Common Stock.
The following table summarizes the significant transactions between the Company and The Coca-Cola
Company:
|
|
|
|
|
|
|
|
|
|
|
First Half |
|
In Millions |
|
2011 |
|
|
2010 |
|
|
Payments by the Company for concentrate, syrup,
sweetener and other purchases |
|
$ |
201.8 |
|
|
$ |
198.9 |
|
Marketing funding support payments to the Company |
|
|
(23.0 |
) |
|
|
(22.1 |
) |
|
|
|
|
|
|
|
Payments by the Company net of marketing funding support |
|
$ |
178.8 |
|
|
$ |
176.8 |
|
|
|
|
|
|
|
|
|
|
Payments by the Company for customer marketing programs |
|
$ |
25.5 |
|
|
$ |
26.2 |
|
Payments by the Company for cold drink equipment parts |
|
|
4.4 |
|
|
|
4.1 |
|
Fountain delivery and equipment repair fees paid to the Company |
|
|
5.6 |
|
|
|
4.9 |
|
Presence marketing funding support provided by
The Coca-Cola Company on the Companys behalf |
|
|
2.0 |
|
|
|
2.2 |
|
Payments to the Company to facilitate the distribution of
certain brands and
packages to other Coca-Cola bottlers |
|
|
1.0 |
|
|
|
1.5 |
|
|
The Company has a production arrangement with Coca-Cola Refreshments USA Inc. to buy and sell
finished products at cost. The Coca-Cola Company acquired Coca-Cola Enterprises Inc. (CCE) on
October 2, 2010. In connection with the transaction, CCE changed its name to Coca-Cola
Refreshments USA Inc. (CCR), and transferred its beverage operations outside of North America to
an independent third party. As a result of the transaction, the North American operations of CCE
are now included in CCR. References to CCR, refer to CCR and CCE as it existed prior to the
acquisition by The Coca-Cola Company. Sales to CCR under this arrangement were $28.8 million and
$24.4 million in YTD 2011 and YTD 2010, respectively. Purchases from CCR under this arrangement
were $11.4 million and $13.6 million in YTD 2011 and YTD 2010, respectively. In addition, CCR
began distributing one of the Companys own brands (Tum-E Yummies) in the first quarter of 2010.
Total sales to CCR for this brand were $8.1 million and $7.9 million in YTD 2011 and YTD 2010,
respectively.
26
Coca-Cola Bottling Co. Consolidated
Notes to Consolidated Financial Statements (Unaudited)
19. Related Party Transactions
Along with all other Coca-Cola bottlers in the United States, the Company is a member in Coca-Cola
Bottlers Sales and Services Company, LLC (CCBSS), which was formed in 2003 for the
purposes 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 Companys raw materials (excluding concentrate). The Company
pays an administrative fee to CCBSS for its services. Administrative fees to CCBSS for its
services were $.2 million and $.4 million in YTD 2011 and YTD 2010, respectively. Amounts due from
CCBSS for rebates on raw materials were $4.6 million, $3.6 million and $4.9 million as of July 3,
2011, January 2, 2011 and July 4, 2010, respectively. CCR is also a member of CCBSS.
The Company is a member of SAC, a manufacturing cooperative. SAC sells finished products to the
Company and Piedmont at cost. Purchases from SAC by the Company and Piedmont for finished products
were $68.7 million and $67.7 million in YTD 2011 and YTD 2010, respectively. The Company performs
management services for SAC pursuant to a management agreement. Management fees earned from SAC
were $.8 million in both YTD 2011 and YTD 2010. The Company has also guaranteed a portion of debt
for SAC. Such guarantee amounted to $24.5 million as of July 3, 2011. The Company has not
recorded any liability associated with this guarantee and holds no assets as collateral against
this guarantee. The Companys equity investment in SAC was $6.8 million, $5.6 million and $5.6
million as of July 3, 2011, January 2, 2011 and July 4, 2010, respectively.
The Company is a shareholder in two entities from which it purchases substantially all its
requirements for plastic bottles. Net purchases from these entities were $41.2 million in YTD 2011
and $36.0 million in YTD 2010. In connection with its participation in Southeastern, the Company
has guaranteed a portion of the entitys debt. Such guarantee amounted to $16.6 million as of July
3, 2011. The Company has not recorded any liability associated with this guarantee and holds no
assets as collateral against this guarantee. The Companys equity investment in one of these
entities, Southeastern, was $17.9 million, $15.7 million and $15.7 million as of July 3, 2011,
January 2, 2011 and July 4, 2010, respectively.
The Company monitors its investments in cooperatives and would be required to write down its
investment if an impairment is identified and the Company determined it to be other than temporary.
No impairment of the Companys investments in cooperatives has been identified as of July 3, 2011
nor was there any impairment in 2010.
The Company leases from Harrison Limited Partnership One (HLP) the Snyder Production Center
(SPC) and an adjacent sales facility, which are located in Charlotte, North Carolina. HLP is
directly and indirectly owned by trusts of which J. Frank Harrison, III, Chairman of the Board of
Directors and Chief Executive Officer of the Company, and Deborah H. Everhart, a director of the
Company, are trustees and beneficiaries. The original lease was to expire on December 31, 2010.
On March 23, 2009, the Company modified the lease agreement (new terms began on January 1, 2011)
with HLP related to the SPC lease. The modified lease would not have changed the classification of
the existing lease had it been in effect in the first quarter of 2002, when the capital lease was
recorded, as the Company received a renewal option to extend the term of the lease, which it
expected to exercise. The modified lease did not extend the term of the existing lease (remaining
lease term was reduced from approximately 22 years to approximately 12 years). Accordingly, the
present value of the leased property under capital leases and capital lease obligations was
adjusted by an amount equal to the difference between the future
27
Coca-Cola Bottling Co. Consolidated
Notes to Consolidated Financial Statements (Unaudited)
19. Related Party Transactions
minimum lease payments under the modified lease agreement and the present value of the existing
obligation on the modification date. The capital lease obligations and leased property under
capital leases were both decreased by $7.5 million in March 2009. The annual base rent the Company
is obligated to pay under the modified lease is subject to an adjustment for an inflation factor.
The prior lease annual base rent was subject to adjustment for an inflation factor and for
increases or decreases in interest rates, using LIBOR as the measurement device. The principal
balance outstanding under this capital lease as of July 3, 2011 was $26.6 million. Rental payments
related to this lease were $1.7 million and $1.6 million in YTD 2011 and YTD 2010, respectively.
The Company leases from Beacon Investment Corporation (Beacon) the Companys headquarters office
facility and an adjacent office facility. The lease expires on December 31, 2021. Beacons sole
shareholder is J. Frank Harrison, III. The principal balance outstanding under this capital lease
as of July 3, 2011 was $28.1 million. Rental payments related to the lease were $2.0 million and
$1.9 million in YTD 2011 and YTD 2010, respectively.
20. Net Sales by Product Category
Net sales by product category were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter |
|
First Half |
In Thousands |
|
2011 |
|
2010 |
|
2011 |
|
2010 |
|
Bottle/can sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sparkling beverages (including energy products) |
|
$ |
281,058 |
|
|
$ |
281,001 |
|
|
$ |
524,086 |
|
|
$ |
523,707 |
|
Still beverages |
|
|
64,068 |
|
|
|
64,936 |
|
|
|
112,341 |
|
|
|
106,808 |
|
|
Total bottle/can sales |
|
|
345,126 |
|
|
|
345,937 |
|
|
|
636,427 |
|
|
|
630,515 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales to other Coca-Cola bottlers |
|
|
41,998 |
|
|
|
37,023 |
|
|
|
78,098 |
|
|
|
70,684 |
|
Post-mix and other |
|
|
35,769 |
|
|
|
34,401 |
|
|
|
67,997 |
|
|
|
63,660 |
|
|
Total other sales |
|
|
77,767 |
|
|
|
71,424 |
|
|
|
146,095 |
|
|
|
134,344 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales |
|
$ |
422,893 |
|
|
$ |
417,361 |
|
|
$ |
782,522 |
|
|
$ |
764,859 |
|
|
Sparkling beverages are carbonated beverages and energy products while still beverages are
noncarbonated beverages.
28
Coca-Cola Bottling Co. Consolidated
Notes to Consolidated Financial Statements (Unaudited)
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter |
|
|
First Half |
|
In Thousands (Except Per Share Data) |
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
|
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 |
|
$ |
11,101 |
|
|
$ |
12,043 |
|
|
$ |
17,014 |
|
|
$ |
16,703 |
|
Less dividends: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
|
1,785 |
|
|
|
1,785 |
|
|
|
3,571 |
|
|
|
3,571 |
|
Class B Common Stock |
|
|
517 |
|
|
|
511 |
|
|
|
1,028 |
|
|
|
1,016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total undistributed earnings |
|
$ |
8,799 |
|
|
$ |
9,747 |
|
|
$ |
12,415 |
|
|
$ |
12,116 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock undistributed earnings basic |
|
$ |
6,824 |
|
|
$ |
7,578 |
|
|
$ |
9,636 |
|
|
$ |
9,428 |
|
Class B Common Stock undistributed earnings basic |
|
|
1,975 |
|
|
|
2,169 |
|
|
|
2,779 |
|
|
|
2,688 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total undistributed earnings basic |
|
$ |
8,799 |
|
|
$ |
9,747 |
|
|
$ |
12,415 |
|
|
$ |
12,116 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock undistributed earnings diluted |
|
$ |
6,794 |
|
|
$ |
7,545 |
|
|
$ |
9,595 |
|
|
$ |
9,387 |
|
Class B Common Stock undistributed earnings diluted |
|
|
2,005 |
|
|
|
2,202 |
|
|
|
2,820 |
|
|
|
2,729 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total undistributed earnings diluted |
|
$ |
8,799 |
|
|
$ |
9,747 |
|
|
$ |
12,415 |
|
|
$ |
12,116 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator for basic net income per Common Stock share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends on Common Stock |
|
$ |
1,785 |
|
|
$ |
1,785 |
|
|
$ |
3,571 |
|
|
$ |
3,571 |
|
Common Stock undistributed earnings basic |
|
|
6,824 |
|
|
|
7,578 |
|
|
|
9,636 |
|
|
|
9,428 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator for basic net income per Common Stock share |
|
$ |
8,609 |
|
|
$ |
9,363 |
|
|
$ |
13,207 |
|
|
$ |
12,999 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator for basic net income per Class B
Common Stock share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends on Class B Common Stock |
|
$ |
517 |
|
|
$ |
511 |
|
|
$ |
1,028 |
|
|
$ |
1,016 |
|
Class B Common Stock undistributed earnings basic |
|
|
1,975 |
|
|
|
2,169 |
|
|
|
2,779 |
|
|
|
2,688 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator for basic net income per Class B Common Stock share |
|
$ |
2,492 |
|
|
$ |
2,680 |
|
|
$ |
3,807 |
|
|
$ |
3,704 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29
Coca-Cola Bottling Co. Consolidated
Notes to Consolidated Financial Statements (Unaudited)
21. Net Income Per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter |
|
|
First Half |
|
In Thousands (Except Per Share Data) |
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
|
Numerator for diluted net income per
Common Stock share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends on Common Stock |
|
$ |
1,785 |
|
|
$ |
1,785 |
|
|
$ |
3,571 |
|
|
$ |
3,571 |
|
Dividends on Class B Common Stock assumed converted to Common Stock |
|
|
517 |
|
|
|
511 |
|
|
|
1,028 |
|
|
|
1,016 |
|
Common Stock undistributed earnings diluted |
|
|
8,799 |
|
|
|
9,747 |
|
|
|
12,415 |
|
|
|
12,116 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator for diluted net income per Common Stock share |
|
$ |
11,101 |
|
|
$ |
12,043 |
|
|
$ |
17,014 |
|
|
$ |
16,703 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator for diluted net income per Class B
Common Stock share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends on Class B Common Stock |
|
$ |
517 |
|
|
$ |
511 |
|
|
$ |
1,028 |
|
|
$ |
1,016 |
|
Class B Common Stock undistributed earnings diluted |
|
|
2,005 |
|
|
|
2,202 |
|
|
|
2,820 |
|
|
|
2,729 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator for diluted net income per Class B Common Stock share |
|
$ |
2,522 |
|
|
$ |
2,713 |
|
|
$ |
3,848 |
|
|
$ |
3,745 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30
Coca-Cola Bottling Co. Consolidated
Notes to Consolidated Financial Statements (Unaudited)
21. Net Income Per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter |
|
|
First Half |
|
In Thousands (Except Per Share Data) |
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
|
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 |
|
|
2,067 |
|
|
|
2,044 |
|
|
|
2,059 |
|
|
|
2,036 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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) |
|
|
9,248 |
|
|
|
9,225 |
|
|
|
9,240 |
|
|
|
9,217 |
|
Class B Common Stock weighted average shares
outstanding diluted |
|
|
2,107 |
|
|
|
2,084 |
|
|
|
2,099 |
|
|
|
2,076 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
$ |
1.21 |
|
|
$ |
1.31 |
|
|
$ |
1.85 |
|
|
$ |
1.82 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class B Common Stock |
|
$ |
1.21 |
|
|
$ |
1.31 |
|
|
$ |
1.85 |
|
|
$ |
1.82 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
$ |
1.20 |
|
|
$ |
1.31 |
|
|
$ |
1.84 |
|
|
$ |
1.81 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class B Common Stock |
|
$ |
1.20 |
|
|
$ |
1.30 |
|
|
$ |
1.83 |
|
|
$ |
1.80 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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) |
|
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. |
31
Coca-Cola Bottling Co. Consolidated
Notes to Consolidated Financial Statements (Unaudited)
22. Risks and Uncertainties
Approximately 88% of the Companys YTD 2011 bottle/can volume to retail customers are products of
The Coca-Cola Company, which is the sole supplier of these products or of the concentrates or
syrups required to manufacture these products. The remaining 12% of the Companys YTD 2011
bottle/can volume to retail customers are products of other beverage companies and the Company.
The Company has beverage agreements under which it has various requirements to meet. Failure to
meet the requirements of these beverage agreements could result in the loss of distribution rights
for the respective product.
The Coca-Cola Company acquired the North American operations of CCE in October of 2010, and the
Companys primary competitors were acquired by their franchisor in the first quarter of 2010.
These transactions may cause uncertainty within the Coca-Cola bottler system or adversely impact
the Company and its business. At this time, however, it is unknown whether the transactions will
have a material impact on the Companys business and financial results.
The Companys products are sold and distributed directly by its employees to retail stores and
other outlets. During YTD 2011, approximately 69% of the Companys bottle/can volume to retail
customers was sold for future consumption, while the remaining bottle/can volume to retail
customers of approximately 31% was sold for immediate consumption. During YTD 2010, approximately
70% of the Companys bottle/can volume to retail customers was sold for future consumption, while
the remaining bottle/can volume to retail customers of approximately 30% was sold for immediate
consumption. The Companys largest customers, Wal-Mart Stores, Inc. and Food Lion, LLC, accounted
for approximately 21% and 9%, respectively, of the Companys total bottle/can volume to retail
customers in YTD 2011; and accounted for approximately 26% and 10%, respectively, of the Companys
total bottle/can volume to retail customers in YTD 2010. Wal-Mart Stores, Inc. accounted for 15%
and 18% of the Companys total net sales during YTD 2011 and YTD 2010, respectively.
The Company obtains all of its aluminum cans from two domestic suppliers. The Company currently
obtains all of its plastic bottles from two domestic entities. See Note 14 and Note 19 to the
consolidated financial statements for additional information.
The Company is exposed to price risk on such commodities as aluminum, corn and resin which affects
the cost of raw materials used in the production of finished products. The Company both produces
and procures these finished products. Examples of the raw materials affected are aluminum cans and
plastic bottles used for packaging and high fructose corn syrup used as a product ingredient.
Further, the Company is exposed to commodity price risk on crude oil which impacts the Companys
cost of fuel used in the movement and delivery of the Companys products. The Company participates
in commodity hedging and risk mitigation programs administered both by CCBSS and by the Company.
In addition, there is no limit on the price The Coca-Cola Company and other beverage companies can
charge for concentrate.
Certain liabilities of the Company are subject to risk due to changes in both long-term and
short-term interest rates. These liabilities include floating rate debt, retirement benefit
obligations and the Companys pension liability.
32
Coca-Cola Bottling Co. Consolidated
Notes to Consolidated Financial Statements (Unaudited)
22. Risks and Uncertainties
Approximately 7% of the Companys labor force is covered by collective bargaining agreements. One
of these collective bargaining agreements covering approximately 2% of the Companys employees
expired in April 2011 and the Company entered into a new agreement during Q2 2011. One collective
bargaining agreement covering approximately 4% of the Companys employees expired in July 2011 and
the Company entered into a new agreement during the third quarter of 2011. No more collective
bargaining agreements will expire during the remainder of 2011.
23. Supplemental Disclosures of Cash Flow Information
As discussed in Note 1 of the consolidated financial statements, a revision was made to the 2010
comparative statements of cash flows to correct an immaterial error. This revision has been applied
to the 2010 amounts in the table below.
Changes in current assets and current liabilities affecting cash flows were as follows:
|
|
|
|
|
|
|
|
|
|
|
First Half |
In Thousands |
|
2011 |
|
2010 |
|
Accounts receivable, trade, net |
|
$ |
(29,441 |
) |
|
$ |
(40,307 |
) |
Accounts receivable from The Coca-Cola Company |
|
|
(14,072 |
) |
|
|
(16,788 |
) |
Accounts receivable, other |
|
|
6,439 |
|
|
|
(1,088 |
) |
Inventories |
|
|
(10,287 |
) |
|
|
(14,433 |
) |
Prepaid expenses and other current assets |
|
|
940 |
|
|
|
4,407 |
|
Accounts payable, trade |
|
|
11,981 |
|
|
|
18,441 |
|
Accounts payable to The Coca-Cola Company |
|
|
23,932 |
|
|
|
24,693 |
|
Other accrued liabilities |
|
|
(3,983 |
) |
|
|
13,652 |
|
Accrued compensation |
|
|
(10,008 |
) |
|
|
(7,572 |
) |
Accrued interest payable |
|
|
6 |
|
|
|
1 |
|
|
Increase in current assets less current liabilities |
|
$ |
(24,493 |
) |
|
$ |
(18,994 |
) |
|
Non-cash activity
Additions to property, plant and equipment of $3.1 million and $2.1 million have been accrued but
not paid and are recorded in accounts payable, trade as of July 3, 2011 and July 4, 2010,
respectively.
Additions to property, plant and equipment included $1.5 million for a trade-in allowance on
manufacturing equipment in YTD 2010.
33
Coca-Cola Bottling Co. Consolidated
Notes to Consolidated Financial Statements (Unaudited)
24. New Accounting Pronouncements
Recently Adopted Pronouncements
In January 2010, the Financial Accounting Standards Board (FASB) issued new guidance related to
the disclosures about transfers into and out of Levels 1 and 2 fair value classifications
and separate disclosures about purchases, sales, issuances and settlements relating to the
Level 3 fair value classification. The new guidance also clarifies existing fair value
disclosures about the level of disaggregation and about inputs and valuation techniques used to
measure the fair value. The new guidance was effective for the Company in the first quarter of
2010 except for the requirement to provide the Level 3 activity of purchases, sales, issuances and
settlements on a gross basis, which was effective for the Company in the first quarter of 2011.
The Companys adoption of this new guidance did not have a material impact on the Companys
consolidated financial statements.
Recently Issued Pronouncements
In June 2011, the FASB amended its guidance on the presentation of comprehensive income in
financial statements to improve the comparability, consistency and transparency of financial
reporting and to increase the prominence of items that are recorded in other comprehensive income.
The new accounting guidance requires entities to report components of comprehensive income in
either (1) a continuous statement of comprehensive income or (2) two separate but consecutive
statements. The provisions of this new guidance are effective for fiscal years, and interim
periods within those years, beginning after December 15, 2011. The Company is currently evaluating
the impact of adopting this guidance on its financial statements.
34
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
Revision of Prior Period Financial Statements
During the second quarter of 2011, Coca-Cola Bottling Co. Consolidated (the Company) identified
an error in the treatment of accrued additions for property, plant and equipment in the
Consolidated Statements of Cash Flows. The Company has revised prior period financial statements to
correct this immaterial error. Refer to Note 1 Significant Accounting Policies Revision of Prior
Period Financial Statements for further details. This error affected the year-to-date Consolidated
Statements of Cash Flows and Supplemental Disclosures of Cash Flow Information presented for each
of the quarters of 2010, including the year-end consolidated financial statements for 2010, as well
as the first quarter of 2011 and resulted in an understatement of net cash provided by operating
activities and net cash used in investing activities for each of the impacted periods. This
revision did not impact the Companys Consolidated Statements of Operations or Consolidated Balance
Sheets for any of these periods. The discussion and analysis included herein is based on the
financial results (and revised Consolidated Statements of Cash Flows) for the second quarter ended
July 4, 2010 and the first half ended July 4, 2010.
The following Managements Discussion and Analysis of Financial Condition and Results of Operations
(M,D&A) should be read in conjunction with the
Companys consolidated financial statements and the accompanying notes to the consolidated financial
statements. M,D&A includes the following sections:
|
|
|
Our Business and the Nonalcoholic Beverage Industry a general description of the
Companys business and the nonalcoholic beverage industry. |
|
|
|
|
Areas of Emphasis a summary of the Companys key priorities. |
|
|
|
|
Overview of Operations and Financial Condition a summary of key information and
trends concerning the financial results for the second quarter of 2011 (Q2 2011) and the
first half of 2011 (YTD 2011) and changes from the second quarter of 2010 (Q2 2010) and
the first half of 2010 (YTD 2010). |
|
|
|
|
Discussion of Critical Accounting Policies, Estimates and New Accounting Pronouncements
a discussion of accounting policies that are most important to the portrayal of the
Companys financial condition and results of operations and that require critical judgments
and estimates and the expected impact of new accounting pronouncements. |
|
|
|
|
Results of Operations an analysis of the Companys results of operations for Q2 2011
and YTD 2011 compared to Q2 2010 and YTD 2010, respectively. |
|
|
|
|
Financial Condition an analysis of the Companys financial condition as of the end of
Q2 2011 compared to year-end 2010 and the end of Q2 2010 as presented in the consolidated
financial statements. |
|
|
|
|
Liquidity and Capital Resources an analysis of capital resources, cash sources and
uses, investing activities, financing activities, off-balance sheet arrangements, aggregate
contractual obligations and hedging activities. |
|
|
|
|
Cautionary Information Regarding Forward-Looking Statements. |
The consolidated financial statements include the consolidated operations of the Company and its
majority-owned subsidiaries including Piedmont Coca-Cola Bottling Partnership (Piedmont). The
noncontrolling interest primarily consists of The Coca-Cola Companys interest in Piedmont, which
was 22.7% for all periods presented.
During May 2010, Nashville, Tennessee experienced a severe rain storm which caused extensive flood
damage in the area. The Company has a production/sales distribution facility located in the
flooded area. Due to damage incurred during this flood, the Company recorded a loss of
approximately $.2 million on uninsured cold drink equipment. This loss was offset by gains of
approximately $.8 million for the excess of insurance proceeds received as compared to the net book
value of production equipment damaged as a result of the flood. In Q2 2010, the Company recorded a
receivable of $6.2 million for insured losses of which
$1.5 million had already been paid by the
end of Q2 2010. All receivables were recorded for insured losses during fiscal year 2010 and were
collected in 2010.
Our Business and the Nonalcoholic Beverage Industry
The Company produces, markets and distributes nonalcoholic beverages, primarily products of The
Coca-Cola Company, which include some of the most recognized and popular beverage brands in the
world. The Company is the largest independent bottler of products of The Coca-Cola Company in the
United States, distributing these products in eleven states primarily in the Southeast. The
Company also distributes several other beverage brands.
These product offerings include both sparkling and still beverages. Sparkling beverages are
carbonated beverages
35
including energy products. Still beverages are noncarbonated beverages such
as bottled water, tea, ready to drink coffee, enhanced water, juices and sports drinks. The
Company had full year net sales of $1.5 billion in 2010.
The nonalcoholic beverage market is highly competitive. The Companys competitors include bottlers
and distributors of nationally and regionally advertised and marketed products and private label
products. In each region in which the Company operates, between 85% and 95% of sparkling beverage
sales in bottles, cans and other containers are accounted for by the Company and its principal
competitors, which in each region includes the local bottler of Pepsi-Cola and, in some regions,
the local bottler of Dr Pepper, Royal Crown and/or 7-Up products. The sparkling beverage category
(including energy products) represents 82% of the Companys YTD 2011 bottle/can net sales.
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. The Company believes it is competitive in its territories with
respect to each of these methods.
Historically, operating results for the second quarter and the first half of the fiscal year have
not been representative of results for the entire fiscal year. Business seasonality results
primarily from higher unit sales of the Companys products in the second and third quarters versus
the first and fourth quarters of the fiscal year. Fixed costs, such as depreciation expense, are
not significantly impacted by business seasonality.
The Company performs its annual impairment test of franchise rights and goodwill as of the first
day of the fourth quarter. During YTD 2011, the Company did not experience any triggering events
or changes in circumstances that indicated the carrying amounts of the Companys franchise rights
or goodwill exceeded fair values. As such, the Company has not recognized any impairments of
franchise rights or goodwill.
The Coca-Cola Company acquired Coca-Cola Enterprises Inc. (CCE) on October 2, 2010. In
connection with the transaction, CCE changed its name to Coca-Cola Refreshments USA, Inc. (CCR),
and transferred its beverage operations outside of North America to an independent third party. As
a result of the transaction, the North American operations of CCE are now included in CCR. In
M,D&A, references to CCR refer to CCR and CCE as it existed prior to the acquisition by The
Coca-Cola Company. The Coca-Cola Company had a significant equity interest in CCE prior to the
acquisition. In addition, the Companys primary competitors were acquired by their franchisor in
the first quarter of 2010. These transactions may cause uncertainty within the Coca-Cola bottler
system or adversely impact the Company and its business. At this time, however, it is unknown
whether the transactions will have a material impact on the Companys business and financial
results.
Net sales by product category were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter |
|
First Half |
In Thousands |
|
2011 |
|
2010 |
|
2011 |
|
2010 |
|
Bottle/can sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sparkling beverages (including energy products) |
|
$ |
281,058 |
|
|
$ |
281,001 |
|
|
$ |
524,086 |
|
|
$ |
523,707 |
|
Still beverages |
|
|
64,068 |
|
|
|
64,936 |
|
|
|
112,341 |
|
|
|
106,808 |
|
|
Total bottle/can sales |
|
|
345,126 |
|
|
|
345,937 |
|
|
|
636,427 |
|
|
|
630,515 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales to other Coca-Cola bottlers |
|
|
41,998 |
|
|
|
37,023 |
|
|
|
78,098 |
|
|
|
70,684 |
|
Post-mix and other |
|
|
35,769 |
|
|
|
34,401 |
|
|
|
67,997 |
|
|
|
63,660 |
|
|
Total other sales |
|
|
77,767 |
|
|
|
71,424 |
|
|
|
146,095 |
|
|
|
134,344 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales |
|
$ |
422,893 |
|
|
$ |
417,361 |
|
|
$ |
782,522 |
|
|
$ |
764,859 |
|
|
36
Areas of Emphasis
Key priorities for the Company include revenue management, product innovation and beverage
portfolio expansion, distribution cost management and productivity.
Revenue Management
Revenue management requires a strategy which 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. Revenue management has been and continues to
be a key performance driver which has significant impact on the Companys results of operations.
Product Innovation and Beverage Portfolio Expansion
Innovation of both new brands and packages has been and will continue to be critical to the
Companys overall revenue. During 2008, the Company tested the 16-ounce bottle/24-ounce bottle
package for many of the Companys sparkling beverages in select convenience stores and introduced
it companywide in 2009. New packaging introductions included the 7.5-ounce sleek can in 2010 and
the 2-liter contour bottle for Coca-Cola products during 2009.
The Company has invested in its own brand portfolio with products such as Tum-E Yummies, a vitamin
C enhanced flavored drink, Country Breeze tea, diet Country Breeze tea, Bean & Body, Simmer and
Bazza energy tea. These brands enable the Company to participate in strong growth categories and
capitalize on distribution channels that may include the Companys traditional Coca-Cola franchise
territory as well as third party distributors outside the Companys traditional Coca-Cola franchise
territory. While the growth prospects of Company-owned or exclusively licensed brands appear
promising, the cost of developing, marketing and distributing these brands is anticipated to be
significant as well.
Distribution Cost Management
Distribution costs represent the costs of transporting finished goods from Company locations to
customer outlets. Total distribution costs amounted to $95.5 million and $92.6 million in YTD 2011
and YTD 2010, respectively. Over the past several years, the Company has focused on converting its
distribution system from a conventional routing system to a predictive system. This conversion to
a predictive system has allowed the Company to more efficiently handle increasing numbers of
products. In addition, the Company has closed a number of smaller sales distribution centers over
the past several years reducing its fixed warehouse-related costs.
The Company has three primary delivery systems for its current business:
|
|
|
bulk delivery for large supermarkets, mass merchandisers and club stores; |
|
|
|
|
advanced sales delivery for convenience stores, drug stores, small supermarkets and
certain on-premise accounts; and |
|
|
|
|
full service delivery for its full service vending customers. |
Distribution cost management will continue to be a key area of emphasis for the Company.
37
Productivity
A key driver in the Companys selling, delivery and administrative (S,D&A) expense management
relates to ongoing improvements in labor productivity and asset productivity.
Overview of Operations and Financial Condition
The following items affect the comparability of the financial results presented below:
Q2 2011 and YTD 2011
|
|
|
a $25,000 and a $.2 million pre-tax unfavorable mark-to-market adjustment to S,D&A
expenses related to the Companys 2011 fuel hedging program in Q2 2011 and YTD 2011,
respectively; and |
|
|
|
|
a $1.7 million and a $2.2 million pre-tax unfavorable mark-to-market adjustment to cost
of sales related to the Companys 2011 aluminum hedging program in Q2 2011 and YTD 2011,
respectively. |
Q2 2010 and YTD 2010
|
|
|
a $1.1 million and a $1.4 million pre-tax unfavorable mark-to-market adjustment to S,D&A
expenses related to the Companys 2010 fuel hedging program in Q2 2010 and YTD 2010,
respectively; |
|
|
|
|
a $6.7 million and a $6.2 million pre-tax unfavorable mark-to-market adjustment to cost
of sales related to the Companys 2010 and 2011 aluminum hedging program in Q2 2010 and YTD
2010, respectively; |
|
|
|
|
a $.8 million pre-tax favorable adjustment to cost of sales related to the gain on the
replacement of flood damaged production equipment in Q2 2010; |
|
|
|
|
a $.2 million pre-tax unfavorable adjustment to S,D&A expenses related to the loss
recorded on the disposal of uninsured vending equipment from the Nashville area flood in Q2
2010; and |
|
|
|
|
a $.5 million unfavorable adjustment to income tax expense related to the elimination of
the deduction related to Medicare Part D subsidy in the first quarter of 2010. |
The following overview provides a summary of key information concerning the Companys financial
results for Q2 2011 and YTD 2011 compared to Q2 2010 and YTD 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter |
|
|
|
|
|
% |
In Thousands (Except Per Share Data) |
|
2011 |
|
2010 |
|
Change |
|
Change |
|
Net sales |
|
$ |
422,893 |
|
|
$ |
417,361 |
|
|
$ |
5,532 |
|
|
|
1.3 |
|
Cost of sales |
|
|
257,320 |
|
|
|
249,353 |
|
|
|
7,967 |
|
|
|
3.2 |
|
Gross margin |
|
|
165,573 |
|
|
|
168,008 |
|
|
|
(2,435 |
) |
|
|
(1.4 |
) |
S,D&A expenses |
|
|
137,153 |
|
|
|
138,190 |
|
|
|
(1,037 |
) |
|
|
(0.8 |
) |
Income from operations |
|
|
28,420 |
|
|
|
29,818 |
|
|
|
(1,398 |
) |
|
|
(4.7 |
) |
Interest expense, net |
|
|
9,042 |
|
|
|
8,802 |
|
|
|
240 |
|
|
|
2.7 |
|
Income before income taxes |
|
|
19,378 |
|
|
|
21,016 |
|
|
|
(1,638 |
) |
|
|
(7.8 |
) |
Income tax expense |
|
|
7,394 |
|
|
|
7,612 |
|
|
|
(218 |
) |
|
|
(2.9 |
) |
Net income |
|
|
11,984 |
|
|
|
13,404 |
|
|
|
(1,420 |
) |
|
|
(10.6 |
) |
Net income attributable to the Company |
|
|
11,101 |
|
|
|
12,043 |
|
|
|
(942 |
) |
|
|
(7.8 |
) |
Basic net income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
$ |
1.21 |
|
|
$ |
1.31 |
|
|
$ |
(.10 |
) |
|
|
(7.6 |
) |
Class B Common Stock |
|
$ |
1.21 |
|
|
$ |
1.31 |
|
|
$ |
(.10 |
) |
|
|
(7.6 |
) |
Diluted net income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
$ |
1.20 |
|
|
$ |
1.31 |
|
|
$ |
(.11 |
) |
|
|
(8.4 |
) |
Class B Common Stock |
|
$ |
1.20 |
|
|
$ |
1.30 |
|
|
$ |
(.10 |
) |
|
|
(7.7 |
) |
38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Half |
|
|
|
|
|
% |
In Thousands (Except Per Share Data) |
|
2011 |
|
2010 |
|
Change |
|
Change |
|
Net sales |
|
$ |
782,522 |
|
|
$ |
764,859 |
|
|
$ |
17,663 |
|
|
|
2.3 |
|
Cost of sales |
|
|
467,788 |
|
|
|
450,148 |
|
|
|
17,640 |
|
|
|
3.9 |
|
Gross margin |
|
|
314,734 |
|
|
|
314,711 |
|
|
|
23 |
|
|
|
|
|
S,D&A expenses |
|
|
267,135 |
|
|
|
267,234 |
|
|
|
(99 |
) |
|
|
|
|
Income from operations |
|
|
47,599 |
|
|
|
47,477 |
|
|
|
122 |
|
|
|
0.3 |
|
Interest expense, net |
|
|
17,811 |
|
|
|
17,612 |
|
|
|
199 |
|
|
|
1.1 |
|
Income before income taxes |
|
|
29,788 |
|
|
|
29,865 |
|
|
|
(77 |
) |
|
|
(0.3 |
) |
Income tax expense |
|
|
11,335 |
|
|
|
11,326 |
|
|
|
9 |
|
|
|
0.1 |
|
Net income |
|
|
18,453 |
|
|
|
18,539 |
|
|
|
(86 |
) |
|
|
(0.5 |
) |
Net income attributable to the Company |
|
|
17,014 |
|
|
|
16,703 |
|
|
|
311 |
|
|
|
1.9 |
|
Basic net income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
$ |
1.85 |
|
|
$ |
1.82 |
|
|
$ |
.03 |
|
|
|
1.6 |
|
Class B Common Stock |
|
$ |
1.85 |
|
|
$ |
1.82 |
|
|
$ |
.03 |
|
|
|
1.6 |
|
Diluted net income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
$ |
1.84 |
|
|
$ |
1.81 |
|
|
$ |
.03 |
|
|
|
1.7 |
|
Class B Common Stock |
|
$ |
1.83 |
|
|
$ |
1.80 |
|
|
$ |
.03 |
|
|
|
1.7 |
|
The Companys net sales increased 1.3% in Q2 2011 compared to Q2 2010. The Companys net sales
increased 2.3% in YTD 2011 compared to YTD 2010. The increases in net sales were primarily due to
a 2.4% and a 2.3% increase in bottle/can sales price per unit in Q2 2011 and YTD 2011 compared to
Q2 2010 and YTD 2010, respectively. The increases in bottle/can sales price per unit were
primarily due to increases in sales price per unit in all sparkling beverages except energy
products and a change in product mix due to a higher percentage of still beverage sales. Still
beverages have a higher sales price per unit than sparkling beverages. The increases in bottle/can
sales per unit price were partially offset by a 2.6% and 1.3% decrease in bottle/can volume in Q2
2011 and YTD 2011 compared to Q2 2010 and YTD 2011, respectively. The decreases in bottle/can
volume were primarily due to decreases in 12-ounce can sparkling beverages volume and partially
offset by increases in still beverages volume.
Gross margin dollars decreased 1.4% in Q2 2011 compared to Q2 2010. The Companys gross margin
percentage decreased to 39.2% for Q2 2011 from 40.3% for Q2 2010. Gross margin dollars were
unchanged in YTD 2011 compared to YTD 2010. The Companys gross margin percentage decreased to
40.2% in YTD 2011 from 41.1% in YTD 2010. The decrease in gross margin percentage was primarily
due to higher costs for raw materials and partially offset by higher sales price per unit for
bottle/can volume and by decreased cost related to the Companys aluminum hedging program. The
decrease in gross margin percentage was also due to a change in product mix. Sales volume of still
beverages, which have lower margins than sparkling beverages, increased while sparkling beverages
sales volume decreased.
The following inputs represent a substantial portion of the Companys total cost of goods sold: (1)
sweeteners, (2) packing materials, including plastic bottles and aluminum cans, and (3) full goods
purchased from other vendors. The Company anticipates that the cost of the underlying commodities
related to these inputs will continue to face upward cost pressure. The Company expects gross
margins to be lower throughout the remainder of 2011 compared to 2010 due to the impact of the
rising commodity costs if these costs cannot be offset with price increases.
S,D&A expenses decreased .8% in Q2 2011 from Q2 2010. S,D&A expenses were flat in YTD 2011
compared to YTD 2010. The decrease in S,D&A expenses in Q2 2011 from Q2 2010 was primarily
attributable to the decrease in fuel costs due to the mark-to-market adjustment on fuel hedging.
39
Net interest expense increased 2.7% and 1.1% in Q2 2011 compared to Q2 2010 and YTD 2011 compared
to YTD 2010, respectively. The increases were primarily due to the Company entering into two new
capital leases in the first quarter of 2011. The Companys overall weighted average interest rate
on its debt and capital lease obligations increased to 6.0% during YTD 2011 from 5.8% during YTD
2010. This increase is the result of the conversion of one of the Companys capital leases from a
floating rate to a fixed rate in late 2010, combined with the Companys use of short-term
borrowings in the first half of 2010 at low variable rates relative to the fixed rates on the
Companys Senior Debt.
Net debt and capital lease obligations were summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 3, |
|
Jan. 2, |
|
July 4, |
In Thousands |
|
2011 |
|
2011 |
|
2010 |
|
Debt |
|
$ |
523,139 |
|
|
$ |
523,063 |
|
|
$ |
542,988 |
|
Capital lease obligations |
|
|
76,002 |
|
|
|
59,261 |
|
|
|
61,217 |
|
|
Total debt and capital lease obligations |
|
|
599,141 |
|
|
|
582,324 |
|
|
|
604,205 |
|
Less: Cash and cash equivalents |
|
|
29,169 |
|
|
|
49,372 |
|
|
|
17,801 |
|
|
Total net debt and capital lease obligations (1) |
|
$ |
569,972 |
|
|
$ |
532,952 |
|
|
$ |
586,404 |
|
|
|
|
|
(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 Companys capital structure and financial leverage. |
Discussion of Critical Accounting Policies, Estimates and New Accounting Pronouncements
Critical 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
consolidated financial statements in conformity with accounting principles generally accepted in
the United States of America. 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
the year ended January 2, 2011 a discussion of the Companys most critical accounting policies,
which are those most important to the portrayal of the Companys financial condition and results of
operations and require managements 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.
The Company did not make changes in any critical accounting policies during YTD 2011. 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 made.
New Accounting Pronouncements
Recently
Adopted Pronouncements
In January 2010, the Financial Accounting Standards Board (FASB) issued new guidance related to
the disclosures about transfers into and out of Levels 1 and 2 fair value classifications and
separate disclosures
about purchases, sales, issuances and settlements relating to the Level 3 fair value
classification. The new guidance also clarifies existing fair value disclosures about the level
of disaggregation and about inputs and valuation techniques used to measure the fair value. The
new guidance was effective for the Company in the
40
first quarter of 2010 except for the requirement
to provide the Level 3 activity of purchases, sales, issuances and settlements on a gross basis,
which was effective for the Company in the first quarter of 2011. The Companys adoption of this
new guidance did not have a material impact on the Companys consolidated financial statements.
Recently
Issued Pronouncements
In June 2011, the FASB amended its guidance on the presentation of comprehensive income in
financial statements to improve the comparability, consistency and transparency of financial
reporting and to increase the prominence of items that are recorded in other comprehensive income.
The new accounting guidance requires entities to report components of comprehensive income in
either (1) a continuous statement of comprehensive income or (2) two separate but consecutive
statements. The provisions of this new guidance are effective for fiscal years, and interim
periods within those years, beginning after December 15, 2011. The Company is currently evaluating
the impact of adopting this guidance on its financial statements.
Results of Operations
Q2 2011 Compared to Q2 2010 and YTD 2011 Compared to YTD 2010
Net Sales
Net sales increased $5.5 million, or 1.3%, to $422.9 million in Q2 2011 compared to $417.4 million
in Q2 2010. Net sales increased $17.7 million, or 2.3%, to $782.5 million in YTD 2011 compared to
$764.9 million in 2010.
The increase in net sales for Q2 2011 compared to Q2 2010 was the result of the following:
|
|
|
|
|
Q2 2011 |
|
|
Attributable to: |
(In Millions) |
|
|
|
$ |
(8.9 |
) |
|
2.6% decrease in bottle/can volume primarily due to a
volume decrease in sparkling beverages except energy
products and partially offset by an increase in still
beverages |
|
8.0 |
|
|
2.4% increase in bottle/can sales price per unit primarily due to an increase in
sales price per unit in sparkling beverages except energy products and a change in product
mix due to a higher percentage of still beverages sold which have a higher sales price per
unit |
|
2.9 |
|
|
7.9% increase in sales volume to other Coca-Cola bottlers primarily due to volume
increases in all product categories |
|
2.6 |
|
|
Increase in freight revenue |
|
2.1 |
|
|
5.2% increase in sales price per unit of sales to other Coca-Cola bottlers primarily
due to an increase in sales price per unit in all product categories except energy
products |
|
1.1 |
|
|
5.6% increase in post-mix sales volume |
|
(2.3 |
) |
|
Other |
|
|
|
|
$ |
5.5 |
|
|
Total increase in net sales |
|
|
|
|
41
The increase in net sales for YTD 2011 compared to YTD 2010 was the result of the following:
|
|
|
|
|
YTD 2011 |
|
|
Attributable to: |
(In Millions) |
|
|
|
$ |
14.3 |
|
|
2.3% increase in bottle/can sales price per unit primarily due to an increase in
sales price per unit in sparkling beverages except energy products and a change
in product mix due to a higher percentage of still beverages sold which have a
higher sales price per unit |
|
(8.4 |
) |
|
1.3% decrease in bottle/can volume primarily due to a volume decrease in sparkling
beverages except energy products and partially offset by an increase
in still beverages |
|
5.1 |
|
|
7.0% increase in sales price per unit of sales to other Coca-Cola bottlers primarily
due to an increase in sales price per unit in all product categories except energy
products |
|
4.5 |
|
|
Increase in freight revenue |
|
2.3 |
|
|
3.3% increase in sales volume to other Coca-Cola bottlers primarily due to volume
increases in all product categories |
|
2.2 |
|
|
5.9% increase in post-mix sales volume |
|
(2.3 |
) |
|
Other |
|
|
|
|
$ |
17.7 |
|
|
Total increase in net sales |
|
|
|
|
In YTD 2011, the Companys bottle/can sales to retail customers accounted for 81% of the Companys
total net sales. Bottle/can 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 volume generated in each package and the channels in which those packages are sold.
The increases in the Companys bottle/can net price per unit in Q2 2011 compared to Q2 2010 and YTD
2011 compared to YTD 2010 were primarily due to an increase in sales price per unit of sparkling
beverages except energy products and a change in product mix due to a higher percentage of still
beverages sold which have a higher sales price per unit.
The increase in sales price per unit of sparkling beverages and the volume decrease in sparkling
beverages in both Q2 2011 and YTD 2011 were impacted by a promotion during Q2 2010 by the Companys
largest customer, Wal-Mart Stores, Inc., at its supercenter stores. Wal-Mart Stores, Inc.s
supercenter stores had a promotion on 24-pack 12-ounce cans during all of Q2 2010 which increased
overall 12-ounce sparkling can sales volume and overall bottle/can volume while lowering sparkling
sales price per unit as 24-pack 12-ounce cans have a lower sales price per unit than other
sparkling beverages. The promotion ended on July 4, 2010.
Product category sales volume in Q2 2011 and Q2 2010 and YTD 2011 and YTD 2010 as a percentage of
total bottle/can sales volume and the percentage change by product category was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bottle/Can Sales Volume |
|
Bottle/Can Sales Volume |
Product Category |
|
Q2 2011 |
|
Q2 2010 |
|
% Increase (Decrease) |
Sparkling beverages (including
energy products) |
|
|
82.9 |
% |
|
|
83.8 |
% |
|
|
(3.5 |
) |
Still beverages |
|
|
17.1 |
% |
|
|
16.2 |
% |
|
|
2.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total bottle/can sales volume |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
(2.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bottle/Can Sales Volume |
|
Bottle/Can Sales Volume |
Product Category |
|
YTD 2011 |
|
YTD 2010 |
|
% Increase (Decrease) |
Sparkling beverages (including
energy products) |
|
|
83.9 |
% |
|
|
85.5 |
% |
|
|
(3.2 |
) |
Still beverages |
|
|
16.1 |
% |
|
|
14.5 |
% |
|
|
9.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total bottle/can sales volume |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
(1.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
42
The Companys products are sold and distributed through various channels. These channels include
selling directly to retail stores and other outlets such as food markets, institutional accounts
and vending machine outlets. During YTD 2011, approximately 69% of the Companys bottle/can volume
was sold for future consumption, while the remaining bottle/can volume of approximately 31% was
sold for immediate consumption. During YTD 2010, approximately 70% of the Companys bottle/can
volume was sold for future consumption, while the remaining bottle/can volume of approximately 30%
was sold for immediate consumption. The Companys largest customer, Wal-Mart Stores, Inc.,
accounted for approximately 21% of the Companys total bottle/can volume during YTD 2011. Wal-Mart
Stores, Inc. accounted for approximately 26% of the Companys total bottle/can volume during YTD
2010. The Companys second largest customer, Food Lion, LLC, accounted for approximately 9% of the
Companys total bottle/can volume during YTD 2011. Food Lion, LLC accounted for approximately 10%
of the Companys total bottle/can volume during YTD 2010. All of the Companys beverage sales are
to customers in the United States.
The Company recorded delivery fees in net sales of $3.6 million and $3.8 million in YTD 2011 and
YTD 2010, respectively. These fees are used to offset a portion of the Companys delivery and
handling costs.
Cost of Sales
Cost of sales includes the following: raw material costs, manufacturing labor, manufacturing
overhead including depreciation expense, manufacturing warehousing costs and shipping and handling
costs related to the movement of finished goods from manufacturing locations to sales distribution
centers.
Cost of sales increased 3.2%, or $8.0 million, to $257.3 million in Q2 2011 compared to $249.4
million in Q2 2010. Cost of sales increased 3.9%, or $17.7 million, to $467.8 million in YTD 2011
compared to $450.1 million in YTD 2010.
The increase in cost of sales for Q2 2011 compared to Q2 2010 was principally attributable to the
following:
|
|
|
|
|
Q2 2011 |
|
|
Attributable to: |
(In Millions) |
|
|
|
$ |
11.5 |
|
|
Increase in raw materials costs such as plastic bottles |
|
(5.3 |
) |
|
Decrease in cost due to the Companys aluminum hedging program |
|
(5.2 |
) |
|
2.6% decrease in bottle/can volume primarily due to a volume decrease in sparkling
beverages except energy products and partially offset by an increase in still beverages |
|
2.8 |
|
|
7.9% increase in sales volume to other Coca-Cola bottlers primarily due to volume
increases in all product categories |
|
(1.4 |
) |
|
Increase in marketing funding support received primarily from The Coca-Cola Company |
|
1.8 |
|
|
Increase in freight cost of sales |
|
0.8 |
|
|
Gain on the replacement of flood damaged production equipment in 2010 |
|
0.7 |
|
|
5.6% increase in post-mix sales volume |
|
2.3 |
|
|
Other |
|
|
|
|
$ |
8.0 |
|
|
Total increase in cost of sales |
|
|
|
|
43
The increase in cost of sales for YTD 2011 compared to YTD 2010 was principally attributable to the
following:
|
|
|
|
|
YTD 2011 |
|
|
Attributable to: |
(In Millions) |
|
|
|
$ |
18.3 |
|
|
Increase in raw material costs such as plastic bottles
and an increase in the percentage of purchased
products which have higher per unit costs |
|
(4.9 |
) |
|
1.3% decrease in bottle/can volume primarily due to a volume decrease in sparkling
beverages except energy products and partially offset by an increase
in still beverages |
|
(4.8 |
) |
|
Decrease in cost due to the Companys aluminum hedging program |
|
3.6 |
|
|
Increase in freight cost of sales |
|
2.2 |
|
|
3.3% increase in sales volume to other Coca-Cola bottlers primarily due to volume
increases in all product categories |
|
(1.6 |
) |
|
Increase in marketing funding support received primarily from The Coca-Cola Company |
|
1.5 |
|
|
5.9% increase in post-mix sales volume |
|
0.8 |
|
|
Gain on the replacement of flood damaged production equipment in 2010 |
|
2.6 |
|
|
Other |
|
|
|
|
$ |
17.7 |
|
|
Total increase in cost of sales |
|
|
|
|
The following inputs represent a substantial portion of the Companys total cost of goods sold: (1)
sweeteners, (2) packing materials, including plastic bottles and aluminum cans, and (3) full goods
purchased from other vendors. The Company anticipates that the cost of the underlying commodities
related to these inputs will continue to face upward cost pressure. The Company expects gross
margins to be lower throughout the remainder of 2011 compared to 2010 due to the impact of the
rising commodity costs if these costs cannot be offset with price increases.
The Companys production facility located in Nashville, Tennessee was damaged by a flood in May
2010. The Company recorded a gain of $.8 million in Q2 2010 from the replacement of production
equipment damaged by the flood. The gain was based on replacement value insurance coverage that
exceeded the net book value of the damaged production equipment.
The Company entered into an agreement (the Incidence Pricing Agreement) with The Coca-Cola
Company to test an incidence-based concentrate pricing model for 2008 for all Coca-Cola Trademark
Beverages and Allied Beverages for which the Company purchases concentrate from The Coca-Cola
Company. During the term of the Incidence Pricing Agreement, the pricing of the concentrates for
the Coca-Cola Trademark Beverages and Allied Beverages is governed by the Incidence Pricing
Agreement rather than the Cola and Allied Beverage Agreements. The concentrate price The Coca-Cola
Company charges under the Incidence Pricing Agreement is impacted by a number of factors including
the Companys pricing of finished products, the channels in which the finished products are sold
and package mix. The Coca-Cola Company must give the Company at least 90 days written notice
before changing the price the Company pays for the concentrate. The Company continues to utilize
the incidence pricing model, and the Incidence Pricing Agreement has been extended through December
31, 2011 under the same terms as 2010 and 2009.
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 local territories served by the Company. The Company also benefits from national advertising
programs conducted by The Coca-Cola Company and other beverage companies. Certain of the marketing
expenditures by The Coca-Cola Company and other beverage companies are made pursuant to
annual arrangements. Although The Coca-Cola Company has advised the Company that it intends to
continue to provide marketing funding support, it
is not obligated to do so under the Companys Beverage Agreements. Significant decreases in
marketing funding
44
support from The Coca-Cola Company or other beverage companies could adversely
impact operating results of the Company in the future.
Total marketing funding support from The Coca-Cola Company and other beverage companies, which
includes direct payments to the Company and payments to customers for marketing programs, was $15.5
million for Q2 2011 compared to $14.1 million for Q2 2010. Total marketing funding support from
The Coca-Cola Company and other beverage companies, which includes direct payments to the Company
and payments to customers for marketing programs, was $28.1 million for YTD 2011 compared to $26.5
million for YTD 2010.
Gross Margin
Gross margin dollars decreased 1.4%, or $2.5 million, to $165.6 million in Q2 2011 compared to
$168.0 million in Q2 2010. Gross margin as a percentage of net sales decreased to 39.2% for Q2
2011 from 40.3% for Q2 2010. Gross margin dollars were unchanged at $314.7 in both YTD 2011 and YTD
2010. Gross margin as a percentage of net sales decreased to 40.2% for YTD 2011 from 41.1% for YTD
2010.
The decrease in gross margin dollars for Q2 2011 compared to Q2 2010 was primarily the result of
the following:
|
|
|
|
|
Q2 2011 |
|
|
Attributable to: |
(In Millions) |
|
|
|
$ |
(11.5 |
) |
|
Increase in raw material costs such as plastic bottles |
|
8.0 |
|
|
2.4% increase in bottle/can sales price per unit primarily due to an increase in sales
price per unit in sparkling beverages except energy products and a change in product mix
due to a higher percentage of still beverages sold which have a higher sales price per unit |
|
5.3 |
|
|
Decrease in cost due to the Companys aluminum hedging program |
|
(3.7 |
) |
|
2.6% decrease in bottle/can volume primarily due to a volume decrease in sparkling
beverages except energy products and partially offset by an increase in still beverages |
|
2.1 |
|
|
5.2% increase in sales price per unit of sales to other Coca-Cola bottlers primarily
due to an increase in sales price per unit in all products except energy products |
|
1.4 |
|
|
Increase in marketing funding support received primarily from The Coca-Cola Company |
|
0.8 |
|
|
Increase in freight gross margin |
|
(0.8 |
) |
|
Gain on the replacement of flood damaged production equipment in 2010 |
|
0.4 |
|
|
5.6% increase in post-mix sales volume |
|
0.1 |
|
|
7.9% increase in sales volume to other Coca-Cola bottlers primarily due to volume
increases in all product categories |
|
(4.6 |
) |
|
Other |
|
|
|
|
$ |
(2.5 |
) |
|
Total decrease in gross margin |
|
|
|
|
45
Gross margin dollars did not change between YTD 2010 and YTD 2011.
|
|
|
|
|
YTD 2011 |
|
|
Attributable to: |
(In Millions) |
|
|
|
$ |
(18.3 |
) |
|
Increase in raw material costs such as plastic bottles and an increase in the percentage of purchased
products which have higher per unit costs |
|
14.3 |
|
|
2.3% increase in bottle/can sales price per unit primarily due to an increase in sales
price per unit in sparkling beverages except energy products and a change in product mix due
to a higher percentage of still beverages sold which have a higher sales price per unit |
|
5.1 |
|
|
7.0% increase in sales price per unit of sales to other Coca-Cola bottlers primarily
due to an increase in sales price per unit in all product categories except energy products |
|
4.8 |
|
|
Decrease in cost due to the Companys aluminum hedging program |
|
(3.5 |
) |
|
1.3% decrease in bottle/can volume primarily due to a volume decrease in sparkling
beverages except energy products and partially offset by an increase in still beverages |
|
1.6 |
|
|
Increase in marketing funding support received primarily from The Coca-Cola Company |
|
0.9 |
|
|
Increase in freight gross margin |
|
(0.8 |
) |
|
Gain on the replacement of flood damaged production equipment in 2010 |
|
0.7 |
|
|
5.9% increase in post-mix sales volume |
|
0.1 |
|
|
3.3% increase in sales volume to other Coca-Cola bottlers primarily due to volume
increases in all product categories |
|
(4.9 |
) |
|
Other |
|
|
|
|
$ |
|
|
|
Total |
|
|
|
|
The decrease in gross margin percentages were primarily due to higher costs for raw materials and
partially offset by higher sales price per unit for bottle/can volume and by decreased cost related
to the Companys aluminum hedging program. The decrease in gross margin percentages was also due
to a change in product mix. Sales volume of still beverages, which have lower margins than
sparkling beverages, increased while sparkling beverages sales volume decreased.
The Companys gross margins may not be comparable to other companies, since some entities include
all costs related to their distribution network in cost of sales. The Company includes a portion
of these costs in S,D&A expenses.
S,D&A Expenses
S,D&A expenses include the following: sales management labor costs, distribution costs from sales
distribution centers to customer locations, sales distribution center warehouse costs,
depreciation expense 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 such as treasury, legal,
information services, accounting, internal control services, human resources and executive
management costs.
S,D&A expenses decreased by $1.0 million, or .8%, to $137.2 million in Q2 2011 from $138.2 million
in Q2 2010. S,D&A expenses as a percentage of net sales decreased from 33.1% in Q2 2010 to 32.4%
in Q2 2011. S,D&A expenses decreased by $.1 million to $267.1 million in YTD 2011 from $267.2
million in YTD 2010. S,D&A expenses as a percentage of net sales decreased from 34.9% in YTD 2010
to 34.1% in YTD 2011.
46
The decrease in S,D&A expenses for Q2 2011 compared to Q2 2010 was primarily due to the following:
|
|
|
|
|
Q2 2011 |
|
|
Attributable to: |
(In Millions) |
|
|
|
$ |
(0.6 |
) |
|
Decrease in fuel costs primarily due to mark-to-market adjustment on fuel hedging ($1.1 million loss in
Q2 2010 as compared to $25,000 loss in Q2 2011) |
|
0.4 |
|
|
Increase in marketing expense |
|
(0.2 |
) |
|
Decrease in employee benefit costs primarily due to decreased pension expense |
|
(0.2 |
) |
|
Decrease in employee salaries including bonus and incentive expense |
|
(0.4 |
) |
|
Other |
|
|
|
|
$ |
(1.0 |
) |
|
Total decrease in S,D&A expenses |
|
|
|
|
The decrease in S,D&A expenses for YTD 2011 compared to YTD 2010 was primarily due to the
following:
|
|
|
|
|
YTD 2011 |
|
|
Attributable to: |
(In Millions) |
|
$ |
(1.3 |
) |
|
Decrease in property and casualty insurance expense |
|
0.9 |
|
|
Increase in marketing expense |
|
0.7 |
|
|
Increase in professional fees primarily due to consulting project support |
|
(0.3 |
) |
|
Decrease in employee benefit costs primarily due to decreased pension expense |
|
0.2 |
|
|
Increase in employee salaries including bonus and incentive expense |
|
(0.2 |
) |
|
Decrease in fuel costs primarily due to mark-to-market adjustment on fuel hedging
($1.4 million loss in YTD 2010 as compared to $.2 million loss in YTD 2011) |
|
(0.1 |
) |
|
Other |
|
|
|
|
$ |
(0.1 |
) |
|
Total decrease in S,D&A expenses |
|
|
|
|
Shipping and handling costs related to the movement of finished goods from manufacturing locations
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 are
included in S,D&A expenses and totaled $95.5 million and $92.6 million in YTD 2011 and YTD 2010,
respectively.
The net impact of the Companys fuel hedging program was to increase fuel costs by $0.1 million and
$1.4 million in YTD 2011 and YTD 2010, respectively.
The Companys expense recorded in S,D&A expenses related to the two Company-sponsored pension plans
decreased by $.7 million from $1.3 million in Q2 2010 to $.6 million in Q2 2011 and by $1.4 million
from $2.6 million in YTD 2010 to $1.2 million in YTD 2011.
The Company provides a 401(k) Savings Plan for substantially all of its employees who are not part
of collective bargaining agreements. The Company matched the first 3% of its employees
contributions for 2010 and 2011. The Company maintains the option to increase the matching
contributions an additional 2%, for a total of 5%, for the Companys employees based on the
financial results. Based on the financial results of the first quarter of 2010, the Company
decided to increase the matching contributions an additional 2% for that quarter, which was
approved and paid in Q2 2010. Based on the financial results of Q2 2010, the Company decided to
increase the matching contributions an additional 2% for that quarter which was approved and paid
in the third quarter of 2010. The 2% matching contributions have been accrued during YTD 2011.
The total cost, including the estimate for the additional 2%
matching contributions, for this benefit in YTD 2011 and YTD 2010 was $4.3 million and $4.5
million, respectively.
47
On March 23, 2010, the Patient Protection and Affordable Care Act (PPACA) was signed into law.
On March 30, 2010, a companion bill, the Health Care and Education Reconciliation Act of 2010
(Reconciliation Act), was also signed into law. The PPACA and the Reconciliation Act, when taken
together, represent comprehensive healthcare reform legislation that will likely affect the cost
associated with providing employer-sponsored medical plans. At this point, the Company is in the
process of determining the impact this legislation will have on the Companys employer-sponsored
medical plans.
Interest Expense
Net interest expense increased 2.7% and 1.1% in Q2 2011 compared to Q2 2010 and YTD 2011 compared
to YTD 2010, respectively. The increases were primarily due to the Company entering into two new
capital leases in the first quarter of 2011. The Companys overall weighted average interest rate
on its debt and capital lease obligations increased to 6.0% during YTD 2011 from 5.8% during YTD
2010. This increase is the result of the conversion of one of the Companys capital leases from a
floating rate to a fixed rate in late 2010, combined with the Companys use of short-term
borrowings in the first half of 2010 at low variable rates relative to the fixed rates on the
Companys Senior Debt. See the Liquidity and Capital Resources Hedging Activities Interest
Rate Hedging section of M,D&A for additional information.
Income Taxes
The Companys effective tax rate, as calculated by dividing income tax expense by income before
income taxes, for YTD 2011 and YTD 2010 was 38.1% and 37.9%, respectively. The Companys effective
tax rate, as calculated by dividing income tax expense by the difference of income before income
taxes minus net income attributable to the noncontrolling interest, for YTD 2011 and YTD 2010 was
40.0% and 40.4%, respectively.
Noncontrolling Interest
The Company recorded net income attributable to the noncontrolling interest of $1.4 million in YTD
2011 compared to $1.8 million in YTD 2010 primarily related to the portion of Piedmont owned by The
Coca-Cola Company.
Financial Condition
Total assets increased to $1.35 billion at July 3, 2011, from $1.31 billion at January 2, 2011
primarily due to increases in leased property under capital leases, net, accounts receivables and
inventories. The increase in leased property under capital leases, net was primarily due to the
Company entering into leases for two sales distribution centers in the first quarter of 2011.
Net working capital, defined as current assets less current liabilities, increased by $11.3 million
to $99.2 million at July 3, 2011 from January 2, 2011 and increased by $4.5 million at July 3, 2011
from July 4, 2010.
Significant changes in net working capital from January 2, 2011 were as follows:
|
|
An increase in accounts receivable, trade of $29.4 million primarily due to normal seasonal
increase in sales. |
|
|
|
A decrease in cash and cash equivalents of $19.7 million due to timing of payments. |
|
|
|
An increase in accounts receivable from and an increase in accounts payable to The
Coca-Cola Company of $14.1 million and $23.9 million, respectively, primarily due to the
timing of payments. |
|
|
|
An increase in inventories of $10.3 million primarily due to normal seasonal increase in
sales. |
48
|
|
A decrease in accrued compensation of $10.0 million primarily due to the payment of bonuses
in March 2011. |
|
|
|
A decrease in other accrued liabilities of $4.0 million primarily due to the timing of
payments. |
Significant changes in net working capital from July 4, 2010 were as follows:
|
|
An increase in cash and cash equivalents of $11.9 million primarily due to funds from
operations and the timing of payments. |
|
|
|
A decrease in accounts receivable, other of $9.5 million primarily due to the receivable
recorded for insured losses from the Nashville flood damage. |
|
|
|
A decrease in accounts receivable, trade of $6.8 million due to the Wal-Mart Stores
promotion of 24-pack 12-ounce cans during all of Q2 2010 and the corresponding increase in
sales. |
|
|
|
An increase in accounts receivable from and a decrease in accounts payable to The Coca-Cola
Company of $5.3 million and $3.6 million, respectively, primarily due to the timing of
payments. |
|
|
|
A decrease in the current portion of debt of $5.0 million due to lower borrowings on the
Companys uncommitted line of credit. |
Debt and capital lease obligations were $599.1 million as of July 3, 2011 compared to $582.3
million as of January 2, 2011 and $604.2 million as of July 4, 2010 with the increase primarily due
to the two new capital leases entered into during the first quarter of 2011. Debt and capital
lease obligations as of July 3, 2011 included $76.0 million of capital lease obligations related
primarily to Company facilities.
Liquidity and Capital Resources
Capital Resources
The Companys sources of capital include cash flows from operations, available credit facilities
and the issuance of debt and equity securities. Management believes the Company has sufficient
resources available to finance its business plan, meet its working capital requirements and
maintain an appropriate level of capital spending. The amount and frequency of future dividends
will be determined by the Companys 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 in the future.
As of July 3, 2011, the Company had all $200 million available under the $200 million revolving
credit facility ($200 million facility) to meet its cash requirements. The $200 million facility
contains two financial covenants: a fixed charges coverage ratio and a debt to operating cash flow
ratio, each as defined in the credit agreement. The fixed charges coverage ratio requires the
Company to maintain a consolidated cash flow to fixed charges ratio of 1.5 to 1 or higher. The
operating cash flow ratio requires the Company to maintain a debt to cash flow ratio of 6.0 to 1 or
lower. The Company is currently in compliance with these covenants and has been throughout 2011.
The Company currently believes that all of the banks participating in the Companys $200 million
facility have the ability to and will meet any funding requests from the Company.
The Company has obtained the majority of its long-term financing, other than capital leases, from
public markets. As of July 3, 2011, $523.1 million of the Companys total outstanding balance of
debt and capital lease obligations of $599.1 million was financed through publicly offered debt.
The Company had capital lease obligations of $76.0 million as of July 3, 2011. There were no
amounts outstanding on either the $200 million facility or on the Companys uncommitted line of
credit as of July 3, 2011. The Companys $200 million facility
matures in March 2012. The Company intends to negotiate a new revolving credit facility during
2011 to provide ongoing liquidity to the Company.
49
Cash Sources and Uses
The primary sources of cash for the Company have been cash provided by operating activities,
investing activities and financing activities. The primary uses of cash have been for capital
expenditures, the payment of debt and capital lease obligations, dividend payments, income tax
payments and pension payments.
A summary of activity for YTD 2011 and YTD 2010 follows:
|
|
|
|
|
|
|
|
|
|
|
First Half |
In Millions |
|
2011 |
|
2010 |
|
Cash Sources |
|
|
|
|
|
|
|
|
Cash provided by operating activities (excluding income tax
and pension payments) |
|
$ |
30.2 |
|
|
$ |
31.4 |
|
Proceeds from reduction of restricted cash |
|
|
.5 |
|
|
|
1.0 |
|
Proceeds from lines of credit, net |
|
|
|
|
|
|
5.0 |
|
Proceeds from the sale of property, plant and equipment |
|
|
.1 |
|
|
|
1.3 |
|
|
Total cash sources |
|
$ |
30.8 |
|
|
$ |
38.7 |
|
|
|
|
|
|
|
|
|
|
|
Cash Uses |
|
|
|
|
|
|
|
|
Capital expenditures |
|
$ |
32.2 |
|
|
$ |
28.1 |
|
Payment of debt and capital lease obligations |
|
|
1.9 |
|
|
|
1.9 |
|
Dividends |
|
|
4.6 |
|
|
|
4.6 |
|
Income tax payments |
|
|
9.2 |
|
|
|
7.5 |
|
Pension payments |
|
|
2.5 |
|
|
|
|
|
Other |
|
|
.1 |
|
|
|
.1 |
|
|
Total cash uses |
|
$ |
50.5 |
|
|
$ |
42.2 |
|
|
Decrease in cash |
|
$ |
(19.7 |
) |
|
$ |
(3.5 |
) |
|
Note: The table above reflects the revision discussed in Note 1 of the consolidated financial statements.
Investing Activities
Additions to property, plant and equipment recorded on the consolidated balance sheet during YTD 2011 were $24.9 million of which $3.1 million
were accrued in accounts payable, trade as unpaid. This compared to $21.3 million in total
additions to property, plant and equipment recorded on the consolidated balance sheet during YTD 2010 of which $3.3 million were accrued in
accounts payable, trade as unpaid including $1.2 million related to the Nashville flood damage and
$1.5 million which was a trade-in-allowance on manufacturing equipment. Capital expenditures
during YTD 2011 were funded with cash flows from operations. The Company anticipates total
additions to property, plant and equipment in fiscal year 2011 will be in the range of $60 million
to $70 million. Leasing is used for certain capital additions when considered cost effective
relative to other sources of capital. The Company currently leases its corporate headquarters, two
production facilities and several sales distribution facilities and administrative facilities.
Financing Activities
On March 8, 2007, the Company entered into the $200 million facility. The $200 million facility
matures in March 2012 and includes an option to extend the term for an additional year at the
discretion of the participating banks. The $200 million facility bears interest at a floating
base rate or a floating rate of LIBOR plus an interest rate spread of .35%, dependent on the
length of the term of the interest period. The Company must pay an annual
facility fee of .10% of the lenders aggregate commitments under the facility. Both the interest
rate spread and the facility fee are determined from a commonly-used pricing grid based on the
Companys long-term senior unsecured debt rating. The $200 million facility contains two
financial covenants: a fixed charges coverage ratio
50
and a debt to operating cash flow ratio, each
as defined in the credit agreement. The fixed charges coverage ratio requires the Company to
maintain a consolidated cash flow to fixed charges ratio of 1.5 to 1 or higher. The operating
cash flow ratio requires the Company to maintain a debt to operating cash flow ratio of 6.0 to 1
or lower. The Company is currently in compliance with these covenants. These covenants do not
currently, and the Company does not anticipate they will, restrict its liquidity or capital
resources. On July 3, 2011 and January 2, 2011, the Company had no outstanding borrowings on the
$200 million facility. On July 4, 2010, the Company had $15.0 million outstanding under the $200
million facility.
On February 10, 2010, the Company entered into an agreement for an uncommitted line of credit.
Under this agreement, the Company may borrow up to a total of $20 million for periods of 7 days, 30
days, 60 days or 90 days at the discretion of the participating bank. On July 3, 2011 and January
2, 2011, the Company had no outstanding borrowings under the uncommitted line of credit. On July
4, 2010, the Company had $5.0 million outstanding under the uncommitted line of credit.
In the first quarter of 2011, the Company entered into leases for two sales distribution centers.
Each lease has a term of 15 years with various monthly rental payments. The capital lease
obligation incurred for the two leases was $18.6 million.
All of the outstanding debt has been issued by the Company with none having been issued by any of
the Companys subsidiaries. There are no guarantees of the Companys debt. The Company or its
subsidiaries have entered into six capital leases.
At July 3, 2011, the Companys credit ratings were as follows:
|
|
|
|
|
Long-Term Debt |
Standard & Poors
|
|
BBB |
Moodys
|
|
Baa2 |
The Companys credit ratings are reviewed periodically by the respective rating agencies. Changes
in the Companys operating results or financial position could result in changes in the Companys
credit ratings. Lower credit ratings could result in higher borrowing costs for the Company or
reduced access to capital markets. There were no changes in these credit ratings from the prior
year and the credit ratings are currently stable.
The Companys public debt is not subject to financial covenants but does limit the incurrence of
certain liens and encumbrances as well as indebtedness by the Companys subsidiaries in excess of
certain amounts.
Off-Balance Sheet Arrangements
The Company is a member of two manufacturing cooperatives and has guaranteed $41.1 million of debt
and related lease obligations for these entities as of July 3, 2011. In addition, the Company
has an equity ownership in each of the entities. The members of both cooperatives consist solely
of Coca-Cola bottlers. The Company does not anticipate either of these cooperatives will fail to
fulfill their commitments. The Company further believes each of these cooperatives has sufficient
assets, including production equipment, facilities and working capital, and the ability to adjust
selling prices of their products to adequately mitigate the risk of material loss from the
Companys guarantees. As of July 3, 2011, the Companys maximum exposure, if the entities
borrowed
up to their borrowing capacity, would have been $75.1 million including the Companys equity
interests. See Note 14 and Note 19 to the consolidated financial statements for additional
information about these entities.
51
Aggregate Contractual Obligations
The following table summarizes the Companys contractual obligations and commercial commitments as
of July 3, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period |
|
|
|
|
|
|
July 2011- |
|
July 2012- |
|
July 2014- |
|
After |
In Thousands |
|
Total |
|
June 2012 |
|
June 2014 |
|
June 2016 |
|
June 2016 |
|
Contractual obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt, net of interest |
|
$ |
523,139 |
|
|
$ |
|
|
|
$ |
150,000 |
|
|
$ |
264,757 |
|
|
$ |
108,382 |
|
Capital lease obligations,
net of interest |
|
|
76,002 |
|
|
|
4,174 |
|
|
|
10,302 |
|
|
|
12,326 |
|
|
|
49,200 |
|
Estimated interest on
long-term debt and capital
lease obligations (1) |
|
|
164,207 |
|
|
|
33,966 |
|
|
|
54,355 |
|
|
|
43,140 |
|
|
|
32,746 |
|
Purchase obligations (2) |
|
|
267,283 |
|
|
|
91,640 |
|
|
|
175,643 |
|
|
|
|
|
|
|
|
|
Other long-term liabilities (3) |
|
|
116,664 |
|
|
|
10,400 |
|
|
|
16,679 |
|
|
|
12,025 |
|
|
|
77,560 |
|
Operating leases |
|
|
26,305 |
|
|
|
3,827 |
|
|
|
6,207 |
|
|
|
5,568 |
|
|
|
10,703 |
|
Long-term contractual
arrangements (4) |
|
|
22,065 |
|
|
|
7,336 |
|
|
|
10,304 |
|
|
|
2,941 |
|
|
|
1,484 |
|
Postretirement obligations |
|
|
55,992 |
|
|
|
3,675 |
|
|
|
5,981 |
|
|
|
6,561 |
|
|
|
39,775 |
|
Purchase orders (5) |
|
|
46,287 |
|
|
|
46,287 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations |
|
$ |
1,297,944 |
|
|
$ |
201,305 |
|
|
$ |
429,471 |
|
|
$ |
347,318 |
|
|
$ |
319,850 |
|
|
|
|
|
(1) |
|
Includes interest payments based on contractual terms and current interest
rates for variable rate debt. |
|
(2) |
|
Represents an estimate of the Companys obligation to purchase 17.5 million cases
of finished product on an annual basis through May 2014 from South Atlantic Canners, a
manufacturing cooperative. |
|
(3) |
|
Includes obligations under executive benefit plans, the liability to exit from a
multi-employer pension plan and other long-term liabilities. |
|
(4) |
|
Includes contractual arrangements with certain prestige properties, athletics
venues and other locations, and other long-term marketing commitments. |
|
(5) |
|
Purchase orders include commitments in which a written purchase order has been
issued to a vendor, but the goods have not been received or the services have not been
performed. |
The Company has $5.2 million of uncertain tax positions including accrued interest as of July
3, 2011 (excluded from other long-term liabilities in the table above because the Company is
uncertain as to if or when such amounts will be recognized) of which $2.8 million would affect the
Companys effective tax rate if recognized. While it is expected that the amount of uncertain tax
positions may change in the next 12 months, the Company does not expect any change to have a
significant impact on the consolidated financial statements. See Note 15 to the consolidated
financial statements for additional information.
The Company is a member of Southeastern Container, a plastic bottle manufacturing cooperative,
from which the Company is obligated to purchase at least 80% of its requirements of plastic
bottles for certain designated territories. This obligation is not included in the Companys
table of contractual obligations and commercial commitments since there are no minimum purchase
requirements.
As of July 3, 2011, the Company has $21.0 million of standby letters of credit, primarily related
to its property and casualty insurance programs. See Note 14 to the consolidated financial
statements for additional information related to commercial commitments, guarantees, legal and tax
matters.
The Company has made contributions to the Company-sponsored pension plans of $2.5 million in YTD
2011. Based on information currently available, the Company anticipates cash contributions during
the remainder of
52
2011 will be approximately $7 million. Postretirement medical care payments are
expected to be approximately $3 million in 2011. See Note 18 to the consolidated financial
statements for additional information related to pension and postretirement obligations.
Hedging Activities
Interest Rate Hedging
The Company periodically uses interest rate hedging products to mitigate risk from interest rate
fluctuations. The Company has historically altered its fixed/floating rate mix based upon
anticipated cash flows from operations relative to the Companys debt level and the potential
impact of changes in interest rates on the Companys overall financial condition. Sensitivity
analyses are performed to review the impact on the Companys financial position and coverage of
various interest rate movements. The Company does not use derivative financial instruments for
trading purposes nor does it use leveraged financial instruments.
The Company has not had any interest rate swap agreements outstanding since September 2008.
Interest expense was reduced due to the amortization of deferred gains on previously terminated
interest rate swap agreements and forward interest rate agreements by $.6 million during both YTD
2011 and YTD 2010.
The weighted average interest rate of the Companys debt and capital lease obligations was 5.9% as
of July 3, 2011 compared to 5.8% as of January 2, 2011 and 5.7% as of July 4, 2010. The Companys
overall weighted average interest rate on its debt and capital lease obligations increased to 6.0%
in YTD 2011 from 5.8% in YTD 2010. This increase is the result of the conversion of one of the
Companys capital leases from a floating rate to a fixed rate in late 2010, combined with the
Companys use of short-term borrowings in the first half of 2010 at low variable rates relative to
the fixed rates on the Companys Senior Debt. None of the Companys debt and capital lease
obligations of $599.1 million as of July 3, 2011 was maintained on a floating rate basis or was
subject to changes in short-term interest rates.
Fuel Hedging
The Company used derivative instruments to hedge substantially all of the projected diesel fuel
purchases for 2010. The Company is using derivative instruments to hedge substantially all of the
projected diesel fuel and unleaded gasoline purchases for the second, third and fourth quarters of
2011. These derivative instruments relate to diesel fuel and unleaded gasoline used by the
Companys delivery fleet and other vehicles. The Company pays a fee for these instruments which is
amortized over the corresponding period of the instrument. The Company accounts for its fuel
hedges on a mark-to-market basis with any expense or income being reflected as an adjustment of
fuel costs.
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.
In February 2009, the Company entered into derivative contracts to hedge substantially all of its
projected diesel purchases for 2010 establishing an upper limit on the Companys price of diesel
fuel.
In February 2011, the Company entered into derivative instruments to hedge all of the Companys
projected diesel fuel and unleaded gasoline purchases for the second, third and fourth quarters of
2011 establishing an upper limit on the Companys price of diesel fuel and unleaded gasoline.
53
The net impact of the Companys fuel hedging program was to increase fuel costs by $0.1 million and
$1.4 million in YTD 2011 and YTD 2010, respectively.
Aluminum Hedging
During 2009, the Company began using derivative instruments to hedge approximately 75% of the
projected 2010 and 2011 aluminum purchase requirements. The Company pays a fee for these
instruments which is amortized over the corresponding period of the instruments. The Company
accounts for its aluminum hedges on a mark-to-market basis with any expense or income being
reflected as an adjustment to cost of sales.
The net impact of the Companys aluminum hedging program was to increase cost of sales by $.9
million and $5.7 million in YTD 2011 and YTD 2010, respectively.
54
Cautionary Information Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q, as well as information included in future filings by the
Company with the Securities and Exchange Commission and information contained in written material,
press releases and oral statements issued by or on behalf of the Company, contains, or may contain,
forward-looking management comments and other statements that reflect managements current outlook
for future periods. These statements include, among others, statements relating to:
|
|
|
the Companys belief that the covenants on its $200 million facility will not restrict
its liquidity or capital resources; |
|
|
|
|
the Companys belief that other parties to certain contractual arrangements will perform
their obligations; |
|
|
|
|
potential marketing funding support from The Coca-Cola Company and other beverage
companies; |
|
|
|
|
the Companys belief that disposition of certain claims and legal proceedings 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; |
|
|
|
|
managements belief that the Company has adequately provided for any ultimate amounts
that are likely to result from tax audits; |
|
|
|
|
managements belief that the Company has sufficient resources available to finance its
business plan, meet its working capital requirements and maintain an appropriate level of
capital spending; |
|
|
|
|
the Companys belief that the cooperatives whose debt and lease obligations the Company
guarantees have sufficient assets and the ability to adjust selling prices of their
products to adequately mitigate the risk of material loss and that the cooperatives will
perform their obligations under their debt and lease agreements; |
|
|
|
|
the Companys key priorities which are revenue management, product innovation and
beverage portfolio expansion, distribution cost management and productivity; |
|
|
|
|
the Companys belief that cash contributions in 2011 to its two Company-sponsored
pension plans will be approximately $10 million; |
|
|
|
|
the Companys belief that postretirement medical care payments are expected to be
approximately $3 million in 2011; |
|
|
|
|
the Companys expectation that additions to property, plant and equipment in 2011 will
be in the range of $60 million to $70 million; |
|
|
|
|
the Companys beliefs and estimates regarding the impact of the adoption of certain new
accounting pronouncements; |
|
|
|
|
the Companys beliefs that the growth prospects of Company-owned or exclusive licensed
brands appear promising and the cost of developing, marketing and distributing these brands
may be significant; |
|
|
|
|
the Companys belief that all of the banks participating in the Companys $200 million
facility have the ability to and will meet any funding requests from the Company; |
|
|
|
|
the Companys belief that it is competitive in its territories with respect to the
principal methods of competition in the nonalcoholic beverage industry; |
|
|
|
|
the Companys estimate that a 10% increase in the market price of certain commodities
over the current market prices would cumulatively increase costs during the next 12 months
by approximately $26 million assuming no change in volume; |
|
|
|
|
the Companys belief that innovation of new brands and packages will continue to be
critical to the Companys overall revenue; |
55
|
|
|
the Companys expectation that uncertain tax positions may change over the next 12
months as a result of tax audits, but will not have a significant impact on the
consolidated financial statements; |
|
|
|
|
the Companys belief that the risk of loss with respect to funds deposited with banks is
minimal; |
|
|
|
|
the Companys expectations that raw material costs will rise significantly in 2011 and
that gross margins will be lower throughout the remainder of 2011 compared to 2010 if these
costs cannot be offset with price increases; and |
|
|
|
|
the Companys intention to negotiate a new revolving credit facility during 2011. |
These statements and expectations are based on currently available competitive, financial and
economic data along with the Companys operating plans, and are subject to future events and
uncertainties that could cause anticipated events not to occur or actual results to differ
materially from historical or anticipated results. Factors that could impact those statements and
expectations or adversely affect future periods include, but are not limited to, the factors set
forth in Part I. Item 1A. Risk Factors of the Companys Annual Report on Form 10-K for the year
ended January 2, 2011.
Caution should be taken not to place undue reliance on the Companys forward-looking statements,
which reflect the expectations of management of the Company only as of the time such statements are
made. Except as required by law, the Company undertakes no obligation to publicly update or revise
any forward-looking statements, whether as a result of new information, future events or otherwise.
56
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
purposes. A discussion of the Companys 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 fixed and floating rate debt. The Company may
periodically use interest rate hedging products to modify risk from interest rate fluctuations.
The counterparties on any interest rate hedging arrangements are major financial institutions with
which the Company also had other financial relationships. The Company did not have any interest
rate hedging products as of July 3, 2011. None of the Companys debt and capital lease obligations
of $599.1 million as of July 3, 2011 was subject to changes in short-term interest rates.
Raw Material and Commodity Price Risk
The Company is also subject to commodity price risk arising from price movements for certain other
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. The Company has not historically
used derivative commodity instruments in the management of this risk. The Company estimates that a
10% increase in the market prices of these commodities over the current market prices would
cumulatively increase costs during the next 12 months by approximately $26 million assuming no
change in volume.
The Company entered into derivative instruments to hedge essentially all of the diesel fuel
purchases for 2010. The Company entered into derivative instruments to hedge substantially all of
the projected diesel fuel and unleaded gasoline purchases for the second, third and fourth quarters
of 2011. These derivative instruments relate to diesel fuel and unleaded gasoline used by the
Companys delivery fleet and other vehicles. The Company pays a fee for these instruments which is
amortized over the corresponding period of the instrument. The Company currently accounts for its
fuel hedges on a mark-to-market basis with any expense or income being reflected as an adjustment
of fuel costs.
During 2009, the Company began using derivative instruments to hedge approximately 75% of the
projected 2010 and 2011 aluminum purchase requirements. The Company pays a fee for these
instruments which is amortized over the corresponding period of the instruments. The Company
accounts for its aluminum hedges on a mark-to-market basis with any expense or income being
reflected as an adjustment to cost of sales.
57
Effects of Changing Prices
The principal effect of inflation on the Companys operating results is to increase costs. The
Company may raise selling prices to offset these cost increases; however, the resulting impact on
retail prices may reduce the volume of product purchased by consumers.
Item 4. Controls and Procedures.
As of the end of the period covered by this report, the Company carried out an evaluation, under
the supervision and with the participation of the Companys management, including the Companys
Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and
operation of the Companys disclosure controls and procedures (as defined in Rule 13a-15(e) of
the Securities Exchange Act of 1934 (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 Companys disclosure controls and procedures were effective as of July 3, 2011.
There has been no change in the Companys internal control over financial reporting during the
quarter ended July 3, 2011 that has materially affected, or is reasonably likely to materially
affect, the Companys internal control over financial reporting.
58
PART II OTHER INFORMATION
Item 1A. Risk Factors.
There have been no material changes to the factors disclosed in Part I. Item 1A. Risk Factors in
the Companys Annual Report on Form 10-K for the year ended January 2, 2011.
59
Item 6. Exhibits.
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
|
|
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. |
|
|
|
12
|
|
Ratio of earnings to fixed charges (filed herewith). |
|
|
|
31.1
|
|
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed
herewith). |
|
|
|
31.2
|
|
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed
herewith). |
|
|
|
32
|
|
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 (filed
herewith). |
|
|
|
101 |
|
Financial
statements from the quarterly report on Form 10-Q of Coca-Cola
Bottling Co. Consolidated for the quarter ended July 3, 2011, filed
on August 12, 2011, formatted in XBRL (Extensible Business Reporting
Language): (i) the Consolidated Statements of Operations; (ii) the
Consolidated Balance Sheets; (iii) the Consolidated Statements of
Changes in Equity; (iv) the Consolidated Statements of Cash Flows and
(v) the Notes to the Consolidated Financial Statements tagged as
blocks of text. |
60
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 |
|
|
|
|
|
|
(REGISTRANT) |
|
|
|
|
|
|
|
|
|
Date: August 12, 2011
|
|
By:
|
|
/s/ James E. Harris |
|
|
|
|
|
|
|
|
|
|
|
|
|
James E. Harris |
|
|
|
|
|
|
Principal Financial Officer of the Registrant |
|
|
|
|
|
|
and |
|
|
|
|
|
|
Senior Vice President, Shared
Services and Chief Financial Officer |
|
|
|
|
|
|
|
|
|
|
|
|
Date: August 12, 2011
|
|
By:
|
|
/s/ William J. Billiard |
|
|
|
|
|
|
|
|
|
|
|
|
|
William J. Billiard |
|
|
|
|
|
|
Principal Accounting Officer of the Registrant |
|
|
|
|
|
|
and |
|
|
|
|
|
|
Vice President of Operations Finance and Chief Accounting Officer
|
|
|
61
exv12
Exhibit 12
Coca-Cola Bottling Co. Consolidated
Ratio of Earnings to Fixed Charges
(In Thousands, Except Ratios)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter |
|
|
First Half |
|
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
Computation of Earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
$ |
19,378 |
|
|
$ |
21,016 |
|
|
$ |
29,788 |
|
|
$ |
29,865 |
|
Add: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
8,477 |
|
|
|
8,224 |
|
|
|
16,682 |
|
|
|
16,462 |
|
Amortization of debt premium/discount and expenses |
|
|
572 |
|
|
|
588 |
|
|
|
1,141 |
|
|
|
1,170 |
|
Interest portion of rent expense |
|
|
409 |
|
|
|
451 |
|
|
|
828 |
|
|
|
827 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings as adjusted |
|
$ |
28,836 |
|
|
$ |
30,279 |
|
|
$ |
48,439 |
|
|
$ |
48,324 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Computation of Fixed Charges: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
$ |
8,477 |
|
|
$ |
8,224 |
|
|
$ |
16,682 |
|
|
$ |
16,462 |
|
Capitalized interest |
|
|
39 |
|
|
|
12 |
|
|
|
122 |
|
|
|
77 |
|
Amortization of debt premium/discount and expenses |
|
|
572 |
|
|
|
588 |
|
|
|
1,141 |
|
|
|
1,170 |
|
Interest portion of rent expense |
|
|
409 |
|
|
|
451 |
|
|
|
828 |
|
|
|
827 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed charges |
|
$ |
9,497 |
|
|
$ |
9,275 |
|
|
$ |
18,773 |
|
|
$ |
18,536 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of Earnings to Fixed Charges |
|
|
3.04 |
|
|
|
3.26 |
|
|
|
2.58 |
|
|
|
2.61 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
exv31w1
Exhibit 31.1
MANAGEMENT CERTIFICATION
I, J. Frank Harrison, III, certify that:
1. |
|
I have reviewed this quarterly report on Form 10-Q of Coca-Cola Bottling Co. Consolidated; |
2. |
|
Based on my knowledge, this report does not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period
covered by this report; |
3. |
|
Based on my knowledge, the financial statements, and other financial information included in
this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this
report; |
4. |
|
The registrants other certifying officer(s) and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have: |
|
a) |
|
Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that material
information relating to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly during the period in
which this report is being prepared; |
|
|
b) |
|
Designed such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally
accepted accounting principles; |
|
|
c) |
|
Evaluated the effectiveness of the registrants disclosure controls and
procedures and presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by this report
based on such evaluation; and |
|
|
d) |
|
Disclosed in this report any change in the registrants internal control over
financial reporting that occurred during the registrants most recent fiscal quarter
(the registrants fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrants
internal control over financial reporting; and |
5. |
|
The registrants other certifying officer(s) and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrants auditors and the
audit committee of the registrants board of directors (or persons performing the equivalent
functions): |
|
a) |
|
All significant deficiencies and material weaknesses in the design or operation
of internal control over financial reporting which are reasonably likely to adversely
affect the registrants ability to record, process, summarize and report financial
information; and |
|
|
b) |
|
Any fraud, whether or not material, that involves management or other employees
who have a significant role in the registrants internal control over financial
reporting. |
|
|
|
|
|
Date: August 12, 2011
|
|
/s/ J. Frank Harrison, III
J. Frank Harrison, III
|
|
|
|
|
Chairman of the Board of Directors |
|
|
|
|
and Chief Executive Officer |
|
|
exv31w2
Exhibit 31.2
MANAGEMENT CERTIFICATION
I, James E. Harris, certify that:
1. |
|
I have reviewed this quarterly report on Form 10-Q of Coca-Cola Bottling Co. Consolidated; |
2. |
|
Based on my knowledge, this report does not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period
covered by this report; |
3. |
|
Based on my knowledge, the financial statements, and other financial information included in
this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this
report; |
4. |
|
The registrants other certifying officer(s) and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have: |
|
a) |
|
Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that material
information relating to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly during the period in
which this report is being prepared; |
|
|
b) |
|
Designed such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally
accepted accounting principles; |
|
|
c) |
|
Evaluated the effectiveness of the registrants disclosure controls and
procedures and presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by this report
based on such evaluation; and |
|
|
d) |
|
Disclosed in this report any change in the registrants internal control over
financial reporting that occurred during the registrants most recent fiscal quarter
(the registrants fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrants
internal control over financial reporting; and |
5. |
|
The registrants other certifying officer(s) and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrants auditors and the
audit committee of the registrants board of directors (or persons performing the equivalent
functions): |
|
a) |
|
All significant deficiencies and material weaknesses in the design or operation
of internal control over financial reporting which are reasonably likely to adversely
affect the registrants ability to record, process, summarize and report financial
information; and |
|
|
b) |
|
Any fraud, whether or not material, that involves management or other employees
who have a significant role in the registrants internal control over financial
reporting. |
|
|
|
|
|
Date: August 12, 2011
|
|
/s/ James E. Harris
James E. Harris
|
|
|
|
|
Senior Vice President, Shared
Services and Chief Financial Officer |
|
|
exv32
Exhibit 32
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Coca-Cola Bottling Co. Consolidated (the Company)
on Form 10-Q for the quarter ending July 3, 2011, as filed with the Securities and Exchange
Commission on the date hereof (the Report), we, J. Frank Harrison, III, Chairman of the Board of
Directors and Chief Executive Officer of the Company, and James E. Harris, Senior Vice President
and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350 as adopted
pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the
Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly represents, in all material respects, the
financial condition and results of operations of the Company.
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/s/ J. Frank Harrison, III
J. Frank Harrison, III
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Chairman of the Board of Directors and |
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Chief Executive Officer |
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August 12, 2011 |
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/s/ James E. Harris
James E. Harris
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Senior
Vice President, Shared
Services and |
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Chief Financial Officer |
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August 12, 2011 |
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