UNITED STATES SECURITIES AND EXCHANGE COMMISSION x | | |
þ | | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| | For the fiscal year ended December 28, 2008 |
For the fiscal year ended January 1, 2006
Commission file number 0-9286Coca-Cola Bottling Co. Consolidated
(Exact name of registrant as specified in its charter) | | |
Delaware
| | |
Delaware | | 56-0950585 |
(State or other jurisdiction of
incorporation or organization) | | (I.R.S. Employer
Identification Number) |
4100Coca-Cola Plaza, Charlotte, North Carolina 28211 (Address of principal executive offices) (Zip Code) (Registrant’s telephone number, including area code)
Securities Registered Pursuant to Section 12(b) of the Act:
None | | |
Title of Each Class | | Name of Each Exchange on Which Registered |
|
| Common Stock, $1.00 Par Value | | The Nasdaq Stock Market LLC |
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, $l.00 Par Value
(Title of Class)
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
o¨ No xþIndicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
o¨ No xþIndicate 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
xþ No
o¨Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best of
the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this
Form 10-K. ¨þIndicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
a non-accelerated filer, or a
non-accelerated filer.smaller reporting company. See
definitionthe definitions of
“large accelerated filer,” “accelerated filer” and
“large accelerated filer”“smaller reporting company” in Rule
12b-2 of the Exchange Act. (Check one):
| | | | | | |
Large accelerated filer ¨ Accelerated filer x Non-accelerated filer ¨o | | Accelerated filer þ | | Non-accelerated filer o
(Do not check if a smaller reporting company) | | Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes
o¨ No xþState the aggregate market value of
the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter.
| | |
| | | Market Value as of July 1, 2005
|
| | June 27, 2008 |
|
| Common Stock, $l.00 Par Value | | $228,139,394181,074,096 |
Class B Common Stock, $l.00 Par Value | | * |
| | |
| * | | No market exists for the shares of Class B Common Stock, which is neither registered under Section 12 of the Act nor subject to Section 15(d) of the Act. The Class B Common Stock is convertible into Common Stock on a share-for-share basis at the option of the holder. |
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.
| | |
Class
| | | | |
| | Outstanding as of
| |
Class | | February 28, 2006
2009 | |
|
| Common Stock, $1.00 Par Value | | 6,643,077 | 7,141,447 | |
Class B Common Stock, $1.00 Par Value | | 2,460,252 | 2,021,882 | |
Documents Incorporated by Reference
| | | | |
Portions of Proxy Statement to be filed pursuant to Section 14 of the Exchange Act with respect to the 20062009 Annual Meeting of Stockholders | | | Part III, Items 10-14 | |
Item 1. IntroductionBusinessCoca-ColaIntroduction
Coca-Cola Bottling Co. Consolidated, a Delaware corporation (together with its majority-owned subsidiaries, the “Company”), produces, markets and distributes nonalcoholic beverages, primarily products of TheCoca-Cola Company, Atlanta, Georgia (“TheCoca-Cola Company”) which include some of the most recognized and popular beverage brands in the world. Coca-Cola Bottling Co. Consolidated,The Company, which was incorporated in 1980, and its predecessors have been in the soft drinknonalcoholic beverage manufacturing and distribution business since 1902.
The Company is the second largest Coca-Cola bottler in the United States. The Company considers opportunities for acquiring additional territories on an ongoing basis. To achieve its goals, further purchases and sales of bottling rights and entities possessing such rights and other related transactions designed to facilitate such purchases and sales may occur. Since 2000, the Company has placed significant emphasis on new product innovation and product line extensions as a strategy to increase overall revenue.
The Company is the second largestCoca-Cola bottler in the United States.
TheCoca-Cola Company currently owns
27.3%approximately 27.1% of the Company’s total outstanding Common Stock and Class B Common Stock on a combined basis. J. Frank Harrison, III, the Company’s Chairman
of the Board and Chief Executive Officer,
is party to a Voting Agreement and Irrevocable Proxy with The Coca-Cola Company pursuant to which, among other things, Mr. Harrison, III has been granted an Irrevocable Proxy for life concerning the shares of Common Stock and Class B Common Stock owned by The Coca-Cola Company. Mr. Harrison, III currently owns or controls approximately
92%85% of the combined voting power of the Company’s outstanding Common Stock and Class B Common Stock.
GeneralIn its soft drink operations, the
Nonalcoholic beverage products can be broken down into two categories:
| | |
| • | Sparkling beverages — primarily beverages with carbonation, including energy drinks; and |
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| • | Still beverages — primarily beverages without carbonation, including bottled water, tea, ready-to-drink coffee, enhanced water, juices and sports drinks. |
Sales of sparkling beverages were approximately 83%, 84% and 86% of total net sales for 2008, 2007 and 2006, respectively. Sales of still beverages were approximately 17%, 16% and 14% of total net sales for 2008, 2007 and 2006, respectively.
The Company holds
Bottle ContractsCola Beverage Agreements and Allied
Bottle ContractsBeverage Agreements under which it produces,
distributes and markets, in certain regions,
carbonated soft drinksparkling beverage products of The
Coca-Cola Company, including Coca-Cola classic, caffeine free Coca-Cola classic, Coca-Cola Zero, Coca-Cola with lime, diet Coke, diet Coke with lemon, diet Coke with lime, caffeine free diet Coke, Cherry Coke, diet Cherry Coke, Vanilla Coke, diet Vanilla Coke, Black Cherry Vanilla Coca-Cola, diet Black Cherry Vanilla Coca-Cola, Coca-Cola C2, TAB, Sprite, diet Sprite, Sprite Remix, Vault, Vault Zero, Mello Yello, diet Mello Yello, Mr. PiBB, sugar free Mr. PiBB, Barq’s Root Beer, diet Barq’s Root Beer, Fresca, Fresca flavors, Fanta flavors, Seagrams’ products, Minute Maid orange and diet Minute Maid orange. Company. The Company also
holds Still Beverage Agreements under which it distributes and markets
under Noncarbonated Beverage Contracts productsin certain regions still beverages of TheCoca-Cola Company such as POWERade,
DasaniMinute Maid Adult Refreshments and Minute Maid Juices To
Go in certain of its markets. Go. The Company
producesholds agreements to produce and
marketsmarket Dr Pepper in some of its regions. The Company also distributes and markets various other products, including
Dasani flavors, Minute Maid Adult Refreshments, Full Throttle, RockstarMonster Energy products, Cinnabon Premium Coffee Lattes and Sundrop, in one or more of the Company’s regions under agreements with the companies that
manufacturehold and license the
concentrateuse of their trademarks for
thosethese beverages. In addition, the Company also produces
soft drinksbeverages for other
Coca-Cola bottlers.
In some instances, the Company distributes beverages without a written agreement.
The Company’s principal soft drinksparkling beverage isCoca-Cola classic. In each of the last three fiscal years, sales of products underbearing the Coca-Cola“Coca-Cola” or “Coke” trademark have accounted for more than half of the Company’s bottle/can sales volume to retail customers. In total, the products of TheCoca-Cola Company accounted for approximately 90%89%, 90%89% and 91%90% of the Company’s bottle/can sales volume to retail customers during fiscal years 2005, 20042008, 2007 and 2003,2006, respectively.
The Company offers a range of flavors designed to meet the demands of the Company’s consumers. The main packaging materials for the Company’s beverages are plastic bottles and aluminum cans. In addition, the Company provides restaurants and other immediate consumption outlets with fountain products (“post-mix”). Fountain products are dispensed through equipment that mixes the fountain syrup with carbonated or still water, enabling fountain retailers to sell finished products to consumers in cups or glasses.
Over the last two and a half years, the Company has developed and begun to market and distribute certain products which it owns. These products include Country Breeze tea, diet Country Breeze tea and Tum-E Yummies, a vitamin C enhanced flavored drink. The Company may market and sell these products nationally.
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The following table sets forth some of the Company’s most important products, including both products that TheCoca-Cola Company and other beverage companies have licensed to the Company and products that the Company owns.
| | | | | | |
| The Coca-Cola Company | | | | |
Sparkling Beverages
| | | | Products Licensed
| | |
(Including Energy
| | | | by Other Beverage
| | Company Owned
|
| Products) | | Still Beverages | | Companies | | Products |
|
Coca-Cola classic
Diet Coke
Coca-Cola Zero
Sprite
Fanta Flavors
Sprite Zero
Mello Yello
Vault
Coke Cherry
Seagrams Ginger Ale
Coke Zero Cherry
Diet Coke Plus
Diet Coke Splenda
Vault Zero
Fresca
Pibb Xtra
Barqs Root Beer
Tab
Full Throttle
NOS© | | smartwater
vitaminwater
vitaminenergy
Dasani
Dasani Flavors
Dasani Plus
POWERade
Minute Maid Adult
Refreshments
Minute Maid Juices
To Go
Nestea
Gold Peak tea
FUZE
V8 juice products
from Campbell | | Dr Pepper
Diet Dr Pepper
Sundrop
Cinnabon Premium
Coffee Lattes
Monster Energy
products | | Tum-E Yummies
Country Breeze tea
diet Country Breeze tea
|
The Company holds contracts with The
Coca-Cola Company which entitle the Company to produce,
market and
marketdistribute in its exclusive territory The
Coca-Cola Company’s
soft drinksnonalcoholic beverages in bottles, cans and five gallon pressurized pre-mix containers. The Company
is one of many companies holding such contracts. The Coca-Cola Company is the sole owner of the secret formulas pursuant to which the primary components (either concentrates or syrups) of Coca-Cola trademark beverages and other trademark beverages are manufactured. The concentrates, when mixed with water and sweetener, produce syrup which, when mixed with carbonated water, produces the soft drink known as “Coca-Cola classic” and other soft drinks of The Coca-Cola Company which are manufactured and marketed by the Company. The Company also purchases sweeteners from The Coca-Cola Company. No royalty or other compensation is paid under the contracts with The Coca-Cola Company for the Company’s right to use, in its territories, the tradenames and trademarks, such as “Coca-Cola classic” and their associated patents, copyrights, designs and labels, which are owned by The Coca-Cola Company. The Coca-Cola Company has no rights under these contracts to establish the resale prices at which the Company sells its products. The Company has similar arrangements with Dr
Pepper/Seven Up, Inc.Pepper Snapple Group and other beverage companies.
Cola and Allied Beverage Agreements with TheBottle Contracts.Coca-Cola Company. The Company purchases concentrates from TheCoca-Cola Company and markets, produces, and distributes its principal sparkling beverage products within its territories under two basic forms of beverage agreements with TheCoca-Cola Company: (i) beverage agreements that cover sparkling beverages bearing the trademark“Coca-Cola” or “Coke” (the“Coca-Cola Trademark Beverages” and “Cola Beverage Agreements”), and (ii) beverage agreements that cover other sparkling beverages of TheCoca-Cola Company (the “Allied Beverages” and “Allied Beverage Agreements”) (referred to collectively in this report as the “Cola and Allied Beverage Agreements”), although in some instances the Company distributes sparkling beverages without a written agreement. The Company is a party to standard bottle contractsCola Beverage Agreements and to Allied Beverage Agreements for various specified territories.
Cola Beverage Agreements with TheCoca-Cola Company for each of its bottling territories (the “Bottle Contracts”) which.
Exclusivity. The Cola Beverage Agreements provide that the Company will purchase its entire requirementrequirements of concentrates andor syrups forCoca-Cola classic, caffeine free Trademark Beverages from TheCoca-Cola classic, diet Coke, Coca-Cola Zero, diet Coke with lemon, Coca-Cola with lime, diet Coke with lime, caffeine free diet Coke, Cherry Coke, diet Cherry Coke, Vanilla Coke, diet Vanilla Coke, Black Cherry Vanilla Coca-Cola, diet Black Cherry Vanilla Coca-Cola Company at prices, terms of payment, and Coca-Cola C2 (together, the “Coca-Cola Trademark Beverages”)other terms and conditions of supply determined from time-to-time by TheCoca-Cola Company at its sole discretion. The Company may not produce, distribute, or handle cola products other than those of TheCoca-Cola Company. The Company has the exclusive right to manufacture and distributeCoca-Cola Trademark Beverages for sale in its territories in authorized containers of the nature currently used by the Company, which include cans and nonrefillable bottles.within its territories. TheCoca-Cola Company may determine, from time to timeat its sole discretion, what types of containers of this type to authorizeare authorized for use by thewith products of TheCoca-Cola Company. The Company cannotmay not sellCoca-Cola Trademark Beverages outside of its bottling territories.
2
The prices The Coca-Cola
Company charges for concentrate and syrup under the Bottle Contracts are set byObligations. The
Coca-Cola Company from time to time. Except as provided in the Supplementary Agreement described below, there are no limitations on prices for concentrate or syrup. Consequently, the prices at which the Company purchases concentrate and syrup in the future under the Bottle Contracts may vary materially from the prices it has paid during the periods covered by the financial information included in this report.Under the Bottle Contracts, the Company is obligated:
obligated to: to maintain such plant, equipment, staff and distribution facilities as are required for the manufacture, packaging and distribution of the Coca-Cola Trademark Beverages in authorized containers,
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| • | maintain such plant and equipment, staff and distribution, and vending facilities as are capable of manufacturing, packaging, and distributingCoca-Cola Trademark Beverages in accordance with the Cola Beverage Agreements and in sufficient quantities to satisfy fully the demand for these beverages in its territories;to undertake adequate quality control measures and maintain sanitation standards prescribed by The Coca-Cola Company;
to develop, stimulate and satisfy fully the demand for Coca-Cola Trademark Beverages and to satisfy fully the demand for these beverages in its territories;
|
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| • | undertake adequate quality control measures and maintain sanitation standards prescribed by TheCoca-Cola Company; |
|
| • | develop, stimulate and satisfy fully the demand forCoca-Cola Trademark Beverages in its territories; |
|
| • | use all approved means and to spend such funds on advertising and other forms of marketing as may be reasonably required to satisfy that objective; and |
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| • | maintain such sound financial capacity as may be reasonably necessary to ensure its performance of its obligations to TheCoca-Cola Company. |
The Company is required to meet that objective; and
to maintain such sound financial capacity as may be reasonably necessary to assure performance by the Company and its affiliates of their obligations toannually with TheCoca-Cola Company.
The Bottle Contracts require the Company to submit to The Coca-Cola Company each yearpresent its plans for marketing, management, and advertising with respect toplans for theCoca-Cola Trademark Beverages for the ensuing year. Suchupcoming year, including financial plans must demonstrateshowing that the Company has the consolidated financial capacity to perform its duties and obligations to TheCoca-Cola Company. TheCoca-Cola Company under the Bottle Contracts. The Company must obtain The Coca-Cola
Company’smay not unreasonably withhold approval of those plans, which approval may not be unreasonably withheld, and ifsuch plans. If the Company carries out its plans in all material respects, itthe Company will be deemed to have satisfied its contractual obligations.obligations to develop, stimulate, and satisfy fully the demand for theCoca-Cola Trademark Beverages and to maintain the requisite financial capacity. Failure to carry out such plans in all material respects would constitute an event of default that if not cured within 120 days of written notice of suchthe failure would give TheCoca-Cola Company the right to terminate the Bottle Contracts.Cola Beverage Agreements. If the Company, at any time, fails to carry out a plan in all material respects with respect toin any geographic segment (asof its territory, as defined by TheCoca-Cola Company) of its territory, Company, and if thatsuch failure is not cured within six months of written notice of suchthe failure, TheCoca-Cola Company may reduce the territory covered by the applicable Bottle Contractthat Cola Beverage Agreement by eliminating the portion of the territory with respect toin which thesuch failure has occurred.
The
Coca-Cola Company has no obligation under the
Bottle ContractsCola Beverage Agreements to participate with the Company in expenditures for advertising and marketing. As it has in the past, The
Coca-Cola Company may contribute to such expenditures and undertake independent advertising and marketing activities, as well as advertising and sales promotion programs which require mutual cooperation and financial support of the Company. The future levels of marketing funding support and promotional funds provided by The
Coca-Cola Company may vary materially from the levels provided during the periods covered by the
financial information included in this report.
The Coca-Cola Company has the right to reformulate any
Acquisition of the Coca-Cola Trademark Beverages and to discontinue any of the Coca-Cola Trademark Beverages, subject to certain limitations, so long as all Coca-Cola Trademark Beverages are not discontinued. The Coca-Cola Company may also introduce new beverages under the trademarks “Coca-Cola” or “Coke” or any modification thereof, and in that event the Company would be obligated to manufacture, package, distribute and sell the new beverages with the same duties as exist under the Bottle Contracts with respect to Coca-Cola Trademark Beverages.Other Bottlers.If the Company acquires the right to manufacture and sell Coca-Cola Trademark Beverages in any additional territory, the Company has agreed that such new territory will be covered by a standard contract in the same form as the Bottle Contracts and that any existing agreement with respect to the acquired territory automatically shall be amended to conform to the terms of the Bottle Contracts. In addition, if the Company acquires control, directly or indirectly, of any bottler ofCoca-Cola Trademark Beverages, or any party controlling a bottler ofCoca-Cola Trademark Beverages, the Company must cause the acquired bottler to amend its franchisesagreement for theCoca-Cola Trademark Beverages to conform to the terms of the Bottle Contracts.
Cola Beverage Agreements.
Term and Termination.The
Bottle ContractsCola Beverage Agreements are perpetual,
but they are subject to termination by The
Coca-Cola Company
inupon the
occurrence of an event of default by the Company. Events of default
by the Companywith respect to each Cola Beverage Agreement include:
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| | 1)• | production, sale or ownership in any entity which produces or sells any cola product not authorized by TheCoca-Cola Company; or a cola product that might be confused with or is an imitation of the Company’s trade dress, trademark, tradename or authorized container of a cola product of TheCoca-Cola Company; |
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| • | insolvency, bankruptcy, dissolution, receivership, or similar conditions;the like; |
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| | 2)• | any disposition by the Company’s dispositionCompany of any interest in thevoting securities of any bottling company subsidiary without the consent of TheCoca-Cola Company; and |
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| | 3) | termination of any agreement regarding the manufacture, packaging, distribution or sale of Coca-Cola Trademark Beverages between The Coca-Cola Company and any person that controls the Company; |
| 4)• | any material breach of any obligation arisingof its obligations under the Bottle Contracts (including, failure to make timely payment for any concentrate or syrup or of any other debt owing to The Coca-Cola Company, failure to meet sanitary or quality control standards, failure to comply strictly with manufacturing standards and instructions, failure to carry out an approved plan as described above, and failure to cure a violation of the terms regarding imitation products)that Cola Beverage Agreement that remains uncuredunresolved for 120 days after written notice by TheCoca-Cola Company; Company. |
3
| 5) | producing, manufacturing, selling or dealing in any product or any concentrate or syrup which might be confused with those of The Coca-Cola Company; |
| 6) | selling any product under any trade dress, trademark or tradename or in any container that is an imitation of a trade dress or container in which The Coca-Cola Company claims a proprietary interest; and |
| 7) | owning any equity interest in or controlling any entity which performs any of the activities described in (5) or (6) above. |
In addition, upon termination
If any Cola Beverage Agreement is terminated because of
an event of default, TheCoca-Cola Company has the
Bottle Contracts for any reason, The Coca-Cola Company, at its discretion, may alsoright to terminate
anyall other
agreements withCola Beverage Agreements the Company
regarding the manufacture, packaging, distribution, sale or promotion of soft drinks, including the Allied Bottle Contracts described below.holds.
No Assignments.The Company is prohibited from assigning, transferring or pledging its Bottle ContractsCola Beverage Agreements or any interest therein, whether voluntarily or by operation of law, without the prior consent of TheCoca-Cola Company. Moreover,
Allied Beverage Agreements with TheCoca-Cola Company.
The Allied Beverages are beverages of TheCoca-Cola Company or its subsidiaries that are sparkling beverages, but notCoca-Cola Trademark Beverages. The Allied Beverage Agreements contain provisions that are similar to those of the Cola Beverage Agreements with respect to the sale of beverages outside its territories, authorized containers, planning, quality control, transfer restrictions, and related matters but have certain significant differences from the Cola Beverage Agreements.
Exclusivity. Under the Allied Beverage Agreements, the Company mayhas exclusive rights to distribute the Allied Beverages in authorized containers in specified territories. Like the Cola Beverage Agreements, the Company has advertising, marketing, and promotional obligations, but without restriction for most brands as to the marketing of products with similar flavors, as long as there is no manufacturing or handling of other products that would imitate, infringe upon, or cause confusion with, the products of TheCoca-Cola Company. TheCoca-Cola Company has the right to discontinue any or all Allied Beverages, and the Company has a right, but not enter intoan obligation, under the Allied Beverage Agreements to elect to market any contract or other arrangementnew beverage introduced by TheCoca-Cola Company under the trademarks covered by the respective Allied Beverage Agreements.
Term and Termination. Allied Beverage Agreements have a term of 10 years and are renewable by the Company for an additional 10 years at the end of each term. Renewal is at the Company’s option. The Company currently intends to
manage or participaterenew substantially all the Allied Beverage Agreements as they expire. The Allied Beverage Agreements are subject to termination in the
managementevent of
any other Coca-Cola bottler withoutdefault by the
prior consent ofCompany. The
Coca-Cola Company.The Coca-Cola
Company may
automatically amendterminate an Allied Beverage Agreement in the
Bottle Contracts if 80%event of: | | |
| • | insolvency, bankruptcy, dissolution, receivership, or the like; |
|
| • | termination of a Cola Beverage Agreement by either party for any reason; or |
|
| • | any material breach of any of the Company’s obligations under the Allied Beverage Agreement that remains unresolved for 120 days after required prior written notice by TheCoca-Cola Company. |
Pricing. Pursuant to the domestic bottlers who are partiesbeverage agreements, except as provided in the Supplementary Agreement and under the Incidence Pricing Agreement (described below), TheCoca-Cola Company establishes the prices charged to agreements with The Coca-Colathe Company containing substantially the same terms as the Bottle Contracts, which bottlers purchased for their own account 80% of the syrup and equivalent gallons of concentrateconcentrates forCoca-Cola Trademark Beverages, purchasedAllied Beverages, still beverages, and post-mix. TheCoca-Cola Company has no rights under the beverage agreements to establish the resale prices at which the Company sells its products.
The Company entered into an agreement with TheCoca-Cola Company to test an incidence pricing model for 2008 for allCoca-Cola Trademark Beverages and Allied Beverages for which the account of all such bottlers, agree that their bottle contracts shall be likewise amended.Company purchases concentrate from TheCoca-Cola Company. For 2009, the Company intends to utilize the incidence pricing model and will not revert to purchasing concentrates at standard concentrate prices during 2009.
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Supplementary Agreement.Agreement Relating to Cola and Allied Beverage Agreements with TheCoca-Cola Company.
The Company and The
Coca-Cola Company are also parties to a Supplementary Agreement (the “Supplementary Agreement”) that modifies some of the provisions of the
Bottle Contracts.Cola and Allied Beverage Agreements. The Supplementary Agreement provides that The
Coca-Cola Company will:
exercise good faith and fair dealing in its relationship with the Company under the Bottle Contracts;
| | |
| • | exercise good faith and fair dealing in its relationship with the Company under the Cola and Allied Beverage Agreements; |
|
| • | offer marketing funding support and exercise its rights under the Cola and Allied Beverage Agreements in a manner consistent with its dealings with comparable bottlers; |
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| • | offer to the Company any written amendment to the Cola and Allied Beverage Agreements (except amendments dealing with transfer of ownership) which it offers to any other bottler in the United States; and |
|
| • | subject to certain limited exceptions, sell syrups and concentrates to the Company at prices no greater than those charged to other bottlers which are parties to contracts substantially similar to the Cola and Allied Beverage Agreements. |
offer marketing funding support and exercise its rights under the Bottle Contracts in a manner consistent with its dealings with comparable bottlers;
offer to the Company any written amendment to the Bottle Contracts (except amendments dealing with transfer of ownership) which it offers to any other bottler in the United States; and
subject to certain limited exceptions, sell syrups and concentrates to the Company at prices no greater than those charged to other bottlers which are parties to contracts substantially similar to the Bottle Contracts.
The Supplementary Agreement permits transfers of the Company’s capital stock that would otherwise be limited by the Bottle Contracts.
Cola and Allied Bottle Contracts. The Company is a party to other contractsBeverage Agreements.
Still Beverage Agreements with TheCoca-Cola Company (the “Allied Bottle Contracts”) which grant similar exclusive rights to the Company with respect to the distribution of TAB, Sprite, diet Sprite, Sprite Remix, Vault, Vault Zero, Mello Yello, diet Mello Yello, Mr. PiBB, sugar free Mr. PiBB, Barq’s Root Beer, diet Barq’s Root Beer, Fresca, Fresca flavors, Fanta flavors, Seagrams’ products, Minute Maid orange and diet Minute Maid orange (the “Allied Beverages”) for sale in authorized containers in its territories. These contracts contain provisions that are similar to those of the Bottle Contracts with respect to pricing, authorized containers, planning, quality control, trademark and transfer restrictions and related matters. Each Allied Bottle Contract has a term of ten years and is renewable by the Company for an additional ten years at the end of each ten-year period, but is subject to termination in the event of (1) the Company’s insolvency, bankruptcy, dissolution, receivership or similar condition; (2) termination of the Company’s Bottle Contracts covering the same territory by either party for any reason; and (3) any material breach of any obligation of the Company under the Allied Bottle Contracts that remains uncured for 120 days after notice by The Coca-Cola Company.Noncarbonated Beverage Contracts.
The Company purchases and distributes certain noncarbonatedstill beverages such as isotonics teas,and juice drinks and energy drinks in finished form from TheCoca-Cola Company, or its designees or joint ventures, and markets, produces, markets and distributes Dasani water products, pursuant to the terms of marketing and distribution agreements (the “Noncarbonated“Still Beverage Contracts”Agreements”)., although in some instances the Company distributes certain still beverages without a written agreement. The NoncarbonatedStill Beverage ContractsAgreements contain provisions that are similar to the Bottle ContractsCola and Allied Bottle ContractsBeverage Agreements with respect to authorized containers, planning, quality control, transfer restrictions, and related matters but the Noncarbonated Beverage Contracts also have certain significant differences.differences from the Cola and Allied Beverage Agreements.
Exclusivity. Unlike the Bottle ContractsCola and Allied Bottle Contracts,Beverage Agreements, which grant the Company exclusivity in the distribution of the respectivecovered beverages in theits territory, the NoncarbonatedStill Beverage ContractsAgreements grant exclusivity but permit TheCoca-Cola Company to test markettest-market the noncarbonatedstill beverage products in theits territory, subject to the Company’s right of first refusal, and to sell the noncarbonatedstill beverages to commissaries for delivery to retail outlets in the Company’s territory where noncarbonatedstill beverages are consumed on-premise, includingon-premises, such as restaurants. TheCoca-Cola Company must pay the Company certain fees for lost volume, delivery, and taxes in the event of such commissary sales. Approved alternative route to market projects undertaken by the Company, TheCoca-Cola Company, and other bottlers ofCoca-Cola would, in some instances, permit delivery of certain products of TheCoca-Cola Company into the territories of almost all bottlers, in exchange for compensation in most circumstances, despite the terms of the beverage agreements making such territories exclusive. Also, under the NoncarbonatedStill Beverage Contracts,Agreements, the Company may not sell other beverages in the same product category.
Pricing. TheCoca-Cola Company, at its sole discretion, establishes the pricingprices the Company must pay for the noncarbonatedstill beverages or, in the case of Dasani, the concentrate.concentrate or finished good, but has agreed, under certain circumstances for some products, to give the benefit of more favorable pricing if such pricing is offered to other bottlers ofCoca-Cola products.
Term. Each of the NoncarbonatedStill Beverage ContractsAgreements has a term of ten10 or fifteen15 years and is renewable by the Company for an additional 10 years at the end of each term. The Company currently intends to renew substantially all of the Still Beverage Agreements as they expire.
Other Beverage Agreements with TheCoca-Cola Company.
The Company has entered into a distribution agreement with Energy Brands Inc. (“Energy Brands”), a wholly owned subsidiary of TheCoca-Cola Company. Energy Brands, also known as glacéau, is a producer and distributor
5
of branded enhanced water products including vitaminwater, smartwater, and vitaminenergy. The agreement has a term of 10 years, and will automatically renew for succeeding10-year terms, subject to a12-month nonrenewal notification by the Company. The agreement covers most of the Company’s territories, requires the Company to distribute Energy Brands enhanced water products exclusively, and permits Energy Brands to distribute the products in some channels within its territories. In conjunction with the execution of the Energy Brands agreement, the Company entered into an agreement with TheCoca-Cola Company whereby the Company agreed not to introduce new third party brands or certain third party brand extensions through August 31, 2010, unless mutually agreed to by the Company and TheCoca-Cola Company.
The Company is distributing Campbell Soup Company (“Campbell”) fruit and vegetable juice beverages under an interim subdistribution agreement with TheCoca-Cola Company. The Campbell interim subdistribution agreement may be terminated by either party upon 30 days written notice. The interim agreements covers all of the Company’s territories, and permits Campbell and certain other sellers of Campbell beverages to continue distribution in the Company’s territories. The Company purchases Campbell beverages from a subsidiary of Campbell under a separate purchase agreement.
Post-Mix Rights and Sales to Other Bottling Agreements.Bottlers. The bottlingCompany also sellsCoca-Cola and other post-mix products of TheCoca-Cola Company and post-mix products of Dr Pepper Snapple Group on a non-exclusive basis. In addition, the Company produces some products for sale to otherCoca-Cola bottlers. Sales to other bottlers have lower margins but allow the Company to achieve higher utilization of its production equipment and facilities.
Brand Innovation Agreement with TheCoca-Cola Company. The Company has entered into an agreement with TheCoca-Cola Company regarding brand innovation and distribution collaboration. Under the agreement, the Company granted to TheCoca-Cola Company the option to purchase any nonalcoholic beverage brands owned by the Company. The option is exercisable as to each brand at a formula-based price during the two-year period that begins after that brand has achieved a specified level of net operating revenue or, if earlier, beginning five years after the introduction of that brand into the market with a minimum level of net operating revenue, with the exception that with respect to brands owned at the date of the letter agreement, the five-year period does not begin earlier than the date of the letter agreement.
Beverage Agreements with Other Licensors.
The Company has beverage agreements from most other beverage companieswith Dr Pepper Snapple Group for Dr Pepper and Sundrop brands which are similar to those described abovefor the Cola and Allied Beverage Agreements. These beverage agreements are perpetual in that they are renewable at the option ofnature but may be terminated by the Company and the beverage companies.upon 90 days notice. The price the beverage companies may charge for syrup or concentrate is set by the beverage companies from time to time. These bottlingbeverage agreements also contain similar restrictions on the use of trademarks, approved bottles, cans and labels and sale of imitations or substitutes as well as termination for cause provisions.
The Company is distributing products of Monster brand energy drinks under a distribution agreement with Hansen Beverage Company, including Monster and Java Monster. The agreement contains provisions that are similar to the Cola and Allied Beverage Agreements with respect to pricing, promotion, planning, territory and trademark restrictions, transfer restrictions, and related matters as well as termination for cause provisions. The agreement has a 20 year term and will renew automatically. The agreement may be terminated without cause by either party. However, any such termination by Hansen Beverage Company requires compensation in the form of severance payments to the Company under the terms of the agreement.
The territories covered by beverage agreements with other licensors are not always aligned with the territories covered by the Cola and Allied Beverage Agreements but are generally within those territory boundaries. Sales of beverages by the Company under these agreements represented approximately
10%11%,
10%11% and
9%10% of the Company’s bottle/can
sales volume to retail customers for
2005, 20042008, 2007 and
2003,2006, respectively.
The territories covered by the Allied Bottle Contracts and by bottling agreements for products of beverage companies other than The Coca-Cola Company in most cases correspond with the territories covered by the Bottle Contracts. The variations do not have a material effect on the Company’s business. Post-Mix Rights and Sales to Other Bottlers. The Company also has the non-exclusive right to sell Coca-Cola classic and other fountain syrups (“post-mix”) of The Coca-Cola Company. In addition, the Company produces some products for sale to other Coca-Cola bottlers. Sales to other bottlers have lower gross margin but allow the Company to achieve higher utilization of its production facilities.The Company’s net sales by category as a percentage of total net sales is as follows:
| | | | | | | | | |
| | | Fiscal Year
| |
| | | 2005
| | | 2004
| | | 2003
| |
Bottle/can sales volume under beverage contracts | | 85 | % | | 88 | % | | 89 | % |
Post-mix | | 5 | % | | 6 | % | | 5 | % |
Sales to other Coca-Cola bottlers | | 10 | % | | 6 | % | | 6 | % |
| | |
|
| |
|
| |
|
|
Total | | 100 | % | | 100 | % | | 100 | % |
| | |
|
| |
|
| |
|
|
The increase in sales to other Coca-Cola bottlers in 2005 resulted primarily from volume related to shipments of Full Throttle, the new energy product of The Coca-Cola Company. The Company produces Full Throttle for the majority of the Coca-Cola bottlers in the eastern half of the United States and anticipates continuing to produce this product for these Coca-Cola bottlers in 2006.
Markets and Production and Distribution Facilities
The Company currently holds bottling rights from TheCoca-Cola Company covering the majority of North Carolina, South Carolina and West Virginia, and portions of Alabama, Mississippi, Tennessee, Kentucky, Virginia,
6
Virginia,
Pennsylvania, Georgia and Florida. The total population within the Company’s bottling territory is approximately
18.619.2 million.
The Company currently operates in seven principal geographic markets. Certain information regarding each of these markets follows:
1.
North Carolina.. This region includes the majority of North Carolina, including Raleigh, Greensboro, Winston-Salem, High Point, Hickory, Asheville, Fayetteville, Wilmington, Charlotte and the surrounding areas. The region has an estimated population of
8.18.5 million. A production/distribution facility is located in Charlotte and
1715 sales distribution facilities are located in the region.
2.
South Carolina.Carolina. This region includes the majority of South Carolina, including Charleston, Columbia, Greenville, Myrtle Beach and the surrounding areas. The region has an estimated population of
3.33.5 million. There are
seven5 sales distribution facilities in the region.
3.
South Alabama.Alabama. This region includes a portion of southwestern Alabama, including Mobile and surrounding areas, and a portion of southeastern Mississippi. The region has an estimated population of .9 million. A production/distribution facility is located in Mobile and
four4 sales distribution facilities are located in the region.
4.
South Georgia.Georgia. This region includes a small portion of eastern Alabama, a portion of southwestern Georgia including Columbus and surrounding areas and a portion of the Florida Panhandle. This region has an estimated population of 1.1 million. There are
five4 sales distribution facilities located in the region.
5.
Middle Tennessee.Tennessee. This region includes a portion of central Tennessee, including Nashville and surrounding areas, a small portion of southern Kentucky and a small portion of northwest Alabama. The region has an estimated population of
2.12.2 million. A production/distribution facility is located in Nashville and
three4 sales distribution facilities are located in the region.
6.
Western Virginia.Virginia. This region includes most of southwestern Virginia, including Roanoke and surrounding areas, a portion of the southern piedmont of Virginia, a portion of northeastern Tennessee and a portion of southeastern West Virginia. The region has an estimated population of 1.6 million. A production/distribution facility is located in Roanoke and
five4 sales distribution facilities are located in the region.
7.
West Virginia.Virginia. This region includes most of the state of West Virginia and a portion of southwestern Pennsylvania. The region has an estimated population of
1.51.4 million. There are
eight8 sales distribution facilities located in the region.
The Company is a member of South Atlantic Canners,
Inc. (“SAC”), a manufacturing cooperative located in Bishopville, South Carolina. All eight members of SAC are
Coca-Cola bottlers and each member has equal voting rights.
On June 1, 1994, the Company executed a management agreement with SAC. The Company receives a fee for managing the day-to-day operations of SAC pursuant to
thea management
agreement. On June 1, 2004, the Company executed a new management agreement with SAC that extends through May 2014. The terms of the new management agreement are comparable to the prior agreement. Management fees earned from SAC were
$1.5$1.4 million,
$1.4 million and $1.6 million
in 2008, 2007 and
$1.3 million in 2005, 2004 and 2003,2006, respectively. SAC’s bottling lines supply a portion of the Company’s volume requirements for finished products. The Company has a commitment with SAC that requires minimum annual purchases of 17.5 million cases of finished
productproducts through May 2014. Purchases from SAC by the Company for finished products were
$127$142 million,
$108$149 million and
$105$133 million in
2005, 20042008, 2007 and
2003,2006, respectively, or 27.8 million cases, 30.6 million cases and 29.3 million cases of finished product, respectively.
In addition to concentrates obtained
by the Company from The
Coca-Cola Company and other beverage companies for use in its
soft drinkbeverage manufacturing, the Company also purchases
sweeteners,sweetener, carbon dioxide, plastic bottles, cans, closures
other containers and other packaging materials as well as equipment for the production, distribution and marketing of
soft drinks.nonalcoholic beverages. Except for
sweeteners,sweetener, cans
carbon dioxide and plastic bottles, the Company purchases its raw materials from multiple suppliers.
The Company purchases substantially all of its plastic bottles (20-ounce, half liter, 390(12-ounce, 16-ounce, 20-ounce, half-liter, 1-liter, 2-liter and 300 ml and 2 liter sizes) from manufacturing plants which are owned and operated by Southeastern Container and
7
Western Container, two
cooperatives of entities owned byCoca-Cola bottlers including the Company. The Company currently obtains all of its aluminum cans
(8-ounce, 12-ounce and 16-ounce sizes) from one domestic supplier.
None of the materials or supplies used by the Company are currently in short supply, although the supply of specific materials (including plastic bottles, which are formulated using petroleum-based products) could be adversely affected by strikes, weather conditions, governmental controls or national emergency conditions.
Along with all the otherCoca-Cola bottlers in the United States, the Company has becomeis a member inCoca-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 TheCoca-Cola Company with the intention of enhancing the efficiency and competitiveness of theCoca-Cola bottling system in the United States. CCBSS has negotiated the procurement for the majority of the Company’s raw materials (excluding concentrate) since 2004.
The Company is exposed to price risk on commodities such as aluminum, corn, PET resin (an oil based product) and fuel which affects the cost of raw materials used in
2005the production of finished products. The Company both produces and
2004.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 oil which impacts the Company’s cost of fuel used in the movement and delivery of the Company’s products. The Company participates in commodity hedging and risk mitigation programs administered both by CCBSS and by the Company itself.
High fructose corn syrup costs increased significantly during 2008 as a result of increasing demand for corn products around the world for purposes such as ethanol production. The combined impact of increasing costs for plastic bottles and high fructose corn syrup increased cost of sales during 2008. In addition, there is no limit on the price TheCoca-Cola Company and other beverage companies can charge for concentrate.
The Company’s products are sold and distributed directly to retail stores and other outlets, including food markets, institutional accounts and vending machine outlets. During
2005,2008, approximately
67%68% of the Company’s bottle/can
sales volume to retail customers was sold for future consumption. The remaining
salesbottle/can volume
to retail customers of approximately
33%32% was sold for immediate consumption, primarily through dispensing machines owned either by the Company, retail outlets or third party vending companies. The Company’s largest customer, Wal-Mart Stores, Inc., accounted for approximately
15%19% of the Company’s total bottle/can
sales volume to retail customers and the second largest customer, Food Lion, LLC, accounted for approximately
10%12% of the Company’s total bottle/can
sales volume to retail customers. Wal-Mart Stores, Inc. accounted for approximately
11%14% of the Company’s total net sales.
The loss of either Wal-Mart Stores, Inc. or Food Lion, LLC as customers would have a material adverse effect on the Company. All of the Company’s sales are to customers in the United States.
New product introductions, packaging changes and sales promotions have been the major competitive techniquesprimary sales and marketing practices in the nonalcoholic beverage industry in recent years and have required and are expected to continue to require substantial expenditures. Brand introductions from TheCoca-Cola Company in the last three years includeCoca-Cola Zero, Coca-Cola C2, diet Coke with lime, diet Coke with lemon, Vault, Vault Zero, Rockstar, Dasani flavors, Minute Maid Light, Sprite Remix and Full Throttle, anGold Peak tea products and Dasani Plus. The Company began distribution of three of its own products, Country Breeze tea, diet Country Breeze tea and Tum-E Yummies, in 2007. In addition, the Company also began distribution of NOS© products (energy drinks from FUZE, a subsidiary of TheCoca-Cola Company), juice products from FUZE and V8 products from Campbell during 2007. In the fourth quarter of 2007, the Company began distribution of glacéau products, a wholly-owned subsidiary of TheCoca-Cola Company that produces branded enhanced beverages including vitaminwater, smartwater and vitaminenergy. The Company entered into a distribution agreement in October 2008 with subsidiaries of Hansen Natural Corporation, the developer, marketer, seller and distributor of Monster Energy drinks, the leading volume brand in the U.S. energy product from The Coca-Cola Company.drink category. Under this agreement, the Company began distributing Monster Energy drinks in certain of the Company’s territories in November 2008. New packaging introductions include Fridge Pack™ 12-ounce plastic bottles and 390 ml plastic bottles.the 20-ounce “grip” bottle during 2007. New product and packaging introductions have resulted in increased operating costs for the Company due to special marketing efforts, obsolescence of replaced items and, in some cases, higher raw materialsmaterial costs.
8
The Company sells its products primarily in nonrefillable bottles and cans, in varying proportions from market to market. There may be as many as
2527 different packages for
Coca-Cola classic within a single geographic area. Bottle/can
sales volume to retail customers during
20052008 was approximately 46% cans,
52%53% nonrefillable bottles and
2%1% other containers.
Advertising in various media, primarily television and radio, is relied upon extensively in the marketing of the Company’s products. The
Coca-Cola Company and Dr
Pepper/Seven-Up, Inc.Pepper Snapple Group (the “Beverage Companies”) make substantial expenditures on advertising in the Company’s territories. The Company has also benefited from
national advertising programs conducted by the Beverage Companies. In addition, the Company expends substantial funds on its own behalf for extensive local sales promotions of the Company’s products. Historically, these expenses have been partially offset by marketing funding support which the Beverage Companies provide to the Company in support of a variety of marketing programs, such as point-of-sale displays and merchandising programs. However, the Beverage Companies are under no obligation to provide the Company with marketing funding support in the future.
The substantial outlays which the Company makes for marketing and merchandising programs are generally regarded as necessary to maintain or increase
sales volume,revenue, and any significant curtailment of marketing funding support provided by the Beverage Companies for marketing programs which benefit the Company could have a material adverse effect on the operating and financial results of the Company.
Sales are seasonal with the highest sales volume occurring in May, June, July and August. The Company has adequate production capacity to meet sales demand
for sparkling and still beverages during these peak periods. Sales volume can be impacted by weather conditions. See “Item 2. Properties” for information relating to utilization of the Company’s production facilities.
The
carbonated soft drink market and the noncarbonatednonalcoholic beverage market
areis highly competitive.
OurThe Company’s competitors
in these markets include bottlers and distributors of nationally advertised and marketed products, regionally advertised and marketed products, as well as bottlers and distributors of private label
soft drinksbeverages in supermarket stores. The
carbonated soft drinksparkling beverage market
(including energy products) comprised
87%85% of the Company’s bottle/can
sales volume to retail customers in
2005.2008. In each region in which the Company operates, between
75%85% and 95% of
carbonated soft drinksparkling beverage sales in bottles, cans and pre-mix containers are accounted for by the Company and its principal competition, which in each region includes the local bottler of Pepsi-Cola and, in some regions, also includes the local bottler of Dr Pepper, Royal Crown
and/or 7-Upor7-Up products.
The principal methods of competition in the soft drink 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 that it is competitive in its territories with respect to these methods of competition.
The production and marketing of beverages are subject to the rules and regulations of the United States Food and Drug Administration (“FDA”) and other federal, state and local health agencies. The FDA also regulates the labeling of containers.
As a manufacturer, distributor and seller of beverage products of TheCoca-Cola Company and other soft drink manufacturers in exclusive territories, the Company is subject to antitrust laws of general applicability. However, pursuant to the United States Soft Drink Interbrand Competition Act, soft drink bottlers such as the Company may have an exclusive right to manufacture, distribute and sell a soft drink product in a defined geographic territory if that soft drink product is in substantial and effective competition with other products of the same general class in the market. The Company believes that there is such substantial and effective competition in each of the exclusive geographic territories in the United States in which the Company operates.
9
From time to time, legislation has been proposed in Congress and by certain state and local governments which would prohibit the sale of soft drink products in nonrefillable bottles and cans or require a mandatory deposit as a means of encouraging the return of such containers in an attempt to reduce solid waste and litter. The Company is currently not impacted by this type of proposed legislation.
Soft drink and similar-type taxes have been in place in West Virginia and Tennessee for several years.
The Company’s tax filings are subject to audit by tax authorities in jurisdictions where it conducts business. These audits may result in assessments of additional taxes that are subsequently resolved with the authorities or potentially through the courts. Management believes the Company has adequately accrued for any ultimate amounts 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.
The Company has experienced public policy challenges regarding the sale of soft drinks in schools, particularly elementary, middle and high schools. At
January 1, 2006,December 28, 2008, a number of states had regulations restricting the sale of soft drinks and other foods in schools. Many of these restrictions have existed for several years in connection with subsidized meal programs in schools. The focus has more recently turned to the growing health, nutrition and obesity concerns of today’s youth.
The impact of restrictiveRestrictive legislation, if widely enacted, could have an adverse impact on the Company’s products, image and reputation.
The Company is subject to audit by taxing authorities in jurisdictions where it conducts business. These audits may result in assessments that are subsequently resolved with the authorities or potentially through the courts. Management believes the Company has adequately provided for any assessments 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.
Environmental Remediation The Company does not currently have any material capital expenditure commitments for environmental compliance or environmental remediation for any of its properties. The Company does not believe
that compliance with federal, state and local provisions that have been enacted or adopted regarding the discharge of materials into the environment, or otherwise relating to the protection of the environment, will have a material effect on its capital expenditures, earnings or competitive position.
As of February 1,
2006,2009, the Company had approximately
5,7005,300 full-time employees, of whom approximately
400425 were union members. The total number of employees, including part-time employees, was approximately 6,200.
Approximately 7% of the Company’s labor force is currently covered by collective bargaining agreements. Two collective bargaining agreements covering approximately 5% of the Company’s employees expired during 2008 and the Company entered into new agreements during 2008. One collective bargaining agreement covering less thanapproximately .5% of the Company’s employees expires in 2006.
during 2009.
Exchange Act Reports and Code of Ethics for Senior Financial Officers The Company makes available free of charge through its Internet website,
www.cokeconsolidated.com, its annual report on
Form 10-K, quarterly reports on
Form 10-Q, current reports on
Form 8-K and all amendments to those reports as soon as reasonably practicable after such
material ismaterials are electronically filed with or furnished to the Securities and Exchange Commission (SEC). The SEC maintains an Internet website,
(http://www.sec.gov) thatwww.sec.gov, which contains reports, proxy and information statements, and other information filed electronically with the SEC. Any materials that the Company files with the SEC may
also be
also read and copied at the SEC’s Public Reference Room, 100 F Street, N.E., Room 1580, Washington, D. C. 20549.
Information on the operations of the Public Reference Room is available by calling the SEC at
1-800-SEC-0330. In addition, the Company makes available on its Internet website its Code of Ethics for Senior Financial Officers. The information provided on the Company’s website is not part of this report and is not incorporated herein by reference.
Item 1A. Risk Factors
In addition to other information in this
Form 10-K, the following risk factors should be considered carefully in evaluating the Company’s business. The Company’s business, financial condition or results of operations could be materially and adversely affected by any of these risks. Additional risks and uncertainties, including
risks and
10
uncertainties not presently known to the Company or that the Company currently deems immaterial, may also impair its business and results of operations.
LowerThe Company may not be able to respond successfully to changes in the marketplace.
The Company operates in the highly competitive nonalcoholic beverage industry and faces strong competition from other general and specialty beverage companies. The Company’s response to continued and increased customer and competitor consolidations and marketplace competition may result in lower than expected
selling prices resulting from increased marketplace competition could adversely affectnet pricing of the Company’s
profitability.The carbonated soft drink market and the noncarbonated beverage market are highly competitive.products. The Company’s ability to gain or maintain the Company’s share of sales or gross margins may be limited by the actions of the Company’s competitors, which may have advantages in thesesetting their prices due to lower raw material costs. Competitive pressures in the markets include bottlersin which the Company operates may cause channel and distributors of nationally advertisedproduct mix to shift away from more profitable channels and marketed products, regionally advertised and marketedpackages. If the Company is unable to maintain or increase volume in higher-margin products and private label soft drinks. Although the Company has placed an emphasis on revenue management, which includes striking the appropriate balance between generating growth in volume,packages sold through higher-margin channels (e.g., immediate consumption), pricing and gross margin and market share, there canmargins could be no assurance that increased competition will not reduce theadversely affected. The Company’s profitability.
efforts to improve pricing may result in lower than expected sales volume.
Changes in how significant customers market or promote the Company’s products could reduce sales volume.revenue. The Company’s
sales volumerevenue is impacted by how significant customers market or promote the Company’s products.
Sales volumeRevenue has been negatively impacted by less aggressive price promotion by some retailers in the future consumption channels
inover the past several years. If the Company’s significant customers change the
waymanner in which they market or promote the Company’s products, the Company’s
sales volume, revenue and profitability could be adversely impacted.
Changes in public and consumer preferences related to nonalcoholic beverages could reduce demand for the Company’s products and reduce profitability. The Company’s business depends substantially on consumer tastes and preferences that change in often unpredictable ways. The success of the Company’s business depends in large measure on working with the beverage companiesBeverage Companies to meet the changing preferences of the broad consumer market. The Company has seenHealth and wellness trends throughout the marketplace have resulted in a shift from sugar carbonatedsparkling beverages to diet carbonatedsparkling beverages, isotonics, bottledtea, sports drinks, enhanced water and energy productsbottled water over the past several years. Failure to satisfy changing consumer preferences could adversely affect the profitability of the Company’s business.
The Company’s sales can be impacted by the health and stability of the general economy.
Unfavorable changes in general economic conditions, such as a recession or economic slowdown in the geographic markets in which the Company does business, may have the temporary effect of reducing the demand for certain of the Company’s products. For example, economic forces may cause consumers to shift away from purchasing higher-margin products and packages sold through immediate consumption and other highly profitable channels. Adverse economic conditions could also increase the likelihood of customer delinquencies and bankruptcies, which would increase the risk of uncollectibility of certain accounts. Each of these factors could adversely affect the Company’s revenue, price realization, gross margins and overall financial condition and operating results.
Miscalculation of the Company’s need for infrastructure investment could impact the Company’s financial results.
Projected requirements of the Company’s infrastructure investments may differ from actual levels if the Company’s volume growth is not as the Company anticipates. The Company’s infrastructure investments are generally long-term in nature; therefore, it is possible that investments made today may not generate the returns expected by the Company due to future changes in the marketplace. Significant changes from the Company’s expected returns on cold drink equipment, fleet, technology and supply chain infrastructure investments could adversely affect the Company’s consolidated financial results.
11
The Company’s inability to meet requirements under its bottling contractsbeverage agreements could result in the loss of distribution rights. Approximately
90%89% of the Company’s bottle/can
sales volume
withto retail customers consists of 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
10%11% of the Company’s bottle/can
sales volume
withto retail customers consists of products of other beverage
companies.companies and the Company’s own products. The Company
has bottling contracts under which it hasmust satisfy various requirements
to meet.under its beverage agreements. Failure to
meet thesatisfy these requirements
of these bottling contracts could result in the loss of distribution rights for the respective
product.products.
Material changes in, or the Company’s inability to meet,satisfy, the performance requirements for marketing funding support, or decreases from historic levels of marketing funding support, wouldcould reduce the Company’s profitability. Material changes in the performance requirements, or decreases in the levels of marketing funding support historically provided, under marketing programs with The
Coca-Cola Company and other beverage companies, or the Company’s inability to meet the performance requirements for the anticipated levels of such marketing funding support payments,
wouldcould adversely affect the Company’s profitability. The
Coca-Cola Company and other beverage companies are under no obligation to continue marketing funding support at historic levels.
Changes in TheCoca-Cola Company’s and other beverage companies’ levels of advertising, marketing spending and brandproduct innovation could reduce the Company’s sales volume. The
Coca-Cola Company’s and other beverage companies’ levels of advertising, marketing spending and
brandproduct innovation directly impact the Company’s operations. While the Company does not believe
that there will be significant changes in the levels of marketing and advertising by the
beverage companies,Beverage Companies, there can be no assurance that historic levels will continue. In addition, if the
sales volume of sugar
carbonatedsparkling beverages continues to decline, the Company’s
sales volume growth will continue to be dependent on
brandproduct innovation by the
beverage companies,Beverage Companies, especially The
Coca-Cola Company. Decreases in
beverage company marketing, advertising and product
brand innovation
by the Beverage Companies could adversely impact the profitability of the Company.
The inability of the Company’s aluminum can or plastic bottle suppliers to meet the Company’s purchase requirements maycould reduce the Company’s profitability. The Company currently obtains all of its aluminum cans from one domestic supplier and all of its plastic bottles from two domestic cooperatives. The inability of these aluminum can or plastic bottle suppliers to meet the Company’s requirements for containers could result in short-term shortages until alternative sources of supply can be located. The Company attempts to mitigate these risks by working closely with key suppliers and by purchasing business interruption insurance where appropriate. Failure of the aluminum can or plastic bottle suppliers to meet the Company’s purchase requirements could reduce the Company’s profitability.
The inability of the Company to offset higher raw material costs with higher selling prices, increasedbottle/can sales volume or reduced expenses could have an adverse impact on the Company’s profitability. Packaging costs, primarily plastic bottle costsbottles, and aluminum can costshigh fructose corn syrup cost increased significantly in 20052008. In addition, there are no limits on the prices TheCoca-Cola Company and could continue to increase in the future.other beverage companies can charge for concentrate. If the Company cannot offset higher raw material costs with higher selling prices, increased sales volume or reductions in other costs, the Company’s profitability could be adversely affected.
The Company primarily uses supplier pricing agreements and may, at times, use derivative financial instruments to manage the volatility and market risk with respect to certain commodities. Generally, these hedging instruments establish the purchase price for these commodities in advance of the time of delivery. As such, it is possible that these hedging instruments may lock the Company into prices that are ultimately greater than the actual market price at the time of delivery.
12
In recent years, there has been consolidation among suppliers of certain of the Company’s raw materials. The reduction in the number of competitive sources of supply could have an adverse effect upon the Company’s ability to negotiate the lowest costs and, in light of the Company’s relatively small in-plant raw material inventory levels, has the potential for causing interruptions in the Company’s supply of raw materials.
With the introduction of FUZE, Campbell and glacéau products into the Company’s portfolio during 2007 and Monster Energy products during 2008, the Company is becoming increasingly reliant on purchased finished goods from external sources versus the Company’s internal production. As a result, the Company is subject to incremental risk including, but not limited to, product availability, price variability, product quality and production capacity shortfalls for externally purchased finished goods.
Sustained increases in fuel costsprices or the inability of the Company to secure adequate supplies of fuel could have an adverse impact on the Company’s profitability. The Company has experienced significant increases in fuel
costsprices as a result primarily of macro-economic factors beyond the Company’s control.
In addition, theThe Company uses significant amounts of fuel in the distribution of its products. Events such as natural disasters could impact the supply of fuel and could impact the timely delivery of the Company’s products to its customers. While the Company is working to reduce fuel consumption, there can be no assurance that the Company will succeed in limiting future cost increases. Continued upward pressure in these costs could reduce the profitability of the Company’s operations.
Sustained increases in workers’ compensation, employment practices and vehicle accident costs maycould reduce the Company’s profitability. The Company is generally self-insured for the costs of workers’ compensation, employment practices and vehicle accident claims. Losses are accrued using assumptions and procedures followed in the insurance industry, adjusted for company-specific history and expectations. Although the Company has actively sought to control increases in these costs, there can be no assurance that the Company will succeed in limiting future cost increases. Continued upward pressure in these costs could reduce the profitability of the Company’s operations.
Sustained increases in the cost of employee benefits maycould reduce the Company’s profitability.With approximately 6,000 employees, the
The Company’s profitability is substantially affected by the cost of pension retirement benefits,
post-retirementpostretirement medical benefits and current employees’ medical benefits. In recent
years, the Company has experienced significant increases in these costs as a result of macro-economic factors beyond the Company’s control, including increases in health care costs, declines in investment returns on pension assets and changes in discount rates used to calculate pension and related liabilities. A significant decrease in the value of the Company’s pension plan assets in 2008 will cause a significant increase in pension plan costs in 2009. Although the Company has actively sought to control increases in these costs, there can be no assurance the Company will succeed in limiting future cost increases, and continued upward pressure in these costs could reduce the profitability of the Company’s operations.
Product liability claims brought against the Company or product recalls could negatively affect the Company’s business, financial results and brand image.
The Company may be liable if the consumption of the Company’s products causes injury or illness. The Company may also be required to recall products if they become contaminated or are damaged or mislabeled. A significant product liability or other product-related legal judgment against the Company or a widespread recall of the Company’s products could negatively impact the Company’s business, financial results and brand image.
Technology failures could disrupt the Company’s operations and negatively impact the Company’s business.
The Company increasingly relies on information technology systems to process, transmit and store electronic information. For example, the Company’s production and distribution facilities, inventory management and driver handheld devices all utilize information technology to maximize efficiencies and minimize costs. Furthermore, a significant portion of the communication between personnel, customers and suppliers depends on information
13
technology. Like most companies, the Company’s information technology systems may be vulnerable to a variety of interruptions due to events beyond the Company’s control, including, but not limited to, natural disasters, terrorist attacks, telecommunications failures, computer viruses, hackers and other security issues. The Company has technology security initiatives and disaster recovery plans in place to mitigate the Company’s risk to these vulnerabilities, but these measures may not be adequate or implemented properly to ensure that the Company’s operations are not disrupted.
Changes in interest rates could adversely affect the profitability of the Company. Approximately
43%6.3% of the Company’s debt and capital lease obligations of
$777.2$669.1 million as of
January 1, 2006December 28, 2008 was subject to changes in short-term interest rates.
Rising interest rates have increased the Company’s interest expense over the past two years. If interest rates increased by 1%, the Company’s interest expense would increase by approximately $3 million over the next twelve months. This amount is determined by calculating the effect of a hypothetical interest rate increase of 1% on outstanding floating rate debt and capital lease obligations as of January 1, 2006, including the effects of the Company’s derivative financial instruments. This calculated, hypothetical increase in interest expense for the following twelve months may be different from the actual increase in interest expense from a 1% increase in interest rates due to varying interest rate reset dates on the Company’s floating rate debt and derivative financial instruments. In addition, the Company’s pension and postretirement medical benefits costs are subject to changes in interest rates.
ThereIf interest rates increase in the future, there can be no assurance that future increases in interest
ratesexpense will not reduce the Company’s
overall profitability.
The Company’s debtcredit rating could be negatively impacted by TheCoca-Cola Company. The Company’s
debtcredit rating could be significantly impacted by capital management activities of The
Coca-Cola Company
and/or changes in the
debtcredit rating of The
Coca-Cola Company. A lower
debtcredit rating could significantly increase the Company’s interest
cost.costs or could have an adverse effect on the Company’s ability to obtain additional financing at acceptable interest rates or to refinance existing debt.
Changes in legal contingencies could adversely impact the Company’s future profitability. Changes from expectations for the resolution of outstanding legal claims and assessments could have a material adverse impact on the Company’s profitability and financial condition. In addition, the Company’s failure to abide by laws, orders or other legal commitments could subject the Company to fines, penalties or other damages.
Legislative changes that affect the Company’s distribution and packaging could reduce demand for the Company’s products or increase the Company’s costs.
The Company’s business model is dependent on the availability of the Company’s various products and packages in multiple channels and locations versus those of the Company’s competitors to better satisfy the needs of the Company’s customers and consumers. Laws that restrict the Company’s ability to distribute products in schools and other venues, as well as laws that require deposits for certain types of packages or those that limit the Company’s ability to design new packages or market certain packages, could negatively impact the financial results of the Company. In addition, taxes imposed by individual states and localities could cause consumers to shift away from purchasing products of the Company.
Additional taxes resulting from tax audits could adversely impact the Company’s future profitability. An assessment of additional taxes resulting from audits of the Company’s tax filings could have
a materialan adverse impact on the Company’s profitability, cash flows and financial condition.
Natural disasters and unfavorable weather could negatively impact the Company’s future profitability. Natural disasters or unfavorable weather conditions in the geographic regions in which the Company does business could have
a materialan adverse impact on the Company’s revenue and profitability.
For example, prolonged drought conditions in the geographic regions in which the Company does business could lead to restrictions on the use of water, which could adversely affect the Company’s ability to manufacture and distribute products and the Company’s cost to do so.
Issues surrounding labor relations could adversely impact the Company’s future profitability and/or its operating efficiency. Approximately 7% of the Company’s employees are covered by collective bargaining agreements. The inability to renegotiate subsequent agreements on satisfactory terms and conditions could result in work
14
interruptions or stoppages, which could have a material impact on the profitability of the Company. Also, the terms and conditions of existing or renegotiated agreements could increase costs, or otherwise affect the Company’s ability to fully implement operational changes to improve overall efficiency.
Two collective bargaining agreements covering approximately 5% of the Company’s employees expired during 2008 and the Company entered into new agreements during 2008. One collective bargaining agreement covering approximately .5% of the Company’s employees expires during 2009.
Recent bottler litigation could limit theThe Company’s ability to change distribution methods and business practices.practices could be negatively affected by United States bottler system disputes.Litigation
recently filed by some United States bottlers of
Coca-Cola products
reflectsindicates that disagreements
inmay exist within the
Coca-Cola bottler system concerning distribution methods and business practices.
TheseAlthough the litigation has been resolved, disagreements among various
Coca-Cola bottlers could adversely affect the Company’s ability to fully implement its business
plans.plans in the future.
Management’s use of estimates and assumptions maycould have a material effect on reported results. The Company’s consolidated financial statements and accompanying notes to the consolidated financial statements include estimates and assumptions by management that impact reported amounts. Actual results could materially differ from those estimates.
The Company has experienced public policy challenges regarding the sale of soft drinks in schools, particularly elementary, middle and high schools.
A number of states have regulations restricting the sale of soft drinks and other foods in schools. Many of these restrictions have existed for several years in connection with subsidized meal programs in schools. The focus has more recently turned to the growing health, nutrition and obesity concerns of today’s youth. The impact of restrictive legislation, if widely enacted, could have an adverse impact on the Company’s products, image and reputation.
Recent volatility in the financial market may negatively impact the Company’s ability to access the credit markets.
Recently the capital and credit markets have become increasingly volatile as a result of adverse conditions that have caused the failure and near failure of a number of large financial services companies. If the capital and credit markets continue to experience volatility and availability of funds remains limited, it is possible that the Company’s ability to access the credit markets may be limited by these factors at a time when the Company would like, or need to do so. The Company has debt maturities of $119.3 million in May 2009 and $57.4 million in July 2009. The Company anticipates using cash flow generated from operations, its $200 million revolving credit facility (“$200 million facility”) and potentially other sources, including bank borrowings or issuance of debentures or equity securities, to repay or refinance these debt maturities. The Company currently has, and anticipates it will continue to have, capacity under its $200 million facility and cash on hand to repay or refinance these debt maturities in the event other financing sources are not available. The limitation of availability of funds could have an impact on the Company’s ability to refinance the maturing debtand/or react to changing economic and business conditions.
The concentration of the Company’s capital stock ownership with the Harrison family limits other stockholders’ ability to influence corporate matters.
Members of the Harrison family, including the Company’s Chairman and Chief Executive Officer, J. Frank Harrison, III, beneficially own shares of Common Stock and Class B Common Stock representing approximately 85% of the total voting power of the Company’s outstanding capital stock. In addition, two members of the Harrison family, including Mr. Harrison, III, serve on the Board of Directors of the Company. As a result, members of the Harrison family have the ability to exert substantial influence or actual control over the Company’s management and affairs and over substantially all matters requiring action by the Company’s stockholders. This concentration of
15
Item 1B. Unresolved Staff Comments
ownership may also have the effect of delaying or preventing a change in control otherwise favored by the Company’s other stockholders and could depress the stock price.
Additionally, as a result of the Harrison family’s significant beneficial ownership of the Company’s outstanding voting stock, the Company has relied on the “controlled company” exemption from certain corporate governance requirements of The Nasdaq Stock Market LLC. This concentration of control limits other stockholders’ ability to influence corporate matters and, as a result, the Company may take actions that the Company’s stockholders do not view as beneficial.
| |
| Item 1B. | Unresolved Staff Comments |
The principal properties of the Company include its corporate headquarters, its four production/distribution facilities and its
4944 sales distribution centers. The Company owns two production/distribution facilities and
4537 sales distribution centers, and leases its corporate headquarters, two other production/distribution facilities and
fourseven sales distribution centers.
The Company leases its 110,000 square foot corporate headquarters and a 65,000 square foot adjacent office building from a related
party forparty. The lease has a
ten-yearfifteen year term
expiringand expires in December
2008.2021. Rental payments for these facilities were
$3.3$3.7 million in
2005.2008.
The Company leases its 542,000 square foot Snyder Production Center and an adjacent 105,000 square foot distribution center in Charlotte, North Carolina from a related party for a ten-year term expiring in December 2010. Rental payments under this lease totaled
$3.4$3.8 million in
2005.2008.
The Company leases its 330,000 square foot production/distribution facility in Nashville, Tennessee. The lease requires monthly payments through
December 2009.
Rent expenseRental payments under this lease totaled $.4 million in
2005.2008.
The Company leases a 150,000 square foot warehouse which serves as additional space for its Charlotte, North Carolina distribution center. The lease requires monthly payments through March 2012. Rental payments under this lease totaled $.4 million in 2008.
The Company leases its 130,000 square foot sales distribution center in Lavergne, Tennessee. The lease requires monthly payments through August 2011. Rental payments under this lease totaled $.3 million in 2008.
The Company leases its 50,000 square foot sales distribution center in Charleston, South Carolina. The lease requires monthly payments through
January 2017. Rental
expensepayments under this lease totaled $.4 million in
2005.2008.
The Company leases its 57,000 square foot sales distribution center in Greenville, South Carolina. The lease requires monthly payments through
July 2018. Rental payments under this lease totaled $.6 million in
2005.2008.
The Company’s other real estate leases are not material.
The Company owns and operates a 316,000 square foot production/distribution facility in Roanoke, Virginia and a 271,000 square foot production/distribution facility in Mobile, Alabama.
The approximate percentage utilization of the Company’s production
centers as of February 1, 2006facilities is indicated below:
| | | | |
| | Percentage
| |
Location | | Utilization * | |
|
| Charlotte, North Carolina | | | 65 | % |
| Mobile, Alabama | | | 47 | % |
| Nashville, Tennessee | | | 66 | % |
| Roanoke, Virginia | | | 71 | % |
| | |
Location
* | | Percentage Utilization*
| |
Charlotte, North Carolina
| | 79 | % |
Mobile, Alabama
| | 53 | % |
Nashville, Tennessee
| | 63 | % |
Roanoke, Virginia
| | 62 | % |
| * | Estimated 20062009 production divided by capacity (based on operations of 6 days per week and 20 hours per day). |
16
The Company currently has sufficient production capacity to meet its operational requirements. In addition to the production facilities noted above, the Company utilizes a portion of the production capacity at SAC, a cooperative located in Bishopville, South Carolina, that owns a 261,000 square foot production facility.
The Company’s products are generally transported to sales distribution facilities for storage pending sale. The number of sales distribution facilities by market area as of February 1,
20062009 was as follows:
Sales Distribution Facilities | | |
Region
| | Number of Facilities
|
North Carolina
| | 17 |
South Carolina
| | 7 |
South Alabama
| | 4 |
South Georgia
| | 5 |
Middle Tennessee
| | 3 |
Western Virginia
| | 5 |
West Virginia
| | 8 |
| | |
Number of
| |
Total
Region | | 49Facilities | |
|
| North Carolina | | | 15 | |
| South Carolina | | | 5 | |
| South Alabama | | | 4 | |
| South Georgia | | | 4 | |
| Middle Tennessee | | | 4 | |
| Western Virginia | | | 4 | |
| West Virginia | | | 8 | |
| | |
| | |
| Total | | | 44 | |
| | | | |
The Company’s facilities are all in good condition and are adequate for the Company’s operations as presently conducted.
The Company also operates approximately
3,9003,700 vehicles in the sale and distribution of its
soft drinkbeverage products, of which approximately
1,5001,400 are route delivery trucks. In addition, the Company owns approximately
216,000 soft drink196,000 beverage dispensing and vending machines for the sale of its products in its bottling territories.
Item 3. Legal Proceedings
On February 14, 2006, forty-eight Coca-Cola bottler plaintiffs filed suit in United States District Court for the Western District of Missouri against The Coca-Cola Company and Coca-Cola Enterprises Inc. (“CCE”). On February 24, 2006, the plaintiffs filed an amended complaint adding twelve bottlers as plaintiffs. In the lawsuit,Ozarks Coca-Cola/Dr Pepper Bottling Company, et .al. vs. The Coca-Cola Company and Coca-Cola Enterprises Inc.,Civil Action File No. 06-3056-CV-S, the bottler plaintiffs purport to bring claims for breach of contract and breach of duty and other related claims arising out of CCE’s plan to offer warehouse delivery of POWERade to Wal-Mart Stores, Inc. (“Wal-Mart”) within CCE’s territory. The bottler plaintiffs seek preliminary and permanent injunctive relief prohibiting the warehouse delivery of POWERade and unspecified compensatory and punitive damages.
On March 3, 2006, the Company filed a motion seeking permission to intervene in the lawsuit for the limited purpose of opposing the preliminary and permanent injunctive relief sought by the bottler plaintiffs. The Company seeks permission to intervene because it also plans to offer warehouse delivery of POWERade to Wal-Mart within the Company’s territory and therefore opposes the relief requested by the bottler plaintiffs.
The Company is involved in
othervarious 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
other claims and legal proceedings, management believes that the ultimate disposition of these
claimsmatters 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
other claims and legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
| |
| Item 4. | Submission of Matters to a Vote of Security Holders |
There were no matters submitted to a vote of security holders during the fourth quarter of the fiscal year ended
January 1, 2006.December 28, 2008.
The following is a list of names and ages of all the executive officers of the Company indicating all positions and offices with the Company held by each such person. All officers have served in their present capacities for the past five years except as otherwise stated.
J. FRANK HARRISON, III, age
51,54, is Chairman of the Board of Directors and Chief Executive Officer of the Company. Mr. Harrison, III was appointed Chairman of the Board of Directors in December 1996. Mr. Harrison, III served as Vice Chairman from November 1987 through December 1996 and was appointed as the Company’s Chief Executive Officer in May 1994. He was first employed by the Company in 1977 and has served as a Division Sales Manager and as a Vice
President of the Company.President.
WILLIAM B. ELMORE, age 50,53, is President and Chief Operating Officer and a Director of the Company, positions he has held since January 2001. Previously, he was Vice President, Value Chain from July 1999 and Vice President, Business Systems from August 1998 to June 1999. He was Vice President, Treasurer from June 1996 to
17
July 1998. He was Vice President, Regional Manager for the Virginia Division, West Virginia Division and Tennessee Division from August 1991 to May 1996.
ROBERT D. PETTUS, JR.HENRY W. FLINT, age
61,54, is Vice Chairman of the Board of Directors of the Company, a position he has held since
August 2004. Mr. Pettus retired from the Company in February 2005. Mr. PettusApril 2007. Previously, he was Executive Vice President and Assistant to the Chairman of the Company,
from 1996 to July 2004 and Vice President of Human Resources from 1984 to 1996. Mr. Pettus has been a director of the Company since August 2004.HENRY W. FLINT, age 51, is Executive Vice President and Assistant to the Chairman, a position to which he was appointed in July 2004. Prior to that, he was a Managing Partner at the law firm of Kennedy Covington Lobdell & Hickman, L.L.P. with which he was associated from 1980 to 2004.
STEVEN D. WESTPHAL, age 54, is Executive Vice President of Operations and Systems, a position to which he was appointed in September 2007. He was Chief Financial Officer from May 2005 to January 2008 and prior to that Vice President and Controller, a position he had held from November 1987.
WILLIAM J. BILLIARD, age
39,42, is Vice President,
Controller and
Controller,Chief Accounting Officer, a position to which he was appointed on February 20, 2006. Before joining the Company, he was Senior Vice President, Interim Chief Financial Officer and Corporate Controller of Portrait Corporation of America,
Inc., a portrait photography studio company, from September 2005 to January 2006 and Senior Vice President, Corporate Controller from August 2001 to September 2005. Prior to that, he served as Vice President, Chief Financial Officer of Tailored Management, a long-term staffing company, from August 2000 to August 2001.
Portrait Corporation of America, Inc. filed a voluntary petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code in August 2006.
ROBERT G. CHAMBLESS, age 43, is Senior Vice President of Sales, a position he has held since June 2008. Previously, Robert held the position of Vice President — Franchise Sales from early 2003 to June 2008 and Region Sales Manager for our Southern Division between 2000 and 2003. Prior to this position, Robert was Sales Manager in our Columbia, SC branch between 1997 and 2000. Robert has been with the Company for 22 years, starting in the Charleston, SC warehouse in 1986.
CLIFFORD M. DEAL, III, age
44,47, is Vice President
and Treasurer, a position he has held since June 1999. Previously, he was Director of Compensation and Benefits from October 1997 to May 1999. He was Corporate Benefits Manager from December 1995 to September 1997 and was Manager of Tax Accounting from November 1993 to November 1995.
NORMAN C. GEORGE, age
50,53, is
President of BYB Brands, Inc, a wholly-owned subsidiary of the Company that distributes and markets Cinnabon Premium Coffee Lattes, Tum-E Yummies and other products developed by the Company, a position he has held since July 2006. Prior to that he was Senior Vice President, Chief Marketing and Customer Officer, a position he was appointed to in September 2001. Prior to that, he was Vice President, Marketing and National Sales, a position he was appointed to in December 1999. Prior to that, he was Vice President, Corporate Sales, a position he had held since August 1998. Previously, he was Vice President, Sales for the Carolinas South Region, a position he held beginning in November 1991.
RONALD J. HAMMOND,JAMES E. HARRIS,age 50,46, is Senior Vice President Operations,and Chief Financial Officer, a position he has held since January 28, 2008. He served as a Director of the Company from August 2003 until January 25, 2008 and was appointeda member of the Audit Committee and the Finance Committee. He served as Executive Vice President and Chief Financial Officer of MedCath Corporation, an operator of cardiovascular hospitals, from December 1999 to in January 2001. Prior2008. From 1998 to that,1999 he was Vice President, Manufacturing,Chief Financial Officer of Fresh Foods, Inc., a manufacturer of fully cooked food products. From 1987 to 1998, he served in several different officer positions with The Shelton Companies, Inc. He also served two years with Ernst & Young LLP as a senior accountant.
KEVIN A. HENRY, age 41, is Chief Human Resources Officer, a position he
hadhas held since September
1999. Before joining the Company, he was2007 and Senior Vice President
Operations, Asia Pacific at Pepsi-Cola International, where he had been an employee since 1981.KEVIN A. HENRY, age 38, is Senior Vice President,of Human Resources, a position he has held since February 2001. Prior to joining the Company, he was Senior Vice President, Human Resources at Nationwide Credit Inc., where he was an employee since January 1997. Prior to that, he was Director, Human Resources, at Office Depot Inc. beginning in December 1994.
18
UMESH M. KASBEKAR, age
48,51, is Senior Vice President, Planning and Administration, a position he has held since January 1995. Prior to that, he was Vice President, Planning, a position he was appointed to in December 1988.
C. RAY MAYHALL, JR.MELVIN F. LANDIS, III, age
58,43, is Senior Vice President,
Sales,Chief Marketing and Customer Officer, a position he
was appointed to in September 2001.has held since December 2006. Prior to that he was Vice President,
DistributionMarketing and
Technical Services, a positionCorporate Customers from July 2006 to December 2006 and Vice President, Customer Management from July 2004 to June 2006. Prior to joining the Company in July 2004, he was
appointed to in December 1999. Prior to that,employed at The Clorox Company, a manufacturer and marketer of consumer products, from 1994. While at The Clorox Company, he
was Regional Vice President,held a number of positions, including Region Sales
a position he had held since November 1992.Manager, Sales Merchandising Manager — Kingsford Charcoal, Director — Corporate Trade and Category Management, Team Leader Wal-Mart/Sam’s and Senior Director — US Grocery Sales.
LAUREN C. STEELE, age 51,54, is Vice President, Corporate Affairs, a position he has held since May 1989. He is responsible for governmental, media and community relations for the Company.
19
STEVEN D. WESTPHAL, age 51, is Senior Vice President and Chief Financial Officer, a position to which he was appointed in May 2005. Prior to that, he was Vice President and Controller, a position he had held from November 1987.
JOLANTA T. ZWIREK, age 50, is Senior Vice President and Chief Information Officer, a position she has held since June 1999. Prior to joining the Company, she was Vice President and Chief Technology Officer for Bank One during a portion of 1999. Prior to that, she was a Senior Director in the Information Services organization at McDonald’s Corporation, where she was an employee since 1984.PART II
| |
| Item 5. | | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |
The Company has two classes of common stock outstanding, Common Stock and Class B Common Stock. The Common Stock is traded on the Nasdaq
NationalGlobal Select Market
tier of the Nasdaq Stock Market® under the symbol COKE. The table below sets forth for the periods indicated the high and low reported sales prices per share of Common Stock. There is no established public trading market for the Class B Common Stock. Shares of Class B Common Stock are convertible on a share-for-share basis into shares of Common Stock.
| | | | | | | | | | | | |
| | | Fiscal Year
|
| | | 2005
| | 2004
|
| | | High
| | Low
| | High
| | Low
|
First quarter | | $ | 57.53 | | $ | 51.63 | | $ | 55.55 | | $ | 50.00 |
Second quarter | | | 52.80 | | | 46.00 | | | 59.15 | | | 51.05 |
Third quarter | | | 53.93 | | | 47.01 | | | 59.00 | | | 51.25 |
Fourth quarter | | | 49.00 | | | 42.58 | | | 57.86 | | | 52.00 |
The
| | | | | | | | | | | | | | | | | |
| | | Fiscal Year | |
| | | 2008 | | | 2007 | |
| | | High | | | Low | | | High | | | Low | |
| |
| First quarter | | $ | 62.20 | | | $ | 54.38 | | | $ | 68.65 | | | $ | 52.62 | |
| Second quarter | | | 62.13 | | | | 38.30 | | | | 58.50 | | | | 49.78 | |
| Third quarter | | | 44.03 | | | | 31.41 | | | | 60.95 | | | | 50.10 | |
| Fourth quarter | | | 46.65 | | | | 35.00 | | | | 64.19 | | | | 53.95 | |
A quarterly dividend rate of $.25 per share on both Common Stock and Class B Common Stock
shares was maintained throughout
20042007 and
2005.2008. Common Stock and Class B Common Stock have participated equally in dividends since 1994.
Pursuant to the Company’s
Certificatecertificate of
Incorporation,incorporation, no cash dividend or dividend of property or stock other than stock of the Company, as specifically described in the
Certificatecertificate of
Incorporation,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.
The amount and frequency of future dividends will be determined by the Company’s Board of Directors in light of the earnings and financial condition of the Company at such time, and no assurance can be given that dividends will be declared in the future.
The number of stockholders of record of the Common Stock and Class B Common Stock, as of February 28,
2006,2009, was
3,6903,832 and
13,10, respectively.
On February 22, 2006,27, 2008, the Compensation Committee determined that 20,000 shares of restricted Class B Common Stock, $1.00 par value, vested and should be issued pursuant to a performance-based award to J. Frank Harrison, III, in connection with his services in 2007 as Chairman of the Board of Directors and Chief Executive Officer of the Company. This
On March 4, 2009, the Compensation Committee determined that 20,000 shares of restricted Class B Common Stock, $1.00 par value, vested and should be issued pursuant to a performance-based award was approved byto J. Frank Harrison, III, in connection with his services in 2008 as Chairman of the Company’s stockholders in 1999. Board of Directors and Chief Executive Officer of the Company.
The sharesawards to Mr. Harrison, III, were issued without registration under the Securities Act of 1933 (the “Securities Act”) in reliance on Section 4(2) thereof.of the Securities Act.
On February 19, 2009, TheCoca-Cola Company converted all of its 497,670 shares of the Company’s Class B Common Stock into an equivalent number of shares of the Common Stock of the Company. The shares of Common Stock were issued to The Coca-Cola Company without registration under Section 3(a)(9) of the Securities Act.
20
Item 6. Selected Financial Data
Presented below is a line graph comparing the yearly percentage change in the cumulative total return on the Company’s Common Stock to the cumulative total return of the Standard & Poor’s 500 Index and two different peer group indices, the “Old Peer Group” and the “New Peer Group” for the period commencing December 26, 2003 and ending December 28, 2008. The Old Peer Group is comprised of Anheuser-Busch Companies, Inc.; Cadbury Schweppes plc (ADS);Coca-Cola Enterprises Inc.; TheCoca-Cola Company; Cott Corporation; National Beverage Corp.; PepsiCo, Inc.; Pepsi Bottling Group, Inc. and PepsiAmericas. The New Peer Group is comprised of Dr Pepper Snapple Group,Coca-Cola Enterprises Inc.; TheCoca-Cola Company; Cott Corporation; National Beverage Corp.; PepsiCo, Inc.; Pepsi Bottling Group, Inc. and PepsiAmericas. The Company has elected to change its peer group because the Company believes the companies reflected in the New Peer Group are more reflective of the Company’s business and therefore provide a more meaningful comparison of stock performance.
The graph assumes that $100 was invested in the Company’s Common Stock, the Standard & Poor’s 500 Index and each peer group on December 26, 2003 and that all dividends were reinvested on a quarterly basis. Returns for the companies included in each peer group have been weighted on the basis of the total market capitalization for each company.
CUMULATIVE TOTAL RETURN
Based upon an initial investment of $100 on December 26, 2003
with dividends reinvested
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | 12/26/03 | | | 12/31/04 | | | 12/30/05 | | | 12/29/06 | | | 12/28/07 | | | 12/26/08 |
Coca-Cola Bottling Co. Consolidated (CCBCC) | | | $ | 100 | | | | $ | 110 | | | | $ | 85 | | | | $ | 136 | | | | $ | 118 | | | | $ | 89 | |
S&P 500 | | | $ | 100 | | | | $ | 111 | | | | $ | 116 | | | | $ | 135 | | | | $ | 142 | | | | $ | 90 | |
Old Peer Group | | | $ | 100 | | | | $ | 100 | | | | $ | 105 | | | | $ | 118 | | | | $ | 149 | | | | $ | 102 | |
New Peer Group | | | $ | 100 | | | | $ | 97 | | | | $ | 103 | | | | $ | 116 | | | | $ | 146 | | | | $ | 102 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
21
| |
| Item 6. | Selected Financial Data |
The following table sets forth certain selected financial data concerning the Company for the five years ended
January 1, 2006.December 28, 2008. The data for the five years ended
January 1, 2006December 28, 2008 is derived from audited consolidated financial statements of the Company. This information should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” set forth in Item 7 hereof and is qualified in its entirety by reference to the more detailed consolidated financial statements and notes contained in Item 8 hereof.
This information should also be read in conjunction with the “Risk Factors” set forth in Item 1A.
Selected Financial Data*SELECTED FINANCIAL DATA* | | | | | | | | | | | | | | | |
| | | Fiscal Year**
|
| In Thousands (Except Per Share Data) | | 2005
| | 2004
| | 2003
| | 2002***
| | 2001
|
Summary of Operations | | | | | | | | | | | | | | | |
Net sales | | $ | 1,380,172 | | $ | 1,267,227 | | $ | 1,220,403 | | $ | 1,207,173 | | $ | 965,979 |
| | |
|
| |
|
| |
|
| |
|
| |
|
|
Cost of sales, excluding depreciation expense | | | 752,409 | | | 659,466 | | | 629,080 | | | 622,333 | | | 516,734 |
Selling, delivery and administrative expenses, excluding depreciation expense | | | 466,533 | | | 449,497 | | | 428,462 | | | 412,787 | | | 310,850 |
Depreciation expense | | | 68,222 | | | 70,798 | | | 76,485 | | | 76,075 | | | 66,134 |
Provision for impairment of property, plant and equipment | | | | | | | | | | | | | | | 947 |
Amortization of intangibles | | | 880 | | | 3,117 | | | 3,105 | | | 2,796 | | | 15,296 |
| | |
|
| |
|
| |
|
| |
|
| |
|
|
Total costs and expenses | | | 1,288,044 | | | 1,182,878 | | | 1,137,132 | | | 1,113,991 | | | 909,961 |
| | |
|
| |
|
| |
|
| |
|
| |
|
|
Income from operations | | | 92,128 | | | 84,349 | | | 83,271 | | | 93,182 | | | 56,018 |
Interest expense | | | 49,279 | | | 43,983 | | | 41,914 | | | 49,120 | | | 44,322 |
Minority interest | | | 4,097 | | | 3,816 | | | 3,297 | | | 5,992 | | | |
| | |
|
| |
|
| |
|
| |
|
| |
|
|
Income before income taxes | | | 38,752 | | | 36,550 | | | 38,060 | | | 38,070 | | | 11,696 |
Income taxes | | | 15,801 | | | 14,702 | | | 7,357 | | | 15,247 | | | 2,226 |
| | |
|
| |
|
| |
|
| |
|
| |
|
|
Net income | | $ | 22,951 | | $ | 21,848 | | $ | 30,703 | | $ | 22,823 | | $ | 9,470 |
| | |
|
| |
|
| |
|
| |
|
| |
|
|
Basic net income per share | | $ | 2.53 | | $ | 2.41 | | $ | 3.40 | | $ | 2.58 | | $ | 1.08 |
| | |
|
| |
|
| |
|
| |
|
| |
|
|
Diluted net income per share | | $ | 2.53 | | $ | 2.41 | | $ | 3.40 | | $ | 2.56 | | $ | 1.07 |
| | |
|
| |
|
| |
|
| |
|
| |
|
|
Cash dividends per share: | | | | | | | | | | | | | | | |
Common | | $ | 1.00 | | $ | 1.00 | | $ | 1.00 | | $ | 1.00 | | $ | 1.00 |
Class B Common | | $ | 1.00 | | $ | 1.00 | | $ | 1.00 | | $ | 1.00 | | $ | 1.00 |
Other Information | | | | | | | | | | | | | | | |
Weighted average number of common shares outstanding | | | 9,083 | | | 9,063 | | | 9,043 | | | 8,861 | | | 8,753 |
Weighted average number of common shares outstanding—assuming dilution | | | 9,083 | | | 9,063 | | | 9,043 | | | 8,921 | | | 8,821 |
Year-End Financial Position | | | | | | | | | | | | | | | |
Total assets | | $ | 1,341,839 | | $ | 1,314,063 | | $ | 1,349,920 | | $ | 1,353,525 | | $ | 1,064,459 |
| | |
|
| |
|
| |
|
| |
|
| |
|
|
Current portion of debt | | | 6,539 | | | 8,000 | | | 17,678 | | | 37,631 | | | 56,708 |
| | |
|
| |
|
| |
|
| |
|
| |
|
|
Current portion of obligations under capital leases | | | 1,709 | | | 1,826 | | | 1,337 | | | 1,120 | | | 1,364 |
| | |
|
| |
|
| |
|
| |
|
| |
|
|
Obligations under capital leases | | | 77,493 | | | 79,202 | | | 44,226 | | | 44,906 | | | 1,060 |
| | |
|
| |
|
| |
|
| |
|
| |
|
|
Long-term debt | | | 691,450 | | | 700,039 | | | 785,039 | | | 770,125 | | | 620,156 |
| | |
|
| |
|
| |
|
| |
|
| |
|
|
Stockholders’ equity | | | 75,134 | | | 64,439 | | | 52,472 | | | 32,867 | | | 17,081 |
| | |
|
| |
|
| |
|
| |
|
| |
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| | | | | | | | | | | | | | | | | | | | | |
| | | Fiscal Year** | |
In thousands (except per share data) | | 2008 | | | 2007 | | | 2006 | | | 2005 | | | 2004 | |
| |
Summary of Operations | | | | | | | | | | | | | | | | | | | | |
| Net sales | | $ | 1,463,615 | | | $ | 1,435,999 | | | $ | 1,431,005 | | | $ | 1,380,172 | | | $ | 1,267,227 | |
| | | | | | | | | | | | | | | | | | | | | |
| Cost of sales | | | 848,409 | | | | 814,865 | | | | 808,426 | | | | 761,261 | | | | 666,534 | |
| Selling, delivery and administrative expenses | | | 555,728 | | | | 539,251 | | | | 537,915 | | | | 526,783 | | | | 516,344 | |
| | | | | | | | | | | | | | | | | | | | | |
| Total costs and expenses | | | 1,404,137 | | | | 1,354,116 | | | | 1,346,341 | | | | 1,288,044 | | | | 1,182,878 | |
| | | | | | | | | | | | | | | | | | | | | |
| Income from operations | | | 59,478 | | | | 81,883 | | | | 84,664 | | | | 92,128 | | | | 84,349 | |
| Interest expense | | | 39,601 | | | | 47,641 | | | | 50,286 | | | | 49,279 | | | | 43,983 | |
| Minority interest | | | 2,392 | | | | 2,003 | | | | 3,218 | | | | 4,097 | | | | 3,816 | |
| | | | | | | | | | | | | | | | | | | | | |
| Income before income taxes | | | 17,485 | | | | 32,239 | | | | 31,160 | | | | 38,752 | | | | 36,550 | |
| Income taxes | | | 8,394 | | | | 12,383 | | | | 7,917 | | | | 15,801 | | | | 14,702 | |
| | | | | | | | | | | | | | | | | | | | | |
| Net income | | $ | 9,091 | | | $ | 19,856 | | | $ | 23,243 | | | $ | 22,951 | | | $ | 21,848 | |
| | | | | | | | | | | | | | | | | | | | | |
| Basic net income per share: | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | $ | .99 | | | $ | 2.18 | | | $ | 2.55 | | | $ | 2.53 | | | $ | 2.41 | |
| Class B Common Stock | | $ | .99 | | | $ | 2.18 | | | $ | 2.55 | | | $ | 2.53 | | | $ | 2.41 | |
| Diluted net income per share: | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | $ | .99 | | | $ | 2.17 | | | $ | 2.55 | | | $ | 2.53 | | | $ | 2.41 | |
| Class B Common Stock | | $ | .99 | | | $ | 2.17 | | | $ | 2.54 | | | $ | 2.53 | | | $ | 2.41 | |
| Cash dividends per share: | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | $ | 1.00 | | | $ | 1.00 | | | $ | 1.00 | | | $ | 1.00 | | | $ | 1.00 | |
| Class B Common Stock | | $ | 1.00 | | | $ | 1.00 | | | $ | 1.00 | | | $ | 1.00 | | | $ | 1.00 | |
Other Information | | | | | | | | | | | | | | | | | | | | |
| Weighted average number of common shares outstanding: | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | | 6,644 | | | | 6,644 | | | | 6,643 | | | | 6,643 | | | | 6,643 | |
| Class B Common Stock | | | 2,500 | | | | 2,480 | | | | 2,460 | | | | 2,440 | | | | 2,420 | |
| Weighted average number of common shares outstanding — assuming dilution: | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | | 9,160 | | | | 9,141 | | | | 9,120 | | | | 9,083 | | | | 9,063 | |
| Class B Common Stock | | | 2,516 | | | | 2,497 | | | | 2,477 | | | | 2,440 | | | | 2,420 | |
Year-End Financial Position | | | | | | | | | | | | | | | | | | | | |
| Total assets | | $ | 1,315,772 | | | $ | 1,291,799 | | | $ | 1,364,467 | | | $ | 1,341,839 | | | $ | 1,314,063 | |
| | | | | | | | | | | | | | | | | | | | | |
| Current portion of debt | | | 176,693 | | | | 7,400 | | | | 100,000 | | | | 6,539 | | | | 8,000 | |
| | | | | | | | | | | | | | | | | | | | | |
| Current portion of obligations under capital leases | | | 2,781 | | | | 2,602 | | | | 2,435 | | | | 1,709 | | | | 1,826 | |
| | | | | | | | | | | | | | | | | | | | | |
| Obligations under capital leases | | | 74,833 | | | | 77,613 | | | | 75,071 | | | | 77,493 | | | | 79,202 | |
| | | | | | | | | | | | | | | | | | | | | |
| Long-term debt | | | 414,757 | | | | 591,450 | | | | 591,450 | | | | 691,450 | | | | 700,039 | |
| | | | | | | | | | | | | | | | | | | | | |
| Stockholders’ equity | | | 76,309 | | | | 120,504 | | | | 93,953 | | | | 75,134 | | | | 64,439 | |
| | | | | | | | | | | | | | | | | | | | | |
| | |
| * | | See Management’s Discussion and Analysis of Financial Condition and Results of Operations and the accompanying notes to consolidated financial statements for additional information. |
|
| ** | | All years presented are 52-week fiscal years except 2004 which was a 53-week year. |
22
*** | On January 2, 2002, the Company purchased an additional interest in Piedmont Coca-Cola Bottling Partnership (“Piedmont”) from The Coca-Cola Company, increasing the Company’s ownership in Piedmont to more than 50%. Due to the increase in ownership, the results |
| Item 7. | Management’s Discussion and Analysis of operations, financial positionFinancial Condition and cash flowsResults of Piedmont have been consolidated with those of the Company beginning in the first quarter of 2002. The Company’s investment in Piedmont had been accounted for using the equity method for 2001 and prior years. In addition, the Company adopted the provisions of SFAS No. 142 at the beginning of 2002, which resulted in goodwill and intangible assets with indefinite useful lives no longer being amortized.Operations |
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“M,D&A”) should be read in conjunction with
the Company’sCoca-Cola Bottling Co. Consolidated’s (the “Company”) consolidated financial statements and the accompanying notes to consolidated financial statements. M,D&A includes the following sections:
Our Business and the Soft Drink Industry—a general description of the Company’s business and the soft drink industry.
| | |
| • | Our Business and the Nonalcoholic Beverage Industry — a general description of the Company’s business and the nonalcoholic beverage industry. |
|
| • | Areas of Emphasis — a summary of the Company’s key priorities. |
|
| • | Overview of Operations and Financial Condition — a summary of key information and trends concerning the financial results for the three years ended 2008. |
|
| • | Discussion of Critical Accounting Policies, Estimates and New Accounting Pronouncements — a discussion of accounting policies that are most important to the portrayal of the Company’s 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 Company’s results of operations for the three years presented in the consolidated financial statements. |
|
| • | Financial Condition — an analysis of the Company’s financial condition as of the end of the last two years 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. |
Areas of Emphasis—a summary of the Company’s key priorities for 2005 and the next several years.
Overview of Operations and Financial Condition—a summary of key information and trends concerning the financial results for the three years ended 2005.
Discussion of Critical Accounting Policies, Estimates and New Accounting Pronouncements—a discussion of accounting policies that are most important to the portrayal of the Company’s financial condition and results of operations that require critical judgments and estimates and the expected impact of new accounting pronouncements.
Results of Operations—an analysis of the Company’s results of operations for the three years presented in the consolidated financial statements.
Financial Condition—an analysis of the Company’s financial condition as of the end of the last two years 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 interest rate hedging.
Cautionary Information Regarding Forward-Looking Statements.
The fiscal years presented are the 52-week period ended January 1, 2006, the 53-week period ended January 2, 2005 and the 52-week periodperiods ended December 28, 2003.2008, December 30, 2007 and December 31, 2006. The Company’s fiscal year ends on the Sunday closest to December 31 of each year.
The consolidated financial statements of operations and consolidated statements of cash flows for fiscal years 2005, 2004 and 2003 and the consolidated balance sheets at January 1, 2006 and January 2, 2005 include the consolidated operations of the Company and its majority-owned subsidiaries including PiedmontCoca-Cola Bottling Partnership (“Piedmont”). Minority interest consists of TheCoca-Cola Company’s interest in Piedmont, which was 22.7% for all of 2005 and 2004periods presented.
Our Business and the last three quarters of 2003, and 45.3% for the first quarter of 2003.OUR BUSINESS AND THE SOFT DRINK INDUSTRYNonalcoholic Beverage Industry
Coca-Cola Bottling Co. Consolidated (the “Company”)
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 second largest bottler of products of The
Coca-Cola Company in the United States,
operatingdistributing these products in eleven states primarily in the Southeast. The Company also distributes several other beverage brands.
The Company’sThese product offerings include
both sparkling and still beverages. Sparkling beverages are primarily carbonated
soft drinks,beverages, including energy products. Still beverages are primarily noncarbonated beverages such as bottled water,
teas,tea, ready to drink coffee, enhanced water, juices
isotonics and
energysports drinks. The Company had net sales of
approximately $1.4$1.5 billion in
2005.2008.
The nonalcoholic beverage market is highly competitive. The Company’s competitors
in these markets include bottlers and distributors of nationally
advertised and
marketed products, regionally advertised and marketed products and private label
soft drinks.products. In each region in which the Company operates, between
75%85% and 95% of
carbonated soft drinksparkling 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 Crownand/or 7-Upor7-Up products. During the last threepast several years, volumeindustry sales of sugar carbonated soft drinks in the soft drink industry hassparkling beverages, other than energy products, have declined. The decline in sales of sugar carbonatedsparkling beverages has generally been offset by volume growth in other nonalcoholic beverage product categories. The sparkling beverage category (including energy products) represents 82% of the Company’s 2008 bottle/can net sales.
23
The Company’s
bottle/cannet sales
volume by product category
as a percentage of total bottle/can sales volume waswere as follows:
| | | | | | | | | |
| | | Fiscal Year
| |
Product Category
| | 2005
| | | 2004
| | | 2003
| |
Sugar carbonated soft drinks | | 59.4 | % | | 61.5 | % | | 63.5 | % |
Diet carbonated soft drinks | | 28.0 | % | | 27.6 | % | | 25.8 | % |
| | |
|
| |
|
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|
|
Total carbonated soft drinks | | 87.4 | % | | 89.1 | % | | 89.3 | % |
| | |
|
| |
|
| |
|
|
Bottled water | | 6.7 | % | | 5.6 | % | | 5.4 | % |
Isotonics | | 2.6 | % | | 2.1 | % | | 1.7 | % |
Other noncarbonated | | 3.3 | % | | 3.2 | % | | 3.6 | % |
| | |
|
| |
|
| |
|
|
Total noncarbonated | | 12.6 | % | | 10.9 | % | | 10.7 | % |
| | |
|
| |
|
| |
|
|
Total | | 100.0 | % | | 100.0 | % | | 100.0 | % |
| | |
|
| |
|
| |
|
|
| | | | | | | | | | | | | |
| | | Fiscal Year | |
In thousands | | 2008 | | | 2007 | | | 2006 | |
| |
| Bottle/can sales: | | | | | | | | | | | | |
| Sparkling beverages (including energy products) | | $ | 1,011,656 | | | $ | 1,007,583 | | | $ | 1,009,652 | |
| Still beverages | | | 227,171 | | | | 201,952 | | | | 180,004 | |
| | | | | | | | | | | | | |
| Total bottle/can sales | | | 1,238,827 | | | | 1,209,535 | | | | 1,189,656 | |
| | | | | | | | | | | | | |
| Other sales: | | | | | | | | | | | | |
Sales to otherCoca-Cola bottlers | | | 128,651 | | | | 127,478 | | | | 152,426 | |
| Post-mix and other | | | 96,137 | | | | 98,986 | | | | 88,923 | |
| | | | | | | | | | | | | |
| Total other sales | | | 224,788 | | | | 226,464 | | | | 241,349 | |
| | | | | | | | | | | | | |
| Total net sales | | $ | 1,463,615 | | | $ | 1,435,999 | | | $ | 1,431,005 | |
| | | | | | | | | | | | | |
AREAS OF EMPHASISAreas of EmphasisKey priorities for the Company
during 2005 and over the next several years include revenue management, product innovation
and beverage portfolio expansion, distribution cost management and
overall productivity.
Revenue management
includes striking the appropriate balance between generating growth in volume, gross margin and market share. It requires a strategy which reflects consideration for pricing of brands and packages within
product categories and channels, as well as highly effective working relationships with customers and disciplined fact-based decision-making. Revenue management has been and continues to be a key driver which has significant impact on the Company’s
operating income performance.results of operations.
Product Innovation and Beverage Portfolio ExpansionVolume growth of carbonated soft drinks
Sparkling beverage volume, other than energy products, has sloweddeclined over the past several years. Innovation of both new brands and packages has been and will continue to be critical to the Company’s overall volume. During the first quarter of 2005, therevenue. The Company introduced Coca-Cola with lime and Full Throttle, an energy product from The Coca-Cola Company. During the second quarter of 2005, the Company introduced Coca-Cola Zero, Dasani flavors, and Vaultbegan distributing Monster Energy drinks in certain markets.of the Company’s territories beginning in November 2008. The Company introduced Vaultthe following new products during 2007: smartwater, vitaminwater, vitaminenergy, Gold Peak and Country Breeze tea products, Diet Coke Plus, Dasani Plus, juice products from FUZE (a subsidiary of TheCoca-Cola Company) and V8 juice products from Campbell Soup Company (“Campbell”). The Company also modified its energy product portfolio in 2007 with the addition of NOS© products from FUZE.
In October 2008, the Company entered into a distribution agreement with Hansen Beverage Company (“Hansen”), the developer, marketer, seller and distributor of Monster Energy drinks, the leading volume brand in the Company’s remaining markets in the fourth quarter of 2005. The Company introduced diet Coke with lime, Coca-Cola C2 and Rockstar, anU.S. energy drink in 2004. In addition,category. Under this agreement, the Company has also developed specialty packaging for customersthe right to distribute Monster Energy drinks in certain channelsof the Company’s territories. The agreement has a term of 20 years and can be terminated by either party under certain circumstances, subject to a termination penalty in certain cases. In conjunction with the execution of this agreement, the Company was required to pay Hansen $2.3 million. This amount equals the amount that Hansen is required to pay to the existing distributors of Monster Energy drinks to terminate their existing distribution agreements. The Company has recorded the payment to Hansen as distribution rights and will amortize the amount on a straight-line basis to selling, delivery and administrative (“S,D&A”) expenses over the past several years.20 year term of the agreement.
In August 2007, the Company entered into a distribution agreement with Energy Brands Inc. (“Energy Brands”), a wholly-owned subsidiary of TheCoca-Cola Company. Energy Brands, also known as glacéau, is a producer and distributor of branded enhanced beverages including vitaminwater, smartwater and vitaminenergy. The distribution agreement is effective November 1, 2007 for a period of ten years and, unless earlier terminated, will be automatically renewed for succeeding ten-year terms, subject to a one year non-renewal notification by the Company. In conjunction with the execution of the distribution agreement, the Company entered into an agreement
24
with TheCoca-Cola Company whereby the Company agreed not to introduce new third party brands or certain third party brand extensions in the United States through August 31, 2010 unless mutually agreed to by the Company and TheCoca-Cola Company.
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 and diet Country Breeze tea and became the exclusive licensee of Cinnabon Premium Coffee Lattes. These brands enable the Company to participate in strong growth categories and capitalize on distribution channels that include the Company’s traditionalCoca-Cola franchise territory as well as third party distributors outside the Company’s traditional franchise territory. While the growth prospects of Company-owned or exclusive licensed brands appear promising, the cost of developing, marketing and distributing these brands is anticipated to be significant as well.
Distribution Cost Management Distribution
cost representscosts represent the
costcosts of transporting finished goods from Company locations to customer outlets. Total distribution costs amounted to
$183.1$201.6 million,
$176.3$194.9 million and
$168.1$193.8 million in
2005, 20042008, 2007 and
2003,2006, 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 brands and packages.products. In addition, the Company has closed a number of smaller sales distribution centers 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; pre-sell delivery for convenience stores, drug stores, small supermarkets and on-premise accounts; and full service delivery for its full service vending customers. In 2006, the Company will begin changing its delivery method for its pre-sell delivery system. Historically, the Company loaded its trucks at the warehouse with products the route delivery employee would deliver during the day. The delivery employee was responsible for pulling the required products off a side load truck at each stop to fill the customer’s order. The Company will begin using a new pre-sell delivery method in 2006 which involves pre-building orders in the warehouse on a small pallet that the delivery employee can roll off a truck directly into the customer’s location. This new method involves the use of a rear loading truck rather than the conventional side loading truck. In the initial rollout of this new method, the Company anticipates delivery efficiency will increase by approximately 30% for its pre-sell delivery routes. The Company plans to implement this new delivery method in approximately 13 distribution centers during 2006. These 13 distribution centers accounted for approximately 35% of the Company’s total bottle/can sales volume in 2005. This rollout will require additional capital spending for the new type of delivery vehicle. Capital spending is anticipated to increase significantly in 2006 as compared to 2005 as discussed more fully below. The Company anticipates that this change in delivery methodology will result in significant savings in future years; more efficient delivery of a larger number of products; improved employee safety and a reduction in the number of workers’ compensation claims. | | |
| • | bulk delivery for large supermarkets, mass merchandisers and club stores; |
|
| • | advanced sale delivery for convenience stores, drug stores, small supermarkets and on-premises 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 for the next several years.Company.
ProductivityTo achieve improvements in operating performance over the long-term, the Company’s gross margin must grow faster than the growth in selling, delivery and administrative (“S,D&A”) expenses.
A key driver in the Company’s S,D&A expense management relates to ongoing improvements in labor productivity and asset productivity. The Company initiated plans to reorganize the structure in its operating units and support services in July 2008. The reorganization resulted in the elimination of approximately 350 positions, or approximately 5% of the Company’s workforce. The Company implemented these changes in order to improve its efficiency and to help offset significant increases in the cost of raw materials and operating expenses. The Company anticipates substantial annual savings from this reorganization plan. The plan was completed in the fourth quarter of 2008.
On February 2, 2007, the Company initiated a restructuring plan to simplify and streamline its operating management structure, which included a separation of the sales function from the delivery function to provide dedicated focus on each function and enhanced productivity. The Company continues to focus on its supply chain and distribution functions for
ongoing opportunities to improve productivity.
OVERVIEW OF OPERATIONS AND FINANCIAL CONDITIONOverview of Operations and Financial ConditionThe following
overview providesis a summary of key information concerning the Company’s financial results for the three years ended
2005. | | | | | | | | | |
| | | Fiscal Year
|
| | | 2005(1)(3)
| | 2004(2)(4)
| | 2003(5)
|
| In Thousands (Except Per Share Data) | | | | | | |
Net sales | | $ | 1,380,172 | | $ | 1,267,227 | | $ | 1,220,403 |
Gross margin | | | 627,763 | | | 607,761 | | | 591,323 |
Income from operations | | | 92,128 | | | 84,349 | | | 83,271 |
Interest expense | | | 49,279 | | | 43,983 | | | 41,914 |
Income taxes | | | 15,801 | | | 14,702 | | | 7,357 |
Net income | | | 22,951 | | | 21,848 | | | 30,703 |
Basic net income per share (6) | | $ | 2.53 | | $ | 2.41 | | $ | 3.40 |
The following items affect the comparability of the financial results presented below:
2008
(1) | Results | |
| • | a $2.0 million pre-tax charge for 2005 included a favorablemark-to-market adjustment of $7.0 million (pre-tax) related to the settlementCompany’s fuel hedging program; |
25
| | |
| • | a $14.0 million pre-tax charge to freeze the Company’s liability to the Central States, Southeast and Southwest Areas Pension Fund (“Central States”), a multi-employer pension fund, while preserving the pension benefits previously earned by Company employees covered by the plan and the expense to settle a strike by the employees covered by this plan; |
|
| • | a $4.6 million pre-tax charge for restructuring expense related to the Company’s plan initiated in the third quarter of high fructose corn syrup litigation,2008 to reorganize the structure of its operating units and support services, which was reflected as resulted in the elimination of approximately 350 positions; and |
|
| • | a reduction$2.6 million credit adjustment to pre-tax income to increase the Company’s equity investment in cost of sales.a plastic bottle cooperative. |
2007
(2) | Results for 2004 included an unfavorable non-cash adjustment of $1.7 | |
| • | a $2.8 million (pre-tax)pre-tax charge related to a change in the pricing of concentrate purchased from The Coca-Cola Company, which was reflected as an increase to cost of sales. |
(3) | Interest expense for 2005 included financing transaction costs of $1.7 million (pre-tax) related to the exchange of $164.8 millionsimplification of the Company’s long-term debtoperating management structure and the redemption of $8.6 million of debentures. |
(4) | Results for 2004 included a favorable adjustment of approximately $2 million (pre-tax) for certain customer-related marketing programs between the Company and The Coca-Cola Company, which was reflected as a reduction in cost of sales.workforce. |
2006
(5) | Results for 2003 included net favorable adjustments | |
| • | a $4.9 million credit to income tax expense of $8.6 million relatingrelated to the favorable settlement of aagreements with two state income tax audit and the reduction of its valuation allowance forauthorities to settle certain deferred incomeprior tax assets, offset partially by incremental tax expense associated with the decision to terminate certain Company-owned life insurance policies.positions. |
(6) | The Company does not currently have any stock options or other common stock equivalents that would result in dilution of earnings per share. Accordingly, for the periods presented, basic and fully diluted earnings per share are equivalent. |
| | | | | | | | | | | | | |
| | | Fiscal Year | |
In thousands (except per share data) | | 2008 | | | 2007 | | | 2006 | |
| |
| Net sales | | $ | 1,463,615 | | | $ | 1,435,999 | | | $ | 1,431,005 | |
| Gross margin | | | 615,206 | | | | 621,134 | | | | 622,579 | |
| S,D&A expenses | | | 555,728 | | | | 539,251 | | | | 537,915 | |
| Income from operations | | | 59,478 | | | | 81,883 | | | | 84,664 | |
| Interest expense | | | 39,601 | | | | 47,641 | | | | 50,286 | |
| Income before income taxes | | | 17,485 | | | | 32,239 | | | | 31,160 | |
| Income taxes | | | 8,394 | | | | 12,383 | | | | 7,917 | |
| Net income | | | 9,091 | | | | 19,856 | | | | 23,243 | |
| Basic net income per share: | | | | | | | | | | | | |
| Common Stock | | $ | .99 | | | $ | 2.18 | | | $ | 2.55 | |
| Class B Common Stock | | $ | .99 | | | $ | 2.18 | | | $ | 2.55 | |
| Diluted net income per share: | | | | | | | | | | | | |
| Common Stock | | $ | .99 | | | $ | 2.17 | | | $ | 2.55 | |
| Class B Common Stock | | $ | .99 | | | $ | 2.17 | | | $ | 2.54 | |
The Company’s net sales grew
approximately 13%2.3% from
20032006 to
2005.2008. The net sales increase was primarily due to an increase in average
revenuesales price per
bottle/can unit of
approximately 7%,4.1% offset by a
1.5% increase in bottle/can sales volume, and a 95% increase$23.8 million decrease in sales to other
Coca-Cola bottlers
primarily related(“bottler sales”). The decrease in bottler sales was due to
shipmentsdecreased sales of
Full Throttle, the new energy
drink of The Coca-Cola Company.drinks.
The Company has seen declines in the demand for sugar
carbonated soft drinkssparkling beverages (other than energy products) and bottled water over the past
threeseveral years and
expects thatanticipates this trend
willmay continue. The Company anticipates
that overall bottle/can sales
volumegrowth will be primarily dependent upon continued growth in diet
sparkling products,
isotonics, bottledsports drinks, enhanced water,
tea and energy
drinksproducts as well as the introduction of new
products.beverage products and the appropriate pricing of brands and packages within sales channels.
Gross margin
increased approximately 6% in 2005 compareddollars decreased 1.2% from 2006 to
2003.2008. The Company’s gross margin
as a percentage
of net sales declined from
48.5%43.5% in
20032006 to
45.5%42.0% in
20052008. The decrease in gross margin percentage was primarily due to higher raw material costs and
an increase ina higher percentage of sales
to other Coca-Cola bottlers,of purchased products which have lower
margins than the Company’s bottle/can franchise sales. Sales to other Coca-Cola bottlers accounted for 2.0% of the 3.0% decrease in gross margin
percentage. The Company’s raw material packaging costs increased significantly in 2005. The Company increased selling prices topercentage than manufactured products, partially offset
these increased costs.Incomeby higher sales price per unit and increases in marketing funding support from operations increased approximately 11% in 2005 compared to 2003. The increase was due to solid growth in gross margin and lower depreciation expense, which more than offset higher S,D&A expenses.
Coca-Cola Company.
S,D&A expenses have increased approximately 9%3.3% from 20032006 to 2005.2008. The increase in S,D&A expenses was primarily attributable to increasesthe charge in employee compensation of approximately 8%, employee2008 to freeze the Company’s liability to Central States while preserving the pension
26
benefits previously earned by employees covered by the plan, restructuring expense recorded in 2008 and increased fuel costs. Employee benefit plan costs decreased primarily due to the amendment of approximately 9%, property and casualty insurance costs of approximately 3% and fuel costs of approximately 53%. Depreciationthe principal Company-sponsored pension plan in 2006, offset by increases in the Company’s 401(k) Savings Plan contributions.
Net interest expense decreased
approximately 11% from 200321.2% in 2008 compared to
2005.2006. The decrease
in depreciation expense from 2003 to 2005 was primarily due to lower
levels of capital spending over the past several years.Interest expense increased approximately 18% from 2003 to 2005. The increase primarily reflected highereffective interest rates and lower borrowing levels offset by a decrease in interest earned on the Company’s floating rate debt. Interest expense for 2005 also included financing transaction costs of $1.7 million related to the exchange of $164.8 million of debentures during the second quarter of 2005 and the early retirement of $8.6 million of the Company’s long-term debt during the fourth quarter of 2005.short-term cash investments. The Company’s overall weighted average interest rate excludingwas 5.7% for 2008 compared to 6.6% for 2006. Interest earned on short-term cash investments in 2008 was $.1 million compared to $1.4 million in 2006.
Income tax expense increased 6.0% from 2006 to 2008. The lower rate in 2006 reflected the financing transaction costs relatedeffect from agreements with state taxing authorities. The Company’s effective tax rate was 48.0% for 2008 compared to 25.4% for 2006. The effective tax rates differ from statutory rates as a result of adjustments to the exchange of long-termreserve for uncertain tax positions, adjustments to the deferred tax asset valuation allowance and other nondeductible items.
Net debt
during the second quarter of 2005 and the early retirement of long-term debt during the fourth quarter of 2005, increased from an average of 4.9% during 2003 to 6.2% during 2005.Debt and capital lease obligations arewere summarized as follows:
| | | | | | | | | |
| | | Jan. 1, 2006
| | Jan. 2, 2005
| | Dec. 28, 2003
|
| In Thousands | | | | | | |
Debt | | $ | 697,989 | | $ | 708,039 | | $ | 802,717 |
Capital lease obligations | | | 79,202 | | | 81,028 | | | 45,563 |
| | |
|
| |
|
| |
|
|
Total debt and capital lease obligations | | $ | 777,191 | | $ | 789,067 | | $ | 848,280 |
| | |
|
| |
|
| |
|
|
The Company capitalized its corporate headquarters lease as
| | | | | | | | | | | | | |
| | | Dec. 28,
| | | Dec. 30,
| | | Dec. 31,
| |
In thousands | | 2008 | | | 2007 | | | 2006 | |
| |
| Debt | | $ | 591,450 | | | $ | 598,850 | | | $ | 691,450 | |
| Capital lease obligations | | | 77,614 | | | | 80,215 | | | | 77,506 | |
| | | | | | | | | | | | | |
| Total debt and capital lease obligations | | | 669,064 | | | | 679,065 | | | | 768,956 | |
| Less: Cash and cash equivalents | | | 45,407 | | | | 9,871 | | | | 61,823 | |
| | | | | | | | | | | | | |
| Total net debt and capital lease obligations(1) | | $ | 623,657 | | | $ | 669,194 | | | $ | 707,133 | |
| | | | | | | | | | | | | |
| | |
| (1) | | The non-GAAP measure “Total net debt and capital lease obligations” is used to provide investors with additional information which management believes is helpful in the evaluation of the Company’s capital structure and financial leverage. |
Discussion of the beginning of March 2004Critical Accounting Policies, Estimates and entered into another capital lease at the end of the second quarter of 2004. The amount recorded for capitalization of these leases in 2004 was $37.3 million.New Accounting Pronouncements
DISCUSSION OF CRITICAL ACCOUNTING POLICIES, ESTIMATES AND NEW ACCOUNTING PRONOUNCEMENTSCritical Accounting Policies and Estimates
In the ordinary course of business, the Company has made a number of estimates and assumptions relating to the reporting of results of operations and financial position in the preparation of its consolidated financial statements in conformity with 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 believes
that the following discussion addresses the Company’s most critical accounting policies, which are those
that are most important to the portrayal of the Company’s financial condition and results of operations and require management’s most difficult, subjective and complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.
The Company
hasdid not
mademake changes in any critical accounting policies during
2005.2008. Any
significant changes in critical accounting policies and estimates are discussed with the Audit Committee of the Board of Directors of the Company during the quarter in which a change is contemplated and prior to making such change.
Allowance for Doubtful Accounts The Company evaluates the collectibility of its trade accounts receivable based on a number of factors. In circumstances where the Company becomes aware of a
specific customer’s inability to meet its financial obligations to the Company, a specific reserve for bad debts is estimated and recorded which reduces the recognized receivable to the estimated amount the Company believes will ultimately be collected. In addition to specific customer identification of potential bad debts, bad debt charges are recorded based on the Company’s recent past loss history and an overall assessment of past due trade accounts receivable outstanding.
The Company’s review of potential bad debts considers the specific industry in which a particular customer operates, such as supermarket retailers, convenience stores and mass merchandise retailers, and the general
27
economic conditions that currently exist in that specific industry. The Company then considers the effects of concentration of credit risk in a specific industry and for specific customers within that industry.
Property, Plant and Equipment Property, plant and equipment is recorded at cost and is depreciated on a straight-line basis over the estimated useful lives of such assets. Changes in circumstances such as technological advances, changes to the Company’s business model or changes in the Company’s capital
spending strategy could result in the actual useful lives differing from the Company’s current estimates. Factors such as changes in the planned use of manufacturing equipment,
vendingcold drink dispensing equipment, transportation equipment, warehouse facilities or software could also result in shortened useful lives. In those cases where the Company determines that the useful life of property, plant and equipment should be shortened, the Company
would depreciatedepreciates the net book value in excess of the estimated salvage value over its revised remaining useful life.
The Company evaluates
long-lived assetsthe recoverability of the carrying amount of its property, plant and
certain identifiable intangibles for impairment wheneverequipment when events or changes in circumstances indicate that the carrying amount of an asset
or asset group may not be recoverable.
WhenIf the Company determines that the carrying amount of an asset or asset group is not recoverable based upon the expected undiscounted future cash flows
will not be sufficient to recover an asset’s carrying amount,of the asset
or asset group, an impairment loss is
written downrecorded equal to
itsthe excess of the carrying amounts over the estimated fair value
andof the
Company recognizes an impairment loss.long-lived assets.
The Company considers franchise rights with The
Coca-Cola Company and other beverage companies to be indefinite lived because the agreements are perpetual or, in situations where agreements are not perpetual, the Company anticipates the agreements will continue to be renewed upon expiration. The cost of renewals is minimal and the Company has not had any renewals denied. The Company considers franchise rights as indefinite lived intangible assets under
the Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible
Assets,”Assets” (“SFAS No. 142”) and therefore, does not amortize the value of such assets. Instead, franchise rights are tested at least annually for impairment.
Impairment Testing of Franchise Rights and GoodwillThe only intangible assets the Company classifies as indefinite lived are franchise rights and goodwill.
SFAS No. 142 requires testing of intangible assets with indefinite lives and goodwill for impairment at least annually. The Company conducts its annual impairment test
inas of the
thirdfirst day of the fourth quarter of each fiscal year. The Company also reviews intangible assets with indefinite lives and goodwill for impairment if there are significant changes in business
conditions.conditions that could result in impairment.
For the annual impairment analysis of franchise rights, the fair value for the Company’s
acquired franchise rights is estimated using a
multi-period excess earningsdiscounted cash flows approach. This approach involves projecting future
earnings,cash flows attributable to the franchise rights and discounting those estimated
earningscash flows using an appropriate discount
rate and subtracting a contributory charge for net working capital; property, plant and equipment; assembled workforce and customer relationships to arrive at excess earnings attributable to franchise rights.rate. The
present value of the excess earnings attributable to franchise rights is their estimated fair value
and is compared to the carrying value on an
aggregateaggregated basis.
Based onAs a result of this analysis, there was no impairment of the Company’s recorded franchise rights in
2005. The projection of earnings2008, 2007 or 2006. In addition to the discount rate, the estimated fair value includes a number of assumptions such as projected net sales, cost of sales, operating expenses and income taxes. Changes in the assumptions required to estimate the present value of the
excess earningscash flows attributable to franchise rights could materially impact the fair value estimate.
The Company has determined that it has one reporting unit for the Company as a whole for purposes of assessing goodwill for potential impairment. For the annual impairment analysis of goodwill, the Company develops an estimated fair value for the
enterprisereporting unit using an average of three different approaches:
Market value, using the Company’s stock price plus outstanding debt and minority interest;
| | |
| • | market value, using the Company’s stock price plus outstanding debt; |
|
| • | discounted cash flow analysis; and |
|
| • | multiple of earnings before interest, taxes, depreciation and amortization based upon relevant industry data. |
Discounted cash flow analysis; and
Multiple of earnings before interest, taxes, depreciation and amortization based upon relevant industry data.
The estimated fair value of the enterprisereporting unit is then compared to the Company’sits carrying amount including goodwill. If the estimated fair value ofexceeds the Company exceeds its carrying amount, goodwill will be considered not to be impaired and the second
28
step of the SFAS No. 142 impairment test willis not be necessary. If the carrying amount including goodwill exceeds its estimated fair value, the second step of the impairment test will beis performed to measure the amount of the impairment, if any. Based on this analysis, there was no impairment of the Company’s recorded goodwill in 2005.2008, 2007 or 2006. The discounted cash flow analysis includes a number of assumptions such as weighted average cost of capital, projected sales volume, net sales, cost of sales and operating expenses. Changes in these assumptions could materially impact the fair value estimates.
The Company uses its overall market capitalization as part of its estimate of
fair value of the
enterprise.reporting unit and in assessing the reasonableness of the Company’s internal estimates of fair value.
To the extent that actual and projected cash flows decline in the future, or if market conditions deteriorate significantly, the Company may be required to perform an interim impairment analysis that could result in an impairment of franchise rights and goodwill. The Company has determined that there has not been an interim impairment trigger since the first day of the fourth quarter of 2008 annual test date.
The Company records a valuation allowance to reduce the carrying value of its deferred tax assets
to an amount thatif, based on the weight of available evidence, it is determined it is more likely than not
tothat such assets will not ultimately be realized. While the Company
has consideredconsiders future taxable income and prudent and feasible tax planning strategies in assessing the need for
thea valuation allowance, should the Company determine
that it
wouldwill not be able to realize all or part of its net deferred tax assets in the future, an adjustment to the valuation allowance
wouldwill be charged to income in the period in which such determination
wasis made. A reduction in the valuation allowance and corresponding adjustment to income may be required if the likelihood of realizing existing deferred tax assets
were to increaseincreases to a more likely than not level. The Company regularly reviews the realizability of deferred tax assets and initiates a review when significant changes in the Company’s business
occur.occur that could impact the realizability assessment.
In addition to a valuation allowance related to
state net operating loss carryforwards, the Company records liabilities for uncertain tax positions
as of January 1, 2006 principally related to
certain state
income taxes and
certain federal income tax
attributes.positions. These liabilities reflect the Company’s best estimate of the ultimate income tax liability based on currently known facts and information. Material changes in facts or information as well as the expiration of statutes
of limitationsand/or settlements with
the individual state or federal jurisdictions
couldmay result in material adjustments to these estimates in the future.
The Company recorded adjustments to its valuation allowance and reserve for uncertain tax positions in 2006 and 2008 as a result of settlements reached with certain states on a basis more favorable than previously estimated. The Company did not record any adjustment to its valuation allowance and reserve for uncertain tax positions in 2007 as a result of settlements with any states.
The Company adopted the Financial Accounting Standards Board (“FASB”) Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”) and FASB Staff PositionFIN 48-1, “Definition of Settlement in FASB Interpretation No. 48” (“FSPFIN 48-1”) during 2007. See Note 14 of the consolidated financial statements for additional information.
In general, the Company is self-insured for the costs of workers’ compensation, employment practices, vehicle accident claims and medical claims. The Company uses commercial insurance for claims as a risk reduction strategy to minimize catastrophic losses. Losses are
provided foraccrued using assumptions and procedures followed in the insurance industry, adjusted for company-specific history and expectations.
The Company has standby letters of credit, primarily related to its property and casualty insurance programs. On December 28, 2008, these letters of credit totaled $19.3 million.
Pension and Postretirement Benefit Obligations The Company sponsors pension plans covering substantially all full-time nonunion employees and certain union employees who meet eligibility requirements. As discussed below, the Company ceased further benefit accruals under the principal Company-sponsored pension plan effective June 30, 2006. Several statistical and other factors, which attempt to anticipate future events, are used in calculating the expense and liability related to the plans. These factors include assumptions about the discount rate, expected return on plan assets, employee turnover and age at retirement, and rate of future compensation increases as determined by the Company, within certain guidelines. In addition, the Company’s actuarial consultants also useCompany uses subjective factors such as
29
mortality rates to estimate the projected
benefit obligation. The actuarial assumptions used by the Company may differ materially from actual results due to changing market and economic conditions, higher or lower withdrawal rates or longer or shorter life spans of participants. These differences may result in a significant impact to the amount of net periodic pension cost recorded by the Company in future periods. In 2005, theThe discount rate used in determining the actuarial present value of the projected benefit obligation for the Company’s pension plans decreasedchanged from 6.25% in 2007 to 5.75% from 6.00%6.0% in 2004 due to declining interest rates for long-term corporate bonds, which serve as the benchmark for determining the discount rate.2008. The discount rate assumption is generally the estimate which can have the most significant impact on net periodic pension cost and the projected benefit obligation for these pension plans. The Company determines an appropriate discount rate annually based on the annual yield on long-term corporate bonds as of the measurement date.
date and reviews the discount rate assumption at the end of each year.
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 annual expense/income for Company-sponsored pension plans changed from $8.1 million in expense in 2006 to $2.3 million in income in 2008.
Annual pension expense is estimated to be $11.5 million in 2009. The large increase in annual pension expense is primarily due to a significant decrease in the fair market value of pension plan assets in 2008.
A .25% increase or decrease in the discount rate assumption would have impacted the projected benefit obligation and net periodic pension cost
of the Company-sponsored pension plans as follows:
| | | | | | | |
In Thousands
| | .25% Increase
| | | .25% Decrease
|
Impact on: | | | | | | | |
Projected benefit obligation at January 1, 2006 | | $ | (8,887 | ) | | $ | 9,486 |
Net periodic pension cost in 2005 | | | (1,185 | ) | | | 1,257 |
| | | | | | | | | |
In thousands | | .25% Increase | | | .25% Decrease | |
| |
| (Decrease) increase in: | | | | | | | | |
| Projected benefit obligation at December 28, 2008 | | $ | (7,354 | ) | | $ | 7,804 | |
| Net periodic pension cost in 2008 | | | (426 | ) | | | 841 | |
The weighted average expected long-term rate of return of plan assets was 8% for
2005, 20042006, 2007 and
2003.2008. This rate reflects an estimate of long-term future returns for the pension plan assets. This estimate is primarily a function of the asset classes (equities versus fixed income) in which the pension plan assets are invested and the analysis of past performance of these asset classes over a long period of time. This analysis includes expected long-term inflation and the risk premiums associated with equity and fixed income investments. See Note 17 to the consolidated financial statements for the details by asset type of the Company’s pension plan assets at
January 1, 2006December 28, 2008 and
January 2, 2005,December 30, 2007, and the weighted average expected long-term rate of return of each asset type. The actual return of pension plan assets was
8.3%a loss of 28.6% for 2008 and
9.6%a gain of 8.6% for
2005 and 2004, respectively.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 Company anticipates that the annual expense for the pension plans will decrease approximately $3 million in 2006.
2007.
The Company sponsors a postretirement health care plan for employees meeting specified qualifying criteria. Several statistical and other factors, which attempt to anticipate future events, are used in calculating the net periodic postretirement benefit cost and postretirement benefit obligation for this plan. These factors include assumptions about the discount rate and the expected growth rate for the cost of health care benefits. In addition, the
Company’s actuarial consultants also useCompany uses subjective factors such as withdrawal and mortality rates to estimate the projected liability under this plan. The actuarial assumptions used by the Company may differ materially from actual results due to changing market and economic conditions, higher or lower withdrawal rates or longer or shorter life spans of participants. The Company does not pre-fund its postretirement benefits and has the right to modify or terminate certain of these benefits in the future.
In October 2005, the Company announced changes to its postretirement health care plan. Due to the changes announced, the Company’s expense and liability related to its postretirement health care plan will be reduced. Both the expense and liability for postretirement health care benefits are subject to determination by the Company’s actuaries and include numerous variables that will affect the impact of the announced changes. The Company anticipates that the annual expense for the postretirement health care plan will decrease from $4.5 million in 2005 to approximately $2 million in 2006. The annual expense for the postretirement health care plan will decrease approximately $2.5 million in 2006.
The discount rate assumption, the annual health care cost trend and the ultimate trend rate for health care costs are key estimates which can have a significant impact on the net periodic postretirement benefit cost and postretirement obligation in future periods. The Company annually determines the health care cost trend based on recent actual medical trend experience and projected experience for
the followingsubsequent years.
The discount rate assumptions used to determine the pension and postretirement benefit obligations are based on yield rates available on double-A bonds as of each plan’s measurement date. The discount ratesrate used in determining the postretirement benefit obligation was 6.25% in both 2007 and 2008. The discount rate for 2005 were2008 was derived using the Citigroup Pension Discount Curve which is a set of yields on hypothetical double-A zero-coupon bonds with maturities up to 30 years. Projected benefit payouts from each plan are matched to the Citigroup Pension Discount Curve and an equivalent flat discount rate is derived and then rounded to the nearest quarter percent.
30
A .25% increase or decrease in the discount rate assumption would have impacted the projected benefit obligation and service cost and interest cost
of the Company’s postretirement benefit plan as follows:
| | | | | | | |
In Thousands
| | .25% Increase
| | | .25% Decrease
|
Impact on: | | | | | | | |
Postretirement benefit obligation at January 1, 2006 | | $ | (1,228 | ) | | $ | 1,297 |
Service cost and interest cost in 2005 | | | (86 | ) | | | 91 |
| | | | | | | | | |
In thousands | | .25% Increase | | | .25% Decrease | |
| |
| Increase (decrease) in: | | | | | | | | |
| Postretirement benefit obligation at December 28, 2008 | | $ | (882 | ) | | $ | 922 | |
| Service cost and interest cost in 2008 | | | 8 | | | | (9 | ) |
A 1% increase or decrease in the annual health care cost trend would have impacted the postretirement benefit obligation and service cost and interest cost
of the Company’s postretirement benefit plan as follows:
| | | | | | | |
In Thousands
| | 1% Increase
| | 1% Decrease
| |
Impact on: | | | | | | | |
Postretirement benefit obligation at January 1, 2006 | | $ | 4,911 | | $ | (4,372 | ) |
Service cost and interest cost in 2005 | | | 342 | | | (305 | ) |
| | | | | | | | | |
In thousands | | 1% Increase | | | 1% Decrease | |
| |
| Increase (decrease) in: | | | | | | | | |
| Postretirement benefit obligation at December 28, 2008 | | $ | 4,230 | | | $ | (3,675 | ) |
| Service cost and interest cost in 2008 | | | 377 | | | | (327 | ) |
New Accounting Pronouncements
Recently Adopted Pronouncements In November 2004,September 2006, the Financial Accounting StandardStandards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 151, “Inventory Costs—158, “Employers’ Accounting for Defined Pension and Other Postretirement Plans,” which was effective for the year ending December 31, 2006 except for the requirement that benefit plan assets and obligations be measured as of the date of the employer’s statement of financial position, which was effective for the year ending December 28, 2008. The impact of the adoption of the change in measurement dates was not material to the consolidated financial statements. See Note 15 and Note 17 of the consolidated financial statements for additional information.
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurement.” This Statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (GAAP) and expands disclosures about fair value measurements. The Statement does not require any new fair value measurements but could change the current practices in measuring current fair value measurements. The Statement was effective at the beginning of the first quarter of 2008 for all financial assets and liabilities and for nonfinancial assets and liabilities recognized or disclosed at fair value on a recurring basis. The adoption of this Statement did not have a material impact on the consolidated financial statements. See Note 11 to the consolidated financial statements for additional information. In February 2008, FASB issued FASB Staff PositionSFAS No. 157-2, “Effective Date of FASB Statement No. 157,” which defers the application date of the provisions of SFAS No. 157 for all nonfinancial assets and liabilities until the first quarter of 2009 except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis. The Company is in the process of evaluating the impact related to the Company’s nonfinancial assets and liabilities not valued on a recurring basis.
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities.” This Statement permits entities to choose to measure many financial instruments and certain other items at fair value. This Statement was effective at the beginning of the first quarter of 2008. The Company has not applied the fair value option to any of its outstanding instruments; therefore, the Statement did not have an impact on the consolidated financial statements.
In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles.” This Statement identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements that are presented in conformity with generally accepted accounting principles in the United States. This Statement was effective on November 15, 2008 and did not have a material impact on the consolidated financial statements.
In October 2008, the FASB issued FSPNo. 157-3, “Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active”(FSP 157-3).FSP 157-3 clarifies the application of SFAS No. 157 in a market that is not active and provides an example to illustrate key considerations in determining the fair value of a financial
31
asset when the market for that financial asset is not active. The adoption of this FSP did not have an impact on the Company’s consolidated financial statements.
In December 2008, the FASB issued FASB Staff PositionFAS 140-4 and FIN 46(R)-8, “Disclosures by Public Entities (Enterprises) About Transfers of Financial Assets and Interest in Variable Interest Entities”(FSP 140-4).FSP 140-4 requires additional disclosure about transfers of financial assets and an enterprise’s involvement with variable interest entities.FSP 140-4 was effective for the first reporting period ending after December 15, 2008.FSP 140-4 did not have a material impact on the Company’s consolidated financial statements.
Recently Issued Pronouncements
In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interest in Consolidated Financial Statements — an amendment of ARB No. 43, Chapter 4.51.” This Statement clarifiesamends Accounting Research Bulletin No. 51 to establish accounting and reporting standards for the accountingnoncontrolling interest in a subsidiary (commonly referred to as minority interest) and for abnormal amountsthe deconsolidation of idle facility expense, freight, handling costsa subsidiary. The Statement is effective for fiscal years beginning on or after December 15, 2008. The Company anticipates that the adoption of this Statement will not have a material impact on the consolidated financial statements, although changes in financial statement presentation will be required.
In December 2007, the FASB revised SFAS No. 141, “Business Combinations” (SFAS No. 141(R)). This Statement established principles and wasted material (spoilage)requirements for recognizing and measuring identifiable assets and goodwill acquired, liabilities assumed and any noncontrolling interest in an acquisition, at their fair values as of the acquisition date. The Statement is effective for fiscal years beginning on or after December 15, 2008. The impact on the Company of adopting SFAS No. 141(R) will depend on the nature, terms and size of business combinations completed after the effective date.
In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities — an amendment of FASB Statement No. 133” (“SFAS No. 161”). This Statement amends and expands the disclosure requirements of Statement No. 133 to provide an enhanced understanding of why an entity uses derivative instruments, how derivative instruments and related hedged items are accounted for and how they affect an entity’s financial position, financial performance and cash flows. The Statement is effective for fiscal years and interim periods beginning on or after November 15, 2008. The adoption of this Statement will not impact the consolidated financial statements other than expanded footnote disclosures related to derivative instruments and related hedged items.
In April 2008, the FASB issued FASB Staff PositionNo. 142-3, “Determination of the Useful Life of Intangible Assets”(“FSP 142-3”).FSP 142-3 amends the factors to be considered in developing renewal or extension assumptions used to determine the useful life of intangible assets under SFAS No. 142, “Goodwill and Other Intangible Assets.” The intent ofFSP 142-3 is to improve the consistency between the useful life of an intangible asset and the period of expected cash flows used to measure its fair value.FSP 142-3 is effective for fiscal years beginning after
JuneDecember 15,
2005.2008. The
adoption of this StatementCompany is in the
first quarterprocess of
2006 isevaluating the impact ofFSP 142-3, but does not
anticipatedexpect it to have a material impact on the Company’s consolidated financial statements.
In
December 2004,September 2008, the FASB issued
Statement FASB Staff PositionNo. 153, “Exchanges of Nonmonetary Assets—an amendment of APB Opinion No. 29.” This Statement eliminates the exception for nonmonetary exchanges of similar productive assets133-1 and
replaces it with a general exception for exchanges on nonmonetary assets that do not have commercial substanceFIN 45-4, “Disclosures About Credit Derivatives and
was effective for fiscal periods beginning after June 15, 2005. The adoption of this Statement did not have an impact on the Company’s consolidated financial statements.In December 2004, the FASB issued Statement No. 123 (revised 2004), “Share-Based Payment.” This Statement is a revisionCertain Guarantees: An Amendment of FASB Statement No. 123, “Accounting for Stock-Based Compensation”133 and is effective for the Company asFASB Interpretation No. 45; and Clarification of the beginningEffective Date of FASB Statement No. 161”(“FSP 133-1”).FSP 133-1 amends Statement 133 to require a seller of credit derivatives to provide certain disclosures for each credit derivative (or group of similar credit derivatives).FSP 133-1 also amends Interpretation No. 45 to require guarantors to disclose “the current status of payment/performance risk of guarantees” and clarifies the first quartereffective date of 2006. The Statement required public companies to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award.SFAS No. 161. The Company will adoptis in the Statement on January 2, 2006 usingprocess of evaluating the modified prospective application method. The adoptionimpact of this Statement isFSP 133-1, but does not anticipatedexpect it to have a material impact on the Company’s consolidated financial statements.
In March 2005,December 2008, the FASB issued FASB InterpretationStaff Position No. 47, “Accounting for Conditional Asset Retirement Obligations”132(R)-1, “Employers’ Disclosures about Postretirement Benefit Plan Assets” (“FIN 47”FSP 132(R)-1”). FIN 47 clarifies thatFSP 132(R)-1 requires enhanced detail disclosures about plan assets of a conditional asset retirement obligation, ascompany’s defined benefit pension and other postretirement plans. The enhanced disclosures are intended to provide users of financial statements with a greater understanding of (1) employers’ investment
32
strategies; (2) major categories of plan assets; (3) the inputs and valuation techniques used
inFASB Statement 143, “Accounting for Asset Retirement Obligations,” refers to a legal obligation to perform an asset retirement activity in which the timing and/or method of the settlement are conditional on a future event that may or may not be within the control of the entity. Accordingly, an entity is required to recognize a liability formeasure the fair value of a conditional asset retirement obligation ifplan assets; (4) the effect of fair value can be reasonably estimated. FIN 47 wasmeasurements using significant unobservable inputs (Level 3) on changes in plan assets for the period; and (5) concentration of risk within plan assets. FSP 132(R)-1 is effective no later thanfor fiscal years ending after December 15, 2005.2009. The adoption of FIN 47 didthis Statement will not have an impact on the Company’s consolidated financial statements.
In May 2005, the FASB issued Statement No. 154, “Accounting Changes and Error Corrections—a replacement of APB Opinion No. 20 and FASB Statement No. 3.” This Statement requires retrospective application to prior period financial statements of a voluntary change in accounting principle unless it is impracticable and is effective for fiscal years beginning after December 15, 2005. Previously, most voluntary changes in accounting principle were recognized by including in net income of the period of the change the cumulative effect of changing to the new accounting principle.
RESULTS OF OPERATIONS
2005 Compared to 2004
The comparison of operating results for 2005 to the operating results for 2004 are affected by the impact of one additional selling week in 2004 dueother than expanded footnote disclosures related to the Company’s fiscal year ending on the Sunday closestpension plan assets.
Results of Operations
2008 Compared to December 31st. The estimated net sales, gross margin and S,D&A expenses for the additional selling week in 2004 of approximately $23.9 million, $11.1 million and $8.1 million, respectively, are included in reported results for 2004.2007 A summary of key information concerning the Company’s financial results for
20052008 and
20042007 follows:
| | | | | | |
| | | Fiscal Year
|
| | | 2005(1)(3)
| | 2004(2)(4)
|
| In Thousands (Except Per Share Data) | | | | |
Net sales | | $ | 1,380,172 | | $ | 1,267,227 |
Gross margin | | | 627,763 | | | 607,761 |
Interest expense | | | 49,279 | | | 43,983 |
Net income | | | 22,951 | | | 21,848 |
Basic net income per share (5) | | $ | 2.53 | | $ | 2.41 |
| | | | | | | | | | | | | | | | | |
| | | Fiscal Year | | | | | | | |
In thousands (except per share data) | | 2008 | | | 2007 | | | Change | | | % Change | |
| |
| Net sales | | $ | 1,463,615 | | | $ | 1,435,999 | | | $ | 27,616 | | | | 1.9 | |
| Gross margin | | | 615,206 | (1) | | | 621,134 | | | | (5,928 | ) | | | (1.0 | ) |
| S,D&A expenses | | | 555,728 | (2)(3)(4) | | | 539,251 | (5) | | | 16,477 | | | | 3.1 | |
| Interest expense | | | 39,601 | | | | 47,641 | | | | (8,040 | ) | | | (16.9 | ) |
| Minority interest | | | 2,392 | | | | 2,003 | | | | 389 | | | | 19.4 | |
| Income before income taxes | | | 17,485 | (1)(2)(3)(4) | | | 32,239 | (5) | | | (14,754 | ) | | | (45.8 | ) |
| Income taxes | | | 8,394 | | | | 12,383 | | | | (3,989 | ) | | | (32.2 | ) |
| Net income | | | 9,091 | (1)(2)(3)(4) | | | 19,856 | (5) | | | (10,765 | ) | | | (54.2 | ) |
| Basic net income per share: | | | | | | | | | | | | | | | | |
| Common Stock | | $ | .99 | | | $ | 2.18 | | | | (1.19 | ) | | | (54.6 | ) |
| Class B Common Stock | | $ | .99 | | | $ | 2.18 | | | | (1.19 | ) | | | (54.6 | ) |
| Diluted net income per share: | | | | | | | | | | | | | | | | |
| Common Stock | | $ | .99 | | | $ | 2.17 | | | | (1.18 | ) | | | (54.4 | ) |
| Class B Common Stock | | $ | .99 | | | $ | 2.17 | | | | (1.18 | ) | | | (54.4 | ) |
| | |
| (1) | | Results for 2005in 2008 included a favorable adjustmentchange in estimate of $7.0$2.6 million (pre-tax) related to, or $1.3 million after tax, regarding the settlement of high fructose corn syrup litigation,Company’s equity investment in a plastic bottle cooperative, which was reflected as a reduction in cost of sales. |
|
| (2) | | Results in 2008 included restructuring costs of $4.6 million (pre-tax), or $2.4 million after tax, related to the Company’s plan to reorganize the structure of its operating units and support services and resulted in the elimination of approximately 350 positions, which were reflected in S,D&A expenses. |
|
| (3) | | Results in 2008 included a charge of $14.0 million (pre-tax), or $7.3 million after tax, to freeze the Company’s liability to the Central States pension plan and to settle a strike by employees covered by this plan, while preserving the pension benefits previously earned by these employees, which was reflected in S,D&A expenses. |
|
| (4) | | Results in 2008 included a charge of $2.0 million (pre-tax), or $1.0 million after tax, related to the Company’s fuel hedging program, which was reflected in S,D&A expenses. |
|
| (5) | | Results for 20042007 included an unfavorable non-cash adjustmentrestructuring costs of $2.8 million (pre-tax), or $1.7 million (pre-tax) related to a change in the pricing of concentrate purchased from The Coca-Cola Company, which was reflected as an increase to cost of sales. |
(3) | Interest expense for 2005 included financing transaction costs of $1.7 million (pre-tax)after tax, related to the exchange of $164.8 millionsimplification of the Company’s long-term debt and the redemption of $8.6 million of debentures.operating management structure to improve operating efficiencies across its business, which were reflected in S,D&A expenses. |
(4) | Results for 2004 included a favorable adjustment of approximately $2 million (pre-tax) for certain customer-related marketing programs between the Company and The Coca-Cola Company, which was reflected as a reduction in cost of sales. |
(5) | The Company does not currently have any stock options or other common stock equivalents that would result in dilution of earnings per share. Accordingly, for the periods presented, basic and fully diluted earnings per share are equivalent. |
33
Net sales increased
by approximately 9%$27.6 million, or 1.9%, to $1.46 billion in
20052008 compared to
2004.$1.44 billion in 2007. The
increase in net sales
increase in 2005 was
primarily due to an increase in average revenue per casea result of
approximately 3%, an increase in bottle/can sales volume of approximately 4% and an increase in sales to other Coca-Cola bottlers of more than 82%.the following:
| | | | | |
Amount | | | Attributable to: |
| (In millions) | | | |
| |
| $ | 26.3 | | | 3.2% increase in bottle/can sales price per unit (in response to increases in product costs) primarily due to increased sales of enhanced water, which have higher per unit prices, and higher per unit prices of sparkling products other than energy products, offset by decreases in sales of higher price packages in higher margin channels (primarily convenience) and lower sales price per unit for bottled water |
| | 3.3 | | | 4.8% increase in post-mix sales price per unit (in response to increases in product costs) |
| | 3.0 | | | .6% decrease in bottle/can volume primarily due to a decrease in sparkling products other than energy products and bottled water volume offset by an increase in enhanced water volume (higher per unit prices of enhanced products resulted in increased sales despite volume decrease) |
| | 2.6 | | | 2.0% increase in bottler sales volume primarily due to increase in sparkling products (excluding energy) offset by decreases in tea products volume |
| | (8.1 | ) | | 10.4% decrease in post-mix volume |
| | (1.4 | ) | | 1.1% decrease in bottler sales price per unit primarily due to a decrease in energy drink volume as a percentage of total volume (energy drinks have a higher sales price per unit) |
| | 1.9 | | | Other |
| | | | | |
| $ | 27.6 | | | Total increase in net sales |
| | | | | |
In
2005,2008, the Company’s bottle/can sales
to retail customers accounted for 85% of the Company’s
total net sales. Bottle/can net pricing is based on the invoice price charged to customers reduced by promotional allowances. Bottle/can net pricing per
caseunit is impacted by the price charged per package, the volume generated in each package and the channels in which those packages are sold.
To the extent the Company is able to increase volume in higher margin packages that are sold through higher margin channels, bottle/can net pricing per case can increase without an actual increase in wholesale pricing. In 2005, theThe increase in the Company’s bottle/can net price per
caseunit in 2008 compared to 2007 was primarily
achieved withdue to sales price increases
but also reflects additional mix benefit associated with new products, includingin all product categories, except water and energy,
drinks, Vault, Dasani flavors and
Coca-Cola Zero.The Company’s net sales to other Coca-Cola bottlers and post-mix net sales increased to $134.7 million and $73.1 million in 2005 compared to $73.8 million and $71.5 million in 2004, respectively. The significant increaseincreases in sales to other Coca-Cola bottlers resulted from volume related primarily to shipments of Full Throttle, the new energy productenhanced water which has a higher sales price per unit, partially offset by decreases in sales of The Coca-Cola Company. The Company produced this product for the majority of the Coca-Cola bottlershigher price packages (primarily in the eastern halfconvenience store channel) and a lower sales price per unit for bottled water.
Product category sales volume in 2008 and 2007 as a percentage of
the United States in 2005 and anticipates continuing to produce this product for these customers in 2006.The percentage increases intotal bottle/can sales volume and the percentage change by product category in 2005 compared to the comparable period in 2004 were as follows:
| | | |
Product Category
| | Bottle/Can Sales Volume
% Increase
| |
Sugar carbonated soft drinks
| | 0.2 | % |
Diet carbonated soft drinks
| | 5 | % |
Total carbonated soft drinks
| | 2 | % |
Bottled water
| | 23 | % |
Isotonics
| | 29 | % |
Other noncarbonated beverages (including energy drinks)
| | 7 | % |
Total noncarbonated beverages
| | 19 | % |
Total bottle/can sales volume
| | 4 | % |
The Company’s noncarbonated beverage portfolio continues to provide strong volume growth with Dasani growing at 23% and POWERade growing at 29% in 2005. The newly introduced energy drinks, Full Throttle and Rockstar, accounted for .4% of total volume in 2005. Noncarbonated beverages comprised 12.6% of overall bottle/can volume in 2005 compared to 10.9% in 2004. The Company has encountered significant pricing pressure in the supermarket channel for bottled water with average revenue per case declining by approximately 13% in 2005 compared to 2004.
The Company introduced several new products during 2005. During the first quarter of 2005, the Company introduced Full Throttle, an energy product. During the second quarter of 2005, the Company introduced Coca-Cola Zero, Dasani flavors and Vault in certain markets. Vault was introduced to the Company’s remaining markets in the fourth quarter of 2005. Product innovation will continue to be an important factor impacting the Company’s overall bottle/can sales volume in the future.
| | | | | | | | | | | | | |
| | | Bottle/Can Sales Volume | | | Bottle/Can Sales Volume
| |
Product Category | | 2008 | | | 2007 | | | % Increase (Decrease) | |
| |
| Sparkling beverages (including energy products) | | | 84.6 | % | | | 85.1 | % | | | (1.3 | ) |
| Still beverages | | | 15.4 | % | | | 14.9 | % | | | 2.3 | |
| | | | | | | | | | | | | |
| Total bottle/can volume | | | 100.0 | % | | | 100.0 | % | | | (0.6 | ) |
| | | | | | | | | | | | | |
The Company’s 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
2005,2008, approximately
67%68% of the Company’s bottle/can
sales volume was sold for future consumption. The remaining bottle/can
sales volume of approximately
33%32% was sold for immediate
consumption. The Company’s largest customer, Wal-Mart Stores, Inc., accounted for approximately 15%19% of the Company’s total bottle/can sales volume during 2005.2008. The Company’s second largest customer, Food Lion, LLC, accounted for approximately 10%12% of the Company’s total bottle/can sales volume in 2005.2008. All of the Company’s sales are to customers in the United States.
The Company recorded delivery fees in net sales of $6.7 million in both 2008 and 2007. These fees are used to offset a portion of the Company’s delivery and handling costs.
34
Cost of sales on a per unit basis for bottle/canincludes 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 volumedistribution centers.
Cost of sales increased approximately 4.5%4.1%, or $33.5 million, to $848.4 million in 20052008 compared to 2004 primarily due to higher raw material costs. $814.9 million in 2007.
The increase in cost of sales was mitigated byprincipally attributable to the $7.0 million settlement of litigation regarding purchases of high fructose corn syrup. Duringfollowing:
| | | | | |
Amount | | | Attributable to: |
| (In millions) | | | |
| |
| $ | 38.2 | | | Increase in costs primarily due to an increase in purchased products and an increase in raw material costs such as high fructose corn syrup and plastic bottles |
| | 6.6 | | | .6% decrease in bottle/can volume primarily due to a decrease in sparkling products other than energy products and bottled water volume offset by an increase in enhanced water volume (higher per unit costs of enhanced products resulted in increased cost despite volume decrease) |
| | 2.5 | | | 2.0% increase in bottler sales volume primarily due to increase in sparkling products (excluding energy) offset by decreases in tea products volume |
| | (5.5 | ) | | 10.4% decrease in post-mix volume |
| | (4.6 | ) | | Increase in marketing funding support received primarily from TheCoca-Cola Company |
| | (2.6 | ) | | Increase in equity investment in a plastic bottle cooperative |
| | (1.8 | ) | | Decrease in bottler cost per unit primarily due to a decrease in energy drink volume as a percentage of total volume (energy drinks have a higher cost per unit) |
| | 0.7 | | | Other |
| | | | | |
| $ | 33.5 | | | Total increase in cost of sales |
| | | | | |
The Company recorded an increase in its equity investment in a plastic bottle cooperative in the second quarter of
2004, The Coca-Cola Company changed its method of concentrate pricing, resulting2008 which resulted in a
changepre-tax credit of $2.6 million. This increase was made based on information received from the cooperative during the quarter and reflected a higher share of the cooperative’s retained earnings compared to the amount previously recorded by the Company. The Company classifies its equity in
earnings of the
Company’s investment in inventories and an increasecooperative in cost of sales
consistent with the classification of
$1.7 million. Cost of sales for 2004 included a favorable item of approximately $2 million, primarily for certain customer-related marketing programs betweenpurchases from the
Company and The Coca-Cola Company, which were recorded in the first quarter of 2004 as marketing funding support and were reflected as a reduction of cost of sales. Packaging costs per unit increased by approximately 11% during 2005 as compared to 2004. The increase in packaging costs in 2005 related to significantly higher plastic bottle costs resulting from cost increases in the underlying components and increased aluminum can costs, and was the primary cause of the increase in cost of sales on a per unit basis in 2005.At the beginning of 2004, the Company reclassified plastic shells, premix tanks and CO2 tanks, which totaled $10.4 million, from property, plant and equipment to inventories. These items were reclassified as the Company believes that they are more closely related to the sale of finished product inventories than to a component of property, plant and equipment. This reclassification had no significant impact on the Company’s overall financial position or results of operations. Costs associated with these items have been reflected in cost of sales beginning in 2004. Previously, costs associated with these items were recorded as depreciation expense.
cooperative.
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 Company’s
Bottle Contracts.Beverage Agreements. Significant decreases in marketing funding 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 TheCoca-Cola Company and other beverage companies, which includes direct payments to the Company and payments to customers for marketing programs, was $28.9$51.8 million for 2005 versus $39.9 million for 2004 and was recorded as a reduction in cost of sales. Since May 28, 2004, The Coca-Cola Company has provided the majority of the Company’s marketing funding support for bottle/can products through a reduction in the price of concentrate. The change in concentrate price represents a significant portion of the marketing funding support that previously would have been paid to the Company in cash related to the sale of bottle/can products of The Coca-Cola Company. Accordingly, the amounts received in cash from The Coca-Cola Company for marketing funding support decreased significantly in 2005 as2008 compared to 2004. However, this change$47.2 million in marketing funding support, after taking into account the related reduction2007.
Gross Margin
Gross margin dollars decreased 1.0%, or $5.9 million, to $615.2 million in
concentrate price, did not have a significant impact on overall results of operations2008 compared to $621.1 million in
2004 or 2005.Cost of sales includes the following: raw material costs, manufacturing labor, manufacturing overhead, inbound freight charges related to raw materials, receiving costs, inspection costs, manufacturing warehousing costs and freight charges related to the movement of finished goods from manufacturing locations to sales distribution centers.
2007. Gross Margin
Gross margins in 2005 and 2004 were impacted by adjustments for items that are not necessarily indicative of the Company’s ongoing results. Excluding these adjustments, the Company’s gross margins and gross margins as a percentage of net sales would have been as follows:
| | | | | | | | |
| In Millions | | 2005
| | | 2004
| |
Gross margin as reported | | $ | 627.8 | | | $ | 607.8 | |
Adjustments: | | | | | | | | |
High fructose corn syrup litigation proceeds | | | (7.0 | ) | | | | |
Change in concentrate pricing | | | | | | | 1.7 | |
Customer marketing programs adjustment | | | | | | | (2.0 | ) |
| | |
|
|
| |
|
|
|
Gross margin as adjusted | | $ | 620.8 | | | $ | 607.5 | |
| | |
|
|
| |
|
|
|
| | |
| Percentage of Net Sales | | 2005
| | | 2004
| |
Gross margin percentage as reported | | | 45.5 | % | | | 48.0 | % |
Adjustments: | | | | | | | | |
High fructose corn syrup litigation proceeds | | | (.5 | %) | | | | |
Change in concentrate pricing | | | | | | | .1 | % |
Customer marketing programs adjustment | | | | | | | (.2 | %) |
| | |
|
|
| |
|
|
|
Gross margin percentage as adjusted | | | 45.0 | % | | | 47.9 | % |
| | |
|
|
| |
|
|
|
The non-GAAP financial measures “Gross margin as adjusted” and “Gross margin percentage as adjusted” are provided to allow investors to more clearly evaluate gross margin trends. These measures exclude the impact of high fructose corn syrup litigation proceeds in 2005 and a change in concentrate pricing and an adjustment of customer marketing programs reimbursements in 2004. The 2.9% decrease in adjusted gross margin as a percentage of net sales decreased to 42.0% in 2008 from 200443.3% in 2007.
35
The decrease in gross margin was primarily the result of the following:
| | | | | |
Amount | | | Attributable to: |
| (In millions) | | | |
| |
| $ | (38.2 | ) | | Increase in costs primarily due to an increase in purchased products and an increase in raw material costs such as high fructose corn syrup and plastic bottles |
| | 26.3 | | | 3.2% increase in bottle/can sales price per unit (in response to increases in product costs) primarily due to increased sales of enhanced water, which have higher per unit prices, and higher per unit prices of sparkling products other than energy products, offset by decreases in sales of higher price packages in higher margin channels (primarily convenience) and a lower sales price per unit for bottled water |
| | 4.6 | | | Increase in marketing funding support received primarily from The Coca-Cola Company |
| | (3.6 | ) | | .6% decrease in bottle/can volume primarily due to a decrease in sparkling products other than energy products and bottled water volume offset by an increase in enhanced water volume |
| | 3.3 | | | 4.8% increase in post-mix sales price per unit (in response to increases in product costs) |
| | (1.4 | ) | | 1.1% decrease in bottler sales price per unit primarily due to a decrease in energy drink volume as a percentage of total volume (energy drinks have a higher sales price per unit) |
| | (2.6 | ) | | 10.4% decrease in post-mix volume |
| | 2.6 | | | Increase in equity investment in a plastic bottle cooperative |
| | 3.1 | | | Other |
| | | | | |
| $ | (5.9 | ) | | Total decrease in gross margin |
| | | | | |
The decrease in gross margin percentage was primarily due to
2005 resulted primarily from the impactincreased raw material costs, increased sales of purchased products, a lower percentage of sales of higher
margin packages and a lower sales
to other Coca-Cola bottlers, which have lower margins (1.9% of the 2.9% decrease). The remainder of the decrease resulted primarily from increases in the Company’s packaging costs which were notprice per unit for bottled water, partially offset by higher
average net pricing.sales prices per unit for other products, increased marketing funding support and the increase in the equity investment in a plastic bottle cooperative.
The Company’s gross margins
as a percentage of net sales may not be comparable to other companies, since some entities include all costs related to their distribution network in cost of
sales and thesales. The Company
excludesincludes a portion of these costs
from gross margin, including them instead 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 increased by approximately 4%$16.5 million, or 3.1%, to $555.7 million in 2005 compared to 2004. 2008 from $539.3 million in 2007.
36
The increase in S,D&A expenses was primarily due to
wage increases for the
Company’s employees of approximately $9 million, higher employee benefits costs including pension and health care costs of approximately $1 million and higher fuel costs of approximately $4 million. The Company continues to incur increased fuel costs.Over the last three years, the Company has converted the majority of its distribution system from a conventional sales method to a predictive selling method in which sales personnel either visit or call a customer to determine the customer’s requirements for their order. This predictive selling method has enabled the Company to add a significant number of new products and packages and provides the capacity to add additional product offerings in the future. The Company will continue to evaluate its distribution system in an effort to improve the process of distributing products to customers. The Company is in the process of changing its delivery method for certain customers as described more fully above under “Areas of Emphasis, Distribution Cost Management.” following:
| | | | | |
Amount | | | Attributable to: |
| (In millions) | | | |
| |
| $ | 14.0 | | | Charge to freeze the Company’s liability to a multi-employer pension plan and settle a strike by employees covered by this plan |
| | 7.9 | | | Increase in fuel and other energy costs related to the movement of finished goods from sales distribution centers to customer locations |
| | (3.2 | ) | | Decrease in employee benefit costs primarily due to lower pension plan costs and health insurance costs offset by increases in the Company’s 401(k) Savings Plan contributions |
| | 3.1 | | | Increase in property and casualty insurance costs |
| | (2.6 | ) | | Decrease in marketing costs |
| | 1.9 | | | Increase in restructuring costs |
| | (1.7 | ) | | Decrease in depreciation costs due to decreased capital expenditures |
| | (2.9 | ) | | Other |
| | | | | |
| $ | 16.5 | | | Total increase 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 $183.1$201.6 million and $176.3$194.9 million in 20052008 and 2004,2007, respectively. Customers generally do not pay
The net impact of the fuel hedges was to increase fuel costs by $.8 million in 2008 and decrease fuel costs by $.9 million in 2007. Included in the 2008 increase was a $2.0 million charge for amark-to-market adjustment related to fuel hedging contracts for 2009 diesel fuel purchases.
On February 2, 2007, the Company separatelyinitiated plans to simplify its management structure and reduce its workforce in order to improve operating efficiencies across the Company’s business. The restructuring expenses consisted primarily of one-time termination benefits and other associated costs, primarily relocation expenses for shipping and handling costs. For certain low volume on-premise customers,employees. The Company incurred $2.8 million in restructuring expenses in 2007.
On July 15, 2008, the Company initiated a delivery charge beginningplan to reorganize the structure of its operating units and support services, which resulted in October 2005 to offsetthe elimination of approximately 350 positions, or approximately 5% of its workforce. As a portionresult of this plan, the Company incurred $4.6 million in restructuring expenses in 2008 for one-time termination benefits. The plan was completed in 2008 and the majority of cash expenditures occurred in 2008.
The Company entered into a new agreement with a collective bargaining unit in the third quarter of 2008. The collective bargaining unit represents approximately 270 employees, or approximately 4% of the
increased fuel costs.Company’s total workforce. The
deliverynew agreement allows the Company to freeze its liability to Central States, a multi-employer pension fund, while preserving the pension benefits previously earned by the employees. As a result of the new agreement, the Company recorded a charge of
$.7$13.6 million in
2008. The Company paid $3.0 million in 2008 to the
fourth quarterSouthern States Savings and Retirement Plan (“Southern States”) under this agreement. The remaining $10.6 million is the present value amount, using a discount rate of
2005 was7%, that will be paid under the agreement and has been recorded in
net sales.other liabilities. The Company will pay approximately $1 million annually over the next 20 years to Central States. The Company will also make future contributions on behalf of these employees to the Southern States, a multi-employer defined contribution plan. In addition, the Company incurred approximately $.4 million in expense to settle a strike by union employees covered by this plan.
Primarily due to the performance of the Company’s pension plan investments during 2008, the Company’s expense related to the two Company-sponsored pension plans will increase from a $2.3 million credit in 2008 to an estimated $11.5 million expense in 2009.
On February 22, 2006, the Board of Directors of20, 2009, the Company approved an amendmentannounced that it would suspend matching contributions to its principal Company-sponsored pension plan to cease further benefit accruals under the planRetirement Savings Plan (401(k) plan) effective June 30, 2006.April 1, 2009. The Company anticipates that the annualthis suspension will reduce benefit costs in 2009 by approximately $7 million.
37
Interest Expense
Net interest expense
for the pension plans will decrease approximately $3decreased 16.9%, or $8.0 million in
2006.In October 2005, the Company announced changes to its postretirement health care plan. Due to the changes announced, the Company believes that its expense and liability related to its postretirement health care plan will be reduced. Both the expense and liability for postretirement health care benefits are subject to determination by the Company’s actuaries and include numerous variables that will affect the impact of the announced changes. The Company anticipates that the annual expense for the postretirement health care plan will decrease approximately $2.5 million in 2006.
The S,D&A expense line item includes the following: sales management labor costs, distribution costs from sales distribution centers to customer locations, sales distribution center warehouse costs, point-of-sale expenses, advertising expenses, vending equipment repair costs and administrative support labor and operating costs such as treasury, legal, information services, accounting, internal audit and executive management costs.
Depreciation Expense
Depreciation expense for 2005 declined by $2.6 million2008 compared to 2004.2007. The declinedecrease in depreciationinterest expense in 2008 was primarily due to lower interest rates and lower levels of capital spending over the last several years. Capital expenditures in 2005 amounted to $40.0 million compared to $52.9 million in 2004. The Company anticipates that additions to property, plant and equipment in 2006 will be in the range of $60 million to $70 million and plans to fund such additions through cash flows from operations and its available credit facilities. The Company is in the process of implementing an upgrade of its Enterprise Resource Planning (ERP) computer software system. During 2005 and 2004, the Company capitalized $2.9 million and $3.1 million, respectively, related to the implementation of the new ERP software. The Company began using a portion of the new ERP software and began amortizing the related capitalized software costs during the second quarter of 2004. It is anticipated that the upgrade of the Company’s ERP system will be a multi-year effort and will require additional capital investment. The Company anticipates that capital expenditures in 2006 related to the ERP system upgrade will be in the range of $5 million to $10 million.
Amortization of Intangibles
Amortization of intangibles expense for 2005 declined by $2.2 million compared to 2004. The decline in amortization expense was due to the impact of certain customer relationships which are now fully amortized.
Interest Expense
Interest expense increased $5.3 million in 2005 compared to 2004. The increase is attributable to financing transaction costs of $1.7 million related to the exchange of $164.8 million of the Company’s long-term debentures and the early retirement of $8.6 million of its debentures, and higher interest rates on the Company’s floating rate debt, partiallyborrowing offset by a $2.6 million decrease in interest earned on short-term cash investments of $.5 million.investments. The Company’s overall weighted average interest rate excluding the financing costs relateddecreased to the debt exchange and the premium related to the early retirement of debentures, increased5.7% during 2008 from an average of 5.4% during 2004 to
6.2% during 2005.6.7% in 2007. See the “Liquidity and Capital Resources — Hedging Activities — Interest Rate Hedging” section of M,D&A for additional information.
Based on current interest rates, the Company would expect that interest expense for 2009 would be lower if the 2009 debt maturities were refinanced on a short-term basis with the $200 million revolving credit facility (“$200 million facility”) than if refinanced with longer term bonds. The difference between these refinancing alternatives would be contingent on both short-term and long-term interest rates; however, the Company estimates the impact of the difference between refinancing alternatives on interest expense to be in the range of approximately $1 million to $2 million in 2009.
The Company recorded minority interest of
$4.1$2.4 million in
20052008 compared to
$3.8$2.0 million in
20042007 related to the portion of Piedmont owned by The
Coca-Cola Company. The increased amount in
20052008 was due to
improvements in operating resultshigher net income at Piedmont.
The Company’s effective income tax rate for
20052008 was
40.8%48.0% compared to
40.2%38.4% in
2004.2007. The
deduction for qualified production activities provided within the American Jobs Creation Act of 2004 reduced the Company’shigher effective income tax rate
by approximately 1% in 2005.During the second quarter of 2005, the Company entered into a settlement agreement with a state whereby the Company agreed to reduce certain net operating loss carryforwards and to pay certain additional taxes and interest relating to prior years. The loss of state net operating loss carryforwards, net of federal tax benefit, of $4.4 million did not have an effect on the provision for income taxes due to a valuation allowance previously recorded for such deferred tax assets. Under this settlement, the Company was required to pay $5.7 million in the second quarter of 2005 and is required to pay an additional $5.0 million by no later than April 15, 2006. The amounts paid and remaining to be paid in excess of liabilities previously recorded had the effect of increasing income tax expense by approximately $4.1 million in the second quarter of 2005. Based on an analysis of facts and available information, the Company also made adjustments to liabilities for income tax exposure related to other states in the second quarter of 2005 which had the effect of decreasing income tax expense by $3.8 million.
During the fourth quarter of 2005, the Company, entered into settlement agreements with two other states regarding certain tax years. The effect of these settlements was the reduction of certain state net operating loss carryforwards with a tax effect, net of federal tax benefit, of $.6 million, the payment of $1.1 million in previously accrued tax and the reduction of valuation allowances of $1.2 million net of federal tax benefit, related to net operating loss utilization in these states. The Company recognized in the fourth quarter of 20052008 resulted primarily from an increase in the average state incomeCompany’s reserve for uncertain tax rate which is used in determiningpositions. See Note 14 of the net deferred income tax liability. This increase in the state income tax rate resulted inconsolidated financial statements for additional income tax expense in the fourth quarter of 2005 of $1.6 million.
information.
The Company’s income tax
assets and liabilities are subject to adjustment in future periods based on the Company’s ongoing evaluations of
its income taxsuch assets and liabilities and new
facts and information that
becomebecomes available to the Company.
20042007 Compared to 20032006The comparison of operating results for 2004 to the operating results for 2003 are affected by the impact of one additional selling week in 2004 due to the Company’s fiscal year ending on the Sunday closest to December 31st. The estimated net sales, gross margin and S,D&A expenses for the additional selling week in 2004 of approximately $23.9 million, $11.1 million and $8.1 million, respectively, are included in reported results for 2004.
A summary of key information concerning the Company’s financial results for
20042007 and
20032006 follows:
| | | | | | |
| | | Fiscal Year
|
| | | 2004(1)(2)
| | 2003(3)
|
| In Thousands (Except Per Share Data) | | | | |
Net sales | | $ | 1,267,227 | | $ | 1,220,403 |
Gross margin | | | 607,761 | | | 591,323 |
Interest expense | | | 43,983 | | | 41,914 |
Income taxes | | | 14,702 | | | 7,357 |
Net income | | | 21,848 | | | 30,703 |
Basic net income per share (4) | | $ | 2.41 | | $ | 3.40 |
| | | | | | | | | | | | | | | | | |
| | | Fiscal Year | | | | | | | |
In thousands (except per share data) | | 2007 | | | 2006 | | | Change | | | % Change | |
| |
| Net sales | | $ | 1,435,999 | | | $ | 1,431,005 | | | $ | 4,994 | | | | .3 | |
| Gross margin | | | 621,134 | | | | 622,579 | | | | (1,445 | ) | | | (.2 | ) |
| S,D&A expenses | | | 539,251 | (1) | | | 537,915 | | | | 1,336 | | | | .2 | |
| Interest expense | | | 47,641 | | | | 50,286 | | | | (2,645 | ) | | | (5.3 | ) |
| Minority interest | | | 2,003 | | | | 3,218 | | | | (1,215 | ) | | | (37.8 | ) |
| Income before income taxes | | | 32,239 | (1) | | | 31,160 | | | | 1,079 | | | | 3.5 | |
| Income taxes | | | 12,383 | | | | 7,917 | (2) | | | 4,466 | | | | 56.4 | |
| Net income | | | 19,856 | (1) | | | 23,243 | (2) | | | (3,387 | ) | | | (14.6 | ) |
| Basic net income per share: | | | | | | | | | | | | | | | | |
| Common Stock | | $ | 2.18 | | | $ | 2.55 | | | $ | (.37 | ) | | | (14.5 | ) |
| Class B Common Stock | | $ | 2.18 | | | $ | 2.55 | | | $ | (.37 | ) | | | (14.5 | ) |
| Diluted net income per share: | | | | | | | | | | | | | | | | |
| Common Stock | | $ | 2.17 | | | $ | 2.55 | | | $ | (.38 | ) | | | (14.9 | ) |
| Class B Common Stock | | $ | 2.17 | | | $ | 2.54 | | | $ | (.37 | ) | | | (14.6 | ) |
| | |
| (1) | | Results for 20042007 included an unfavorable non-cash adjustmentrestructuring costs of $2.8 million (pre-tax), or $1.7 million (pre-tax)after tax, related to a changethe simplification of the Company’s operating management structure to improve operating efficiencies across its business, which were reflected in the pricing of concentrate purchased from The Coca-Cola Company, which was reflected as an increase to cost of sales.S,D&A expenses. |
|
| (2) | | Results for 20042006 included a favorable adjustment of approximately $2$4.9 million (pre-tax)related to agreements with two state taxing authorities to settle certain prior tax positions resulting in the reduction of the valuation allowance on related deferred tax assets and the reduction of the liability for certain customer-related marketing programs between the Company and The Coca-Cola Company,uncertain tax positions, which was reflected as a reduction in cost of sales. |
(3) | Results for 2003 included net favorable adjustments to income tax expense of $8.6 million relating to the favorable settlement of a state income tax audit and the reduction of its valuation allowance for certain deferred income tax assets, offset partially by incremental tax expense associated with the decision to terminate certain Company-owned life insurance policies. |
(4) | The Company does not currently have any stock options or other common stock equivalents that would result in dilution of earnings per share. Accordingly, for the periods presented, basic and fully diluted earnings per share are equivalent.expense. |
38
Net IncomeSalesThe Company reported net income of $21.8
Net sales increased $5.0 million, or
$2.41 per basic share for 2004 compared with net income of $30.7 million or $3.40 per share for 2003. The most significant difference between 2004 and 2003 was an increase.3%, to $1.44 billion in
the Company’s effective income tax rate from 19.3% in 2003 to 40.2% in 2004.Net Sales
The Company’s net sales increased approximately 4% in 20042007 compared to 2003. This$1.43 billion in 2006.
The increase in net sales
reflected approximately 3% growth in average revenue per case andwas a
2% decrease in bottle/can sales volume. The Company’s net sales to other Coca-Cola bottlers and post-mix net sales increased to $73.8 million and $71.5 million in 2004 compared to $69.2 million and $67.1 million in 2003, respectively.The percentage increases (decreases) in bottle/can sales volume by product category in 2004 compared to the comparable period in 2003 were as follows:
| | | |
Product Category
| | Bottle/Can Sales Volume
% Increase (Decrease)
| |
Sugar carbonated soft drinks
| | (6 | %) |
Diet carbonated soft drinks
| | 5 | % |
Total carbonated soft drinks
| | (2 | %) |
Bottled water
| | 3 | % |
Isotonics
| | 17 | % |
Other noncarbonated beverages (including energy drinks)
| | (14 | %) |
Total noncarbonated beverages
| | 0.4 | % |
Total bottle/can sales volume
| | (2 | %) |
Someresult of the factors contributingfollowing:
| | | | | |
Amount | | | Attributable to: |
| (In millions) | | | |
| |
| $ | (16.4 | ) | | 10.8% decrease in volume of bottler sales primarily due to a decrease in volume of energy drinks offset partially by an increase in volume of tea products |
| | 13.9 | | | 2.1% increase in bottle/can sales price per unit primarily due to higher net pricing for sparkling beverages offset by lower net pricing for bottled water |
| | (8.5 | ) | | 6.2% decrease in bottler sales price per unit primarily due to a decrease in energy drink volume as a percentage of total volume (energy drinks have higher sales price per unit) |
| | 6.0 | | | Increase in bottle/can sales due to an increase in still beverage volume as a percentage of total volume (still beverages generally have higher sales price per unit) |
| | 4.2 | | | 5.8% increase in sales price per unit of post-mix |
| | 3.1 | | | Increase in delivery fees to certain customers |
| | 2.7 | | | Other |
| | | | | |
| $ | 5.0 | | | Total increase in net sales |
| | | | | |
In 2007, the Company’s bottle/can volume to
the overall decrease in bottle/can sales volume in 2004 were as follows:Volume of carbonated soft drinks in the nonalcoholic beverage industry declined with volume decreases in sugar carbonated soft drinks offset somewhat by volume growth from diet carbonated soft drinks, isotonics and bottled water.
Someretail customers accounted for 84% of the Company’s largest customers are chain supermarkets. During 2004, certain chain supermarket customers were less aggressive in their promotion of the Company’s products resulting in volume declines for those customers. The Company’s volume in the supermarket channel was negatively impacted by less aggressive pricing by certain retailers in this channel in 2004 and 2003.
Large portions of the Company’s bottling territory experienced unseasonably cool weather in August 2004 and several tropical storms during September 2004, which contributed to the decline in sales during the third quarter of 2004. The tropical storms during September 2004 had a significant impact on the bottle/can sales volume in immediate consumption channels.
In 2004, the Company’s bottle/can sales accounted for 88% of the Company’stotal net sales. Bottle/can net pricing is based on the invoice price charged to customers reduced by promotional allowances. Bottle/can net pricing per case is impacted by the price charged per package, the volume generated in each package and the channels in which those packages are sold. To the extent the Company is able to increase volume in higher margin packages that are sold through higher margin channels, bottle/can net pricing per case can increase without an actual increase in wholesale pricing. In 2004, theThe increase in the Company’s bottle/can net price per caseunit in 2007 compared to 2006 was primarily achieved with price increases.
While total carbonated bottle/can sales volume in 2004 decreased by 2% compareddue to 2003, bottle/can sales volume of the Company’s carbonated diet products increased by approximately 5%.
For the Company’s noncarbonated beverage portfolio, which includes bottled water, juices and isotonics, bottle/can sales volume was flat in 2004. Bottle/can sales volume increases in 2004higher prices for Dasani of approximately 3% and for POWERade of approximately 17% weresparkling beverages offset by a decrease in other noncarbonated products. Noncarbonated beverages comprised 10.9%net pricing of bottled water in the supermarket channel. During 2006 and the first half of 2007, the Company produced the energy drink, Full Throttle, for many of the overallCoca-Cola bottlers in the eastern half of the United States. During the second half of 2007, most of theseCoca-Cola bottlers found an alternative source for the product.
Product category sales volume in 2007 and 2006 as a percentage of total bottle/can sales volume and the percentage change by product category were as follows:
| | | | | | | | | | | | | |
| | | Bottle/Can Sales Volume | | | Bottle/Can Sales Volume
| |
Product Category | | 2007 | | | 2006 | | | % Increase (Decrease) | |
| |
| Sparkling beverages (including energy products) | | | 85.1 | % | | | 86.7 | % | | | (1.8 | ) |
| Still beverages | | | 14.9 | % | | | 13.3 | % | | | 12.1 | |
| | | | | | | | | | | | | |
| Total bottle/can volume | | | 100.0 | % | | | 100.0 | % | | | — | |
| | | | | | | | | | | | | |
Beginning in 2004 comparedthe first quarter of 2007, the Company began distribution of Enviga and Gold Peak, new tea products from TheCoca-Cola Company, and distribution of two of its own products, Respect and Tum-E Yummies. Respect is an all-natural, vitamin enhanced beverage, while Tum-E Yummies is a vitamin C enhanced flavored drink. Beginning in the second quarter of 2007, the Company began distribution of Diet Coke Plus, a vitamin enhanced cola, and Dasani Plus, an enhanced water beverage, two new products from TheCoca-Cola Company. Beginning in the third quarter of 2007, the Company began distribution of NOS© products (energy drinks from FUZE), juice products from FUZE, V8 juice products from Campbell and Country Breeze tea products. In the fourth quarter of 2007, the Company began distribution of Energy Brands Inc. products. Energy Brands Inc., also known as glacéau, is a wholly-owned subsidiary of TheCoca-Cola Company that produces branded enhanced beverages including vitaminwater, smartwater and vitaminenergy.
The Company’s products are sold and distributed through various channels. These channels include selling directly to
10.7% in 2003.retail stores and other outlets such as food markets, institutional accounts and vending machine outlets. During 2004,2007, approximately 66%68% of the Company’s bottle/can sales volume was sold for future consumption. The remaining bottle/can sales volume of approximately 34%32% was sold for immediate consumption. The Company’s largest customer, Wal-Mart Stores, Inc., accounted for approximately 13%19% of the Company’s total bottle/can sales volume and the
39
during 2007. The Company’s second largest customer, Food Lion, LLC, accounted for approximately 10%12% of the Company’s total bottle/can sales volume during 2004. Wal-Mart Stores, Inc. accounted for approximately 10%in 2007. All of the Company’s totalsales are to customers in the United States.
The Company recorded delivery fees in net sales
of $6.7 million and $3.6 million in
2004.2007 and 2006, respectively. These fees are used to offset a portion of the Company’s delivery and handling costs.
Cost of sales
on a per unit basis increased
approximately 4%.8%, or $6.4 million, to $814.9 million in
20042007 compared to
2003.$808.4 million in 2006. The increase
was primarily due to higher raw material costs and higher expense related to the reclassification of certain items from property, plant and equipment to inventories at the beginning of 2004.In 2003, The Coca-Cola Company offered, through a program called Strategic Growth Initiative (“SGI”), an opportunity for the Company to receive marketing funding support, subject to the Company’s achievement of certain volume performance requirements. The Company recorded $3.2 million as a reduction in cost of sales related to SGI during 2003. The SGI program was eliminated in 2004; however, The Coca-Cola Company offset the impact of the elimination of the SGI program by adjusting the price of concentrate as of January 1, 2004.
On May 28, 2004, The Coca-Cola Company changed its method of delivering marketing funding supportprincipally attributable to the Company for bottle/can products. Subsequent to May 28, 2004,following:
| | | | | |
Amount | | | Attributable to: |
| (In millions) | | | |
| |
| $ | 43.7 | | | Increase in raw material costs (primarily aluminum packaging, sweetener and concentrate costs) |
| | (15.9 | ) | | 10.8% decrease in bottler sales volume primarily due to a decrease in volume of energy drinks offset partially by an increase in volume of tea products |
| | (14.0 | ) | | Increase in marketing funding support received primarily from TheCoca-Cola Company |
| | (9.5 | ) | | 6.2% decrease in bottler sales cost per unit primarily due to a decrease in energy drink volume as a percentage of total volume (energy drinks have higher cost per unit) |
| | 5.3 | | | Increase in bottle/can cost due to an increase in still beverage volume as a percentage of total volume (still beverages generally have higher cost per unit) |
| | (3.9 | ) | | Decrease in manufacturing overhead costs |
| | 0.7 | | | Other |
| | | | | |
| $ | 6.4 | | | Total increase in cost of sales |
| | | | | |
Beginning in the first quarter of 2007, the majority of the Company’s
marketingfunding support for bottle/can products fromaluminum packaging requirements did not have any ceiling price protection. The Coca-Cola Company was delivered as an offset against the price of concentrate. The reduction in concentrate price represents a significant portion of the marketing funding support that otherwise would have been paid to the Company related to the sale of bottle/can products of The Coca-Cola Company. Due to this change in concentrate pricing, the Company’s investment in inventories was reduced, resulting in an increase in cost of sales of $1.7 millionaluminum cans increased approximately 18% in the second quarter of 2004. As2007. High fructose corn syrup costs also increased significantly during 2007 as a result of this change in pricing,increasing demand for corn products around the amounts received in cash fromworld such as for ethanol production. The Coca-Cola Company for marketing funding support decreased significantly in 2004 as compared to the prior year as discussed below. Cost of sales for 2004 included favorable nonrecurring items of approximately $2 million, primarily for certain customer-related marketing programs between the Company and The Coca-Cola Company, which were recorded in the first quarter of 2004 as marketing funding support and were reflected as a reduction of cost of sales.
At the beginning of 2004, the Company reclassified plastic shells, premix tanks and CO2 tanks, which totaled $10.4 million, from property, plant and equipment to inventories. These items were reclassified as the Company believes that they are more closely related to the sale of finished product inventories than to a component of property, plant and equipment. This reclassification had no significant impact on the Company’s overall financial position or results of operations during 2004. Costs associated with these items have been reflectedhigh fructose corn syrup increased approximately 21% in cost of sales during 2004. Previously, costs associated with these items were recorded as depreciation expense.
During 2003, the Company and all other Coca-Cola bottlers in the United States formed Coca-Cola Bottling Sales and Services Company, LLC (“CCBSS”) for the purpose of facilitating various procurement functions and distributing certain specified beverage products of The Coca-Cola Company. CCBSS is responsible for negotiating contracts for most of the significant raw materials purchased by the Company other than concentrate.
2007.
Total marketing funding support from TheCoca-Cola Company and other beverage companies, which includes direct payments to the Company and payments to customers for marketing programs, was $39.9$47.2 million for 2004 versus $60.72007 compared to $33.2 million for 2003 and was recorded as a reduction2006.
Gross Margin
Gross margin dollars decreased .2%, or $1.4 million, to $621.1 million in
cost of sales. As noted above, The Coca-Cola Company changed the method2007 compared to $622.6 million in
which the Company receives the majority of its marketing funding support for bottle/can products on May 28, 2004.Gross Margin
2006. Gross margin as a percentage of net sales decreased to 43.3% in 2007 from 48.5%43.5% in 2003 to 48.0%2006.
40
The decrease in 2004gross margin was primarily as athe result of the following:
| | | | | |
Amount | | | Attributable to: |
| (In millions) | | | |
| |
| $ | (43.7 | ) | | Increase in raw material costs (primarily aluminum packaging, sweetener and concentrate costs) |
| | 13.9 | | | 2.1% increase in bottle/can sales price per unit primarily due to higher net pricing for sparkling beverages offset by lower net pricing for water |
| | 14.0 | | | Increase in marketing funding support received primarily from TheCoca-Cola Company |
| | 3.9 | | | Decrease in manufacturing overhead costs |
| | 4.2 | | | 5.8% increase in sales price per unit of post-mix |
| | 3.1 | | | Increase in delivery fees to certain customers |
| | 3.2 | | | Other |
| | | | | |
| $ | (1.4 | ) | | Total decrease in gross margin |
| | | | | |
The decrease in gross margin percentage was primarily due to higher raw material costs, partially offset by higher bottle/can sales price per unit, increases in
the Company’s cost of sales.marketing funding support from The
Company’s gross margin as a percentage of net sales may not be comparable to other companies, since some entities include all costs related to their distribution network in cost of salesCoca-Cola Company and
the Company excludes a portion of these costs from gross margin, including them instead in S,D&A expenses.reduced manufacturing overhead costs.
S,D&A expenses increased by approximately 5%$1.3 million, or .2%, to $539.3 million in 2004 compared to 2003. 2007 from $537.9 million in 2006.
The increase in S,D&A expenses was primarily attributable to increases in employee compensation and employee benefit plans (including costs relateddue to the Company’s pensionfollowing:
| | | | | |
Amount | | | Attributable to: |
| (In millions) | | | |
| |
| $ | 5.4 | | | Increase in employee related expenses primarily related to wage increases |
| | 2.8 | | | Restructuring costs related to the simplification of the Company’s operating management structure and reduction in workforce in order to improve operating efficiencies |
| | (1.9 | ) | | Decrease in property and casualty claims and insurance costs |
| | (1.6 | ) | | Decrease in employee benefit costs primarily due to the amendment of the principal Company-sponsored pension plan, net of increases in the Company’s 401(k) Savings Plan contributions and health insurance expenses |
| | (1.6 | ) | | Gain on sale of aviation equipment |
| | (1.8 | ) | | Other |
| | | | | |
| $ | 1.3 | | | Total increase in S,D&A expenses |
| | | | | |
Shipping and
health care plans) and higher fuel costs. Pension expense was higher by approximately $1 million in 2004 as compared to 2003, primarily due to lower interest rates used to discount the Company’s pension liability. Employee health care relatedhandling costs
increased by $2.1 million in 2004 over 2003. S,D&A expenses for the last three quarters of 2004 were also impacted by the capitalization of the Company’s corporate headquarters facilities lease. The lease obligation was capitalized effective March 1, 2004 as the Company received a renewal option to extend the term of the lease which it expects to exercise. The lease was previously accounted for as an operating lease. The capitalization of this lease, reduced S,D&A expenses by $2.3 million in 2004 as compared to 2003. Fuel costs for 2004 related to the movement of finished goods from
manufacturing locations to sales distribution centers
to customer locations increased by approximately 18% or $2.0 million over 2003. Fuel costs increased primarily due to both higher usage and higher rates for fuel.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 $176.3$194.9 million and $168.1$193.8 million in 20042007 and 2003,2006, respectively. Customers generally do not pay
On February 2, 2007, the Company separatelyinitiated plans to simplify its management structure and reduce its workforce in order to improve operating efficiencies across the Company’s business. The restructuring expenses consisted primarily of one-time termination benefits and other associated costs, primarily relocation expenses for shipping and handling costs.certain employees. The Company incurred $2.8 million in restructuring expenses in 2007.
In February 2006, the Company announced an amendment to its principal Company-sponsored pension plan to cease further benefit accruals under the plan effective June 30, 2006. Net periodic pension expense decreased to $.2 million in 2007 from $8.1 million in 2006. The Company also announced in February 2006 plans to enhance its 401(k) Savings Plan for eligible employees beginning in the first quarter of 2007. The Company’s expense related to its 401(k) Savings Plan increased to $8.5 million in 2007 from $4.7 million in 2006.
41
Depreciation Expense
Depreciation
Interest Expense
Net interest expense
of $70.8decreased 5.3%, or $2.6 million
for 2004 declined by $5.7in 2007 compared to 2006. The decrease in interest expense in 2007 was primarily due to an increase in interest earned on short-term investments. Interest earned on short-term investments in 2007 was $2.7 million compared to
2003. The reduction in depreciation expense is related to lower capital spending over the past several years, the closing of several sales distribution centers and lower expense related to the reclassification of certain items from property, plant and equipment to inventories at the beginning of 2004, offset partially by amortization expense related to new capital leases. Ongoing costs related to the items reclassified from property, plant and equipment to inventories are reflected in cost of sales. The decrease in depreciation expense in 2004 was offset partially by the amortization of a capital lease for the Company’s Charlotte, North Carolina corporate headquarters buildings of $1.1$1.4 million in
2004.Interest Expense
Interest expense for 2004 of $44.0 million increased by $2.1 million or approximately 5% from $41.9 million in 2003 primarily due to new capital lease obligations, higher interest rates on the Company’s floating rate debt and a $1.2 million interest accrual during the fourth quarter of 2004 related to the settlement of a state tax audit.2006. The impact of the increase in interest expense was offset partially by lower debt balances. Interest expense for 2004 included $1.9 million related to the capitalization of the Company’s corporate headquarters facilities lease as previously discussed. The Company’s overall weighted average interest rate increased from an averagewas 6.7% for 2007 compared to 6.6% for 2006. See the “Liquidity and Capital Resources — Hedging Activities — Interest Rate Hedging” section of 4.9% during 2003 to 5.4% during 2004.
Debt and capital lease obligations decreased from $848.3 million at December 28, 2003 to $789.1 million at January 2, 2005. As discussed above, the Company capitalized a lease on its corporate headquarters facilities during the first quarter of 2004 which had previously been accountedM,D&A for as an operating lease and entered into another capital lease related to a new operating facility at the end of the second quarter of 2004. The capitalization of these leases resulted in additional capital lease obligations of $37.3 million. Debt and capital lease obligations at January 2, 2005 and December 28, 2003 included $81.0 million and $45.6 million, respectively, attributable to capital leases.
information.
The Company recorded minority interest of
$3.8$2.0 million in
20042007 compared to
$3.3$3.2 million in
20032006 related to the portion of Piedmont owned by The
Coca-Cola Company. The
increaseddecreased amount in
20042007 was due to
improvements in operating resultslower net income at Piedmont.
The Company’s effective income tax ratesrate for 2004 and 2003 were approximately 40.2% and 19.3%, respectively.2007 was 38.4% compared to 25.4% in 2006. The lower effective income tax rate in 2006 compared to 2007 resulted primarily from agreements reached with state taxing authorities in 2006. See Note 14 of 19.3% in 2003 wasthe consolidated financial statements for additional information.
The adoption of FIN 48 and FSPFIN 48-1 effective January 1, 2007, did not have a material impact on the consolidated financial statements. See Note 14 of the consolidated financial statements for additional information related to the implementation of FIN 48 and FSPFIN 48-1.
In 2006, the Company reached agreements with state taxing authorities to settle certain prior tax positions for which the Company had previously provided reserves due to
net favorable adjustmentsuncertainty of
$8.6 million during the year as follows:During the second quarter of 2003,resolution. As a result, the Company reduced itsthe valuation allowance uponon related deferred tax assets by $2.6 million and reduced the completionliability for uncertain tax positions by $2.3 million in 2006. This $4.9 million adjustment was reflected as a reduction of a state income tax audit which resultedexpense in 2006. Also during 2006, the Company increased the liability for uncertain tax positions by $.5 million to reflect an interest accrual and an adjustment of the reserve for uncertain tax positions. The net effect of adjustments to the valuation allowance and liability for uncertain tax positions during 2006 was a favorable adjustment toreduction in income tax expense of $3.1$4.4 million.
During the third quarter of 2003, in conjunction with a reorganization of certain of the Company’s subsidiaries and a corresponding assessment of the Company’s ability to utilize certain state net operating loss carryforwards, the Company reduced its valuation allowance related to such carryforwards. This reduction in the valuation allowance decreased income tax expense by $6.5 million.
An income tax benefit of approximately $1.6 million was recorded in the fourth quarter of 2003 related to the return of certain insurance premiums primarily in conjunction with the elimination of a split-dollar life insurance program for officers of the Company.Financial Condition
The Company decided to terminate certain Company-owned life insurance policies and recorded additional income tax expense of $2.6 million in the third and fourth quarters of 2003 related to the taxable value of these policies.
FINANCIAL CONDITION
Total assets increased
slightly from $1.31to $1.32 billion at
January 2, 2005 to $1.34December 28, 2008 from $1.29 billion at
January 1, 2006December 30, 2007 primarily due to increases in cash
and cash equivalents and accounts receivable,
inventories and other assets, partiallytrade offset by a decrease in property, plant and equipment, net.
Other assets increased by $14.0 million from January 2, 2005 to January 1, 2006 primarily as a result of the premium paid in conjunction with the exchange of $164.8 million of the Company’s long-term debt during 2005. Property, plant and equipment, net decreased primarily due to lower levels of capital spending over the past several years.
Net working capital, defined as current assets less current liabilities,
increaseddecreased by
$38.6$136.8 million
to a negative $97.8 million at December 28, 2008 from
January 2, 2005 to January 1, 2006.December 30, 2007.
Significant changes in net working capital from
January 2, 2005December 30, 2007 to
January 1, 2006December 28, 2008 were as follows:
An increase in cash of $30.7 million due to cash flows from operating activities.
| | |
| • | An increase in current portion of long-term debt of $169.3 million primarily due to the reclassification from long-term debt to current of $176.7 million of debentures which mature in May 2009 and July 2009. |
|
| • | An increase in cash and cash equivalents of $35.5 million primarily due to cash flow from operations. |
|
| • | An increase in accounts receivable, trade of $7.4 million due to the timing of collection of payments. |
|
| • | An increase in accounts payable to TheCoca-Cola Company of $23.7 million primarily due to timing of payments. |
|
| • | A decrease in accounts payable, trade of $8.9 million primarily due to the timing of payments. |
An increase in accounts receivable, trade of $12.5 million primarily due to growth in franchise bottle/can revenue and a significant increase in sales to other Coca-Cola bottlers.
An increase in inventories of $9.3 million due to the addition of new products.
An increase in accounts payable, trade of $13.5 million primarily due to growth in bottle/can sales volume.
Debt and capital lease obligations were $777.2$669.1 million as of January 1, 2006December 28, 2008 compared to $789.1$679.1 million as of January 2, 2005.December 30, 2007. Debt and capital lease obligations as of January 1, 2006December 28, 2008 and January 2, 2005December 30, 2007 included $79.2$77.6 million and $81.0$80.2 million, respectively, of capital lease obligations related primarily to Company facilities.
42
The Company
had recorded a minimum pension liability adjustment of
$25.8$5.4 million, net of tax, as of
January 2, 2005December 31, 2006 as a result of the plan curtailment discussed in Note 17 to the consolidated financial statements. The Company adopted the provisions of SFAS No. 158 at the end of 2006. Pension and postretirement liabilities were adjusted to reflect the
difference between the fair market valueexcess of the
Company’s pension plan assetsprojected benefit obligation (pension) and the accumulated
postretirement benefit obligation
of the plans.(postretirement medical) over available plan assets. The
Company recorded an additional minimum pension liabilitytotal SFAS No. 158 adjustment
of $4.3to increase benefit liabilities was $2.6 million, net of tax,
as of January 1, 2006 resulting inwith a
total minimumcorresponding adjustment to other comprehensive loss. The Company increased the pension liability
adjustmentby $73.1 million with a corresponding increase in other comprehensive loss, net of
$30.1 million.tax, in 2008 primarily as a result of the decrease in the value of the pension plan assets during 2008. Contributions to the Company’s pension plans were
$8.0$.2 million in
2005 and $28.0 million2008. There were no contributions to the Company’s pension plans in
2004.2007. The Company anticipates that
there will be no contributions to the principal Company-sponsored
pension plan in
2006.2009 will be in the range of $8 million to $12 million.
LIQUIDITY AND CAPITAL RESOURCESLiquidity and Capital Resources
The Company’s sources of capital
for the Company include cash
flowsflow from
operating activities, bank borrowingsoperations, available credit facilities and the issuance of debt and equity securities. Management believes
that the Company
through these sources, has sufficient financial resources available to
maintainfinance its
current operations and provide forbusiness plan, meet its
current capital expenditure and working capital requirements
scheduled debt payments, interest and
income tax payments and dividends for stockholders.maintain an appropriate level of capital spending. The amount and frequency of future dividends will be determined by the Company’s Board of Directors in light of the earnings and financial condition of the Company at such time, and no assurance can be given that dividends will be declared in the future.
The Company primarily uses cash flow from operations and available credit facilities to meet its cash requirements.
As of January 1, 2006,December 28, 2008, the Company had $100$200 million available under its revolving credit$200 million facility to meet its cash requirements. The $100$200 million facility replaced an existing $125contains two financial covenants: a fixed charge coverage ratio of greater than 1.5:1 and a debt to operating cash flow ratio of less than 6:1, each as defined in the credit agreement. The Company is currently in compliance with these covenants. To the extent the Company finances the debt maturities in May 2009 and July 2009 with borrowing under the $200 million revolving credit facility, the Company believes it will continue to be in compliance with these financial covenants.
As mentioned above, the Company has debt maturities of $119.3 million in May 2009 and $57.4 million in July 2009. The Company anticipates using cash flow generated from operations, its $200 million facility and potentially other sources, including bank borrowings or issuance of debentures or equity securities, to repay or refinance these debt maturities. The Company currently has, and anticipates it will continue to have, capacity under its $200 million facility and cash on
April 7, 2005.hand to repay or refinance these debt maturities in the event other financing sources are not available. The Company currently believes that all of the banks participating in the Company’s $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
the public markets. As of
January 1, 2006, $691.5December 28, 2008, $591.5 million of the Company’s total outstanding balance of debt and capital lease obligations of
$777.2$669.1 million was financed through publicly offered debt. The Company had capital lease obligations of
$79.2$77.6 million as of
January 1, 2006. The remainderDecember 28, 2008. There were no amounts outstanding on the $200 million facility as of
the Company’s debt is provided by several financial institutions. The Company mitigates its financing risk by using multiple financial institutions and carefully evaluating the credit worthiness of these institutions. The Company enters into credit arrangements only with institutions with investment grade credit ratings. The Company monitors counterparty credit ratings on an ongoing basis. The Company’s interest rate derivative contracts are with several different financial institutions 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.December 28, 2008.
The primary sourcesources of cash for the Company has been cash provided by operating activities, investing activities and financing activities. The primary uses of cash in 2005 have been for capital expenditures, the repaymentpayment of debt maturities and capital lease obligations, the premium on the debt exchange,dividend payments and income tax payments and dividends.payments.
43
A summary of cash activity for
20052008 and
20042007 follows:
| | | | | | | |
| | | Fiscal Year
| |
| | | 2005
| | 2004
| |
| In Millions | | | | | |
Cash sources | | | | | | | |
Cash provided by operating activities | | $ | 102.1 | | $ | 117.9 | |
Proceeds from redemption of life insurance policies | | | | | | 29.0 | |
Other | | | 5.2 | | | 2.4 | |
| | |
|
| |
|
|
|
Total cash sources | | $ | 107.3 | | $ | 149.3 | |
| | |
|
| |
|
|
|
Cash uses | | | | | | | |
Capital expenditures | | $ | 40.0 | | $ | 52.9 | |
Repayment of debt maturities and capital lease obligations | | | 11.9 | | | 96.5 | |
Premium on exchange of long-term debt | | | 15.6 | | | | |
Dividends | | | 9.1 | | | 9.1 | |
| | |
|
| |
|
|
|
Total cash uses | | $ | 76.6 | | $ | 158.5 | |
| | |
|
| |
|
|
|
Increase (decrease) in cash | | $ | 30.7 | | $ | (9.2 | ) |
| | |
|
| |
|
|
|
| | | | | | | | | |
| | | Fiscal Year | |
In millions | | 2008 | | | 2007 | |
| |
Cash sources | | | | | | | | |
| Cash provided by operating activities (excluding income tax payments) | | $ | 103.6 | | | $ | 116.9 | |
| Proceeds from the termination of interest rate swap agreements | | | 5.1 | | | | — | |
| Proceeds from the sale of property, plant and equipment | | | 4.2 | | | | 8.6 | |
| Other | | | — | | | | .1 | |
| | | | | | | | | |
| Total cash sources | | $ | 112.9 | | | $ | 125.6 | |
| | | | | | | | | |
Cash uses | | | | | | | | |
| Capital expenditures | | $ | 47.9 | | | $ | 48.2 | |
| Investment in plastic bottle manufacturing cooperative | | | 1.0 | | | | 3.4 | |
| Investment in distribution agreement | | | 2.3 | | | | — | |
| Payment of debt and capital lease obligations | | | 10.0 | | | | 95.1 | |
| Income tax payments | | | 7.0 | | | | 21.4 | |
| Dividends | | | 9.1 | | | | 9.1 | |
| Other | | | .1 | | | | .4 | |
| | | | | | | | | |
| Total cash uses | | $ | 77.4 | | | $ | 177.6 | |
| | | | | | | | | |
| Increase (decrease) in cash | | $ | 35.5 | | | $ | (52.0 | ) |
| | | | | | | | | |
Based on current projections, which include a number of assumptions such as the Company’s pre-tax earnings, the Company anticipates its cash requirements for income taxes will
increase from $11.2be between $11 million and $16 million in
2005 to a range of $13 million to $17 million in 2006. The estimated cash requirements for 2006 includes $5 million related to the settlement of a state tax audit accrued in 2005.2009.
Additions to property, plant and equipment during
20052008 were
$40.0$47.9 million compared to
$52.9$48.2 million in
2004.2007. Capital expenditures during
20052008 were funded with cash flows from operations and
from borrowings
underfrom the Company’s
available linesrevolving credit facility. The Company anticipates that additions to property, plant and equipment in 2009 will be in the range of
credit.$45 million to $60 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.
At the end of 2005, the Company had commitments of $11.4 million for the purchase of route delivery vehicles related to the initial rollout of an improved pre-sell delivery system. The Company considers the acquisition of bottling territories on an ongoing basis. The Company anticipates that additions to property, plant and equipment in 2006 will be in the range of $60 million to $70 million and plans to fund such additions through cash flows from operations and its available lines of credit. The increase in anticipated capital expenditures in 2006 relates primarily to the acquisition of route delivery vehicles which will enable the Company to implement a more efficient delivery method for certain customers.
Financing ActivitiesIn December 2005, the Company repurchased $8.6 million of its outstanding 6.375% debentures due May 2009 and paid a premium of $.4 million which was reflected in interest expense during the fourth quarter of 2005. The Company used cash on hand to retire these debentures.
In June 2005, the Company issued $164.8 million of new 5.00% senior notes due 2016 in exchange for $122.2 million of its outstanding 6.375% debentures due 2009 and $42.6 million of its outstanding 7.20% debentures due 2009. The exchange was conducted as a private placement to holders of the existing debentures that were “qualified institutional buyers” within the meaning of Rule 144A of the Securities Act of 1933. As part of the exchange, the Company paid a premium of $15.6 million to holders participating in the exchange. The transaction was accounted for as an exchange of debt, and the $15.6 million premium is being amortized over the life of the new notes. The Company incurred financing transaction costs of $1.3 million related to the exchange of debt, which were included in interest expense during the second quarter of 2005. In August 2005, the Company successfully completed a registered exchange offer in which all of the previously issued private notes were exchanged for substantially identical registered notes. The exchange of debt will reduce the Company’s interest costs prospectively and lengthens maturities on portions of the Company’s debt, reducing refinancing requirements in the near-term by extending the maturity dates on a portion of its total debt.
On
April 7, 2005,March 8, 2007, the Company entered into a
new five-year$200 million facility replacing its $100 million
revolving credit facility replacing the existing $125 million revolving credit facility that was scheduled to expire in December 2005. On January 1, 2006, there were no amounts outstanding under the new facility. The
$100$200 million facility matures in
April 2010. The new facilityMarch 2012 and includes an option to extend the term for an additional year at the discretion of the participating banks. The
new revolving credit$200 million facility bears interest at a floating base rate or a floating rate of LIBOR plus an interest rate spread of
.375%..35%, dependent on the length of the term of the borrowing. In addition,
there is athe Company must pay an annual facility fee of
.125% required for this revolving credit.10% of the lenders’ aggregate commitments under the facility. Both the interest rate spread and the facility fee are determined from a
commonly usedcommonly-used pricing grid based on the Company’s long-term senior unsecured
noncredit-enhanced debt rating. The
Company’s new revolving credit$200 million facility contains two financial
covenants related tocovenants: a fixed charge coverage ratio
requirements for interest coverage,of greater than 1.5:1 and
long-terma debt to
operating cash flow
ratio of less than 6:1, each as defined in the credit agreement.
TheseOn August 25, 2008, the Company entered into an amendment to the $200 million facility. The amendment clarified that charges incurred by the Company resulting from the Company’s withdrawal from the Central States would be excluded from the calculations of the financial covenants
to the extent they are recognized before March 29, 2009 and do not
currently, andexceed $15 million. See Note 17 of the
Company does not anticipate that they will, restrict its liquidity or capital resources.consolidated financial statements for additional details on the withdrawal. The Company borrowsis currently in compliance with these covenants. There were no amounts outstanding under the $200 million facility at December 28, 2008 and December 30, 2007.
The Company had borrowed periodically under its availableuncommitted lines of credit. These uncommitted lines of credit in the aggregate amount of $60 million at January 1, 2006, arewere made available at the discretion of the two participating banks at rates negotiated at the time of borrowing and may be withdrawn at any time by such banks.borrowing. The Company can utilize its revolving credit facility in the event the
44
uncommitted lines of credit
are not available.were temporarily terminated by the participating banks in late fall of 2008. In January 2009, one of the participating banks reinstated their uncommitted line of credit for $65 million. On
January 1, 2006 and January 2, 2005, $6.5December 30, 2007, $7.4 million
and $8.0 million, respectively, werewas outstanding under
theuncommitted lines of credit.
In January 1999, the
The Company filed a
$300 million shelf registration for
up to $800 million of debt and equity
securities. The Company has issued $500 million of long-term debt under this shelf registration.securities in November 2008. The Company currently has
up tothe full $300 million available for use under this shelf registration which, subject to the Company’s ability to consummate a transaction on acceptable terms, could be used for long-term financing or refinancing of debt maturities.
The Company currently provides financing for Piedmont under the terms of an agreement that expires on December 31, 2010. The current agreement with Piedmont is an extension of a previous agreement that expired on December 31, 2005. Piedmont pays the Company interest on its borrowings at the Company’s average cost of funds plus .50%. The loan balance at January 1, 2006 was $104.8 million.
All of the outstanding
long-term debt has been issued by the Company with none having been issued by any of the Company’s subsidiaries. There are no guarantees of the Company’s debt.
The Company or its subsidiaries have entered into four capital leases.
At
January 1, 2006,December 28, 2008, the Company’s credit ratings were as follows:
| | | | |
| | | Long-Term Debt
| |
|
| Standard & Poor’s | | | BBB | |
Moody’s | | | Baa2 | |
The Company’s credit ratings are reviewed periodically by the respective rating agencies. Changes in the Company’s operating results or financial position could result in changes in the Company’s credit ratings. Lower credit ratings could result in higher borrowing costs for the Company. There were no changes in these credit ratings from the prior year.
It is the Company’s intent to continue to reduce its financial leverage over time.The Company’s public debt is not subject to financial covenants but does limit the incurrence of certain liens and encumbrances as well as indebtedness by the Company’s subsidiaries in excess of certain amounts.
The Company issued 20,000 shares of Class B Common Stock to J. Frank Harrison, III, Chairman of the Board of Directors and Chief Executive Officer, with respect to 2004, effective January 3, 2005, under a restricted stock award plan that provides for annual awards of such shares subject to the Company meeting certain performance criteria. The compensation expense for 2005 associated with the issuance of these 20,000 shares was $1.5 million and was recorded in S,D&A expenses.
Off-Balance Sheet Arrangements The Company has identifiedis a member of two manufacturing cooperatives in which it is a member as variable interest entities. The Companyand has guaranteed $41.4$39.9 million of debt and related lease obligations for these cooperatives. Asentities as of January 1, 2006,December 28, 2008. In addition, the Company’s variable interest in these cooperatives includesCompany has an equity ownership in each of the entitiesentities. The members of both cooperatives consist solely ofCoca-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 Company’s guarantees. TheAs of December 28, 2008, the Company’s maximum exposure, if the cooperativesentities borrowed up to their borrowing capacity, would have been $64.3$65.6 million including the Company’s equity interest. The Company has determined that it is not the primary beneficiary of either of the cooperatives. See Note 13 of the consolidated financial statements for additional information about these cooperatives.entities.
45
Aggregate Contractual Obligations The following table summarizes the Company’s contractual obligations and commercial commitments as of
January 1, 2006: | | | | | | | | | | | | | | | |
| | | Payments Due by Period
|
| | | Total
| | 2006
| | 2007-2008
| | 2009-2010
| | 2011 and
Thereafter
|
| In Thousands | | | | | | | | | | |
Contractual obligations: | | | | | | | | | | | | | | | |
Total debt, net of interest | | $ | 697,989 | | $ | 6,539 | | $ | 100,000 | | $ | 176,693 | | $ | 414,757 |
Capital lease obligations, net of interest | | | 79,202 | | | 1,709 | | | 3,275 | | | 3,796 | | | 70,422 |
Estimated interest on long-term debt and capital lease obligations (1) | | | 413,140 | | | 46,875 | | | 86,929 | | | 64,618 | | | 214,718 |
Purchase obligations (2) | | | 671,692 | | | 79,805 | | | 159,610 | | | 159,610 | | | 272,667 |
Other long-term liabilities (3) | | | 78,796 | | | 4,923 | | | 10,257 | | | 9,687 | | | 53,929 |
Operating leases | | | 18,921 | | | 2,551 | | | 3,913 | | | 2,780 | | | 9,677 |
Long-term contractual arrangements (4) | | | 32,024 | | | 7,267 | | | 12,307 | | | 7,718 | | | 4,732 |
Interest rate swap agreements | | | 4,645 | | | 1,824 | | | 2,345 | | | 336 | | | 140 |
Purchase orders (5) | | | 16,558 | | | 16,558 | | | | | | | | | |
| | |
|
| |
|
| |
|
| |
|
| |
|
|
Total contractual obligations | | $ | 2,012,967 | | $ | 168,051 | | $ | 378,636 | | $ | 425,238 | | $ | 1,041,042 |
| | |
|
| |
|
| |
|
| |
|
| |
|
|
| | | | | | | | | | | | | | | | | | | | | |
| | | Payments Due by Period | |
| | | | | | | | | | | | | | | 2014 and
| |
In thousands | | Total | | | 2009 | | | 2010-2011 | | | 2012-2013 | | | Thereafter | |
| |
| Contractual obligations: | | | | | | | | | | | | | | | | | | | | |
| Total debt, net of interest | | $ | 591,450 | | | $ | 176,693 | | | $ | — | | | $ | 150,000 | | | $ | 264,757 | |
| Capital lease obligations, net of interest | | | 77,614 | | | | 2,781 | | | | 6,153 | | | | 7,043 | | | | 61,637 | |
| Estimated interest on debt and capital lease obligations(1) | | | 253,505 | | | | 32,602 | | | | 55,512 | | | | 47,359 | | | | 118,032 | |
| Purchase obligations(2) | | | 507,298 | | | | 93,655 | | | | 187,310 | | | | 187,310 | | | | 39,023 | |
| Other long-term liabilities(3) | | | 109,595 | | | | 7,478 | | | | 14,532 | | | | 13,807 | | | | 73,778 | |
| Operating leases | | | 16,259 | | | | 3,258 | | | | 4,257 | | | | 2,281 | | | | 6,463 | |
| Long-term contractual arrangements(4) | | | 26,960 | | | | 7,007 | | | | 11,647 | | | | 7,607 | | | | 699 | |
| Postretirement obligations | | | 36,832 | | | | 2,291 | | | | 4,811 | | | | 5,200 | | | | 24,530 | |
| Purchase orders(5) | | | 32,093 | | | | 32,093 | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | |
| Total contractual obligations | | $ | 1,651,606 | | | $ | 357,858 | | | $ | 284,222 | | | $ | 420,607 | | | $ | 588,919 | |
| | | | | | | | | | | | | | | | | | | | | |
| | |
| (1) | | Includes interest payments based on contractual terms and current interest rates for variable rate debt. |
|
| (2) | | Represents an estimate of the Company’s 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, non-compete liabilitiesunrecognized income tax benefits, the liability to exit from a multi-employer pension plan and other long-term liabilities. |
|
| (4) | | Includes contractual arrangements with certain prestige properties, athletic venues and other prestige 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 performed. Amount includes approximately $11.4 million related to the new route delivery trucks. |
The Company has $10.5 million of unrecognized income tax benefits including accrued interest as of December 28, 2008 (included in other long-term liabilities in the above table) of which $9.4 million would affect the Company’s effective tax rate if recognized. It is expected that the amount of unrecognized tax benefits may change in the next 12 months. During this period, it is reasonably possible that tax audits could reduce unrecognized tax benefits. The Company cannot reasonably estimate the change in the amount of unrecognized tax benefits until further information is made available during the progress of the audits. See Note 14 of 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 Company’s table of contractual obligations and commercial commitments since there are no minimum purchase requirements.
The
As of December 28, 2008, the Company has
$17.4$19.3 million of standby letters of credit, primarily related to its property and casualty insurance
programs, as of January 1, 2006.programs. See Note 13 of the consolidated financial statements for additional information related to commercial commitments, guarantees, legal and tax matters.
The Company contributed $.2 million to one of its Company-sponsored pension plans in 2008. The Company anticipates therethat it will be norequired to make contributions to the principalits two Company-sponsored pension planplans in 2006.2009. Based on information currently available, the Company estimates cash contributions in 2009 will be in the range of $8 million to $12 million. Postretirement medical care payments are expected to be approximately $2.4$2.3 million in 2006.2009. See Note 17 to the consolidated financial statements for additional information related to pension and postretirement obligations.
46
Hedging Activities
The Company periodically uses interest rate hedging products to
modifymitigate 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 Company’s debt level and the potential impact of changes in interest rates on the Company’s overall financial condition. Sensitivity analyses are performed to review the impact on the
Company’s 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
In September 2008, the Company currently hasterminated six interest rate swap agreements. Theseagreements with a notional amount of $225 million it had outstanding. The Company received $6.2 million in cash proceeds including $1.1 million for previously accrued interest rate swap agreements effectively convert $250receivable. After accounting for the previously accrued interest receivable, the Company will amortize a gain of $5.1 million over the remaining term of the Company’s debt from a fixed rate to a floating rateunderlying debt.
During 2008, 2007 and
are accounted for as fair value hedges.During 2005, 2004 and 2003,2006, interest expense was reduced by $2.2 million, $1.7 million $1.9 million and $2.1$1.7 million, respectively, due to amortization of the deferred gains on previously terminated interest rate swap agreements and forward interest rate agreements. Interest expense will be reduced by the amortization of these deferred gains in 20062009 through 20102013 as follows: $1.7$2.1 million, $1.7$1.2 million, $1.7$1.3 million, $.9$1.2 million and $.3$.6 million, respectively.
The Company’s interest rate derivative contracts were with several different financial institutions to minimize the concentration of credit risk. The Company had master agreements with the counterparties to its derivative financial agreements that provide for net settlement of derivative transactions.
The weighted average interest rate of the Company’s debt and capital lease obligations after taking into account all of the interest rate hedging activities was
5.9% as of December 28, 2008 compared to 6.2% as of
January 1, 2006 compared to 5.6% as of January 2, 2005.December 30, 2007. The Company’s overall weighted average interest rate on its debt and capital lease obligations,
excluding the financing transaction costs relateddecreased to
the debt exchange and early debt retirement5.7% in
2005, increased to 6.2%2008 from
5.4%6.7% in
2004. Including the $1.7 million of financing transaction costs related to the Company’s debt exchange and early debt retirement, the overall weighted average interest rate in 2005 was 6.4%.2007. Approximately
43%6.3% of the Company’s debt and capital lease obligations of
$777.2$669.1 million as of
January 1, 2006December 28, 2008 was maintained on a floating rate basis and was subject to changes in short-term interest rates.
Assuming no changes in the Company’s capital structure, if market interest rates average 1% more in 2006higher for the next twelve months than the interest rates as of January 1, 2006,December 28, 2008, interest expense for 2006the next twelve months would increase by approximately $3$.4 million. This amount is determined by calculating the effect of a hypothetical interest rate increase of 1% on outstanding floating rate debt and capital lease obligations as of January 1, 2006, including the effects of the Company’s derivative financial instruments.December 28, 2008. This calculated, hypothetical increase in interest expense for the following twelve months may be different from the actual increase in interest expense from a 1% increase in interest rates due to varying interest rate reset dates on the Company’s floating rate debtdebt.
Fuel Hedging
During the first quarter of 2007, the Company began using derivative instruments to hedge the majority of the Company’s vehicle fuel purchases. These derivative instruments relate to diesel fuel and unleaded gasoline used in the Company’s delivery fleet. Derivative instruments used include puts, calls and caps which effectively establish a limit on the Company’s price of fuel within periods covered by the instruments. 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 amark-to-market basis with any expense or income reflected as an adjustment of fuel costs.
The net impact of the fuel hedges was to increase fuel costs by $.8 million in 2008 and decrease fuel costs by $.9 million in 2007.
In October 2008, the Company entered into derivative financial instruments.contracts to hedge the majority of its diesel fuel purchases for 2009 establishing an upper and lower limit on the Company’s price of diesel fuel. During the fourth quarter of 2008, the Company recorded a pre-taxmark-to-market loss of $2.0 million related to these 2009 contracts.
47
In February 2009, the Company entered into derivative contracts to hedge the majority of its diesel purchases for 2010 establishing an upper limit to the Company’s price of diesel fuel.
CAUTIONARY INFORMATION REGARDING FORWARD-LOOKING STATEMENTS This Annual Report on
Form 10-K, 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 management’s current outlook for future periods. These statements include, among others, statements relating to:
changes in pension expense;
anticipated return on pension plan investments;
the Company’s ability to utilize net operating loss carryforwards;
the Company’s 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 Company’s belief that the risk of loss with respect to funds deposited with banks is minimal;
| | |
| • | the Company’s belief that other parties to certain contractual arrangements will perform their obligations; |
|
| • | potential marketing funding support from TheCoca-Cola Company and other beverage companies; |
|
| • | the Company’s belief that the risk of loss with respect to funds deposited with banks is minimal; |
|
| • | the Company’s 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; |
|
| • | management’s belief that the Company has adequately provided for any ultimate amounts that are likely to result from tax audits; |
|
| • | management’s 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 Company’s 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 Company’s ability to issue $300 million of securities under acceptable terms under its shelf registration statement; |
|
| • | the Company’s belief that certain franchise rights are perpetual or will be renewed upon expiration; |
|
| • | the Company’s key priorities which are revenue management, product innovation and beverage portfolio expansion, distribution cost management and productivity; |
|
| • | the Company’s expectation that new product introductions, packaging changes and sales promotions will continue to require substantial expenditures; |
|
| • | the Company’s belief that there is substantial and effective competition in each of the exclusive geographic territories in the United States in which it operates for the purposes of the United States Soft Drink Interbrand Competition Act; |
|
| • | the Company’s hypothetical calculation of the impact of a 1% increase in interest rates on outstanding floating rate debt and capital lease obligations for the next twelve months as of December 28, 2008; |
|
| • | the Company’s belief that it may market and sell nationally certain products it has developed and owns; |
|
| • | the Company’s belief that cash requirements for income taxes will be in the range of $11 million to $16 million in 2009; |
|
| • | the Company’s anticipation that pension expense related to the two Company-sponsored pension plans is estimated to be approximately $11.5 million in 2009; |
|
| • | the Company’s anticipation that the suspension of the Retirement Saving Plan (401(k) plan) will reduce benefit costs by approximately $7 million in 2009; |
|
| • | the Company’s belief that cash contributions in 2009 to its two Company-sponsored pension plans will be in the range of $8 million to $12 million; |
|
| • | the Company’s belief that postretirement benefit payments are expected to be approximately $2.3 million in 2009; |
48
management’s belief that the Company has adequately provided for any ultimate amounts that are likely to result from tax audits;
the Company’s expectation of exercising its option to extend certain lease obligations;
the effects of the closings of sales distribution centers;
the Company’s intention to continue to evaluate its distribution system in an effort to optimize the process of distributing products;
the upgrade of the Company’s ERP software system and the Company’s anticipated capital expenditures related to the upgrade;
management’s belief that the Company has sufficient financial resources to maintain current operations and provide for its current capital expenditure and working capital requirements, scheduled debt payments, interest and income tax payments and dividends for stockholders;
the Company’s intention to reduce its financial leverage over time;
the Company’s 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 Company’s ability to issue $300 million of securities under acceptable terms under its shelf registration statement;
the Company’s belief that certain franchise rights are perpetual or will be renewed upon expiration;
the Company’s intention to provide for Piedmont’s future financing requirements;
the Company’s key priorities for 2006 and the next several years;
the Company’s belief that its liquidity or capital resources will not be restricted by certain financial covenants in the Company’s credit agreements;
the Company’s hypothetical calculation of the impact of a 1% increase in interest rates on outstanding floating rate debt and capital lease obligations for the next twelve months as of January 1, 2006;
the Company’s belief that there will be no contribution to the principal Company-sponsored pension plan in 2006;
anticipated cash payments for income taxes of approximately $13 million to $17 million in 2006;
anticipated additions to property, plant and equipment in 2006 will be in the range of $60 million to $70 million;
the Company’s belief that compliance with environmental laws will not have a material adverse effect on its capital expenditures, earnings or competitive position;
the Company’s belief that soft demand for sugar carbonated soft drinks will continue;
the Company’s belief that its pension expense will decrease by approximately $3 million in 2006;
the Company’s belief that its postretirement benefit expense will decrease by approximately $2.5 million in 2006;
the Company’s beliefs and estimates regarding the impact of the adoption of certain new accounting pronouncements;
the Company’s belief that CCBSS will increase purchasing efficiency and reduce future increases in cost of sales and other operating expenses;
the Company’s plans and expectations regarding anticipated changes in its delivery methods for certain delivery systems that will increase pre-sell route delivery efficiency by approximately 30%; | | |
| • | the Company’s expectation that additions to property, plant and equipment in 2009 will be in the range of $45 million to $60 million; |
|
| • | the Company’s belief that compliance with environmental laws will not have a material adverse effect on its capital expenditures, earnings or competitive position; |
|
| • | the Company’s belief that the demand for sugar sparkling beverages (other than energy products) may continue to decline; |
|
| • | the Company’s expectation that its overall bottle/can revenue will be primarily dependent upon continued growth in diet sparkling products, sports drinks, enhanced water and energy products, the introduction of new products and the pricing of brands and packages within channels; |
|
| • | the Company’s belief that the majority of its deferred tax assets will be realized; |
|
| • | the Company’s intention to renew substantially all the Allied Beverage Agreements and Still Beverage Agreements as they expire; |
|
| • | the Company’s beliefs and estimates regarding the impact of the adoption of certain new accounting pronouncements; |
|
| • | the Company’s belief that innovation of new brands and packages will continue to be critical to the Company’s overall revenue; |
|
| • | the Company’s 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 Company’s expectation that unrecognized tax benefits may be reduced over the next 12 months as a result of tax audits; |
|
| • | the Company’s expectation that it will use cash flow generated from operations, its $200 million facility and potentially other sources, including bank borrowings or issuance of debentures or equity securities, to repay or refinance debentures maturing in May 2009 and July 2009; |
|
| • | the Company’s belief that all of the banks participating in the Company’s $200 million facility have the ability to and will meet any funding requests from the Company; |
|
| • | the Company’s belief that the reorganization of its operating units and support services and its workforce reduction plan was completed by the end of 2008, that the majority of cash expenditures were incurred in 2008 and the Company’s anticipation of substantial annual savings from the plan; |
|
| • | the Company’s belief that it is competitive in its territories with respect to the principal methods of competition in the nonalcoholic beverage industry; and |
|
| • | the Company’s 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 $22 million assuming flat volume. |
the Company’s belief that it will continue to produce Full Throttle for the majority of Coca-Cola bottlers in the eastern half of the United States in 2006;
the Company’s belief regarding its ability to raise selling prices to offset higher raw material costs;
anticipated product innovation; and
the Company’s expectation that its overall bottle/can sales volume will be primarily dependent upon continued growth in diet products, isotonics, bottled water and energy drinks as well as the introduction of new products.
These statements and expectations are based on currently available competitive, financial and economic data along with the Company’s 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 differences or adversely affect future periods include, but are not limited to, the factors set forth under Item 1A—1A. — Risk Factors.
Caution should be taken not to place undue reliance on the Company’s forward-looking statements, which reflect the expectations of management of the Company only as of the time such statements are made. 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.
49
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
| |
| Item 7A. | 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 Company’s primary market risk exposure and interest rate risk is presented below.
Long-Term Debt and Derivative Financial InstrumentsThe Company is subject to interest rate risk on its
long-term fixed and floating rate debt. 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 Company’s overall financial condition. Sensitivity analyses are performed to review the impact on the Company’s financial position and coverage of various interest rate movements. The counterparties to these interest rate hedging arrangements are major financial institutions with which the Company also has other financial relationships.
While theThe Company
is exposed to credit loss in the eventdid not have any interest rate hedging products as of
nonperformance by these counterparties, the Company does not anticipate nonperformance by these parties.December 28, 2008. The Company generally maintains between 40% and 60% of total borrowings at variable interest rates after taking into account all of the interest rate hedging activities. While this is the target range for the percentage of total borrowings at variable interest rates, the financial position of the Company and market conditions may result in strategies outside of this range at certain points in time. Approximately
43%6.3% of the Company’s debt and capital lease obligations of
$777.2$669.1 million as of
January 1, 2006December 28, 2008 was subject to changes in short-term interest rates.
As it relates to the Company’s variable rate debt and variable rate leases, assuming no changes in the Company’s financial structure, if market interest rates average 1% more
in 2006over the next twelve months than the interest rates as of
January 1, 2006,December 28, 2008, interest expense for
2006the next twelve months would increase by approximately
$3$.4 million. This amount was determined by calculating the effect of the hypothetical interest rate on our variable rate debt and variable rate
leases after giving consideration to all our interest rate hedging activities.leases. This calculated, hypothetical increase in interest expense for the following twelve months may be different from the actual increase in interest expense
from a 1% increase in interest rates due to varying interest rate reset dates on the Company’s floating rate debt and derivative financial instruments.
debt.
Raw Material and Commodity Price RiskPrices 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 $22 million assuming flat volume.
The Company uses derivative instruments to hedge the majority of the Company’s vehicle fuel purchases. These derivative instruments relate to diesel fuel and unleaded gasoline used in the Company’s delivery fleet. Instruments used include puts, calls and caps which effectively establish a limit on the Company’s price of fuel within periods covered by the instruments. 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 reflected as an adjustment of fuel costs.
Effect of Changing Prices The principal effect of inflation on the Company’s operating results is to increase costs. Subject to normal competitive market conditions, theThe Company believes it has the ability tomay raise selling prices to offset these cost increases over time.increases; however, the resulting impact on retail prices may reduce volumes purchased by consumers.
50
Item 8. Financial Statements and Supplementary Data
| |
| Item 8. | Financial Statements and Supplementary Data |
COCA-COLA BOTTLING CO. CONSOLIDATED
CONSOLIDATED STATEMENTS OF OPERATIONS | | | | | | | | | |
| | | Fiscal Year
|
| | | 2005
| | 2004
| | 2003
|
| In Thousands (Except Per Share Data) | | | | | | | | | |
Net sales | | $ | 1,380,172 | | $ | 1,267,227 | | $ | 1,220,403 |
Cost of sales, excluding depreciation expense shown below | | | 752,409 | | | 659,466 | | | 629,080 |
| | |
|
| |
|
| |
|
|
Gross margin | | | 627,763 | | | 607,761 | | | 591,323 |
| | |
|
| |
|
| |
|
|
Selling, delivery and administrative expenses, excluding depreciation expense shown below | | | 466,533 | | | 449,497 | | | 428,462 |
Depreciation expense | | | 68,222 | | | 70,798 | | | 76,485 |
Amortization of intangibles | | | 880 | | | 3,117 | | | 3,105 |
| | |
|
| |
|
| |
|
|
Income from operations | | | 92,128 | | | 84,349 | | | 83,271 |
| | |
|
| |
|
| |
|
|
Interest expense | | | 49,279 | | | 43,983 | | | 41,914 |
Minority interest | | | 4,097 | | | 3,816 | | | 3,297 |
| | |
|
| |
|
| |
|
|
Income before income taxes | | | 38,752 | | | 36,550 | | | 38,060 |
Income taxes | | | 15,801 | | | 14,702 | | | 7,357 |
| | |
|
| |
|
| |
|
|
Net income | | $ | 22,951 | | $ | 21,848 | | $ | 30,703 |
| | |
|
| |
|
| |
|
|
Basic net income per share | | $ | 2.53 | | $ | 2.41 | | $ | 3.40 |
| | |
|
| |
|
| |
|
|
Diluted net income per share | | $ | 2.53 | | $ | 2.41 | | $ | 3.40 |
| | |
|
| |
|
| |
|
|
Weighted average number of common shares outstanding | | | 9,083 | | | 9,063 | | | 9,043 |
Weighted average number of common shares outstanding—assuming dilution | | | 9,083 | | | 9,063 | | | 9,043 |
| | |
|
| |
|
| |
|
|
| | | | | | | | | | | | | |
| | | Fiscal Year | |
In thousands (except per share data) | | 2008 | | | 2007 | | | 2006 | |
| |
Net sales | | $ | 1,463,615 | | | $ | 1,435,999 | | | $ | 1,431,005 | |
| Cost of sales | | | 848,409 | | | | 814,865 | | | | 808,426 | |
| | | | | | | | | | | | | |
Gross margin | | | 615,206 | | | | 621,134 | | | | 622,579 | |
| Selling, delivery and administrative expenses | | | 555,728 | | | | 539,251 | | | | 537,915 | |
| | | | | | | | | | | | | |
Income from operations | | | 59,478 | | | | 81,883 | | | | 84,664 | |
| | | | | | | | | | | | | |
| Interest expense | | | 39,601 | | | | 47,641 | | | | 50,286 | |
| Minority interest | | | 2,392 | | | | 2,003 | | | | 3,218 | |
| | | | | | | | | | | | | |
Income before income taxes | | | 17,485 | | | | 32,239 | | | | 31,160 | |
| Income taxes | | | 8,394 | | | | 12,383 | | | | 7,917 | |
| | | | | | | | | | | | | |
Net income | | $ | 9,091 | | | $ | 19,856 | | | $ | 23,243 | |
| | | | | | | | | | | | | |
Basic net income per share: | | | | | | | | | | | | |
| Common Stock | | $ | .99 | | | $ | 2.18 | | | $ | 2.55 | |
| | | | | | | | | | | | | |
| Weighted average number of Common Stock shares outstanding | | | 6,644 | | | | 6,644 | | | | 6,643 | |
| | | | | | | | | | | | | |
| Class B Common Stock | | $ | .99 | | | $ | 2.18 | | | $ | 2.55 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Weighted average number of Class B Common Stock shares outstanding | | | 2,500 | | | | 2,480 | | | | 2,460 | |
Diluted net income per share: | | | | | | | | | | | | |
| Common Stock | | $ | .99 | | | $ | 2.17 | | | $ | 2.55 | |
| | | | | | | | | | | | | |
| Weighted average number of Common Stock shares outstanding — assuming dilution | | | 9,160 | | | | 9,141 | | | | 9,120 | |
| | | | | | | | | | | | | |
| Class B Common Stock | | $ | .99 | | | $ | 2.17 | | | $ | 2.54 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Weighted average number of Class B Common Stock shares outstanding — assuming dilution | | | 2,516 | | | | 2,497 | | | | 2,477 | |
See Accompanying Notes to Consolidated Financial Statements.
51
COCA-COLA BOTTLING CO. CONSOLIDATED
CONSOLIDATED BALANCE SHEETS | | | | | | |
| | | Jan. 1, 2006
| | Jan. 2, 2005
|
| In Thousands (Except Share Data) | | | | |
ASSETS | | | | | | |
Current assets: | | | | | | |
Cash and cash equivalents | | $ | 39,608 | | $ | 8,885 |
Accounts receivable, trade, less allowance for doubtful accounts of $1,318 and $1,678, respectively | | | 94,576 | | | 82,036 |
Accounts receivable from The Coca-Cola Company | | | 2,719 | | | 7,049 |
Accounts receivable, other | | | 8,388 | | | 9,637 |
Inventories | | | 58,233 | | | 48,886 |
Prepaid expenses and other current assets | | | 8,862 | | | 7,935 |
| | |
|
| |
|
|
Total current assets | | | 212,386 | | | 164,428 |
| | |
|
| |
|
|
Property, plant and equipment, net | | | 389,199 | | | 418,853 |
Leased property under capital leases, net | | | 73,244 | | | 76,857 |
Other assets | | | 39,235 | | | 25,270 |
Franchise rights, net | | | 520,672 | | | 520,672 |
Goodwill, net | | | 102,049 | | | 102,049 |
Other identifiable intangible assets, net | | | 5,054 | | | 5,934 |
| | |
|
| |
|
|
Total | | $ | 1,341,839 | | $ | 1,314,063 |
| | |
|
| |
|
|
| | | | | | | | | |
| | | Dec. 28,
| | | Dec. 30,
| |
In thousands (except share data) | | 2008 | | | 2007 | |
| |
ASSETS |
Current assets: | | | | | | | | |
| Cash and cash equivalents | | $ | 45,407 | | | $ | 9,871 | |
| Accounts receivable, trade, less allowance for doubtful accounts of $1,188 and $1,137, respectively | | | 99,849 | | | | 92,499 | |
Accounts receivable from TheCoca-Cola Company | | | 3,454 | | | | 3,800 | |
| Accounts receivable, other | | | 12,990 | | | | 7,867 | |
| Inventories | | | 65,497 | | | | 63,534 | |
| Prepaid expenses and other current assets | | | 21,121 | | | | 20,758 | |
| | | | | | | | | |
| Total current assets | | | 248,318 | | | | 198,329 | |
| | | | | | | | | |
Property, plant and equipment,net | | | 338,156 | | | | 359,930 | |
Leased property under capital leases, net | | | 66,730 | | | | 70,862 | |
Other assets | | | 33,937 | | | | 35,655 | |
Franchise rights,net | | | 520,672 | | | | 520,672 | |
Goodwill,net | | | 102,049 | | | | 102,049 | |
Other identifiable intangible assets, net | | | 5,910 | | | | 4,302 | |
| | | | | | | | | |
| Total | | $ | 1,315,772 | | | $ | 1,291,799 | |
| | | | | | | | | |
See Accompanying Notes to Consolidated Financial Statements.
52
COCA-COLA BOTTLING CO. CONSOLIDATED
| | | | | | | | |
| | | Jan. 1, 2006
| | | Jan. 2, 2005
| |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | |
Current liabilities: | | | | | | | | |
Current portion of debt | | $ | 6,539 | | | $ | 8,000 | |
Current portion of obligations under capital leases | | | 1,709 | | | | 1,826 | |
Accounts payable, trade | | | 44,536 | | | | 30,989 | |
Accounts payable to The Coca-Cola Company | | | 15,516 | | | | 18,223 | |
Other accrued liabilities | | | 50,876 | | | | 50,409 | |
Accrued compensation | | | 18,969 | | | | 17,186 | |
Accrued interest payable | | | 9,670 | | | | 11,864 | |
| | |
|
|
| |
|
|
|
Total current liabilities | | | 147,815 | | | | 138,497 | |
| | |
|
|
| |
|
|
|
Deferred income taxes | | | 167,131 | | | | 165,578 | |
Pension and postretirement benefit obligations | | | 54,844 | | | | 42,361 | |
Other liabilities | | | 85,188 | | | | 85,260 | |
Obligations under capital leases | | | 77,493 | | | | 79,202 | |
Long-term debt | | | 691,450 | | | | 700,039 | |
| | |
|
|
| |
|
|
|
Total liabilities | | | 1,223,921 | | | | 1,210,937 | |
| | |
|
|
| |
|
|
|
Commitments and Contingencies (Note 13) | | | | | | | | |
Minority interest | | | 42,784 | | | | 38,687 | |
Stockholders’ Equity: | | | | | | | | |
Convertible Preferred Stock, $100.00 par value: | | | | | | | | |
Authorized-50,000 shares; Issued-None | | | | | | | | |
Nonconvertible Preferred Stock, $100.00 par value: | | | | | | | | |
Authorized-50,000 shares; Issued-None | | | | | | | | |
Preferred Stock, $.01 par value: | | | | | | | | |
Authorized-20,000,000 shares; Issued-None | | | | | | | | |
Common Stock, $1.00 par value: | | | | | | | | |
Authorized-30,000,000 shares; Issued-9,705,451 and 9,704,951 shares, respectively | | | 9,705 | | | | 9,704 | |
Class B Common Stock, $1.00 par value: | | | | | | | | |
Authorized-10,000,000 shares; Issued-3,068,366 and 3,048,866 shares, respectively | | | 3,068 | | | | 3,049 | |
Class C Common Stock, $1.00 par value: | | | | | | | | |
Authorized-20,000,000 shares; Issued-None | | | | | | | | |
Capital in excess of par value | | | 99,376 | | | | 98,255 | |
Retained earnings | | | 54,355 | | | | 40,488 | |
Accumulated other comprehensive loss | | | (30,116 | ) | | | (25,803 | ) |
| | |
|
|
| |
|
|
|
| | | | 136,388 | | | | 125,693 | |
| | |
|
|
| |
|
|
|
Less-Treasury stock, at cost: | | | | | | | | |
Common Stock-3,062,374 shares | | | 60,845 | | | | 60,845 | |
Class B Common Stock-628,114 shares | | | 409 | | | | 409 | |
| | |
|
|
| |
|
|
|
Total stockholders’ equity | | | 75,134 | | | | 64,439 | |
| | |
|
|
| |
|
|
|
Total | | $ | 1,341,839 | | | $ | 1,314,063 | |
| | |
|
|
| |
|
|
|
CONSOLIDATED BALANCE SHEETS
| | | | | | | | | |
| | | Dec. 28,
| | | Dec. 30,
| |
| | | 2008 | | | 2007 | |
| |
LIABILITIES AND STOCKHOLDERS’ EQUITY |
Current liabilities: | | | | | | | | |
| Current portion of debt | | $ | 176,693 | | | $ | 7,400 | |
| Current portion of obligations under capital leases | | | 2,781 | | | | 2,602 | |
| Accounts payable, trade | | | 42,383 | | | | 51,323 | |
Accounts payable to TheCoca-Cola Company | | | 35,311 | | | | 11,597 | |
| Other accrued liabilities | | | 57,504 | | | | 54,511 | |
| Accrued compensation | | | 23,285 | | | | 23,447 | |
| Accrued interest payable | | | 8,139 | | | | 8,417 | |
| | | | | | | | | |
| Total current liabilities | | | 346,096 | | | | 159,297 | |
| | | | | | | | | |
Deferred income taxes | | | 139,338 | | | | 168,540 | |
Pension and postretirement benefit obligations | | | 107,005 | | | | 32,758 | |
Other liabilities | | | 107,037 | | | | 93,632 | |
Obligations under capital leases | | | 74,833 | | | | 77,613 | |
Long-term debt | | | 414,757 | | | | 591,450 | |
| | | | | | | | | |
| Total liabilities | | | 1,189,066 | | | | 1,123,290 | |
| | | | | | | | | |
Commitments and Contingencies (Note 13) | | | | | | | | |
Minority interest | | | 50,397 | | | | 48,005 | |
Stockholders’ equity: | | | | | | | | |
| Convertible Preferred Stock, $100.00 par value: | | | | | | | | |
| Authorized-50,000 shares; Issued-None | | | | | | | | |
| Nonconvertible Preferred Stock, $100.00 par value: | | | | | | | | |
| Authorized-50,000 shares; Issued-None | | | | | | | | |
| Preferred Stock, $.01 par value: | | | | | | | | |
| Authorized-20,000,000 shares; Issued-None | | | | | | | | |
| Common Stock, $1.00 par value: | | | | | | | | |
| Authorized-30,000,000 shares; Issued-9,706,051 shares | | | 9,706 | | | | 9,706 | |
| Class B Common Stock, $1.00 par value: | | | | | | | | |
| Authorized-10,000,000 shares; Issued-3,127,766 and 3,107,766 shares, respectively | | | 3,127 | | | | 3,107 | |
| Class C Common Stock, $1.00 par value: | | | | | | | | |
| Authorized-20,000,000 shares; Issued-None | | | | | | | | |
| Capital in excess of par value | | | 103,582 | | | | 102,469 | |
| Retained earnings | | | 79,021 | | | | 79,227 | |
| Accumulated other comprehensive loss | | | (57,873 | ) | | | (12,751 | ) |
| | | | | | | | | |
| | | | 137,563 | | | | 181,758 | |
| | | | | | | | | |
| Less-Treasury stock, at cost: | | | | | | | | |
| Common Stock-3,062,374 shares | | | 60,845 | | | | 60,845 | |
| Class B Common Stock-628,114 shares | | | 409 | | | | 409 | |
| | | | | | | | | |
| Total stockholders’ equity | | | 76,309 | | | | 120,504 | |
| | | | | | | | | |
| Total | | $ | 1,315,772 | | | $ | 1,291,799 | |
| | | | | | | | | |
See Accompanying Notes to Consolidated Financial Statements.
53
COCA-COLA BOTTLING CO. CONSOLIDATED
CONSOLIDATED STATEMENTS OF CASH FLOWS | | | | | | | | | | | | |
| | | Fiscal Year
| |
| | | 2005
| | | 2004
| | | 2003
| |
| In Thousands | | | | | | | | | |
Cash Flows from Operating Activities | | | | | | | | | | | | |
Net income | | $ | 22,951 | | | $ | 21,848 | | | $ | 30,703 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | | | | | |
Depreciation expense | | | 68,222 | | | | 70,798 | | | | 76,485 | |
Amortization of intangibles | | | 880 | | | | 3,117 | | | | 3,105 | |
Deferred income taxes | | | 3,105 | | | | 14,244 | | | | 7,357 | |
Losses on sale of property, plant and equipment | | | 775 | | | | 752 | | | | 1,182 | |
Amortization of debt costs | | | 1,967 | | | | 1,101 | | | | 1,082 | |
Amortization of deferred gains related to terminated interest rate agreements | | | (1,679 | ) | | | (1,945 | ) | | | (2,082 | ) |
Minority interest | | | 4,097 | | | | 3,816 | | | | 3,297 | |
(Increase) decrease in current assets less current liabilities | | | 4,902 | | | | (8,098 | ) | | | (13,212 | ) |
(Increase) decrease in other noncurrent assets | | | (1,475 | ) | | | 531 | | | | 914 | |
Increase (decrease) in other noncurrent liabilities | | | (1,471 | ) | | | 11,596 | | | | 12,685 | |
Other | | | (180 | ) | | | 101 | | | | (182 | ) |
| | |
|
|
| |
|
|
| |
|
|
|
Total adjustments | | | 79,143 | | | | 96,013 | | | | 90,631 | |
| | |
|
|
| |
|
|
| |
|
|
|
Net cash provided by operating activities | | | 102,094 | | | | 117,861 | | | | 121,334 | |
| | |
|
|
| |
|
|
| |
|
|
|
Cash Flows from Financing Activities | | | | | | | | | | | | |
Proceeds from the issuance of long-term debt | | | | | | | | | | | 100,000 | |
Payment of long-term debt | | | (8,550 | ) | | | (85,000 | ) | | | (50,000 | ) |
Repayment of current portion of long-term debt | | | | | | | (78 | ) | | | (35,039 | ) |
Repayment of lines of credit, net | | | (1,500 | ) | | | (9,600 | ) | | | (20,000 | ) |
Cash dividends paid | | | (9,084 | ) | | | (9,063 | ) | | | (9,043 | ) |
Principal payments on capital lease obligations | | | (1,826 | ) | | | (1,843 | ) | | | (1,340 | ) |
Proceeds from settlement of forward interest rate agreements | | | | | | | | | | | 3,135 | |
Debt issuance costs paid | | | | | | | | | | | (1,039 | ) |
Premium on exchange of long-term debt | | | (15,554 | ) | | | | | | | | |
Other | | | 692 | | | | 150 | | | | (644 | ) |
| | |
|
|
| |
|
|
| |
|
|
|
Net cash used in financing activities | | | (35,822 | ) | | | (105,434 | ) | | | (13,970 | ) |
| | |
|
|
| |
|
|
| |
|
|
|
Cash Flows from Investing Activities | | | | | | | | | | | | |
Additions to property, plant and equipment | | | (39,992 | ) | | | (52,860 | ) | | | (57,795 | ) |
Proceeds from the sale of property, plant and equipment | | | 4,443 | | | | 2,225 | | | | 2,845 | |
Proceeds from the redemption of life insurance policies | | | | | | | 29,049 | | | | | |
Acquisitions of companies, net of cash acquired | | | | | | | | | | | (52,563 | ) |
| | |
|
|
| |
|
|
| |
|
|
|
Net cash used in investing activities | | | (35,549 | ) | | | (21,586 | ) | | | (107,513 | ) |
| | |
|
|
| |
|
|
| |
|
|
|
Net increase (decrease) in cash | | | 30,723 | | | | (9,159 | ) | | | (149 | ) |
| | |
|
|
| |
|
|
| |
|
|
|
Cash at beginning of year | | | 8,885 | | | | 18,044 | | | | 18,193 | |
| | |
|
|
| |
|
|
| |
|
|
|
Cash at end of year | | $ | 39,608 | | | $ | 8,885 | | | $ | 18,044 | |
| | |
|
|
| |
|
|
| |
|
|
|
Significant non-cash investing and financing activities | | | | | | | | | | | | |
Issuance of Class B Common Stock in connection with stock award | | $ | 1,141 | | | $ | 1,055 | | | $ | 1,254 | |
Capital lease obligations incurred | | | | | | | 37,307 | | | | 877 | |
Exchange of long-term debt | | | 164,757 | | | | | | | | | |
| | | | | | | | | | | | | |
| | | Fiscal Year | |
In thousands | | 2008 | | | 2007 | | | 2006 | |
| |
Cash Flows from Operating Activities | | | | | | | | | | | | |
| Net income | | $ | 9,091 | | | $ | 19,856 | | | $ | 23,243 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | | | | | |
| Depreciation expense | | | 67,572 | | | | 67,881 | | | | 67,334 | |
| Amortization of intangibles | | | 701 | | | | 445 | | | | 550 | |
| Deferred income taxes | | | 559 | | | | (4,165 | ) | | | (7,030 | ) |
| Losses on sale of property, plant and equipment | | | 159 | | | | 445 | | | | 1,340 | |
| Provision for liabilities to exit multi-employer pension plan | | | 14,012 | | | | — | | | | — | |
| Amortization of debt costs | | | 2,449 | | | | 2,678 | | | | 2,638 | |
| Stock compensation expense | | | 1,130 | | | | 1,171 | | | | 929 | |
| Amortization of deferred gains related to terminated interest rate agreements | | | (2,160 | ) | | | (1,698 | ) | | | (1,689 | ) |
| Minority interest | | | 2,392 | | | | 2,003 | | | | 3,218 | |
| Decrease in current assets less current liabilities | | | 5,912 | | | | 1,947 | | | | 5,863 | |
| Decrease in other noncurrent assets | | | 627 | | | | 1,058 | | | | 3,585 | |
| Increase (decrease) in other noncurrent liabilities | | | (5,635 | ) | | | 3,854 | | | | 2,736 | |
| Other | | | (180 | ) | | | 23 | | | | 180 | |
| | | | | | | | | | | | | |
| Total adjustments | | | 87,538 | | | | 75,642 | | | | 79,654 | |
| | | | | | | | | | | | | |
| Net cash provided by operating activities | | | 96,629 | | | | 95,498 | | | | 102,897 | |
| | | | | | | | | | | | | |
Cash Flows from Investing Activities | | | | | | | | | | | | |
| Additions to property, plant and equipment | | | (47,866 | ) | | | (48,226 | ) | | | (63,179 | ) |
| Proceeds from the sale of property, plant and equipment | | | 4,231 | | | | 8,566 | | | | 2,454 | |
| Investment in plastic bottle manufacturing cooperative | | | (968 | ) | | | (3,377 | ) | | | (2,338 | ) |
| Investment in distribution agreement | | | (2,309 | ) | | | — | | | | — | |
| Other | | | — | | | | — | | | | (243 | ) |
| | | | | | | | | | | | | |
| Net cash used in investing activities | | | (46,912 | ) | | | (43,037 | ) | | | (63,306 | ) |
| | | | | | | | | | | | | |
Cash Flows from Financing Activities | | | | | | | | | | | | |
| Payment of current portion of long-term debt | | | — | | | | (100,000 | ) | | | (39 | ) |
| Proceeds (payment) of lines of credit, net | | | (7,400 | ) | | | 7,400 | | | | (6,500 | ) |
| Cash dividends paid | | | (9,144 | ) | | | (9,124 | ) | | | (9,103 | ) |
| Excess tax benefits from stock-based compensation | | | 3 | | | | 173 | | | | — | |
| Principal payments on capital lease obligations | | | (2,602 | ) | | | (2,435 | ) | | | (1,696 | ) |
| Proceeds from termination of interest rate swap agreements | | | 5,142 | | | | — | | | | — | |
| Other | | | (180 | ) | | | (427 | ) | | | (38 | ) |
| | | | | | | | | | | | | |
| Net cash used in financing activities | | | (14,181 | ) | | | (104,413 | ) | | | (17,376 | ) |
| | | | | | | | | | | | | |
Net increase (decrease) in cash | | | 35,536 | | | | (51,952 | ) | | | 22,215 | |
| | | | | | | | | | | | | |
Cash at beginning of year | | | 9,871 | | | | 61,823 | | | | 39,608 | |
| | | | | | | | | | | | | |
Cash at end of year | | $ | 45,407 | | | $ | 9,871 | | | $ | 61,823 | |
| | | | | | | | | | | | | |
| Significant non-cash investing and financing activities | | | | | | | | | | | | |
| Issuance of Class B Common Stock in connection with stock award | | $ | 1,171 | | | $ | 929 | | | $ | 860 | |
| Capital lease obligations incurred | | | — | | | | 5,144 | | | | — | |
See Accompanying Notes to Consolidated Financial Statements.
54
COCA-COLA BOTTLING CO. CONSOLIDATED
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Common
Stock
| | Class B
Common
Stock
| | | Capital in
Excess of
Par Value
| | Retained
Earnings
| | | Accumulated
Other
Comprehensive
Loss
| | | Treasury
Stock
| | | Total
| |
| In Thousands | | | | | | | | | | | | | | | | | | | |
Balance on December 29, 2002 | | $ | 9,704 | | $ | 3,009 | | | $ | 95,986 | | $ | 6,043 | | | $ | (20,621 | ) | | $ | (61,254 | ) | | $ | 32,867 | |
Comprehensive income: | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income | | | | | | | | | | | | | 30,703 | | | | | | | | | | | | 30,703 | |
Net gain (loss) on derivatives, net of tax | | | | | | | | | | | | | | | | | (62 | ) | | | | | | | (62 | ) |
Net change in minimum pension liability adjustment, net of tax | | | | | | | | | | | | | | | | | (3,247 | ) | | | | | | | (3,247 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
|
|
|
Total comprehensive income | | | | | | | | | | | | | | | | | | | | | | | | | 27,394 | |
Cash dividends paid | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common ($1.00 per share) | | | | | | | | | | | | | (6,642 | ) | | | | | | | | | | | (6,642 | ) |
Class B Common ($1.00 per share) | | | | | | | | | | | | | (2,401 | ) | | | | | | | | | | | (2,401 | ) |
Issuance of Class B Common Stock | | | | | | 20 | | | | 1,234 | | | | | | | | | | | | | | | 1,254 | |
| | |
|
| |
|
|
| |
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
|
Balance on December 28, 2003 | | $ | 9,704 | | $ | 3,029 | | | $ | 97,220 | | $ | 27,703 | | | $ | (23,930 | ) | | $ | (61,254 | ) | | $ | 52,472 | |
| | |
|
| |
|
|
| |
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
|
Comprehensive income: | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income | | | | | | | | | | | | | 21,848 | | | | | | | | | | | | 21,848 | |
Net gain (loss) on derivatives, net of tax | | | | | | | | | | | | | | | | | 62 | | | | | | | | 62 | |
Net change in minimum pension liability adjustment, net of tax | | | | | | | | | | | | | | | | | (1,935 | ) | | | | | | | (1,935 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
|
|
|
Total comprehensive income | | | | | | | | | | | | | | | | | | | | | | | | | 19,975 | |
Cash dividends paid | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common ($1.00 per share) | | | | | | | | | | | | | (6,642 | ) | | | | | | | | | | | (6,642 | ) |
Class B Common ($1.00 per share) | | | | | | | | | | | | | (2,421 | ) | | | | | | | | | | | (2,421 | ) |
Issuance of Class B Common Stock | | | | | | 20 | | | | 1,035 | | | | | | | | | | | | | | | 1,055 | |
| | |
|
| |
|
|
| |
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
|
Balance on January 2, 2005 | | $ | 9,704 | | $ | 3,049 | | | $ | 98,255 | | $ | 40,488 | | | $ | (25,803 | ) | | $ | (61,254 | ) | | $ | 64,439 | |
| | |
|
| |
|
|
| |
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
|
Comprehensive income: | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income | | | | | | | | | | | | | 22,951 | | | | | | | | | | | | 22,951 | |
Net change in minimum pension liability adjustment, net of tax | | | | | | | | | | | | | | | | | (4,313 | ) | | | | | | | (4,313 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
|
|
|
Total comprehensive income | | | | | | | | | | | | | | | | | | | | | | | | | 18,638 | |
Cash dividends paid | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common ($1.00 per share) | | | | | | | | | | | | | (6,643 | ) | | | | | | | | | | | (6,643 | ) |
Class B Common ($1.00 per share) | | | | | | | | | | | | | (2,441 | ) | | | | | | | | | | | (2,441 | ) |
Issuance of Class B Common Stock | | | | | | 20 | | | | 1,121 | | | | | | | | | | | | | | | 1,141 | |
Conversion of Class B Common Stock into Common Stock | | | 1 | | | (1 | ) | | | | | | | | | | | | | | | | | | — | |
| | |
|
| |
|
|
| |
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
|
Balance on January 1, 2006 | | $ | 9,705 | | $ | 3,068 | | | $ | 99,376 | | $ | 54,355 | | | $ | (30,116 | ) | | $ | (61,254 | ) | | $ | 75,134 | |
| | |
|
| |
|
|
| |
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | Accumulated
| | | | | | | |
| | | | | | Class B
| | | Capital in
| | | | | | Other
| | | | | | | |
| | | Common
| | | Common
| | | Excess of
| | | Retained
| | | Comprehensive
| | | Treasury
| | | | |
In thousands | | Stock | | | Stock | | | Par Value | | | Earnings | | | Loss | | | Stock | | | Total | |
| |
| Balance on January 1, 2006 | | $ | 9,705 | | | $ | 3,068 | | | $ | 99,376 | | | $ | 54,355 | | | $ | (30,116 | ) | | $ | (61,254 | ) | | $ | 75,134 | |
Comprehensive income: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net income | | | | | | | | | | | | | | | 23,243 | | | | | | | | | | | | 23,243 | |
| Net change in minimum pension liability adjustment, net of tax | | | | | | | | | | | | | | | | | | | 5,442 | | | | | | | | 5,442 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total comprehensive income | | | | | | | | | | | | | | | | | | | | | | | | | | | 28,685 | |
| Adjustment to initially apply SFAS No. 158, net of tax | | | | | | | | | | | | | | | | | | | (2,552 | ) | | | | | | | (2,552 | ) |
| Cash dividends paid | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common ($1.00 per share) | | | | | | | | | | | | | | | (6,643 | ) | | | | | | | | | | | (6,643 | ) |
| Class B Common ($1.00 per share) | | | | | | | | | | | | | | | (2,460 | ) | | | | | | | | | | | (2,460 | ) |
| Issuance of 20,000 shares of Class B Common Stock | | | | | | | 20 | | | | 840 | | | | | | | | | | | | | | | | 860 | |
| Stock compensation expense | | | | | | | | | | | 929 | | | | | | | | | | | | | | | | 929 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance on December 31, 2006 | | $ | 9,705 | | | $ | 3,088 | | | $ | 101,145 | | | $ | 68,495 | | | $ | (27,226 | ) | | $ | (61,254 | ) | | $ | 93,953 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Comprehensive income: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net income | | | | | | | | | | | | | | | 19,856 | | | | | | | | | | | | 19,856 | |
| Foreign currency translation adjustments, net of tax | | | | | | | | | | | | | | | | | | | 23 | | | | | | | | 23 | |
| Pension and postretirement benefit adjustment, net of tax | | | | | | | | | | | | | | | | | | | 14,452 | | | | | | | | 14,452 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total comprehensive income | | | | | | | | | | | | | | | | | | | | | | | | | | | 34,331 | |
| Cash dividends paid | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common ($1.00 per share) | | | | | | | | | | | | | | | (6,644 | ) | | | | | | | | | | | (6,644 | ) |
| Class B Common ($1.00 per share) | | | | | | | | | | | | | | | (2,480 | ) | | | | | | | | | | | (2,480 | ) |
| Issuance of 20,000 shares of Class B Common Stock | | | | | | | 20 | | | | (20 | ) | | | | | | | | | | | | | | | — | |
| Stock compensation expense | | | | | | | | | | | 1,344 | | | | | | | | | | | | | | | | 1,344 | |
| Conversion of Class B Common | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Stock into Common Stock | | | 1 | | | | (1 | ) | | | | | | | | | | | | | | | | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance on December 30, 2007 | | $ | 9,706 | | | $ | 3,107 | | | $ | 102,469 | | | $ | 79,227 | | | $ | (12,751 | ) | | $ | (61,254 | ) | | $ | 120,504 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Comprehensive income: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net income | | | | | | | | | | | | | | | 9,091 | | | | | | | | | | | | 9,091 | |
| Foreign currency translation adjustments, net of tax | | | | | | | | | | | | | | | | | | | (9 | ) | | | | | | | (9 | ) |
| Pension and postretirement benefit adjustment, net of tax | | | | | | | | | | | | | | | | | | | (44,999 | ) | | | | | | | (44,999 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total comprehensive income | | | | | | | | | | | | | | | | | | | | | | | | | | | (35,917 | ) |
| Adjustment to change measurement date for SFAS No. 158, net of tax | | | | | | | | | | | | | | | (153 | ) | | | (114 | ) | | | | | | | (267 | ) |
| Cash dividends paid | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common ($1.00 per share) | | | | | | | | | | | | | | | (6,644 | ) | | | | | | | | | | | (6,644 | ) |
| Class B Common ($1.00 per share) | | | | | | | | | | | | | | | (2,500 | ) | | | | | | | | | | | (2,500 | ) |
| Issuance of 20,000 shares of Class B Common Stock | | | | | | | 20 | | | | (20 | ) | | | | | | | | | | | | | | | — | |
| Stock compensation expense | | | | | | | | | | | 1,133 | | | | | | | | | | | | | | | | 1,133 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance on December 28, 2008 | | $ | 9,706 | | | $ | 3,127 | | | $ | 103,582 | | | $ | 79,021 | | | $ | (57,873 | ) | | $ | (61,254 | ) | | $ | 76,309 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
See Accompanying Notes to Consolidated Financial Statements
55
COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS | |
| 1. | Significant Accounting Policies |
1. Significant Accounting PoliciesCoca-ColaCoca-Cola Bottling Co. Consolidated (the “Company”) is engaged in the production, marketingproduces, markets and distribution ofdistributes nonalcoholic beverages, primarily products of TheCoca-Cola Company. The Company operates in portions of 11 states, principally in the southeastern region of the United States.
States and has one reportable segment.
The consolidated financial statements include the accounts of the Company and its majority owned subsidiaries. All significant intercompany accounts and transactions have been eliminated.
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States 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.
The fiscal years presented are the 52-week periods ended December 28,
20032008, December 30, 2007 and
January 1, 2006 and the 53-week period ended January 2, 2005.December 31, 2006. The Company’s fiscal year ends on the Sunday closest to December 31 of each year.
Certain prior year amounts have been reclassified to conform to current
year classifications.
The Company’s significant accounting policies are as follows:
Cash and Cash Equivalents Cash and cash equivalents include cash on hand, cash in banks and cash equivalents, which are highly liquid debt instruments with maturities of less than 90 days. The Company maintains cash deposits with major banks which from time to time may exceed federally insured limits. The Company periodically assesses the financial condition of the institutions and believes that the risk of any loss is minimal.
Credit Risk of Trade Accounts Receivable The Company sells its products to
large supermarketsupermarkets, convenience stores and other customers and extends credit, generally without requiring collateral, based on an ongoing evaluation of the customer’s business prospects and financial condition. The Company’s trade accounts receivable are typically collected within approximately 30 days from the date of sale. The Company monitors its exposure to losses on trade accounts receivable and maintains an allowance for potential losses or adjustments. Past due trade accounts receivable balances are written off when the Company’s collection efforts have been unsuccessful in collecting the amount due.
Inventories are stated at the lower of cost or market. Cost is determined on the
first-in, first-out method for finished products and manufacturing materials and on the average cost method for plastic shells, plastic pallets and other inventories.
Property, Plant and Equipment Property, plant and equipment are recorded at cost and depreciated using the straight-line method over the estimated useful lives of the assets. Leasehold improvements on operating leases are depreciated over the shorter
COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
of the estimated useful lives or the term of the lease, including renewal options the Company determines are reasonably assured. Additions and major replacements or betterments are added to the assets at cost. Maintenance and repair costs and minor replacements are charged to expense when incurred. When assets are replaced or otherwise disposed, the cost and accumulated depreciation are removed from the accounts and the gains or losses, if any, are reflected in the statement of operations. Gains or losses on the disposal of manufacturing equipment and manufacturing facilities are included in cost of sales. Gains or losses on the disposal of all other property, plant and
56
COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
equipment are included in selling, delivery and administrative (“S,D&A”) expenses. Disposals of property, plant and equipment generally occur when it is not cost effective to repair an asset.
The Company evaluates the recoverability of the carrying amount of its property, plant and equipment when events or changes in circumstances indicate that the amount of an asset or asset group may not be recoverable. If the Company determines that the carrying amount of an asset or asset group is not recoverable based upon the expected undiscounted future cash flows of the asset or asset group, an impairment loss is recorded equal to the excess of the carrying amounts over the estimated fair value of the long-lived assets.
Leased Property Under Capital Leases Leased property under capital leases is depreciated using the straight-line method over the lease term.
Impairment of Long-Lived Assets
The Company evaluates long-lived assets and certain identifiable intangibles for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. When undiscounted future cash flows will not be sufficient to recover an asset’s carrying amount, the asset is written down to its fair value. Long-lived assets to be disposed other than by sale are classified as held and used until they are disposed. Long-lived assets to be disposed by sale are classified as held for sale and are reported at the lower of carrying amount or fair value less cost to sell, and depreciation is ceased.
The Company capitalizes costs incurred in the development or acquisition of internal use software. The Company expenses costs incurred in the preliminary project planning stage. Costs, such as maintenance and training, are also expensed as incurred. Capitalized costs are amortized over their estimated useful lives using the straight-line method. Amortization expense, which is included in depreciation expense, for internal-use software was
$4.7$6.3 million,
$4.7$5.6 million and
$4.6$5.1 million in
2005, 20042008, 2007 and
2003,2006, respectively.
Franchise Rights and Goodwill Under the provisions of Statement of Financial Accounting Standards No. 141, “Business Combinations,” and Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible
Assets” (“SFAS No. 142”),Assets,” all business combinations are accounted for using the purchase method and goodwill and intangible assets with indefinite useful lives are not amortized but instead are tested for impairment annually, or more frequently if facts and circumstances indicate such assets may be impaired. The only intangible assets the Company classifies as indefinite lived are franchise rights and goodwill.
SFAS No. 142 requires testing of intangible assets with indefinite lives and goodwill for impairment at least annually. The Company performs its annual impairment test
inas of the
thirdfirst day of the fourth quarter of each year.
For the annual impairment analysis of franchise rights, the fair value of the Company’s acquired franchise rights is estimated using a
multi-period excess earningsdiscounted cash flows approach. This approach involves a projection of future
earnings,cash flows, attributable to the franchise rights and discounting those estimated
earningscash flows using an appropriate discount
rate, and subtracting a contributory charge for net working capital; property, plant and equipment; assembled workforce and customer relationships to arrive at excess earnings attributable to franchise rights.rate. The
present value of the excess earnings attributable to franchise rights is their estimated fair value
and is compared to the carrying
value.COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
value on an aggregated basis.
The Company has determined that it has one reporting unit for the Company as a whole for purposes of assessing goodwill for potential impairment. For the annual impairment analysis of goodwill, the Company develops an estimated fair value for the
enterprisereporting unit using an average of three different approaches:
Market value, using the Company’s stock price plus outstanding debt and minority interest;
| | |
| • | market value, using the Company’s stock price plus outstanding debt; |
|
| • | discounted cash flow analysis; and |
|
| • | multiple of earnings before interest, taxes, depreciation and amortization based upon relevant industry data. |
Discounted cash flow analysis; and
Multiple of earnings before interest, taxes, depreciation and amortization based upon relevant industry data.
The estimated fair value of the enterprisereporting unit is then compared to the Company’sits carrying amount including goodwill. If the estimated fair value ofexceeds the Company exceeds its carrying amount, goodwill is considered not impaired, and the second step of the impairment test is not necessary. If the carrying amount including goodwill exceeds its estimated fair value, the second step of the impairment test is performed to measure the amount of the impairment, if any.
The Company uses its overall market capitalization as part of its estimate of fair value of the reporting unit and in assessing the reasonableness of the Company’s internal estimates of fair value.
To the extent that actual and projected cash flows decline in the future, or if market conditions deteriorate significantly, the Company may be required to perform an interim impairment analysis that could result in an impairment of franchise rights and goodwill.
57
COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Other Identifiable Intangible Assets Other identifiable intangible assets primarily represent customer relationships
and distribution rights and are amortized on a straight-line basis over their estimated useful lives.
Pension and Postretirement Benefit Plans The Company has a noncontributory pension plan covering substantially all nonunion employees and one noncontributory pension plan covering certain union employees. Costs of the plans are charged to current operations and consist of several components of net periodic pension cost based on various actuarial assumptions regarding future experience of the plans. In addition, certain other union employees are covered by plans provided by their respective union organizations and the Company expenses amounts as paid in accordance with union agreements. The Company recognizes the cost of postretirement benefits, which consist principally of medical benefits, during employees’ periods of active service.
Amounts recorded for benefit plans reflect estimates related to interest rates, investment returns, employee turnover and health care costs. The discount rate assumptions used to determine the pension and postretirement benefit obligations are based on yield rates available on double-A bonds as of each plan’s measurement date.
Amounts recorded for benefit plans reflect estimates related to future interest rates, investment returns, employee turnover, wage increases and health care costs.
The Company
reviews all assumptionsadopted the provisions of Statement of Financial Accounting Standards No. 158, “Employers’ Accounting for Defined Pension and
estimates on an ongoing basis.Other Postretirement Plans” (“SFAS No. 158”), at the end of 2006. Liabilities for pension and postretirement liabilities were adjusted to reflect the excess of the projected benefit obligation (pension) and the accumulated postretirement benefit obligation (postretirement medical), respectively, over plan assets. The Company recordschanged its measurement date for pension plans from November 30 to the Company’s year-end. The Company changed its measurement for postretirement benefits from September 30 to the Company’s year-end.
On February 22, 2006, the Board of Directors of the Company approved an amendment to the pension plan covering substantially all nonunion employees to cease further accruals under the plan effective June 30, 2006. The plan amendment was accounted for as a plan “curtailment” under Statement of Financial Accounting Standards No. 88, “Employers’ Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits (as amended)” (“SFAS No. 88”). The curtailment resulted in a reduction of the Company’s projected benefit obligation which was offset against the Company’s unrecognized net loss.
See Note 17 to the consolidated financial statements for additional
minimuminformation on the pension
liability adjustment, when necessary, forcurtailment and the
amounteffects of
underfunded accumulated pension obligations in excess of accrued pension costs.adopting SFAS No. 158.
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to operating loss and tax credit carryforwards as well as differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
A valuation allowance will be provided against deferred tax assets if the Company determines it
COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
is more likely than not, such assets will not ultimately be realized. In addition,
The Company does not recognize a tax benefit unless it concludes that it is more likely than not that the benefit will be sustained on audit by the taxing authority based solely on the technical merits of the associated tax position. If the recognition threshold is met, the Company recognizes a tax benefit measured at the largest amount of the tax benefit that, in the Company’s judgment, is greater than 50 percent likely to be realized. The Company records liabilities for uncertaininterest and penalties related to unrecognized tax positions principally related to state income taxes and certain federalin income tax attributes. These liabilities reflect the Company’s best estimate of the ultimate income tax liabilities based on currently known facts and information. Material changes in facts and information as well as the expiration of statutes and/or settlements with the individual state or federal jurisdictions could result in material adjustments to these estimates in the future.expense.
58
COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Revenues are recognized when finished products are delivered to customers and both title and the risks and benefits of ownership are transferred,
price is fixed and determinable, collection is reasonably assured and, in the case of full service vending, when cash is collected from the vending machines. Appropriate provision is made for uncollectible accounts.
The Company receives service fees from The
Coca-Cola Company related to the delivery of fountain syrup products to The
Coca-Cola Company’s fountain customers. In addition, the Company receives service fees from The
Coca-Cola Company related to the repair of fountain equipment owned by The
Coca-Cola Company. The fees received from The
Coca-Cola Company for the delivery of fountain syrup products to their customers and the repair of their fountain equipment are recognized as revenue when the respective services are completed.
Service revenue represents approximately 1% of net sales.
Revenues do not include sales or other taxes collected from customers.
Marketing Programs and Sales Incentives The Company participates in various marketing and sales programs
with TheCoca-Cola Company and other beverage companies and arrangements with customers to increase the sale of its products by its customers. Among the programs negotiated with customers are arrangements under which allowances can be earned for attaining
agreed-upon sales levels
and/or for participating in specific marketing programs. Coupon programs are also developed on a territory-specific basis. The cost of these various
marketing programs
and sales incentives with TheCoca-Cola Company and other beverage companies, included as deductions to net sales, totaled
$45.7$49.4 million,
$40.0$44.9 million and
$51.3$47.2 million in
2005, 20042008, 2007 and
2003,2006, respectively.
Marketing Funding Support The Company receives marketing funding support payments in cash from The
Coca-Cola Company and other beverage companies. Payments to the Company for marketing programs to promote the sale of bottle/can volume and fountain syrup volume are recognized in earnings primarily on a per unit basis over the year as product is sold. Payments for periodic programs are recognized in the periods for which they are earned.
Under the provisions of Emerging Issues Task Force Issue
No. 02-16 “Accounting by a Customer (Including a Reseller) for Certain Consideration Received from a Vendor,” cash consideration received by a customer from a vendor is presumed to be a reduction of the prices of the vendor’s products or services and
are,is, therefore, to be accounted for as a reduction of cost of sales in the statements of operations unless those payments are specific reimbursements of costs or payments for services. Payments the Company receives from The
Coca-Cola Company and other beverage companies for marketing funding support are classified as reductions of cost of sales.
Derivative Financial Instruments The Company records all derivative instruments in the financial statements at fair value.
The Company uses derivative financial instruments to manage its exposure to movements in interest
rates.rates and fuel prices. The use of these financial instruments modifies the
Company’s exposure
ofto these risks with the intent
to reduce theof reducing risk
to theCOCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Company.over time. The Company does not use financial instruments for trading purposes, nor does it use leveraged financial instruments. Credit risk related to the derivative financial instruments is considered minimal and is managed by requiring high credit standards for its counterparties and periodic settlements.
59
COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Interest Rate Hedges
The Company periodically enters into
interest rate agreements.derivative financial instruments. The Company has standardized procedures for evaluating the accounting for financial instruments. These procedures include:
Identifying and matching of the hedging instrument and the hedged item to ensure that significant features coincide such as maturity dates and interest reset dates;
| | |
| • | Identifying and matching of the hedging instrument and the hedged item to ensure that significant features coincide such as maturity dates and interest reset dates; |
|
| • | Identifying the nature of the risk being hedged and the Company’s intent for undertaking the hedge; |
|
| • | Assessing the hedging instrument’s effectiveness in offsetting the exposure to changes in the hedged item’s fair value or variability to cash flows attributable to the hedged risk; |
|
| • | Assessing evidence that, at the hedge’s inception and on an ongoing basis, it is expected that the hedging relationship will be highly effective in achieving an offsetting change in the fair value or cash flows that are attributable to the hedged risk; and |
|
| • | Maintaining a process to review all hedges on an ongoing basis to ensure continued qualification for hedge accounting. |
Identifying the nature of the risk being hedged and the Company’s intent for undertaking the hedge;
Assessing the hedging instrument’s effectiveness in offsetting the exposure to changes in the hedged item’s fair value or variability to cash flows attributable to the hedged risk;
Assessing evidence that, at the hedge’s inception and on an ongoing basis, it is expected that the hedging relationship will be highly effective in achieving an offsetting change in the fair value or cash flows that are attributable to the hedged risk; and
Maintaining a process for assessment of ongoing hedge effectiveness.
To the extent the interest rate agreements meet the specified criteria,criteria; they are accounted for as either fair value or cash flow hedges. Changes in the fair values of designated and qualifying fair value hedges are recognized in earnings as offsets to changes in the fair value of the related hedged liabilities. Changes in the fair value of cash flow hedging instruments are recognized in accumulated other comprehensive income and are subsequently reclassified to earnings as an adjustment to interest expense in the same periods the forecasted payments affect earnings. Ineffectiveness of a cash flow hedge, defined as the amount by which the change in the value of the hedge does not exactly offset the change in the value of the hedged item, is reflected in current results of operations.
The Company evaluates its mix of fixed and floating rate debt on an ongoing basis. Periodically, the Company may terminate an interest rate derivative when the underlying debt remains outstanding in order to achieve its desired fixed/floating rate mix. Upon termination of an interest rate derivative accounted for as a cash flow hedge, amounts reflected in accumulated other comprehensive income are reclassified to earnings consistent with the variability of the cash flows previously hedged, which is generally over the life of the related debt that was hedged. Upon termination of an interest rate derivative accounted for as a fair value hedge, the value of the hedge as recorded on the Company’s balance sheet is eliminated against either the cash received or cash paid for settlement and the fair value adjustment of the related debt is amortized to earnings over the remaining life of the debt instrument as an adjustment to interest expense.
Interest rate derivatives designated as cash flow hedges are used to hedge the variability of cash flows related to a specific component of the Company’s long-term debt. Interest rate derivatives designated as fair value hedges are used to hedge the fair value of a specific component of the Company’s long-term debt. If the hedged component of long-term debt is repaid or refinanced, the Company generally terminates the related hedge due to the fact the forecasted schedule of payments will not occur or the changes in fair value of the hedged debt will not occur and the derivative will no longer qualify as a hedge. Any gain or loss on the termination of an interest rate derivative related to the repayment or refinancing of long-term debt is recognized currently in the Company’s statement of operations as an adjustment to interest expense. In the event a derivative previously accounted for as a hedge was retained and did not qualify for hedge accounting, changes in the fair value would be recognized in the statement of operations currently as an adjustment to interest expense.
Fuel Hedges
The Company uses derivative instruments to hedge the majority of the Company’s vehicle fuel purchases. These derivative instruments relate to diesel fuel and unleaded gasoline used in the Company’s delivery fleet. Instruments used include puts, calls and caps which effectively establish a limit on the Company’s price of fuel
60
COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS within periods covered by the instruments. 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 reflected as an adjustment of fuel costs which are included in S,D&A expenses.
In general, the Company is self-insured for the costs of workers’ compensation, employment practices, vehicle accident claims and medical claims. The Company uses commercial insurance for claims as a risk reduction strategy to minimize catastrophic losses. Losses are
provided foraccrued using assumptions and procedures followed in the insurance industry, adjusted for company-specific history and expectations.
The following expenses are included in cost of sales: raw material costs, manufacturing labor, manufacturing overhead
inbound freight charges related to raw material costs, receiving costs, inspection costs,including depreciation expense, manufacturing warehousing costs and
freight chargesshipping and handling costs related to the movement of finished goods from manufacturing locations to sales distribution centers.
Selling, Delivery and Administrative Expenses The following expenses are included in S,D&A expenses: sales management labor costs,
distribution costs
of distribution 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
dispensing equipment repair costs,
amortization of intangibles and administrative support labor and operating costs such as treasury, legal, information services, accounting, internal
auditcontrol services, human resources and executive management costs.
Shipping and Handling Costs 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.Customers generally do not payexpenses and were $201.6 million, $194.9 million and $193.8 million in 2008, 2007 and 2006, respectively.
The Company recorded delivery fees in net sales of $6.7 million, $6.7 million and $3.6 million in 2008, 2007 and 2006, respectively. These fees are used to offset a portion of the
Company separately for shippingCompany’s delivery and handling costs.
Beginning in October 2005, certain low volume customers have been billed a delivery charge. The delivery charge revenue is recorded in net sales. Compensation Cost for Unvested/Restricted Stock with Contingent VestingThe Company hasprovides its Chairman of the Board of Directors and Chief Executive Officer, J. Frank Harrison, III, with a restricted stock plan foraward. Under the award, restricted stock is granted at a rate of 20,000 shares per year over a ten-year period. The vesting of each annual installment is contingent upon the Company achieving at least 80% of the overall goal achievement factor in the Company’s Annual Bonus Plan. The restricted stock award does not entitle Mr. Harrison, III to participate in dividend or voting rights until each installment has vested and the shares are issued.
The Company’s only share-based compensation is the restricted stock award to the Company’s Chairman of the Board of Directors and Chief Executive
Officer. The plan initially included 200,000 sharesOfficer as described above. Each annual 20,000 share tranche has an independent performance requirement as it is not established until the Company’s Annual Bonus Plan targets are approved each year by the Compensation Committee of the Company’s
Class B Common Stock, which are issued in the amountBoard of
Directors. As a result, each 20,000
shares per year, contingent upon the achievement of 80% of the overall goal achievement factor in the Annual Bonus Plan.share tranche is considered to have its own service inception date, grant-date fair value and requisite service period. The Company recognizes compensation expense for this plan during aover the requisite service period (one fiscal yearyear) based on the quoted marketCompany’s stock price ofat the Company’s Common Stock at each measurement date multiplied(date approved by the numberBoard of shares which would vest if the performance requirements are met,Directors), unless the
61
COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
achievement of the performance
requirementsrequirement for
thatthe fiscal year is considered unlikely.
See Note 16 to the consolidated financial statements for additional information.
On March 4, 2009, the Compensation Committee determined that 20,000 shares of restricted Class B Common Stock, $1.00 par value, vested and should be issued pursuant to a performance-based award to J. Frank Harrison, III, in connection with his services in 2008 as Chairman of the Board of Directors and Chief Executive Officer of the Company.
The Company applies the two-class method for calculating and presenting net income per share. As noted in Statement of Financial Accounting Standards No. 128, “Earnings per Share (as amended),” the two-class method is an earnings allocation formula that determines earnings per share for each class of common stock according to dividends declared (or accumulated) and participation rights in undistributed earnings. Under this method:
| | |
| (a) | Income from continuing operations (“net income”) is reduced by the amount of dividends declared in the current period for each class of stock and by the contractual amount of dividends that must be paid for the current period. |
| | |
| (b) | The remaining earnings (“undistributed earnings”) are allocated to Common Stock and Class B Common Stock to the extent that each security may share in earnings as if all of the earnings for the period had been distributed. The total earnings allocated to each security is determined by adding together the amount allocated for dividends and the amount allocated for a participation feature. |
| | |
| (c) | The total earnings allocated to each security is then divided by the number of outstanding shares of the security to which the earnings are allocated to determine the earnings per share for the security. |
| | |
| (d) | Basic and diluted earnings per share (“EPS”) data are presented for each class of common stock. |
In applying the two-class method, the Company determined that undistributed earnings should be allocated equally on a per share basis between the Common Stock and Class B Common Stock due to the aggregate participation rights of the Class B Common Stock (i.e., the voting and conversion rights) and the Company’s history of paying dividends equally on a per share basis on the Common Stock and Class B Common Stock.
Under the Company’s certificate of incorporation, the Board of Directors may declare dividends on Common Stock without declaring equal or any dividends on the Class B Common Stock. Notwithstanding this provision, Class B Common Stock has voting and conversion rights that allow the Class B Common Stock stockholders to participate equally on a per share basis with the Common Stock stockholders.
The Class B Common Stock is entitled to 20 votes per share and the Common Stock is entitled to one vote per share with respect to each matter to be voted upon by the stockholders of the Company. With the exception of any matter required by law, the holders of the Class B Common Stock and Common Stock vote together as a single class on all matters submitted to the Company’s stockholders, including the election of the Board of Directors. As a result of this voting structure, the holders of the Class B Common Stock control approximately 85% of the total voting power of the stockholders of the Company and control the election of the Board of Directors. The Board of Directors has declared and the Company has paid dividends on the Class B Common Stock and Common Stock and each class of common stock has participated equally in all dividends declared by the Board of Directors and paid by the Company since 1994.
The Class B Common Stock conversion rights allow the Class B Common Stock to participate in dividends equally with the Common Stock. The Class B Common Stock is convertible into Common Stock on a one-for-one per share basis at any time at the option of the holder (i.e., via an action within the holder’s control). Accordingly, the holders of the Class B Common Stock can participate equally in any dividends declared on the Common Stock by exercising their conversion rights.
62
COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As a result of the Class B Common Stock’s aggregated participation rights, the Company has determined that undistributed earnings should be allocated equally on a per share basis to the Common Stock and Class B Common Stock under the two-class method.
Basic EPS excludes potential common shares that were dilutive and is computed by dividing net income available for common stockholders by the weighted average number of Common and Class B Common shares outstanding. Diluted EPS
for Common Stock and Class B Common Stock gives effect to all securities representing potential common shares that were dilutive and outstanding during the period.
COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Piedmont Coca-Cola Bottling Partnership
| |
| 2. | PiedmontCoca-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
certain portions of North Carolina and South Carolina. The Company provides a portion of the soft drink products
forto 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.
Minority interest as of
January 1, 2006, January 2, 2005December 28, 2008, December 30, 2007 and December
28, 200331, 2006 represents the portion of Piedmont which is owned by The
Coca-Cola Company. The
Coca-Cola Company’s interest in Piedmont was 22.7% in all
of 2005 and 2004 and the last three quarters of 2003, and 45.3% for the first quarter of 2003.3. Inventories
periods reported.
Inventories were summarized as follows:
| | | | | | |
| | | Jan. 1,
2006
| | Jan. 2,
2005
|
| In Thousands | | | | |
Finished products | | $ | 34,181 | | $ | 25,026 |
Manufacturing materials | | | 9,222 | | | 10,148 |
Plastic shells, plastic pallets and other inventories | | | 14,830 | | | 13,712 |
| | |
|
| |
|
|
Total inventories | | $ | 58,233 | | $ | 48,886 |
| | |
|
| |
|
|
At the beginning of 2004, the Company reclassified plastic shells, premix tanks and CO2 tanks, which totaled $10.4 million, from property, plant and equipment to inventories. These items were reclassified as the Company believes they are more closely related to the sale of finished product inventories than to a component of property, plant and equipment. This reclassification had no significant impact on the Company’s overall financial condition or results of operations during 2004. Costs associated with these items have been reflected in cost of sales during 2005 and 2004. Previously, costs associated with these items were recorded as depreciation expense.
For purchases of concentrate by the Company from The Coca-Cola Company subsequent to May 28, 2004, the majority of the Company’s marketing funding support for bottle/can products from The Coca-Cola Company was offset against the price of concentrate. The reduction in concentrate price represents a significant portion of the marketing funding support that otherwise would have been paid to the Company related to the sale of bottle/can products of The Coca-Cola Company. Due to this change in concentrate pricing, the Company’s investment in inventories was reduced.
COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. Property, Plant and Equipment
| | | | | | | | | |
| | | Dec. 28,
| | | Dec. 30,
| |
In thousands | | 2008 | | | 2007 | |
| |
| Finished products | | $ | 36,418 | | | $ | 37,649 | |
| Manufacturing materials | | | 12,620 | | | | 9,198 | |
| Plastic shells, plastic pallets and other inventories | | | 16,459 | | | | 16,687 | |
| | | | | | | | | |
| Total inventories | | $ | 65,497 | | | $ | 63,534 | |
| | | | | | | | | |
| |
| 4. | Property, Plant and Equipment |
The principal categories and estimated useful lives of property, plant and equipment were as follows:
| | | | | | | | | | | | | |
| | | Dec. 28,
| | | Dec. 30,
| | | Estimated
| |
In thousands | | 2008 | | | 2007 | | | Useful Lives | |
| |
| Land | | $ | 12,167 | | | $ | 12,280 | | | | | |
| Buildings | | | 109,384 | | | | 110,721 | | | | 10-50 years | |
| Machinery and equipment | | | 118,934 | | | | 106,180 | | | | 5-20 years | |
| Transportation equipment | | | 176,084 | | | | 174,882 | | | | 4-17 years | |
| Furniture and fixtures | | | 38,254 | | | | 38,350 | | | | 4-10 years | |
| Cold drink dispensing equipment | | | 319,188 | | | | 323,629 | | | | 6-13 years | |
| Leasehold and land improvements | | | 60,142 | | | | 60,023 | | | | 5-20 years | |
| Software for internal use | | | 59,786 | | | | 51,681 | | | | 3-10 years | |
| Construction in progress | | | 4,891 | | | | 6,635 | | | | | |
| | | | | | | | | | | | | |
| Total property, plant and equipment, at cost | | | 898,830 | | | | 884,381 | | | | | |
| Less: Accumulated depreciation and amortization | | | 560,674 | | | | 524,451 | | | | | |
| | | | | | | | | | | | | |
| Property, plant and equipment, net | | $ | 338,156 | | | $ | 359,930 | | | | | |
| | | | | | | | | | | | | |
63
| | | | | | | | |
| | | Jan. 1,
2006
| | Jan. 2,
2005
| | Estimated
Useful Lives
|
| In Thousands | | | | | | |
Land | | $ | 12,605 | | $ | 12,822 | | |
Buildings | | | 110,208 | | | 114,176 | | 10-50 years |
Machinery and equipment | | | 96,495 | | | 92,307 | | 5-20 years |
Transportation equipment | | | 167,762 | | | 163,707 | | 4-13 years |
Furniture and fixtures | | | 44,364 | | | 39,228 | | 4-10 years |
Cold drink dispensing equipment | | | 339,330 | | | 347,971 | | 6-13 years |
Leasehold and land improvements | | | 56,788 | | | 55,210 | | 5-20 years |
Software for internal use | | | 32,258 | | | 28,607 | | 3-10 years |
Construction in progress | | | 6,627 | | | 5,667 | | |
| | |
|
| |
|
| | |
Total property, plant and equipment, at cost | | | 866,437 | | | 859,695 | | |
Less: accumulated depreciation and amortization | | | 477,238 | | | 440,842 | | |
| | |
|
| |
|
| | |
Property, plant and equipment, net | | $ | 389,199 | | $ | 418,853 | | |
| | |
|
| |
|
| | |
5. Leased Property Under Capital Leases
COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Depreciation and amortization expense was $67.6 million, $67.9 million and $67.3 million in 2008, 2007 and 2006, respectively. These amounts included amortization expense for leased property under capital leases.
| |
| 5. | Leased Property Under Capital Leases |
Leased property under capital leases was summarized as follows:
| | | | | | | | |
| | | Jan. 1,
2006
| | Jan. 2,
2005
| | Estimated
Useful Lives
|
| In Thousands | | | | | | |
Leased property under capital leases | | $ | 84,035 | | $ | 84,035 | | 3-29 years |
Less: accumulated amortization | | | 10,791 | | | 7,178 | | |
| | |
|
| |
|
| | |
Leased property under capital leases, net | | $ | 73,244 | | $ | 76,857 | | |
| | |
|
| |
|
| | |
On March 1, 2004, the Company received a renewal option to extend the term
| | | | | | | | | | | | | |
| | | Dec. 28,
| | | Dec. 30,
| | | Estimated
| |
In thousands | | 2008 | | | 2007 | | | Useful Lives | |
| |
| Leased property under capital leases | | $ | 88,619 | | | $ | 88,619 | | | | 3-29 years | |
| Less: Accumulated amortization | | | 21,889 | | | | 17,757 | | | | | |
| | | | | | | | | | | | | |
| Leased property under capital leases, net | | $ | 66,730 | | | $ | 70,862 | | | | | |
| | | | | | | | | | | | | |
As of December 28, 2008, real estate represented all of the
lease on its corporate headquarters facilities. As disclosed in Note 18 to the consolidated financial statements, these facilities are leased from a related party. As a result of the Company’s intent to exercise this renewal option, the Company capitalized the lease as of March 1, 2004. The amount recorded for the capitalization of this lease was $32.4 million.At the end of June 2004, the Company recorded a capital lease of $4.9 million related to a new operating facility.
As of January 1, 2006, real estate represents $73.0 million of total leased property under capital leases netand $61.2 million of which $66.2 millionthis real estate is provided byleased from related parties as described in Note 18 to the consolidated financial statements.
COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. Franchise Rights and Goodwill
| |
| 6. | Franchise Rights and Goodwill |
Franchise rights and goodwill were summarized as follows:
| | | | | | |
| | | Jan. 1,
2006
| | Jan. 2,
2005
|
| In Thousands | | | | |
Franchise rights | | $ | 677,769 | | $ | 677,769 |
Goodwill | | | 155,487 | | | 155,487 |
| | |
|
| |
|
|
Franchise rights and goodwill | | | 833,256 | | | 833,256 |
Less: accumulated amortization | | | 210,535 | | | 210,535 |
| | |
|
| |
|
|
Franchise rights and goodwill, net | | $ | 622,721 | | $ | 622,721 |
| | |
|
| |
|
|
| | | | | | | | | |
| | | Dec. 28,
| | | Dec. 30,
| |
In thousands | | 2008 | | | 2007 | |
| |
| Franchise rights | | $ | 677,769 | | | $ | 677,769 | |
| Goodwill | | | 155,487 | | | | 155,487 | |
| | | | | | | | | |
| Franchise rights and goodwill | | | 833,256 | | | | 833,256 | |
| Less: Accumulated amortization | | | 210,535 | | | | 210,535 | |
| | | | | | | | | |
| Franchise rights and goodwill, net | | $ | 622,721 | | | $ | 622,721 | |
| | | | | | | | | |
The Company performed its annual impairment test of franchise rights and goodwill
duringas of the
thirdfirst day of the fourth quarter of
20052008, 2007 and 2006 and determined there was no impairment of the carrying value of these assets.
There was no activity for franchise rights and goodwill in
20052008 or
2004.7. Other Identifiable Intangible Assets
2007.
| |
| 7. | Other Identifiable Intangible Assets |
Other identifiable intangible assets were summarized as follows:
| | | | | | | | |
| | | Jan. 1,
2006
| | Jan. 2,
2005
| | Estimated
Useful Lives
|
| In Thousands | | | | | | |
Other identifiable intangible assets | | $ | 9,877 | | $ | 58,167 | | 1-18 years |
Less: accumulated amortization | | | 4,823 | | | 52,233 | | |
| | |
|
| |
|
| | |
Other identifiable intangible assets, net | | $ | 5,054 | | $ | 5,934 | | |
| | |
|
| |
|
| | |
During 2005, the Company wrote-off fully amortized
| | | | | | | | | | | | | |
| | | Dec. 28,
| | | Dec. 30,
| | | Estimated
| |
In thousands | | 2008 | | | 2007 | | | Useful Lives | |
| |
| Other identifiable intangible assets | | $ | 8,909 | | | $ | 6,599 | | | | 1-20 years | |
| Less: Accumulated amortization | | | 2,999 | | | | 2,297 | | | | | |
| | | | | | | | | | | | | |
| Other identifiable intangible assets, net | | $ | 5,910 | | | $ | 4,302 | | | | | |
| | | | | | | | | | | | | |
Other identifiable intangible assets in the amount of $51.2 million.primarily represent customer relationships and distribution rights. Amortization expense related to other identifiable intangible assets was $.9$.7 million, $3.1$.4 million and $3.1$.6 million in 2005, 20042008, 2007 and 2003,2006, respectively. Amortization expenseAssuming no impairment of these other identifiable intangible assets, amortization expense in future years based upon recorded amounts as of January 1, 2006December 28, 2008 will be $.6 million, $.4$.5 million, $.4 million, $.4 million and $.4$.3 million for 20062009 through 2010,2013, respectively. Other identifiable intangible assets primarily represent customer relationships.
64
8. Other Accrued Liabilities
COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| |
| 8. | Other Accrued Liabilities |
Other accrued liabilities were summarized as follows:
| | | | | | |
| | | Jan. 1,
2006
| | Jan, 2,
2005
|
| In Thousands | | | | |
Accrued marketing costs | | $ | 5,578 | | $ | 9,289 |
Accrued insurance costs | | | 10,463 | | | 11,129 |
Accrued taxes (other than income taxes) | | | 729 | | | 1,670 |
Employee benefit plan accruals | | | 8,946 | | | 9,009 |
All other accrued expenses | | | 25,160 | | | 19,312 |
| | |
|
| |
|
|
Total | | $ | 50,876 | | $ | 50,409 |
| | |
|
| |
|
|
COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. Debt
| | | | | | | | | |
| | | Dec. 28,
| | | Dec. 30,
| |
In thousands | | 2008 | | | 2007 | |
| |
| Accrued marketing costs | | $ | 9,001 | | | $ | 6,787 | |
| Accrued insurance costs | | | 17,132 | | | | 14,228 | |
| Accrued taxes (other than income taxes) | | | 374 | | | | 502 | |
| Employee benefit plan accruals | | | 8,626 | | | | 9,933 | |
| Checks and transfers yet to be presented for payment from zero balance cash account | | | 11,074 | | | | 13,279 | |
| All other accrued expenses | | | 11,297 | | | | 9,782 | |
| | | | | | | | | |
| Total other accrued liabilities | | $ | 57,504 | | | $ | 54,511 | |
| | | | | | | | | |
Debt was summarized as follows:
| | | | | | | | | | | | | |
| | | Maturity
| | Interest
Rate
| | | Interest Paid
| | Jan. 1,
2006
| | Jan. 2,
2005
|
| In Thousands | | | | | | | | | | | |
Lines of Credit | | 2006 | | 4.77 | % | | Varies | | $ | 6,500 | | $ | 8,000 |
Debentures | | 2007 | | 6.85 | % | | Semi-annually | | | 100,000 | | | 100,000 |
Debentures | | 2009 | | 7.20 | % | | Semi-annually | | | 57,440 | | | 100,000 |
Debentures | | 2009 | | 6.375 | % | | Semi-annually | | | 119,253 | | | 250,000 |
Senior Notes | | 2012 | | 5.00 | % | | Semi-annually | | | 150,000 | | | 150,000 |
Senior Notes | | 2015 | | 5.30 | % | | Semi-annually | | | 100,000 | | | 100,000 |
Senior Notes | | 2016 | | 5.00 | % | | Semi-annually | | | 164,757 | | | |
Other notes payable | | 2006 | | 5.75 | % | | Quarterly | | | 39 | | | 39 |
| | |
| |
|
| |
| |
|
| |
|
|
| | | | | | | | | | | 697,989 | | | 708,039 |
Less: current portion of debt | | | 6,539 | | | 8,000 |
| | | | | | | | | |
|
| |
|
|
Long-term debt | | $ | 691,450 | | $ | 700,039 |
| | | | | | | | | |
|
| |
|
|
| | | | | | | | | | | | | | | | | | | |
| | | | | | Interest
| | | Interest
| | Dec. 28,
| | | Dec. 30,
| |
In thousands | | Maturity | | | Rate | | | Paid | | 2008 | | | 2007 | |
| |
| Lines of Credit | | | 2008 | | | | — | | | Varies | | $ | — | | | $ | 7,400 | |
| Debentures | | | 2009 | | | | 7.20 | % | | Semi-annually | | | 57,440 | | | | 57,440 | |
| Debentures | | | 2009 | | | | 6.375 | % | | Semi-annually | | | 119,253 | | | | 119,253 | |
| Senior Notes | | | 2012 | | | | 5.00 | % | | Semi-annually | | | 150,000 | | | | 150,000 | |
| Senior Notes | | | 2015 | | | | 5.30 | % | | Semi-annually | | | 100,000 | | | | 100,000 | |
| Senior Notes | | | 2016 | | | | 5.00 | % | | Semi-annually | | | 164,757 | | | | 164,757 | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | 591,450 | | | | 598,850 | |
| Less: Current portion of debt | | | | | | | | | | | | | 176,693 | | | | 7,400 | |
| | | | | | | | | | | | | | | | | | | |
| Long-term debt | | | | | | | | | | | | $ | 414,757 | | | $ | 591,450 | |
| | | | | | | | | | | | | | | | | | | |
The principal maturities of debt outstanding on
January 1, 2006December 28, 2008 were as follows:
| | | |
| In Thousands | | |
2006 | | $ | 6,539 |
2007 | | | 100,000 |
2008 | | | — |
2009 | | | 176,693 |
2010 | | | — |
Thereafter | | | 414,757 |
| | |
|
|
Total debt | | $ | 697,989 |
| | |
|
|
| | | | | |
In thousands | | | |
| |
| 2009 | | $ | 176,693 | |
| 2010 | | | — | |
| 2011 | | | — | |
| 2012 | | | 150,000 | |
| 2013 | | | — | |
| Thereafter | | | 264,757 | |
| | | | | |
| Total debt | | $ | 591,450 | |
| | | | | |
The Company has obtained the majority of its long-term debt financing other than capital leases from the public markets. As of January 1, 2006, $691.5 million ofDecember 28, 2008, the Company’s total outstanding balance of debt and capital lease obligations was $669.1 million of $777.2which $591.5 million was financed through publicly offered debt. The Company had capital lease obligations of $79.2$77.6 million as of January 1, 2006. The remainder of the Company’s debt is provided by several financial institutions.December 28, 2008. The Company mitigates its financing risk by using multiple financial institutions and carefully evaluating the credit worthiness of those institutions. The Company enters into credit arrangements only with institutions with investment grade credit ratings. The Company monitors counterparty credit ratings on an ongoing basis.
65
In December 2005, the Company repurchased $8.6 million of its outstanding 6.375% debentures due May 2009. The premium and associated transaction fees totaling $.4 million were included in interest expense in the fourth quarter of 2005.
In June 2005, the Company issued $164.8 million of new 5.00% senior notes due 2016 in exchange for $122.2 million of its outstanding 6.375% debentures due 2009 and $42.6 million of its outstanding 7.20% debentures due 2009. The exchange was conducted as a private placement to holders of the existing debentures that were “qualified institutional buyers” within the meaning of Rule 144A of the Securities Act of 1933. As part of the exchange, the Company paid a premium of $15.6 million to holders participating in the exchange. The transaction was accounted for as an exchange of debt, and the $15.6 million premium is being amortized over the
COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSlife of the new notes. The Company incurred financing transaction costs of $1.3 million related to the exchange of debt which were included in interest expense during the second quarter of 2005. In August 2005, the Company successfully completed a registered exchange offer in which all of the previously issued private notes were exchanged for substantially identical registered notes.
On
April 7, 2005,March 8, 2007, the Company entered into a
new five-year $100$200 million revolving credit facility
(“$200 million facility”) replacing
the existing $125its $100 million
facility that was scheduled to expire in December 2005. On January 1, 2006, there were no amounts outstanding under this facility. The
$100$200 million facility matures in
April 2010. The new facilityMarch 2012 and includes an option to extend the term for an additional year at the discretion of the participating banks. The
new revolving credit$200 million facility bears interest at a floating base rate or a floating rate of LIBOR plus an interest rate spread of
.375%..35%, dependent on the length of the term of the borrowing. In addition,
there is athe Company must pay an annual facility fee of
.125% required for this revolving credit.10% of the lenders’ aggregate commitments under the facility. Both the interest rate spread and the facility fee are determined from a
commonly usedcommonly-used pricing grid based on the Company’s long-term senior unsecured
noncredit-enhanced debt rating. The
Company’s new revolving credit$200 million facility contains two financial
covenants related tocovenants: a fixed charge coverage ratio
requirements for interest coverage,of greater than 1.5:1 and
long-terma debt to
operating cash flow
ratio of less than 6:1, each as defined in the credit agreement.
TheseOn August 25, 2008, the Company entered into an amendment to the $200 million facility. The amendment clarified that charges incurred by the Company resulting from the Company’s withdrawal from the Central States Pension Plan would be excluded from the calculations of the financial covenants
to the extent they are recognized before March 29, 2009 and do not
exceed $15 million. See Note 17 of the consolidated financial statements for additional details on the withdrawal. The Company is currently
in compliance with these covenants. On December 28, 2008 and
December 30, 2007, the Company
does not anticipate that they will, restrict its liquidity or capital resources.Thehad no outstanding borrowings on the $200 million facility.
Prior to October 3, 2008, the Company
borrowsborrowed periodically under
its available lines of credit. Theseuncommitted lines of credit
from certain banks participating in the
aggregate amount$200 million facility. These uncommitted lines of
$60 million at January 1, 2006, arecredit made available at the discretion of
the two participating banks
and may be withdrawn at any time by such banks. The Company intends to renew thewere temporarily terminated in late fall of 2008. On December 30, 2007, $7.4 million was outstanding under uncommitted lines of credit
as they mature. The weighted average interest rates onof $60 million available. In January 2009, one of the
linesparticipating banks reinstated their uncommitted line of credit
were 4.77% and 2.74% as of January 1, 2006 and January 2, 2005, respectively.for $65 million.
The Company currently provides financing for Piedmont under an agreement that expires on December 31, 2010. Piedmont pays the Company interest on its borrowings at the Company’s average cost of funds plus 0.50%. The loan balance at
January 1, 2006December 28, 2008 was
$104.8$61.9 million.
The loan and interest were eliminated in consolidation.
The Company filed
an $800a $300 million shelf registration for debt and equity securities in
January 1999. The Company used this shelf registration to issue long-term debt of $250 million in 1999, $150 million in 2002 and $100 million in 2003.November 2008. The Company currently has
up tothe full $300 million available for use under this shelf registration which, subject to the Company’s ability to consummate a transaction on acceptable terms, could be used for long-term financing or refinancing of debt maturities.
After taking into account all of the interest rate hedging activities, the Company had a weighted average interest rate of
6.2%5.9% and
5.6%6.2% for its debt and capital lease obligations as of
January 1, 2006December 28, 2008 and
January 2, 2005,December 30, 2007, respectively. The Company’s overall weighted average interest rate on its debt and capital lease obligations was
6.4%5.7%,
5.4%6.7% and
4.9%6.6% for
2005, 20042008, 2007 and
2003,2006, respectively.
Excluding the $1.7 million of financing transaction costs related to the Company’s debt exchange in June 2005 and the bond redemption in December 2005, the overall weighted average interest rate for 2005 was 6.2%. As of
January 1, 2006,December 28, 2008, approximately
43%6.3% of the Company’s debt and capital lease obligations of
$777.2$669.1 million was subject to changes in short-term interest rates.
The Company considers all floating rate debt and fixed rate debt with a maturity of less than one year to be subject to changes in short-term interest rates.The Company’s 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 Company’s 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 Company’s subsidiaries. There are no guarantees of the Company’s debt.
COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. Derivative Financial Instruments
| |
| 10. | Derivative Financial Instruments |
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 Company’s debt level and the potential impact of changes in interest rates on the Company’s overall financial condition. Sensitivity analyses are performed to review the impact on the Company’s 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.
66
COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 previously accrued interest receivable, the Company will amortize a gain of $5.1 million over the remaining term of the underlying debt. All of the Company’s interest rate swap agreements
arewere LIBOR-based.
Derivative financial instruments
arewere summarized as follows:
| | | | | | | | | | |
| | | Jan. 1, 2006
| | Jan. 2, 2005
|
| | | Notional
Amount
| | Remaining
Term
| | Notional
Amount
| | Remaining
Term
|
| In Thousands | | | | | | | | |
Interest rate swap agreement-floating | | $ | 25,000 | | 1.92 years | | $ | 25,000 | | 2.92 years |
Interest rate swap agreement-floating | | | 25,000 | | 1.92 years | | | 25,000 | | 2.92 years |
Interest rate swap agreement-floating | | | 50,000 | | 3.42 years | | | 50,000 | | 4.42 years |
Interest rate swap agreement-floating | | | 50,000 | | 1.92 years | | | 50,000 | | 2.92 years |
Interest rate swap agreement-floating | | | 50,000 | | 3.58 years | | | 50,000 | | 4.58 years |
Interest rate swap agreement-floating | | | 50,000 | | 6.92 years | | | 50,000 | | 7.92 years |
The Company had six interest rate swap agreements as of January 1,
| | | | | | | | | | | | | | | | | |
| | | Dec. 28, 2008 | | | Dec. 30, 2007 | |
| | | Notional
| | | Remaining
| | | Notional
| | | Remaining
| |
In thousands | | Amount | | | Term | | | Amount | | | Term | |
| |
| Interest rate swap agreement-floating | | | — | | | | — | | | $ | 50,000 | | | | 1.4 years | |
| Interest rate swap agreement-floating | | | — | | | | — | | | | 50,000 | | | | 1.5 years | |
| Interest rate swap agreement-floating | | | — | | | | — | | | | 50,000 | | | | 4.9 years | |
| Interest rate swap agreement-floating | | | — | | | | — | | | | 25,000 | | | | 1.3 years | |
| Interest rate swap agreement-floating | | | — | | | | — | | | | 25,000 | | | | 7.2 years | |
| Interest rate swap agreement-floating | | | — | | | | — | | | | 25,000 | | | | 4.9 years | |
During 2008, 2007 and 2006,
with varying terms that effectively converted $250 million of the Company’s fixed rate debt to a floating rate. All of the interest rate swap agreements have been accounted for as fair value hedges.During 2005, 2004 and 2003, the Company amortized deferred gains related to previously terminated interest rate swap agreements and forward interest rate agreements, which reduced interest expense by $2.2 million, $1.7 million $1.9 million and $2.1$1.7 million, respectively. Interest expense will be reduced by the amortization of these deferred gains in 20062009 through 20102013 as follows: $1.7$2.1 million, $1.7$1.2 million, $1.7$1.3 million, $.9$1.2 million and $.3$.6 million, respectively.
The counterparties to these contractual arrangements
arewere major financial institutions with which the Company also has other financial relationships. The Company
usesused several different financial institutions for interest rate derivative contracts to minimize the concentration of credit risk. While the Company
iswas exposed to credit loss in the event of nonperformance by these counterparties, the Company
doesdid not anticipate nonperformance by these parties. The Company
hashad master agreements with the counterparties to its derivative financial agreements that
provideprovided for net settlement of derivative transactions.
11. Fair Values
During the first quarter of
Financial Instruments2007, the Company began using derivative instruments to hedge the majority of its vehicle fuel purchases. These derivative instruments relate to diesel fuel and unleaded gasoline used in the Company’s delivery fleet. Derivative instruments used include puts, calls and caps which effectively establish a limit on the Company’s price of fuel within periods covered by the instruments. The Company currently accounts for its fuel hedges on a mark-to-market basis with any expense or income reflected as an adjustment of fuel costs.
The net impact of the fuel hedges was to increase fuel cost by $.8 million in 2008 and decrease fuel cost by $.9 million in 2007.
| |
| 11. | Fair Values 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, Accounts Receivable and Accounts Payable The fair values of cash
and cash equivalents, accounts receivable and accounts payable approximate carrying values due to the short maturity of these
financial instruments.items.
COCA-COLA BOTTLING CO. CONSOLIDATEDNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Public Debt Securities
The fair values of the Company’s public debt securities are based on estimated current market prices.
67
COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Non-Public Variable Rate Debt The carrying amounts of the Company’s variable rate borrowings approximate their fair values.
Non-Public Fixed Rate Long-Term DebtDeferred Compensation Plan AssetsThe fair values of
deferred compensation plan assets, which are held in mutual funds, are based upon the
Company’s other notes payable are estimated using discounted cash flow analyses based onquoted market value of the
Company’s current borrowing rates for similar types of borrowing arrangements.securities held within the mutual funds.
Derivative Financial Instruments The fair values for the Company’s interest rate swap
and fuel hedging agreements are based on current settlement values.
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 fair values of the Company’s letters of credit,
obtained from financial institutions, are based on the notional amounts of the instruments. These letters of credit primarily relate to the Company’s property and casualty insurance programs.
The carrying amounts and fair values of the Company’s debt,
deferred compensation plan assets, derivative financial instruments and letters of credit were as follows:
| | | | | | | | | | | | |
| | | Jan. 1, 2006
| | Jan. 2, 2005
|
| | | Carrying
Amount
| | Fair Value
| | Carrying
Amount
| | Fair Value
|
| In Thousands | | | | | | | | |
Public debt securities | | $ | 691,450 | | $ | 696,171 | | $ | 700,000 | | $ | 738,666 |
Non-public variable rate debt | | | 6,500 | | | 6,500 | | | 8,000 | | | 8,000 |
Non-public fixed rate long-term debt | | | 39 | | | 39 | | | 39 | | | 39 |
Interest rate swap agreements | | | 8,118 | | | 8,118 | | | 1,594 | | | 1,594 |
Letters of credit | | | — | | | 17,374 | | | — | | | 15,826 |
| | | | | | | | | | | | | | | | | |
| | | Dec. 28, 2008 | | | Dec. 30, 2007 | |
| | | Carrying
| | | Fair
| | | Carrying
| | | Fair
| |
In thousands | | Amount | | | Value | | | Amount | | | Value | |
| |
| Public debt securities | | $ | 591,450 | | | $ | 559,963 | | | $ | 591,450 | | | $ | 575,833 | |
| Non-public variable rate debt | | | — | | | | — | | | | 7,400 | | | | 7,400 | |
| Interest rate swap agreements | | | — | | | | — | | | | (2,337 | ) | | | (2,337 | ) |
| Deferred compensation plan assets | | | 5,446 | | | | 5,446 | | | | 6,386 | | | | 6,386 | |
| Fuel hedging agreements | | | 1,985 | | | | 1,985 | | | | (340 | ) | | | (340 | ) |
| Letters of credit | | | — | | | | 19,274 | | | | — | | | | 21,389 | |
On September 18, 2008, the Company terminated all of its outstanding interest rate swap agreements. The fair value of interest rate swap agreements at December 30, 2007 represented the estimated amount the Company would have received upon termination of these agreements. The fair value increased to $6.2 million at the date the interest rate swap agreements were terminated.
The fair value of the interest rate swapfuel hedging agreements at January 1, 2006 and January 2, 2005 representDecember 28, 2008 represented the estimated amountsamount the Company would have paid upon termination of these agreements. The fair value of the fuel hedging agreements at December 30, 2007 represented the estimated amount the Company would have received upon termination of these agreements.
The Company adopted Statement of Financial Accounting Standards No. 157, “Fair Value Measurement” (“SFAS No. 157”) as of the beginning of the first quarter of 2008, and there was no material impact to the consolidated financial statements. SFAS No. 157 currently applies to all financial assets and liabilities and for nonfinancial assets and liabilities recognized or disclosed at fair value on a recurring basis. In February 2008, the Financial Accounting Standards Board (“FASB”) issued FASB Staff PositionSFAS No. 157-2, “Effective Date of FASB Statement No. 157,” which defers the application date of the provisions of SFAS No. 157 for all nonfinancial assets and liabilities until the first quarter of 2009 except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis. SFAS No. 157 requires disclosure that establishes a framework for measuring fair value in GAAP, and expands disclosures about fair value measurements. SFAS No. 157 is intended to
68
COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
enable the readers of financial statements to assess the inputs used to develop those measurements by establishing a hierarchy for ranking the quality and reliability of the information used to determine fair values. SFAS No. 157 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.
The following table summarizes the valuation of deferred compensation plan assets and liabilities by the above categories as of December 28, 2008:
| | | | | | | | | |
In thousands | | Level 1 | | | Level 2 | |
| |
Assets | | | | | | | | |
| Deferred compensation plan assets | | $ | 5,446 | | | | | |
| Fuel hedging agreements | | | | | | $ | 1,985 | |
Liabilities | | | | | | | | |
| Deferred compensation plan liabilities | | $ | 5,446 | | | | | |
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 Company’s fuel hedging agreements are based on NYMEX and Weekly US Department of Energy Daily Average rates that are observable and quoted periodically over the full term of the agreement and are considered Level 2 items.
Other liabilities were summarized as follows:
| | | | | | |
| | | Jan. 1,
2006
| | Jan. 2,
2005
|
| In Thousands | | | | |
Accruals for executive benefit plans | | $ | 61,674 | | $ | 59,824 |
Other | | | 23,514 | | | 25,436 |
| | |
|
| |
|
|
Total | | $ | 85,188 | | $ | 85,260 |
| | |
|
| |
|
|
COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| | | | | | | | | |
| | | Dec. 28,
| | | Dec. 30,
| |
In thousands | | 2008 | | | 2007 | |
| |
| Accruals for executive benefit plans | | $ | 77,299 | | | $ | 75,438 | |
| Other | | | 29,738 | | | | 18,194 | |
| | | | | | | | | |
| Total other liabilities | | $ | 107,037 | | | $ | 93,632 | |
| | | | | | | | | |
The accruals for executive benefit plans relate to
threefour benefit programs for eligible executives of the Company. These benefit programs are the Supplemental Savings Incentive Plan (“Supplemental Savings Plan”), the Officer Retention Plan (“Retention Plan”)
and, a replacement benefit
plan.plan and a Long-Term Performance Plan (“Performance Plan”).
Pursuant to the Supplemental Savings Plan, as amended effective January 1, 2005,2007, eligible participants may elect to defer a portion of their annual salary and bonus. Prior to 2006, the Company matched 30% of the first 6% of salary (excluding bonuses) deferred by the participant. Participants are immediately vested in all deferred contributions they make and become fully vested in Company contributions upon completion of five years of service, termination of employment due to death, retirement or a change in control. Participant deferrals and Company contributions made in years prior to 2006 are deemed invested in either a fixed benefit option or certain investment funds specified by the Company. Beginning in 2006, the Company matches 50% of the first 6% of salary (excluding bonuses) deferred by the participant. The Company also made additional contributions during 2006, 2007 and 2008 of 20% of a participant’s annual salary (excluding bonuses), with contributions above the 10% level depending on the attainment by the Company of certain annual performance objectives. The Company may also
69
COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
make discretionary contributions to participants’ accounts. The long-term liability under this plan was
$40.3$49.2 million and
$38.3$50.3 million as of
January 1, 2006December 28, 2008 and
January 2, 2005,December 30, 2007, respectively.
Under the Retention Plan, as amended effective January 1,
2005,2007, eligible participants may elect to receive an annuity payable in equal monthly installments over a 10, 15 or
20-year period commencing at retirement or, in certain instances, upon termination of employment. The benefits under the Retention Plan increase with each year of participation as set forth in an agreement between the participant and the Company. Benefits under the Retention Plan are 50% vested until age 50. After age 50, the vesting percentage increases by an additional 5% each year until the benefits are fully vested at age 60. The long-term liability under this plan was
$20.4$26.3 million and
$18.9$24.2 million as of
January 1, 2006December 28, 2008 and
January 2, 2005,December 30, 2007, respectively.
In conjunction with the elimination in 2003 of a split-dollar life insurance benefit for officers of the Company, a replacement benefit plan was established. The replacement benefit plan provides a supplemental benefit to eligible participants that increases with each additional year of service and is comparable to benefits provided to eligible participants previously through certain split-dollar life insurance agreements. Upon separation from the Company, participants receive an annuity payable in up to ten annual installments or a lump sum. In 2005, participants were provided a one-time option to terminate their agreements under this plan and receive all of their accrued benefit in cash. A number of participants elected this option. Accordingly, the Company paid $1.6 million to participants under this one-time option in July 2005. The long-term liability was $1.0 million and $2.6$.9 million under this plan as of both December 28, 2008 and December 30, 2007.
Under the Performance Plan, adopted as of January 1,
2006 and January 2, 2005, respectively.13. Commitments and Contingencies
2007, the Compensation Committee of the Company’s Board of Directors establishes dollar amounts to which a participant shall be entitled upon attainment of the applicable performance measures. Bonus awards under the Performance Plan are made based on the relative achievement of performance measures in terms of the Company-sponsored objectives or objectives related to the performance of the individual participants or of the subsidiary, division, department, region or function in which the participant is employed. The long-term liability under this plan was $.9 million as of December 28, 2008.
| |
| 13. | Commitments and Contingencies |
Rental expense incurred for noncancellable operating leases
was $3.9 million, $3.9 million and $3.6 million during
2005, 20042008, 2007 and
2003 were as follows: | | | | | | | | | | | |
| | | Fiscal Years
| |
| | | 2005
| | 2004
| | | 2003
| |
| In Thousands | | | | | | | | |
Minimum rentals | | $ | 3,080 | | $ | 3,550 | | | $ | 6,727 | |
Contingent rentals | | | — | | | (71 | ) | | | (420 | ) |
| | |
|
| |
|
|
| |
|
|
|
Total | | $ | 3,080 | | $ | 3,479 | | | $ | 6,307 | |
| | |
|
| |
|
|
| |
|
|
|
2006, respectively. See Note 5 and Note 18 to the consolidated financial statements for additional information.
information regarding leased property under capital leases.
The Company leases office and warehouse space, machinery and other equipment under noncancellable operating lease agreements which expire at various dates through
2017.2018. These leases generally contain scheduled rent increases or escalation clauses, renewal options, or in some cases, purchase options. The Company leases certain warehouse space and other equipment under capital lease agreements which expire at various dates
COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
through 2030. These leases contain scheduled rent increases or escalation clauses. Amortization of assets recorded under capital leases is included in depreciation expense.
70
COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following is a summary of future minimum lease payments for all capital leases and noncancellable operating leases as of
January 1, 2006. | | | | | | | | | |
| | | Capital Leases
| | Operating Leases
| | Total
|
| In Thousands | | | | | | |
2006 | | $ | 8,958 | | $ | 2,551 | | $ | 11,509 |
2007 | | | 8,819 | | | 2,030 | | | 10,849 |
2008 | | | 8,985 | | | 1,883 | | | 10,868 |
2009 | | | 9,141 | | | 1,502 | | | 10,643 |
2010 | | | 9,261 | | | 1,278 | | | 10,539 |
Thereafter | | | 198,331 | | | 9,677 | | | 208,008 |
| | |
|
| |
|
| |
|
|
Total minimum lease payments | | $ | 243,495 | | $ | 18,921 | | $ | 262,416 |
| | |
|
| |
|
| |
|
|
Less: amounts representing interest | | | 164,293 | | | | | | |
| | |
|
| | | | | | |
Present value of minimum lease payments | | | 79,202 | | | | | | |
Less: current portion of obligations under capital leases | | | 1,709 | | | | | | |
| | |
|
| | | | | | |
Long-term portion of obligations under capital leases | | $ | 77,493 | | | | | | |
| | |
|
| | | | | | |
December 28, 2008.
| | | | | | | | | | | | | |
In thousands | | Capital Leases | | | Operating Leases | | | Total | |
| |
| 2009 | | $ | 9,743 | | | $ | 3,258 | | | $ | 13,001 | |
| 2010 | | | 9,733 | | | | 2,356 | | | | 12,089 | |
| 2011 | | | 9,856 | | | | 1,901 | | | | 11,757 | |
| 2012 | | | 9,983 | | | | 1,219 | | | | 11,202 | |
| 2013 | | | 10,155 | | | | 1,062 | | | | 11,217 | |
| Thereafter | | | 152,106 | | | | 6,463 | | | | 158,569 | |
| | | | | | | | | | | | | |
| Total minimum lease payments | | | 201,576 | | | $ | 16,259 | | | $ | 217,835 | |
| | | | | | | | | | | | | |
| Less: Amounts representing interest | | | 123,962 | | | | | | | | | |
| | | | | | | | | | | | | |
| Present value of minimum lease payments | | | 77,614 | | | | | | | | | |
| Less: Current portion of obligations under capital leases | | | 2,781 | | | | | | | | | |
| | | | | | | | | | | | | |
| Long-term portion of obligations under capital leases | | $ | 74,833 | | | | | | | | | |
| | | | | | | | | | | | | |
Future minimum lease payments for noncancellable operating and capital leases in the preceding table include renewal options the Company has determined to be reasonably assured.
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.
See Note 18 to the consolidated financial statements for additional information concerning SAC.The Company is also a member of Southeastern Container (“SEC”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 18 to the consolidated financial statements for additional information concerning SEC.
SAC and Southeastern.
The Company guarantees a portion of SAC’s and
SEC’sSoutheastern’s debt and lease obligations. The amounts guaranteed were
$41.4$39.9 million and $45.4 million as of
January 1, 2006December 28, 2008 and
January 2, 2005.December 30, 2007, respectively. The Company has not recorded any liability associated with these guarantees. The Company holds no assets as collateral against these
guarantees and no contractual recourse provision exists that would enable the Company to recover amounts guaranteed.guarantees. The guarantees relate to debt and lease obligations
of SAC and Southeastern, which resulted primarily from the purchase of production equipment and facilities. These guarantees expire at various times 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 their
commitments under these agreements.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.The Company has identified SAC and SEC as variable interest entities and has determined it is notloss from the primary beneficiary of either of the cooperatives. The Company’s variable interest in these cooperatives includes an equity ownership in each of the entities and the guarantee of certain indebtedness. As of January 1, 2006, SAC had total assets of approximately $36 million and total debt of approximately $14 million. SAC had total revenues for 2005 of approximately $169 million. As of January 1, 2006, SEC had total assets of approximately
COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
$374 million and total debt of approximately $281 million. SEC had total revenue for 2005 of approximately $532 million. guarantees.
In the event either of these cooperatives fail to fulfill their 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 Company’s potential amount of paymentsmaximum exposure under these guarantees on January 1, 2006December 28, 2008 would have been $57.4$25.2 million for SAC and $25.3 million for Southeastern and the Company’s maximum total exposure, including its equity investment, would have been $36.6$29.3 million for SAC and $27.7$36.3 million for SEC. Southeastern.
The Company has been purchasing plastic bottles from Southeastern and finished products from these cooperativesSAC for more than ten years.
The Company has an equity ownership in each of the entities in addition to the guarantees of certain indebtedness. As of December 28, 2008, SAC had total assets of approximately $42 million and total debt of approximately $19 million. SAC had total revenues for 2008 of approximately $183 million. As of December 28,
71
COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2008, Southeastern had total assets of approximately $395 million and total debt of approximately $247 million. Southeastern had total revenue for 2008 of approximately $594 million.
The Company has standby letters of credit, primarily related to its property and casualty insurance
program.programs. On
January 1, 2006,December 28, 2008, these letters of credit totaled
$17.4$19.3 million.
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
January 1, 2006December 28, 2008 amounted to
$32.0$27.0 million and expire at various dates through
2014.2017.
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
other 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. See Note 24 to the consolidated financial statements for additional information.possible as a result of these claims and legal proceedings.
The
Company’s tax filings areCompany is subject to audit by
taxtaxing authorities in jurisdictions where it conducts business. These audits may result in assessments
of additional taxes that are subsequently resolved with the authorities or potentially through the courts. Management believes the Company has adequately provided for any
ultimate amountsassessments 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.
14. Income Taxes
The current income tax provision represents the estimated amount of income taxes paid or payable for the year, as well as changes in estimates from prior years. The deferred income tax provision represents the change in deferred tax liabilities and assets. The following table presents the significant components of the provision for income taxes for 2005, 20042008, 2007 and 2003.2006.
| | | | | | | | | | | | | |
| | | Fiscal Year | |
In thousands | | 2008 | | | 2007 | | | 2006 | |
| |
| Current: | | | | | | | | | | | | |
| Federal | | $ | 7,661 | | | $ | 16,393 | | | $ | 14,359 | |
| State | | | 174 | | | | 155 | | | | 588 | |
| | | | | | | | | | | | | |
| Total current provision | | $ | 7,835 | | | $ | 16,548 | | | $ | 14,947 | |
| | | | | | | | | | | | | |
| Deferred: | | | | | | | | | | | | |
| Federal | | $ | (177 | ) | | $ | (5,589 | ) | | $ | (4,881 | ) |
| State | | | 736 | | | | 1,424 | | | | (2,149 | ) |
| | | | | | | | | | | | | |
| Total deferred provision (benefit) | | $ | 559 | | | $ | (4,165 | ) | | $ | (7,030 | ) |
| | | | | | | | | | | | | |
| Income tax expense | | $ | 8,394 | | | $ | 12,383 | | | $ | 7,917 | |
| | | | | | | | | | | | | |
72
| | | | | | | | | | |
| | | Fiscal Year
| |
| | | 2005
| | 2004
| | 2003
| |
| In Thousands | | | | | | | |
Current: | | | | | | | | | | |
Federal | | $ | 11,645 | | $ | — | | $ | — | |
State | | | 1,051 | | | 458 | | | — | |
| | |
|
| |
|
| |
|
|
|
Total current provision | | $ | 12,696 | | $ | 458 | | $ | — | |
| | |
|
| |
|
| |
|
|
|
Deferred: | | | | | | | | | | |
Federal | | $ | 1,771 | | $ | 11,912 | | $ | 19,443 | |
State | | | 1,334 | | | 2,332 | | | (12,086 | ) |
| | |
|
| |
|
| |
|
|
|
Total deferred provision | | $ | 3,105 | | $ | 14,244 | | $ | 7,357 | |
| | |
|
| |
|
| |
|
|
|
Income tax expense | | $ | 15,801 | | $ | 14,702 | | $ | 7,357 | |
| | |
|
| |
|
| |
|
|
|
COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Company’s effective tax rate was 40.8%48.0%, 40.2%38.4% and 19.3%25.4% for 2005, 20042008, 2007 and 2003,2006, respectively. The following table provides a reconciliation of the income tax expense at the statutory federal rate to actual income tax expense.
| | | | | | | | | | | | | |
| | | Fiscal Year | |
In thousands | | 2008 | | | 2007 | | | 2006 | |
| |
| Statutory expense | | $ | 6,120 | | | $ | 11,283 | | | $ | 10,906 | |
| State income taxes, net of federal benefit | | | 762 | | | | 1,404 | | | | 1,357 | |
| Change in reserve for uncertain tax positions | | | 1,228 | | | | 309 | | | | (1,673 | ) |
| Valuation allowance change | | | (286 | ) | | | (269 | ) | | | (2,637 | ) |
| Manufacturing deduction benefit | | | (490 | ) | | | (1,120 | ) | | | (595 | ) |
| Meals and entertainment | | | 740 | | | | 597 | | | | 701 | |
| Other, net | | | 320 | | | | 179 | | | | (142 | ) |
| | | | | | | | | | | | | |
| Income tax expense | | $ | 8,394 | | | $ | 12,383 | | | $ | 7,917 | |
| | | | | | | | | | | | | |
In June 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”), an interpretation of FASB Statement No. 109, “Accounting for Income Taxes.” FIN 48 clarifies the accounting for uncertainty in income taxes recognized by prescribing a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods and disclosure. In May 2007, the FASB issued FASB Staff PositionFIN 48-1, “Definition of Settlement in FASB Interpretation No. 48” (“FSPFIN 48-1”). FSPFIN 48-1 provides guidance on whether a tax position is effectively settled for the purpose of recognizing previously unrecognized tax benefits. The Company adopted the provisions of FIN 48 and FSPFIN 48-1 effective as of January 1, 2007. As a result of the implementation of FIN 48 and FSPFIN 48-1, the Company recognized no material adjustment in the liability for unrecognized income tax benefits. As of December 28, 2008, the Company had $10.5 million of unrecognized tax benefits including accrued interest of which $9.4 million would affect the Company’s effective rate if recognized. It is expected that the amount of unrecognized tax benefits may change in the next 12 months. During this period, it is reasonably possible that tax audits could reduce unrecognized tax benefits. The Company cannot reasonably estimate the change in the amount of unrecognized tax benefits until further information is made available during the progress of the audits.
A reconciliation of the beginning and ending balances of the total amounts of unrecognized tax benefits (excludes accrued interest) is as follows:
| | | | | | | | | |
| | | Fiscal Year | |
In thousands | | 2008 | | | 2007 | |
| |
| Gross unrecognized tax benefits at the beginning of the year | | $ | 7,258 | | | $ | 11,384 | |
| Increase in the unrecognized tax benefit as a result of tax positions taken during a prior period | | | 938 | | | | 370 | |
| Decrease in the unrecognized tax benefits principally related to temporary differences as a result of tax positions taken in a prior period | | | (133 | ) | | | (4,656 | ) |
| Increase in the unrecognized tax benefits as a result of tax positions taken in the current period | | | 240 | | | | 459 | |
| Change in the unrecognized tax benefits relating to settlements with taxing authorities | | | — | | | | — | |
| Reduction to unrecognized tax benefits as a result of a lapse of the applicable statute of limitations | | | (303 | ) | | | (299 | ) |
| | | | | | | | | |
| Gross unrecognized tax benefits at the end of the year | | $ | 8,000 | | | $ | 7,258 | |
| | | | | | | | | |
73
| | | | | | | | | | | | |
| | | Fiscal Year
| |
| | | 2005
| | | 2004
| | | 2003
| |
| In Thousands | | | | | | | | | |
Statutory expense | | $ | 13,563 | | | $ | 12,793 | | | $ | 13,321 | |
State income taxes, net of federal benefit | | | 1,789 | | | | 1,473 | | | | 1,338 | |
Change in effective state tax rate | | | 1,554 | | | | 2,320 | | | | | |
Valuation allowance change | | | (1,188 | ) | | | (1,980 | ) | | | (9,194 | ) |
Termination of certain Company-owned life insurance policies | | | | | | | | | | | 2,589 | |
Termination of split-dollar life insurance program | | | | | | | | | | | (1,676 | ) |
Meals and entertainment | | | 729 | | | | 780 | | | | 766 | |
Other, net | | | (646 | ) | | | (684 | ) | | | 213 | |
| | |
|
|
| |
|
|
| |
|
|
|
Income tax expense | | $ | 15,801 | | | $ | 14,702 | | | $ | 7,357 | |
| | |
|
|
| |
|
|
| |
|
|
|
COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company recognizes potential interest and penalties related to uncertain tax positions in income tax expense. As of December 28, 2008 and December 30, 2007, the Company had approximately $2.5 million and $2.0 million of accrued interest related to uncertain tax positions, respectively. Income tax expense in 2008 and 2007 included approximately $.5 million and $.4 million of interest, respectively.
Various tax years from 1990 remain open to examination by taxing jurisdictions to which the Company is subject due to loss carryforwards.
The Company’s income tax assets and liabilities are subject to adjustment in future periods based on the Company’s ongoing evaluations of such assets and liabilities and new information that becomes available to the Company.
In October 2004, the American Jobs Creation Act of 2004 (the “Jobs Act”) was enacted. The Jobs Act provided for a tax deduction for qualified production activities. In December 2004, the FASB issued FASB Staff Position
No. FAS 109-1, “Application of FASB Statement No. 109, Accounting for Income Taxes, to the Tax Deduction on Qualified Production Activities Provided by the American Jobs Creation Act of 2004”
(“(“FAS 109-1”), which was effective immediately.
FAS 109-1 provides guidance on the accounting for the provision within the Jobs Act that provides a tax deduction on qualified production activities. The deduction for qualified production activities provided within the Jobs Act and the Company’s related adoption of
FAS 109-1 reduced the Company’s effective income tax rate by approximately
1%1.9% in
2005.During the fourth quarter of 2005,2006, 3.5% in 2007 and 2.8% in 2008.
In 2006, the Company
entered into settlementreached agreements with
two states regardingstate taxing authorities to settle certain
prior tax
years. The effect of these settlements was the reduction of certain state net operating loss carryforwards with a tax effect, net of federal tax benefit, of $.6 million, the payment of $1.1 million in previously accrued tax and the reduction of valuation allowances of $1.2 million net of federal tax benefit, related to net operating losses in these states,positions for which the Company
now believes more likely than not will be utilizedhad previously provided reserves due to
reduce state liabilities in the future.During the second quarteruncertainty of 2005,resolution. As a result, the Company entered into a settlement agreement with another state wherebyreduced the Company agreed to reduce certain net operating loss carryforwards and to pay certain additional taxes and interest relating to prior years. The loss of state net operating loss carryforwards, net of federal tax benefit, of $4.4 million did not have an effect on the provision for income taxes due to a valuation allowance previously recorded for suchon related deferred tax assets. Under this settlement,assets by $2.6 million and reduced the Companyliability for uncertain tax positions by $2.3 million. This adjustment was required to pay $5.7reflected as a $4.9 million in the second quarterreduction of 2005 and is required to pay an additional $5.0 million by April 15, 2006. The amounts paid and remaining to be paid in excess of liabilities previously recorded had the effect of increasing income tax expense by approximately $4.1 million in the second quarter of 2005. Based on an analysis of facts and available information,2006. Also during 2006, the Company also made adjustmentsincreased the liability for incomeuncertain tax exposure in other states inpositions by $.5 million to reflect accrued interest and an adjustment of the second quarter of 2005 which had thereserve for uncertain tax positions. The net effect of decreasingadjustments to the valuation allowance and liability for uncertain tax positions during 2006 was a reduction in income tax expense by $3.8of $4.4 million.
The Company’s income tax
assets and liabilities are subject to adjustment in future periods based on the Company’s ongoing evaluations of such liabilities and new information that becomes available to the Company.
COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The valuation allowance decreases in 20042008, 2007 and 20032006 were due to the Company’s assessments of its ability to use certain state net operating loss carryforwards.carryforwards primarily due to agreements with state taxing authorities as previously discussed.
74
COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Deferred income taxes are recorded based upon temporary differences between the financial statement and tax bases of assets and liabilities and available net operating loss and tax credit carryforwards. Temporary differences and carryforwards that comprised deferred income tax assets and liabilities were as follows:
| | | | | | | | |
| | | Jan. 1, 2006
| | | Jan. 2, 2005
| |
| In Thousands | | | | | | |
Intangible assets | | $ | 102,943 | | | $ | 98,480 | |
Depreciation | | | 82,705 | | | | 97,337 | |
Investment in Piedmont | | | 46,819 | | | | 47,311 | |
Pension | | | 10,407 | | | | 15,257 | |
Bond exchange premium | | | 5,762 | | | | — | |
Inventory | | | 5,040 | | | | 4,563 | |
| | |
|
|
| |
|
|
|
Gross deferred income tax liabilities | | | 253,676 | | | | 262,948 | |
| | |
|
|
| |
|
|
|
Net operating loss carryforwards | | | (16,292 | ) | | | (32,007 | ) |
Alternative minimum tax credits | | | (5,092 | ) | | | (12,565 | ) |
Deferred compensation | | | (27,149 | ) | | | (24,863 | ) |
Postretirement benefits | | | (14,398 | ) | | | (13,796 | ) |
Termination of interest rate agreements | | | (2,950 | ) | | | (3,582 | ) |
Capital lease agreements | | | (2,121 | ) | | | (1,498 | ) |
Other | | | (1,723 | ) | | | 37 | |
| | |
|
|
| |
|
|
|
Gross deferred income tax assets | | | (69,725 | ) | | | (88,274 | ) |
| | |
|
|
| |
|
|
|
Valuation allowance for deferred tax assets | | | 3,728 | | | | 9,931 | |
Net current deferred income tax liability | | | 802 | | | | 2,041 | |
| | |
|
|
| |
|
|
|
Net deferred income tax liability | | | 186,877 | | | | 182,564 | |
| | |
|
|
| |
|
|
|
Accumulated other comprehensive income adjustments | | | (19,746 | ) | | | (16,986 | ) |
| | |
|
|
| |
|
|
|
Net noncurrent deferred income tax liability | | $ | 167,131 | | | $ | 165,578 | |
| | |
|
|
| |
|
|
|
| | | | | | | | | |
| | | Dec. 28,
| | | Dec. 30,
| |
In thousands | | 2008 | | | 2007 | |
| |
| Intangible assets | | $ | 120,956 | | | $ | 119,991 | |
| Depreciation | | | 66,513 | | | | 66,417 | |
| Investment in Piedmont | | | 40,152 | | | | 37,578 | |
| Pension (nonunion) | | | 11,550 | | | | 7,364 | |
| Debt exchange premium | | | 2,726 | | | | 3,217 | |
| Inventory | | | 5,550 | | | | 5,558 | |
| | | | | | | | | |
| Gross deferred income tax liabilities | | | 247,447 | | | | 240,125 | |
| | | | | | | | | |
| Net operating loss carryforwards | | | (10,565 | ) | | | (12,535 | ) |
| Deferred compensation | | | (31,594 | ) | | | (30,284 | ) |
| Postretirement benefits | | | (14,567 | ) | | | (14,534 | ) |
| Termination of interest rate agreements | | | (2,791 | ) | | | (1,618 | ) |
| Capital lease agreements | | | (3,939 | ) | | | (3,306 | ) |
| Pension (union) | | | (4,262 | ) | | | (53 | ) |
| Other | | | (6,157 | ) | | | (3,856 | ) |
| | | | | | | | | |
| Gross deferred income tax assets | | | (73,875 | ) | | | (66,186 | ) |
| | | | | | | | | |
| Valuation allowance for deferred tax assets | | | 535 | | | | 822 | |
| | | | | | | | | |
| Total deferred income tax liability | | | 174,107 | | | | 174,761 | |
| Net current deferred income tax liability (asset) | | | (3,081 | ) | | | (2,253 | ) |
| | | | | | | | | |
Net noncurrent deferred income tax liability before
accumulated other comprehensive income | | | 177,188 | | | | 177,014 | |
| | | | | | | | | |
| Deferred taxes recognized in other comprehensive income | | | (37,850 | ) | | | (8,474 | ) |
| | | | | | | | | |
| Net noncurrent deferred income tax liability | | $ | 139,338 | | �� | $ | 168,540 | |
| | | | | | | | | |
Deferred tax assets are recognized for the tax benefit of deductible temporary differences and for federal and state net operating loss and tax credit carryforwards. Valuation allowances are recognized on these assets if the Company believes that it is more likely than not that some or all of the deferred tax assets will not be realized. The Company believes the majority of the deferred tax assets will be realized
because ofdue to the reversal of certain significant temporary differences and anticipated future taxable income from operations.
In addition to a valuation allowance related to net operating loss carryforwards, the Company records liabilities for uncertain tax positions related to certain state and federal income tax positions. These liabilities reflect the Company’s best estimate of the ultimate income tax liability based on currently known facts and information. Material changes in facts or information as well as the expiration of statutesand/or settlements with individual state or federal jurisdictions may result in material adjustments to these estimates in the future.
The valuation allowance of $3.7$.5 million and $9.9$.8 million as of January 1, 2006December 28, 2008 and January 2, 2005,December 30, 2007, respectively, was established primarily for state net operating loss carryforwards which expire in varying amounts through 2023. The AMT credit carryforwards as of January 1, 2006 were $5.1 million and have no expiration date.2024.
75
COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS15.
| |
| 15. | Accumulated Other Comprehensive Income (Loss) |
Accumulated
Other Comprehensive Income (Loss)The reconciliationother comprehensive loss is comprised of adjustments relative to the Company’s pension and postretirement medical benefit plans and foreign currency translation adjustments required for a subsidiary of the componentsCompany that performs data analysis and provides consulting services primarily in Europe. The Company adopted SFAS No. 158 at the end of 2006.
A summary of accumulated other comprehensive income (loss)loss is as follows:
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | Application of
| | | | | | | | | | |
| | | Dec. 30,
| | | SFAS No. 158
| | | Pre-tax
| | | Tax
| | | Dec. 28,
| |
In thousands | | 2007 | | | After tax(1) | | | Activity | | | Effect | | | 2008 | |
| |
| Net pension activity: | | | | | | | | | | | | | | | | | | | | |
| Actuarial loss | | $ | (12,684 | ) | | $ | 23 | | | $ | (72,660 | ) | | $ | 28,604 | | | $ | (56,717 | ) |
| Prior service costs | | | (55 | ) | | | 1 | | | | 16 | | | | (7 | ) | | | (45 | ) |
| Net postretirement benefits activity: | | | | | | | | | | | | | | | | | | | | |
| Actuarial loss | | | (9,928 | ) | | | 141 | | | | 253 | | | | (91 | ) | | | (9,625 | ) |
| Prior service costs | | | 9,833 | | | | (275 | ) | | | (1,784 | ) | | | 685 | | | | 8,459 | |
| Transition asset | | | 60 | | | | (4 | ) | | | (25 | ) | | | 10 | | | | 41 | |
| Foreign currency translation adjustment | | | 23 | | | | — | | | | (17 | ) | | | 8 | | | | 14 | |
| | | | | | | | | | | | | | | | | | | | | |
| Total | | $ | (12,751 | ) | | $ | (114 | ) | | $ | (74,217 | ) | | $ | 29,209 | | | $ | (57,873 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| | |
| (1) | | See Note 17 of the consolidated financial statements for additional information. |
| | | | | | | | | | | | | | | | | |
| | | Dec. 31,
| | | Pre-tax
| | | Tax
| | | Dec. 30,
| |
In thousands | | 2006 | | | Activity | | | Effect | | | 2007 | |
| |
| Net pension activity: | | | | | | | | | | | | | | | | |
| Actuarial loss | | $ | (24,673 | ) | | $ | 19,771 | | | $ | (7,782 | ) | | $ | (12,684 | ) |
| Prior service costs | | | (31 | ) | | | (39 | ) | | | 15 | | | | (55 | ) |
| Net postretirement benefits activity: | | | | | | | | | | | | | | | | |
| Actuarial loss (gain) | | | (13,512 | ) | | | 5,910 | | | | (2,326 | ) | | | (9,928 | ) |
| Prior service costs | | | 10,915 | | | | (1,784 | ) | | | 702 | | | | 9,833 | |
| Transition asset | | | 75 | | | | (25 | ) | | | 10 | | | | 60 | |
| Foreign currency translation adjustment | | | — | | | | 37 | | | | (14 | ) | | | 23 | |
| | | | | | | | | | | | | | | | | |
| Total | | $ | (27,226 | ) | | $ | 23,870 | | | $ | (9,395 | ) | | $ | (12,751 | ) |
| | | | | | | | | | | | | | | | | |
The only change in accumulated other comprehensive loss in 2006 was
as follows: | | | | | | | | | | | | |
| | | Derivatives
Gain/(Loss)
| | | Minimum Pension
Liability Adjustment
| | | Total
| |
| In Thousands | | | | | | | | | |
Balance as of December 29, 2002 | | $ | — | | | $ | (20,621 | ) | | $ | (20,621 | ) |
| | |
|
|
| |
|
|
| |
|
|
|
Change in fair market value of cash flow hedges, net of tax | | | (62 | ) | | | | | | | (62 | ) |
Additional minimum pension liability adjustment, net of tax | | | | | | | (3,247 | ) | | | (3,247 | ) |
| | |
|
|
| |
|
|
| |
|
|
|
Balance as of December 28, 2003 | | $ | (62 | ) | | $ | (23,868 | ) | | $ | (23,930 | ) |
| | |
|
|
| |
|
|
| |
|
|
|
Change in fair market value of cash flow hedges, net of tax | | | 62 | | | | | | | | 62 | |
Additional minimum pension liability adjustment, net of tax | | | | | | | (1,935 | ) | | | (1,935 | ) |
| | |
|
|
| |
|
|
| |
|
|
|
Balance as of January 2, 2005 | | $ | — | | | $ | (25,803 | ) | | $ | (25,803 | ) |
| | |
|
|
| |
|
|
| |
|
|
|
Additional minimum pension liability adjustment, net of tax | | | | | | | (4,313 | ) | | | (4,313 | ) |
| | |
|
|
| |
|
|
| |
|
|
|
Balance as of January 1, 2006 | | $ | — | | | $ | (30,116 | ) | | $ | (30,116 | ) |
| | |
|
|
| |
|
|
| |
|
|
|
A summarya decrease in minimum pension liability adjustment, net of tax, of $5.4 million.
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 componentsClass 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
accumulated comprehensive income (loss) was as follows: | | | | | | | | | | | | |
| | | Before-Tax
Amount
| | | Income
Tax Effect
| | | After-Tax
Amount
| |
| In Thousands | | | | | | | | | |
2005 | | | | | | | | | | | | |
Net change in minimum pension liability adjustment | | $ | (7,073 | ) | | $ | 2,760 | | | $ | (4,313 | ) |
| | |
|
|
| |
|
|
| |
|
|
|
Other comprehensive income (loss) | | $ | (7,073 | ) | | $ | 2,760 | | | $ | (4,313 | ) |
| | |
|
|
| |
|
|
| |
|
|
|
2004 | | | | | | | | | | | | |
Net gain (loss) on derivatives | | $ | 101 | | | $ | (39 | ) | | $ | 62 | |
Net change in minimum pension liability adjustment | | | (3,174 | ) | | | 1,239 | | | | (1,935 | ) |
| | |
|
|
| |
|
|
| |
|
|
|
Other comprehensive income (loss) | | $ | (3,073 | ) | | $ | 1,200 | | | $ | (1,873 | ) |
| | |
|
|
| |
|
|
| |
|
|
|
2003 | | | | | | | | | | | | |
Net gain (loss) on derivatives | | $ | (101 | ) | | $ | 39 | | | $ | (62 | ) |
Net change in minimum pension liability adjustment | | | (5,286 | ) | | | 2,039 | | | | (3,247 | ) |
| | |
|
|
| |
|
|
| |
|
|
|
Other comprehensive income (loss) | | $ | (5,387 | ) | | $ | 2,078 | | | $ | (3,309 | ) |
| | |
|
|
| |
|
|
| |
|
|
|
16. Capital Transactions
Pursuant to a Stock Rights and Restriction Agreement dated January 27, 1989, betweenthan stock of the Company, and The Coca-Cola Company,as specifically described in the event thatCompany’s certificate of incorporation, may be declared and paid on the Company issues new sharesClass B Common Stock unless an equal
76
COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
or greater dividend is declared and paid on the Common Stock. During 2008, 2007 and 2006, dividends of $1.00 per share were declared and paid on both Common Stock and Class B Common Stock.
Each share of Common Stock is entitled to one vote per share and each share of Class B Common Stock upon the exchange or exerciseis entitled to 20 votes per share at all meetings of any security, warrant or optionshareholders. Except as otherwise required by law, holders of the Company which results in The Coca-Cola Company owning less than 20% of the outstanding shares ofCommon Stock and Class B Common Stock vote together as a single class on all matters brought before the Company’s stockholders. In the event of liquidation, there is no preference between the two classes of common stock.
On February 19, 2009, the Company entered into an Amended and
less than 20%Restated Stock Rights and Restrictions Agreement (the “Amended Rights and Restrictions Agreement”) with TheCoca-Cola Company and J. Frank Harrison, III, the Company’s Chairman and Chief Executive Officer. The Amended Rights and Restrictions Agreement provides, among other things, (1) that so long as no person or group controls more of the
total votesCompany’s voting power than is controlled by Mr. Harrison, III, trustees under the will of
all outstandingJ. Frank Harrison, Jr. and any trust that holds shares of
all classesthe Company’s stock for the benefit of descendents of J. Frank Harrison, Jr. (collectively, the “Harrison Family”), The Coca-Cola Company will not acquire additional shares of the Company
without the Company’s consent and the Company will have a right of first refusal with respect to any proposed sale by The Coca-Cola
Company of shares of Company stock; (2) the Company has the right
through January 2019 to
exchangeredeem shares of
the Company’s stock to reduce The Coca-Cola Company’s equity ownership to 20% at a price not less than $42.50 per share; (3) registration rights for the shares of Company stock owned by The Coca-Cola Company; (4) and certain rights of The Coca-Cola Company regarding the election of a designee on the Company’s Board of Directors. The Amended Rights and Restrictions Agreement also provides The Coca-Cola Company the right to convert its 497,670 shares of the Company’s Common Stock
forinto shares of
the Company’s Class B Common Stock in
order to maintain its ownership of 20%the event any person or group acquires more of the
outstanding shares of Class B Common Stock and 20% ofCompany’s voting power than is controlled by the
total votes of all outstanding shares of all classes of the Company. Under the Stock Rights and Restrictions Agreement, The Coca-Cola Company also has a preemptive right to purchase a percentage of any newly issued shares of any class as necessary to allow it toCOCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
maintain ownership of both 29.67% of the outstanding shares of Common Stock of all classes and 22.59% of the total votes of all outstanding shares of all classes.
Harrison Family.
On May 12, 1999, the stockholders of the Company approved a restricted stock award program for J. Frank Harrison, III, the Company’s Chairman of the Board of Directors and Chief Executive Officer, consisting of 200,000 shares of the Company’s Class B Common Stock. The fair value ofUnder the restricted stock award when approved, was approximately $11.7 million based on the market price of the Common Stock on the effective date of the award. The award provides thatprogram, the shares of restricted stock vestare granted at thea rate of 20,000 shares per year over athe ten-year period. The vesting of each annual installment is contingent upon the Company achieving at least 80% of the overall goal achievement factor in the Company’s Annual Bonus Plan. The restricted stock award does not entitle Mr. Harrison, III to participate in dividend or voting rights until each installment has vested and the shares are issued.
On February 28, 2007, the Compensation Committee of the Board of Directors determined 20,000 shares of restricted Class B Common Stock vested and should be issued to Mr. Harrison, III for the fiscal year ended December 31, 2006. On February 27, 2008, the Compensation Committee determined an additional 20,000 shares of restricted Class B Common Stock vested and should be issued to Mr. Harrison, III for the fiscal year ended December 30, 2007.
On March 4, 2009, the Compensation Committee determined that 20,000 shares of restricted Class B Common Stock vested and should be issued to Mr. Harrison, III for the fiscal year ended December 28, 2008.
Each annual 20,000 share tranche has an independent performance requirement as it is not established until the Company’s Annual Bonus Plan targets are approved each year by the Company’s Board of Directors. As a result, each 20,000 share tranche is considered to have its own service inception date, grant-date fair value and requisite service period. The Company’s Annual Bonus Plan targets, which establish the performance requirement for the restricted stock awards, are approved by the Compensation Committee of the Board of Directors in the first quarter of each year.
77
COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A summary of restricted stock awards is as follows:
| | | | | | | | | | | | | |
| | | | | | | | | Annual
| |
| | | Shares
| | | Grant-Date
| | | Compensation
| |
Year | | Awarded | | | Price | | | Expense | |
| |
| 2006 | | | 20,000 | | | $ | 46.45 | | | $ | 929,000 | |
| 2007 | | | 20,000 | | | | 58.53 | | | | 1,170,600 | |
| 2008 | | | 20,000 | | | | 56.50 | | | | 1,130,000 | |
In addition, the Company achieved more than 80%reimburses Mr. Harrison, III for income taxes to be paid on the shares if the performance requirement is met and the shares are issued. The Company accrues the estimated cost of the income tax reimbursement over the one-year service period.
On April 29, 2008, the stockholders of the Company approved a Performance Unit Award Agreement for Mr. Harrison, III consisting of 400,000 performance units (“Units”). Each Unit represents the right to receive one share of the Company’s Class B Common Stock, subject to certain terms and conditions. The Units will vest in annual increments over a ten-year period starting in fiscal year 2009. The number of Units that vest each year will equal the product of 40,000 multiplied by the overall goal achievement factor
in 2005, 2004(not to exceed 100%) under the Company’s Annual Bonus Plan. The Performance Unit Award Agreement will replace the restricted stock award discussed above which expires at the end of 2008 and
2003, resulting in compensation expensedid not affect the Company’s results of
$1.5 million, $2.0 million and $1.8 million, respectively. As of January 1, 2006,operations or financial position for the
fair market value of the potentially issuable shares (80,000 shares over the next four years) under this award approximates $3.4 million.fiscal year ending December 28, 2008.
The increase in the
weighted average number of
common shares outstanding in
2005 as compared2008 was due to
2003the issuance of 20,000 shares of Class B Common Stock related to the restricted stock award. The increase in the number of shares outstanding in 2007 was due to the issuance of 20,000 shares of Class B Common Stock related to the restricted stock award
in eachand the conversion of
the years 2005, 2004 and 2003.Shares of500 shares from Class B Common Stock are convertible on a share-for-share basis intoto Common Stock.
On February 19, 2009, TheCoca-Cola Company converted all of its 497,670 shares of Common Stock. There is no trading market for the Company’s Class B Common Stock. During the third quarterStock into an equivalent number of 2005, 500 shares of Class Bthe Common Stock of the Company.
Adopted Pronouncement
The Company adopted SFAS No. 158, at the end of fiscal 2006 except for the requirement that the benefit plan assets and obligations be measured as of the date of the employer’s statement of financial position. The Company applied the modified prospective transition method and prior periods were converted to 500 sharesnot restated. The incremental effect of Common Stock.applying SFAS No. 158 on the balance sheet as of December 31, 2006 was as follows:
| | | | | | | | | | | | | | | | | | | | | |
| | | Prior to
| | | | | | | | | | | | | |
| | | Recording
| | | Minimum
| | | Before
| | | | | | After
| |
| | | Minimum Pension
| | | Pension
| | | Application
| | | | | | Application
| |
| | | Liability
| | | Liability
| | | of SFAS
| | | | | | of SFAS
| |
In thousands | | Adjustment | | | Adjustment | | | No. 158 | | | Adjustments | | | No. 158 | |
| |
| Other accrued liabilities | | $ | 3,328 | | | $ | — | | | $ | 3,328 | | | $ | — | | | $ | 3,328 | |
| Pension and postretirement benefit obligations | | | 62,524 | | | | (8,977 | ) | | | 53,547 | | | | 4,210 | | | | 57,757 | |
| Deferred income taxes | | | 160,817 | | | | 3,535 | | | | 164,352 | | | | (1,658 | ) | | | 162,694 | |
| Total liabilities | | | 1,227,402 | | | | (5,442 | ) | | | 1,221,960 | | | | 2,552 | | | | 1,224,512 | |
| Accumulated other comprehensive loss | | | (30,116 | ) | | | 5,442 | | | | (24,674 | ) | | | (2,552 | ) | | | (27,226 | ) |
| Total stockholders’ equity | | | 91,063 | | | | 5,442 | | | | 96,505 | | | | (2,552 | ) | | | 93,953 | |
78
COCA-COLA BOTTLING CO. CONSOLIDATED
17. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company adopted the measurement date provisions of SFAS No. 158 on the first day of 2008 and used the “one measurement” approach. The incremental effect of applying the measurement date provisions on the balance sheet as of December 30, 2007 was as follows:
| | | | | | | | | | | | | |
| | | Before
| | | | | | After
| |
| | | Application of
| | | | | | Application of
| |
In thousands | | SFAS No. 158 | | | Adjustment | | | SFAS No. 158 | |
| |
| Pension and postretirement benefit obligations | | $ | 32,758 | | | $ | 434 | | | $ | 33,192 | |
| Deferred income taxes | | | 168,540 | | | | (167 | ) | | | 168,373 | |
| Total liabilities | | | 1,123,290 | | | | 267 | | | | 1,123,557 | |
| Retained earnings | | | 79,227 | | | | (153 | ) | | | 79,074 | |
| Accumulated other comprehensive loss | | | (12,751 | ) | | | (114 | ) | | | (12,865 | ) |
| Total stockholders’ equity | | | 120,504 | | | | (267 | ) | | | 120,237 | |
Retirement benefits under the two Company-sponsored pension plans are based on the employee’s length of service, average compensation over the five consecutive years which gives the highest average compensation and the average of the Social Security taxable wage base during the
35-year period before a participant reaches Social Security retirement age. Contributions to the plans are based on the projected unit credit actuarial funding method and are limited to the amounts that are 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 plan amendment was accounted for as a plan “curtailment” under SFAS No. 88. The curtailment resulted in a reduction of the Company’s projected benefit obligation which was offset against the Company’s unrecognized net loss. As a result of the curtailment, the impact on net income and on net pension expense prior to the effective date of June 30, 2006 was immaterial. Periodic pension expense was reduced beginning in the third quarter of 2006 as current service cost no longer accrues.
The following tables set forth pertinent information for the two Company-sponsored pension plans:
Changes in Projected Benefit Obligation
| | | | | | | | | |
| | | Fiscal Year | |
In thousands | | 2008 | | | 2007 | |
| |
| Projected benefit obligation at beginning of year | | $ | 175,592 | | | $ | 185,804 | |
| Service cost(1) | | | 89 | | | | 78 | |
| Interest cost(1) | | | 11,706 | | | | 10,536 | |
| Actuarial (gain) loss(1) | | | 8,292 | | | | (15,091 | ) |
| Benefits paid(1) | | | (6,696 | ) | | | (5,798 | ) |
| Change in plan provisions | | | — | | | | 63 | |
| | | | | | | | | |
| Projected benefit obligation at end of year | | $ | 188,983 | | | $ | 175,592 | |
| | | | | | | | | |
| | |
| (1) | | 2008 amounts are for the 13 month period from the 2007 measurement date (November 30) to the 2008 year-end. |
The Company recognized an actuarial loss of $73.1 million in 2008 primarily due to a decrease in the fair market value of the plan assets in 2008. The actuarial loss, net of tax, was recorded in other comprehensive income.
79
| | | | | | | | |
| | | Fiscal Year
| |
| | | 2005
| | | 2004
| |
| In Thousands | | | | | | |
Projected benefit obligation at beginning of year | | $ | 170,800 | | | $ | 146,802 | |
Service cost | | | 6,987 | | | | 5,908 | |
Interest cost | | | 10,115 | | | | 9,062 | |
Actuarial loss | | | 17,001 | | | | 13,301 | |
Benefits paid | | | (4,810 | ) | | | (4,303 | ) |
Change in plan provisions | | | — | | | | 30 | |
| | |
|
|
| |
|
|
|
Projected benefit obligation at end of year | | $ | 200,093 | | | $ | 170,800 | |
| | |
|
|
| |
|
|
|
COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The projected benefit obligations and accumulated benefit obligations for both of the Company’s pension plans were in excess of plan assets at
January 1, 2006December 28, 2008 and
January 2, 2005.December 30, 2007. The accumulated benefit obligation was
$173.8$189.0 million and
$148.4$175.6 million at
January 1, 2006December 28, 2008 and
January 2, 2005,December 30, 2007, respectively.
COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Change in Plan Assets | | | | | | | | |
| | | 2005
| | | 2004
| |
| In Thousands | | | | | | |
Fair value of plan assets at beginning of year | | $ | 135,843 | | | $ | 101,293 | |
Actual return on plan assets | | | 11,367 | | | | 10,853 | |
Employer contributions | | | 8,000 | | | | 28,000 | |
Benefits paid | | | (4,810 | ) | | | (4,303 | ) |
| | |
|
|
| |
|
|
|
Fair value of plan assets at end of year | | $ | 150,400 | | | $ | 135,843 | |
| | |
|
|
| |
|
|
|
| | | | | | | | | |
In thousands | | 2008 | | | 2007 | |
| |
| Fair value of plan assets at beginning of year | | $ | 173,099 | | | $ | 163,808 | |
| Actual return on plan assets(1) | | | (50,034 | ) | | | 15,089 | |
| Employer contributions(1) | | | 150 | | | | — | |
| Benefits paid(1) | | | (6,696 | ) | | | (5,798 | ) |
| | | | | | | | | |
| Fair value of plan assets at end of year | | $ | 116,519 | | | $ | 173,099 | |
| | | | | | | | | |
| | |
| (1) | | 2008 amounts are for the 13 month period from the 2007 measurement date (November 30) to the 2008 year-end. |
Funded Status | | | | | | | | |
| | | Jan. 1, 2006
| | | Jan. 2, 2005
| |
| In Thousands | | | | | | |
Funded status of the plans | | $ | (49,694 | ) | | $ | (34,957 | ) |
Unrecognized prior service cost | | | 75 | | | | 99 | |
Unrecognized net loss | | | 76,134 | | | | 65,151 | |
| | |
|
|
| |
|
|
|
Net amount recognized | | $ | 26,515 | | | $ | 30,293 | |
| | |
|
|
| |
|
|
|
| | | | | | | | | |
| | | Dec. 28,
| | | Dec. 30,
| |
In thousands | | 2008 | | | 2007 | |
| |
| Projected benefit obligation | | $ | (188,983 | ) | | $ | (175,592 | ) |
| Plan assets at fair value | | | 116,519 | | | | 173,099 | |
| | | | | | | | | |
| Net funded status | | $ | (72,464 | ) | | $ | (2,493 | ) |
| | | | | | | | | |
Amounts Recognized in the Consolidated Balance SheetSheets | | | | | | | | |
| | | Jan. 1, 2006
| | | Jan. 2, 2005
| |
| In Thousands | | | | | | |
Accrued benefit liability | | $ | (23,422 | ) | | $ | (12,595 | ) |
Intangible asset | | | 75 | | | | 99 | |
Accumulated other comprehensive income | | | 49,862 | | | | 42,789 | |
| | |
|
|
| |
|
|
|
Net amount recognized | | $ | 26,515 | | | $ | 30,293 | |
| | |
|
|
| |
|
|
|
| | | | | | | | | |
| | | Dec. 28,
| | | Dec. 30,
| |
In thousands | | 2008 | | | 2007 | |
| |
| Current liabilities | | $ | — | | | $ | (2,493 | ) |
| Noncurrent liabilities | | | (72,464 | ) | | | — | |
| | | | | | | | | |
| Net amount recognized | | $ | (72,464 | ) | | $ | (2,493 | ) |
| | | | | | | | | |
Net Periodic Pension Cost
| | | | | | | | | | | | | |
| | | Fiscal Year | |
In thousands | | 2008 | | | 2007 | | | 2006 | |
| |
| Service cost | | $ | 82 | | | $ | 78 | | | $ | 5,386 | |
| Interest cost | | | 10,806 | | | | 10,536 | | | | 10,377 | |
| Expected return on plan assets | | | (13,641 | ) | | | (12,899 | ) | | | (12,106 | ) |
| Amortization of prior service cost | | | 16 | | | | 24 | | | | 24 | |
| Recognized net actuarial loss | | | 444 | | | | 2,490 | | | | 4,444 | |
| | | | | | | | | | | | | |
| Net periodic pension cost (income) | | $ | (2,293 | ) | | $ | 229 | | | $ | 8,125 | |
| | | | | | | | | | | | | |
80
| | | | | | | | | | | | |
| | | Fiscal Year
| |
| | | 2005
| | | 2004
| | | 2003
| |
| In Thousands | | | | | | | | | |
Service cost | | $ | 6,987 | | | $ | 5,908 | | | $ | 4,363 | |
Interest cost | | | 10,115 | | | | 9,062 | | | | 8,129 | |
Expected return on plan assets | | | (10,689 | ) | | | (9,306 | ) | | | (6,898 | ) |
Amortization of prior service cost | | | 24 | | | | 20 | | | | 21 | |
Recognized net actuarial loss | | | 5,341 | | | | 4,840 | | | | 4,062 | |
| | |
|
|
| |
|
|
| |
|
|
|
Net periodic pension cost | | $ | 11,778 | | | $ | 10,524 | | | $ | 9,677 | |
| | |
|
|
| |
|
|
| |
|
|
|
COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Significant Assumptions Used | | | | | | |
| | | 2005
| | 2004
| | 2003
|
Weighted average discount rate used in determining net periodic pension cost | | 6.00% | | 6.25% | | 7.00% |
Weighted average discount rate used in determining the actuarial present value of the projected benefit obligation | | 5.75% | | 6.00% | | 6.25% |
Weighted average expected long-term rate of return on plan assets | | 8.00% | | 8.00% | | 8.00% |
Weighted average rate of compensation increase | | 4.00% | | 4.00% | | 4.00% |
| | | |
Measurement date | | Nov. 30 | | Nov. 30 | | Nov. 30 |
A .25% increase or decrease in the discount rate assumption would have impacted the projected benefit obligation and net periodic pension cost as follows:
| | | | | | | |
In Thousands
| | .25% Increase
| | | .25% Decrease
|
Impact on: | | | | | | | |
Projected benefit obligation at January 1, 2006 | | $ | (8,887 | ) | | $ | 9,486 |
Net periodic pension cost in 2005 | | | (1,185 | ) | | | 1,257 |
| | | | | | | | | | | | | |
| | | 2008 | | | 2007 | | | 2006 | |
| |
| Projected benefit obligation at the measurement date: | | | | | | | | | | | | |
| Discount rate | | | 6.00 | % | | | 6.25 | % | | | 5.75 | % |
| Weighted average rate of compensation increase | | | N/A | | | | N/A | | | | N/A | |
| Net periodic pension cost for the fiscal year: | | | | | | | | | | | | |
| Discount rate | | | 6.25 | % | | | 5.75 | % | | | 5.75 | % |
| Weighted average expected long-term rate of return on plan assets | | | 8.00 | % | | | 8.00 | % | | | 8.00 | % |
| Weighted average rate of compensation increase | | | N/A | | | | N/A | | | | 4.00 | % |
Cash Flows | | | |
| In Thousands | | |
| |
Anticipated future pension benefit payments reflecting expected future service for the fiscal years: | | | |
2006 | | $ | 4,817 |
2007 | | | 5,052 |
2008 | | | 5,508 |
2009 | | | 5,894 |
2010 | | | 6,619 |
2011—2015 | | | 43,378 |
There is no minimum actuarial required contribution
| | | | | |
In thousands | | | |
| |
| Anticipated future pension benefit payments for the fiscal years: | | | | |
| 2009 | | $ | 6,080 | |
| 2010 | | | 6,400 | |
| 2011 | | | 6,733 | |
| 2012 | | | 7,171 | |
| 2013 | | | 7,696 | |
| 2014 – 2018 | | | 45,776 | |
Anticipated contributions for the two Company-sponsored pension plans
will be in
2006.the range of $8 million to $12 million in 2009.
The Company’s pension plans target asset allocation for
2006,2009, actual asset allocation at
January 1, 2006December 28, 2008 and
January 2, 2005December 30, 2007 and the expected weighted average long-term rate of return by asset category were as follows:
| | | | | | | | | | | | |
| | | Target
Allocation
2006
| | | Percentage of Plan
Assets at Fiscal Year-End
| | | Weighted Average
Expected Long-Term
Rate of Return—2005
| |
| | | | 2005
| | | 2004
| | |
U.S. large capitalization equity securities | | 40 | % | | 46 | % | | 39 | % | | 3.9 | % |
U.S. small/mid-capitalization equity securities | | 10 | % | | 5 | % | | 10 | % | | .5 | % |
International equity securities | | 15 | % | | 15 | % | | 14 | % | | 1.5 | % |
Debt securities | | 35 | % | | 34 | % | | 29 | % | | 2.1 | % |
Short-term investments | | | | | | | | 8 | % | | | |
| | |
|
| |
|
| |
|
| |
|
|
Total | | 100 | % | | 100 | % | | 100 | % | | 8.0 | % |
| | |
|
| |
|
| |
|
| |
|
|
COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | Weighted
| |
| | | | | | | | | | | | Average
| |
| | | | | | | | | | | | Expected
| |
| | | Target
| | | Percentage of Plan
| | | Long-Term
| |
| | | Allocation
| | | Assets at Fiscal Year-End | | | Rate of
| |
| | | 2009 | | | 2008 | | | 2007 | | | Return - 2008 | |
| |
| U.S. large capitalization equity securities | | | 40 | % | | | 42 | % | | | 47 | % | | | 3.9 | % |
| U.S. small/mid-capitalization equity securities | | | 10 | % | | | 4 | % | | | 5 | % | | | 0.5 | % |
| International equity securities | | | 15 | % | | | 12 | % | | | 15 | % | | | 1.4 | % |
| Debt securities | | | 35 | % | | | 42 | % | | | 33 | % | | | 2.2 | % |
| | | | | | | | | | | | | | | | | |
| Total | | | 100 | % | | | 100 | % | | | 100 | % | | | 8.0 | % |
| | | | | | | | | | | | | | | | | |
The investments in the Company’s pension plans include U.S. equities, international equities and debt securities. All of the plan assets are invested in institutional investment funds managed by professional investment advisors. The objective of the Company’s investment philosophy is to earn the plans’ targeted rate of return over longer periods without assuming excess investment risk. The general guidelines for plan investments include 30%—50% in large capitalization equity securities, 0%—20% in U.S. small and mid-capitalization equity securities, 0%—20% in international equity securities and 10%—50% in debt securities. The Company currently has 66%58% of its plan investments in equity securities and 34%42% in debt securities.
81
COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. large capitalization equity securities include domestic based companies that are generally included in common market indices such as the S&P
500™500tm and the Russell
1000™1000tm. U.S. small and mid-capitalization equity securities include small domestic equities as represented by the Russell
2000™2000tm index. International equity securities include companies from developed markets outside of the United States. Debt securities at
January 1, 2006December 28, 2008 are comprised of investments in two institutional bond funds with a weighted average duration of approximately three years.
The weighted average expected long-term rate of return of plan assets of 8% was used in determining
both net periodic pension cost in both
20052008 and
2004.2007. This rate reflects an estimate of long-term future returns for the pension plan assets. This estimate is primarily a function of the asset classes (equities versus fixed income) in which the pension plan assets are invested and the analysis of past performance of these asset classes over a long period of time. This analysis includes expected long-term inflation and the risk premiums associated with equity investments and fixed income investments.
See Note 24 to the consolidated financial statements for additional information concerning the principal Company-sponsored pension plan.
The Company also participates in various multi-employer pension plans covering certain employees who are part of collective bargaining agreements. Total pension expense for multi-employer plans in 2005, 2004 and 2003 was $1.4 million, $1.3 million and $1.3 million, respectively.
Retirement Savings Plan — 401(k) Plan
The Company provides a 401(k) Savings Plan for substantially all of its employees who are not part of collective bargaining agreements. Under provisionsIn conjunction with the change to the principal Company-sponsored pension plan previously discussed, the Company’s Board of Directors also approved an amendment to the 401(k) Savings Plan an employee isto increase the Company’s matching contribution under the 401(k) Savings Plan effective January 1, 2007. The amendment to the 401(k) Savings Plan provided for fully vested with respectmatching contributions equal to Company contributions uponone hundred percent of a participant’s elective deferrals to the completion401(k) Savings Plan up to a maximum of two years5% of service with the Company.a participant’s eligible compensation. The total costs for this benefit in 2005, 20042008, 2007 and 20032006 were $4.6$10.0 million, $4.3$8.5 million and $4.0$4.7 million, respectively. See Note 24
On February 20, 2009, the Company announced that it would suspend matching contributions to the
consolidated financial statements for additional information concerning the 401(k)
Savings Plan.plan effective April 1, 2009.
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.
82
On December 8, 2003, the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the “Act”) was enacted. The Act introduces a prescription drug benefit under Medicare as well as a federal subsidy to sponsors of retiree health care benefit plans. The postretirement benefit obligation as of January 2, 2005 and the net periodic postretirement cost in 2005 and 2004 were not materially impacted by the Act.
In October 2005, the Company announced changes to certain provisions of its postretirement health care plan that reduced future benefit obligations to eligible participants. Due to the changes announced, the Company’s expense and liability related to its postretirement health care plan will be reduced. Both the expense
COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSand liability for postretirement health care benefits are subject to determination by the Company’s actuaries and include numerous variables that will affect the impact of the announced changes. The Company anticipates the annual expense for the postretirement health care plan will decrease by approximately $2.5 million in 2006.
The following tables set forth a reconciliation of the beginning and ending balances of the benefit obligation, a reconciliation of the beginning and ending balances of the fair value of plan assets and funded status of the Company’s postretirement benefit plan:
| | | | | | | | |
| | | Fiscal Year
| |
| | | 2005
| | | 2004
| |
| In Thousands | | | | | | |
Benefit obligation at beginning of year | | $ | 53,356 | | | $ | 46,874 | |
Service cost | | | 689 | | | | 549 | |
Interest cost | | | 3,125 | | | | 2,819 | |
Plan participants’ contributions | | | 789 | | | | 735 | |
Actuarial loss (gain) | | | 5,428 | | | | 5,832 | |
Benefits paid | | | (3,514 | ) | | | (3,453 | ) |
Change in plan provisions | | | (18,155 | ) | | | — | |
| | |
|
|
| |
|
|
|
Benefit obligation at end of year | | $ | 41,718 | | | $ | 53,356 | |
| | |
|
|
| |
|
|
|
Fair value of plan assets at beginning of year | | $ | — | | | $ | — | |
Employer contributions | | | 2,725 | | | | 2,718 | |
Plan participants’ contributions | | | 789 | | | | 735 | |
Benefits paid | | | (3,514 | ) | | | (3,453 | ) |
| | |
|
|
| |
|
|
|
Fair value of plan assets at end of year | | $ | — | | | $ | — | |
| | |
|
|
| |
|
|
|
| | |
| | | Jan. 1, 2006
| | | Jan. 2, 2005
| |
| In Thousands | | | | | | |
Funded status of the plan | | $ | (41,718 | ) | | $ | (53,356 | ) |
Unrecognized net loss | | | 25,855 | | | | 21,433 | |
Unrecognized prior service cost and transition obligation | | | (19,932 | ) | | | (2,074 | ) |
Contributions between measurement date and fiscal year-end | | | 818 | | | | 782 | |
| | |
|
|
| |
|
|
|
Accrued liability | | $ | (34,977 | ) | | $ | (33,215 | ) |
| | |
|
|
| |
|
|
|
| | | | | | | | | |
| | | Fiscal Year | |
In thousands | | 2008 | | | 2007 | |
| |
| Benefit obligation at beginning of year | | $ | 35,437 | | | $ | 39,724 | |
| Service cost(1) | | | 638 | | | | 425 | |
| Interest cost(1) | | | 2,681 | | | | 2,209 | |
| Plan participants’ contributions(1) | | | 675 | | | | 523 | |
| Actuarial loss (gain)(1) | | | 678 | | | | (4,680 | ) |
| Benefits paid(1) | | | (3,368 | ) | | | (2,840 | ) |
| Medicare Part D subsidy reimbursement | | | 91 | | | | 76 | |
| | | | | | | | | |
| Benefit obligation at end of year | | $ | 36,832 | | | $ | 35,437 | |
| | | | | | | | | |
| Fair value of plan assets at beginning of year | | $ | — | | | $ | — | |
| Employer contributions(1) | | | 2,602 | | | | 2,241 | |
| Plan participants’ contributions(1) | | | 675 | | | | 523 | |
| Benefits paid(1) | | | (3,368 | ) | | | (2,840 | ) |
| Medicare Part D subsidy reimbursement | | | 91 | | | | 76 | |
| | | | | | | | | |
| Fair value of plan assets at end of year | | $ | — | | | $ | — | |
| | | | | | | | | |
| | |
| (1) | | 2008 amounts are for the 15 month period from the 2007 measurement date (September 30) to the 2008 year-end. |
| | | | | | | | | |
| | | Dec. 28,
| | | Dec. 30,
| |
In thousands | | 2008 | | | 2007 | |
| |
| Contributions between measurement date and fiscal year-end | | $ | — | | | $ | 502 | |
| Benefit obligation | | | (36,832 | ) | | | (35,437 | ) |
| | | | | | | | | |
| Accrued liability | | $ | (36,832 | ) | | $ | (34,935 | ) |
| | | | | | | | | |
| Current liabilities | | $ | (2,291 | ) | | $ | (2,177 | ) |
| Noncurrent liabilities | | | (34,541 | ) | | | (32,758 | ) |
| | | | | | | | | |
| Accrued liability at end of year | | $ | (36,832 | ) | | $ | (34,935 | ) |
| | | | | | | | | |
The components of net periodic postretirement benefit cost were as follows:
| | | | | | | | | | | | | |
| | | Fiscal Year | |
In thousands | | 2008 | | | 2007 | | | 2006 | |
| |
| Service cost | | $ | 511 | | | $ | 425 | | | $ | 332 | |
| Interest cost | | | 2,145 | | | | 2,209 | | | | 2,227 | |
| Amortization of unrecognized transitional assets | | | (25 | ) | | | (25 | ) | | | (25 | ) |
| Recognized net actuarial loss | | | 916 | | | | 1,220 | | | | 1,355 | |
| Amortization of prior service cost | | | (1,784 | ) | | | (1,784 | ) | | | (1,784 | ) |
| | | | | | | | | | | | | |
| Net periodic postretirement benefit cost | | $ | 1,763 | | | $ | 2,045 | | | $ | 2,105 | |
| | | | | | | | | | | | | |
83
| | | | | | | | | | | | |
| | | Fiscal Year
| |
| | | 2005
| | | 2004
| | | 2003
| |
| In Thousands | | | | | | | | | |
Service cost | | $ | 689 | | | $ | 549 | | | $ | 512 | |
Interest cost | | | 3,125 | | | | 2,819 | | | | 3,159 | |
Amortization of unrecognized transitional assets | | | (25 | ) | | | (25 | ) | | | (25 | ) |
Recognized net actuarial loss | | | 1,006 | | | | 827 | | | | 931 | |
Amortization of prior service cost | | | (272 | ) | | | (272 | ) | | | (272 | ) |
| | |
|
|
| |
|
|
| |
|
|
|
Net periodic postretirement benefit cost | | $ | 4,523 | | | $ | 3,898 | | | $ | 4,305 | |
| | |
|
|
| |
|
|
| |
|
|
|
The weighted average discount rate used to estimate the postretirement benefit obligation was 5.50%, 6.00% and 6.00%, as of January 1, 2006, January 2, 2005 and December 28, 2003, respectively. The measurement dates were September 30 of each year 2005, 2004 and 2003.
COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Significant Assumptions Used
| | | | | | | | | | | | | |
| | | 2008 | | | 2007 | | | 2006 | |
| |
| Benefit obligation at the measurement date: | | | | | | | | | | | | |
| Discount rate | | | 6.25 | % | | | 6.25 | % | | | 5.75 | % |
| Net periodic postretirement benefit cost for the fiscal year: | | | | | | | | | | | | |
| Discount rate | | | 6.25 | % | | | 5.75 | % | | | 5.50 | % |
The weighted average health care cost trend used in measuring the postretirement benefit expense in
20052008 was
10%9% graded down to an ultimate rate of 5% by
2010.2013. The weighted average health care cost trend used in measuring the postretirement benefit expense in
20042007 was
10%9% graded down to an ultimate rate of 5% by
2009.2012. The weighted average health care cost trend used in measuring the postretirement benefit expense in
20032006 was
10%9% graded down to an ultimate rate of 5% by
2008.2011.
A 1% increase or decrease in this annual health care cost trend would have impacted the postretirement benefit obligation and service cost and interest cost of the Company’s postretirement benefit plan as follows:
| | | | | | | | | |
In thousands | | 1% Increase | | | 1% Decrease | |
| |
| Increase (decrease) in: | | | | | | | | |
| Postretirement benefit obligation at December 28, 2008 | | $ | 4,230 | | | $ | (3,675 | ) |
| Service cost and interest cost in 2008 | | | 377 | | | | (327 | ) |
Cash Flows
| | | | | |
In thousands | | | |
| |
| Anticipated future postretirement benefit payments reflecting expected future service for the fiscal years: | | | | |
| 2009 | | $ | 2,291 | |
| 2010 | | | 2,361 | |
| 2011 | | | 2,451 | |
| 2012 | | | 2,585 | |
| 2013 | | | 2,614 | |
| 2014 — 2018 | | | 14,002 | |
Anticipated future postretirement benefit payments are shown net of Medicare Part D subsidy reimbursements, which are not material.
84
| | | | | | | |
In Thousands
| | 1% Increase
| | 1% Decrease
| |
Impact on: | | | | | | | |
Postretirement benefit obligation at January 1, 2006 | | $ | 4,911 | | $ | (4,372 | ) |
Service cost and interest cost in 2005 | | | 342 | | | (305 | ) |
A .25% increase or decrease
COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The amounts in accumulated other comprehensive income that have not yet been recognized as components of net periodic benefit cost at December 30, 2007, the activity during 2008, and the balances at December 28, 2008 are as follows:
| | | | | | | | | | | | | | | | | | | | | |
| | | Dec. 30,
| | | Application of
| | | Actuarial
| | | Reclassification
| | | Dec. 28,
| |
In thousands | | 2007 | | | SFAS No. 158 | | | Loss | | | Adjustments | | | 2008 | |
| |
| Pension Plans: | | | | | | | | | | | | | | | | | | | | |
| Actuarial loss | | $ | (21,114 | ) | | $ | 39 | | | $ | (73,103 | ) | | $ | 443 | | | $ | (93,735 | ) |
| Prior service costs | | | (90 | ) | | | 1 | | | | — | | | | 16 | | | | (73 | ) |
| Postretirement Medical: | | | | | | | | | | | | | | | | | | | | |
| Actuarial loss | | | (16,372 | ) | | | 228 | | | | (664 | ) | | | 917 | | | | (15,891 | ) |
| Prior service costs | | | 16,216 | | | | (447 | ) | | | — | | | | (1,784 | ) | | | 13,985 | |
| Transition asset | | | 98 | | | | (6 | ) | | | — | | | | (25 | ) | | | 67 | |
| | | | | | | | | | | | | | | | | | | | | |
| | | $ | (21,262 | ) | | $ | (185 | ) | | $ | (73,767 | ) | | $ | (433 | ) | | $ | (95,647 | ) |
| | | | | | | | | | | | | | | | | | | | | |
The amounts of accumulated other comprehensive income that are expected to be recognized as components of net periodic cost during 2009 are as follows:
| | | | | | | | | | | | | |
| | | Pension
| | | Postretirement
| | | | |
In thousands | | Plans | | | Medical | | | Total | |
| |
| Actuarial loss | | $ | 9,355 | | | $ | 872 | | | $ | 10,227 | |
| Prior service cost (credit) | | | 12 | | | | (1,784 | ) | | | (1,772 | ) |
| Transitional asset | | | — | | | | (25 | ) | | | (25 | ) |
| | | | | | | | | | | | | |
| | | $ | 9,367 | | | $ | (937 | ) | | $ | 8,430 | |
| | | | | | | | | | | | | |
Multi-Employer Benefits
The Company also participates in various multi-employer pension plans covering certain employees who are part of collective bargaining agreements. Total pension expense for multi-employer plans in 2008, 2007 and 2006 was $1.0 million, $1.4 million and $1.4 million, respectively.
The Company entered into a new agreement in the
third quarter of 2008 when one of its collective bargaining contracts expired in July 2008. The new agreement allows the Company to freeze its liability to the 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 Company’s liability to the Central States, the Company recorded a charge of $13.6 million in 2008. The Company has paid $3.0 million in 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 is the present value amount, using a discount rate
assumption would have impactedof 7%, that will be paid to the
projected benefit obligationCentral States and
service cost and interest cost as follows: | | | | | | | |
In Thousands
| | .25% Increase
| | | .25% Decrease
|
Impact on: | | | | | | | |
Postretirement benefit obligation at January 1, 2006 | | $ | (1,228 | ) | | $ | 1,297 |
Service cost and interest cost in 2005 | | | (86 | ) | | | 91 |
Cash Flows
| | | |
| In Thousands | | |
| Anticipated future postretirement benefit payments reflecting expected future service for the fiscal years: |
2006 | | $ | 2,378 |
2007 | | | 2,520 |
2008 | | | 2,651 |
2009 | | | 2,757 |
2010 | | | 2,816 |
2011—2015 | | | 14,295 |
18. Related Party Transactions
had been recorded in other liabilities. The Company will pay approximately $1 million annually over the next 20 years. The Company will also make future contributions on behalf of these employees to the Southern States. In addition, the Company incurred approximately $.4 million in expense to settle a strike by union employees covered by this plan.
| |
| 18. | Related Party Transactions |
The Company’s business consists primarily of the production, marketing and distribution of nonalcoholic beverages of TheCoca-Cola Company, which is the sole owner of the secret formulas under which the primary components (either concentrate or syrup) of its soft drink products are manufactured. As of January 1, 2006,December 28, 2008, TheCoca-Cola Company had a 27.3%27.1% interest in the Company’s total outstanding Common Stock and Class B Common Stock on a combined basis.
85
COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In August 2007, the Company entered into a distribution agreement with Energy Brands Inc. (“Energy Brands”), a wholly-owned subsidiary of TheCoca-Cola Company. Energy Brands, also known as glacéau, is a producer and distributor of branded enhanced beverages including vitaminwater, smartwater and vitaminenergy. The distribution agreement is effective November 1, 2007 for a period of ten years and, unless earlier terminated, will be automatically renewed for succeeding ten-year terms, subject to a one year non-renewal notification by the Company. In conjunction with the execution of the distribution agreement, the Company entered into an agreement with TheCoca-Cola Company whereby the Company agreed not to introduce new third party brands or certain third party brand extensions in the United States through August 31, 2010 unless mutually agreed to by the Company and TheCoca-Cola Company.
The following table summarizes the significant transactions between the Company and The
Coca-Cola Company:
| | | | | | | | | |
| | | Fiscal Year
|
| | | 2005
| | 2004
| | 2003
|
| In Millions | | | | | | |
Payments by the Company for concentrate, syrup, sweetener and other purchases | | $ | 333.4 | | $ | 287.2 | | $ | 284.3 |
Less: marketing funding support payments to the Company | | | 19.6 | | | 31.3 | | | 53.4 |
| | |
|
| |
|
| |
|
|
Payments net of marketing funding support | | $ | 313.8 | | $ | 255.9 | | $ | 230.9 |
| | | |
Payments by the Company for customer marketing programs | | $ | 45.2 | | $ | 39.3 | | $ | 50.5 |
Payments by the Company for cold drink equipment parts | | | 3.8 | | | 4.0 | | | 4.4 |
Payments by the Company for local media | | | — | | | — | | | .2 |
Fountain delivery and equipment repair fees paid to the Company | | | 8.1 | | | 7.6 | | | 7.2 |
Presence marketing support provided by The Coca-Cola Company on the Company’s behalf | | | 6.4 | | | 6.3 | | | 4.8 |
Sale of energy products to The Coca-Cola Company | | | 27.9 | | | .6 | | | — |
The Company received proceeds in 2005 as a result of a settlement of a class action lawsuit known asIn re: High Fructose Corn Syrup Antitrust Litigation Master File No. 95-1477 in the United States District Court for the Central District of Illinois. The lawsuit related to purchases of high fructose corn syrup by several companies, including The Coca-Cola Company and its subsidiaries, The Coca-Cola Bottlers’ Association and various Coca-Cola bottlers, during the period from July 1, 1991 to June 30, 1995. The Company recognized the proceeds received of $7.0 million as a reduction of cost of sales.
Marketing funding support in the first quarter of 2004 included favorable nonrecurring items of approximately $2 million for certain customer-related marketing programs between the Company and The Coca-Cola Company.
| | | | | | | | | | | | | |
| | | Fiscal Year | |
In millions | | 2008 | | | 2007 | | | 2006 | |
| |
| Payments by the Company for concentrate, syrup, sweetener and other purchases | | $ | 362.5 | | | $ | 334.9 | | | $ | 341.7 | |
| Marketing funding support payments to the Company | | | 42.9 | | | | 38.1 | | | | 23.3 | |
| | | | | | | | | | | | | |
| Payments by the Company net of marketing funding support | | $ | 319.6 | | | $ | 296.8 | | | $ | 318.4 | |
| Payments by the Company for customer marketing programs | | $ | 48.6 | | | $ | 44.2 | | | $ | 46.6 | |
| Payments by the Company for cold drink equipment parts | | | 7.1 | | | | 5.7 | | | | 6.0 | |
| Fountain delivery and equipment repair fees paid to the Company | | | 10.4 | | | | 9.3 | | | | 8.8 | |
Presence marketing support provided by TheCoca-Cola Company on the Company’s behalf | | | 4.0 | | | | 4.3 | | | | 4.2 | |
Sales of finished products to TheCoca-Cola Company | | | 6.3 | | | | 26.1 | | | | 40.9 | |
The Company has a production arrangement with
Coca-Cola Enterprises Inc. (“CCE”) to buy and sell finished products at cost. Sales to CCE under this agreement were
$46.6$40.2 million,
$26.2$40.2 million and
$24.5$56.5 million in
2005, 20042008, 2007 and
2003,2006, respectively. Purchases from CCE under this arrangement were
$17.2$18.4 million,
$19.0$13.9 million and
$20.9$15.7 million in
2005, 20042008, 2007 and
2003,2006, respectively. The
Coca-Cola Company has significant equity interests in the Company and CCE. As of
January 1, 2006,December 28, 2008, CCE held
10.5%6.7% of the Company’s outstanding Common Stock but held no shares of the Company’s Class B Common
Stock, giving CCE a 7.6% equity interest in the Company’s total outstanding Common Stock and Class B Common Stock on a combined basis.Stock.
Along with all the other
Coca-Cola bottlers in the United States, the Company
has becomeis 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 negotiated the procurement for the majority of the Company’s raw materials (excluding concentrate) in
20052008, 2007 and
2004.2006. The Company paid
$.2 million, $.4 million and $.2$.3 million to CCBSS for its share of CCBSS’ administrative costs in
2005, 2004each of the years 2008, 2007 and
2003, respectively.2006. Amounts due from CCBSS for rebates on raw material purchases were
$2.5$4.1 million and
$1.1$3.2 million as of
January 1, 2006December 28, 2008 and
January 2, 2005,December 30, 2007, respectively. CCE is also a member of CCBSS.
The
Company provides a portion of the finished products for Piedmont at cost and receives a fee for managing the operations of Piedmont pursuant to a management agreement. The Company sold product at cost toCOCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Piedmont during 2005, 2004 and 2003 totaling $65.9 million, $77.2 million and $67.6 million, respectively. The Company received $21.1 million, $20.8 million and $17.6 million for management services pursuant to its management agreement with Piedmont for 2005, 2004 and 2003, respectively. The Company provides financing for Piedmont at the Company’s average cost of funds plus 0.50%. As of January 1, 2006, the Company had loaned $104.8 million to Piedmont. The loan was amended on August 25, 2005 to extend the maturity date from December 31, 2005 to December 31, 2010 on terms comparable to the previous loan. The Company also subleases various fleet and vending equipment to Piedmont at cost. These sublease rentals amounted to $8.6 million, $8.7 million and $8.4 million in 2005, 2004 and 2003, respectively. In addition, Piedmont subleases various fleet and vending equipment to the Company at cost. These sublease rentals amounted to $.2 million each year for all periods presented. All significant intercompany accounts and transactions between the Company and Piedmont have been eliminated.
On November 30, 1992, the Company and the previous owner of the Company’s Snyder Production Center (“SPC”) in Charlotte, North Carolina, who was unaffiliated with the Company, agreed to the early termination of the SPC lease.is leased from Harrison Limited Partnership One (“HLP”) purchased the property contemporaneously with the termination of the lease, and the Company leased SPC from HLP pursuant to a ten-year lease that was to expireexpires on November 30, 2002. HLP’s sole limited partnerDecember 31, 2010. HLP is a trustdirectly and indirectly owned by trusts of which J. Frank Harrison, III, Chairman of the Board of Directors and Chief Executive Officer of the Company, isand Deborah H. Everhart, a trustee. On August 9, 2000, a Special Committeedirector of the Board of Directors approved the sale by the Company, of propertyare trustees and improvements adjacent to SPC to HLP and a new lease of both the conveyed property and SPC with HLP, which expires on December 31, 2010. The sale closed on December 15, 2000 at a price of $10.5 million.beneficiaries. The annual base rent the Company wasis obligated to pay for its lease of this property is subject to adjustment for an inflation factor and for increases or decreases in interest rates, using LIBOR as the measurement device. The Company recorded a capital lease of $41.6 million at the end of the first quarter of 2002 related to this lease as the Company received a renewal option to extend the term of the lease, which it expects to exercise. The principal balance outstanding under this capital lease as of January 1, 2006December 28, 2008 was $39.7$37.7 million.
86
COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The minimum rentals and contingent rental payments that relate to this lease were as follows:
| | | | | | | | | | | | |
| | | Fiscal Year
| |
| | | 2005
| | | 2004
| | | 2003
| |
| In Millions | | | | | | | | | |
Minimum rentals | | $ | 4.3 | | | $ | 4.3 | | | $ | 4.2 | |
Contingent rentals | | | (.9 | ) | | | (1.5 | ) | | | (1.5 | ) |
| | |
|
|
| |
|
|
| |
|
|
|
Total rental payments | | $ | 3.4 | | | $ | 2.8 | | | $ | 2.7 | |
| | |
|
|
| |
|
|
| |
|
|
|
| | | | | | | | | | | | | |
| | | Fiscal Year | |
In millions | | 2008 | | | 2007 | | | 2006 | |
| |
| Minimum rentals | | $ | 4.7 | | | $ | 4.6 | | | $ | 4.5 | |
| Contingent rentals | | | (.9 | ) | | | (.4 | ) | | | (.5 | ) |
| | | | | | | | | | | | | |
| Total rental payments | | $ | 3.8 | | | $ | 4.2 | | | $ | 4.0 | |
| | | | | | | | | | | | | |
The contingent rentals in
2005, 20042008, 2007 and
20032006 reduce the minimum rentals as a result of changes in interest rates, using LIBOR as the measurement device. Increases or decreases in lease payments that result from changes in the interest rate factor are recorded as adjustments to interest expense.
In May 2000, the Company entered into a five-year consulting agreement with Reid M. Henson. Mr. Henson served as a Vice Chairman of the Board of Directors from 1983 to May 2000. Payments in 2005, 2004 and 2003 related to the consulting agreement totaled $145,833, $350,000 and $350,000, respectively.
On June 1, 1993, the Company entered into a lease agreement with Beacon Investment Corporation (“Beacon”) related to the Company’s headquarters office facility. Beacon’s sole shareholder is J. Frank Harrison, III. On January 5, 1999, the Company entered into a new ten-year lease agreement with Beacon which included the Company’s headquarters office facility and an adjacent office facility. On March 1, 2004, the Company
COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
recorded a capital lease of $32.4 million related to these facilities when the Company received a renewal option to extend the term of the lease. On December 18, 2006, the Company modified the lease agreement (effective January 1, 2007) with Beacon related to the Company’s headquarters office facility which expires in December 2021. The modified lease would not have changed the classification of the existing lease had it expectsbeen in effect on March 1, 2004 when the lease was capitalized and did not extend the term of the lease (remaining lease term was reduced from 21 years to exercise.15 years). Accordingly, the present value of the leased property under capital lease and capital lease obligations was adjusted by an amount equal to the difference between the future minimum lease payments under the modified lease agreement and the present value of the existing obligation on the commencement date of the modified lease (January 1, 2007). The capital lease obligation and leased property under capital leases was increased by $5.1 million on January 1, 2007. The principal balance outstanding under this capital lease as of January 1, 2006December 28, 2008 was $31.3$32.7 million. The annual base rent the Company is obligated to pay under thisthe modified lease is subject to adjustment for increases in the Consumer Price Index. The prior lease annual base rent was subject to adjustment for increases in the Consumer Price Index and for increases or decreases in interest rates using the Adjustedadjusted Eurodollar Rate as the measurement device.
The minimum rentals and contingent rental payments that relate to this lease were as follows:
| | | | | | | | | | | |
| | | Fiscal Year
| |
| | | 2005
| | 2004
| | | 2003
| |
| In Millions | | | | | | | | |
Minimum rentals | | $ | 3.2 | | $ | 3.2 | | | $ | 3.2 | |
Contingent rentals | | | .1 | | | (.3 | ) | | | (.4 | ) |
| | |
|
| |
|
|
| |
|
|
|
Total rental payments | | $ | 3.3 | | $ | 2.9 | | | $ | 2.8 | |
| | |
|
| |
|
|
| |
|
|
|
| | | | | | | | | | | | | |
| | | Fiscal Year | |
In millions | | 2008 | | | 2007 | | | 2006 | |
| |
| Minimum rentals | | $ | 3.5 | | | $ | 3.6 | | | $ | 3.2 | |
| Contingent rentals | | | .2 | | | | — | | | | .6 | |
| | | | | | | | | | | | | |
| Total rental payments | | $ | 3.7 | | | $ | 3.6 | | | $ | 3.8 | |
| | | | | | | | | | | | | |
The contingent rentals in
20052006 that relate to this lease increase minimum rentals as a result of changes in the Consumer Price Index partially offset by decreases in interest rates. The contingent rentals in
2004 and 2003 reduce minimum rentals as2008 are a result of changes
in interest rates partially offset by increases in the Consumer Price Index. Increases or decreases in lease payments that result from changes in the Consumer Price Index or changes in the interest rate factor are recorded as adjustments to interest
expense beginning in March 2004. Prior to March 2004, changes in the Consumer Price Index or changes in the interest rate factor were recorded as adjustments to rent expense in S,D&A expenses.expense.
The Company is a shareholder in two cooperativesentities from which it purchases substantially all of its requirements for plastic bottles. Net purchases from these entities were $72.7 million, $69.2 million $59.3 million and $51.1$70.0 million in 2005, 20042008, 2007 and 2003,2006, respectively. In conjunction with its participation in one of these cooperatives,entities, the Company has guaranteed a portion of the cooperative’sentity’s debt. Such guarantee amounted to $23.8$20.6 million as of January 1, 2006.December 28, 2008. The Company’s equity investment in one of these entities, Southeastern, was $11.0 million and $7.4 million as of December 28, 2008 and December 30, 2007, respectively.
87
COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 $127$142 million, $108$149 million and $105$133 million in 2005, 20042008, 2007 and 2003,2006, respectively. The Company manages the operations of SAC pursuant to a management agreement. Management fees earned from SAC were $1.5$1.4 million, $1.4 million and $1.6 million in 2008, 2007 and $1.3 million in 2005, 2004 and 2003,2006, respectively. The Company has also guaranteed a portion of debt for SAC. Such guarantee was $17.6$19.3 million as of January 1, 2006.December 28, 2008. The Company’s equity investment in SAC was $4.1 million and $4.0 million as of December 28, 2008 and December 30, 2007, respectively.
| |
| 19. | Net Sales by Product Category |
Net sales by product category were as follows:
| | | | | | | | | | | | | |
| | | Fiscal Year | |
In thousands | | 2008 | | | 2007 | | | 2006 | |
| |
| Bottle/can sales: | | | | | | | | | | | | |
| Sparkling beverages (including energy products) | | $ | 1,011,656 | | | $ | 1,007,583 | | | $ | 1,009,652 | |
| Still beverages | | | 227,171 | | | | 201,952 | | | | 180,004 | |
| | | | | | | | | | | | | |
| Total bottle/can sales | | | 1,238,827 | | | | 1,209,535 | | | | 1,189,656 | |
| | | | | | | | | | | | | |
| Other sales: | | | | | | | | | | | | |
Sales to otherCoca-Cola bottlers | | | 128,651 | | | | 127,478 | | | | 152,426 | |
| Post-mix and other | | | 96,137 | | | | 98,986 | | | | 88,923 | |
| | | | | | | | | | | | | |
| Total other sales | | | 224,788 | | | | 226,464 | | | | 241,349 | |
| | | | | | | | | | | | | |
| Total net sales | | $ | 1,463,615 | | | $ | 1,435,999 | | | $ | 1,431,005 | |
| | | | | | | | | | | | | |
Sparkling beverages are primarily carbonated beverages while still beverages are primarily noncarbonated beverages.
88
In March 2005, the Company entered into a two-year consulting agreement with Robert D. Pettus, Jr. Mr. Pettus served as an officer of the Company in various capacities from 1984 and is currently the Vice Chairman of the Board of Directors of the Company. Mr. Pettus will receive $350,000 per year plus additional benefits as described in the consulting agreement during the term of this consulting agreement.
In June 2005, the Company entered into a two-year consulting agreement with David V. Singer. Mr. Singer served the Company as Executive Vice President and Chief Financial Officer until his resignation on May 11, 2005. The Company agreed to waive the 50% reduction in Mr. Singer’s accrued benefits under the Company’s Officer Retention Plan due to the termination of his employment before age 55. Under the consulting agreement, Mr. Singer agreed to certain non-compete restrictions for a five-year period following his resignation.
COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS19. Earnings Per Share
The following table sets forth the computation of basic net income per share and diluted net income per share:share under the two-class method. See Note 1 to the consolidated financial statements for additional information related to net income per share.
| | | | | | | | | | | | | |
| | | Fiscal Year | |
In thousands (except per share data) | | 2008 | | | 2007 | | | 2006 | |
| |
| Numerator for basic and diluted net income per Common Stock | | | | | | | | | | | | |
| and Class B Common Stock share: | | | | | | | | | | | | |
| Net income | | $ | 9,091 | | | $ | 19,856 | | | $ | 23,243 | |
| Less dividends: | | | | | | | | | | | | |
| Common Stock | | | 6,644 | | | | 6,644 | | | | 6,643 | |
| Class B Common Stock | | | 2,500 | | | | 2,480 | | | | 2,460 | |
| | | | | | | | | | | | | |
| Total undistributed earnings | | $ | (53 | ) | | $ | 10,732 | | | $ | 14,140 | |
| | | | | | | | | | | | | |
| Common Stock undistributed earnings — basic | | $ | (39 | ) | | $ | 7,815 | | | $ | 10,319 | |
| Class B Common Stock undistributed earnings — basic | | | (14 | ) | | | 2,917 | | | | 3,821 | |
| | | | | | | | | | | | | |
| Total undistributed earnings | | $ | (53 | ) | | $ | 10,732 | | | $ | 14,140 | |
| | | | | | | | | | | | | |
| Common Stock undistributed earnings — diluted | | $ | (38 | ) | | $ | 7,800 | | | $ | 10,300 | |
| Class B Common Stock undistributed earnings — diluted | | | (15 | ) | | | 2,932 | | | | 3,840 | |
| | | | | | | | | | | | | |
| Total undistributed earnings — diluted | | $ | (53 | ) | | $ | 10,732 | | | $ | 14,140 | |
| | | | | | | | | | | | | |
| Numerator for basic net income per Common Stock share: | | | | | | | | | | | | |
| Dividends on Common Stock | | $ | 6,644 | | | $ | 6,644 | | | $ | 6,643 | |
| Common Stock undistributed earnings — basic | | | (39 | ) | | | 7,815 | | | | 10,319 | |
| | | | | | | | | | | | | |
| Numerator for basic net income per Common Stock share | | $ | 6,605 | | | $ | 14,459 | | | $ | 16,962 | |
| | | | | | | | | | | | | |
| Numerator for basic net income per Class B Common Stock share: | | | | | | | | | | | | |
| Dividends on Class B Common Stock | | $ | 2,500 | | | $ | 2,480 | | | $ | 2,460 | |
| Class B Common Stock undistributed earnings — basic | | | (14 | ) | | | 2,917 | | | | 3,821 | |
| | | | | | | | | | | | | |
| Numerator for basic net income per Class B Common Stock share | | $ | 2,486 | | | $ | 5,397 | | | $ | 6,281 | |
| | | | | | | | | | | | | |
| Numerator for diluted net income per Common Stock share: | | | | | | | | | | | | |
| Dividends on Common Stock | | $ | 6,644 | | | $ | 6,644 | | | $ | 6,643 | |
| Dividends on Class B Common Stock assumed converted to Common Stock | | | 2,500 | | | | 2,480 | | | | 2,460 | |
| Common Stock undistributed earnings — diluted | | | (53 | ) | | | 10,732 | | | | 14,140 | |
| | | | | | | | | | | | | |
| Numerator for diluted net income per Common Stock share | | $ | 9,091 | | | $ | 19,856 | | | $ | 23,243 | |
| | | | | | | | | | | | | |
89
| | | | | | | | | |
| | | Fiscal Year
|
| | | 2005
| | 2004
| | 2003
|
| In Thousands (Except Per Share Data) | | | | | | |
Numerator: | | | | | | | | | |
Numerator for basic net income and diluted net income per share | | $ | 22,951 | | $ | 21,848 | | $ | 30,703 |
| | |
|
| |
|
| |
|
|
Denominator: | | | | | | | | | |
Denominator for basic net income per share and diluted net income per share—weighted average common shares | | | 9,083 | | | 9,063 | | | 9,043 |
| | |
|
| |
|
| |
|
|
| | | |
Basic and diluted net income per share | | $ | 2.53 | | $ | 2.41 | | $ | 3.40 |
| | |
|
| |
|
| |
|
|
20. Risks and Uncertainties
COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| | | | | | | | | | | | | |
| | | Fiscal Year | |
In thousands (except per share data) | | 2008 | | | 2007 | | | 2006 | |
| |
| Numerator for diluted net income per Class B Common Stock share: | | | | | | | | | | | | |
| Dividends on Class B Common Stock | | $ | 2,500 | | | $ | 2,480 | | | $ | 2,460 | |
| Class B Common Stock undistributed earnings — diluted | | | (15 | ) | | | 2,932 | | | | 3,840 | |
| | | | | | | | | | | | | |
| Numerator for diluted net income per Class B Common Stock share | | $ | 2,485 | | | $ | 5,412 | | | $ | 6,300 | |
| | | | | | | | | | | | | |
| Denominator for basic net income per Common Stock and Class B Common Stock share: | | | | | | | | | | | | |
| Common Stock weighted average shares outstanding — basic | | | 6,644 | | | | 6,644 | | | | 6,643 | |
| Class B Common Stock weighted average shares outstanding — basic | | | 2,500 | | | | 2,480 | | | | 2,460 | |
| | | | | | | | | | | | | |
| 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) | | | 9,160 | | | | 9,141 | | | | 9,120 | |
| Class B Common Stock weighted average shares outstanding — diluted | | | 2,516 | | | | 2,497 | | | | 2,477 | |
| | | | | | | | | | | | | |
| Basic net income per share: | | | | | | | | | | | | |
| Common Stock | | $ | .99 | | | $ | 2.18 | | | $ | 2.55 | |
| | | | | | | | | | | | | |
| Class B Common Stock | | $ | .99 | | | $ | 2.18 | | | $ | 2.55 | |
| | | | | | | | | | | | | |
| Diluted net income per share: | | | | | | | | | | | | |
| Common Stock | | $ | .99 | | | $ | 2.17 | | | $ | 2.55 | |
| | | | | | | | | | | | | |
| Class B Common Stock | | $ | .99 | | | $ | 2.17 | | | $ | 2.54 | |
| | | | | | | | | | | | | |
NOTES TO TABLE
| | |
| (1) | | For purposes of the diluted net income per share computation for Common Stock, 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 for 2008 and 2007 includes the diluted effect of shares relative to the restricted stock award. |
| |
| 21. | Risks and Uncertainties |
Approximately
90%89% of the Company’s
2008 bottle/can
sales 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
10%11% of the Company’s
sales2008 bottle/can volume to retail customers are products of other beverage
companies.companies and the Company. The Company has
bottling contractsbeverage agreements under which it has various requirements to meet. Failure to meet the requirements of these
bottling contractsbeverage agreements could result in the loss of distribution rights for the respective product.
The Company’s products are sold and distributed directly by its employees to retail stores and other outlets. During 2005,2008, approximately 67%68% of the Company’s bottle/can sales volume to retail customers was sold for future consumption. The remaining bottle/can sales volume to retail customers of approximately 33%32% was sold for immediate consumption. The Company’s largest customers, Wal-Mart Stores, Inc. and Food Lion, LLC, accounted for approximately 15%19% and 10%12% of the Company’s total bottle/can sales volume to retail customers during 2005,2008, respectively. Wal-Mart Stores, Inc. accounted for approximately 11%14% of the Company’s total net sales.
90
COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company currently obtains all of its aluminum cans from one domestic supplier. The Company currently obtains all of its plastic bottles from two domestic
cooperatives.entities. See Note 18 of 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 oil which impacts the Company’s cost of fuel used in the movement and delivery of the Company’s products. The Company participates in commodity hedging and risk mitigation programs administered both by CCBSS and by the Company itself.
High fructose corn syrup costs increased significantly during 2008 as a result of increasing demand for corn products around the world for such purposes as ethanol production. The combined impact of increasing costs for aluminum cans and high fructose corn syrup increased cost of sales during 2008. In addition, there is no limit on the price TheCoca-Cola Company and other beverage companies can charge for concentrate.
Certain liabilities of the Company are subject to risk of changes in both long-term and short-term interest rates. These liabilities include floating rate debt, leases with payments determined on floating interest rates, postretirement benefit obligations and the Company’s pension liability.
Approximately 7% of the Company’s labor force is currently covered by collective bargaining agreements.
Two collective bargaining agreements covering approximately 5% of the Company’s employees expired during 2008 and the Company entered into new agreements in 2008. One collective bargaining contract covering
less thanapproximately .5% of the Company’s employees expires during
2006.COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
21. Supplemental Disclosures of Cash Flow Information
2009.
| |
| 22. | Supplemental Disclosures of Cash Flow Information |
Changes in current assets and current liabilities affecting cash were as follows:
| | | | | | | | | | | | |
| | | Fiscal Year
| |
| | | 2005
| | | 2004
| | | 2003
| |
| In Thousands | | | | | | | | | |
Accounts receivable, trade, net | | $ | (12,540 | ) | | $ | 186 | | | $ | (2,674 | ) |
Accounts receivable from The Coca-Cola Company | | | 4,330 | | | | 11,063 | | | | (5,120 | ) |
Accounts receivable, other | | | (1,751 | ) | | | 1,026 | | | | 6,338 | |
Inventories | | | (9,347 | ) | | | (1,597 | ) | | | 1,757 | |
Prepaid expenses and other current assets | | | 618 | | | | (1,429 | ) | | | (671 | ) |
Accounts payable, trade | | | 13,547 | | | | (8,504 | ) | | | 1,190 | |
Accounts payable to The Coca-Cola Company | | | (2,707 | ) | | | 6,443 | | | | (9,653 | ) |
Other accrued liabilities | | | 13,163 | | | | (14,916 | ) | | | (4,445 | ) |
Accrued compensation | | | 2,924 | | | | (845 | ) | | | (209 | ) |
Accrued interest payable | | | (3,335 | ) | | | 475 | | | | 275 | |
| | |
|
|
| |
|
|
| |
|
|
|
(Increase) decrease in current assets less current liabilities | | $ | 4,902 | | | $ | (8,098 | ) | | $ | (13,212 | ) |
| | |
|
|
| |
|
|
| |
|
|
|
| | | | | | | | | | | | | |
| | | Fiscal Year | |
In thousands | | 2008 | | | 2007 | | | 2006 | |
| |
| Accounts receivable, trade, net | | $ | (7,350 | ) | | $ | (1,200 | ) | | $ | 3,277 | |
Accounts receivable from TheCoca-Cola Company | | | 346 | | | | 1,115 | | | | (2,196 | ) |
| Accounts receivable, other | | | (5,123 | ) | | | 698 | | | | (177 | ) |
| Inventories | | | (1,963 | ) | | | 3,521 | | | | (8,822 | ) |
| Prepaid expenses and other current assets | | | (573 | ) | | | (7,318 | ) | | | (4,806 | ) |
| Accounts payable, trade | | | (8,940 | ) | | | 7,273 | | | | 8,717 | |
Accounts payable to TheCoca-Cola Company | | | 23,714 | | | | (10,151 | ) | | | 6,232 | |
| Other accrued liabilities | | | 6,241 | | | | 5,824 | | | | 1,738 | |
| Accrued compensation | | | (162 | ) | | | 3,776 | | | | 1,562 | |
| Accrued interest payable | | | (278 | ) | | | (1,591 | ) | | | 338 | |
| | | | | | | | | | | | | |
| Decrease in current assets less current liabilities | | $ | 5,912 | | | $ | 1,947 | | | $ | 5,863 | |
| | | | | | | | | | | | | |
Cash payments for interest and income taxes were as follows:
| | | | | | | | | | | | | |
| | | Fiscal Year |
In thousands | | 2008 | | 2007 | | 2006 |
| |
| Interest | | $ | 35,133 | | | $ | 51,277 | | | $ | 50,843 | |
| Income taxes | | | 6,954 | | | | 21,361 | | | | 17,213 | |
91
| | | | | | | | | | |
| | | Fiscal Year
| |
| | | 2005
| | 2004
| | 2003
| |
| In Thousands | | | | | | | |
Interest | | $ | 51,663 | | $ | 44,123 | | $ | 42,722 | |
Income taxes (net of refunds) | | | 11,183 | | | 3,381 | | | (7,172 | ) |
COCA-COLA BOTTLING CO. CONSOLIDATED
22. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| |
| 23. | New Accounting Pronouncements |
New AccountingRecently Adopted PronouncementsIn November 2004,September 2006, the Financial Accounting Standards Board (“FASB”)FASB issued SFAS No. 158 which was effective for the year ending December 31, 2006 except for the requirement that benefit plan assets and obligations be measured as of the date of the employer’s statement of financial position, which was effective for the year ending December 28, 2008. The impact of the adoption of the change in measurement dates was not material to the consolidated financial statements. See Note 15 and Note 17 of the consolidated financial statements for additional information.
In September 2006, the FASB issued SFAS No. 157 which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (GAAP) and expands disclosures about fair value measurements. The Statement does not require any new fair value measurements but could change the current practices in measuring current fair value measurements. The Statement was effective at the beginning of the first quarter of 2008 for all financial assets and liabilities and for nonfinancial assets and liabilities recognized or disclosed at fair value on a recurring basis. The adoption of this Statement did not have a material impact on the consolidated financial statements. See Note 11 to the consolidated financial statements for additional information. In February 2008, the FASB issued FASB Staff PositionSFAS No. 157-2, “Effective Date of FASB Statement No. 151, “Inventory Costs—157,” which defers the application date of the provisions of SFAS No. 157 for all nonfinancial assets and liabilities until the first quarter of 2009 except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis. The Company is in the process of evaluating the impact related to the Company’s nonfinancial assets and liabilities not valued on a recurring basis.
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities.” This Statement permits entities to choose to measure many financial instruments and certain other items at fair value. This Statement was effective at the beginning of the first quarter of 2008. The Company has not applied the fair value option to any of its outstanding instruments; therefore, the Statement did not have an impact on the consolidated financial statements.
In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles.” This Statement identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements that are presented in conformity with generally accepted accounting principles in the United States. This Statement was effective on November 15, 2008 and did not have a material impact on the consolidated financial statements.
In October 2008, the FASB issued FSPNo. 157-3, “Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active”(FSP 157-3).FSP 157-3 clarifies the application of SFAS No. 157 in a market that is not active and provides an example to illustrate key considerations in determining the fair value of a financial asset when the market for that financial asset is not active. The adoption of this FSP did not have an impact on the Company’s consolidated financial statements.
In December 2008, the FASB issued FASB Staff PositionFAS 140-4 and FIN 46(R)-8, “Disclosures by Public Entities (Enterprises) About Transfers of Financial Assets and Interest in Variable Interest Entities”(FSP 140-4).FSP 140-4 requires additional disclosure about transfers of financial assets and an enterprise’s involvement with variable interest entities.FSP 140-4 was effective for the first reporting period ending after December 15, 2008.FSP 140-4 did not have a material impact on the Company’s consolidated financial statements.
Recently Issued Pronouncements
In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interest in Consolidated Financial Statements — an amendment of ARB No. 43, Chapter 4.51.” This Statement clarifiesamends Accounting Research Bulletin No. 51 to establish accounting and reporting standards for the accountingnoncontrolling interest in a subsidiary (commonly referred to as minority interest) and for abnormal amountsthe deconsolidation of idle facility expense, freight, handling costsa subsidiary. The Statement is effective for fiscal years beginning
92
COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
on or after December 15, 2008. The Company anticipates that the adoption of this Statement will not have a material impact on the consolidated financial statements, although changes in financial statement presentation will be required.
In December 2007, the FASB revised SFAS No. 141, “Business Combinations” (SFAS No. 141(R)). This Statement established principles and wasted material (spoilage)requirements for recognizing and measuring identifiable assets and goodwill acquired, liabilities assumed and any noncontrolling interest in an acquisition, at their fair values as of the acquisition date. The Statement is effective for fiscal years beginning on or after December 15, 2008. The impact on the Company of adopting SFAS No. 141(R) will depend on the nature, terms and size of business combinations completed after the effective date.
In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities — an amendment of FASB Statement No. 133” (“SFAS No. 161”). This Statement amends and expands the disclosure requirements of Statement No. 133 to provide an enhanced understanding of why an entity uses derivative instruments, how derivative instruments and related hedged items are accounted for and how they affect an entity’s financial position, financial performance and cash flows. The Statement is effective for fiscal years and interim periods beginning on or after November 15, 2008. The adoption of this Statement will not impact the consolidated financial statements other than expanded footnote disclosures related to derivative instruments and related hedged items.
In April 2008, the FASB issued FASB Staff PositionNo. 142-3, “Determination of the Useful Life of Intangible Assets”(“FSP 142-3”).FSP 142-3 amends the factors to be considered in developing renewal or extension assumptions used to determine the useful life of intangible assets under SFAS No. 142, “Goodwill and Other Intangible Assets.” The intent ofFSP 142-3 is to improve the consistency between the useful life of an intangible asset and the period of expected cash flows used to measure its fair value.FSP 142-3 is effective for fiscal years beginning after
JuneDecember 15,
2005.2008. The
adoption of this StatementCompany is in the
first quarterprocess of
2006 isevaluating the impact ofFSP 142-3, but does not
anticipatedexpect it to have a material impact on the Company’s consolidated financial statements.
In
December 2004,September 2008, the FASB issued
Statement FASB Staff PositionNo. 153, “Exchanges of Nonmonetary Assets—an amendment of APB Opinion No. 29.” This Statement eliminates the exception for nonmonetary exchanges of similar productive assets133-1 and
replaces it with a general exception for exchanges on nonmonetary assets that do not have commercial substanceFIN 45-4, “Disclosures About Credit Derivatives and
was effective for fiscal periods beginning after June 15, 2005. The adoption of this Statement did not have an impact on the Company’s consolidated financial statements.In December 2004, the FASB issued Statement No. 123 (revised 2004), “Share-Based Payment.” This Statement is a revisionCertain Guarantees: An Amendment of FASB Statement No. 123, “Accounting for Stock-Based Compensation”133 and is effective for the Company asFASB Interpretation No. 45; and Clarification of the beginningEffective Date of FASB Statement No. 161”(“FSP 133-1”).FSP 133-1 amends Statement 133 to require a seller of credit derivatives to provide certain disclosures for each credit derivative (or group of similar credit derivatives).FSP 133-1 also amends Interpretation No. 45 to require guarantors to disclose “the current status of payment/performance risk of guarantees” and clarifies the first quartereffective date of fiscal year 2006. The Statement required public companies to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award.SFAS No. 161. The Company will adopt this Statement beginning January 2, 2006, usingis in the modified prospective application method. The adoptionprocess of this Statement isevaluating the impact ofFSP 133-1, but does not anticipatedexpect it to have a material impact on the Company’s consolidated financial statements.
COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In
March 2005,December 2008, the FASB issued FASB
InterpretationStaff Position No.
47, “Accounting for Conditional Asset Retirement Obligations”132(R)-1, “Employers’ Disclosures about Postretirement Benefit Plan Assets” (“
FIN 47”FSP 132(R)-1”).
FIN 47 clarifies thatFSP 132(R)-1 requires enhanced detail disclosures about plan assets of a
conditional asset retirement obligation, ascompany’s defined benefit pension and other postretirement plans. The enhanced disclosures are intended to provide users of financial statements with a greater understanding of (1) employers’ investment strategies; (2) major categories of plan assets; (3) the inputs and valuation techniques used
in FASB Statement 143, “Accounting for Asset Retirement Obligations,” refers to
a legal obligation to perform an asset retirement activity in which the timing and/or method of the settlement are conditional on a future event that may or may not be within the control of the entity. Accordingly, an entity is required to recognize a liability formeasure the fair value of
a conditional asset retirement obligation ifplan assets; (4) the
effect of fair value
can be reasonably estimated. FIN 47 wasmeasurements using significant unobservable inputs (Level 3) on changes in plan assets for the period; and (5) concentration of risk within plan assets. FSP 132(R)-1 is effective
as of the end offor fiscal years ending after December 15,
2005.2009. The adoption of this
Interpretation didStatement will not
have an impact
on the Company’s
consolidated financial statements.In May 2005, the FASB issued Statement No. 154, “Accounting Changes and Error Corrections—a replacement of APB Opinion No. 20 and FASB Statement No. 3.” This Statement requires retrospective application to prior period financial statements of a voluntary change in accounting principle unless it is impracticable and is effective for fiscal years beginning after December 15, 2005. Previously, most voluntary changes in accounting principle were recognized by including in net income of the period of the change the cumulative effect of changingother than expanded footnote disclosures related to the new accounting principle.Company’s pension plan assets.
93
23. Quarterly Financial Data (Unaudited)
COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| |
| 24. | Quarterly Financial Data (Unaudited) |
Set forth below are unaudited quarterly financial data for the fiscal years ended
January 1, 2006December 28, 2008 and
January 2, 2005. | | | | | | | | | | | | |
| | | Quarter
|
| In Thousands (Except Per Share Data) | | 1
| | 2
| | 3
| | 4
|
| Year Ended January 1, 2006 | | | | | | | | |
Net sales | | $ | 309,185 | | $ | 361,224 | | $ | 362,046 | | $ | 347,717 |
Gross margin | | | 141,802 | | | 168,534 | | | 163,308 | | | 154,119 |
Net income | | | 719 | | | 11,519 | | | 8,792 | | | 1,921 |
Basic net income per share | | | .08 | | | 1.27 | | | .97 | | | .21 |
Diluted net income per share | | | .08 | | | 1.27 | | | .97 | | | .21 |
| |
| | | Quarter
|
| In Thousands (Except Per Share Data) | | 1
| | 2
| | 3
| | 4
|
| Year Ended January 2, 2005 | | | | | | | | |
Net sales | | $ | 285,115 | | $ | 336,390 | | $ | 324,237 | | $ | 321,485 |
Gross margin | | | 142,243 | | | 162,444 | | | 153,488 | | | 149,586 |
Net income | | | 2,795 | | | 10,623 | | | 6,108 | | | 2,322 |
Basic net income per share | | | .31 | | | 1.17 | | | .67 | | | .26 |
Diluted net income per share | | | .31 | | | 1.17 | | | .67 | | | .26 |
Due to the 53-week fiscal year in 2004, the fourth quarter of 2004 had fourteen weeks compared to thirteen weeks in the fourth quarter of 2005. Net income in the fourth quarter of 2004 was impacted by a $1.2 million charge to interest expense ($.7 million after income tax effect) related to a state tax audit.
December 30, 2007.
| | | | | | | | | | | | | | | | | |
| | | Quarter | |
Year Ended December 28, 2008 | | 1 | | | 2(1) | | | 3(2) | | | 4(3) | |
| In thousands (except per share data) | | | | | | | | | | | | |
| |
| Net sales | | $ | 337,674 | | | $ | 396,003 | | | $ | 381,563 | | | $ | 348,375 | |
| Gross margin | | | 139,918 | | | | 171,880 | | | | 155,827 | | | | 147,581 | |
| Net income (loss) | | | (4,335 | ) | | | 15,155 | | | | (3,145 | ) | | | 1,416 | |
| Basic net income (loss) per share: | | | | | | | | | | | | | | | | |
| Common Stock | | | (.47 | ) | | | 1.66 | | | | (.34 | ) | | | .15 | |
| Class B Common Stock | | | (.47 | ) | | | 1.66 | | | | (.34 | ) | | | .15 | |
| Diluted net income (loss) per share: | | | | | | | | | | | | | | | | |
| Common Stock | | | (.47 | ) | | | 1.65 | | | | (.34 | ) | | | .15 | |
| Class B Common Stock | | | (.47 | ) | | | 1.65 | | | | (.34 | ) | | | .15 | |
| | | | | | | | | | | | | | | | | |
| | | Quarter | |
Year Ended December 30, 2007 | | 1(4) | | | 2 | | | 3 | | | 4 | |
| In thousands (except per share data) | | | | | | | | | | | | |
| |
| Net sales | | $ | 337,556 | | | $ | 390,443 | | | $ | 367,360 | | | $ | 340,640 | |
| Gross margin | | | 151,491 | | | | 169,290 | | | | 155,212 | | | | 145,141 | |
| Net income (loss) | | | 4,651 | | | | 11,691 | | | | 5,273 | | | | (1,759 | ) |
| Basic net income (loss) per share: | | | | | | | | | | | | | | | | |
| Common Stock | | | .51 | | | | 1.28 | | | | .58 | | | | (.19 | ) |
| Class B Common Stock | | | .51 | | | | 1.28 | | | | .58 | | | | (.19 | ) |
| Diluted net income (loss) per share: | | | | | | | | | | | | | | | | |
| Common Stock | | | .51 | | | | 1.28 | | | | .58 | | | | (.19 | ) |
| Class B Common Stock | | | .51 | | | | 1.28 | | | | .58 | | | | (.19 | ) |
Sales are seasonal, with the highest sales volume occurring in May, June, July and August.
| | |
| (1) | | Net income in the second quarter of 2008 included a $2.6 million ($1.6 million net of tax, or $0.17 per basic common share) increase in equity investment in plastic bottle cooperative. |
|
| (2) | | Net income in the third quarter of 2008 included a $13.8 million ($7.2 million net of tax, or $0.78 per basic common share) charge to exit from a multi-employer pension plan and $4.0 million ($2.1 million net of tax, or $0.23 per basic common share) charge for restructuring activities. |
|
| (3) | | Net income in the fourth quarter of 2008 included a $2.0 million ($1.0 million net of tax, or $0.11 per basic common share) charge for a mark-to-market adjustment related to the Company’s fuel hedging program. |
|
| (4) | | Net income in the first quarter of 2007 included a $2.6 million ($1.5 million net of tax, or $0.16 per basic common share) charge for restructuring activities. |
94
24. Subsequent Events
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
COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSCompany’s Board of Directors also approved an amendment to the 401(k) Savings Plan to increase
| |
| 25. | Restructuring Expenses |
On February 2, 2007, the Company matching contributioninitiated plans to simplify its operating management structure and reduce its workforce in order to improve operating efficiencies across the Company’s business. The restructuring expenses consist primarily of one-time termination benefits and other associated costs, primarily relocation expenses for certain employees. Total pre-tax restructuring expenses under these plans were $2.8 million, all of which were recorded in fiscal year 2007.
On July 15, 2008, the
401(k) Savings Plan effective January 1, 2007. The amendmentCompany initiated a plan to
reorganize the
401(k) Savings Plan will provide for fully vested matching contributions equal to one hundred percentstructure of
a participant’s elective deferrals toits operating units and support services, which resulted in the
401(k) Savings Plan up to a maximumelimination of
approximately 350 positions, or approximately 5% of
its workforce. As a
participant’s eligible compensation.On February 14, 2006, forty-eight Coca-Cola bottler plaintiffs filed suit in United States District Court for the Western Districtresult of Missouri against The Coca-Cola Company and Coca-Cola Enterprises Inc. (“CCE”). On February 24, 2006, the plaintiffs filed an amended complaint adding twelve bottlers as plaintiffs. In the lawsuit,Ozarks Coca-Cola/Dr Pepper Bottling Company, et .al. vs. The Coca-Cola Company and Coca-Cola Enterprises Inc., Civil Action File No. 06-3056-CV-S, the bottler plaintiffs purport to bring claims for breach of contract and breach of duty and other related claims arising out of CCE’sthis plan, to offer warehouse delivery of POWERade to Wal-Mart Stores, Inc. (“Wal-Mart”) within CCE’s territory. The bottler plaintiffs seek preliminary and permanent injunctive relief prohibiting the warehouse delivery of POWERade and unspecified compensatory and punitive damages.
On March 3, 2006, the Company filed a motion seeking permission to interveneincurred $4.6 million in pre-tax restructuring expenses in 2008 for one-time termination benefits. The plan was substantially completed in 2008 and the lawsuitmajority of cash expenditures occurred in 2008.
The following table summarizes restructuring activity, which is included in selling, delivery and administrative expenses for the limited purpose of opposing the preliminary2008 and permanent injunctive relief sought by the bottler plaintiffs. The Company seeks permission to intervene because it also plans to offer warehouse delivery of POWERade to Wal-Mart within the Company’s territory and therefore opposes the relief requested by the bottler plaintiffs.2007.
| | | | | | | | | | | | | |
| | | Severance Pay
| | | Relocation
| | | | |
In thousands | | and Benefits | | | and Other | | | Total | |
| |
| Balance at December 31, 2006 | | $ | — | | | $ | — | | | $ | — | |
| Provision | | | 1,607 | | | | 1,146 | | | | 2,753 | |
| Cash payments | | | 1,607 | | | | 1,146 | | | | 2,753 | |
| | | | | | | | | | | | | |
| Balance at December 30, 2007 | | $ | — | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Balance at December 30, 2007 | | $ | — | | | $ | — | | | $ | — | |
| Provision | | | 4,559 | | | | 63 | | | | 4,622 | |
| Cash payments | | | 3,583 | | | | 50 | | | | 3,633 | |
| | | | | | | | | | | | | |
| Balance at December 28, 2008 | | $ | 976 | | | $ | 13 | | | $ | 989 | |
| | | | | | | | | | | | | |
95
Management’s Report on Internal Control over Financial Reporting Management of
Coca-Cola Bottling Co. Consolidated (the “Company”) is responsible for establishing and maintaining adequate internal control over financial reporting as defined in
Rules 13a-15(f) and
15d-15(f) under the Exchange Act. The Company’s internal control over financial reporting is a process designed under the supervision of the Company’s
principalchief executive and
principalchief financial officers to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s consolidated financial statements for external purposes in accordance with the U.S. generally accepted accounting principles. The Company’s internal control over financial reporting includes policies and procedures that:
(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets of the Company;
(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of management and the directors of the Company; and
(iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on
ourthe Company’s financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect all
misstatements or instances of fraud. As such, a control system, no matter how well conceived and operated, can provide only reasonable assurance that the objectives of the control system are met.misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate due to changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
As of
January 1, 2006,December 28, 2008, management assessed the effectiveness of the Company’s internal control over financial reporting based on the framework established in
Internal Control—Control — Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, management determined that the Company’s internal control over financial reporting as of
January 1, 2006December 28, 2008 is effective.
Management’s assessment of the
The effectiveness of the Company’s internal control over financial reporting as of January 1, 2006December 28, 2008, has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report appearing on pages 85 and 86, which expresses unqualified opinions on management’s assessment of internal control over financial reporting and on the effectiveness of the Company’s internal control over financial reporting as of January 1, 2006.page 97.
March 12, 2009
96
March 10, 2006
Report of Independent Registered Public Accounting Firm To the Board of Directors and Stockholders
of
Coca-Cola Bottling
Co.Co Consolidated:
We have completed an integrated audit of Coca-Cola Bottling Co. Consolidated’s January 1, 2006 and January 2, 2005 consolidated financial statements and of its internal control over financial reporting as of January 1, 2006 and an audit of its December 28, 2003 consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Our opinions, based on our audits, are presented below.
Consolidated financial statements and financial statement schedule
In our opinion, the consolidated financial statements listed in the
accompanying index appearing under Item 15(a)(1) present fairly, in all material respects, the financial position of
Coca-Cola Bottling Co. Consolidated and its subsidiaries at
January 1, 2006December 28, 2008 and
January 2, 2005,December 30, 2007, and the results of their operations and their cash flows for each of the three years in the period ended
January 1, 2006December 28, 2008 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the
accompanying index appearing under Item 15(a)(2)
, presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements.
TheseAlso in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 28, 2008, based on criteria established inInternal Control — Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these financial statements and
the financial statement schedule,
are the responsibilityfor maintaining effective internal control over financial reporting and for its assessment of the
Company’s management.effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express
an opinionopinions on these financial statements,
andon the financial statement schedule,
and on the Company’s internal control over financial reporting based on our
integrated audits. We conducted our audits
of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the
auditaudits to obtain reasonable assurance about whether the financial statements are free of material
misstatement. An auditmisstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of
the financial statements
includesincluded examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation.
Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our
opinion.Internal control overopinions.
As discussed in Note 14 to the consolidated financial
reportingAlso, in our opinion, management’s assessment, included in Management’s Report on Internal Control over Financial Reporting appearing on page 84, thatstatements, the Company maintained effective internal control over financial reportingadopted Financial Accounting Standards Board Interpretation No. 48,Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement 109, as of January 1, 2006 based on criteria established2007.
As discussed in
Internal Control—Integrated Framework issued by Note 17 to the
Committee of Sponsoring Organizations of the Treadway Commission (COSO), is fairly stated, in all material respects, based on those criteria. Furthermore, in our opinion,consolidated financial statements, the Company
maintained,changed the manner in
all material respects, effective internal control over financial reporting as of January 1, 2006, based on criteria establishedwhich it accounts for pension and postretirement benefits in
Internal Control—Integrated Frameworkissued by the COSO. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express opinions on management’s assessment and on the effectiveness of the Company’s internal control over financial reporting based on our audit. We conducted our audit of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. An audit of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we consider necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions. 2006.
A company’s internal control over financial reporting is a process designed 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. A company’s internal control over financial reporting
includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ PRICEWATERHOUSECOOPERS
PricewaterhouseCoopers LLP
Charlotte, North Carolina
March 12, 2009
97
March 13, 2006
The financial statement schedule required by
Regulation S-X is set forth in response to Item 15 below.
The supplementary data required by Item 302 of
Regulation S-K is set forth in Note
2324 to the consolidated financial statements.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
| |
| Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
Not applicable.
Item 9A. Controls and Procedures
| |
| Item 9A. | 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 Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s “disclosure controls and procedures” (as defined in
Rule 13a-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”)) pursuant to
Rule 13a-15(b) of the Exchange Act. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective for the purpose of providing reasonable assurance that the information required to be disclosed in the reports the Company files or submits under the Exchange Act (i) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures.
See page
8496 for “Management’s Report on Internal Control over Financial Reporting.” See
pages 85 and 86page 97 for the “Report of Independent Registered Public Accounting Firm.”
There has been no change in the Company’s internal control over financial reporting during the quarter ended
January 1, 2006December 28, 2008 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
Item 9B. Other Information
| |
| Item 9B. | Other Information |
Not applicable.
98
PART IIIItem 10. Directors and Executive Officers of the Company
| |
| Item 10. | Directors, Executive Officers and Corporate Governance |
For information with respect to the executive officers of the Company, see “Executive Officers of the Company” included as a separate item at the end of Part I of this Report. For information with respect to the Directors of the Company, see the
“Election“Proposal 1: Election of Directors” section of the Proxy Statement for the
20062009 Annual Meeting of Stockholders, which is incorporated herein by reference. For information with respect to Section 16 reports, see the
“Election of Directors—Section“Section 16(a) Beneficial Ownership Reporting Compliance” section of the Proxy Statement for the
20062009 Annual Meeting of Stockholders, which is incorporated herein by reference.
For information with respect to the Audit Committee of the Board of Directors, see the “Corporate Governance — The Audit Committee” section of the Proxy Statement for the 2009 Annual Meeting of Stockholders, which is incorporated herein by reference.
The Company has adopted a Code of Ethics for Senior Financial Officers, which is intended to qualify as a “code of ethics” within the meaning of Item 406 of
Regulation S-K of the Exchange Act (the “Code of Ethics”). The Code of Ethics applies to the Company’s Chief Executive
Officer,Officer; Chief Operating
Officer,Officer; Chief Financial
Officer,Officer; Vice
President-Controller,President, Controller; Vice
President-Treasurer, Vice President-Tax/Risk ManagementPresident, Treasurer and any other person performing similar functions. The Code of Ethics is available on the Company’s website at
www.cokeconsolidated.com.www.cokeconsolidated.com. The Company intends to disclose any substantive amendments to, or waivers from, its Code of Ethics on its website or in a report on
Form 8-K.Item 11. Executive Compensation
| |
| Item 11. | Executive Compensation |
For information with respect to executive and director compensation, see the “Executive Compensation,” “Compensation Committee Interlocks and Insider Participation,”
“Report of the Compensation“Compensation Committee
on Annual Compensation of Executive Officers”Report” and
“Election of Directors—Director“Director Compensation” sections of the Proxy Statement for the
20062009 Annual Meeting of Stockholders, which are incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
| |
| Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
For information with respect to security ownership of certain beneficial owners and management, see the “Principal
Stockholders,” “Election of Directors—BeneficialStockholders” and “Beneficial Ownership of Management”
and “Equity Compensation Plans” sections of the Proxy Statement for the
20062009 Annual Meeting of Stockholders, which are incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
For information with respect to securities authorized for issuance under equity compensation plans, see the “Equity Compensation Plan Information” section of the Proxy Statement for the 2009 Annual Meeting of Stockholders, which is incorporated herein by reference.
| |
| Item 13. | Certain Relationships and Related Transactions, and Director Independence |
For information with respect to certain relationships and related transactions, see the “Certain Transactions” section of the Proxy Statement for the
20062009 Annual Meeting of Stockholders, which is incorporated herein by reference.
Item 14. Principal Accountant Fees and Services
For certain information with respect to director independence, see the disclosures in the “Corporate Governance” section of the Proxy Statement for the 2009 Annual Meeting of Stockholders regarding director independence, which are incorporated herein by reference.
| |
| Item 14. | Principal Accountant Fees and Services |
For information with respect to principal accountant fees and services, see the “Independent Auditors”“Proposal 2: Ratification of Selection of our Independent Registered Public Accounting Firm for Fiscal Year 2009” section of the Proxy Statement for the 20062009 Annual Meeting of Stockholders, which is incorporated herein by reference.
99
PART IVItem 15. Exhibits and Financial Statement Schedules
| |
| Item 15. | Exhibits and Financial Statement Schedules |
| | | | |
| (a) | | List of documents filed as part of this report. |
Consolidated Statements of Operations
Consolidated Balance Sheets
Consolidated Statements of Cash Flows
Consolidated Statements of Changes in Stockholders’ Equity
Notes to Consolidated Financial Statements
Management’s Report on Internal Control over Financial Reporting
Report of Independent Registered Public Accounting Firm
| 2. | Financial Statement Schedule |
Schedule II—Valuation and Qualifying Accounts and Reserves
All other financial statements and schedules not listed have been omitted because the required information is included in the consolidated financial statements or the notes thereto, or is not applicable or required.
Exhibit Index
| | | | |
Number
| | Description
| | Incorporated by Reference
or Filed Herewith
|
(3.1)
| | Restated Certificate of Incorporation of the Company. | | Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 29, 2003 (File No. 0-9286). |
| | |
(3.2)
| | Amended and Restated Bylaws of the Company. | | Exhibit 3.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 29, 2003 (File No. 0-9286). |
| | |
(4.1)
| | Specimen of Common Stock Certificate. | | Exhibit 4.1 to the Company’s Registration Statement (File No. 2-97822) on Form S-1 as filed on May 31, 1985 (File No. 0-9286). |
| | |
(4.2)
| | Supplemental Indenture, dated as of March 3, 1995, between the Company and Citibank, N.A., as Successor, as Trustee. | | Exhibit 4.2 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2002 (File No. 0-9286). |
| | |
(4.3)
| | Form of the Company’s 6.85% Debentures due 2007. | | Exhibit 4.3 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2002 (File No. 0-9286). |
| | |
(4.4)
| | Form of the Company’s 7.20% Debentures due 2009. | | Exhibit 4.6 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2002 (File No. 0-9286). |
| | |
(4.5)
| | Form of the Company’s 6.375% Debentures due 2009. | | Exhibit 4.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended April 4, 1999 (File No. 0-9286). |
| | |
(4.6)
| | Amended and Restated Promissory Note, dated as of November 22, 2002, by and between Piedmont Coca-Cola Bottling Partnership and the Company. | | Exhibit 4.10 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2002 (File No. 0-9286). |
| | |
(4.7)
| | Form of the Company’s 5.00% Senior Notes due 2012. | | Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on November 21, 2002 (File No. 0-9286). |
| | |
(4.8)
| | Form of the Company’s 5.30% Senior Notes due 2015. | | Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on March 27, 2003 (File No. 0-9286). |
| | | | |
Number
| | Description
| | Incorporated by Reference
or Filed Herewith
|
(4.9)
| | 5.00% Senior Note due 2016. | | Exhibit 4.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended October 2, 2005 (File No. 0-9286). |
| | |
(4.10)
| | Second Amended and Restated Promissory Note, dated as of August 25, 2005, by and between the Company and Piedmont Coca-Cola Bottling Partnership. | | Exhibit 4.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended October 2, 2005 (File No. 0-9286). |
| | |
(4.11)
| | The registrant, by signing this report, agrees to furnish the Securities and Exchange Commission, upon its request, a copy of any instrument which defines the rights of holders of long-term debt of the registrant and its consolidated subsidiaries which authorizes a total amount of securities not in excess of 10 percent of the total assets of the registrant and its subsidiaries on a consolidated basis. | | |
| | |
(10.1)
| | Stock Rights and Restrictions Agreement, dated January 27, 1989, by and between the Company and The Coca-Cola Company.1. | | Exhibit 10.1Financial Statements |
| | | | |
| | | | Consolidated Statements of Operations |
| | | | Consolidated Balance Sheets |
| | | | Consolidated Statements of Cash Flows |
| | | | Consolidated Statements of Changes in Stockholders’ Equity |
| | | | Notes to the Company’s AnnualConsolidated Financial Statements |
| | | | Management’s Report on Form 10-K for the fiscal year ended December 29, 2002 (File No. 0-9286).Internal Control over Financial Reporting |
| | |
(10.2)
| | Description and examples of bottling franchise agreements between the Company and The Coca-Cola Company. | | Exhibit 10.2 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2002 (File No. 0-9286). |
| | |
(10.3)
| | Lease, dated as of January 1, 1999, by and between the Company and the Ragland Corporation, related to the production/distribution facility in Nashville, Tennessee. | | Exhibit 10.5 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2000 (File No. 0-9286). |
| | |
(10.4)
| | Purchase and Sale Agreement, dated as of December 15, 2000, between the Company and Harrison Limited Partnership One, related to land adjacent to the Snyder Production Center in Charlotte, North Carolina. | | Exhibit 10.9 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2000 (File No. 0-9286). |
| | |
(10.5)
| | Lease Agreement, dated as of December 15, 2000, between the Company and Harrison Limited Partnership One, related to the Snyder Production Center in Charlotte, North Carolina and a distribution center adjacent thereto. | | Exhibit 10.10 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2000 (File No. 0-9286). |
| | |
(10.6)
| | Partnership Agreement of Carolina Coca-Cola Bottling Partnership,* dated as of July 2, 1993, by and among Carolina Coca-Cola Bottling Investments, Inc., Coca-Cola Ventures, Inc., Coca-Cola Bottling Co. Affiliated, Inc., Fayetteville Coca-Cola Bottling Company and Palmetto Bottling Company. | | Exhibit 10.7 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2002 (File No. 0-9286). |
| | |
(10.7)
| | Management Agreement, dated as of July 2, 1993, by and among the Company, Carolina Coca-Cola Bottling Partnership,* CCBC of Wilmington, Inc., Carolina Coca-Cola Bottling Investments, Inc., Coca-Cola Ventures, Inc. and Palmetto Bottling Company. | | Exhibit 10.8 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2002 (File No. 0-9286). |
| | | | |
Number
| | Description
| | Incorporated by Reference
or Filed Herewith
|
(10.8)
| | First Amendment to Management Agreement designated as Exhibit 10.7, dated as of January 1, 2001. | | Exhibit 10.14 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2000 (File No. 0-9286). |
| | |
(10.9)
| | Amended and Restated Guaranty Agreement, dated as of July 15, 1993, with Southeastern Container, Inc. | | Exhibit 10.10 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2002 (File No. 0-9286). |
| | |
(10.10)
| | Management Agreement, dated as of June 1, 2004, by and among CCBCC Operations LLC, a wholly-owned subsidiary of the Company and South Atlantic Canners, Inc. | | Exhibit 10.11 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 27, 2004 (File No. 0-9286). |
| | |
(10.11)
| | Agreement, dated as of March 1, 1994, between the Company and South Atlantic Canners, Inc. | | Exhibit 10.12 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2002 (File No. 0-9286). |
| | |
(10.12)
| | Guaranty Agreement, dated as of May 18, 2000, between the Company and Wachovia Bank of North Carolina, N.A. | | Exhibit 10.17 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 30, 2001 (File No. 0-9286). |
| | |
(10.13)
| | Guaranty Agreement, dated as of December 1, 2001, between the Company and Wachovia, N.A. | | Exhibit 10.18 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 30, 2001 (File No. 0-9286). |
| | |
(10.14)
| | Description of the Company’s 2006 Bonus Plan for officers.** | | Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on February 28, 2006 (File No. 0-9286). |
| | |
(10.15)
| | Agreement to assume liability for postretirement benefits between the Company and Piedmont Coca-Cola Bottling Partnership. | | Exhibit 10.17 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2002 (File No. 0-9286). |
| | |
(10.16)
| | Lease Agreement, dated as of January 5, 1999, between the Company and Beacon Investment Corporation, related to the Company’s corporate headquarters and an adjacent office building in Charlotte, North Carolina. | | Exhibit 10.61 to the Company’s Annual Report on Form 10-K for the fiscal year ended January 3, 1999 (File No. 0-9286). |
| | |
(10.17)
| | Coca-Cola Bottling Co. Consolidated Director Deferral Plan, effective January 1, 2005.** | | Filed herewith. |
| | |
(10.18)
| | Restricted Stock Award to J. Frank Harrison, III (effective January 4, 1999).** | | Annex A to the Company’s Proxy Statement for the 1999 Annual Meeting (File No. 0-9286). |
| | |
(10.19)
| | Supplemental Savings Incentive Plan, as amended and restated effective January 1, 2005, between Eligible Employees of the Company and the Company.** | | Filed herewith. |
| | | | |
Number
| | Description
| | Incorporated by Reference
or Filed Herewith
|
(10.20)
| | Officer Retention Plan (ORP), as amended and restated effective January 1, 2005, between Eligible Employees of the Company and the Company.** | | Filed herewith. |
| | |
(10.21)
| | Master Amendment to Partnership Agreement, Management Agreement and Definition and Adjustment Agreement, dated as of January 2, 2002, by and among Piedmont Coca-Cola Bottling Partnership, The Coca-Cola Company and the Company. | | Exhibit 10.1 to the Company’s Current Report on Form 8-K dated January 14, 2002 (File No. 0-9286). |
| | |
(10.22)
| | First Amendment to Lease (relating to the Lease Agreement designated as Exhibit 10.3) and First Amendment to Memorandum of Lease, dated as of August 30, 2002, between Ragland Corporation and the Company. | | Exhibit 10.33 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2002 (File No. 0-9286). |
| | |
(10.23)
| | Limited Liability Company Operating Agreement of Coca-Cola Bottlers’ Sales & Services Company, LLC, dated as of December 11, 2002, by and between Coca-Cola Bottlers’ Sales & Services Company, LLC and Consolidated Beverage Co., a wholly-owned subsidiary of the Company. | | Exhibit 10.35 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2002 (File No. 0-9286). |
| | |
(10.24)
| | Form of Amended and Restated Split-Dollar and Deferred Compensation Replacement Benefit Agreement, effective as of January 1, 2005, between the Company and Eligible Employees of the Company.** | | Filed herewith. |
| | |
(10.25)
| | Fourth Amendment to Partnership Agreement, dated as of March 28, 2003, by and among Piedmont Coca-Cola Bottling Partnership, Piedmont Partnership Holding Company and Coca-Cola Ventures, Inc. | | Exhibit 4.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 30, 2003 (File No. 0-9286). |
| | |
(10.26)
| | Amendment to Officer Retention Plan Agreement by and between the Company and David V. Singer, effective as of January 12, 2004.** | | Exhibit 10.31 to the Company’s Annual Report on Form 10-K for fiscal year ended December 28, 2003 (File No. 0-9286). |
| | |
(10.27)
| | Life Insurance Benefit Agreement, effective as of December 28, 2003, by and between the Company and Jan M. Harrison, Trustee under the J. Frank Harrison, III 2003 Irrevocable Trust, John R. Morgan, Trustee under the Harrison Family 2003 Irrevocable Trust, and J. Frank Harrison, III.** | | Exhibit 10.37 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 28, 2003 (File No. 0-9286). |
| | |
(10.28)
| | Consulting Agreement, effective as of March 1, 2005, between the Company and Robert D. Pettus, Jr.** | | Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on March 4, 2005 (File No. 0-9286). |
| | |
(10.29)
| | U.S. $100,000,000 Credit Agreement, dated as of April 7, 2005, among the Company, the banks named therein and Citibank, N.A., as Administrative Agent. | | Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on April 12, 2005 (File No. 0-9286). |
| | |
(10.30)
| | Consulting Agreement, dated as of June 1, 2005, between the Company and David V. Singer. | | Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on June 3, 2005 (File No. 0-9286). |
| | | | |
Number
| | Description
| | Incorporated by Reference
or Filed Herewith
|
(10.31)
| | Form of Split-dollar Deferred Compensation Replacement Benefit Agreement Election Form and Agreement Amendment, effective as of June 20, 2005, between the Company and certain executive officers of the Company. | | Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on June 24, 2005 (File No. 0-9286). |
| | |
(21.1)
| | List of subsidiaries. | | Filed herewith. |
| | |
(23.1)
| | Consent of Independent Registered Public Accounting Firm to Incorporation by reference into Form S-3 (Registration No. 33-54657), Form S-3 (Registration No. 333-71003) and Form S-4 (Registration No. 333-127047). |
| | Filed herewith. | | |
| | 2. | | Financial Statement Schedule |
| | | | |
| | | | Schedule II — Valuation and Qualifying Accounts and Reserves |
| | | | |
| | | | All other financial statements and schedules not listed have been omitted because the required information is included in the consolidated financial statements or the notes thereto, or is not applicable or required. |
| | | | |
| | 3. | | Listing of Exhibits |
The agreements included in the following exhibits to this report are included to provide information regarding their terms and are not intended to provide any other factual or disclosure information about the Company or the other parties to the agreements. The agreements contain representations and warranties by each of the parties to the applicable agreements. These representations and warranties have been made solely for the benefit of the other parties to the applicable agreement and:
| | |
(31.1)
| • | should not in all instances be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate; |
|
| | Certification pursuant• | may have been qualified by disclosures that were made to Section 302the other party in connection with the negotiation of the Sarbanes-Oxley Act of 2002.applicable agreement, which disclosures are not necessarily reflected in the agreement; |
|
| | Filed herewith.• | may apply standards of materiality in a way that is different from what may be viewed as material to you or other investors; and |
|
| • | were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement and are subject to more recent developments. |
Accordingly, these representations and warranties may not describe the actual state of affairs as of the date they were made or at any other time.
100
Exhibit Index
| | | | | | | |
| | | | | Incorporated by Reference
|
Number | | Description | | or Filed Herewith |
| |
| | (3 | .1) | | Restated Certificate of Incorporation of the Company. | | Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 29, 2003 (File No. 0-9286). |
| | (3 | .2) | | Amended and Restated Bylaws of the Company. | | Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on December 10, 2007 (File No. 0-9286). |
| | (4 | .1) | | Specimen of Common Stock Certificate. | | Exhibit 4.1 to the Company’s Registration Statement (File No. 2-97822) on Form S-1 as filed on May 31, 1985 (File No. 0-9286). |
| | (4 | .2) | | Supplemental Indenture, dated as of March 3, 1995, between the Company and Citibank, N.A. (as successor to NationsBank of Georgia, National Association, the initial trustee). | | Exhibit 4.2 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2002 (File No. 0-9286). |
| | (4 | .3) | | Form of the Company’s 7.20% Debentures due 2009. | | Exhibit 4.6 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2002 (File No. 0-9286). |
| | (4 | .4) | | Form of the Company’s 6.375% Debentures due 2009. | | Exhibit 4.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended April 4, 1999 (File No. 0-9286). |
| | (4 | .5) | | Form of the Company’s 5.00% Senior Notes due 2012. | | Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on November 21, 2002 (File No. 0-9286). |
| | (4 | .6) | | Form of the Company’s 5.30% Senior Notes due 2015. | | Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on March 27, 2003 (File No. 0-9286). |
| | (4 | .7) | | Form of the Company’s 5.00% Senior Notes due 2016. | | Exhibit 4.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended October 2, 2005 (File No.0-9286). |
| | (4 | .8) | | Second Amended and Restated Promissory Note, dated as of August 25, 2005, by and between the Company and PiedmontCoca-Cola Bottling Partnership. | | Exhibit 4.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended October 2, 2005 (File No.0-9286). |
101
| | | | | | | |
| | | | | Incorporated by Reference
|
Number | | Description | | or Filed Herewith |
| |
| | (4 | .9) | | The registrant, by signing this report, agrees to furnish the Securities and Exchange Commission, upon its request, a copy of any instrument which defines the rights of holders of long-term debt of the registrant and its consolidated subsidiaries which authorizes a total amount of securities not in excess of 10 percent of the total assets of the registrant and its subsidiaries on a consolidated basis. | | |
| | (10 | .1) | | U.S. $200,000,000 Amended and Restated Credit Agreement, dated as of March 8, 2007, by and among the Company, the banks named therein and Citibank, N.A., as Administrative Agent. | | Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on March 14, 2007 (File No. 0-9286). |
| | (10 | .2) | | Amendment No. 1, dated as of August 25, 2008, to U.S. $200,000,000 Amended and Restated Credit Agreement, dated as of March 8, 2007, by and among the Company, the banks named therein and Citibank, N.A., as Administrative Agent. | | Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 28, 2008 (File No. 0-9286). |
| | (10 | .3) | | Amended and Restated Guaranty Agreement, effective as of July 15, 1993, made by the Company and each of the other guarantor parties thereto in favor of Trust Company Bank and Teachers Insurance and Annuity Association of America. | | Exhibit 10.10 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2002 (File No. 0-9286). |
| | (10 | .4) | | Amended and Restated Guaranty Agreement, dated, as of May 18, 2000, made by the Company in favor of Wachovia Bank, N.A. | | Exhibit 10.17 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 30, 2001 (File No. 0-9286). |
| | (10 | .5) | | Guaranty Agreement, dated as of December 1, 2001, made by the Company in favor of Wachovia, N.A. | | Exhibit 10.18 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 30, 2001 (File No. 0-9286). |
| | (10 | .6) | | Amended and Restated Stock Rights and Restrictions Agreement, dated February 19, 2009, by and among the Company, TheCoca-Cola Company and J. Frank Harrison, III. | | Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on February 19, 2009 (File No. 0-9286). |
| | (10 | .7) | | Termination of Irrevocable Proxy and Voting Agreement, dated February 19, 2009, by and between TheCoca-Cola Company and J. Frank Harrison, III. | | Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on February 19, 2009 (File No. 0-9286). |
| | (10 | .8) | | Example of bottling franchise agreement, effective as of May 18, 1999, between the Company and TheCoca-Cola Company. | | Exhibit 10.2 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2002 (File No. 0-9286). |
| | (10 | .9) | | Letter Agreement, dated as of March 10, 2008, by and between the Company and TheCoca-Cola Company. | | Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 30, 2008 (File No. 0-9286). |
| | (10 | .10) | | Lease, dated as of January 1, 1999, by and between the Company and Ragland Corporation. | | Exhibit 10.5 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2000 (File No. 0-9286). |
102
| | | | | | | |
| | | | | Incorporated by Reference
|
Number | | Description | | or Filed Herewith |
| |
| | (10 | .11) | | First Amendment to Lease and First Amendment to Memorandum of Lease, dated as of August 30, 2002, between the Company and Ragland Corporation. | | Exhibit 10.33 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2002 (File No. 0-9286). |
| | (10 | .12) | | Lease Agreement, dated as of December 15, 2000, between the Company and Harrison Limited Partnership One. | | Exhibit 10.10 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2000 (File No. 0-9286). |
| | (10 | .13) | | Lease Agreement, dated as of December 18, 2006, between CCBCC Operations, LLC and Beacon Investment Company. | | Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on December 21, 2006 (File No. 0-9286). |
| | (10 | .14) | | Limited Liability Company Operating Agreement ofCoca-Cola Bottlers’ Sales & Services Company, LLC, made as of January 1, 2003, by and betweenCoca-Cola Bottlers’ Sales & Services Company, LLC and Consolidated Beverage Co., a wholly-owned subsidiary of the Company. | | Exhibit 10.35 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2002 (File No. 0-9286). |
| | (10 | .15) | | Amended and Restated Can Supply Agreement, effective as of January 1, 2006, by and between Rexam Beverage Can Company andCoca-Cola Bottlers’ Sales & Services Company, LLC, in its capacity as agent for the Company. | | Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended April 1, 2007 (File No. 0-9286). |
| | (10 | .16) | | Partnership Agreement of PiedmontCoca-Cola Bottling Partnership (formerly known as CarolinaCoca-Cola Bottling Partnership), dated as of July 2, 1993, by and among CarolinaCoca-Cola Bottling Investments, Inc.,Coca-Cola Ventures, Inc.,Coca-Cola Bottling Co. Affiliated, Inc., FayettevilleCoca-Cola Bottling Company and Palmetto Bottling Company. | | Exhibit 10.7 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2002 (File No. 0-9286). |
| | (10 | .17) | | Master Amendment to Partnership Agreement, Management Agreement and Definition and Adjustment Agreement, dated as of January 2, 2002, by and among PiedmontCoca-Cola Bottling Partnership, CCBCC of Wilmington, Inc., TheCoca-Cola Company, Piedmont Partnership Holding Company,Coca-Cola Ventures, Inc. and the Company. | | Exhibit 10.1 to the Company’s Current Report on Form 8-K filed January 14, 2002 (File No. 0-9286). |
| | (10 | .18) | | Fourth Amendment to Partnership Agreement, dated as of March 28, 2003, by and among PiedmontCoca-Cola Bottling Partnership, Piedmont Partnership Holding Company andCoca-Cola Ventures, Inc. | | Exhibit 4.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 30, 2003 (File No. 0-9286). |
| | (10 | .19) | | Management Agreement, dated as of July 2, 1993, by and among the Company, PiedmontCoca-Cola Bottling Partnership (formerly known as CarolinaCoca-Cola Bottling Partnership), CCBC of Wilmington, Inc., CarolinaCoca-Cola Bottling Investments, Inc.,Coca-Cola Ventures, Inc. and Palmetto Bottling Company. | | Exhibit 10.8 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2002 (File No. 0-9286). |
| | (10 | .20) | | First Amendment to Management Agreement (relating to the Management Agreement designated as Exhibit 10.16 of this Exhibit Index) dated as of January 1, 2001. | | Exhibit 10.14 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2000 (File No. 0-9286). |
103
| | | | | | | |
| | | | | Incorporated by Reference
|
Number | | Description | | or Filed Herewith |
| |
| | (10 | .21) | | Transfer and Assumption of Liabilities Agreement, dated December 19, 1996, by and between CCBCC, Inc., (a wholly-owned subsidiary of the Company) and PiedmontCoca-Cola Bottling Partnership. | | Exhibit 10.17 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2002 (File No. 0-9286). |
| | (10 | .22) | | Management Agreement, dated as of June 1, 2004, by and among CCBCC Operations LLC, a wholly-owned subsidiary of the Company, and South Atlantic Canners, Inc. | | Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 27, 2004 (File No. 0-9286). |
| | (10 | .23) | | Agreement, dated as of March 1, 1994, between the Company and South Atlantic Canners, Inc. | | Exhibit 10.12 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2002 (File No. 0-9286). |
| | (10 | .24) | | Coca-Cola Bottling Co. Consolidated Amended and Restated Annual Bonus Plan, effective January 1, 2007.* | | Appendix B to the Company’s Proxy Statement for the 2007 Annual Meeting of Stockholders (File No. 0-9286). |
| | (10 | .25) | | Coca-Cola Bottling Co. Consolidated Long-Term Performance Plan, effective January 1, 2007.* | | Appendix C to the Company’s Proxy Statement for the 2007 Annual Meeting of Stockholders (File No. 0-9286). |
| | (10 | .26) | | Restricted Stock Award to J. Frank Harrison, III, effective January 4, 1999.* | | Annex A to the Company’s Proxy Statement for the 1999 Annual Meeting of Stockholders (File No. 0-9286). |
| | (10 | .27) | | Amendment to Restricted Stock Award Agreement, effective February 28, 2007.* | | Appendix D to the Company’s Proxy Statement for the 2007 Annual Meeting of Stockholders (File No. 0-9286). |
| | (10 | .28) | | Performance Unit Award Agreement, dated February 27, 2008.* | | Appendix A to the Company’s Proxy Statement for the 2008 Annual Meeting of Stockholders (File No. 0-9286). |
| | (10 | .29) | | Supplemental Savings Incentive Plan, as amended and restated effective January 1, 2007* | | Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarter ended April 1, 2007 (File No. 0-9286). |
| | (10 | .30) | | Coca-Cola Bottling Co. Consolidated Director Deferral Plan, effective January 1, 2005.* | | Exhibit 10.17 to the Company’s Annual Report on Form 10-K for the fiscal year ended January 1, 2006 (File No.
0-9286). |
| | (10 | .31) | | Officer Retention Plan, as amended and restated effective January 1, 2007.* | | Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the quarter ended April 1, 2007 (File No. 0-9286). |
| | (10 | .32) | | Amendment No. 1 to Officer Retention Plan, effective January 1, 2009.* | | Filed herewith. |
104
| | | | | | | |
| | | | | Incorporated by Reference
|
Number | | Description | | or Filed Herewith |
| |
| | (10 | .33) | | Amendment to Officer Retention Plan Agreement by and between the Company and David V. Singer, effective as of January 12, 2004.* | | Exhibit 10.31 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 28, 2003 (File No. 0-9286). |
| | (10 | .34) | | Life Insurance Benefit Agreement, effective as of December 28, 2003, by and between the Company and Jan M. Harrison, Trustee under the J. Frank Harrison, III 2003 Irrevocable Trust, John R. Morgan, Trustee under the Harrison Family 2003 Irrevocable Trust, and J. Frank Harrison, III.* | | Exhibit 10.37 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 28, 2003 (File No. 0-9286). |
| | (10 | .35) | | Form of Amended and Restated Split-Dollar and Deferred Compensation Replacement Benefit Agreement, effective as of January 1, 2005, between the Company and eligible employees of the Company.* | | Exhibit 10.24 to the Company’s Annual Report on Form 10-K for the fiscal year ended January 1, 2006 (File No. 0-9286). |
| | (10 | .36) | | Form of Split-Dollar and Deferred Compensation Replacement Benefit Agreement Election Form and Agreement Amendment, effective as of June 20, 2005, between the Company and certain executive officers of the Company.* | | Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on June 24, 2005 (File No. 0-9286). |
| | (10 | .37) | | Consulting Agreement, dated as of June 1, 2005, between the Company and David V. Singer.* | | Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on June 3, 2005 (File No. 0-9286). |
| | (12) | | | Ratio of earnings to fixed charges. | | Filed herewith. |
| | (21) | | | List of subsidiaries. | | Filed herewith. |
| | (23) | | | Consent of Independent Registered Public Accounting Firm to Incorporation by reference intoForm S-3 (RegistrationNo. 333-155635). | | 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. |
| | |
(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. |
| * | Carolina Coca-Cola Bottling Partnership’s name was changed to Piedmont Coca-Cola Bottling Partnership. |
** | Management contracts and compensatory plans and arrangements required to be filed as exhibits to this form pursuant to Item 15(c) of this report. |
(b) Exhibits.
See Item 15(a)3
(c) | Financial Statement Schedules. |
(c) Financial Statement Schedules.
See Item 15(a)2
105
COCA-COLA BOTTLING CO. CONSOLIDATED
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
| | | | | | | | | | | | | | | | | |
| | | | | | Additions
| | | | | | | |
| | | Balance at
| | | Charged to
| | | | | | Balance
| |
| | | Beginning
| | | Costs and
| | | | | | at End
| |
Description | | of Year | | | Expenses | | | Deductions | | | of Year | |
| (In thousands) | | | | | | | | | | | | |
| |
| Allowance for doubtful accounts: | | | | | | | | | | | | | | | | |
| Fiscal year ended December 28, 2008 | | $ | 1,137 | | | $ | 523 | | | $ | 472 | | | $ | 1,188 | |
| | | | | | | | | | | | | | | | | |
| Fiscal year ended December 30, 2007 | | $ | 1,334 | | | $ | 213 | | | $ | 410 | | | $ | 1,137 | |
| | | | | | | | | | | | | | | | | |
| Fiscal year ended December 31, 2006 | | $ | 1,318 | | | $ | 314 | | | $ | 298 | | | $ | 1,334 | |
| | | | | | | | | | | | | | | | | |
106
(In Thousands)
| | | | | | | | | | | | |
Description
| | Balance at
Beginning
of Year
| | Additions
Charged to
Costs and
Expenses
| | Deductions
| | Balance
at End
of Year
|
Allowance for doubtful accounts: | | | | | | | | | | | | |
| | | | |
Fiscal year ended January 1, 2006 | | $ | 1,678 | | $ | 1,315 | | $ | 1,675 | | $ | 1,318 |
| | |
|
| |
|
| |
|
| |
|
|
Fiscal year ended January 2, 2005 | | $ | 1,723 | | $ | 339 | | $ | 384 | | $ | 1,678 |
| | |
|
| |
|
| |
|
| |
|
|
Fiscal year ended December 28, 2003 | | $ | 1,676 | | $ | 494 | | $ | 447 | | $ | 1,723 |
| | |
|
| |
|
| |
|
| |
|
|
Pursuant to the requirements of Section 13 or 15(d) 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)
| | | | |
| | By: | | | COCA-COLA BOTTLING CO. CONSOLIDATED |
| | | | (REGISTRANT) |
| | |
Date: March 16, 2006 | | By: | | /S/ J. FRANK HARRISON, III
|
| | | | s/ J. Frank Harrison, III Chairman of the Board of Directors
and Chief Executive Officer
|
J. Frank Harrison, III
Chairman of the Board of Directors
and Chief Executive Officer
Date: March 13, 2009
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| | | | | | |
Signature | | Title | | Date |
|
| | | Signature
| | Title
| | Date
|
| | | |
By: | | /s/ J. FRANK HARRISON, III
J. Frank Harrison, III
J. Frank Harrison, III
| | Chairman of the Board of Directors, Chief Executive Officer and Director | | March 16, 200613, 2009 |
| | | |
By:
| | | | |
By: /s/ H. W. MCKAY BELK
H. W. McKay Belk | | Director | | March 16, 200613, 2009 |
| | | |
By:
| | | | |
By: /s/ SHARON A. DECKER
Sharon A. Decker | | Director | | March 16, 200613, 2009 |
| | | |
By:
| | | | |
By: /s/ WILLIAM B. ELMORE
William B. Elmore | | President, Chief Operating Officer and Director | | March 16, 200613, 2009 |
| | | |
By:
| | /s/ JAMES E. HARRIS
James E. Harris
| | Director
|
By: /s/ Henry W. Flint Henry W. Flint | | March 16, 2006 |
| | | |
By:
| | /s/ DEBORAH S. HARRISON
Deborah S. Harrison
| | Director
| | March 16, 2006 |
| | | |
By: | | /s/ NED R. MCWHERTER
Ned R. McWherter
| | Director
| | March 16, 2006 |
| | | |
By: | | /s/ JOHN W. MURREY, III
John W. Murrey, III
| | Director
| | March 16, 2006 |
| | | |
By: | | /s/ ROBERT D. PETTUS, JR.
Robert D. Pettus, Jr.
| | Vice Chairman of the Board of Directors and Director | | March 16, 200613, 2009 |
| | | |
By: | | /s/ CARL WARE
Carl Ware
| | |
By: /s/ Deborah H. Everhart Deborah H. Everhart | | Director | | March 16, 200613, 2009 |
| | | |
By: | | | | |
By: /s/ DENNIS A. WICKER Ned R. McWherter
| | Director | | March 13, 2009 |
| | | | |
By: /s/ James H. Morgan James H. Morgan | | Director | | March 13, 2009 |
| | | | |
By: /s/ John W. Murrey, III John W. Murrey, III | | Director | | March 13, 2009 |
| | | | |
By: /s/ Carl Ware Carl Ware | | Director | | March 13, 2009 |
| | | | |
By: /s/ Dennis A. Wicker Dennis A. Wicker | | Director | | March 16, 200613, 2009 |
| | | |
By: | | /s/ STEVEN D. WESTPHAL
Steven D. Westphal
| | |
By: /s/ James E. Harris James E. Harris | | Senior Vice President and
Chief Financial Officer | | March 16, 200613, 2009 |
| | | |
By: | | | | |
By: /s/ WILLIAM J. BILLIARD
William J. Billiard | | Vice President, Controller and
Chief Accounting Officer | | March 16, 200613, 2009 |
107
96
