UNITED STATESSECURITIES 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 January 3, 2010 |
For the fiscal year ended December 31, 2006
Commission file number 0-9286Coca-Cola Bottling Co. Consolidated
(Exact name of registrant as specified in its charter) | | |
Delaware
| | 56-0950585
|
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:
| | |
Title of Each Class
| | Name of Each Exchange on Which Registered
|
|
| Common Stock, $1.00 Par Value | | The Nasdaq Stock Market LLC
(Global Select Market) |
Securities Registered Pursuant to Section 12(g) of the Act:
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 whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of¨Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o 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. xþIndicate 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 2, 2006
|
| | June 26, 2009 |
|
| Common Stock, $l.00 Par Value | | $236,388,115270,901,090 |
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 ashare-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 February 28, 2007
| |
Class | | March 5, 2010 | |
|
| Common Stock, $1.00 Par Value | | 6,643,177 | 7,141,447 | |
Class B Common Stock, $1.00 Par Value | | 2,480,152 | 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 20072010 Annual Meeting of Stockholders | | | Part III, Items 10-14 | |
PART I
Coca-ColaItem 1. Business
Introduction
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. The Company, which was incorporated in 1980, and its predecessors have been in the nonalcoholic beverage manufacturing and distribution business since 1902.
The Company is the second largestCoca-Cola bottler in the United States. Since 2000, the Company has placed significant emphasis on new product innovation and product line extensions as a strategy to increase overall revenue. Additionally, 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.
The
Coca-Cola Company currently owns approximately
27%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.
Nonalcoholic beverage products can be broken down into two categories:
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| • | Sparkling beverages — beverages with carbonation, including energy drinks; and |
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| • | Still beverages — beverages without carbonation, including bottled water, tea,ready-to-drink coffee, enhanced water, juices and sports drinks. |
Sales of sparkling beverages were approximately 84%, 83% and 84% of total net sales for fiscal 2009 (“2009”), fiscal 2008 (“2008”) and fiscal 2007 (“2007”), respectively. Sales of still beverages were approximately 16%, 17% and 16% of total net sales for 2009, 2008 and 2007, respectively.
The Company holds
Bottle ContractsCola Beverage Agreements and Allied
Bottle ContractsBeverage Agreements under which it produces,
distributes and markets, in certain regions,
carbonated nonalcoholicsparkling beverage products of The
Coca-Cola Company.
The Company also holds NoncarbonatedStill Beverage ContractsAgreements under which it distributes and markets in certain regions noncarbonatedstill beverages of TheCoca-Cola Company such as POWERade, Dasani, Dasani flavors, Minute Maid Adult Refreshmentsvitaminwater and Minute Maid Juices To Go. Go and produces, distributes and markets Dasani water products.
The Company holds
contractsagreements to produce and market Dr Pepper in some of its regions. The Company also distributes and markets various other products, including
Full Throttle, TabMonster Energy
products, Cinnabon Premium Coffee Lattes and Sundrop, in one or more of the Company’s regions under agreements with the companies that hold and license the use of their trademarks for these beverages.
Beginning in 2007, the Company began distribution of two of its own products, Respect and Tum-E Yummies. 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 is Coca-Cola classic.Coca-Cola. In each of the last three fiscal years, sales of products bearing 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%88%, 89% and 89% of the Company’s bottle/can sales volume to retail customers during fiscal2009, 2008 and 2007, 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 three and a half years, 2006, 2005the Company has developed and 2004.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. Tum-E Yummies is now distributed nationally byCoca-Cola Enterprises Inc. and certain otherCoca-Cola franchise bottlers.
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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
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
Dasani
Dasani Flavors
Dasani Plus
POWERade
POWERade Zero
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 distribute 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 Cadbury SchweppesDr Pepper Snapple Group and other beverage companies.
Cola and Allied Beverage Agreements with TheBottle Contracts for 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.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 Company.
Exclusivity. The Cola Beverage Agreements provide that the Company will purchase its entire requirementrequirements of concentrates andor syrups for beverages bearing the trademark “Coca-Cola” or “Coke” (the “Coca-ColaCoca-Cola Trademark Beverages”)Beverages from TheCoca-Cola Company. Company at prices, terms of payment, and other terms and conditions of supply determined fromtime-to-time by TheCoca-Cola Company at its sole discretion. The Company may not produce, deal indistribute, or otherwise handle any “cola product”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 time the typeat its sole discretion, what types of containers to authorizeare authorized for use by thewith products of TheCoca-Cola Company. The Company cannotmay not sellCoca-Cola Trademark Beverages outside of its exclusive territories.
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The prices The Coca-Cola
Company charges for concentrate and syrup under the Bottle Contracts are reset byObligations. The
Coca-Cola Company. 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 and vending facilities as are capable of manufacturing, packaging and distributing 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; |
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| • | develop, stimulate and satisfy fully the demand forCoca-Cola Trademark Beverages in its territories; |
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| • | 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 Bottle Contracts require that the Company obtain The Coca-Cola Company’smay not unreasonably withhold approval of those plans, which approval may not be unreasonably withheld, and the Bottle Contracts provide that ifsuch plans. If the Company carries out its plans in all material respects, itthe Company will be deemed to have satisfied its contractual obligations to The develop, stimulate, and satisfy fully the demand for theCoca-Cola Company. The Bottle Contracts further provide that failure 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 which,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. The Bottle Contracts further provide that ifCola 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 information included in this report.
The Coca-Cola Company has the sole and exclusive right and discretion to reformulate any
Acquisition of the Coca-Cola Trademark Beverages. In addition, The Coca-Cola Company has the right 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 TheCoca-Cola Company inupon the occurrence of an event of default by the Company. Events of default with respect to each Cola Beverage Agreement include:
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| • | 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 trade dress, trademark, tradename or authorized container of a cola product of TheCoca-Cola Company; |
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| • | insolvency, bankruptcy, dissolution, receivership, or the like; |
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| • | any disposition by the Company of any voting securities of any bottling company subsidiary without the consent of TheCoca-Cola Company; and |
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| • | any material breach of any of its obligations under that Cola Beverage Agreement that remains unresolved for 120 days after written notice by TheCoca-Cola Company. |
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If any Cola Beverage Agreement is terminated because of an event of default, TheCoca-Cola Company has the right to terminate all other Cola Beverage Agreements the Company
include:holds. the Company’s insolvency, bankruptcy, dissolution, receivership or similar conditions;
the Company’s disposition of any interest in the securities of any bottling subsidiary without the consent of The Coca-Cola Company;
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;
any material breach of any obligation arising 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 remains uncured for 120 days after notice by The Coca-Cola Company;
producing, manufacturing, selling or dealing in any product or any concentrate or syrup which might be confused with those of The Coca-Cola Company;
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
owning any equity interest in or controlling any entity which performs any of the activities described in the immediately preceding two items.
In addition, upon termination of the Bottle Contracts for any reason, The Coca-Cola Company, at its discretion, may also terminate any other agreements with the Company regarding the manufacture, packaging, distribution, sale or promotion of soft drinks, including the Allied Bottle Contracts described below.
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, the
Allied Beverage Agreements with TheCoca-Cola Company.
The Allied Beverages are beverages of TheCoca-Cola Company
may not enter into any contract or
other arrangement to manage or participate in the management of any other Coca-Cola bottler without the prior consent of The Coca-Cola Company.The Coca-Cola Company may automatically amend the Bottle Contracts if 80% of the domestic bottlers who are parties to agreements with The Coca-Cola 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 concentrate for Coca-Cola Trademark Beverages purchased for the account of all such bottlers, agree that their bottle contracts shall be likewise amended.
Allied Bottle Contracts with The Coca-Cola Company. The Company is a party to other contracts with The Coca-Cola Company (the “Allied Bottle Contracts”) which grant exclusive rights to the Company with respect to the distribution of carbonated beveragesits subsidiaries that are sparkling beverages, but notCoca-Cola Trademark Beverages and certain noncarbonated beverages (together, the “Allied Beverages”) for sale in authorized containers in its territories. These contractsBeverages. The Allied Beverage Agreements contain provisions that are similar to those of the Bottle ContractsCola Beverage Agreements with respect to pricing,the sale of beverages outside its territories, authorized containers, planning, quality control, trademark and transfer restrictions, and related matters. Eachmatters but have certain significant differences from the Cola Beverage Agreements.
Exclusivity. Under the Allied Bottle ContractBeverage Agreements, the Company has 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 an obligation, under the Allied Beverage Agreements to elect to market any new 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
ten10 years and
isare renewable by the Company for an additional
ten10 years at the end of each
ten-year period, butterm. Renewal is
subject to termination by The Coca-Cola Company in the event of:at the Company’s insolvency, bankruptcy, dissolution, receivership or similar condition;
termination of the Company’s Bottle Contracts covering the same territory by either party for any reason; and
any material breach of any obligation of theoption. The Company under the Allied Bottle Contracts that remains uncured for 120 days after notice by The Coca-Cola Company.
The territories covered by the Allied Bottle Contracts are the same as the territories covered by the Bottle Contracts, except the Company does not sell Mr Pibb in the territories the Company sells Dr Pepper. The Companycurrently intends to renew substantially all the Allied Bottle ContractsBeverage Agreements as they expire.
The Allied Beverage Agreements are subject to termination in the event of default by the Company. TheCoca-Cola Company may terminate an Allied Beverage Agreement in the event of:
| | |
| • | insolvency, bankruptcy, dissolution, receivership, or the like; |
|
| • | termination of a Cola Beverage Agreement by either party for any reason; or |
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| • | 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 beverage agreements, except as provided in the Supplementary Agreement and under the Incidence Pricing Agreement (described below), TheCoca-Cola Company establishes the prices charged to the Company for concentrates forCoca-Cola Trademark Beverages and Allied Beverages. 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 Company purchases concentrate from TheCoca-Cola Company. For 2009, the Company continued to utilize the incidence pricing model and did not purchase concentrates at standard concentrate prices as was the practice in prior years. The Company will continue to utilize the incidence pricing model in 2010 under the same terms as 2009 and 2008.
Supplementary Agreement Relating to Bottle ContractsCola and Allied Bottle Contracts.Beverage Agreements with TheCoca-Cola Company.
The Company and TheCoca-Cola Company are also parties to a Supplementary Agreement (the “Supplementary Agreement”) that modifies some of the provisions of the Bottle Contracts for the Coca-Cola Trademark BeveragesCola and the Allied Bottle Contracts.Beverage Agreements. The Supplementary Agreement provides that TheCoca-Cola Company will:
| | |
| • | exercise good faith and fair dealing in its relationship with the Company under the Cola and Allied Beverage Agreements; |
4
exercise good faith and fair dealing in its relationship with the Company under the Bottle Contracts and Allied Bottle Contracts;
offer marketing funding support and exercise its rights under the Bottle Contracts and Allied Bottle Contracts in a manner consistent with its dealings with comparable bottlers;
offer to the Company any written amendment to the Bottle Contracts or Allied 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 and Allied Bottle Contracts.
| | |
| • | 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 |
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| • | 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. |
The Supplementary Agreement permits transfers of the Company’s capital stock that would otherwise be limited by the
Bottle Contracts.NoncarbonatedCola and Allied Beverage ContractsAgreements.
Still Beverage Agreements with TheCoca-Cola Company.
The Company purchases and distributes certain noncarbonatedstill beverages such as sports drinks, teasisotonics and juice drinks primarily in finished form from TheCoca-Cola Company, or its designees or joint ventures, and 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 NoncarbonatedStill Beverage ContractsAgreements 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 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 the Company’s 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.
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The Company is distributing fruit and vegetable juice beverages of the Campbell Soup Company (“Campbell”) 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 agreement 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. TheCoca-Cola Company establishes the prices charged to the Company for post-mix products. 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 entered into an agreement with TheCoca-Cola Company regarding brand innovation and distribution collaboration. Under the agreement, the Company grants 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 atnature but may be terminated by the option of the Company.Company 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%12%, 11% and 11% of the Company’s bottle/can volume
sales to retail customers for
2006, 20052009, 2008 and
2004. The territories covered 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.2007, respectively.
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 and fountain syrups of Cadbury Schweppes relating to Dr Pepper and Sundrop. In addition, the Company produces some products for sale to other Coca-Cola bottlers. Sales to other bottlers have lower margins but allow the Company to achieve higher utilization of its production equipment and facilities.The Company’s net sales by category as a percentage of total net sales was as follows:
| | | | | | | | | |
| | | Fiscal Year | |
| | | 2006 | | | 2005 | | | 2004 | |
Bottle/can sales under beverage contracts | | 84 | % | | 85 | % | | 88 | % |
Post-mix sales | | 5 | % | | 5 | % | | 6 | % |
Sales to other Coca-Cola bottlers | | 11 | % | | 10 | % | | 6 | % |
| | | | | | | | | |
Total | | 100 | % | | 100 | % | | 100 | % |
| | | | | | | | | |
The increase in sales to other Coca-Cola bottlers in 2005 and 2006 resulted primarily from volume related to shipments of Full Throttle, an energy product of The Coca-Cola Company. The Company produces Full Throttle for many of the Coca-Cola bottlers in the eastern half of the United States and anticipates continuing to produce this product for most of these Coca-Cola bottlers in 2007.
Markets and Production and Distribution Facilities
The Company currently holds bottling rights from The
Coca-Cola Company covering the majority of North Carolina, South Carolina and West Virginia, and portions of Alabama, Mississippi, Tennessee, Kentucky, Virginia, Pennsylvania, Georgia and Florida. The total population within the Company’s bottling territory is approximately
18.720 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
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surrounding areas. The region has
an estimateda population of
8.2approximately 9 million. A production/distribution facility is located in Charlotte and
1613 sales distribution facilities are located in the region.
2.
South Carolina.. This region includes the majority of South Carolina, including Charleston, Columbia, Greenville, Myrtle Beach and the surrounding areas. The region has
an estimateda population of
3.4approximately 4 million. There are
65 sales distribution facilities in the region.
3.
South Alabama.. This region includes a portion of southwestern Alabama, including Mobile and surrounding areas, and a portion of southeastern Mississippi. The region has
an estimateda population of
1.0approximately 1 million. A production/distribution facility is located in Mobile and 4 sales distribution facilities are located in the region.
4.
South 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 estimateda population of
1.1approximately 1 million. There are
54 sales distribution facilities located in the region.
5.
Middle 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 estimateda population of
2.1approximately 2 million. A production/distribution facility is located in Nashville and
34 sales distribution facilities are located in the region.
6.
Western 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 estimateda population of
1.5approximately 2 million. A production/distribution facility is located in Roanoke and
54 sales distribution facilities are located in the region.
7.
West Virginia.. This region includes most of the state of West Virginia and a portion of southwestern Pennsylvania. The region has
an estimateda population of
1.4approximately 1 million. There are 8 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. The Company receives a fee for managing the
day-to-day operations of SAC pursuant to a management agreement. Management fees earned from SAC were
$1.6$1.2 million,
$1.5$1.4 million and
$1.6$1.4 million in
2006, 20052009, 2008 and
2004,2007, 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
$133$131 million,
$127$142 million and
$108$149 million in
2006, 20052009, 2008 and
2004,2007, respectively, or
29.325.0 million cases,
28.327.8 million cases and
23.930.6 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 and other packaging materials as well as equipment for the production, distribution and marketing of
soft drinks. Except for sweeteners, cans, carbon dioxide and plastic bottles, the Company purchases its raw materials from multiple suppliers.nonalcoholic beverages.
The Company purchases substantially all of its plastic bottles
(20-ounce, half liter, 390(12-ounce, 16-ounce, 20-ounce, 24-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 Western Container, two
cooperatives of entities owned byCoca-Cola bottlers
which includeincluding the Company. The Company currently obtains all of its aluminum cans
(8-ounce, 12-ounce and 16-ounce sizes) from
onetwo domestic
supplier.suppliers.
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 is a member inCoca-Cola Bottlers’ Sales and Services Company, LLC (“CCBSS”), which was formed in 2003 for the purposes of facilitating
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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 has negotiated the procurement for the majority of the Company’s raw materials (excluding concentrate) since 2004.
The Company
anticipates that beginning in 2007, the majority of the Company’sis exposed to price risk on commodities such as aluminum,
requirements will not have any ceiling price protection. Based upon current market prices for aluminum, the Company anticipatescorn, PET resin (an oil based product) and fuel 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
may increase by 10% to 20% in 2007. High fructose corn syrup costs are also expected to increase significantly in 2007 as a result of increasing demandand plastic bottles used for
corn products around the world and as a result of alternate uses for corn, such as ethanol. Based upon current market prices for corn, the Company anticipates the costs of high fructose corn syrup will increase by 20% to 35% in 2007. The combined impact of increasing costs for aluminum canspackaging and high fructose corn syrup
assuming flat volume,used as a product ingredient. Further, the Company is
anticipatedexposed to
range between $24 millioncommodity price risk on oil which impacts the Company’s cost of fuel used in the movement and
$45 million.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. 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
2006,2009, approximately
68%69% 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
32%31% 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
16%19% of the Company’s total bottle/can
sales volume to retail customers and the second largest customer, Food Lion, LLC, accounted for approximately
12%11% of the Company’s total bottle/can
sales volume to retail customers. Wal-Mart Stores, Inc. accounted for approximately
11%15% 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
beverage sales are to customers in the United States.
New product introductions, packaging changes and sales promotions have been the primary 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
threefour years include
Coca-Cola Zero,
Coca-Cola C2, diet Coke with lime, diet Coke with lemon, Vault, Vault Zero, Dasani flavors,
Minute Maid Light, Sprite RemixFull Throttle, Gold Peak tea products and
Full Throttle.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 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.the 2-liter contour bottle during 2009 and 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 material costs.
The Company sells its products primarily in nonrefillable bottles and cans, in varying proportions from market to market.
ThereFor example, there may be as many as
2027 different packages for
Coca-Cola classicDiet Coke within a single geographic area. Bottle/can
sales volume to retail customers during
20062009 was approximately
47%46% cans,
51%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. TheCoca-Cola Company and Cadbury SchweppesDr 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
8
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 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
carbonatedsparkling 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 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, as well as bottlers and distributors of private label beverages in supermarket stores. The
carbonatedsparkling beverage market (including energy products) comprised
87%86% of the Company’s bottle/can
sales volume to retail customers in
2006.2009. In each region in which the Company operates, between
75%85% and 95% of
carbonatedsparkling beverage sales in bottles, cans and
pre-mixother containers are accounted for by the Company and its principal
competition,competitors, 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 drinknonalcoholic beverage industry are
point-of-sale merchandising, new product introductions, new vending and dispensing equipment, packaging changes, pricing, price promotions, product quality, retail space management, customer service, frequency of distribution and advertising. The Company believes
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 The
Coca-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 there is such substantial and effective competition in each of the exclusive geographic territories in the United States in which the Company operates.
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. Proposals have been introduced by members of Congress and certain state governments that would impose special taxes on certain beverages that the Company sells. The Company cannot predict whether this legislation will be enacted.
9
The Company has experienced public policy challenges regarding the sale of soft drinks in schools, particularly elementary, middle and high schools. At
December 31, 2006,January 3, 2010, 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. Restrictive legislation, if widely enacted, could have an adverse impact on the Company’s products, image and reputation.
The
Company’s tax filings areCompany is subject to audit by taxing 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
accruedprovided 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.
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 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,
2007,2010, the Company had approximately
5,7005,200 full-time employees, of whom approximately
400420 were union members. The total number of employees, including part-time employees, was approximately
6,300.On February 2, 2007, the Company initiated plans to simplify its operating management structure and reduce its workforce in order to improve operating efficiencies across the Company’s business. The Company believes these changes will allow it to better compete in the marketplace. As a result of these plans, the Company estimates incurring $1.5 million to $2.0 million for one-time benefits for approximately 55 terminated employees and $1.0 million to $1.5 million for other associated costs, primarily relocation expenses for certain employees, in connection with these changes. In total, the Company estimates incurring $2.5 million to $3.5 million related to these changes. Further, the Company estimates that $1.0 million to $2.0 million of the charges identified above will result in cash expenditures subsequent to the first quarter of 2007 and anticipates substantially all of the cash expenditures occurring prior to 2007 fiscal year end.
6,000. Approximately 7% of the Company’s labor force is currently covered by collective bargaining agreements. One collective bargaining agreement covering approximately .5% of the Company’s employees expired during 2009 and the Company entered into a new agreement during 2009. Two collective bargaining agreements covering less thanapproximately 1% of the Company’s employees will expire in 2007.
during 2010.
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,
www.sec.gov,
thatwhich 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 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. 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 thisForm 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 uncertainties not presently known to the Company or that the Company currently deems immaterial, may also impair its business and results of operations.
The 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
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Lower
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 nonalcoholic beverage markets 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 beverages. Althoughin packages sold through higher-margin channels (e.g., immediate consumption), pricing and gross margins could be adversely affected. The Company’s efforts to improve pricing may result in lower than expected sales volume.
Recently announced and completed acquisitions of bottlers by their franchisors may lead to uncertainty in theCoca-Cola bottler system or adversely impact the Company.
TheCoca-Cola Company recently announced an agreement to acquire the North America operations ofCoca-Cola Enterprises Inc., and the Company’s primary competitors were recently acquired by their franchisor. These transactions may cause uncertainty within theCoca-Cola bottler system or adversely impact the Company
has placed an emphasisand its business. At this time, it is uncertain whether the transactions will have a material impact on
revenue management, there can be no assurance that increased competition will not reduce the Company’s
profitability.business and financial results.
Changes in how significant customers market or promote the Company’s products could reduce revenue. The Company’s revenue is impacted by how significant customers market or promote the Company’s products. Revenue 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 manner in which they market or promote the Company’s products, the Company’s 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 depends on working with the Beverage Companies to meet the changing preferences of the broad consumer market. Health and wellness trends throughout the marketplace have resulted in a shift from sugar carbonatedsparkling beverages to diet carbonatedsparkling beverages, tea, sports drinks, enhanced water and bottled 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.
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The Company’s inability to meet requirements under its bottling contractsbeverage agreements could result in the loss of distribution rights. Approximately
90%88% of the Company’s bottle/can
sales volume
withto retail customers
consistsin 2009 consisted 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%12% of the Company’s bottle/can sales volume withto retail customers generally consistsin 2009 consisted 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 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, could 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, could 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 there will be significant changes in the levels of marketing and advertising by the 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, 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 could reduce the Company’s profitability. The Company currently obtains all of its aluminum cans from
onetwo domestic
suppliersuppliers 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, increased bottle/can sales volume or reduced expenses could have an adverse impact on the Company’s profitability.Packaging
Raw material costs, primarilyincluding the costs for plastic bottle costs andbottles, aluminum can costs, increased in 2006. The Company expects aluminum cancans and high fructose corn syrup, costshave been subject to increase significantlysignificant price volatility in 2007.recent history. In addition, there are no limits on the prices TheCoca-Cola Company and 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.
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.
12
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 costs as a result primarily of macro-economic factors beyond the Company’s control.
The 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 claims costs could reduce the Company’s profitability. The Company
is generally self-insured for the costs ofuses various insurance structures to manage its workers’ compensation,
employment practicesauto liability, medical and
vehicle accident claims.other insurable risks. These structures consist of retentions, deductibles, limits and a diverse group of insurers that serve to strategically transfer and mitigate the financial impact of losses. 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 could reduce the Company’s profitability. The Company’s profitability is substantially affected by the cost of pension retirement benefits, postretirement 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 caused 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 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
13
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
42%7.3% of the Company’s debt and capital lease obligations of
$769.0$601.0 million as of
December 31, 2006January 3, 2010 was subject to changes in short-term interest rates.
Rising interest rates have increased the Company’s interest expense over the past two years. In addition, the Company’s pension and postretirement medical benefits costs are subject to changes in interest rates. If interest rates increase in the future,
there can be no assurance that future increases in interest expense will notit could reduce the Company’s overall profitability.
The level of the Company’s debt could restrict the Company’s operating flexibility and limit the Company’s ability to incur additional debt to fund future needs.
As of January 3, 2010, the Company had $601.0 million of debt and capital lease obligations. The Company’s level of debt requires the Company to dedicate a substantial portion of the Company’s future cash flows from operations to the payment of principal and interest, thereby reducing the funds available to the Company for other purposes. The Company’s debt can negatively impact the Company’s operations by (1) limiting the Company’s abilityand/or increasing the cost to obtain funding for working capital, capital expenditures and other general corporate purposes; (2) increasing the Company’s vulnerability to economic downturns and adverse industry conditions by limiting the Company’s ability to react to changing economic and business conditions; and (3) exposing the Company to a risk that a significant decrease in cash flows from operations could make it difficult for the Company to meet the Company’s debt service requirements.
With the Company’s level of debt, access to the capital and credit markets is vital. The capital and credit markets can, at times, be volatile and tight as a result of adverse conditions such as those that caused the failure and near failure of a number of large financial service companies in late 2008. When the capital and credit markets experience volatility and the availability of funds is limited, the Company may incur increased costs associated with borrowing to meet the Company’s requirements. In addition, it is possible that the Company’s ability to access the capital and credit markets may be limited by these or other factors at a time when the Company would like, or need, to do so, which could have an impact on the Company’s ability to refinance maturing debtand/or react to changing economic and business conditions.
The Company’s credit rating could be negatively impacted by TheCoca-Cola Company. The Company’s credit rating could be significantly impacted by capital management activities of TheCoca-Cola Companyand/or changes in the credit rating of TheCoca-Cola Company. A lower credit 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.
Recent volatility in the financial market may negatively impact the Company’s ability to access the credit markets.
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 repaid $176.7 million of debentures which became due in 2009. The Company issued $110 million of new senior notes, borrowed from its $200 million revolving credit facility (“$200 million facility”) and used cash flows generated by operations to fund the repayments. As of January 3, 2010, the Company had $185 million available on its $200 million facility. The limitation of availability of funds could have an impact on the Company’s ability to refinance maturing debtand/or react to changing economic and business conditions.
14
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, packaging and products 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 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 on the sale of certain of the Company’s products by the federal government and certain state and local governments could cause consumers to shift away from purchasing products of the Company. For example, in 2009 some members of the U.S. Congress raised the possibility of a federal tax on the sale of certain sugar beverages, including non-diet soft drinks, fruit drinks, teas and flavored waters, to help pay for the cost of healthcare reform. Some state governments are also considering similar taxes. If enacted, such taxes could materially affect the Company’s business and financial results.
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.
Global climate change or legal, regulatory, or market responses to such change could adversely impact the Company’s future profitability.
The growing political and scientific sentiment is that increased concentrations of carbon dioxide and other greenhouse gases in the atmosphere are influencing global weather patterns. Changing weather patterns, along with the increased frequency or duration of extreme weather conditions, could impact the availability or increase the cost of key raw materials that the Company uses to produce its products. In addition, the sale of these products can be impacted by weather conditions.
Concern over climate change, including global warming, has led to legislative and regulatory initiatives directed at limiting greenhouse gas (GHG) emissions. For example, proposals that would impose mandatory requirements on GHG emissions continue to be considered by policy makers in the territories that the Company operates. Laws enacted that directly or indirectly affect the Company’s production, distribution, packaging, cost of raw materials, fuel, ingredients and water could all impact the Company’s business and financial results.
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 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
15
fully implement operational changes to improve overall efficiency.
One collective bargaining agreement covering approximately .5% of the Company’s employees expired during 2009 and the Company entered into a new agreement during 2009. Two collective bargaining agreements covering approximately 1% of the Company’s employees will expire during 2010.
The Company’s ability to change distribution methods and business practices could be negatively affected by United States bottler system disputes.Recent litigation
Litigation filed by some United States bottlers of
Coca-Cola products indicates that disagreements may exist within the
Coca-Cola bottler system concerning distribution methods and business practices. Although the litigation has been
dismissed without prejudice, theseresolved, disagreements among various
Coca-Cola bottlers
have not been finally resolved and could adversely affect the Company’s ability to fully implement its business plans in the future.
Management’s use of estimates and assumptions could 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’s Board of Directors has the ability to declare dividends on the Company’s Common Stock without declaring equal or any dividendsObesity and other health concerns may reduce demand for some of the Company’s Class B Common Stock.products.Under
Consumers, public health officials and government officials are becoming increasingly concerned about the public health consequences associated with obesity, particularly among young people. In addition, some researchers, health advocates and dietary guidelines are encouraging consumers to reduce the consumption of sugar sparkling beverages. Increasing public concern about these issues; possible new taxes and governmental regulations concerning the marketing, labeling or availability of the Company’s
Certificate of Incorporation, the Board of Directors may declare dividends on Common Stock without declaring equalbeverages; and negative publicity resulting from actual or
any dividends on the Class B Common Stock. However, the holders of the Class B Common Stock control approximately 88% of the total voting power of the common stockholders ofthreatened legal actions against the Company
andor other companies in the
electionsame industry relating to the marketing, labeling or sale of
sugar sparkling beverages may reduce demand for these beverages, which could affect the
Board, and the Board has declared and the Company has paid dividends on Common Stock and Class B Common Stock and each class of common stock has participated equally, on a per share basis, in all dividends declared and paid by the Board since 1994. As such, the Company does not believe the Board would systematically declare dividends on the Common Stock without declaring dividends on the Class B Common Stock.Company’s profitability.
The Company has experienced public policy challenges regarding the sale of soft drinks in schools, particularly elementary, middle and high schools.At December 31, 2006, a
A number of states
hadhave 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,
imagesimage and reputation.
The concentration of the Company’s capital stock ownership with the Harrison family will limitlimits 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
92%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 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 theThe 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.
16
Item 1B. Unresolved Staff Comments
| |
| Item 1B. | Unresolved Staff Comments |
The principal properties of the Company include its corporate headquarters, its four production/distribution facilities and its
4742 sales distribution centers. The Company owns two production/distribution facilities and
4236 sales distribution centers, and leases its corporate headquarters, two other production/distribution facilities and
5six 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. The
Company modified a lease agreement (effective January 1, 2007) for its corporate headquarters and adjacent office building. The modified lease has a fifteen year term and expires in December 2021. Rental payments for these facilities were
$3.8$3.7 million in
2006.2009.
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.
The Company modified the lease agreement in 2009 with new terms starting on January 1, 2011. The modified lease agreement expires in December 2020. Rental payments under this lease totaled
$4.0$3.4 million in
2006.2009.
The Company leases its 330,000 square foot production/distribution facility in Nashville, Tennessee. The lease requires monthly payments through
2009.December 2014. Rental
expensepayments under this lease totaled $.4 million in
2006.2009.
The Company leases a 278,000 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 $.7 million in 2009.
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 $.5 million in 2009.
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
2006.2009.
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
$.6$.7 million in
2006.2009.
The Company began leasing, in March 2009, a 75,000 square foot warehouse which serves as additional space for the Company’s Roanoke, Virginia distribution center. The lease requires monthly payments through March 2019. Rental payments under this lease totaled $.2 million in 2009.
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 facilities is indicated below:
| | | |
Location
| | Percentage Utilization* | | |
| | Percentage
|
Location | | Utilization * |
|
| Charlotte, North Carolina | | 78 | 62 | % |
Mobile, Alabama | | 50 | % |
Nashville, Tennessee
| | 60 | % |
Roanoke, Virginia
| | 59 | % |
| Nashville, Tennessee | | | 68 | % |
| Roanoke, Virginia | | | 68 | % |
| | |
| * | | Estimated 20072010 production divided by capacity (based on operations of 6 days per week and 20 hours per day). |
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.
17
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,
20072010 was as follows:
Sales Distribution Facilities | | |
Region
| | Number of Facilities |
North Carolina
| | 16 |
South Carolina
| | 6 |
South Alabama
| | 4 |
South Georgia
| | 5 |
Middle Tennessee
| | 3 |
Western Virginia
| | 5 |
West Virginia
| | 8 |
| | |
Total
| | 47Number of
| |
Region | | Facilities | |
|
| North Carolina | | | 13 | |
| South Carolina | | | 5 | |
| South Alabama | | | 4 | |
| South Georgia | | | 4 | |
| Middle Tennessee | | | 4 | |
| Western Virginia | | | 4 | |
| West Virginia | | | 8 | |
| | | | |
| Total | | | 42 | |
| | | | |
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
3,9502,200 vehicles in the sale and distribution of its
nonalcoholic beverage products, of which approximately
1,4501,300 are route delivery trucks. In addition, the Company owns approximately
210,000194,000 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 the 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.,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. within CCE’s territory. The bottler plaintiffs sought preliminary and permanent injunctive relief prohibiting the warehouse delivery of POWERade and unspecified compensatory and punitive damages. On March 17, 2006, the Missouri District Court transferred the case, for the convenience of the parties, to the United States District Court for the Northern District of Georgia (the “District Court”).
In April 2006, warehouse delivery of POWERade commenced in the Company’s exclusive bottling territory. On September 5, 2006, the District Court granted the Company’s motion to intervene as defendant for
the limited purpose of opposing the injunctive relief sought by the bottler plaintiffs. The District Court found that the Company had a legally protectable interest at stake in the litigation in that the relief requested would preclude the Company from warehouse delivery of POWERade within its exclusive bottling territory.
In February 2007, The Coca-Cola Company, CCE, the Company and many of the plaintiffs entered into a series of agreements that the Company expects will result in the dismissal without prejudice of the lawsuit and the implementation of a program to test various new route-to-market service systems. The new alternative route-to-market program provides, among other things, that during the next two years, through December 31, 2008, any Coca-Cola bottler that desires to implement an alternative route-to-market delivery plan shall present the plan for advance discussion and approval by representatives of The Coca-Cola Company and the Coca-Cola bottling system. The agreements preserve all parties’ rights, and afford the Coca-Cola bottling system an opportunity to meet to discuss whether the new route-to-market service system should be continued. The agreements also provide that the lawsuit will be dismissed in the near future.
The Company is involved in various
other 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 matters will not have a material adverse effect on the financial condition, cash flows or results of operations of the Company. No material amount of loss in excess of recorded amounts is believed to be reasonably possible as a result of these
other claims and legal proceedings.
Item 4. Submission of Matters to a Vote of Security HoldersThere were no matters submitted to a vote of security holders during the fourth quarterExecutive Officers of the fiscal year ended December 31, 2006.
EXECUTIVE OFFICERS OF THE COMPANYCompany
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
52,55, 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.
WILLIAM B. ELMORE, age
51,54, 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 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
62,55, 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 52, is Executive Vice President and Assistant to the Chairman of the Company, 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.
18
STEVEN D. WESTPHAL, age 55, 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
40,43, is Vice President, Controller and 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 44, is Senior Vice President, Sales, a position he has held since June 2008. Previously, he 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. He was Sales Manager in the Company’s Columbia, SC branch between 1997 and 2000. He has served the Company in several other positions prior to this position and was first employed by the Company in 1986.
CLIFFORD M. DEAL, III, age
45,48, 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
51,54, is President,
of ByBBYB Brands, Inc, a wholly-owned subsidiary of the Company that distributes and markets Cinnabon Premium Coffee Lattes,
Tum-E Yummies and
distributes and markets 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.
KEVIN A. HENRYJAMES E. HARRIS,, age
39,47, is Senior Vice President
Human Resources,and Chief Financial Officer, a position he has held since
February 2001. Prior to joiningJanuary 28, 2008. He served as a Director of the Company
from August 2003 until January 25, 2008 and was a 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 January 2008. From 1998 to 1999 he was
Senior Vice President, Human Resources at Nationwide CreditChief Financial Officer of Fresh Foods, Inc.,
wherea manufacturer of fully cooked food products. From 1987 to 1998, he
was an employee since January 1997. Prior to that, he was Director, Human Resources, at Office Depotserved in several different officer positions with The Shelton Companies, Inc.
beginning in December 1994.He also served two years with Ernst & Young LLP as a senior accountant.
UMESH M. KASBEKAR, age
49,52, 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.
MELVIN F. LANDIS, III, age
41,44, is Senior Vice President, Chief Marketing and Customer Officer, a position he has held since December 2006. Prior to that he was Vice President, Marketing and Corporate 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 employed at The Clorox Company, a manufacturer and marketer of consumer products, from 1994. While at The Clorox Company, he held a number of positions, including Region Sales 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. RAY MAYHALL,JR.STEELE, age
59, is Senior Vice President, Sales, a position he was appointed to in September 2001. Prior to that he was Vice President, Distribution and Technical Services, a position he was appointed to in December 1999. Prior to that, he was Regional Vice President, Sales, a position he had held since November 1992.LAUREN C. STEELE, age 52,55, 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 52, 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 51, 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.
| |
| 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 Global
Select Market
tier of The Nasdaq Stock Market, LLC® 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 |
| | | 2006 | | 2005 |
| | | High | | Low | | High | | Low |
First quarter | | $ | 47.38 | | $ | 43.10 | | $ | 57.53 | | $ | 51.63 |
Second quarter | | | 52.42 | | | 43.50 | | | 52.80 | | | 46.00 |
Third quarter | | | 63.46 | | | 50.20 | | | 53.93 | | | 47.01 |
Fourth quarter | | | 69.04 | | | 58.50 | | | 49.00 | | | 42.58 |
The
| | | | | | | | | | | | | | | | | |
| | | Fiscal Year | |
| | | 2009 | | | 2008 | |
| | | High | | | Low | | | High | | | Low | |
| |
| First quarter | | $ | 53.71 | | | $ | 37.75 | | | $ | 62.20 | | | $ | 54.38 | |
| Second quarter | | | 58.18 | | | | 46.14 | | | | 62.13 | | | | 38.30 | |
| Third quarter | | | 58.00 | | | | 47.14 | | | | 44.03 | | | | 31.41 | |
| Fourth quarter | | | 55.28 | | | | 43.21 | | | | 46.65 | | | | 35.00 | |
A quarterly dividend rate of $.25 per share on both Common Stock and Class B Common Stock was maintained throughout
20052008 and
2006.2009. 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
or paid in the future.
The number of stockholders of record of the Common Stock and Class B Common Stock, as of
February 28, 2007,March 5, 2010, was
3,6922,981 and
13,10, respectively.
On February 28, 2007,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.
On March 9, 2010, the Compensation Committee determined that 40,000 shares of restricted Class B Common Stock, $1.00 par value, should be issued pursuant to a Performance Unit Award Agreement to J. Frank Harrison, III, in connection with his services in 2009 as Chairman of the Board of Directors and Chief Executive Officer of the Company. This award was approved byAs permitted under the Company’s stockholdersterms of the Performance Unit Award Agreement, Mr. Harrison, III surrendered 17,680 of such shares to satisfy tax withholding obligations in 1999. connection with the vesting of the performance units.
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 TheCoca-Cola Company without registration under Section 3(a)(9) of the Securities Act.
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 a peer group for the period commencing December 28, 200131, 2004 and ending December 31, 2006.January 3, 2010. The peer group is comprised of Anheuser-Busch Companies, Inc.; Cadbury Schweppes plc (ADS); Dr Pepper Snapple Group,Coca-Cola Enterprises Inc.; TheCoca-Cola Company; Cott Corporation; National Beverage Corp.; PepsiCo, Inc.; Pepsi Bottling Group, Inc. and PepsiAmericas.
20
The graph assumes that $100 was invested in the Company’s Common Stock, the Standard & Poor’s 500 Index and the peer group on December 28, 200131, 2004 and that all dividends were reinvested on a quarterly basis. Returns for the companies included in the 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 31, 2004
with dividends reinvested
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | 12/31/04 | | | | 12/30/05 | | | | 12/29/06 | | | | 12/28/07 | | | | 12/26/08 | | | | 12/31/09 | |
CCBCC | | | $ | 100 | | | | $ | 77 | | | | $ | 125 | | | | $ | 110 | | | | $ | 85 | | | | $ | 105 | |
| S&P 500 | | | $ | 100 | | | | $ | 105 | | | | $ | 121 | | | | $ | 128 | | | | $ | 81 | | | | $ | 102 | |
| Peer Group | | | $ | 100 | | | | $ | 106 | | | | $ | 121 | | | | $ | 157 | | | | $ | 112 | | | | $ | 144 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
21
| | | | | | | | | | | | | | | | | | |
| | | 12/28/01 | | 12/27/02 | | 12/26/03 | | 12/31/04 | | 12/30/05 | | 12/29/06 |
Coca-Cola Bottling Co. Consolidated (CCBCC) | | $ | 100 | | $ | 167 | | $ | 143 | | $ | 157 | | $ | 121 | | $ | 196 |
S&P 500® | | $ | 100 | | $ | 77 | | $ | 98 | | $ | 110 | | $ | 115 | | $ | 134 |
Peer Group | | $ | 100 | | $ | 94 | | $ | 108 | | $ | 107 | | $ | 110 | | $ | 127 |
Item 6. Selected Financial Data
| |
| Item 6. | Selected Financial Data |
The following table sets forth certain selected financial data concerning the Company for the five years ended
December 31, 2006.January 3, 2010. The data for the five years ended
December 31, 2006January 3, 2010 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) | | 2006 | | 2005 | | 2004 | | 2003 | | 2002 |
Summary of Operations | | | | | | | | | | | | | | | |
Net sales | | $ | 1,431,005 | | $ | 1,380,172 | | $ | 1,267,227 | | $ | 1,220,403 | | $ | 1,207,173 |
| | | | | | | | | | | | | | | |
Cost of sales | | | 808,426 | | | 761,261 | | | 666,534 | | | 640,434 | | | 633,262 |
Selling, delivery and administrative expenses | | | 537,365 | | | 525,903 | | | 513,227 | | | 493,593 | | | 477,933 |
Amortization of intangibles | | | 550 | | | 880 | | | 3,117 | | | 3,105 | | | 2,796 |
| | | | | | | | | | | | | | | |
Total costs and expenses | | | 1,346,341 | | | 1,288,044 | | | 1,182,878 | | | 1,137,132 | | | 1,113,991 |
| | | | | | | | | | | | | | | |
Income from operations | | | 84,664 | | | 92,128 | | | 84,349 | | | 83,271 | | | 93,182 |
Interest expense | | | 50,286 | | | 49,279 | | | 43,983 | | | 41,914 | | | 49,120 |
Minority interest | | | 3,218 | | | 4,097 | | | 3,816 | | | 3,297 | | | 5,992 |
| | | | | | | | | | | | | | | |
Income before income taxes | | | 31,160 | | | 38,752 | | | 36,550 | | | 38,060 | | | 38,070 |
Income taxes | | | 7,917 | | | 15,801 | | | 14,702 | | | 7,357 | | | 15,247 |
| | | | | | | | | | | | | | | |
Net income | | $ | 23,243 | | $ | 22,951 | | $ | 21,848 | | $ | 30,703 | | $ | 22,823 |
| | | | | | | | | | | | | | | |
Basic net income per share: | | | | | | | | | | | | | | | |
Common Stock | | $ | 2.55 | | $ | 2.53 | | $ | 2.41 | | $ | 3.40 | | $ | 2.58 |
Class B Common Stock | | $ | 2.55 | | $ | 2.53 | | $ | 2.41 | | $ | 3.40 | | $ | 2.58 |
Diluted net income per share: | | | | | | | | | | | | | | | |
Common Stock | | $ | 2.55 | | $ | 2.53 | | $ | 2.41 | | $ | 3.40 | | $ | 2.56 |
Class B Common Stock | | $ | 2.54 | | $ | 2.53 | | $ | 2.41 | | $ | 3.40 | | $ | 2.56 |
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 | | | 6,643 | | | 6,643 | | | 6,643 | | | 6,643 | | | 6,481 |
Class B Common Stock | | | 2,460 | | | 2,440 | | | 2,420 | | | 2,400 | | | 2,380 |
Weighted average number of common shares outstanding—assuming dilution: | | | | | | | | | | | | | | | |
Common Stock | | | 9,120 | | | 9,083 | | | 9,063 | | | 9,043 | | | 8,921 |
Class B Common Stock | | | 2,477 | | | 2,440 | | | 2,420 | | | 2,400 | | | 2,380 |
Year-End Financial Position | | | | | | | | | | | | | | | |
Total assets | | $ | 1,364,467 | | $ | 1,341,839 | | $ | 1,314,063 | | $ | 1,349,920 | | $ | 1,353,525 |
| | | | | | | | | | | | | | | |
Current portion of debt | | | 100,000 | | | 6,539 | | | 8,000 | | | 17,678 | | | 37,631 |
| | | | | | | | | | | | | | | |
Current portion of obligations under capital leases | | | 2,435 | | | 1,709 | | | 1,826 | | | 1,337 | | | 1,120 |
| | | | | | | | | | | | | | | |
Obligations under capital leases | | | 75,071 | | | 77,493 | | | 79,202 | | | 44,226 | | | 44,906 |
| | | | | | | | | | | | | | | |
Long-term debt | | | 591,450 | | | 691,450 | | | 700,039 | | | 785,039 | | | 770,125 |
| | | | | | | | | | | | | | | |
Stockholders’ equity | | | 93,953 | | | 75,134 | | | 64,439 | | | 52,472 | | | 32,867 |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | Fiscal Year** | |
In thousands (except per share data) | | 2009 | | | 2008 | | | 2007 | | | 2006 | | | 2005 | |
| |
Summary of Operations | | | | | | | | | | | | | | | | | | | | |
| Net sales | | $ | 1,442,986 | | | $ | 1,463,615 | | | $ | 1,435,999 | | | $ | 1,431,005 | | | $ | 1,380,172 | |
| | | | | | | | | | | | | | | | | | | | | |
| Cost of sales | | | 822,992 | | | | 848,409 | | | | 814,865 | | | | 808,426 | | | | 761,261 | |
| Selling, delivery and administrative expenses | | | 525,491 | | | | 555,728 | | | | 539,251 | | | | 537,915 | | | | 526,783 | |
| | | | | | | | | | | | | | | | | | | | | |
| Total costs and expenses | | | 1,348,483 | | | | 1,404,137 | | | | 1,354,116 | | | | 1,346,341 | | | | 1,288,044 | |
| | | | | | | | | | | | | | | | | | | | | |
| Income from operations | | | 94,503 | | | | 59,478 | | | | 81,883 | | | | 84,664 | | | | 92,128 | |
| Interest expense, net | | | 37,379 | | | | 39,601 | | | | 47,641 | | | | 50,286 | | | | 49,279 | |
| | | | | | | | | | | | | | | | | | | | | |
| Income before taxes | | | 57,124 | | | | 19,877 | | | | 34,242 | | | | 34,378 | | | | 42,849 | |
| Income tax provision | | | 16,581 | | | | 8,394 | | | | 12,383 | | | | 7,917 | | | | 15,801 | |
| | | | | | | | | | | | | | | | | | | | | |
| Net income | | | 40,543 | | | | 11,483 | | | | 21,859 | | | | 26,461 | | | | 27,048 | |
| | | | | | | | | | | | | | | | | | | | | |
| Less: Net income attributable to the noncontrolling interest | | | 2,407 | | | | 2,392 | | | | 2,003 | | | | 3,218 | | | | 4,097 | |
| | | | | | | | | | | | | | | | | | | | | |
Net income attributable toCoca-Cola Bottling Co. Consolidated | | $ | 38,136 | | | $ | 9,091 | | | $ | 19,856 | | | $ | 23,243 | | | $ | 22,951 | |
| | | | | | | | | | | | | | | | | | | | | |
Basic net income per share based on net income attributable toCoca-Cola Bottling Co. Consolidated: | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | $ | 4.16 | | | $ | .99 | | | $ | 2.18 | | | $ | 2.55 | | | $ | 2.53 | |
| Class B Common Stock | | $ | 4.16 | | | $ | .99 | | | $ | 2.18 | | | $ | 2.55 | | | $ | 2.53 | |
Diluted net income per share based on net income attributable toCoca-Cola Bottling Co. Consolidated: | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | $ | 4.15 | | | $ | .99 | | | $ | 2.17 | | | $ | 2.55 | | | $ | 2.53 | |
| Class B Common Stock | | $ | 4.13 | | | $ | .99 | | | $ | 2.17 | | | $ | 2.54 | | | $ | 2.53 | |
| 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 | | | 7,072 | | | | 6,644 | | | | 6,644 | | | | 6,643 | | | | 6,643 | |
| Class B Common Stock | | | 2,092 | | | | 2,500 | | | | 2,480 | | | | 2,460 | | | | 2,440 | |
| Weighted average number of common shares outstanding — assuming dilution: | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | | 9,197 | | | | 9,160 | | | | 9,141 | | | | 9,120 | | | | 9,083 | |
| Class B Common Stock | | | 2,125 | | | | 2,516 | | | | 2,497 | | | | 2,477 | | | | 2,440 | |
Year-End Financial Position | | | | | | | | | | | | | | | | | | | | |
| Total assets | | $ | 1,283,077 | | | $ | 1,315,772 | | | $ | 1,291,799 | | | $ | 1,364,467 | | | $ | 1,341,839 | |
| | | | | | | | | | | | | | | | | | | | | |
| Current portion of debt | | | — | | | | 176,693 | | | | 7,400 | | | | 100,000 | | | | 6,539 | |
| | | | | | | | | | | | | | | | | | | | | |
| Current portion of obligations under capital leases | | | 3,846 | | | | 2,781 | | | | 2,602 | | | | 2,435 | | | | 1,709 | |
| | | | | | | | | | | | | | | | | | | | | |
| Obligations under capital leases | | | 59,261 | | | | 74,833 | | | | 77,613 | | | | 75,071 | | | | 77,493 | |
| | | | | | | | | | | | | | | | | | | | | |
| Long-term debt | | | 537,917 | | | | 414,757 | | | | 591,450 | | | | 591,450 | | | | 691,450 | |
| | | | | | | | | | | | | | | | | | | | | |
Total equity ofCoca-Cola Bottling Co. Consolidated | | | 116,291 | | | | 76,309 | | | | 120,504 | | | | 93,953 | | | | 75,134 | |
| | | | | | | | | | | | | | | | | | | | | |
| | |
| * | | 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 20042009 which was a 53-week year. The estimated net sales, gross margin and selling, delivery and administrative expenses for the additional selling week in 2009 of approximately $18 million, $6 million and $4 million, respectively, are included in reported results for 2009. |
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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of 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
Coca-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:
Two-Class Method for Net Income Per Share.
| | |
| • | 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 2009. |
|
| • | 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. |
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 2006.
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 53-week period ended January 3, 2010 (“2009”) and the 52-week periods ended December 31, 200628, 2008 (“2008”) and January 1, 2006 and the 53-week period ended January 2, 2005.December 30, 2007 (“2007”). 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 2006, 2005 and 2004 and the consolidated balance sheets at December 31, 2006 and January 1, 2006 include the consolidated operations of the Company and its majority-owned subsidiaries including Piedmont
Coca-Cola Bottling Partnership (“Piedmont”).
MinorityNoncontrolling interest consists of The
Coca-Cola Company’s interest in Piedmont, which was 22.7% for all periods presented.
TWO-CLASS METHOD FOR NET INCOME PER SHARE
During 2006,
In December 2007, the staff of the Division of Corporation Finance of the Securities and Exchange CommissionFinancial Accounting Standards Board (“SEC”FASB”) reviewed the Company’s Annual Reportissued new guidance on Form 10-Kaccounting for the fiscal year ended January 1, 2006. The review was completed by the SECnoncontrolling interest in November 2006. The Company considered this review and concluded the application of the two-class method for calculating and presenting net income per share was appropriate for its Common Stock and Class B Common Stock. In determining the relevance of the two-class method, the Company considered dividend, voting and conversion rights of the Class B Common Stock. These aggregated participation rights along with the Company’s history of paying dividends equally on a per share basis on Common Stock and Class B Common Stock also led the Company to conclude undistributed earnings (net income less dividends) should be allocated equally on a per share basis between Common Stock and Class B Common Stock. This change had no impact on the income per share amounts previously reported. The Company has applied the two-class method prospectively starting with the third quarter of 2006. See Note 1 and Note 20 of the consolidated financial statements for additional information aboutstatements. The Company implemented the applicationnew guidance effective December 29, 2008, the beginning of the two-class method.first quarter of 2009. The new guidance changes the accounting and reporting standards for the noncontrolling interest in a subsidiary (commonly referred to previously as minority interest). Piedmont is the Company’s only subsidiary that has a noncontrolling interest. Noncontrolling interest income of $2.4 million in 2009, $2.4 million in 2008, and $2.0 million in 2007 has been reclassified to be included in net income on the Company’s consolidated statements of operations. In addition, the amount of consolidated net income attributable to both the Company and the noncontrolling interest are shown on the Company’s consolidated statements of operations. Noncontrolling interest related to Piedmont totaled $52.8 million and $50.4 million at January 3, 2010 and December 28, 2008, respectively. These amounts have been reclassified as noncontrolling interest in the equity section of the Company’s consolidated balance sheets.
23
OUR BUSINESS AND THE NONALCOHOLIC BEVERAGE INDUSTRY
Our Business and the Nonalcoholic Beverage Industry
The Company produces, markets and distributes nonalcoholic beverages, primarily products of The
Coca-Cola Company, which include some of the most recognized and popular beverage brands in the world. The Company is the 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 carbonated
soft drinks,beverages, including energy products. Still beverages are noncarbonated beverages such as bottled water,
teas,tea,ready-to-drink coffee, enhanced water, juices
and sports
drinks and energy products.drinks. The Company had net sales of $1.4 billion in
2006.2009.
The nonalcoholic beverage market is highly competitive. The Company’s competitors
in these markets include bottlers and distributors of nationally and regionally advertised and marketed products and private label products. In each region in which the Company operates, between
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 Crown
and/or 7-Upor7-Up products. During the
last threepast several years, industry sales of sugar
carbonatedsparkling beverages, other than energy products, have declined. The decline in sales of sugar
carbonatedsparkling beverages has generally been offset by growth in other nonalcoholic beverage product categories.
The sparkling beverage category (including energy products) represents 83% of the Company’s 2009 bottle/can net sales.
TheCoca-Cola Company recently announced an agreement to acquire the North America operations ofCoca-Cola Enterprises Inc., and the Company’s primary competitors were recently acquired by their franchisor. These transactions may cause uncertainty within theCoca-Cola bottler system or adversely impact the Company and its business. At this time, it is uncertain whether the transactions will have a material impact on the Company’s business and financial results.
The Company’s net sales by product category were as follows:
| | | | | | | | | |
| | | Fiscal Year |
| In Thousands | | 2006 | | 2005 | | 2004 |
Product Category | | | | | | | | | |
Bottle/can sales: | | | | | | | | | |
Carbonated beverages (including energy products) | | $ | 1,021,508 | | $ | 1,004,664 | | $ | 971,719 |
Noncarbonated beverages | | | 182,124 | | | 167,715 | | | 150,199 |
| | | | | | | | | |
Total bottle/can sales | | | 1,203,632 | | | 1,172,379 | | | 1,121,918 |
| | | | | | | | | |
Other sales: | | | | | | | | | |
Sales to other bottlers | | | 152,426 | | | 134,656 | | | 73,805 |
Post-mix sales | | | 74,947 | | | 73,137 | | | 71,504 |
| | | | | | | | | |
Total other sales | | | 227,373 | | | 207,793 | | | 145,309 |
| | | | | | | | | |
Total net sales | | $ | 1,431,005 | | $ | 1,380,172 | | $ | 1,267,227 |
| | | | | | | | | |
| | | | | | | | | | | | | |
| | | Fiscal Year | |
In thousands | | 2009 | | | 2008 | | | 2007 | |
| |
| Bottle/can sales: | | | | | | | | | | | | |
| Sparkling beverages (including energy products) | | $ | 1,006,356 | | | $ | 1,011,656 | | | $ | 1,007,583 | |
| Still beverages | | | 206,691 | | | | 227,171 | | | | 201,952 | |
| | | | | | | | | | | | | |
| Total bottle/can sales | | | 1,213,047 | | | | 1,238,827 | | | | 1,209,535 | |
| | | | | | | | | | | | | |
| Other sales: | | | | | | | | | | | | |
Sales to otherCoca-Cola bottlers | | | 131,153 | | | | 128,651 | | | | 127,478 | |
| Post-mix and other | | | 98,786 | | | | 96,137 | | | | 98,986 | |
| | | | | | | | | | | | | |
| Total other sales | | | 229,939 | | | | 224,788 | | | | 226,464 | |
| | | | | | | | | | | | | |
| Total net sales | | $ | 1,442,986 | | | $ | 1,463,615 | | | $ | 1,435,999 | |
| | | | | | | | | | | | | |
AREAS OF EMPHASISAreas of EmphasisKey priorities for the Company include revenue management, product innovation
and beverage portfolio expansion, distribution cost management and productivity.
Revenue management 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 a significant impact on the Company’s results of operations.
24
Product Innovation and Beverage Portfolio ExpansionGrowth of carbonated beverages,
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 revenue. During 2006,The Company began distributing Monster Energy drinks in certain of the Company’s territories beginning in November 2008. The Company introduced the following new products during 2007: smartwater, vitaminwater, vitaminenergy, Gold Peak and Country Breeze tea products, 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. New packaging introductions include the 2-liter contour bottle during 2009 and the 20-ounce “grip” bottle during 2007.
In October 2008, the Company introduced Vault Zero, Tabentered 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 United States energy drink category. Under this agreement, the Company has the right to distribute Monster Energy drinks in certain of 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 was required to pay to the existing distributors of Monster Energy drinks to terminate the prior 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 the20-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 was 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 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 is the exclusive licensee of Cinnabon Premium Coffee
Lattes and Full Throttle Blue Demon. In 2005,Lattes. These brands enable the Company
introduced Vault, Coca-Cola Zero, Dasani flavorsto participate in strong growth categories and
FullThrottle. The Company introduced diet Coke with lime, capitalize on distribution channels that include the Company’s traditionalCoca-Cola C2 franchise territory as well as third party distributors outside the Company’s traditionalCoca-Cola franchise territory. While the growth prospects of Company-owned or exclusively licensed brands appear promising, the cost of developing, marketing and Rockstar in 2004. In addition, the Company has also developed specialty packaging for customers in certain channels over the past several years.
distributing these brands is anticipated to be significant as well.
Distribution Cost Management Distribution costs represent the costs of transporting finished goods from Company locations to customer outlets. Total distribution costs amounted to
$193.8$188.9 million,
$183.1$201.6 million and
$176.3$194.9 million in
2006, 2005,2009, 2008 and
2004,2007, 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; |
|
| • | advanced sale delivery for convenience stores, drug stores, small supermarkets and on-premises accounts; and |
|
| • | full service delivery for its full service vending customers. |
25
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 began changing its delivery method for its pre-sell delivery system. Historically, the Company loaded its trucks at a warehouse with products the route delivery employee would deliver. The delivery employee was responsible for pulling the required products off a side load truck at each customer location to fill the customer’s order. The Company began using a new CooLift® delivery system in 2006 which involves pre-building orders in the warehouse on a small pallet the delivery employee can roll off a truck directly into the customer’s location. The CooLift® delivery system involves the use of a rear loading truck rather than a conventional side loading truck. The Company anticipates the implementation of this delivery system will continue over the next several years. This rollout required additional capital spending for the new type of delivery vehicle. Capital spending increased from $40.0 million in 2005 to $63.2 million in 2006 primarily due to the purchase of this new type of delivery vehicle. The Company anticipates that this change in delivery methodology will result in significant savings in future years, more efficient delivery of a greater number of products and improved employee safety.
Distribution cost management will continue to be a key area of emphasis for the
Company for the next several years.Company.
A key driver in the Company’s selling, delivery and administrative (“S,D&A”)&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 plan was completed in the fourth quarter of 2008.
On February 2, 2007, the Company initiated
plansa 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 in the future.productivity. The Company continues to focus on its supply chain and distribution functions for
ongoing opportunities to improve productivity.
OVERVIEW OF OPERATIONS AND FINANCIAL CONDITIONThe following is a summaryOverview of key information concerning the Company’s financial results for the three years ended December 31, 2006.
Operations and Financial Condition
The comparison of operating results for 2006 and 20052009 to the operating results for 2004 were2008 and 2007 are affected by the impact of one additional selling week in 20042009 due to the Company’s fiscal year ending on the Sunday closest to December 31 of each year.st. The estimated net sales, gross margin and S,D&A expenses for the additional selling week in 20042009 of approximately $23.9$18 million, $11.1$6 million and $8.1$4 million, respectively, wereare included in the reported results for 2004.2009. | | | | | | | | | |
| | | Fiscal Year |
| In Thousands (Except Per Share Data) | | 2006(1) | | 2005(2)(3)(4) | | 2004(5)(6) |
Net sales | | $ | 1,431,005 | | $ | 1,380,172 | | $ | 1,267,227 |
Gross margin | | | 622,579 | | | 618,911 | | | 600,693 |
S,D&A expenses | | | 537,365 | | | 525,903 | | | 513,227 |
Income from operations | | | 84,664 | | | 92,128 | | | 84,349 |
Interest expense | | | 50,286 | | | 49,279 | | | 43,983 |
Income before income taxes | | | 31,160 | | | 38,752 | | | 36,550 |
Income taxes | | | 7,917 | | | 15,801 | | | 14,702 |
Net income | | | 23,243 | | | 22,951 | | | 21,848 |
Basic net income per share | | | | | | | | | |
Common Stock | | $ | 2.55 | | $ | 2.53 | | $ | 2.41 |
Class B Common Stock | | $ | 2.55 | | $ | 2.53 | | $ | 2.41 |
Diluted net income per share | | | | | | | | | |
Common Stock | | $ | 2.55 | | $ | 2.53 | | $ | 2.41 |
Class B Common Stock | | $ | 2.54 | | $ | 2.53 | | $ | 2.41 |
The following items affect the comparability of the financial results presented below:
2009
(1) | Results for 2006 included | |
| • | a $10.8 million pre-tax favorablemark-to-market adjustment to cost of $4.9 millionsales related to agreements with two state taxing authoritiesthe Company’s 2010 and 2011 aluminum hedging programs; |
|
| • | a $5.4 million credit to settle certain priorincome tax positions resulting in the reduction of the valuation allowance onexpense related deferred tax assets andto the reduction of the liability for uncertain tax positions which was reflected as due mainly to the lapse of applicable statutes of limitations; |
|
| • | a reduction of income tax expense. |
(2) | Results for 2005 included a$2.4 million pre-tax favorablemark-to-market adjustment of $7.0 million (pre-tax), or $4.2 million after tax,to S,D&A expenses related to the settlement of high fructose corn syrup litigation, which was reflected as a reduction in cost of sales.Company’s 2009 and 2010 fuel hedging program; and |
(3) |
| Results for 2005 included a favorable adjustment of $1.1 million (pre-tax), or $.7 million after tax, related to an adjustment of amounts accrued for certain executive benefits due to the resignation of an executive, which was reflected as a reduction to S,D&A expenses. |
(4)• | Results for 2005 included financing transaction costs ofa $1.7 million (pre-tax), or $1.0 million aftercredit to income tax expense related to the exchangeagreement with a state tax authority to settle certain prior tax positions. |
2008
| | |
| • | 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 $164.82008 to reorganize the structure of its operating units and support services, which resulted in the elimination of approximately 350 positions; and |
|
| • | a $2.0 million pre-tax charge for amark-to-market adjustment related to the Company’s 2009 fuel hedging program. |
2007
| | |
| • | a $2.8 million pre-tax charge related to a simplification of the Company’s debtoperating management structure and the redemption of $8.6 million of debentures, which were reflected in interest expense. |
(5) | Results for 2004 included an unfavorable non-cash adjustment of $1.7 million (pre-tax), or $1.0 million after 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. |
(6) | Results for 2004 included a favorable adjustment of approximately $2 million (pre-tax), or $1.1 million after 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. |
26
The following summarizes key information about the Company’s financial results for the three years ended January 3, 2010.
| | | | | | | | | | | | | |
| | | Fiscal Year | |
In thousands (except per share data) | | 2009 | | | 2008 | | | 2007 | |
| |
| Net sales | | $ | 1,442,986 | | | $ | 1,463,615 | | | $ | 1,435,999 | |
| Gross margin | | | 619,994 | | | | 615,206 | | | | 621,134 | |
| S,D&A expenses | | | 525,491 | | | | 555,728 | | | | 539,251 | |
| Income from operations | | | 94,503 | | | | 59,478 | | | | 81,883 | |
| Interest expense, net | | | 37,379 | | | | 39,601 | | | | 47,641 | |
| Income before taxes | | | 57,124 | | | | 19,877 | | | | 34,242 | |
| Income tax provision | | | 16,581 | | | | 8,394 | | | | 12,383 | |
| Net income | | | 40,543 | | | | 11,483 | | | | 21,859 | |
| Net income attributable to the Company | | | 38,136 | | | | 9,091 | | | | 19,856 | |
| Basic net income per share: | | | | | | | | | | | | |
| Common Stock | | $ | 4.16 | | | $ | .99 | | | $ | 2.18 | |
| Class B Common Stock | | $ | 4.16 | | | $ | .99 | | | $ | 2.18 | |
| Diluted net income per share: | | | | | | | | | | | | |
| Common Stock | | $ | 4.15 | | | $ | .99 | | | $ | 2.17 | |
| Class B Common Stock | | $ | 4.13 | | | $ | .99 | | | $ | 2.17 | |
The Company’s net sales grew
approximately 13%.5% from
20042007 to
2006.2009. The net sales increase was primarily due to an increase in average
revenuesales price per bottle/can unit of
4.9%, and an approximately 107%, or $78.6 million, increase3.5% offset by a 4.1% decrease in
sales to other Coca-Cola bottlers.bottle/can volume. The increase in
average sales
price per bottle/can unit was primarily due to
other Coca-Cola bottlers relatedprice increases in all bottle/can categories. The decrease in bottle/can volume was primarily
due to
shipments of Full Throttle,decreases in sugar sparkling beverages (other than energy products) and bottled water volume partially offset by an
energy drink of The Coca-Cola Company.increase in enhanced water volume.
The Company has seen declines in the demand for sugar
carbonatedsparkling beverages
(other than energy products) and bottled water over the past several years and
expectsanticipates this trend
willmay continue. The Company anticipates overall bottle/can
revenuesales growth will be primarily dependent upon continued growth in diet
sparkling products, sports drinks,
bottledenhanced water,
tea and energy products as well as the introduction of new beverage products and the appropriate pricing of brands and
packagingpackages within sales channels.
Gross margin
increased approximately 4%dollars decreased .2% from
20042007 to
2006.2009. The Company’s gross margin
percentage as a percentage of net sales declined from
47.4%43.3% in
20042007 to
43.5%43.0% in
20062009. 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
a lower
marginsgross margin percentage than
manufactured products. This was partially offset by higher sales price per unit, increases in marketing funding support from TheCoca-Cola Company and favorablemark-to-market adjustments related to the Company’s
bottle/can sales. Sales to other Coca-Cola bottlers accounted for 2.1% of the 3.9% decrease in the gross margin percentage. The Company’s raw material packaging costs increased significantly in 2006 and 2005 and the Company increased selling prices to partially offset these increased costs.aluminum hedging program.
S,D&A expenses increased approximately 5%decreased 2.6% from 20042007 to 2006.2009. The increasedecrease in S,D&A expenses was primarily attributable tothe result of decreases in salaries and wages (excluding bonus and incentive expense), fuel costs, depreciation expense and restructuring costs. This was partially offset by increases in bonus and incentive expense, casualty and property insurance expense, bad debt expense and employee compensation of 9.2%, property and casualty insurancebenefits costs, of 14.6% and fuel costs of 41.1%. Depreciationprimarily pension expense.
Interest expense,
net decreased
approximately 8% from 200421.5% in 2009 compared to
20062007. The decrease was primarily due to lower
levels of capital spending over the past several years and employee benefit plan costs decreased by approximately 3% primarily due to the amendment of the principal Company-sponsored pension plan and changes to the Company’s postretirement health care plan.Income from operations was flat from 2004 to 2006 as the increase in gross margineffective interest rates and lower depreciation expense were offset by higher S,D&A expenses.
Interest expense increased approximately 14% from 2004 to 2006 despite a reduction in total net debt and capital lease obligations. The increase primarily reflected higher interest rates on the Company’s floating rate debt.borrowing levels. The Company’s overall weighted average interest rate increased from an average of 5.4%was 5.8% for 2009 compared to 6.7% for 2007. Interest earned on short-term cash investments in 20042009 was $.1 million compared to 6.6%$2.7 million in 2006. As of December 31, 2006 and January 2, 2005, approximately 42% of the Company’s debt and capital lease obligations of $769.0 million and $789.1 million, respectively, was maintained on a floating rate basis and was subject to changes in short-term interest rates.
2007.
Income tax expense decreased 46%increased 33.9% from 20042007 to 20062009. The increase was primarily due to lower taxable income and agreements in 2006 with state taxing authorities which requiredgreater pre-tax earnings. The Company’s effective tax rate was 30.3% for 2009 compared to 38.4% for 2007. The effective tax rates differ from statutory rates as a reduction inresult of adjustments to the valuation allowance related to state net operating loss carryforwards and the liabilityreserve for uncertain tax positions.positions, adjustments to the deferred tax asset valuation allowance and other nondeductible items.
27
Net debt and capital lease obligations were summarized as follows:
| | | | | | | | | |
| | | Dec. 31, 2006 | | Jan. 1, 2006 | | Jan. 2, 2005 |
| In Thousands | | | | | | |
Debt | | $ | 691,450 | | $ | 697,989 | | $ | 708,039 |
Capital lease obligations | | | 77,506 | | | 79,202 | | | 81,028 |
| | | | | | | | | |
Total debt and capital lease obligations | | | 768,956 | | | 777,191 | | | 789,067 |
Less: Cash and cash equivalents | | | 61,823 | | | 39,608 | | | 8,885 |
| | | | | | | | | |
Total net debt and capital lease obligations (1) | | $ | 707,133 | | $ | 737,583 | | $ | 780,182 |
| | | | | | | | | |
| | | | | | | | | | | | | |
| | | Jan. 3,
| | | Dec. 28,
| | | Dec. 30,
| |
In thousands | | 2010 | | | 2008 | | | 2007 | |
| |
| Debt | | $ | 537,917 | | | $ | 591,450 | | | $ | 598,850 | |
| Capital lease obligations | | | 63,107 | | | | 77,614 | | | | 80,215 | |
| | | | | | | | | | | | | |
| Total debt and capital lease obligations | | | 601,024 | | | | 669,064 | | | | 679,065 | |
| Less: Cash, cash equivalents and restricted cash | | | 22,270 | | | | 45,407 | | | | 9,871 | |
| | | | | | | | | | | | | |
| Total net debt and capital lease obligations(1) | | $ | 578,754 | | | $ | 623,657 | | | $ | 669,194 | |
| | | | | | | | | | | | | |
| | |
| (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 CRITICAL ACCOUNTING POLICIES, ESTIMATES AND NEW ACCOUNTING PRONOUNCEMENTSDiscussion 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 the following discussion addresses the Company’s most critical accounting policies, which are those 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
2006.2009. 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 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 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 or lengthened, the Company depreciates the net book value in excess of the estimated salvage value over its revised remaining useful life. The Company changed the estimate of the useful lives
28
of certain cold drink dispensing equipment from thirteen to fifteen years in the first quarter of 2009 to better reflect useful lives based on actual experience.
The Company evaluates the recoverability of the carrying amount of its property, plant and equipment when events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable.
These evaluations are performed at a level where independent cash flows may be attributed to either an asset or an asset group. 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
asset or asset group.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 Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible 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 GoodwillSFAS No. 142
Generally accepted accounting principles (“GAAP”) 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 that could result in impairment.
For the annual impairment analysis of franchise rights
in 2007 and 2008, the fair value for the Company’s
acquired franchise rights
iswas estimated using a
multi-period excess earningsdiscounted cash flows approach. This approach
involvesinvolved 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 iswas compared to
theirthe carrying value on an aggregated basis. For the annual impairment analysis of franchise rights in 2009, the Company utilized the Greenfield Method to estimate the fair value. The Greenfield Method assumes the Company is starting new owning only franchise rights and makes investments required to build an operation comparable to the Company’s current operations. The Company estimates the cash flows required to build a comparable operation and the available future cash flows from these operations. The cash flows are then discounted using an appropriate discount rate. The estimated fair value based upon the discounted cash flows is then compared to the carrying value on an aggregated basis. As a result of
this analysis,these analyses, there was no impairment of the Company’s recorded franchise rights in
2006. The projection of earnings2009, 2008 or 2007. In addition to the discount rate, the estimated fair value includes a number of assumptions such as
cost of investment to build a comparable operation, 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.purposes of assessing goodwill for potential impairment. For the annual impairment analysis of goodwill, the Company develops an estimated fair value for the reporting 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 reporting unit is then compared to the Company’sits carrying amount including goodwill. If the estimated fair value exceeds the carrying amount, goodwill will be considered not to be impaired and the second step of the SFAS No. 142GAAP 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. Based on this analysis, there was no impairment of the Company’s recorded goodwill in 2006.2009, 2008 or 2007. The
29
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 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 2009 annual test date.
The Company records a valuation allowance to reduce the carrying value of its deferred tax assets if, based on the weight of available evidence, it is determined it is more likely than not that such assets will not ultimately be realized. While the Company considers future taxable income and prudent and feasible tax planning strategies in assessing the need for a valuation allowance, should the Company determine it will not be able to realize all or part of its net deferred tax assets in the future, an adjustment to the valuation allowance will be charged to income in the period in which such determination is made. A reduction in the valuation allowance and corresponding adjustment to income may be required if the likelihood of realizing existing deferred tax assets increases 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 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
principally related to
certain state
income taxes and
certain 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 statutes of limitations
and/or settlements with individual state or federal jurisdictions may 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
20062008 and 2009 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.
Risk Management ProgramsIn general, the
The Company
is self-insured for the costs ofuses various insurance structures to manage its workers’ compensation,
employment practices, vehicle accident claimsauto liability, medical and
medical claims.other insurable risks. These structures consist of retentions, deductibles, limits and a diverse group of insurers that serve to strategically transfer and mitigate the financial impact of losses. The Company uses commercial insurance for claims as a risk reduction strategy to minimize catastrophic losses. Losses are accrued 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 31, 2006,January 3, 2010, these letters of credit totaled
$22.1$30.0 million.
The Company was required to maintain $4.5 million of restricted cash for letters of credit beginning in the second quarter of 2009.
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 uses subjective factors such as 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 2006, the The
30
discount rate used in determining the actuarial present value of the projected benefit obligation for the Company’s pension plans
did not change from the 5.75% usedwas 6.0% in
2005.both 2008 and 2009. 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 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. Annual pension costs were $11.2 million expense in 2009, $2.3 million income in 2008 and $.2 million expense in 2007. The annuallarge increase in pension expense for Company-sponsoredin 2009 was primarily due to a significant decrease in the fair market value of pension plans decreased from $11.8plan assets in 2008.
Annual pension expense is estimated to be $6.0 million in
20052010. The decrease in estimated pension plan expense in 2010 compared to
$8.12009 is primarily due to investment returns in
2006. The Company anticipates2009 that exceeded the
annual expense for the Company-sponsored pension plans will decrease to approximately $.2 million in 2007.expected rate of return.
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 |
(Decrease) increase in: | | | | | | | |
Projected benefit obligation at December 31, 2006 | | $ | (7,552 | ) | | $ | 8,051 |
Net periodic pension cost in 2006 | | | (1,404 | ) | | | 1,490 |
| | | | | | | | | |
In thousands | | .25% Increase | | | .25% Decrease | |
| |
| (Decrease) increase in: | | | | | | | | |
| Projected benefit obligation at January 3, 2010 | | $ | (7,300 | ) | | $ | 7,735 | |
| Net periodic pension cost in 2009 | | | (818 | ) | | | 857 | |
The weighted average expected long-term rate of return of plan assets was 8% for
2004, 20052007, 2008 and
2006.2009. 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 3, 2010 and December 31, 2006 and January 1, 2006,28, 2008, and the weighted average expected long-term rate of return of each asset type. The actual return of pension plan assets was 13.0%a gain of 24.52% for 2009, a loss of 28.6% for 2008 and 8.3%a gain of 8.6% for 2006 and 2005, respectively.
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 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 these changes the Company’s expense and liability related to its postretirement health care plan was reduced. Both the expense and liability for postretirement health care benefits are subject to actuarial determination and include numerous variables that affect the impact of the changes. The annual expense for the postretirement health care plan decreased from $4.5 million in 2005 to $2.1 million in 2006. The Company anticipates the annual expense for postretirement health care will be approximately the same in 2007 as 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 subsequent 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% and 5.75% in 2008 and 2009, respectively. The discount rate for 2006 were2009 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.
31
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 |
(Decrease) increase in: | | | | | | | |
Postretirement benefit obligation at December 31, 2006 | | $ | (913 | ) | | $ | 953 |
Service cost and interest cost in 2006 | | | (86 | ) | | | 91 |
| | | | | | | | | |
In thousands | | .25% Increase | | | .25% Decrease | |
| |
| Increase (decrease) in: | | | | | | | | |
| Postretirement benefit obligation at January 3, 2010 | | $ | (1,137 | ) | | $ | 1,191 | |
| Service cost and interest cost in 2009 | | | 11 | | | | (12 | ) |
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 | |
Increase (decrease) in: | | | | | | | |
Postretirement benefit obligation at December 31, 2006 | | $ | 4,423 | | $ | (3,797 | ) |
Service cost and interest cost in 2006 | | | 342 | | | (305 | ) |
| | | | | | | | | |
In thousands | | 1% Increase | | | 1% Decrease | |
| |
| Increase (decrease) in: | | | | | | | | |
| Postretirement benefit obligation at January 3, 2010 | | $ | 3,983 | | | $ | (3,473 | ) |
| Service cost and interest cost in 2009 | | | 353 | | | | (307 | ) |
New Accounting Pronouncements Recently Adopted Pronouncements In September 2006, the
Financial Accounting Standards Board (“FASB”)FASB issued
SFAS No. 158, “Employers’ Accountingnew guidance which defines fair value, establishes a framework for
Defined Pensionmeasuring fair value in GAAP and
Other Postretirement Plans.” This SFAS requiredexpands disclosures about fair value measurements. The new guidance does not require any new fair value measurements but could change the
following for defined pension and other postretirement plans: | (1) | Recognition in the statement of financial position of the overfunded or underfunded status of the plans. |
| (2) | Recognition as a component of other comprehensive income, net of tax, the actuarial gains and losses and the prior service costs and credits that arise during the period but are not recognized as components of net periodic benefit costs. |
| (3) | Recognition as an adjustment to retained earnings, net of tax of any remaining transition asset or transition obligation. |
| (4) | Measurement of defined benefit plan assets and obligations as of the date of the employer’s statement of financial position. |
| (5) | Disclosure of additional information in the notes to the consolidated financial statements about certain effects on periodic benefit costs in the upcoming fiscal year that arise from delayed recognition of the actuarial gains and losses and the prior service costs and credits. |
Company’s current practices in measuring fair value. The Statementnew guidance was effective for fiscal years ending after December 15, 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, which is effective for fiscal years ending after December 15, 2008. The Company’s current measurement dates are November 30 (pension) and September 30 (postretirement). The Company anticipates changing the measurement dates to its fiscal year end date in fiscal 2008. The impact of the adoption of the Statement was to increase the Company’s pension and postretirement liabilities by $4.2 million with a corresponding adjustment to other comprehensive loss, net of tax effect, of $1.6 million. See Note 17 to the consolidated financial statements for additional information.
The SEC issued Staff Accounting Bulletin No. 108 (“SAB 108”) in September 2006. SAB 108 expresses the views of the SEC staff regarding the process of quantifying the materiality of financial misstatements. SAB 108 requires both the balance sheet and income statement approaches be used when quantifying the materiality of misstatement amounts. In addition, SAB 108 contains guidance on correcting errors under the dual approach and provides transition guidance for correcting errors existing in prior years. SAB 108 was effective in the Company’s fourth quarter of 2006. The adoption of SAB 108 did not have a material impact on the Company’s consolidated financial statements.
In December 2004, the FASB issued SFAS No. 123 (revised 2004), “Share-Based Payment.” This Statement is a revision of SFAS No. 123, “Accounting for Stock-Based Compensation” and was effective as ofat the beginning of the first quarter of 2006 (“Q1 2006”). This Statement requires public companies to measure the cost of employee services received in exchange2008 for an award of an equity instrument based on the grant-dateall financial assets and liabilities and for nonfinancial assets and liabilities recognized or disclosed at fair value on a recurring basis. In February 2008, the FASB issued additional guidance which deferred the application date of the award.provisions of the new guidance 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 adoption of this Statementnew guidance did not have a material impact on the Company’s consolidated financial statements. See Note 11 to the “Liquidity and Capital Resources – Financing Activities” section of M,D&Aconsolidated financial statements for additional information.
Recently Issued Pronouncements
In February 2006,December 2007, the FASB issued SFAS No. 155, “Accountingnew guidance which established principles and requirements for Certain Hybrid Financial Instruments—recognizing and measuring identifiable assets and goodwill acquired, liabilities assumed and any noncontrolling interest in an amendmentacquisition, at their fair values as of SFAS No. 133the acquisition date. The new guidance was effective for the first quarter of 2009. The impact on the Company of adopting this new guidance will depend on the nature, terms and 140.”size of business combinations completed after the effective date.
In December 2007, the FASB issued new guidance to establish new accounting and new reporting standards for the noncontrolling interest in a subsidiary (commonly referred to previously as minority interest) and for the deconsolidation of a subsidiary. This Statement simplifiesnew guidance was effective for the Company as of the beginning of 2009 and is being applied prospectively, except for the presentation and disclosure requirements, which have been applied retrospectively. The adoption of this new guidance did not have a significant impact on the Company’s consolidated financial statements. See Note 1 to the consolidated financial statements for additional information.
In March 2008, the FASB issued new guidance which amends and expands the disclosure requirements relative to derivative instruments 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 new guidance was effective for the first quarter of 2009. The adoption of this new guidance did not impact the Company’s consolidated financial statements other than expanded footnote disclosures related to derivative instruments and related hedged items. See Note 10 to the consolidated financial statements for additional information.
In April 2008, the FASB issued new guidance which amends the factors to be considered in developing renewal or extension assumptions used to determine the useful life of intangible assets. The intent of the new guidance 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. The new guidance was effective for the first quarter of 2009. The Company does not expect
32
this new guidance to have a material impact on the accounting for future acquisitions or renewals of intangible assets, but the potential impact is dependent upon the acquisitions or renewals of intangible assets in the future.
In September 2008, the FASB issued new guidance which requires a seller of credit derivatives to provide certain hybriddisclosures for each credit derivative (or group of similar credit derivatives). The new guidance also requires guarantors to disclose “the current status of payment/performance risk of guarantees” and clarifies the effective date of the new guidance relative to derivative instruments discussed above. The adoption of this new guidance did not have a material impact on the Company’s consolidated financial statements.
In April 2009, the FASB issued new guidance on (1) estimating the fair value of an asset or liability when the volume and level of activity for the asset or liability have significantly decreased and (2) identifying transactions that are not orderly. The new guidance was effective for interim and annual periods ending after June 15, 2009. The adoption of this new guidance did not have a material impact on the Company’s consolidated financial statements.
In April 2009, the FASB issued new guidance which amends theother-than-temporary impairment guidance for debt securities to make theother-than-temporary impairment guidance more operational and to improve the presentation and disclosure ofother-than-temporary impairments on debt and equity securities. The new guidance was effective for interim and annual periods ending after June 15, 2009. The adoption of this new guidance did not have a material impact on the Company’s consolidated financial statements.
In April 2009, the FASB issued new guidance which requires disclosures about the fair value of financial instruments eliminatesin interim reporting periods of publicly traded companies as well as in annual financial statements. The new guidance was effective for interim periods ending after June 15, 2009. The adoption of this new guidance did not have a material impact on the interimCompany’s consolidated financial statements.
In May 2009, the FASB issued new guidance
relative to subsequent events which does not result in
Statement 133 Implementation Issue No. D1, “Application of Statement 133 to Beneficial Interestsignificant changes in
Securitized Financial Assets,” and eliminates a restrictionthe subsequent events that an entity reports in its financial statements. The new guidance requires the disclosure of the
passivederivative instrumentsdate through which an entity has evaluated subsequent events and the basis for that date, that is, whether that date represents the date the financial statements were issued or were available to be issued. The new guidance was effective for the Company in the second quarter of 2009. In February 2010, the FASB amended the guidance on subsequent events to remove the requirement to disclose the date through which the entity has evaluated subsequent events. The adoption of this new guidance did not have a qualifying special-purpose entity may hold.significant impact on the Company’s consolidated financial statements.
In June 2009, the FASB issued guidance which established the FASB Accounting Standards Codificationtm (“Codification”). The StatementCodification became the source of authoritative United States GAAP recognized by the FASB to be applied by nongovernmental entities. The Codification did not change GAAP and was effective for interim and annual periods ending after September 15, 2009. Pursuant to the provision of the Codification, the Company updated references to GAAP in the Company’s consolidated financial statements. The Codification did not change GAAP and therefore did not impact the Company’s consolidated financial statements other than the change in references.
In December 2008, the FASB issued new guidance which requires enhanced disclosures about plan assets of a company’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 to measure the fair value of plan assets; (4) the effect of fair value measurements using significant unobservable inputs (Level 3) on changes in plan assets for the period; and (5) concentration of risk within plan assets. The new guidance is effective for fiscal years beginningending after SeptemberDecember 15, 2006.2009. The adoption of this Statementnew guidance did not impact the Company’s consolidated financial statements other than expanded footnote disclosures related to the Company’s pension plan assets. See Note 17 to the consolidated financial statements for additional information.
In August 2009, FASB issued new guidance on measuring the fair value of liabilities. The new guidance clarifies that the quoted price for the identical liability, when traded as an asset in an active market, is a Level 1 measurement for that liability when no adjustment to the quoted price is required. The new guidance also gives guidance on valuation techniques in the absence of a Level 1 measurement. The new guidance is effective for the
33
Company in the fourth quarter of 2009. The adoption of this new guidance did not anticipatedhave a significant impact on the Company’s consolidated financial statements.
Recently Issued Pronouncements
In June 2009, the FASB issued new guidance which eliminates the exceptions for qualifying special-purpose entities from consolidation guidance and the exception that permitted sale accounting for certain mortgage securitization when a transferor has not surrendered control over the transferred financial assets. The new guidance is effective for annual reporting periods that begin after November 15, 2009. The Company does not expect this new guidance to have a material impact on the Company’s consolidated financial statements.
In June 2006,2009, the FASB issued FASB Interpretation No. 48, “Accountingnew guidance which replaces the quantitative-based risks and rewards calculation for Uncertainty in Income Taxes.” This Interpretation clarifies the accounting for uncertainty in income taxes recognized by prescribingdetermining which enterprise, if any, has a recognition threshold and measurement attribute for thecontrolling financial statement recognition and measurement of a tax position taken or expected to be takeninterest in a tax return.variable interest entity (“VIE”) with an approach focused on identifying which enterprise has the power to direct the activities of the VIE that most significantly impacts the entity’s economic performance and the obligation to absorb losses or the right to receive benefits from the entity. The Interpretation also providesnew guidance on derecognition, classification, interest and penalties, accounting in interim periods and disclosure. The Interpretation is effective for fiscal years beginningannual reporting periods that begin after DecemberNovember 15, 2006.2009. The Company does not expect this new guidance to have a material impact on the Company’s consolidated financial statements.
In January 2010, the FASB issued new guidance that clarifies thedecrease-in-ownership of subsidiaries provisions of GAAP. The new guidance clarifies to which subsidiaries thedecrease-in-ownership provision of Accounting Standards Codification810-10 apply. The new guidance is effective for the Company in the processfirst quarter of determining2010. The Company does not expect this new guidance to have a material impact on the Company’s consolidated financial statements.
In January 2010, the FASB issued new guidance related to the disclosures about transfers into and out of Levels 1 and 2 fair value classifications and separate disclosures about purchases, sales, issuances and settlements relating to the Level 3 fair value classification. The new guidance also clarifies existing fair value disclosures about the level of disaggregation and about inputs and valuation techniques used to measure the fair value. In addition, the new guidance amends guidance on employers’ disclosures about postretirement benefit plan assets to require that disclosures be provided by classes of assets instead of by major categories of assets. The new guidance is effective to the Company in the first quarter of 2010 except for the requirement to provide the Level 3 activity of purchases, sales, issuances and settlements on a gross basis, which is effective for the Company in the first quarter of 2011. The Company does not expect this new guidance to have a material impact on the Company’s consolidated financial statements.
34
Results of Operations
2009 Compared to 2008
The comparison of operating results for 2009 to the operating results for 2008 are affected by the impact of this Interpretationone additional selling week in 2009 due to the Company’s fiscal year ending on the consolidated financial statements.In September 2006, FASB issued SFAS No. 157, “Fair Value Measurements.” This Statement defines fair value, establishes a frameworkSunday closest to December 31st. The estimated net sales, gross margin and S,D&A expenses for measuring fair valuethe additional selling week in generally accepted accounting principles (GAAP)2009 of approximately $18 million, $6 million and expands disclosures about fair value measurements. The Statement does not require any new fair value measurements but could change the current practice$4 million, respectively, are included in measuring fair value. The Statement is effectivereported results for fiscal years beginning after November 15, 2007. The Company is in the process of determining the impact of this Statement on the consolidated financial statements.
RESULTS OF OPERATIONS
2006 Compared to 20052009.
A summary of key information concerning the Company’s financial results for
20062009 and
20052008 follows:
| | | | | | | | | | | | | |
| | | Fiscal Year | | | | | | |
| | | 2006(1) | | 2005(2)(3)(4) | | Change | | | % Change | |
| In Thousands (Except Per Share Data) | | | | | | | | | | |
Net sales | | $ | 1,431,005 | | $ | 1,380,172 | | $ | 50,833 | | | 3.7 | |
Gross margin | | | 622,579 | | | 618,911 | | | 3,668 | | | .6 | |
S,D&A expenses | | | 537,365 | | | 525,903 | | | 11,462 | | | 2.2 | |
Interest expense | | | 50,286 | | | 49,279 | | | 1,007 | | | 2.0 | |
Income before income taxes | | | 31,160 | | | 38,752 | | | (7,592 | ) | | (19.6 | ) |
Income taxes | | | 7,917 | | | 15,801 | | | (7,884 | ) | | (49.9 | ) |
Net income | | | 23,243 | | | 22,951 | | | 292 | | | 1.3 | |
Basic net income per share: | | | | | | | | | | | | | |
Common Stock | | $ | 2.55 | | $ | 2.53 | | $ | .02 | | | .8 | |
Class B Common Stock | | $ | 2.55 | | $ | 2.53 | | $ | .02 | | | .8 | |
Diluted net income per share: | | | | | | | | | | | | | |
Common Stock | | $ | 2.55 | | $ | 2.53 | | $ | .02 | | | .8 | |
Class B Common Stock | | $ | 2.54 | | $ | 2.53 | | $ | .01 | | | .4 | |
| | | | | | | | | | | | | | | | | |
| | | Fiscal Year | | | | |
In thousands (except per share data) | | 2009 | | 2008 | | Change | | % Change |
| |
| Net sales | | $ | 1,442,986 | | | $ | 1,463,615 | | | $ | (20,629 | ) | | | (1.4 | ) |
| Gross margin | | | 619,994 | (1) | | | 615,206 | | | | 4,788 | | | | 0.8 | |
| S,D&A expenses | | | 525,491 | (2) | | | 555,728 | (4) | | | (30,237 | ) | | | (5.4 | ) |
| Interest expense, net | | | 37,379 | | | | 39,601 | | | | (2,222 | ) | | | (5.6 | ) |
| Income before taxes | | | 57,124 | | | | 19,877 | | | | 37,247 | | | | 187.4 | |
| Income tax provision | | | 16,581 | (3) | | | 8,394 | | | | 8,187 | | | | 97.5 | |
| Net income | | | 40,543 | (1)(2)(3) | | | 11,483 | (4) | | | 29,060 | | | | NM | |
| Net income attributable to the noncontrolling interest | | | 2,407 | | | | 2,392 | | | | 15 | | | | 0.6 | |
Net income attributable toCoca-Cola | | | | | | | | | | | | | | | | |
| Bottling Co. Consolidated | | | 38,136 | (1)(2)(3) | | | 9,091 | (4) | | | 29,045 | | | | NM | |
| Basic net income per share: | | | | | | | | | | | | | | | | |
| Common Stock | | $ | 4.16 | | | $ | .99 | | | $ | 3.17 | | | | NM | |
| Class B Common Stock | | $ | 4.16 | | | $ | .99 | | | $ | 3.17 | | | | NM | |
| Diluted net income per share: | | | | | | | | | | | | | | | | |
| Common Stock | | $ | 4.15 | | | $ | .99 | | | $ | 3.16 | | | | NM | |
| Class B Common Stock | | $ | 4.13 | | | $ | .99 | | | $ | 3.14 | | | | NM | |
| | |
| (1) | | Results for 2006in 2009 included a favorable adjustmentcredit of $4.9$10.8 million 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 uncertain tax positions, which was reflected as a reduction of income tax expense. |
(2) | Results for 2005 included a favorable adjustment of $7.0 million (pre-tax), or $4.2$6.6 million after tax, related to the settlement of high fructose corn syrup litigation,Company’s aluminum hedging program, which was reflected as a reduction in cost of sales. |
(3) |
| (2) | | Results for 2005in 2009 included a favorable adjustmentcredit of $1.1$2.4 million (pre-tax), or $.7$1.5 million after tax, related to an adjustmentthe Company’s fuel hedging program, which was reflected as a reduction in S,D&A expenses. |
|
| (3) | | Results in 2009 included a credit of amounts accrued for certain executive benefits due$1.7 million related to the resignation of an executive,Company’s agreement with a state tax authority to settle certain prior tax positions, which was reflected as a reduction to S,D&A expenses.the income tax provision and a credit of $5.4 million related to the reduction of the Company’s liability for uncertain tax positions mainly due to the lapse of applicable statutes of limitations, which was reflected as a reduction to the income tax provisions. |
|
| (4) | | Results for 2005in 2008 included financing transactionrestructuring costs of $1.7$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; 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; and a charge of $2.0 million (pre-tax), or $1.0 million after tax, related to the exchange of $164.8 million of the Company’s debt and the redemption of $8.6 million of debentures,2009 fuel hedging program, which was reflected in interest expense.S,D&A expenses. |
35
Net sales
increased $50.8decreased $20.6 million, or
approximately 3.7%1.4%, to
$1.43$1.44 billion in
20062009 compared to
$1.38$1.46 billion in
2005.2008. The increasedecrease in net sales was a result of the following:
| | |
Amount | | Attributable to:
|
(In Millions) | | |
$17.8 | | 13% increase in sales to other Coca-Cola bottlers primarily related to higher pricing per unit for Full Throttle |
13.3 | | .6% increase in bottle/can sales volume primarily due to growth in energy products and water products offset by decreased volume in sugar carbonated beverages |
12.6 | | 2% increase in average bottle/can revenue per unit |
2.9 | | Increase in delivery fee revenue |
1.8 | | 2% increase in post-mix sales primarily related to an increase in sales price per unit |
2.4 | | Other |
| | |
$50.8 | | Total increase in net sales |
| | |
| | | | | |
Amount | | | Attributable to: |
| (In millions) | | | |
| |
| $ | (40.5 | ) | | 3.4% decrease in bottle/can volume primarily due to a volume decrease in all product categories except energy products |
| | 14.7 | | | 1.0% increase in bottle/can sales price per unit primarily due to higher per unit prices in all product categories except enhanced water products |
| | 4.6 | | | 6.7% increase in post-mix sales price per unit |
| | 4.5 | | | 3.6% increase in sales price per unit for sales to other Coca-Cola bottlers primarily due to higher per unit prices in all product categories |
| | (4.3 | ) | | 6.0% decrease in post-mix volume |
| | (2.0 | ) | | 1.6% decrease in sales volume to other Coca-Cola bottlers primarily due to a decrease in sparkling beverages |
| | 2.4 | | | Other |
| | | | | |
| $ | (20.6 | ) | | Total decrease in net sales |
| | | | | |
In
2006,2009, the Company’s bottle/can
volumesales to retail customers accounted for
84%84.1% 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 unit 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 sold through higher margin channels, bottle/can net pricing per unit can increase without an actual increase in wholesale pricing. The increase in the Company’s bottle/can net price per unit in
20062009 compared to
20052008 was primarily due to
higher prices forsales price increases in all product categories, except enhanced water products, and increases in sales volume of energy products
and sports drinkswhich have a higher sales price per unit, partially offset by
a decreasedecreases in
pricingsales of higher price packages (primarily in the
supermarket channel in response to competitive pressuresconvenience store and
ongoing pricing pressures in thecold drink channels) and a lower sales price per unit for bottled
water category. Energy products comprised .7% of the overall bottle/can volume in 2006 compared to .5% in 2005.water.
Product category sales volume in
20062009 and
20052008 as a percentage of total bottle/can sales volume and the percentage change by product category
waswere as follows:
| | | | | | | | | |
| | | Bottle/Can Sales Volume | | | Bottle/Can Sales Volume % Increase (Decrease) | |
Product Category | | 2006 | | | 2005 | | |
Carbonated beverages (including energy products) | | 86.7 | % | | 87.9 | % | | (.7 | ) |
Noncarbonated beverages | | 13.3 | % | | 12.1 | % | | 10.1 | |
| | | | | | | | | |
Total bottle/can sales volume | | 100.0 | % | | 100.0 | % | | .6 | |
| | | | | | | | | |
The Company introduced several new products during 2006 including Vault Zero, Tab Energy, Cinnabon Premium Coffee Lattes and Full Throttle Blue Demon.
Product innovation will continue to be an important factor impacting the Company’s overall bottle/can revenue in the future. Beginning in 2007, the Company began distribution of two of its own products, Respect and Tum-E Yummies, in addition to Enviga, a new product from The Coca-Cola Company.
| | | | | | | | | | | | | |
| | | Bottle/Can Sales Volume | | | Bottle/Can Sales Volume
| |
Product Category | | 2009 | | | 2008 | | | % Increase (Decrease) | |
| |
| Sparkling beverages (including energy products) | | | 86.1 | % | | | 84.6 | % | | | (1.7 | ) |
| Still beverages | | | 13.9 | % | | | 15.4 | % | | | (12.4 | ) |
| | | | | | | | | | | | | |
| Total bottle/can volume | | | 100.0 | % | | | 100.0 | % | | | (3.4 | ) |
| | | | | | | | | | | | | |
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
2006,2009, approximately
68%69% of the Company’s bottle/can
sales volume was sold for future consumption. The remaining bottle/can
sales volume of approximately
32%31% was sold for immediate consumption. The Company’s largest customer, Wal-Mart Stores, Inc., accounted for approximately
16%19% of the
Company’s total bottle/can sales volume during 2006.2009. The Company’s second largest customer, Food Lion, LLC, accounted for approximately 12%11% of the Company’s total bottle/can sales volume in 2006.2009. All of the Company’s beverage sales are to customers in the United States.
The Company recorded delivery fees in net sales of $7.8 million in 2009 and $6.7 million in 2008. These fees are used to offset a portion of the Company’s delivery and handling costs.
36
Cost of sales includes the following: raw material costs, manufacturing labor, manufacturing overhead including depreciation expense, manufacturing warehousing costs and shipping and handling costs related to the movement of finished goods from manufacturing locations to sales distribution centers.
Cost of sales increased 6.2%decreased 3.0%, or $47.2$25.4 million, to $808.4$823.0 million in 20062009 compared to $761.2$848.4 million in 2005. 2008.
The
increasedecrease in cost of sales was principally attributable to the following:
| | | | |
| Amount | | | Attributable to: |
| (In Millions) | | | |
| $ | 24.6 | | | 4% increase in raw material costs (primarily concentrate, sweetener and packaging costs) |
| | 10.8 | | | Increase in other manufacturing costs |
| | 7.0 | | | Increase due to benefit in 2005 resulting from receipts of proceeds from high fructose corn syrup litigation |
| | 4.8 | | | Increase due to higher sales volume |
| | (4.3 | ) | | Increase in marketing funding received primarily from The Coca-Cola Company |
| | 4.3 | | | Other |
| | | | | |
| $ | 47.2 | | | Total increase in cost of sales |
| | | | | |
| | | | | |
Amount | | | Attributable to: |
| (In millions) | | | |
| |
| $ | (23.4 | ) | | 3.4% decrease in bottle/can volume primarily due to a volume decrease in all product categories except energy products |
| | 12.4 | | | Increase in raw material costs such as concentrate and high fructose corn syrup, partially offset by a decrease in purchased products |
| | (10.8 | ) | | Decrease in cost due to the Company’s aluminum hedging program |
| | (2.9 | ) | | 6.0% decrease in post-mix volume |
| | 2.6 | | | Increase in equity investment in a plastic bottle cooperative in 2008 |
| | (1.9 | ) | | 1.6% decrease in sales volume to other Coca-Cola bottlers primarily due to a decrease in sparkling beverages |
| | (2.8 | ) | | Increase in marketing funding support received primarily from The Coca-Cola Company |
| | 1.4 | | | Other |
| | | | | |
| $ | (25.4 | ) | | Total decrease in cost of sales |
| | | | | |
The Company anticipates that beginningrecorded an increase in 2007,its equity investment in a plastic bottle cooperative in the majoritysecond quarter of 2008 which resulted in a pre-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 Company’s aluminum requirements will not have any ceiling price protection. Based upon current market pricescooperative’s retained earnings compared to the amount previously recorded by the Company. The Company classifies its equity in earnings of the cooperative in cost of sales consistent with the classification of purchases from the cooperative.
The Company entered into an agreement with The Coca-Cola Company to test an incidence pricing model for
aluminum,2008 for all sparkling beverage products for which the Company
anticipates the cost of aluminum cans may increase by 10% to 20% in 2007. High fructose corn syrup costs are also expected to increase significantly in 2007 as a result of increasing demand for corn products around the world and as a result of alternate uses for corn, such as ethanol. Based upon current market prices for corn,purchases concentrate from The Coca-Cola Company. For 2009, the Company
anticipatescontinued to utilize the
costs of high fructose corn syrupincidence pricing model and did not purchase concentrates at standard concentrate prices as was the practice in prior years. The Company will
increase by 20%continue to
35%utilize the incidence pricing model in
2007. The combined impact of increasing costs for aluminum cans2010 under the same terms as 2009 and
high fructose corn syrup, assuming flat volume, is anticipated to range between $24 million and $45 million.2008.
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 The
Coca-Cola Company and other beverage companies, which includes direct payments to the Company and payments to customers for marketing programs, was
$33.2$54.6 million
for 2006in 2009 compared to
$28.9$51.8 million
for 2005 and was recorded as a reduction in
cost of sales.2008.
Gross margin dollars increased $3.7.8%, or $4.8 million, or .6%, to $622.6$620.0 million in 2006 from $618.92009 compared to $615.2 million in 2005.2008. Gross margin as a percentage of net sales decreasedincreased to 43.5%43.0% in 20062009 from 44.8%42.0% in 2005.2008.
37
The increase in gross margin was primarily the result of the following:
| | | | |
| Amount | | | Attributable to: |
| (In Millions) | | | |
| $ | (24.6 | ) | | 4% increase in raw material costs (primarily concentrate, sweetener and packaging cost) |
| | 19.5 | | | 15% increase in average sales price per unit for sales to other bottlers related to growth in sales of energy products |
| | 12.6 | | | 2% increase in average bottle/can price per unit |
| | (10.8 | ) | | Increase in manufacturing costs |
| | (7.0 | ) | | Decrease as the result of proceeds received in 2005 from high fructose corn syrup litigation |
| | 6.2 | | | Increase in sales volume |
| | 4.3 | | | Increase in marketing funding received primarily from The Coca-Cola Company |
| | 2.9 | | | Increase in delivery fee revenue |
| | .6 | | | Other |
| | | | | |
| $ | 3.7 | | | Total increase in gross margin |
| | | | | |
| | | | | |
Amount | | | Attributable to: |
| (In millions) | | | |
| |
| $ | (17.1 | ) | | 3.4% decrease in bottle/can volume primarily due to a volume decrease in all product categories except energy products |
| | 14.7 | | | 1.0% increase in bottle/can sales price per unit primarily due to higher per unit prices in all product categories except enhanced water products |
| | (12.4 | ) | | Increase in raw material costs such as concentrate and high fructose corn syrup, partially offset by a decrease in purchased products |
| | 10.8 | | | Increase in gross margin due to the Company’s aluminum hedging program |
| | 4.6 | | | 6.7% increase in post-mix sales price per unit |
| | 4.5 | | | 3.6% increase in sales price per unit for sales to other Coca-Cola bottlers primarily due to higher per unit prices in all product categories |
| | (2.6 | ) | | Increase in equity investment in a plastic bottle cooperative in 2008 |
| | 2.8 | | | Increase in marketing funding support received primarily from The Coca-Cola Company |
| | (1.4 | ) | | 6.0% decrease in post-mix volume |
| | 0.9 | | | Other |
| | | | | |
| $ | 4.8 | | | Total increase in gross margin |
| | | | | |
The
1.3% decreaseincrease in gross margin
aspercentage was primarily due to higher sales prices per unit and a
percentagedecrease in cost of
net sales
resulted primarily fromdue to the Company’s aluminum hedging program partially offset by higher raw material
costs and higher manufacturing costs in 2006 and the high fructose corn syrup litigation proceeds received in 2005.The Company’s gross margins may not be comparable to other companies, since some entities include all costs related to their distribution network in cost of sales. The Company includes a portion of these costs in S,D&A expenses.
costs.
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,
vendingcold drink equipment repair costs,
amortization of intangibles and administrative support labor and operating costs such as treasury, legal, information services, accounting, internal
audit,control services, human resources and executive management costs.
S,D&A expenses increaseddecreased by $11.5$30.2 million, or 2.2%5.4%, to $537.4$525.5 million in 20062009 from $525.9$555.7 million in 2005.2008.
38
The
increasedecrease in S,D&A expenses was primarily due to the following:
| | | | |
| Amount | | | Attributable to: |
| (In Millions) | | | |
| $ | 12.8 | | | Increase in employee related expenses primarily related to wage increases and additional personnel |
| | (2.2 | ) | | Decrease in employee benefit costs primarily due to the amendment of the principal Company-sponsored pension plan and changes to the Company’s postretirement health care plan |
| | 1.9 | | | Increase in property and casualty insurance costs |
| | 1.8 | | | Increase in energy costs primarily related to the movement of finished goods from sales distribution centers to customer locations |
| | (1.1 | ) | | Decrease in depreciation expense primarily due to lower levels of capital spending over the past several years |
| | (1.1 | ) | | Favorable adjustment in 2005 due to the resignation of a Company executive and related impact on amounts accrued for certain benefit plans |
| | (.6 | ) | | Other |
| | | | | |
| $ | 11.5 | | | Total increase in S,D&A expenses |
| | | | | |
| | | | | |
Amount | | | Attributable to: |
| (In millions) | | | |
| |
| $ | (14.3 | ) | | Decrease in fuel and other energy costs related to the movement of finished goods from sales distribution centers to customer locations |
| | (14.0 | ) | | Charge in 2008 to freeze the Company’s liability to a multi-employer pension plan and settle a strike by employees covered by this plan |
| | 12.4 | | | Increase in employee benefit costs primarily due to higher pension plan costs |
| | (8.8 | ) | | Decrease in employee salaries due to the Company’s plan in July 2008 to reorganize the structure of its operating units and support services and the elimination of approximately 350 positions |
| | (8.0 | ) | | Decrease in depreciation expense due to the change in the useful lives of certain cold drink dispensing equipment and lower levels of capital spending |
| | (4.6 | ) | | Decrease in restructuring costs |
| | 4.2 | | | Increase in bonuses and incentive expense accrual due to the Company’s financial performance |
| | 1.3 | | | Increase in bad debt expense |
| | (1.1 | ) | | Decrease in property and casualty insurance |
| | 2.7 | | | Other |
| | | | | |
| $ | (30.2 | ) | | Total decrease in S,D&A expenses |
| | | | | |
Shipping and handling costs related to the movement of finished goods from manufacturing locations to sales distribution centers are included in cost of sales. Shipping and handling costs related to the movement of finished goods from sales distribution centers to customer locations are included in S,D&A expenses and totaled $193.8$188.9 million and $183.1$201.6 million in 20062009 and 2005,2008, respectively.
On July 15, 2008, the Company initiated a plan to reorganize the structure of its operating units and support services, which resulted in the elimination of approximately 350 positions, or approximately 5% of its workforce. As a result 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
charges certain customersentered into a
delivery fee to offsetnew agreement with a
portioncollective bargaining unit in the third quarter of 2008. The collective bargaining unit represents approximately 270 employees, or approximately 4% of the Company’s
delivery and handling costs.total workforce. The new 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 $13.6 million in 2008. The Company
initiatedpaid $3.0 million in 2008 to the Southern States Savings and Retirement Plan (“Southern States”) under this
delivery fee in October 2005.agreement. The
delivery feeremaining $10.6 million is
the present value amount, using a discount rate of 7%, which will be paid under the agreement and has been recorded in
net sales and was $3.6other liabilities. The Company will pay approximately $1 million
and $.7annually 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
2006 and 2005, respectively.In February 2006,expense to settle a strike by union employees covered by this plan.
Primarily due to the Company announced an amendmentperformance of the Company’s pension plan investments during 2008, the Company’s expense related to its principalthe two Company-sponsored pension planplans increased from a $2.3 million credit in 2008 to cease further benefit accruals under the plan effective June 30, 2006. Net periodic pensionan expense decreased to $8.1of $11.2 million in 2006 from $11.8 million in 2005. 2009.
The Company anticipates expense for its pension plans will be approximately $.2 million in 2007. The Company also announced in February 2006 planssuspended matching contributions to enhance its 401(k) Savings Plan effective April 1, 2009. The Company maintained the option to match its employees’ 401(k) Savings Plan contributions based on the financial results for eligible employees beginning2009. In the third quarter of 2009, the Company decided to match the first 5% of its employees’ contributions for the period of April 1, 2009 through August 31, 2009. In the fourth quarter of 2009, the Company paid $3.6 million to the 401(k) Savings Plan for the five month period. In the fourth quarter of 2009, the Company
39
decided to match the first 5% of its employees’ contributions from September 1, 2009 to the end of the fiscal year. The Company accrued $2.9 million in the firstfourth quarter of 2007. The Company anticipatesfor this payment.
Interest Expense
Interest expense,
for its 401(k) plan will increase to a range of approximately $8 million to $9net decreased 5.6%, or $2.2 million in
2007 from $4.7 million in 2006.In October 2005, the Company announced changes to its postretirement health care plan. Primarily as a result of these changes, the Company’s expense for postretirement health care decreased to $2.1 million in 2006 from $4.5 million in 2005. The Company anticipates the annual expense for postretirement health care will be approximately the same in 2007 as in 2006.
Amortization of Intangibles
Amortization of intangibles expense for 2006 declined by $.3 million2009 compared to 2005.2008. The declinedecrease in amortizationinterest expense, net in 2009 was primarily due to the impactlower levels of certain customer relationships recorded in other identifiable intangible assets which are now fully amortized.
Interest Expense
Interest expense increased 2.0%, or $1.0 million, to $50.3 million in 2006 from $49.3 million in 2005.borrowing. The change primarily reflected higher interest rates on the Company’s floating rate debt partially offset by a $1.0 million increase in interest earned on short-term cash investments in 2006. Interest expense in 2005 included $1.7 million of financing transaction costs related to the exchange of $164.8 million of the Company’s debt and the redemption of $8.6 million of debentures. Excluding the impact of the $1.7 million financing transaction costs, the Company’s overall weighted average interest rate increased to 6.6%5.8% during 20062009 from 6.2% during 2005.5.7% in 2008. See the “Liquidity and Capital Resources—Resources — Hedging Activities — Interest Rate Hedging” section of M,D&A for additional information.
Minority InterestThe Company recorded minority interest of $3.2 million in 2006 compared to $4.1 million in 2005 related to the portion of Piedmont owned by The Coca-Cola Company. The decreased amount in 2006 was due to unfavorable changes in operating results at Piedmont.
Income Taxes
The Company’s effective income tax rate for
20062009 was
25.4%30.3% compared to
40.8%48.0% in
2005.2008. The
deduction for qualified production activities provided within the American Jobs Creation Act of 2004 reduced the Company’slower effective income tax rate
by approximately 1% in 2006.In 2006, the Company reached agreements with two state taxing authorities to settle certain prior tax positions for which the Company had previously provided reserves due to uncertainty of resolution. As2009 resulted primarily from a result, the Company reduced the valuation allowance on related deferred tax assets by $2.6 million and reduced the liability for uncertain tax positions by $2.3 milliondecrease in the fourth quarter of 2006 (“Q4 2006”). This $4.9 million adjustment was reflected as a reduction of income tax expense in Q4 2006. Also during Q4 2006, the Company increased the liability for uncertain tax positions by $.5 million to reflect an interest accrual and an adjustment of theCompany’s reserve for uncertain tax positions. The net effectSee Note 14 of adjustments to the valuation allowance and liabilityconsolidated financial statements for uncertain tax positions during Q4 2006 was a reduction in income tax expense of $4.4 million.
During 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 2005 and was required to pay an additional $5.0 million by April 15, 2006. The amounts paid in excess of liabilities previously recorded had the effect of increasing income tax expense by approximately $4.1 million in 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 2005 which had the effect of decreasing income tax expense by $3.8 million in 2005.
During 2005, the Company also 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 2005 an increase in the average state income tax rate which is used in determining the net deferred income tax liability. This increase in the state income tax rate resulted in additional income tax expense in 2005 of $1.6 million.
information.
The Company’s income tax assets and
tax 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.
Net Income and Net Income Per ShareNoncontrolling InterestThe Company
reportedrecorded net income
for 2006attributable to the noncontrolling interest of
$23.2$2.4 million
or $2.55 basic net income per share forin both
Common Stock2009 and
Class B Common Stock, compared with net income for 20052008 related to the portion of
$23.0 million, or $2.53 basic net income per share for both Common Stock and Class B Common Stock.Piedmont owned by The
changes in net income and net income per share were the result of the net effect of changes in gross margin, S,D&A expenses, amortization of intangibles, interest expense, minority interest and income taxes as previously described.Coca-Cola Company.
20052008 Compared to 20042007The comparison of operating results for 2005 to operating results for 2004 were 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 31 of each year. 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, were included in the reported results for 2004.
A summary of key information concerning the Company’s financial results for
20052008 and
20042007 follows:
| | | | | | | | | | | |
| | | Fiscal Year | | | | |
| | | 2005(1)(2)(3) | | 2004(4)(5) | | Change | | % Change |
| In Thousands (Except Per Share Data) | | | | | | | | |
Net sales | | $ | 1,380,172 | | $ | 1,267,227 | | $ | 112,945 | | 8.9 |
Gross margin | | | 618,911 | | | 600,693 | | | 18,218 | | 3.0 |
S,D&A expenses | | | 525,903 | | | 513,227 | | | 12,676 | | 2.5 |
Interest expense | | | 49,279 | | | 43,983 | | | 5,296 | | 12.0 |
Net income | | | 22,951 | | | 21,848 | | | 1,103 | | 5.0 |
Basic net income per share: | | | | | | | | | | | |
Common Stock | | $ | 2.53 | | $ | 2.41 | | $ | .12 | | 5.0 |
Class B Common Stock | | $ | 2.53 | | $ | 2.41 | | $ | .12 | | 5.0 |
Diluted net income per share: | | | | | | | | | | | |
Common Stock | | $ | 2.53 | | $ | 2.41 | | $ | .12 | | 5.0 |
Class B Common Stock | | $ | 2.53 | | $ | 2.41 | | $ | .12 | | 5.0 |
| | | | | | | | | | | | | | | | | |
| | | 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 | | | | 621,134 | | | | (5,928 | ) | | | (1.0 | ) |
| S,D&A expenses | | | 555,728 | (1) | | | 539,251 | (2) | | | 16,477 | | | | 3.1 | |
| Interest expense, net | | | 39,601 | | | | 47,641 | | | | (8,040 | ) | | | (16.9 | ) |
| Income before taxes | | | 19,877 | (1) | | | 34,242 | (2) | | | (14,365 | ) | | | (42.0 | ) |
| Income tax provision | | | 8,394 | | | | 12,383 | | | | (3,989 | ) | | | (32.2 | ) |
| Net income | | | 11,483 | (1) | | | 21,859 | (2) | | | (10,376 | ) | | | (47.5 | ) |
| Net income attributable to the noncontrolling interest | | | 2,392 | | | | 2,003 | | | | 389 | | | | 19.4 | |
Net income attributable toCoca-Cola Bottling Co. Consolidated | | | 9,091 | (1) | | | 19,856 | (2) | | | (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 adjustmentrestructuring costs of $7.0$4.6 million (pre-tax), or $4.2$2.4 million after tax, related to the settlementCompany’s plan to reorganize the structure of high fructose corn syrup litigation,its operating units and support services and resulted in the elimination of approximately 350 positions, which were reflected in S,D&A expenses; 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 as a reduction in cost of sales. |
(2) | Results for 2005 included a favorable adjustment of $1.1 million (pre-tax), or $.7 million after tax, related to an adjustment of amounts accrued for certain executive benefits due to the resignation of an executive, which was reflected as a reduction to S,D&A expenses. |
(3) | Interest expense for 2005 included financing transaction costsexpenses; and a charge of $1.7$2.0 million (pre-tax), or $1.0 million after tax, related to the exchange of $164.8 million of the Company’s debt and the redemption of $8.6 million of debentures,2009 fuel hedging program, which was reflected in interest expense.S,D&A expenses. |
40
(4) | | |
| (2) | | Results for 20042007 included an unfavorable non-cash adjustmentrestructuring costs of $1.7$2.8 million (pre-tax), or $1.0$1.7 million 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. |
(5) | Results for 2004 included a favorable adjustment of approximately $2 million (pre-tax), or $1.1 million after 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. |
Net sales increased
by $112.9$27.6 million, or
approximately 9%1.9%, to
$1.38$1.46 billion in
20052008 compared to
$1.27$1.44 billion in
2004.2007. The increase in net sales was a result of the following:
| | | | |
| Amount | | | Attributable to: |
| (In Millions) | | | |
| $ | 60.9 | | | 82% increase in sales to other Coca-Cola bottlers primarily related to shipments of Full Throttle |
| | 54.9 | | | 4% increase in bottle/can sales volume for the comparable period primarily due to growth in diet carbonated beverages, sports drinks, energy products and water products offset by decreased volume in sugar carbonated beverages |
| | (23.9 | ) | | Decrease due to extra selling week in 2004 |
| | 15.1 | | | 3% increase in average bottle/can revenue per unit |
| | 1.6 | | | 2% increase in post-mix sales primarily related to an increase in sales price per unit |
| | 4.3 | | | Other |
| | | | | |
| $ | 112.9 | | | Total increase in net sales |
| | | | | |
| | | | | |
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 sales volume to other Coca-Cola bottlers primarily due to an 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 sales price per unit for sales to other Coca-Cola bottlers 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 netpricing per unit is impacted by the price charged per package, the volume generated in each package and the channels in which those packages are sold. 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 unit can increase without an actual increase in wholesale pricing. In 2005, theThe increase in the Company’s bottle/can net price per unit 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, products, Vault, Dasani flavors and Coca-Cola Zero.
increases in sales volume of enhanced water which has a higher sales price per unit, partially offset by decreases in sales of higher price packages (primarily in the convenience store channel) and a lower sales price per unit for bottled water.
Product category sales volume in
20052008 and
20042007 as a percentage of total bottle/can sales volume and the percentage
increasechange by product category
for a comparable period waswere as follows:
| | | | | | | | |
| | | Bottle/Can Sales Volume | | | Bottle/Can Sales Volume
% Increase |
Product Category | | 2005 | | | 2004 | | |
Carbonated beverages (including energy products) | | 87.9 | % | | 89.1 | % | | 2.2 |
Noncarbonated beverages | | 12.1 | % | | 10.9 | % | | 15.6 |
| | | | | | | | |
Total bottle/can sales volume | | 100.0 | % | | 100.0 | % | | 3.7 |
| | | | | | | | |
The Company’s noncarbonated beverage portfolio provided strong volume growth in 2005 with Dasani growing 23% and POWERade growing 29%. Newly introduced energy products, including Full Throttle, accounted for .5% of total volume in 2005. Noncarbonated beverages comprised 12.1% of overall bottle/can volume in 2005 compared to 10.9% in 2004. The Company encountered significant pricing pressure in the supermarket channel for bottled water with average revenue per unit 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.
| | | | | | | | | | | | | |
| | | 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 beverage sales are to customers in the United States.
41
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.
Cost of sales increased
14.2%4.1%, or
$94.7$33.5 million, to
$761.2$848.4 million in
20052008 compared to
$666.5$814.9 million in
2004.2007.
The increase in cost of sales was principally attributable to the following:
| | | | |
| Amount | | | Attributable to: |
| (In Millions) | | | |
| $ | 67.1 | | | Increase in sales volume |
| | 16.7 | | | 5% increase in raw material costs (primarily concentrate, sweetener and packaging costs) |
| | 13.4 | | | Increase due to energy products having higher cost per unit |
| | (12.8 | ) | | Decrease due to impact of extra selling week in 2004 |
| | 11.0 | | | Decrease in marketing funding received primarily from The Coca-Cola Company |
| | (7.0 | ) | | Decrease as the result of proceeds received in 2005 from high fructose corn syrup litigation |
| | 6.3 | | | Other |
| | | | | |
| $ | 94.7 | | | Total increase in cost of sales |
| | | | | |
At
| | | | | |
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 costs despite volume decrease) |
| | 2.5 | | | 2.0% increase in sales volume to other Coca-Cola bottlers primarily due to an 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 The Coca-Cola Company |
| | (2.6 | ) | | Increase in equity investment in a plastic bottle cooperative |
| | (1.8 | ) | | Decrease in cost per unit for sales to other Coca-Cola bottlers 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
beginningsecond quarter of
2004,2008 which resulted in a pre-tax credit of $2.6 million. This increase was made based on information received from the
Company reclassified plastic shells, premix tankscooperative during the quarter and
CO2 tanks, which totaled $10.4 million, from property, plant and equipment to inventories. These items were reclassified asreflected a higher share of the Company believes that they are more closely relatedcooperative’s retained earnings compared to the saleamount previously recorded by the Company. The Company classifies its equity in earnings 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 reflectedcooperative in cost of sales beginning in 2004. Previously, costs associatedconsistent with these items were recorded as depreciation expense.the classification of purchases from the cooperative.
Total marketing funding support from The
Coca-Cola Company and other beverage companies, which includes direct payments to the Company and payments to customers for marketing programs, was
$28.9$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 reduction in concentrate price, did not have a significant impact on overall results of operations in 2004 or 2005.2007.
Gross margin increased $18.2dollars decreased 1.0%, or $5.9 million, or 3.0%, to $618.9$615.2 million in 2005 from $600.72008 compared to $621.1 million in 2004.2007. Gross margin as a percentage of net sales decreased to 44.8%42.0% in 20052008 from 47.4%43.3% in 2004.2007.
42
The
increasedecrease in gross margin was primarily the result of the following:
| | | | |
| Amount | | | Attributable to: |
| (In Millions) | | | |
| $ | 24.7 | | | Increase in sales volume |
| | 21.9 | | | 19% increase in average bottler sales price per unit |
| | (16.7 | ) | | 5% increase in raw material costs (primarily concentrate, sweetener and packaging costs) |
| | 15.1 | | | 3% increase in average bottle/can price per unit |
| | (13.4 | ) | | Decrease due to energy products having higher cost per unit |
| | (11.1 | ) | | Decrease due to impact of extra selling week in 2004 |
| | (11.0 | ) | | Decrease in marketing funding received primarily from The Coca-Cola Company |
| | 7.0 | | | Increase as the result of proceeds received in 2005 from high fructose corn syrup litigation |
| | 1.7 | | | Other |
| | | | | |
| $ | 18.2 | | | Total increase in gross margin |
| | | | | |
| | | | | |
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 sales price per unit for sales to other Coca-Cola bottlers 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
2.6% decrease in gross
margins as amargin percentage
of net sales resultedwas primarily
from the impact of higher sales to other bottlers, which have lower margins (2.0% of the 2.6% decrease). The remainder of the decrease was due to
higherincreased raw material costs,
(primarily packaging)increased sales of purchased products, a lower percentage of sales of higher margin packages and a lower sales price per unit for bottled water, partially offset by
higher sales prices per unit for other products, increased marketing funding support and the
high fructose corn syrup litigation proceeds.The Company’s gross margins may not be comparable to other companies, since some entities include all costs related to their distribution networkincrease in cost of sales. The Company includesthe equity investment in a portion of these costs in S,D&A expenses.
plastic bottle cooperative.
S,D&A expenses increased by
$12.7$16.5 million, or
2.5%3.1%, to
$525.9$555.7 million in
20052008 from
$513.2$539.3 million in
2004.2007.
The increase in S,D&A expenses was primarily due to the following:
| | | | |
| Amount | | | Attributable to: |
| (In Millions) | | | |
| $ | 9.0 | | | Increase in employee related expenses primarily related to wage increases and additional personnel |
| | (4.3 | ) | | Decrease in depreciation expense primarily due to lower levels of capital spending over the past several years |
| | 3.7 | | | Increase in energy costs primarily related to the movement of finished goods from sales distribution centers to customer locations |
| | 1.1 | | | Increase in employee benefit costs primarily due to increased costs of the principal Company-sponsored pension plan and health care plan costs |
| | (1.1 | ) | | Favorable adjustment in 2005 due to the resignation of a Company executive and related impact on amounts accrued for certain benefit plans |
| | 4.3 | | | Other |
| | | | | |
| $ | 12.7 | | | Total increase in S,D&A expenses |
| | | | | |
| | | | | |
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
43
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.
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 initiated 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 certain employees. The Company charges certain customersincurred $2.8 million in restructuring expenses in 2007.
On July 15, 2008, the Company initiated a delivery feeplan to offsetreorganize the structure of its operating units and support services, which resulted in the 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 Company’s
delivery and handling costs.total workforce. The new 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 $13.6 million in 2008. The Company
initiated this delivery fee in October 2005. The delivery fee is recorded in net sales and was $.7paid $3.0 million in
2005.Amortization of Intangibles
Amortization of intangibles expense for 2005 declined by $2.2 million compared to 2004. The decline in amortization expense was due2008 to the impactSouthern 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 certain customer relationships7% that will be paid under the agreement and has been recorded in other identifiable intangible assets which are now fully amortized.
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.
Interest expense, increased $5.3net decreased 16.9%, or $8.0 million in 20052008 compared to 2004.2007. The increasedecrease in interest expense, net in 2008 was attributableprimarily due to financing transaction costs of $1.7 million related to the exchange of $164.8 million of the Company’s debt and the early retirement of $8.6 million of its debentures, and higherlower interest rates on the Company’s floating rate debt, partiallyand lower levels of borrowing 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 excludingdecreased to 5.7% during 2008 from 6.7% in 2007. See the financing transaction costs related“Liquidity and Capital Resources — Hedging Activities — Interest Rate Hedging” section of M,D&A for additional information.
Income Taxes
The Company’s effective income tax rate for 2008 was 48.0% compared to
the debt exchange and the premium related to the early retirement of debentures, increased38.4% in 2007. The higher effective income tax rate for 2008 resulted primarily from an
averageincrease in the Company’s reserve for uncertain tax positions. See Note 14 of
5.4% during 2004 to 6.2% during 2005.the consolidated financial statements for additional information.
MinorityNoncontrolling InterestThe Company recorded
minoritynet income attributable to the noncontrolling 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
increaseincreased amount in
20052008 was due to
improvements in operating resultshigher net income at Piedmont.
Income TaxesFinancial ConditionThe Company’s effective income tax rate for 2005 was 40.8% compared to 40.2% in 2004. The deduction for qualified production activities provided within the American Jobs Creation Act of 2004 reduced the Company’s effective income tax rate by approximately 1% in 2005.
Net Income and Net Income Per Share
The Company reported net income for 2005 of $23.0 million, or $2.53 basic net income per share for both Common Stock and Class B Common Stock, compared with net income for 2004 of $21.8 million, or $2.41 basic net income per share for both Common and Class B Common Stock. The changes in net income and net income per share were the result of the net effect of changes in gross margin, S,D&A expenses, amortization of intangibles, interest expense, minority interest and income taxes as previously described.
FINANCIAL CONDITION
Total assets increaseddecreased to $1.36$1.28 billion at January 3, 2010 from $1.32 billion at December 31, 2006 from $1.34 billion at January 1, 200628, 2008 primarily due to increasesdecreases in cash and cash equivalents, and inventories, partially offset by a decrease in property, plant and equipment, net.net and capital lease, net offset by an increase in other assets. Property, plant and equipment, net decreased primarily due to lower levels of capital spending over the past several years. Leased property under capital leases, net decreased primarily due to the termination of one lease and the modification of a second lease. Other assets increased primarily due to unamortized cost andmark-to-market adjustments related to the Company’s hedging programs.
44
Net working capital, defined as current assets less current liabilities,
decreasedincreased by
$66.4$166.0 million
to $68.3 million at January 3, 2010 from
January 1, 2006 toa negative $97.8 million at December
31, 2006.28, 2008.
Significant changes in net working capital from
December 28, 2008 to January
1, 2006 to December 31, 20063, 2010 were as follows:
An increase in cash and cash equivalents of $22.2 million due to cash flows from operating activities.
| | |
| • | A decrease in current portion of long-term debt of $176.7 million primarily due to the payment of $119.3 million of debentures on May 1, 2009 and the payment of $57.4 million of debentures on July 1, 2009. In April 2009, the Company issued $110.0 million of unsecured 7% Senior Notes due 2019 and used the proceeds for the May 2009 maturity. In addition, $55.0 million in borrowings on the Company’s $200 million revolving credit facility (“$200 million facility”) which is not due until March 2012 were used for the July 2009 maturity. The $200 million facility has been paid down to $15 million as of January 3, 2010. |
|
| • | An increase in other accrued liabilities of $4.5 million primarily due to an increase in employee benefit plan accruals. |
|
| • | A decrease in accounts payable, trade of $5.6 million primarily due to the timing of payments. |
|
| • | An increase in accounts receivable from and a decrease in accounts payable to TheCoca-Cola Company of $.7 million and $7.4 million, respectively, primarily due to the timing of payments. |
|
| • | A decrease in cash and cash equivalents of $27.6 million primarily due to the net reduction of debt of $53.5 million. |
|
| • | An increase in prepaid expenses and other current assets of $13.9 million primarily due to transactions related to the Company’s hedging programs. |
An increase in inventories of $8.8 million due to the addition of new products and increased raw material levels of concentrate and cans.
An increase in current portion of debt of $93.5 million primarily due to reclassification from long-term to current of $100 million in debentures due in November 2007.
An increase in accounts payable, trade of $8.7 million primarily due to increased inventories.
An increase in accounts payable to The Coca-Cola Company of $6.2 million primarily due to timing of payments.
Debt and capital lease obligations were $769.0$601.0 million as of January 3, 2010 compared to $669.1 million as of December 31, 2006 compared to $777.2 million as of January 1, 2006.28, 2008. Debt and capital lease obligations as of January 3, 2010 and December 31, 2006 and January 1, 200628, 2008 included $77.5$63.1 million and $79.2$77.6 million, respectively, of capital lease obligations related primarily to Company facilities.
The Company
recorded a minimumincreased its pension liability
adjustment of $4.3by $73.1 million
with a corresponding increase in other comprehensive loss, net of tax,
as of January 1, 2006 to reflect the difference between the fair market value of the Company’s pension plan assets and the accumulated benefit obligation of the pension plans. The Company recorded an adjustment to decrease the minimum pension liability of $5.4 million, net of tax, as of December 31, 2006in 2008 primarily as a result of the
plan curtailment discusseddecrease in
Note 17 to the
consolidated financial statements. The Company adopted the provisions of Statement of Financial Accounting Standards No. 158, “Employers’ Accounting for Defined Pension and Other Postretirement Plans” (“SFAS No. 158”), at the end of 2006. Pension and postretirement liabilities were adjusted to reflect the excessvalue of the
projected benefit obligation (pension) and the accumulated postretirement benefit obligation (postretirement medical) over availablepension plan
assets. The total SFAS No. 158 adjustment to increase benefit liabilities was $2.6 million, net of tax, with a corresponding adjustment to other comprehensive loss.assets during 2008. Contributions to the Company’s pension plans were
$.5$10.1 million and $.2 million in
20062009 and
$8.0 million in 2005.2008, respectively. The Company anticipates
there will be nothat contributions to the principal Company-sponsored pension plan in
2007.2010 will be in the range of $5 million to $7 million.
LIQUIDITY AND CAPITAL RESOURCESLiquidity and Capital Resources
The Company’s sources of capital include cash
flowflows from operations, available credit facilities and the issuance of debt and equity securities. Management believes 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
or paid in the future.
As of December 31, 2006,January 3, 2010, the Company had $100$185 million available under its revolving credit$200 million facility to meet its cash requirements. The $200 million facility contains two financial covenants: a fixed charges coverage ratio and a debt to operating cash flow ratio, each as defined in the credit agreement. The fixed charges coverage ratio requires the Company borrows periodicallyto maintain a consolidated cash flow to fixed charges ratio of 1.5 to 1 or higher. The operating cash flow ratio requires the Company to maintain a debt to operating cash flow ratio of 6.0 to 1 or lower. The Company is currently in compliance with these covenants and has been throughout 2009.
In April 2009, the Company issued $110 million of unsecured 7% Senior Notes due 2019.
45
The Company had debt maturities of $119.3 million in May 2009 and $57.4 million in July 2009. On May 1, 2009, the Company used the proceeds from the $110 million 7% Senior Notes due 2019 plus cash on hand to repay the debt maturity of $119.3 million. The Company used cash flow generated from operations and $55.0 million in borrowings under its
available lines of credit. These lines of credit, in$200 million facility to repay the
aggregate amount of $60$57.4 million
at December 31, 2006, are made available at the discretion of two participating banks at rates negotiated at the time of borrowing and may be withdrawn at any time by such banks.debt maturity on July 1, 2009. The Company currently plansbelieves that all of the banks participating in the Company’s $200 million facility have the ability to use cash on hand and its revolving credit facility to repay or refinancewill meet any funding requests from the $100 million maturity of debentures in November 2007.
Company.
The Company has obtained
allthe majority of its long-term
debt financing, other than capital leases, from
the public markets. As of
December 31, 2006, $691.5January 3, 2010, $537.9 million of the Company’s total outstanding balance of debt and capital lease obligations of
$769.0$601.0 million was financed through
the Company’s $200 million facility and publicly offered debt. The Company had capital lease obligations of
$77.5$63.1 million as of
December 31, 2006. The Company’s interest rate derivative contracts are with several different financial institutions to minimizeJanuary 3, 2010. There was $15.0 million outstanding on 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.On March 8, 2007, the Company entered into a new $200 million revolving credit facility replacing its $100 million facility. The new facility matures in March 2012, and includes an option to extend the term for an additional year at the discretionas of the participating banks. The facility bears interest at a floating base rate or a floating rate of LIBOR plus an interest rate spread of .35%. In addition, there is a fee of .10% required for this facility. Both the interest rate spread and the facility fee are determined from a commonly-used pricing grid based on the Company’s long-term senior unsecured debt rating. The facility contains similar financial covenants as the previous $100 million facility. The two financial covenants are related to ratio requirements for interest coverage and long-term debt to cash flow, each as defined in the credit agreement.
January 3, 2010.
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 2006 have been for capital expenditures, the
repaymentpayment of debt
maturities and capital lease obligations,
dividend payments, income tax payments and
dividends.pension payments.
A summary of cash activity for
20062009 and
20052008 follows:
| | | | | | |
| | | Fiscal Year |
| | | 2006 | | 2005 |
| In Millions | | | | |
Cash sources | | | | | | |
Cash provided by operating activities (excluding income tax payments) | | $ | 120.1 | | $ | 113.3 |
Other | | | 2.4 | | | 5.2 |
| | | | | | |
Total cash sources | | $ | 122.5 | | $ | 118.5 |
| | | | | | |
Cash uses | | | | | | |
Capital expenditures | | $ | 63.2 | | $ | 40.0 |
Investment in plastic bottle manufacturing cooperative | | | 2.3 | | | — |
Payment of debt and capital lease obligations | | | 8.2 | | | 11.9 |
Income tax payments | | | 17.2 | | | 11.2 |
Premium on exchange of debt | | | — | | | 15.6 |
Dividends | | | 9.1 | | | 9.1 |
Other | | | .3 | | | — |
| | | | | | |
Total cash uses | | $ | 100.3 | | $ | 87.8 |
| | | | | | |
Increase in cash | | $ | 22.2 | | $ | 30.7 |
| | | | | | |
| | | | | | | | | |
| | | Fiscal Year | |
In millions | | 2009 | | | 2008 | |
| |
Cash sources | | | | | | | | |
| Cash provided by operating activities (excluding income tax and pension payments) | | $ | 103.4 | | | $ | 103.8 | |
| Proceeds from $200 million facility | | | 15.0 | | | | — | |
| Proceeds from issuance of debt | | | 108.1 | | | | — | |
| Proceeds from the termination of interest rate swap agreements | | | — | | | | 5.1 | |
| Proceeds from the sale of property, plant and equipment | | | 8.3 | | | | 4.2 | |
| | | | | | | | | |
| Total cash sources | | $ | 234.8 | | | $ | 113.1 | |
| | | | | | | | | |
Cash uses | | | | | | | | |
| Capital expenditures | | $ | 43.3 | | | $ | 47.9 | |
| Investment in a plastic bottle manufacturing cooperative | | | — | | | | 1.0 | |
| Investment in restricted cash | | | 4.5 | | | | — | |
| Payment of lines of credit, net | | | — | | | | 7.4 | |
| Debt issuance costs | | | 1.0 | | | | — | |
| Pension payments | | | 10.1 | | | | 0.2 | |
| Investment in distribution agreement | | | — | | | | 2.3 | |
| Payment of capital lease obligations | | | 3.3 | | | | 2.6 | |
| Payment of current maturities on long-term debt | | | 176.7 | | | | — | |
| Income tax payments | | | 13.8 | | | | 7.0 | |
| Dividends | | | 9.2 | | | | 9.1 | |
| Other | | | .5 | | | | .1 | |
| | | | | | | | | |
| Total cash uses | | $ | 262.4 | | | $ | 77.6 | |
| | | | | | | | | |
| Increase (decrease) in cash | | $ | (27.6 | ) | | $ | 35.5 | |
| | | | | | | | | |
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 be between $15$20 million and $20$25 million in 2007. The cash requirement for income taxes in 2006 included $5 million related to the settlement of a state tax audit accrued in 2005.2010.
46
Additions to property, plant and equipment during
20062009 were
$63.2$55.0 million
of which $11.6 million were accrued in accounts payable, trade as unpaid. This compared to
$40.0$47.9 million in
2005.2008. Capital expenditures during
20062009 were funded with cash flows from operations. The
increaseCompany anticipates that additions to property, plant and equipment in
capital expenditures2010 will be in
2006 was primarily duethe range of $50 million to
the purchase of new route delivery vehicles and costs associated with the Company’s ongoing implementation of its ERP computer system.$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.
The Company anticipates that additions to property, plant and equipment in 2007 will be in the range of $40 million to $50 million and plans to fund such additions through cash flows from operations and its available lines of credit.
Financing ActivitiesIn December 2005,
On March 8, 2007, the Company
repurchased $8.6entered into a $200 million
offacility replacing its
outstanding 6.375% debentures due May 2009. 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 of debt lengthened maturities on portions of the Company’s debt, and reduced refinancing requirements in the near-term by extending the maturity dates on a portion of its total debt.
The Company has a five-year $100 million revolving credit facility. On December 31, 2006, there were no amounts outstanding under the facility. The $200 million facility matures in April 2010March 2012 and includes an option to extend the term for an additional year at the discretion of the participating banks. The $200 million facility bears interest at a floating base
rate or a floating rate of LIBOR plus an interest rate spread of .375%..35%, dependent on the length of the term of the interest period. In addition, there is athe Company must pay an annual facility fee of .125% required for this.10% of the lenders’ aggregate commitments under the facility. Both the interest rate spread and the facility fee are determined from a commonly-used pricing grid based on the Company’s long-term senior unsecured debt rating. The $200 million facility contains two financial covenants related tocovenants: a fixed charges coverage ratio requirements for interest coverage and long-terma debt to operating cash flow ratio, each as defined in the credit agreement. The fixed charges coverage ratio requires the Company to maintain a consolidated cash flow to fixed charges ratio of 1.5 to 1 or higher. The operating cash flow ratio requires the Company to maintain a debt to operating cash flow ratio of 6.0 to 1 or lower. On 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 Central States would be excluded from the calculations of the financial covenants to the extent they were incurred on or before March 31, 2009 and did not exceed $15 million. See Note 17 of the consolidated financial statements for additional details on the withdrawal from Central States. The Company is currently in compliance with these covenants as amended by the amendment to the $200 million facility. These covenants do not currently, and the Company does not anticipate they will restrict its liquidity or capital resources.
On July 1, 2009 the Company borrowed $55 million under the $200 million facility and used the proceeds, along with $2.4 million of cash on hand, to repay at maturity the Company’s $57.4 million outstanding 7.2% Debentures due 2009. On January 3, 2010, the Company had $15.0 million outstanding under the $200 million facility. There were no amounts outstanding under the $200 million facility at December 28, 2008.
The Company borrowsborrowed periodically under its available lines of credit. These linesan uncommitted line of credit provided by a bank participating in the aggregate amount$200 million facility. This uncommitted line of $60 million at December 31, 2006, arecredit 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. The Company can utilize its revolving credit facilitybank was temporarily terminated in the eventfourth quarter of 2008. In January 2009, the linesparticipating bank reinstated its uncommitted line of credit are not available. for $65 million. This uncommitted line of credit was terminated on March 29, 2009.
In April 2009, the Company issued $110 million of 7% Senior Notes due 2019. The proceeds plus cash on hand were used on May 1, 2009 to repay at maturity the $119.3 million outstanding 6.375% Debentures due 2009.
On
December 31, 2006, there was no amount outstanding underFebruary 10, 2010, the
linesCompany entered into an agreement for an uncommitted line of credit.
On January 1, 2006, $6.5Under this agreement, the Company may borrow up to a total of $20 million
was outstanding under the linesfor periods of
credit.In January 1999, the7 days, 30 days, 60 days or 90 days.
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 debt under this shelf registration.securities in November 2008. The Company currently has
up to $300$190 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. Piedmont pays the Company interest on its borrowings at the Company’s average cost of funds plus .50%. The loan balance at December 31, 2006 was $89.5 million and was eliminated in consolidation.
All of the outstanding 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.
47
At
December 31, 2006,January 3, 2010, 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.Company or reduced access to capital markets, which could have a material impact on the Company’s financial position or results of operations. There were no changes in these credit ratings from the prior
year. It isyear and the
Company’s intent to continue to reduce its financial leverage over time.credit ratings are currently stable.
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 2005, effective January 2, 2006, under a restricted stock award plan that provides for annual awards of such shares subject to the Company achieving at least 80% of the overall goal achievement factor in the Company’s Annual Bonus Plan.
The Company adopted SFAS No. 123 (revised 2004), “Share-Based Payment” on January 2, 2006. The Company applied the modified prospective transition method and prior periods were not restated. The Company’s only share based compensation is the restricted stock award to Mr. Harrison, III. The award provides the shares of restricted stock vest at the 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. 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 for each year. 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 award in 2006, were approved by the Board of Directors in the first quarter of 2006 and the Company recorded the 20,000 share award at the grant-date price of $46.45 per share. Total stock compensation expense was $929,000 over the one-year service period (fiscal 2006) as the Company achieved at least 80% of the overall goal achievement factor in the Company’s Annual Bonus Plan. In addition, the Company 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. Prior to the adoption of SFAS No. 123, the Company accrued compensation expense over the course of the one-year service period with the full year expense based upon the end of the period stock price.
The following table illustrates the effect on reported net income and earnings per share for 2005 and 2004 had the Company accounted for the stock grant using the fair value method in SFAS No. 123:
| | | | | | | | |
| | | Fiscal Year | |
| | | 2005 | | | 2004 | |
| In Thousands (Except Per Share Data) | | | | | | |
Net income as reported | | $ | 22,951 | | | $ | 21,848 | |
Add: Restricted stock grant expense, net of tax | | | 891 | | | | 1,194 | |
Less: Restricted stock grant expense under SFAS No. 123, net of tax | | | (1,104 | ) | | | (1,087 | ) |
| | | | | | | | |
Net income—pro forma | | $ | 22,738 | | | $ | 21,955 | |
| | | | | | | | |
Net income per share: | | | | | | | | |
Common Stock: | | | | | | | | |
Basic—as reported | | $ | 2.53 | | | $ | 2.41 | |
| | | | | | | | |
Basic—pro forma | | $ | 2.50 | | | $ | 2.42 | |
| | | | | | | | |
Diluted—as reported | | $ | 2.53 | | | $ | 2.41 | |
| | | | | | | | |
Diluted—pro forma | | $ | 2.50 | | | $ | 2.42 | |
| | | | | | | | |
Class B Common Stock: | | | | | | | | |
Basic—as reported | | $ | 2.53 | | | $ | 2.41 | |
| | | | | | | | |
Basic—pro forma | | $ | 2.50 | | | $ | 2.42 | |
| | | | | | | | |
Diluted—as reported | | $ | 2.53 | | | $ | 2.41 | |
| | | | | | | | |
Diluted—pro forma | | $ | 2.49 | | | $ | 2.41 | |
| | | | | | | | |
Off-Balance Sheet Arrangements The Company is a member of two manufacturing cooperatives
that are variable interest entities. The Companyand has guaranteed
$42.9$30.5 million of debt and related lease obligations for these
cooperatives. Asentities as of
December 31, 2006,January 3, 2010. 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. As of
December 31, 2006,January 3, 2010, the Company’s maximum exposure, if the
cooperativesentities borrowed up to their borrowing capacity, would have been
$65.8$69.3 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
and Note 18 of the consolidated financial statements for additional information about these
cooperatives.entities.
Aggregate Contractual Obligations The following table summarizes the Company’s contractual obligations and commercial commitments as of
December 31, 2006: | | | | | | | | | | | | | | | |
| | | Payments Due by Period |
| | | Total | | 2007 | | 2008-2009 | | 2010-2011 | | 2012 and
Thereafter |
| In Thousands | | | | | | | | | | |
Contractual obligations: | | | | | | | | | | | | | | | |
Total debt, net of interest | | $ | 691,450 | | $ | 100,000 | | $ | 176,693 | | $ | — | | $ | 414,757 |
Capital lease obligations, net of interest (1) | | | 82,650 | | | 2,435 | | | 5,383 | | | 6,152 | | | 68,680 |
Estimated interest on debt and capital lease obligations (2) | | | 336,370 | | | 45,065 | | | 72,101 | | | 55,513 | | | 163,691 |
Purchase obligations (3) | | | 641,171 | | | 86,450 | | | 172,900 | | | 172,900 | | | 208,921 |
Other long-term liabilities (4) | | | 83,972 | | | 5,344 | | | 10,343 | | | 9,530 | | | 58,755 |
Operating leases | | | 17,560 | | | 3,120 | | | 4,743 | | | 1,923 | | | 7,774 |
Long-term contractual arrangements (5) | | | 28,481 | | | 7,526 | | | 11,885 | | | 5,837 | | | 3,233 |
Interest rate swap agreements | | | 9,277 | | | 4,239 | | | 3,649 | | | 966 | | | 423 |
Purchase orders (6) | | | 17,221 | | | 17,221 | | | | | | | | | |
| | | | | | | | | | | | | | | |
Total contractual obligations | | $ | 1,908,152 | | $ | 271,400 | | $ | 457,697 | | $ | 252,821 | | $ | 926,234 |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | Payments Due by Period | |
| | | | | | | | | | | | | | | 2015 and
| |
In thousands | | Total | | | 2010 | | | 2011-2012 | | | 2013-2014 | | | Thereafter | |
| |
| Contractual obligations: | | | | | | | | | | | | | | | | | | | | |
| Total debt, net of interest | | $ | 537,917 | | | $ | — | | | $ | 165,000 | | | $ | — | | | $ | 372,917 | |
| Capital lease obligations, net of interest | | | 63,107 | | | | 3,846 | | | | 7,966 | | | | 9,214 | | | | 42,081 | |
| Estimated interest on debt and capital lease obligations(1) | | | 204,266 | | | | 33,010 | | | | 65,000 | | | | 49,270 | | | | 56,986 | |
| Purchase obligations(2) | | | 393,724 | | | | 89,145 | | | | 178,290 | | | | 126,289 | | | | — | |
| Other long-term liabilities(3) | | | 110,529 | | | | 7,390 | | | | 14,643 | | | | 13,301 | | | | 75,195 | |
| Operating leases | | | 19,542 | | | | 3,578 | | | | 5,101 | | | | 3,123 | | | | 7,740 | |
| Long-term contractual arrangements(4) | | | 21,452 | | | | 6,868 | | | | 10,131 | | | | 4,227 | | | | 226 | |
| Postretirement obligations | | | 44,811 | | | | 2,524 | | | | 5,446 | | | | 5,871 | | | | 30,970 | |
| Purchase orders(5) | | | 31,019 | | | | 31,019 | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | |
| Total contractual obligations | | $ | 1,426,367 | | | $ | 177,380 | | | $ | 451,577 | | | $ | 211,295 | | | $ | 586,115 | |
| | | | | | | | | | | | | | | | | | | | | |
| | |
| (1) | Adjusted to reflect the modified lease on the corporate facilities, which was effective January 1, 2007. |
(2) | Includes interest payments based on contractual terms and current interest rates for variable rate debt. |
(3) |
| (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. |
48
(4) | | |
| (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. |
(5) |
| (4) | | Includes contractual arrangements with certain prestige properties, athletic venues and other locations, and other long-term marketing commitments. |
(6) |
| (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. |
The Company has $5.6 million of unrecognized income tax benefits including accrued interest as of January 3, 2010 (included in other long-term liabilities in the above table) of which $3.5 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; however, the Company does not expect the change to have a significant impact on the consolidated financial statements. 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 January 3, 2010, the Company has
$22.1$30.0 million of standby letters of credit, primarily related to its property and casualty insurance
programs, as of December 31, 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 $10.1 million to one of its Company-sponsored pension plans in 2009. The Company anticipates
therethat it will be
norequired to make contributions to
the principalits two Company-sponsored pension
planplans in
2007.2010. Based on information currently available, the Company estimates cash contributions in 2010 will be in the range of $5 million to $7 million. Postretirement medical care payments are expected to be approximately
$2.7$2.5 million in
2007.2010. See Note 17 to the consolidated financial statements for additional information related to pension and postretirement obligations.
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 has nine interest rate swap agreements. Three of the nineterminated six interest rate swap agreements
totaling $75with a notional amount of $225 million
were entered intoit had outstanding. The Company received $6.2 million in
January 2007. Thesecash proceeds including $1.1 million for previously accrued interest receivable. After accounting for the previously accrued interest receivable, the Company will amortize a gain of $5.1 million over the remaining term of the underlying debt. The Company has no interest rate swap agreements
effectively convert $325 millionoutstanding as of
the Company’s debt from a fixed rate to a floating rate and are accounted for as fair value hedges.During 2006, 2005 and 2004, interestJanuary 3, 2010.
Interest expense was reduced by $1.7$2.1 million, $1.7$2.2 million and $1.9$1.7 million, respectively, due to amortization of the deferred gains on previously terminated interest rate swap agreements and forward interest rate agreements.agreements during 2009, 2008 and 2007, respectively. Interest expense will be reduced by the amortization of these deferred gains in 20072010 through 20112014 as follows: $1.7$1.2 million, $1.7$1.2 million, $.9$1.1 million, $.3$.5 million and $.3$.6 million, respectively.
The Company uses several different financial institutions for interest rate derivative contracts and commodity derivative instruments, described below, 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.
49
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
6.9%5.6% as of January 3, 2010 compared to 5.9% as of December
31, 2006 compared to 6.2% as of January 1, 2006.28, 2008. The Company’s overall weighted average interest rate on its debt and capital lease obligations,
excluding the financing transaction costs related to the debt exchange and early debt retirement in 2005, increased to
6.6%5.8% in
20062009 from
6.2%5.7% in
2005. 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%.2008. Approximately
42%7.3% of the Company’s debt and capital lease obligations of
$769.0$601.0 million as of
December 31, 2006January 3, 2010 was maintained on a floating rate basis and was subject to changes in short-term interest rates.
During January 2007, the Company entered into additional interest rate swap agreements totaling $75 million which effectively converted fixed rate debt to floating rates. Additionally, a floating rate capital lease of $30.7 million was modified on a fixed rate basis. After giving effect for the additional interest rate swap agreements of $75 million and the modification of a floating rate capital lease to a fixed rate basis, approximately 48% of the Company’s debt and capital lease obligations would have been 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 2007higher for the next twelve months than the interest rates as of December 31, 2006,January 3, 2010, interest expense for 2007the next twelve months would increase by approximately $3.2$.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 December 31, 2006, including the effects of the Company’s derivative financial instruments.January 3, 2010. 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 related to diesel fuel and unleaded gasoline used in the Company’s delivery fleet. The Company used derivative financialinstruments to hedge essentially all of the Company’s projected diesel fuel purchases for 2009 and 2010. These derivative instruments relate to diesel fuel used by the Company’s delivery fleet. 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.
In October 2008, the Company entered into derivative contracts to hedge essentially all of its projected 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.
In February 2009, the Company entered into derivative contracts to hedge essentially all of its projected diesel purchases for 2010 establishing an upper limit to the Company’s price of diesel fuel.
The net impact of the fuel hedges was to decrease fuel costs by $2.4 million in 2009, increase fuel costs by $.8 million in 2008 and decrease fuel costs by $.9 million in 2007.
Aluminum Hedging
At the end of the first quarter of 2009, the Company began using derivative instruments to hedge approximately 75% of the Company’s projected 2010 aluminum purchase requirements. The Company pays a fee for these instruments which is amortized over the corresponding period of the instruments.
The Company accounts for its aluminum hedges on amark-to-market basis with any expense or income being reflected as an adjustment to cost of sales.
During the second quarter of 2009, the Company entered into derivative agreements to hedge approximately 75% of the Company’s projected 2011 aluminum purchase requirements.
The net impact of the Company’s aluminum hedging program was to decrease cost of sales by $10.8 million in 2009.
CAUTIONARY INFORMATION REGARDING FORWARD-LOOKING STATEMENTS This Annual Report onForm 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
50
comments and other statements that reflect management’s current outlook for future periods. These statements include, among others, statements relating to:
anticipated return on pension plan investments;
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 the covenants on its $200 million facility will not restrict its liquidity or capital resources; |
|
| • | 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 $190 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 January 3, 2010; |
|
| • | 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 $20 million to $25 million in 2010; |
|
| • | the Company’s anticipation that pension expense related to the two Company-sponsored pension plans is estimated to be approximately $6 million in 2010; |
|
| • | the Company’s belief that cash contributions in 2010 to its two Company-sponsored pension plans will be in the range of $5 million to $7 million; |
|
| • | the Company’s belief that postretirement benefit payments are expected to be approximately $2.5 million in 2010; |
|
| • | the Company’s expectation that additions to property, plant and equipment in 2010 will be in the range of $50 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; |
51
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;
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 intention to renew the lines of credit as they mature;
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 which are revenue management, product innovation, distribution cost management and productivity;
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 December 31, 2006;
anticipated cash payments for income taxes of approximately $15 million to $20 million in 2007;
anticipated additions to property, plant and equipment in 2007 will be in the range of $40 million to $50 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 demand for sugar carbonated beverages will continue to decline;
the Company’s belief that its pension expense will be approximately $.2 million in 2007;
the Company’s belief that there will be no contribution to the principal Company-sponsored pension plan in 2007;
the Company’s belief that its postretirement benefit expense will be approximately the same in 2007 as in 2006;
the Company’s belief that postretirement benefit payments are expected to be approximately $3 million in 2007;
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 belief that it will continue to produce Full Throttle for many of the Coca-Cola bottlers in the eastern half of the United States in 2007;
| | |
| • | the Company’s belief that the demand for sugar sparkling beverages (other than energy products) may continue to decline; |
|
| • | 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 change over the next 12 months as a result of tax audits but will not have a significant impact on the consolidated financial statements; |
|
| • | the 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 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 $23 million assuming no change in volume. |
the Company’s expectation that its overall bottle/can revenue will be primarily dependent upon continued growth in diet products, sports drinks, bottled water and energy products, the introduction of new products and the pricing of brands and packages within channels;
the Company’s belief that the implementation of its new delivery system will continue over the next several years and should generate significant vehicle productivity gains and labor productivity improvements in future years;
the Company’s belief that its Board of Directors would not systematically declare dividends on its Common Stock without declaring dividends on its Class B Common Stock;
the Company’s belief that the cost of aluminum cans may increase by 10% to 20% in 2007;
the Company’s belief that the cost of high fructose corn syrup may increase by 20% to 35% in 2007;
the anticipated impact of increasing costs for aluminum cans and high fructose corn syrup, assuming flat volume, is in the range of $24 million to $45 million;
the purpose and intended effect of the change in operating management structure and workforce reduction plans, the expected timeframe for completion of the change in operating management structure and workforce reduction plans and estimated amounts and timing of charges and cash expenditures resulting from the plans;
the Company’s belief that it has the ability, subject to normal market conditions, to raise selling prices to offset cost increases over time;
the Company’s belief that its expense for its 401(k) plan will increase to a range of approximately $8 million to $9 million in 2007;
the Company’s belief that the majority of its deferred tax assets will be realized; and
the Company’s intention to renew substantially all the Allied Bottle Contracts and Noncarbonated Beverage Contracts as they expire.
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.—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.
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.
Debt and Derivative Financial Instruments The Company is subject to interest rate risk on its 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 arewere 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.January 3, 2010. 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
52
position of the Company and market conditions may result in strategies outside of this range at certain points in time. Approximately
42%7.3% of the Company’s debt and capital lease obligations of
$769.0$601.0 million as of
December 31, 2006January 3, 2010 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 2007over the next twelve months than the interest rates as of
December 31, 2006,January 3, 2010, interest expense for
2007the next twelve months would increase by approximately
$3.2$.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 RiskPricesThe Company anticipates that, beginning in 2007 the majority of the Company’s aluminum requirements will not have any ceiling price protection. Based upon current market prices for aluminum, the Company anticipates the cost of aluminum cans may increase from 10% to 20% in 2007. High fructose corn syrup costs are also expected to increase significantly in 2007 as a result of increasing demand for corn products around the world and as a result of alternative uses for corn, such as ethanol. Based upon current market prices for corn, the Company anticipates the cost of high fructose corn syrup will increase from 20% to 35% in 2007. The combined impact of increasing costs for aluminum cans and high fructose corn syrup, assuming flat volume, is anticipated to range between $24 million and $45 million.
The Company is also subject to commodity price risk arising from price movements for certain
other commodities included as part of its raw materials.
In addition, there is no limit on the price The Coca-Cola Company and other beverage companies can charge for concentrate. 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.
During 2007, 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 $23 million assuming no change in volume.
The Company began usingentered into derivative instruments to hedge a portionessentially all of the Company’s vehicleprojected diesel fuel purchases.purchases for 2009 and 2010. These derivative instruments relate to diesel fuel and unleaded gasoline used in the Company’s delivery fleet. Instruments used include puts and calls which effectively form an upper and lower 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 currently accounts for its fuel hedges on amark-to-market basis with any expense or income reflected as an adjustment of fuel costs.
At the end of the first quarter of 2009, the Company began using derivative instruments to hedge approximately 75% of its projected 2010 aluminum purchase requirements. During the second quarter of 2009, the Company entered into derivative agreements to hedge approximately 75% of the Company’s projected 2011 aluminum purchase requirements. The Company pays a fee for these instruments which is amortized over the corresponding period of the instruments. The Company accounts for its aluminum hedges on amark-to-market basis with any expense or income being reflected as an adjustment
to cost of
fuel costs.sales.
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.
53
Item 8. Financial Statements and Supplementary Data
| |
| Item 8. | Financial Statements and Supplementary Data |
COCA-COLA BOTTLING CO. CONSOLIDATED
CONSOLIDATED STATEMENTS OF OPERATIONSBALANCE SHEETS
| | | | | | | | | |
| | | Fiscal Year |
| | | 2006 | | 2005 | | 2004 |
| In Thousands (Except Per Share Data) | | | | | | |
Net sales | | $ | 1,431,005 | | $ | 1,380,172 | | $ | 1,267,227 |
Cost of sales | | | 808,426 | | | 761,261 | | | 666,534 |
| | | | | | | | | |
Gross margin | | | 622,579 | | | 618,911 | | | 600,693 |
| | | | | | | | | |
Selling, delivery and administrative expenses | | | 537,365 | | | 525,903 | | | 513,227 |
Amortization of intangibles | | | 550 | | | 880 | | | 3,117 |
| | | | | | | | | |
Income from operations | | | 84,664 | | | 92,128 | | | 84,349 |
| | | | | | | | | |
Interest expense | | | 50,286 | | | 49,279 | | | 43,983 |
Minority interest | | | 3,218 | | | 4,097 | | | 3,816 |
| | | �� | | | | | | |
Income before income taxes | | | 31,160 | | | 38,752 | | | 36,550 |
Income taxes | | | 7,917 | | | 15,801 | | | 14,702 |
| | | | | | | | | |
Net income | | $ | 23,243 | | $ | 22,951 | | $ | 21,848 |
| | | | | | | | | |
Basic net income per share: | | | | | | | | | |
Common Stock | | $ | 2.55 | | $ | 2.53 | | $ | 2.41 |
| | | | | | | | | |
Weighted average number of Common shares outstanding | | | 6,643 | | | 6,643 | | | 6,643 |
| | | |
Class B Common Stock | | $ | 2.55 | | $ | 2.53 | | $ | 2.41 |
| | | | | | | | | |
Weighted average number of Class B Common shares outstanding | | | 2,460 | | | 2,440 | | | 2,420 |
| | | |
Diluted net income per share: | | | | | | | | | |
Common Stock | | $ | 2.55 | | $ | 2.53 | | $ | 2.41 |
| | | | | | | | | |
Weighted average number of Common shares outstanding—assuming dilution | | | 9,120 | | | 9,083 | | | 9,063 |
| | | |
Class B Common Stock | | $ | 2.54 | | $ | 2.53 | | $ | 2.41 |
| | | | | | | | | |
Weighted average number of Class B Common shares outstanding—assuming dilution | | | 2,477 | | | 2,440 | | | 2,420 |
| | | | | | | | | |
| | | Jan. 3,
| | | Dec. 28,
| |
In thousands (except share data) | | 2010 | | | 2008 | |
| |
ASSETS |
Current assets: | | | | | | | | |
| Cash and cash equivalents | | $ | 17,770 | | | $ | 45,407 | |
| Restricted cash | | | 4,500 | | | | — | |
Accounts receivable, trade, less allowance for doubtful accounts
of $2,187 and $1,188, respectively | | | 92,727 | | | | 99,849 | |
Accounts receivable from TheCoca-Cola Company | | | 4,109 | | | | 3,454 | |
| Accounts receivable, other | | | 17,005 | | | | 12,990 | |
| Inventories | | | 59,122 | | | | 65,497 | |
| Prepaid expenses and other current assets | | | 35,016 | | | | 21,121 | |
| | | | | | | | | |
| Total current assets | | | 230,249 | | | | 248,318 | |
| | | | | | | | | |
Property, plant and equipment,net | | | 326,701 | | | | 338,156 | |
Leased property under capital leases, net | | | 51,548 | | | | 66,730 | |
Other assets | | | 46,508 | | | | 33,937 | |
Franchise rights | | | 520,672 | | | | 520,672 | |
Goodwill | | | 102,049 | | | | 102,049 | |
Other identifiable intangible assets, net | | | 5,350 | | | | 5,910 | |
| | | | | | | | | |
| Total | | $ | 1,283,077 | | | $ | 1,315,772 | |
| | | | | | | | | |
See Accompanying Notes to Consolidated Financial Statements.
54
COCA-COLA BOTTLING CO. CONSOLIDATED
CONSOLIDATED BALANCE SHEETS | | | | | | |
| | | Dec. 31, 2006 | | Jan. 1, 2006 |
| In Thousands (Except Share Data) | | | | |
ASSETS | | | | | | |
Current assets: | | | | | | |
Cash and cash equivalents | | $ | 61,823 | | $ | 39,608 |
Accounts receivable, trade, less allowance for doubtful accounts of $1,334 and $1,318, respectively | | | 91,299 | | | 94,576 |
Accounts receivable from The Coca-Cola Company | | | 4,915 | | | 2,719 |
Accounts receivable, other | | | 8,565 | | | 8,388 |
Inventories | | | 67,055 | | | 58,233 |
Prepaid expenses and other current assets | | | 13,485 | | | 8,862 |
| | | | | | |
Total current assets | | | 247,142 | | | 212,386 |
| | | | | | |
Property, plant and equipment, net | | | 384,464 | | | 389,199 |
Leased property under capital leases, net | | | 69,851 | | | 73,244 |
Other assets | | | 35,542 | | | 39,235 |
Franchise rights, net | | | 520,672 | | | 520,672 |
Goodwill,net | | | 102,049 | | | 102,049 |
Other identifiable intangible assets, net | | | 4,747 | | | 5,054 |
| | | | | | |
Total | | $ | 1,364,467 | | $ | 1,341,839 |
| | | | | | |
| | | | | | | | | |
| | | Jan. 3,
| | | Dec. 28,
| |
| | | 2010 | | | 2008 | |
| |
| LIABILITIES AND EQUITY |
Current liabilities: | | | | | | | | |
| Current portion of debt | | $ | — | | | $ | 176,693 | |
| Current portion of obligations under capital leases | | | 3,846 | | | | 2,781 | |
| Accounts payable, trade | | | 36,794 | | | | 42,383 | |
Accounts payable to TheCoca-Cola Company | | | 27,880 | | | | 35,311 | |
| Other accrued liabilities | | | 61,978 | | | | 57,504 | |
| Accrued compensation | | | 25,963 | | | | 23,285 | |
| Accrued interest payable | | | 5,521 | | | | 8,139 | |
| | | | | | | | | |
| Total current liabilities | | | 161,982 | | | | 346,096 | |
| | | | | | | | | |
Deferred income taxes | | | 158,548 | | | | 139,338 | |
Pension and postretirement benefit obligations | | | 89,306 | | | | 107,005 | |
Other liabilities | | | 106,968 | | | | 107,037 | |
Obligations under capital leases | | | 59,261 | | | | 74,833 | |
Long-term debt | | | 537,917 | | | | 414,757 | |
| | | | | | | | | |
| Total liabilities | | | 1,113,982 | | | | 1,189,066 | |
| | | | | | | | | |
Commitments and Contingencies (Note 13) | | | | | | | | |
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 — 10,203,821 and 9,706,051 shares, respectively | | | 10,204 | | | | 9,706 | |
| Class B Common Stock, $1.00 par value: | | | | | | | | |
| Authorized-10,000,000 shares; Issued — 2,649,996 and 3,127,766 shares, respectively | | | 2,649 | | | | 3,127 | |
| Class C Common Stock, $1.00 par value: | | | | | | | | |
| Authorized-20,000,000 shares; Issued-None | | | | | | | | |
| Capital in excess of par value | | | 103,464 | | | | 103,582 | |
| Retained earnings | | | 107,995 | | | | 79,021 | |
| Accumulated other comprehensive loss | | | (46,767 | ) | | | (57,873 | ) |
| | | | | | | | | |
| | | | 177,545 | | | | 137,563 | |
| | | | | | | | | |
| 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 equity ofCoca-Cola Bottling Co. Consolidated | | | 116,291 | | | | 76,309 | |
| Noncontrolling interest | | | 52,804 | | | | 50,397 | |
| | | | | | | | | |
| Total equity | | | 169,095 | | | | 126,706 | |
| | | | | | | | | |
| Total | | $ | 1,283,077 | | | $ | 1,315,772 | |
| | | | | | | | | |
See Accompanying Notes to Consolidated Financial Statements.
55
COCA-COLA BOTTLING CO. CONSOLIDATED
| | | | | | | | |
| | | Dec. 31, 2006 | | | Jan. 1, 2006 | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | |
Current liabilities: | | | | | | | | |
Current portion of debt | | $ | 100,000 | | | $ | 6,539 | |
Current portion of obligations under capital leases | | | 2,435 | | | | 1,709 | |
Accounts payable, trade | | | 44,050 | | | | 35,333 | |
Accounts payable to The Coca-Cola Company | | | 21,748 | | | | 15,516 | |
Other accrued liabilities | | | 51,030 | | | | 60,079 | |
Accrued compensation | | | 19,671 | | | | 18,969 | |
Accrued interest payable | | | 10,008 | | | | 9,670 | |
| | | | | | | | |
Total current liabilities | | | 248,942 | | | | 147,815 | |
| | | | | | | | |
Deferred income taxes | | | 162,694 | | | | 167,131 | |
Pension and postretirement benefit obligations | | | 57,757 | | | | 54,844 | |
Other liabilities | | | 88,598 | | | | 85,188 | |
Obligations under capital leases | | | 75,071 | | | | 77,493 | |
Long-term debt | | | 591,450 | | | | 691,450 | |
| | | | | | | | |
Total liabilities | | | 1,224,512 | | | | 1,223,921 | |
| | | | | | | | |
| | |
Commitments and Contingencies (Note 13) | | | | | | | | |
| | |
Minority interest | | | 46,002 | | | | 42,784 | |
| | |
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-9,705,551 and 9,705,451 shares, respectively | | | 9,705 | | | | 9,705 | |
Class B Common Stock, $1.00 par value: | | | | | | | | |
Authorized-10,000,000 shares; Issued-3,088,266 and 3,068,366 shares, respectively | | | 3,088 | | | | 3,068 | |
Class C Common Stock, $1.00 par value: | | | | | | | | |
Authorized-20,000,000 shares; Issued-None | | | | | | | | |
Capital in excess of par value | | | 101,145 | | | | 99,376 | |
Retained earnings | | | 68,495 | | | | 54,355 | |
Accumulated other comprehensive loss | | | (27,226 | ) | | | (30,116 | ) |
| | | | | | | | |
| | | 155,207 | | | | 136,388 | |
| | | | | | | | |
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 | | | 93,953 | | | | 75,134 | |
| | | | | | | | |
Total | | $ | 1,364,467 | | | $ | 1,341,839 | |
| | | | | | | | |
CONSOLIDATED STATEMENTS OF OPERATIONS
| | | | | | | | | | | | | |
| | | Fiscal Year | |
In thousands (except per share data) | | 2009 | | | 2008 | | | 2007 | |
| |
Net sales | | $ | 1,442,986 | | | $ | 1,463,615 | | | $ | 1,435,999 | |
| Cost of sales | | | 822,992 | | | | 848,409 | | | | 814,865 | |
| | | | | | | | | | | | | |
Gross margin | | | 619,994 | | | | 615,206 | | | | 621,134 | |
| Selling, delivery and administrative expenses | | | 525,491 | | | | 555,728 | | | | 539,251 | |
| | | | | | | | | | | | | |
Income from operations | | | 94,503 | | | | 59,478 | | | | 81,883 | |
| | | | | | | | | | | | | |
| Interest expense, net | | | 37,379 | | | | 39,601 | | | | 47,641 | |
| | | | | | | | | | | | | |
| Income before taxes | | | 57,124 | | | | 19,877 | | | | 34,242 | |
| Income tax provision | | | 16,581 | | | | 8,394 | | | | 12,383 | |
| | | | | | | | | | | | | |
| Net income | | | 40,543 | | | | 11,483 | | | | 21,859 | |
| Less: Net income attributable to the noncontrolling interest | | | 2,407 | | | | 2,392 | | | | 2,003 | |
| | | | | | | | | | | | | |
Net income attributable toCoca-Cola Bottling Co. Consolidated | | $ | 38,136 | | | $ | 9,091 | | | $ | 19,856 | |
| | | | | | | | | | | | | |
Basic net income per share based on net income attributable toCoca-Cola Bottling Co. Consolidated: | | | | | | | | | | | | |
| Common Stock | | $ | 4.16 | | | $ | .99 | | | $ | 2.18 | |
| | | | | | | | | | | | | |
| Weighted average number of Common Stock shares outstanding | | | 7,072 | | | | 6,644 | | | | 6,644 | |
| Class B Common Stock | | $ | 4.16 | | | $ | .99 | | | $ | 2.18 | |
| | | | | | | | | | | | | |
| Weighted average number of Class B Common Stock shares outstanding | | | 2,092 | | | | 2,500 | | | | 2,480 | |
Diluted net income per share based on net income attributable toCoca-Cola Bottling Co. Consolidated: | | | | | | | | | | | | |
| Common Stock | | $ | 4.15 | | | $ | .99 | | | $ | 2.17 | |
| | | | | | | | | | | | | |
| Weighted average number of Common Stock shares outstanding — assuming dilution | | | 9,197 | | | | 9,160 | | | | 9,141 | |
| Class B Common Stock | | $ | 4.13 | | | $ | .99 | | | $ | 2.17 | |
| | | | | | | | | | | | | |
| Weighted average number of Class B Common Stock shares outstanding — assuming dilution | | | 2,125 | | | | 2,516 | | | | 2,497 | |
See Accompanying Notes to Consolidated Financial Statements.
56
COCA-COLA BOTTLING CO. CONSOLIDATED
CONSOLIDATED STATEMENTS OF CASH FLOWS | | | | | | | | | | | | |
| | | Fiscal Year | |
| | | 2006 | | | 2005 | | | 2004 | |
| In Thousands | | | | | | | | | |
Cash Flows from Operating Activities | | | | | | | | | | | | |
Net income | | $ | 23,243 | | | $ | 22,951 | | | $ | 21,848 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | | | | | |
Depreciation expense | | | 67,334 | | | | 68,222 | | | | 70,798 | |
Amortization of intangibles | | | 550 | | | | 880 | | | | 3,117 | |
Deferred income taxes | | | (7,030 | ) | | | 3,105 | | | | 14,244 | |
Losses on sale of property, plant and equipment | | | 1,340 | | | | 775 | | | | 752 | |
Amortization of debt costs | | | 2,638 | | | | 1,967 | | | | 1,101 | |
Stock compensation expense | | | 929 | | | | 860 | | | | 1,141 | |
Amortization of deferred gains related to terminated interest rate agreements | | | (1,689 | ) | | | (1,679 | ) | | | (1,945 | ) |
Minority interest | | | 3,218 | | | | 4,097 | | | | 3,816 | |
(Increase) decrease in current assets less current liabilities | | | 5,863 | | | | 4,042 | | | | (9,239 | ) |
(Increase) decrease in other noncurrent assets | | | 3,585 | | | | (1,475 | ) | | | 531 | |
Increase (decrease) in other noncurrent liabilities | | | 2,736 | | | | (1,471 | ) | | | 11,596 | |
Other | | | 180 | | | | (180 | ) | | | 101 | |
| | | | | | | | | | | | |
Total adjustments | | | 79,654 | | | | 79,143 | | | | 96,013 | |
| | | | | | | | | | | | |
Net cash provided by operating activities | | | 102,897 | | | | 102,094 | | | | 117,861 | |
| | | | | | | | | | | | |
Cash Flows from Investing Activities | | | | | | | | | | | | |
Additions to property, plant and equipment | | | (63,179 | ) | | | (39,992 | ) | | | (52,860 | ) |
Proceeds from the sale of property, plant and equipment | | | 2,454 | | | | 4,443 | | | | 2,225 | |
Proceeds from the redemption of life insurance policies | | | | | | | | | | | 29,049 | |
Investment in plastic bottle manufacturing cooperative | | | (2,338 | ) | | | | | | | | |
Other | | | (243 | ) | | | | | | | | |
| | | | | | | | | | | | |
Net cash used in investing activities | | | (63,306 | ) | | | (35,549 | ) | | | (21,586 | ) |
| | | | | | | | | | | | |
Cash Flows from Financing Activities | | | | | | | | | | | | |
Payment of long-term debt | | | | | | | (8,550 | ) | | | (85,000 | ) |
Payment of current portion of long-term debt | | | (39 | ) | | | | | | | (78 | ) |
Payment of lines of credit, net | | | (6,500 | ) | | | (1,500 | ) | | | (9,600 | ) |
Cash dividends paid | | | (9,103 | ) | | | (9,084 | ) | | | (9,063 | ) |
Principal payments on capital lease obligations | | | (1,696 | ) | | | (1,826 | ) | | | (1,843 | ) |
Premium on exchange of long-term debt | | | | | | | (15,554 | ) | | | | |
Other | | | (38 | ) | | | 692 | | | | 150 | |
| | | | | | | | | | | | |
Net cash used in financing activities | | | (17,376 | ) | | | (35,822 | ) | | | (105,434 | ) |
| | | | | | | | | | | | |
Net increase (decrease) in cash | | | 22,215 | | | | 30,723 | | | | (9,159 | ) |
| | | | | | | | | | | | |
Cash at beginning of year | | | 39,608 | | | | 8,885 | | | | 18,044 | |
| | | | | | | | | | | | |
Cash at end of year | | $ | 61,823 | | | $ | 39,608 | | | $ | 8,885 | |
| | | | | | | | | | | | |
Significant non-cash investing and financing activities | | | | | | | | | | | | |
Issuance of Class B Common Stock in connection with stock award | | $ | 860 | | | $ | 1,141 | | | $ | 1,055 | |
Capital lease obligations incurred | | | | | | | | | | | 37,307 | |
Exchange of long-term debt | | | | | | | 164,757 | | | | | |
| | | | | | | | | | | | | |
| | | Fiscal Year | |
In thousands | | 2009 | | | 2008 | | | 2007 | |
| |
Cash Flows from Operating Activities | | | | | | | | | | | | |
| Net income | | $ | 40,543 | | | $ | 11,483 | | | $ | 21,859 | |
| Adjustments to reconcile net income to net cash provided by | | | | | | | | | | | | |
| operating activities: | | | | | | | | | | | | |
| Depreciation expense | | | 60,808 | | | | 67,572 | | | | 67,881 | |
| Amortization of intangibles | | | 560 | | | | 701 | | | | 445 | |
| Deferred income taxes | | | 7,633 | | | | 559 | | | | (4,165 | ) |
| Losses on sale of property, plant and equipment | | | 1,271 | | | | 159 | | | | 445 | |
| Provision for liabilities to exit multi-employer pension plan | | | — | | | | 14,012 | | | | — | |
| Amortization of debt costs | | | 2,303 | | | | 2,449 | | | | 2,678 | |
| Stock compensation expense | | | 2,161 | | | | 1,130 | | | | 1,171 | |
Amortization of deferred gains related to terminated interest
rate agreements | | | (2,071 | ) | | | (2,160 | ) | | | (1,698 | ) |
| (Increase) decrease in current assets less current liabilities | | | (18,464 | ) | | | 5,912 | | | | 1,947 | |
| (Increase) decrease in other noncurrent assets | | | (13,700 | ) | | | 627 | | | | 1,058 | |
| Increase (decrease) in other noncurrent liabilities | | | (1,539 | ) | | | (5,635 | ) | | | 3,854 | |
| Other | | | (2 | ) | | | (180 | ) | | | 23 | |
| | | | | | | | | | | | | |
| Total adjustments | | | 38,960 | | | | 85,146 | | | | 73,639 | |
| | | | | | | | | | | | | |
| Net cash provided by operating activities | | | 79,503 | | | | 96,629 | | | | 95,498 | |
| | | | | | | | | | | | | |
Cash Flows from Investing Activities | | | | | | | | | | | | |
| Additions to property, plant and equipment | | | (43,339 | ) | | | (47,866 | ) | | | (48,226 | ) |
| Proceeds from the sale of property, plant and equipment | | | 8,282 | | | | 4,231 | | | | 8,566 | |
| Investment in a plastic bottle manufacturing cooperative | | | — | | | | (968 | ) | | | (3,377 | ) |
| Investment in distribution agreement | | | — | | | | (2,309 | ) | | | — | |
| Investment in restricted cash | | | (4,500 | ) | | | — | | | | — | |
| | | | | | | | | | | | | |
| Net cash used in investing activities | | | (39,557 | ) | | | (46,912 | ) | | | (43,037 | ) |
| | | | | | | | | | | | | |
Cash Flows from Financing Activities | | | | | | | | | | | | |
| Proceeds from issuance of long-term debt | | | 108,160 | | | | — | | | | — | |
| Borrowing under revolving credit facility | | | 15,000 | | | | — | | | | — | |
| Payment of current portion of long-term debt | | | (176,693 | ) | | | — | | | | (100,000 | ) |
| Proceeds (payment) of lines of credit, net | | | — | | | | (7,400 | ) | | | 7,400 | |
| Cash dividends paid | | | (9,162 | ) | | | (9,144 | ) | | | (9,124 | ) |
| Excess tax benefits from stock-based compensation | | | (98 | ) | | | 3 | | | | 173 | |
| Principal payments on capital lease obligations | | | (3,263 | ) | | | (2,602 | ) | | | (2,435 | ) |
| Proceeds from termination of interest rate swap agreements | | | — | | | | 5,142 | | | | — | |
| Payments for the termination of interest rate lock agreements | | | (340 | ) | | | — | | | | — | |
| Debt issuance costs paid | | | (1,042 | ) | | | — | | | | — | |
| Other | | | (145 | ) | | | (180 | ) | | | (427 | ) |
| | | | | | | | | | | | | |
| Net cash used in financing activities | | | (67,583 | ) | | | (14,181 | ) | | | (104,413 | ) |
| | | | | | | | | | | | | |
Net increase (decrease) in cash | | | (27,637 | ) | | | 35,536 | | | | (51,952 | ) |
| | | | | | | | | | | | | |
Cash at beginning of year | | | 45,407 | | | | 9,871 | | | | 61,823 | |
| | | | | | | | | | | | | |
Cash at end of year | | $ | 17,770 | | | $ | 45,407 | | | $ | 9,871 | |
| | | | | | | | | | | | | |
| Significant non-cash investing and financing activities | | | | | | | | | | | | |
| Issuance of Class B Common Stock in connection with stock award | | $ | 1,130 | | | $ | 1,171 | | | $ | 929 | |
| Capital lease obligations incurred | | | 660 | | | | — | | | | 5,144 | |
See Accompanying Notes to Consolidated Financial Statements.Statements
57
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 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 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 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
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 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 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | Accumulated
| | | | | | Total
| | | | | | | |
| | | | | | Class B
| | | Capital in
| | | | | | Other
| | | | | | Equity
| | | | | | | |
| | | Common
| | | Common
| | | Excess of
| | | Retained
| | | Comprehensive
| | | Treasury
| | | of
| | | Noncontrolling
| | | Total
| |
In thousands | | Stock | | | Stock | | | Par Value | | | Earnings | | | Loss | | | Stock | | | CCBCC | | | Interest | | | Equity | |
| |
| Balance on Dec. 31, 2006 | | $ | 9,705 | | | $ | 3,088 | | | $ | 101,145 | | | $ | 68,495 | | | $ | (27,226 | ) | | $ | (61,254 | ) | | $ | 93,953 | | | $ | 46,002 | | | $ | 139,955 | |
Comprehensive income: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net income | | | | | | | | | | | | | | | 19,856 | | | | | | | | | | | | 19,856 | | | | 2,003 | | | | 21,859 | |
| Foreign currency translation adjustments, net of tax | | | | | | | | | | | | | | | | | | | 23 | | | | | | | | 23 | | | | | | | | 23 | |
| Pension and postretirement benefit adjustments, net of tax | | | | | | | | | | | | | | | | | | | 14,452 | | | | | | | | 14,452 | | | | | | | | 14,452 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total comprehensive income | | | | | | | | | | | | | | | | | | | | | | | | | | | 34,331 | | | | 2,003 | | | | 36,334 | |
| Cash dividends paid | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common ($1 per share) | | | | | | | | | | | | | | | (6,644 | ) | | | | | | | | | | | (6,644 | ) | | | | | | | (6,644 | ) |
| Class B Common ($1 per share) | | | | | | | | | | | | | | | (2,480 | ) | | | | | | | | | | | (2,480 | ) | | | | | | | (2,480 | ) |
| Issuance of 20,000 shares of Class B Common Stock | | | | | | | 20 | | | | (20 | ) | | | | | | | | | | | | | | | — | | | | | | | | — | |
| Stock compensation expense | | | | | | | | | | | 1,344 | | | | | | | | | | | | | | | | 1,344 | | | | | | | | 1,344 | |
| Conversion of Class B Common Stock into Common Stock | | | 1 | | | | (1 | ) | | | | | | | | | | | | | | | | | | | — | | | | | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance on Dec. 30, 2007 | | $ | 9,706 | | | $ | 3,107 | | | $ | 102,469 | | | $ | 79,227 | | | $ | (12,751 | ) | | $ | (61,254 | ) | | $ | 120,504 | | | $ | 48,005 | | | $ | 168,509 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Comprehensive income: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net income | | | | | | | | | | | | | | | 9,091 | | | | | | | | | | | | 9,091 | | | | 2,392 | | | | 11,483 | |
| Foreign currency translation adjustments, net of tax | | | | | | | | | | | | | | | | | | | (9 | ) | | | | | | | (9 | ) | | | | | | | (9 | ) |
| Pension and postretirement benefit adjustments, net of tax | | | | | | | | | | | | | | | | | | | (44,999 | ) | | | | | | | (44,999 | ) | | | | | | | (44,999 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total comprehensive income | | | | | | | | | | | | | | | | | | | | | | | | | | | (35,917 | ) | | | 2,392 | | | | (33,525 | ) |
| Adjustment to change measurement date for pension and postretirement benefits, net of tax | | | | | | | | | | | | | | | (153 | ) | | | (114 | ) | | | | | | | (267 | ) | | | | | | | (267 | ) |
| Cash dividends paid | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common ($1 per share) | | | | | | | | | | | | | | | (6,644 | ) | | | | | | | | | | | (6,644 | ) | | | | | | | (6,644 | ) |
| Class B Common ($1 per share) | | | | | | | | | | | | | | | (2,500 | ) | | | | | | | | | | | (2,500 | ) | | | | | | | (2,500 | ) |
| Issuance of 20,000 shares of Class B Common Stock | | | | | | | 20 | | | | (20 | ) | | | | | | | | | | | | | | | — | | | | | | | | — | |
| Stock compensation expense | | | | | | | | | | | 1,133 | | | | | | | | | | | | | | | | 1,133 | | | | | | | | 1,133 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance on Dec. 28, 2008 | | $ | 9,706 | | | $ | 3,127 | | | $ | 103,582 | | | $ | 79,021 | | | $ | (57,873 | ) | | $ | (61,254 | ) | | $ | 76,309 | | | $ | 50,397 | | | $ | 126,706 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Comprehensive income: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net income | | | | | | | | | | | | | | | 38,136 | | | | | | | | | | | | 38,136 | | | | 2,407 | | | | 40,543 | |
| Ownership share of Southeastern OCI | | | | | | | | | | | | | | | | | | | (49 | ) | | | | | | | (49 | ) | | | | | | | (49 | ) |
| Foreign currency translation adjustments, net of tax | | | | | | | | | | | | | | | | | | | (1 | ) | | | | | | | (1 | ) | | | | | | | (1 | ) |
| Pension and postretirement benefit adjustments, net of tax | | | | | | | | | | | | | | | | | | | 11,156 | | | | | | | | 11,156 | | | | | | | | 11,156 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total comprehensive income | | | | | | | | | | | | | | | | | | | | | | | | | | | 49,242 | | | | 2,407 | | | | 51,649 | |
| Cash dividends paid | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common ($1 per share) | | | | | | | | | | | | | | | (7,017 | ) | | | | | | | | | | | (7,017 | ) | | | | | | | (7,017 | ) |
| Class B Common ($1 per share) | | | | | | | | | | | | | | | (2,145 | ) | | | | | | | | | | | (2,145 | ) | | | | | | | (2,145 | ) |
| Issuance of 20,000 share of Class B Common Stock | | | | | | | 20 | | | | (20 | ) | | | | | | | | | | | | | | | — | | | | | | | | — | |
| Stock compensation adjustment | | | | | | | | | | | (98 | ) | | | | | | | | | | | | | | | (98 | ) | | | | | | | (98 | ) |
| Conversion of Class B Common Stock into Common Stock | | | 498 | | | | (498 | ) | | | | | | | | | | | | | | | | | | | — | | | | | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance on Jan. 3, 2010 | | $ | 10,204 | | | $ | 2,649 | | | $ | 103,464 | | | $ | 107,995 | | | $ | (46,767 | ) | | $ | (61,254 | ) | | $ | 116,291 | | | $ | 52,804 | | | $ | 169,095 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
See Accompanying Notes to Consolidated Financial Statements
58
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
53-week period ended January 3, 2010 (“2009”) and the 52-week periods ended December
31, 200628, 2008 (“2008”) and
January 1, 2006 and the 53-week period ended January 2, 2005.December 30, 2007 (“2007”). The Company’s fiscal year ends on the Sunday closest to December 31 of each year.
Certain prior year amounts reported
In December 2007, the Financial Accounting Standards Board (“FASB”) issued new guidance on accounting for the noncontrolling interest in
the consolidated financial statements. The Company implemented the new guidance effective December 29, 2008, the beginning of the first quarter of 2009. The new guidance changes the accounting and reporting standards for the noncontrolling interest in a subsidiary (commonly referred to previously as minority interest). PiedmontCoca-Cola Bottling Partnership (“Piedmont”) is the Company’s only subsidiary that has a noncontrolling interest. Noncontrolling interest income of $2.4 million in 2009, $2.4 million in 2008 and $2.0 million in 2007 has been reclassified to be included in net income on the Company’s consolidated statements of
operations have been conformedoperations. In addition, the amount of consolidated net income attributable to
current year classifications. In prior periods,both the Company
reported depreciation expense separately inand the
noncontrolling interest are shown on the Company’s consolidated statements of operations.
The Company began reporting depreciation expense in cost of salesNoncontrolling interest related to Piedmont totaled $52.8 million and
selling, delivery$50.4 million at January 3, 2010 and
administrative (“S,D,&A”) expensesDecember 28, 2008, respectively. These amounts have been reclassified as noncontrolling interest in the
first quarterequity section of
2006. Thethe Company’s
results of operations for 2005 and 2004 have been conformed to the 2006 presentation. Depreciation expense in cost of sales was $9.0 million, $8.8 million and $7.1 million in 2006, 2005 and 2004, respectively. Depreciation expense in S,D&A expenses was $58.3 million, $59.4 million and $63.7 million in 2006, 2005 and 2004, respectively.consolidated balance sheets.
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 supermarkets, 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.
59
COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 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 equipment are included in
selling, delivery and administrative (“S,D
&A&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.
These evaluations are performed at a level where independent cash flow may be attributed to either an asset or an asset group. 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
asset or asset group.long-lived assets.
Leased Property Under Capital Leases Leased property under capital leases is depreciated using the straight-line method over the lease term.
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
$5.1$6.7 million,
$4.7$6.3 million and
$4.7$5.6 million in
2006, 20052009, 2008 and
2004,2007, 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”generally accepted accounting principles (“
SFAS No. 142”GAAP”), 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. 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 Company utilizes the Greenfield Method to estimate the fair value ofvalue. The Greenfield Method assumes the Company is starting new owning only franchise rights and makes investments required to build an operation comparable to the Company’s acquired franchise rights is estimated usingcurrent operations. The Company estimates the cash flows required to build a multi-period excess earnings approach. This approach involves a projection ofcomparable operation and the available future earnings, discounting those estimated earningscash flows from these operations. The cash flows are then discounted 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 andbased upon the discounted cash flows is then compared to the carrying value.value on an aggregated basis.
60
COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Company has determined that it has one reporting unit for
the Company as a whole.purposes of assessing goodwill for potential impairment. For the annual impairment analysis of goodwill, the Company develops an estimated fair value for the reporting 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 reporting unit is then compared to the Company’sits carrying amount including goodwill. If the estimated fair value exceeds the 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.
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
New accounting guidance required the Company to
future interest rates, investment returns, employee turnover, wage increases and health care costs. The Company reviews all assumptions and estimates on an ongoing basis.The Company records an additional minimum pension liability adjustment, when necessary, forchange the amountmeasurement date of underfunded accumulated pension obligations in excess of accrued pension costs. The Company adopted the provisions of Statement of Financial Accounting Standards No. 158, “Employers’ Accounting for Defined Pension and Other Postretirement Plans,” at the end of 2006 (“SFAS No. 158”). Liabilities forits pension and postretirement liabilities were adjustedbenefit plans in 2008. The Company changed its measurement date for pension plans from November 30 to reflect the excessCompany’s year-end. The Company changed its measurement date for postretirement benefits from September 30 to the Company’s year-end. See Note 17 to the consolidated financial statements for additional information on the effects of adopting the projected benefit obligation (pension) and the accumulated postretirement benefit obligation (postretirement medical) over available plan assets.
new accounting guidance in 2008.
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 SFAS No. 88, “Employers’ Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits (as amended).” TheCOCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 information on the pension curtailment and the effects of 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
61
COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
tax bases. 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 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.
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 attainingagreed-upon sales levelsand/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
$47.2$53.0 million,
$45.7$49.4 million and
$40.0$44.9 million in
2006, 20052009, 2008 and
2004,2007, 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
COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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,”GAAP, 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 TheCoca-Cola Company and other beverage companies for marketing funding support are classified as reductions of cost of sales.
62
COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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,
fuel prices and
fuelaluminum prices. The use of these financial instruments modifies the
Company’s exposure
ofto these risks with the intent
to reduce theof reducing risk
to the 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.
The Company periodically enters into 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
COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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
63
COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 HedgesDuring 2007, the
The Company
began usingmay use derivative instruments to hedge
a portionsome or all of the Company’s
vehicleprojected diesel fuel purchases. These derivative instruments relate to diesel fuel
and unleaded gasoline used in the Company’s delivery fleet.
Instruments used include puts and calls which effectively form an upper and lower 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
currently accounts for its fuel hedges on a
mark-to-market basis with any expense or income
being reflected as an adjustment of fuel costs which are included in S,D&A expenses.
Aluminum Hedges
The Company currently uses derivative instruments to hedge approximately 75% of the Company’s projected aluminum purchase requirements. The Company pays a fee for these instruments which is amortized over the corresponding period of the instruments. The Company accounts for its aluminum hedges on amark-to-market basis with any expense or income being reflected as an adjustment to cost of sales.
Risk Management ProgramsIn general, the
The Company
is self-insured for the costs ofuses various insurance structures to manage its workers’ compensation,
employment practices, vehicle accident claimsauto liability, medical and
medical claims.other insurable risks. These structures consist of retentions, deductibles, limits and a diverse group of insurers that serve to strategically transfer and mitigate the financial impact of losses. 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 including depreciation expense, manufacturing warehousing costs and shipping and handling costs related to the movement of finished goods from manufacturing locations to sales distribution centers.
Selling, Delivery and Administrative Expenses The following expenses are included in S,D&A expenses: 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
COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
expenses, vendingcold drink equipment repair costs, amortization of intangibles and administrative support labor and operating costs such as treasury, legal, information services, accounting, internal audit,control 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 and were
$193.8$188.9 million,
$183.1$201.6 million and
$176.3$194.9 million in
2006, 20052009, 2008 and
2004,2007, respectively.
Certain customers pay the
The Company separately for shipping and handling costs. Beginning in October 2005, certain customers have been billed arecorded delivery fee. The delivery fee revenue is recordedfees in net sales and was $3.6of $7.8 million, $6.7 million and $.7$6.7 million in 20062009, 2008 and 2005,2007, respectively. These fees are used to offset a portion of the Company’s delivery and handling costs.
64
COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Stock Compensation Cost for Unvested/Restricted Stock with Contingent Vesting The Company
has a restricted stock plan for the Company’s Chairman of the Board of Directors and Chief Executive Officer. The plan initially included 200,000 shares of the Company’s Class B Common Stock, which are issued in the amount of 20,000 shares per year, contingent upon the achievement of 80% of the overall goal achievement factor in the Annual Bonus Plan.The Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 123 (revised 2004), on January 2, 2006. The Company applied the modified prospective transition method and prior periods were not restated. The Company’s only share based compensation is the restricted stock award to the Company’sprovided its Chairman of the Board of Directors and Chief Executive Officer, as described above. J. Frank Harrison, III, with a restricted stock award that expired at the end of 2008. Under the award, restricted stock was granted at a rate of 20,000 shares per year over a ten-year period. The vesting of each annual installment was contingent upon the Company achieving at least 80% of the overall goal achievement factor under the Company’s Annual Bonus Plan. The restricted stock award did not entitle Mr. Harrison, III to participate in dividend or voting rights until each installment had vested and the shares were issued.
Each annual 20,000 share tranche hashad an independent performance requirement as it iswas not established until the Company’s Annual Bonus Plan targets arewere approved each year by the Compensation Committee of the Company’s Board of Directors. As a result, each 20,000 share tranche iswas considered to have its own service inception date, grant-date fair value and requisite service period. The Company recognizesrecognized compensation expense over the requisite service period (one fiscal year) based on the Company’s stock price at the measurement date (date approved by the Board of Directors), unless the achievement of the performance requirement for the fiscal year was considered unlikely.
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 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 (not to exceed 100%) under the Company’s Annual Bonus Plan. The Performance Unit Award Agreement replaced the restricted stock award previously discussed.
Each annual 40,000 unit 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 40,000 unit tranche is considered to have its own service inception date, grant date and requisite service period. The Company’s Annual Bonus Plan targets, which establish the performance requirements for the Performance Unit Award Agreement, are approved by the Compensation Committee of the Board of Directors in the first quarter of each year. The Performance Unit Award Agreement does not entitle Mr. Harrison, III to participate in dividends or voting rights until each installment has vested and the shares are issued. Mr. Harrison, III may satisfy tax withholding requirements in whole or in part by requiring the Company to settle in cash such number of Units otherwise payable in Class B Common Stock to meet the maximum statutory tax withholding requirements. The Company recognizes compensation expense over the requisite service period (one fiscal year) based on the Company’s stock price at the end of each accounting period, unless the achievement of the performance requirement for the fiscal year is considered unlikely.
See Note 16 to the consolidated financial statements for additional
information.information on Mr. Harrison, III’s stock compensation programs.
On March 9, 2010, the Compensation Committee determined that 40,000 shares of the Company’s Class B Common Stock should be issued pursuant to a Performance Unit Award Agreement to J. Frank Harrison, III, in connection with his services in 2009 as Chairman of the Board of Directors and Chief Executive Officer of the Company. As permitted under the terms of the Performance Unit Award Agreement, Mr. Harrison, III surrendered 17,680 of such shares to satisfy tax withholding obligations in connection with the vesting of the performance units.
Net Income Per ShareDuring 2006, the staff of the Division of Corporation Finance of the Securities and Exchange Commision reviewed the Company’s Annual Report on Form 10-K for the fiscal year ended January 1, 2006.
The Company
considered this review and concluded the application ofapplies the two-class method for calculating and presenting net income per
share was appropriate for its Common Stock and Class B Common Stock.As noted in SFAS No. 128, “Earnings per Share (as amended),” theshare. The two-class method is an earnings allocation formula that determines earnings per share for each class of common stock
65
COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
according to dividends declared (or accumulated) and participation rights in undistributed earnings. Under
thatthis method:
| | |
| | (a) | Income from continuing operations (or (“net income)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 or “undistributed 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 |
COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| 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 EPSearnings 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
Certificatecertificate of
Incorporation,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.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
88%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.
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.
The Company further concluded the application of the two-class method to its net income per share calculation for the fiscal years ended January 1, 2006 (“fiscal 2005”) and January 2, 2005 (“fiscal 2004”) would not have materially impacted the financial statements for fiscal 2005 and fiscal 2004. For example, the Company reported basic and diluted net income per share for fiscal 2005 of $2.53. Under the two-class method, the Company would have reported basic and diluted net income per share for fiscal 2005 as follows: Common Stock—
Basic
$2.53; Class B Common Stock—Basic $2.53; Common Stock—Diluted $2.53; and Class B Common Stock—Diluted $2.53. Therefore, the Company began presenting the application of the two-class method prospectively in the quarter ended October 1, 2006.Basic earnings per share (“EPS”)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
COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
66
2. Piedmont Coca-Cola Bottling Partnership
COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| |
| 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 drinknonalcoholic beverage 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
Noncontrolling interest as of
January 3, 2010, December
31, 2006, January 1, 2006,28, 2008 and
January 2, 2005December 30, 2007 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 periods reported.
3. Inventories
Inventories were summarized as follows:
| | | | | | |
| | | Dec. 31,
2006 | | Jan. 1,
2006 |
| In Thousands | | | | |
Finished products | | $ | 32,934 | | $ | 34,181 |
Manufacturing materials | | | 19,333 | | | 9,222 |
Plastic shells, plastic pallets and other inventories | | | 14,788 | | | 14,830 |
| | | | | | |
Total inventories | | $ | 67,055 | | $ | 58,233 |
| | | | | | |
4. Property, Plant and Equipment
| | | | | | | | | |
| | | Jan. 3,
| | | Dec. 28,
| |
In thousands | | 2010 | | | 2008 | |
| |
| Finished products | | $ | 33,686 | | | $ | 36,418 | |
| Manufacturing materials | | | 8,275 | | | | 12,620 | |
| Plastic shells, plastic pallets and other inventories | | | 17,161 | | | | 16,459 | |
| | | | | | | | | |
| Total inventories | | $ | 59,122 | | | $ | 65,497 | |
| | | | | | | | | |
| |
| 4. | Property, Plant and Equipment |
The principal categories and estimated useful lives of property, plant and equipment were as follows:
| | | | | | | | |
| | | Dec. 31,
2006 | | Jan. 1,
2006 | | Estimated
Useful Lives |
| In Thousands | | | | | | |
Land | | $ | 12,455 | | $ | 12,605 | | |
Buildings | | | 110,444 | | | 110,208 | | 10-50 years |
Machinery and equipment | | | 100,519 | | | 96,495 | | 5-20 years |
Transportation equipment | | | 184,861 | | | 167,762 | | 4-13 years |
Furniture and fixtures | | | 39,184 | | | 44,364 | | 4-10 years |
Cold drink dispensing equipment | | | 331,174 | | | 339,330 | | 6-13 years |
Leasehold and land improvements | | | 57,837 | | | 56,788 | | 5-20 years |
Software for internal use | | | 36,665 | | | 32,258 | | 3-10 years |
Construction in progress | | | 13,464 | | | 6,627 | | |
| | | | | | | | |
Total property, plant and equipment, at cost | | | 886,603 | | | 866,437 | | |
Less: Accumulated depreciation and amortization | | | 502,139 | | | 477,238 | | |
| | | | | | | | |
Property, plant and equipment, net | | $ | 384,464 | | $ | 389,199 | | |
| | | | | | | | |
| | | | | | | | | | | | | |
| | | Jan. 3,
| | | Dec. 28,
| | | Estimated
| |
In thousands | | 2010 | | | 2008 | | | Useful Lives | |
| |
| Land | | $ | 12,671 | | | $ | 12,167 | | | | | |
| Buildings | | | 111,314 | | | | 109,384 | | | | 10-50 years | |
| Machinery and equipment | | | 127,068 | | | | 118,934 | | | | 5-20 years | |
| Transportation equipment | | | 156,692 | | | | 176,084 | | | | 4-17 years | |
| Furniture and fixtures | | | 36,573 | | | | 38,254 | | | | 4-10 years | |
| Cold drink dispensing equipment | | | 312,079 | | | | 319,188 | | | | 6-15 years | |
| Leasehold and land improvements | | | 64,390 | | | | 60,142 | | | | 5-20 years | |
| Software for internal use | | | 65,290 | | | | 59,786 | | | | 3-10 years | |
| Construction in progress | | | 7,907 | | | | 4,891 | | | | | |
| | | | | | | | | | | | | |
| Total property, plant and equipment, at cost | | | 893,984 | | | | 898,830 | | | | | |
| Less: Accumulated depreciation and amortization | | | 567,283 | | | | 560,674 | | | | | |
| | | | | | | | | | | | | |
| Property, plant and equipment, net | | $ | 326,701 | | | $ | 338,156 | | | | | |
| | | | | | | | | | | | | |
Depreciation and amortization expense was $67.3$60.8 million, $68.2$67.6 million and $70.8$67.9 million in 2006, 20052009, 2008 and 2004,2007, respectively. These amounts included amortization expense for leased property under capital leases.
The Company changed the estimate of the useful lives of certain cold drink dispensing equipment from thirteen to fifteen years in the first quarter of 2009 to better reflect actual useful lives. The change in the estimate of the useful lives reduced depreciation expense by $4.4 million in 2009.
67
COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS5. Leased Property Under Capital Leases
| |
| 5. | Leased Property Under Capital Leases |
Leased property under capital leases was summarized as follows:
| | | | | | | | |
| | | Dec. 31,
2006 | | Jan. 1,
2006 | | Estimated
Useful Lives |
| In Thousands | | | | | | |
Leased property under capital leases | | $ | 83,475 | | $ | 84,035 | | 3-29 years |
Less: Accumulated amortization | | | 13,624 | | | 10,791 | | |
| | | | | | | | |
Leased property under capital leases, net | | $ | 69,851 | | $ | 73,244 | | |
| | | | | | | | |
| | | | | | | | | | | | | |
| | | Jan. 3,
| | | Dec. 28,
| | | Estimated
| |
In thousands | | 2010 | | | 2008 | | | Useful Lives | |
| |
| Leased property under capital leases | | $ | 76,877 | | | $ | 88,619 | | | | 3-20 years | |
| Less: Accumulated amortization | | | 25,329 | | | | 21,889 | | | | | |
| | | | | | | | | | | | | |
| Leased property under capital leases, net | | $ | 51,548 | | | $ | 66,730 | | | | | |
| | | | | | | | | | | | | |
As of
December 31, 2006,January 3, 2010, real estate represented
all$51.0 million of the leased property under capital leases
net,and $49.4 million of
which $63.5 millionthis real estate is
provided byleased from related parties as described in Note 18 to the consolidated financial statements.
6. Franchise Rights and Goodwill
| |
| 6. | Franchise Rights and Goodwill |
Franchise rights
and goodwill were summarized as follows:
| | | | | | |
| | | Dec. 31,
2006 | | Jan. 1,
2006 |
| 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,
| | | | | | Jan. 3,
| |
In thousands | | 2008 | | | Activity | | | 2010 | |
| |
| Franchise rights | | $ | 520,672 | | | $ | — | | | $ | 520,672 | |
| Accumulated impairment losses | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | |
| Total franchise rights | | $ | 520,672 | | | $ | — | | | $ | 520,672 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | Dec. 30,
| | | | | | Dec. 28,
| |
In thousands | | 2007 | | | Activity | | | 2008 | |
| |
| Franchise rights | | $ | 520,672 | | | $ | — | | | $ | 520,672 | |
| Accumulated impairment losses | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | |
| Total franchise rights | | $ | 520,672 | | | $ | — | | | $ | 520,672 | |
| | | | | | | | | | | | | |
Goodwill was summarized as follows:
| | | | | | | | | | | | | |
| | | Dec. 28,
| | | | | | Jan. 3,
| |
In thousands | | 2008 | | | Activity | | | 2010 | |
| |
| Goodwill | | $ | 102,049 | | | $ | — | | | $ | 102,049 | |
| Accumulated impairment losses | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | |
| Total goodwill | | $ | 102,049 | | | $ | — | | | $ | 102,049 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | Dec. 30,
| | | | | | Dec. 28,
| |
In thousands | | 2007 | | | Activity | | | 2008 | |
| |
| Goodwill | | $ | 102,049 | | | $ | — | | | $ | 102,049 | |
| Accumulated impairment losses | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | |
| Total goodwill | | $ | 102,049 | | | $ | — | | | $ | 102,049 | |
| | | | | | | | | | | | | |
The Company performed its annual impairment test of franchise rights and goodwill duringas of the thirdfirst day of the fourth quarter of 20062009, 2008 and 2007 and determined there was no impairment of the carrying value of these assets.
68
There was no activity for franchise rights and goodwill in 2006 or 2005.
COCA-COLA BOTTLING CO. CONSOLIDATED
7. NOTES TO CONSOLIDATED FINANCIAL STATEMENTSOther Identifiable Intangible Assets | |
| 7. | Other Identifiable Intangible Assets |
Other identifiable intangible assets were summarized as follows:
| | | | | | | | |
| | | Dec. 31,
2006 | | Jan. 1,
2006 | | Estimated
Useful Lives |
| In Thousands | | | | | | |
Other identifiable intangible assets | | $ | 6,599 | | $ | 9,877 | | 1-18 years |
Less: Accumulated amortization | | | 1,852 | | | 4,823 | | |
| | | | | | | | |
Other identifiable intangible assets, net | | $ | 4,747 | | $ | 5,054 | | |
| | | | | | | | |
During 2006 and 2005, the Company wrote off fully amortized
| | | | | | | | | | | | | |
| | | Jan. 3,
| | | Dec. 28,
| | | Estimated
| |
In thousands | | 2010 | | | 2008 | | | Useful Lives | |
| |
| Other identifiable intangible assets | | $ | 8,665 | | | $ | 8,909 | | | | 1-20 years | |
| Less: Accumulated amortization | | | 3,315 | | | | 2,999 | | | | | |
| | | | | | | | | | | | | |
| Other identifiable intangible assets, net | | $ | 5,350 | | | $ | 5,910 | | | | | |
| | | | | | | | | | | | | |
Other identifiable intangible assets
in the amount of $3.5 millionprimarily represent customer relationships and
$51.2 million, respectively.distribution rights. Amortization expense related to other identifiable intangible assets was $.6 million,
$.9$.7 million and
$3.1$.4 million in
2006, 20052009, 2008 and
2004,2007, respectively. Assuming no impairment of these other identifiable intangible assets, amortization expense in future years based upon
COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
recorded amounts as of December 31, 2006January 3, 2010 will be $.4$.5 million, $.4 million, $.4 million, $.4$.3 million and $.3 million for 20072010 through 2011,2014, respectively. Other identifiable intangible assets primarily represent customer relationships.
8. Other Accrued Liabilities
| |
| 8. | Other Accrued Liabilities |
Other accrued liabilities were summarized as follows:
| | | | | | |
| | | Dec. 31,
2006 | | Jan. 1,
2006 |
| In Thousands | | | | |
Accrued marketing costs | | $ | 6,659 | | $ | 5,578 |
Accrued insurance costs | | | 12,495 | | | 10,463 |
Accrued taxes (other than income taxes) | | | 2,068 | | | 729 |
Employee benefit plan accruals | | | 8,427 | | | 8,946 |
Checks and transfers yet to be presented for payment from zero balance cash account | | | 10,199 | | | 20,530 |
All other accrued expenses | | | 11,182 | | | 13,833 |
| | | | | | |
Total other accrued liabilities | | $ | 51,030 | | $ | 60,079 |
| | | | | | |
9. Debt
| | | | | | | | | |
| | | Jan. 3,
| | | Dec. 28,
| |
In thousands | | 2010 | | | 2008 | |
| |
| Accrued marketing costs | | $ | 9,738 | | | $ | 9,001 | |
| Accrued insurance costs | | | 18,086 | | | | 17,132 | |
| Accrued taxes (other than income taxes) | | | 408 | | | | 374 | |
| Employee benefit plan accruals | | | 12,015 | | | | 8,626 | |
| Checks and transfers yet to be presented for payment from zero balance cash account | | | 11,862 | | | | 11,074 | |
| All other accrued expenses | | | 9,869 | | | | 11,297 | |
| | | | | | | | | |
| Total other accrued liabilities | | $ | 61,978 | | | $ | 57,504 | |
| | | | | | | | | |
Debt was summarized as follows:
| | | | | | | | | | | | | | | | | | | |
| | | | | | Interest
| | | Interest
| | Jan. 3,
| | | Dec. 28,
| |
In thousands | | Maturity | | | Rate | | | Paid | | 2010 | | | 2008 | |
| |
| Revolving Credit Facility | | | 2012 | | | | 0.60 | % | | Varies | | $ | 15,000 | | | $ | — | |
| Debentures | | | 2009 | | | | 7.20 | % | | Semi-annually | | | — | | | | 57,440 | |
| Debentures | | | 2009 | | | | 6.375 | % | | Semi-annually | | | — | | | | 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 | |
| Senior Notes | | | 2019 | | | | 7.00 | % | | Semi-annually | | | 110,000 | | | | — | |
| Unamortized discount on Senior Notes | | | 2019 | | | | | | | | | | (1,840 | ) | | | — | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | 537,917 | | | | 591,450 | |
| Less: Current portion of debt | | | | | | | | | | | | | — | | | | 176,693 | |
| | | | | | | | | | | | | | | | | | | |
| Long-term debt | | | | | | | | | | | | $ | 537,917 | | | $ | 414,757 | |
| | | | | | | | | | | | | | | | | | | |
69
| | | | | | | | | | | | | |
| | | Maturity | | Interest
Rate | | | Interest Paid | | Dec. 31,
2006 | | Jan. 1,
2006 |
| In Thousands | | | | | | | | | | | |
Lines of Credit | | | | | | | Varies | | $ | — | | $ | 6,500 |
Debentures | | 2007 | | 6.85 | % | | Semi-annually | | | 100,000 | | | 100,000 |
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 |
Other notes payable | | | | | | | Quarterly | | | — | | | 39 |
| | | | | | | | | | | | | |
| | | | | | | | | | 691,450 | | | 697,989 |
Less: Current portion of debt | | | 100,000 | | | 6,539 |
| | | | | | | | | | | | | |
Long-term debt | | $ | 591,450 | | $ | 691,450 |
| | | | | | | | | | | | | |
COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The principal maturities of debt outstanding on
December 31, 2006January 3, 2010 were as follows:
| | | |
| In Thousands | | |
2007 | | $ | 100,000 |
2008 | | | — |
2009 | | | 176,693 |
2010 | | | — |
2011 | | | — |
Thereafter | | | 414,757 |
| | | |
Total debt | | $ | 691,450 |
| | | |
COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| | | | | |
In thousands | | | |
| |
| 2010 | | $ | — | |
| 2011 | | | — | |
| 2012 | | | 165,000 | |
| 2013 | | | — | |
| 2014 | | | — | |
| Thereafter | | | 372,917 | |
| | | | | |
| Total debt | | $ | 537,917 | |
| | | | | |
The Company has obtained
allthe majority of its long-term debt financing other than capital leases from the public markets. As of
December 31, 2006, $691.5 million ofJanuary 3, 2010, the Company’s total outstanding
balance of debt and capital lease obligations
was $601.0 million of
$769.0which $537.9 million was financed through
the Company’s $200 million revolving credit facility (“$200 million facility”) and publicly offered debt. The Company had capital lease obligations of
$77.5$63.1 million as of
December 31, 2006.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 2005.
In June 2005, the Company issued $164.8 million of 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.January 3, 2010. The Company incurredmitigates its financing transaction costs of $1.3 million related to the exchange of debt which were included in interest expense during 2005. In August 2005, therisk by using multiple financial institutions and enters into credit arrangements only with institutions with investment grade credit ratings. The Company successfully completed a registered exchange offer in which all of the previously issued private notes were exchanged for substantially identical registered notes.
monitors counterparty credit ratings on an ongoing basis.
On
April 7, 2005,March 8, 2007, the Company entered into
a new five-year $100the $200 million
revolving credit facility replacing
the previous $125 million facility that was scheduled to expire in December 2005. On December 31, 2006, there were no amounts outstanding under thisits $100 million facility. The
$100$200 million facility matures in
April 2010March 2012 and includes an option to extend the term for an additional year at the discretion of the participating
banks andbanks. The $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 interest period. In addition,
there is athe Company must pay an annual facility fee of
.125% required for this $100 million.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 $100$200 million facility contains two financial
covenants related tocovenants: a fixed charges coverage ratio
requirements for interest coverage and
long-terma debt to
operating cash flow
ratio, each as defined in the credit agreement.
The fixed charges coverage ratio requires the Company to maintain a consolidated cash flow to fixed charges ratio of 1.5 to 1 or higher. The operating cash flow ratio requires the Company to maintain a debt to operating cash flow ratio of 6.0 to 1 or lower. On 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 Southeast and Southwest Areas Pension Plan (“Central States”) would be excluded from the calculations of the financial covenants to the extent they were incurred on or before March 31, 2009 and did not exceed $15 million. See Note 17 of the consolidated financial statements for additional details on the withdrawal from Central States. The Company is currently in compliance with these covenants, as amended by the amendment to the $200 million facility, and has been throughout 2009. These covenants do not currently, and the Company does not anticipate
that they will, restrict its liquidity or capital resources.
On July 1, 2009 the Company borrowed $55.0 million under the $200 million facility and used the proceeds, along with $2.4 million of cash on hand, to repay at maturity the Company’s $57.4 million outstanding 7.20% Debentures due 2009. As of January 3, 2010, the Company has repaid $40.0 million of the $55.0 million borrowed on July 1, 2009 under the $200 million facility, leaving $15 million of outstanding borrowings on the $200 million facility. On December 28, 2008, the Company had no outstanding borrowings on the $200 million facility.
In April 2009, the Company issued $110 million of unsecured 7% Senior Notes due 2019. The proceeds plus cash on hand were used on May 1, 2009 to repay at maturity the $119.3 million outstanding 6.375% Debentures due 2009.
On February 10, 2010, the Company borrows periodically under its available linesentered into an agreement for an uncommitted line of credit. These linesUnder this agreement, the Company may borrow up to a total of credit, in the aggregate amount$20 million for periods of $60 million at December 31, 2006, are 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 the lines of credit as they mature. On December 31, 2006, there was no amount outstanding under the lines of credit. On January 1, 2006, amounts outstanding under the lines of credit were $6.5 million. The weighted average interest rate on the lines of credit was 4.77% as of January 1, 2006.7 days, 30 days, 60 days or 90 days.
70
COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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
December 31, 2006January 3, 2010 was
$89.5 million$54.0 million. The loan and
wasinterest 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 to $300$190 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.
COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
After taking into account all of the interest rate hedging activities, the Company had a weighted average interest rate of
6.9%5.6% and
6.2%5.9% for its debt and capital lease obligations as of
January 3, 2010 and December
31, 2006 and January 1, 2006,28, 2008, respectively. The Company’s overall weighted average interest rate on its debt and capital lease obligations was
6.6%5.8%,
6.4%5.7% and
5.4%6.7% for
2006, 20052009, 2008 and
2004,2007, respectively.
Excluding the $1.7 million of financing transaction costs related to the Company’s debt exchange in June 2005 and the early retirement of debt in December 2005, the overall weighted average interest rate for 2005 was 6.2%. As of
December 31, 2006,January 3, 2010, approximately
42%7.3% of the Company’s debt and capital lease obligations of
$769.0$601.0 million was subject to changes in short-term interest rates.
During January 2007, the Company entered into additional interest rate swap agreements totaling $75 million which effectively converted fixed rate debt to floating rates. Additionally, a floating rate capital lease of $30.7 million was modified on a fixed rate basis. After giving effect for the additional interest rate swap agreements of $75 million and the modification of a floating rate capital lease to a fixed rate basis, approximately 48% of the Company’s debt and capital lease obligations would have been subject to changes in short-term interest rates.
The Company currently plans to use cash on hand and its revolving credit facility to repay or refinance the $100 million maturity of Company debentures in November 2007.
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.
| |
| 10. | Derivative Financial Instruments |
Derivative Financial InstrumentsInterestThe 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.
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 is amortizing 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 were summarized as follows:
| | | | | | | | | | |
| | | Dec. 31, 2006 | | Jan. 1, 2006 |
| | | Notional
Amount | | Remaining
Term | | Notional
Amount | | Remaining
Term |
| In Thousands | | | | | | | | |
Interest rate swap agreement-floating | | $ | 25,000 | | .92 years | | $ | 25,000 | | 1.92 years |
Interest rate swap agreement-floating | | | 25,000 | | .92 years | | | 25,000 | | 1.92 years |
Interest rate swap agreement-floating | | | 50,000 | | 2.42 years | | | 50,000 | | 3.42 years |
Interest rate swap agreement-floating | | | 50,000 | | .92 years | | | 50,000 | | 1.92 years |
Interest rate swap agreement-floating | | | 50,000 | | 2.58 years | | | 50,000 | | 3.58 years |
Interest rate swap agreement-floating | | | 50,000 | | 5.92 years | | | 50,000 | | 6.92 years |
COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company had six interest rate swap agreements as of December 31, 2006 with varying terms that effectively converted $250 million of the Company’s fixed rate debt portfolio to a floating rate. All of the interest rate swap agreements have been accounted for as fair value hedges.
In January
During 2009, 2008 and 2007,
the Company entered into three new interest rate swap agreements converting $75 million of the Company’s fixed rate debt portfolio to a floating rate. The new swap agreements have been accounted for as fair value hedges.During 2006, 2005 and 2004, the Company amortized deferred gains related to previously terminated interest rate swap agreements and forward interest rate agreements, which reduced interest expense by $1.7$2.1 million, $1.7$2.2 million and $1.9$1.7 million, respectively. Interest expense will be reduced by the amortization of these deferred gains in 20072010 through 20112014 as follows: $1.7$1.2 million, $1.7$1.2 million, $.9$1.1 million, $.3$0.5 million and $.3$0.6 million, respectively.
The counterparties to these contractual arrangements are major financial institutions with which the Company also has other financial relationships. had no interest rate swap agreements outstanding at January 3, 2010 and December 28, 2008.
The Company uses several different financial institutions for interest rate derivative contracts and commodity derivative instruments, described below, to minimize the concentration of credit risk. While the Company is exposed to credit loss in the event of nonperformance by these counterparties, the Company does not anticipate nonperformance by these parties. The Company has master agreements with the counterparties to its derivative financial agreements that provide for net settlement of derivative transactions.
71
COCA-COLA BOTTLING CO. CONSOLIDATED
11. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fair ValuesCommodities
The Company is subject to the risk of Financial Instrumentsloss arising from adverse changes in commodity prices. In the normal course of business, the Company manages these risks through a variety of strategies, including the use of derivative instruments. The Company does not use derivative instruments for trading or speculative purposes. All derivative instruments are recorded at fair value as either assets or liabilities in the Company’s consolidated balance sheets. These derivative instruments are not designated as hedging instruments under GAAP and are used as “economic hedges” to manage certain commodity risk. Currently the Company has derivative instruments to hedge some or all of its projected diesel fuel and aluminum purchase requirements. These derivative instruments are marked to market on a periodic basis and recognized in earnings consistent with the expense classification of the underlying hedged item. Settlements of derivative agreements are included in cash flows from operating activities on the Company’s consolidated statements of cash flows.
The Company used derivative instruments to hedge essentially all of its diesel fuel purchases for 2009 and is using derivative instruments to hedge essentially all of its diesel fuel purchases for 2010. These derivative instruments relate to diesel fuel used by the Company’s delivery fleet. At the end of the first quarter of 2009, the Company began using derivative instruments to hedge approximately 75% of the Company’s projected 2010 aluminum purchase requirements. During the second quarter of 2009, the Company entered into derivative agreements to hedge approximately 75% of the Company’s projected 2011 aluminum purchase requirements.
The following summarizes 2009, 2008 and 2007 net gains and losses on the Company’s fuel and aluminum derivative financial instruments and the classification of such net gains in the consolidated statements of operations:
| | | | | | | | | | | | | | | |
In millions | | Classification of Gain (Loss) | | 2009 | | | 2008 | | | 2007 | |
| |
| Fuel Hedges | | Selling, delivery and administrative expenses | | $ | 2.4 | | | $ | (0.8 | ) | | $ | 0.9 | |
| Aluminum Hedges | | Cost of sales | | | 10.8 | | | | — | | | | — | |
| | | | | | | | | | | | | | | |
| Total Net Gain (Loss) | | | | $ | 13.2 | | | $ | (0.8 | ) | | $ | 0.9 | |
| | | | | | | | | | | | | | | |
The following summarizes the fair values and classification in the consolidated balance sheets of derivative instruments held by the Company as of January 3, 2010:
| | | | | | | |
| | | Classification of
| | Jan. 3,
| |
In thousands | | Derivative Instruments | | 2010 | |
| |
| Assets | | | | | | |
| Fuel hedges at fair market value | | Prepaid expenses and other current assets | | $ | 1,617 | |
| Aluminum hedges at fair market value | | Prepaid expenses and other current assets | | | 3,303 | |
| Unamortized cost of fuel hedging agreements | | Prepaid expenses and other current assets | | | 863 | |
| Unamortized cost of aluminum hedging agreements | | Prepaid expenses and other current assets | | | 967 | |
| Aluminum hedges at fair market value | | Other assets | | | 7,149 | |
| Unamortized cost of aluminum hedging agreements | | Other assets | | | 2,453 | |
The following table summarizes the Company’s outstanding derivative agreements as of January 3, 2010:
| | | | | | | | | |
| | | Notional
| | | Latest
| |
In millions | | Amount | | | Maturity | |
| |
| Fuel hedging agreements | | $ | 10.0 | | | | December 2010 | |
| Aluminum hedging agreements | | | 48.4 | | | | December 2011 | |
72
COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| |
| 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, Restricted Cash, Accounts Receivable and Accounts Payable The fair values of cash and cash equivalents,
restricted cash, accounts receivable and accounts payable approximate carrying values due to the short maturity of these items.
The fair values of the Company’s public debt securities are based on estimated current market prices.
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 Assets/LiabilitiesThe fair values of
deferred compensation plan assets and liabilities, 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,
fuel hedging and aluminum 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.
COCA-COLA BOTTLING CO. CONSOLIDATEDNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Letters of Credit
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:
| | | | | | | | | | | | |
| | | Dec. 31, 2006 | | Jan. 1, 2006 |
| | | Carrying
Amount | | Fair Value | | Carrying
Amount | | Fair Value |
| In Thousands | | | | | | | | |
Public debt securities | | $ | 691,450 | | $ | 679,991 | | $ | 691,450 | | $ | 696,171 |
Non-public variable rate debt | | | — | | | — | | | 6,500 | | | 6,500 |
Non-public fixed rate long-term debt | | | — | | | — | | | 39 | | | 39 |
Interest rate swap agreements | | | 6,950 | | | 6,950 | | | 8,118 | | | 8,118 |
Letters of credit | | | — | | | 22,068 | | | — | | | 17,374 |
| | | | | | | | | | | | | | | | | |
| | | Jan. 3, 2010 | | | Dec. 28, 2008 | |
| | | Carrying
| | | Fair
| | | Carrying
| | | Fair
| |
In thousands | | Amount | | | Value | | | Amount | | | Value | |
| |
| Public debt securities | | $ | 522,917 | | | $ | 557,758 | | | $ | 591,450 | | | $ | 559,963 | |
| Non-public variable rate debt | | | 15,000 | | | | 15,000 | | | | — | | | | — | |
| Deferred compensation plan assets/liabilities | | | 8,471 | | | | 8,471 | | | | 5,446 | | | | 5,446 | |
| Fuel hedging agreements | | | (1,617 | ) | | | (1,617 | ) | | | 1,985 | | | | 1,985 | |
| Aluminum hedging agreements | | | (10,452 | ) | | | (10,452 | ) | | | — | | | | — | |
| Letters of credit | | | — | | | | 29,951 | | | | — | | | | 19,274 | |
The fair value of the interest rate swapfuel hedging agreements at January 3, 2010 represented the estimated amount the Company would have received upon termination of these agreements. The fair value of the fuel hedging agreements at December 31, 2006 and January 1, 2006 represent28, 2008 represented the estimated amountsamount the Company would have paid upon termination of these agreements.
73
COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In December 2009, the Company terminated certain 2010 aluminum hedging agreements whichresulting in a net gain of $0.4 million. The agreements were terminated to balance the then current settlementrisk of future prices and projected aluminum requirements of the Company.
The fair value of the aluminum hedging agreements at January 3, 2010 represented the estimated amount the Company would have received upon termination of these agreements.
In September 2006, FASB issued new guidance on fair value measurements. The Company adopted the new guidance on fair value measurements as of December 31, 2007, the beginning of the first quarter of 2008, and there was no material impact to the consolidated financial statements. In the first quarter of 2008, FASB issued additional guidance that delayed the effective date of the fair value measurements new guidance for all non-financial 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. There was no material impact on the consolidated financial statements of the new guidance for nonfinancial assets and liabilities in the first quarter of 2009, but such adoption could have a material effect in the future. The new guidance requires disclosure that establishes a framework for measuring fair value in GAAP and expands disclosure about fair value measurements. The new guidance is intended to 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. The new guidance 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, by assets and liabilities, the valuation of the Company’s deferred compensation plan, fuel hedging agreements and aluminum hedging agreements for the categories above:
| | | | | | | | | | | | | | | | | |
| | | Jan. 3, 2010 | | | Dec. 28, 2008 | |
In thousands | | Level 1 | | | Level 2 | | | Level 1 | | | Level 2 | |
| |
Assets | | | | | | | | | | | | | | | | |
| Deferred compensation plan assets | | $ | 8,471 | | | | | | | $ | 5,446 | | | | | |
| Fuel hedging agreements | | | | | | $ | 1,617 | | | | | | | | | |
| Aluminum hedging agreements | | | | | | $ | 10,452 | | | | | | | | | |
Liabilities | | | | | | | | | | | | | | | | |
| Deferred compensation plan liabilities | | $ | 8,471 | | | | | | | $ | 5,446 | | | | | |
| Fuel hedging agreements | | | | | | | | | | | | | | $ | 1,985 | |
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 rates that are observable and quoted periodically over the full term of the agreement and are considered Level 2 items.
The Company’s aluminum hedging agreements are based upon LME rates that are observable and quoted periodically over the full term of the agreements and are considered Level 2 items.
The Company does not have Level 3 assets or liabilities.
74
12. Other Liabilities
COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Other liabilities were summarized as follows:
| | | | | | |
| | | Dec. 31,
2006 | | Jan. 1,
2006 |
| In Thousands | | | | |
Accruals for executive benefit plans | | $ | 69,547 | | $ | 61,674 |
Other | | | 19,051 | | | 23,514 |
| | | | | | |
Total other liabilities | | $ | 88,598 | | $ | 85,188 |
| | | | | | |
| | | | | | | | | |
| | | Jan. 3,
| | | Dec. 28,
| |
In thousands | | 2010 | | | 2008 | |
| |
| Accruals for executive benefit plans | | $ | 85,382 | | | $ | 77,299 | |
| Other | | | 21,586 | | | | 29,738 | |
| | | | | | | | | |
| Total other liabilities | | $ | 106,968 | | | $ | 107,037 | |
| | | | | | | | | |
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, 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 inFrom 2006
to 2009, the Company
matcheswas required to match 50% of the first 6% of salary (excluding bonuses) deferred by the participant. The Company
will also
makemade additional contributions during
2006, 2007,
2008 and
2008 ranging from 10% to 40%2009 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.
Beginning in 2010, the Company may elect at its discretion to match up to 50% of the first 6% of salary (excluding bonuses) deferred by the participant. The Company may also make discretionary contributions to participants’ accounts. The
COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
long-term liability under this plan was $46.3$53.4 million and $40.3$49.2 million as of January 3, 2010 and December 31, 2006 and January 1, 2006,28, 2008, 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
$22.3$28.2 million and
$20.4$26.3 million as of
January 3, 2010 and December
31, 2006 and January 1, 2006,28, 2008, 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 $1.0$.9 million under this plan as of both January 3, 2010 and December 31, 2006 and28, 2008.
Under the Performance Plan, adopted as of January 1, 2006.2007, 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 $2.9 million and $.9 million as of January 3, 2010 and December 28, 2008, respectively.
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13. Commitments and Contingencies
COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| |
| 13. | Commitments and Contingencies |
Rental expense incurred for noncancellable operating leases
was $4.5 million, $3.9 million and $3.9 million during
2006, 20052009, 2008 and
2004 were as follows: | | | | | | | | | | |
| | | Fiscal Year | |
| | | 2006 | | 2005 | | 2004 | |
| In Thousands | | | | | | | |
Minimum rentals | | $ | 3,597 | | $ | 3,168 | | $ | 3,550 | |
Contingent rentals | | | — | | | — | | | (71 | ) |
| | | | | | | | | | |
Total rental expense | | $ | 3,597 | | $ | 3,168 | | $ | 3,479 | |
| | | | | | | | | | |
2007, 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
2017.2019. 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 through
2030.2021. These leases contain scheduled rent increases or escalation clauses. Amortization of assets recorded under capital leases is included in depreciation expense.
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
December 31, 2006, adjusted to reflect the modified capital lease on the corporate office facility which was effective January
1, 2007. The modified lease increased the present value of minimum lease payments from $77.5 million to $82.6 million. The current portion of obligations under capital leases at December 31, 2006 has been adjusted to reflect the effects of this modified lease. See Note 18 to the consolidated financial statements for additional information on the modified lease. | | | | | | | | | |
| | | Capital Leases | | Operating Leases | | Total |
| In Thousands | | | | | | |
2007 | | $ | 9,017 | | $ | 3,120 | | $ | 12,137 |
2008 | | | 9,456 | | | 2,846 | | | 12,302 |
2009 | | | 9,612 | | | 1,897 | | | 11,509 |
2010 | | | 9,733 | | | 1,062 | | | 10,795 |
2011 | | | 9,856 | | | 861 | | | 10,717 |
Thereafter | | | 171,856 | | | 7,774 | | | 179,630 |
| | | | | | | | | |
Total minimum lease payments | | $ | 219,530 | | $ | 17,560 | | $ | 237,090 |
| | | | | | | | | |
Less: Amounts representing interest | | | 136,880 | | | | | | |
| | | | | | | | | |
Present value of minimum lease payments | | | 82,650 | | | | | | |
Less: Current portion of obligations under capital leases | | | 2,435 | | | | | | |
| | | | | | | | | |
Long-term portion of obligations under capital leases | | $ | 80,215 | | | | | | |
| | | | | | | | | |
3, 2010.
| | | | | | | | | | | | | |
In thousands | | Capital Leases | | | Operating Leases | | | Total | |
| |
| 2010 | | $ | 8,118 | | | $ | 3,578 | | | $ | 11,696 | |
| 2011 | | | 7,921 | | | | 3,098 | | | | 11,019 | |
| 2012 | | | 7,882 | | | | 2,003 | | | | 9,885 | |
| 2013 | | | 7,928 | | | | 1,585 | | | | 9,513 | |
| 2014 | | | 8,080 | | | | 1,538 | | | | 9,618 | |
| Thereafter | | | 52,683 | | | | 7,740 | | | | 60,423 | |
| | | | | | | | | | | | | |
| Total minimum lease payments | | | 92,612 | | | $ | 19,542 | | | $ | 112,154 | |
| | | | | | | | | | | | | |
| Less: Amounts representing interest | | | 29,505 | | | | | | | | | |
| | | | | | | | | | | | | |
| Present value of minimum lease payments | | | 63,107 | | | | | | | | | |
| Less: Current portion of obligations under capital leases | | | 3,846 | | | | | | | | | |
| | | | | | | | | | | | | |
| Long-term portion of obligations under capital leases | | $ | 59,261 | | | | | | | | | |
| | | | | | | | | | | | | |
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. The Company is also a member of Southeastern Container (“Southeastern”), a plastic bottle manufacturing cooperative, from which it is obligated to purchase at least 80% of its requirements of plastic bottles for certain designated territories. See Note 18 to the consolidated financial statements for additional information concerning SAC and Southeastern.
The Company guarantees a portion of SAC’s and Southeastern’s debt and lease obligations. The amounts guaranteed were $42.9$30.5 million and $39.9 million as of January 3, 2010 and December 31, 2006 and January 1, 2006.28, 2008, respectively. The Company has not recorded any liability associated with these guarantees. The Companyguarantees and 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 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.loss from the Company’s guarantees.
76
The Company has identified SAC and Southeastern as variable interest entities and has determined it is not 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 December 31, 2006, SAC had total assets of approximately $39 million and total debt of approximately
COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS$17 million. SAC had total revenues for 2006 of approximately $173 million. As of December 31, 2006, Southeastern had total assets of approximately $379 million and total debt of approximately $279 million. Southeastern had total revenue for 2006 of approximately $566 million.
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 maximum exposure under these guarantees on December 31, 2006January 3, 2010 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 $35.4$30.8 million for SAC and $30.4$38.5 million for Southeastern.
The Company has been purchasing plastic bottles
from Southeastern and finished products from
these cooperativesSAC for more than ten
years.years and has never had to pay against these guarantees.
The Company has an equity ownership in each of the entities in addition to the guarantees of certain indebtedness and records its investment in each under the equity method. As of January 3, 2010, SAC had total assets of approximately $36 million and total debt of approximately $16 million. SAC had total revenues for 2009 of approximately $169 million. As of January 3, 2010, Southeastern had total assets of approximately $393 million and total debt of approximately $224 million. Southeastern had total revenue for 2009 of approximately $564 million.
The Company has standby letters of credit, primarily related to its property and casualty insurance programs. On
December 31, 2006,January 3, 2010, these letters of credit totaled
$22.1$30.0 million.
The Company was required to maintain $4.5 million of restricted cash for letters of credit beginning in the second quarter of 2009.
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
December 31, 2006January 3, 2010 amounted to
$28.5$21.5 million and expire at various dates through
2014.On February 14, 2006, forty-eight Coca-Cola bottler plaintiffs filed suit in the 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.,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 17, 2006, the Missouri District Court transferred the case, for the convenience of the parties, to the United States District Court for the Northern District of Georgia (the “District Court”).
In April 2006, warehouse delivery of POWERade commenced in the Company’s exclusive bottling territory. On September 5, 2006, the District Court granted the Company’s motion to intervene as defendant for the limited purpose of opposing the injunctive relief sought by the bottler plaintiffs. The District Court found that the Company had a legally protectable interest at stake in the litigation in that the relief requested would preclude the Company from warehouse delivery of POWERade within its exclusive bottling territory.
In February 2007, The Coca-Cola Company, CCE, the Company and many of the plaintiffs entered into a series of agreements that the Company expects will result in the dismissal without prejudice of the lawsuit and the implementation of a program to test various new route-to-market service systems. The new alternative route-to-market program provides, among other things, that during the next two years, through December 31, 2008, any Coca-Cola bottler that desires to implement an alternative route-to-market delivery plan shall present the plan for advance discussion and approval by representatives of The Coca-Cola Company and the Coca-Cola bottling system. The agreements preserve all parties’ rights, and afford the Coca-Cola bottling system an opportunity to meet to discuss whether the new route-to-market service system should be continued. The agreements also provide that the lawsuit will be dismissed in the near future.
2018.
The Company is involved in various
other 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
COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
effect on the financial condition, cash flows or results of operations of the Company. No material amount of loss in excess of recorded amounts is believed to be reasonably possible as a result of these claims and legal proceedings.
The Company’s tax filings areCompany is subject to audit by taxing 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.
77
14. Income Taxes
COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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
2006, 20052009, 2008 and
2004. | | | | | | | | | | |
| | | Fiscal Year |
| | | 2006 | | | 2005 | | 2004 |
| In Thousands | | | | | | | |
Current: | | | | | | | | | | |
Federal | | $ | 14,359 | | | $ | 11,645 | | $ | — |
State | | | 588 | | | | 1,051 | | | 458 |
| | | | | | | | | | |
Total current provision | | $ | 14,947 | | | $ | 12,696 | | $ | 458 |
| | | | | | | | | | |
Deferred: | | | | | | | | | | |
Federal | | $ | (4,881 | ) | | $ | 1,771 | | $ | 11,912 |
State | | | (2,149 | ) | | | 1,334 | | | 2,332 |
| | | | | | | | | | |
Total deferred provision (benefit) | | $ | (7,030 | ) | | $ | 3,105 | | $ | 14,244 |
| | | | | | | | | | |
Income tax expense | | $ | 7,917 | | | $ | 15,801 | | $ | 14,702 |
| | | | | | | | | | |
2007.
| | | | | | | | | | | | | |
| | | Fiscal Year | |
In thousands | | 2009 | | | 2008 | | | 2007 | |
| |
| Current: | | | | | | | | | | | | |
| Federal | | $ | 8,657 | | | $ | 7,661 | | | $ | 16,393 | |
| State | | | 291 | | | | 174 | | | | 155 | |
| | | | | | | | | | | | | |
| Total current provision | | $ | 8,948 | | | $ | 7,835 | | | $ | 16,548 | |
| | | | | | | | | | | | | |
| Deferred: | | | | | | | | | | | | |
| Federal | | $ | 6,349 | | | $ | (177 | ) | | $ | (5,589 | ) |
| State | | | 1,284 | | | | 736 | | | | 1,424 | |
| | | | | | | | | | | | | |
| Total deferred provision (benefit) | | $ | 7,633 | | | $ | 559 | | | $ | (4,165 | ) |
| | | | | | | | | | | | | |
| Income tax expense | | $ | 16,581 | | | $ | 8,394 | | | $ | 12,383 | |
| | | | | | | | | | | | | |
The Company’s effective tax rate was 25.4%30.3%, 40.8%48.0% and 40.2%38.4% for 2006, 20052009, 2008 and 2004,2007, respectively. The following table provides a reconciliation of income tax expense at the statutory federal rate to actual income tax expense.
| | | | | | | | | | | | | |
| | | Fiscal Year | |
In thousands | | 2009 | | | 2008 | | | 2007 | |
| |
| Statutory expense | | $ | 19,151 | | | $ | 6,120 | | | $ | 11,283 | |
| State income taxes, net of federal benefit | | | 2,315 | | | | 762 | | | | 1,404 | |
| Change in reserve for uncertain tax positions | | | (6,266 | ) | | | 1,228 | | | | 309 | |
| Valuation allowance change | | | (5 | ) | | | (286 | ) | | | (269 | ) |
| Manufacturing deduction benefit | | | (420 | ) | | | (490 | ) | | | (1,120 | ) |
| Meals and entertainment | | | 871 | | | | 740 | | | | 597 | |
| Other, net | | | 935 | | | | 320 | | | | 179 | |
| | | | | | | | | | | | | |
| Income tax expense | | $ | 16,581 | | | $ | 8,394 | | | $ | 12,383 | |
| | | | | | | | | | | | | |
As of January 3, 2010, the Company had $5.6 million of unrecognized tax benefits including accrued interest of which $3.5 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; however, the Company does not expect the change to have a significant impact on the consolidated financial statements.
78
| | | | | | | | | | | | |
| | | Fiscal Year | |
| | | 2006 | | | 2005 | | | 2004 | |
| In Thousands | | | | | | | | | |
Statutory expense | | $ | 10,906 | | | $ | 13,563 | | | $ | 12,793 | |
State income taxes, net of federal benefit | | | 1,357 | | | | 1,789 | | | | 1,473 | |
Change in effective state tax rate | | | | | | | 1,554 | | | | 2,320 | |
Change in reserve for uncertain tax positions | | | (1,673 | ) | | | | | | | | |
Valuation allowance change | | | (2,637 | ) | | | (1,188 | ) | | | (1,980 | ) |
Meals and entertainment | | | 701 | | | | 729 | | | | 780 | |
Other, net | | | (737 | ) | | | (646 | ) | | | (684 | ) |
| | | | | | | | | | | | |
Income tax expense | | $ | 7,917 | | | $ | 15,801 | | | $ | 14,702 | |
| | | | | | | | | | | | |
COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn October 2004,
A reconciliation of the American Jobs Creation Actbeginning and ending balances of 2004 (the “Jobs Act”) was enacted. the total amounts of unrecognized tax benefits (excludes accrued interest) is as follows:
| | | | | | | | | | | | | |
| | | Fiscal Year | |
In thousands | | 2009 | | | 2008 | | | 2007 | |
| |
| Gross unrecognized tax benefits at the beginning of the year | | $ | 8,000 | | | $ | 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 | | | (214 | ) | | | (133 | ) | | | (4,656 | ) |
| Increase in the unrecognized tax benefits as a result of tax positions taken in the current period | | | 2,535 | | | | 240 | | | | 459 | |
| Change in the unrecognized tax benefits relating to settlements with taxing authorities | | | (594 | ) | | | — | | | | — | |
| Reduction to unrecognized tax benefits as a result of a lapse of the applicable statute of limitations | | | (5,078 | ) | | | (303 | ) | | | (299 | ) |
| | | | | | | | | | | | | |
| Gross unrecognized tax benefits at the end of the year | | $ | 4,649 | | | $ | 8,000 | | | $ | 7,258 | |
| | | | | | | | | | | | | |
The Jobs Act provided for aCompany recognizes potential interest and penalties related to uncertain tax deduction for qualified production activities. Inpositions in income tax expense. As of January 3, 2010 and December 2004,28, 2008, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position No. FAS 109-1, “ApplicationCompany had approximately $.9 million and $2.5 million of FASB Statement No. 109, Accounting foraccrued interest related to uncertain tax positions, respectively. Income Taxes,tax expense included an interest credit of $1.6 million in 2009 due to the Tax Deduction on Qualified Production Activities Providedreduction in reserves for uncertain tax positions and interest expense of $.5 million in 2008.
Various tax years from 1991 remain open to examination by taxing jurisdictions to which the American Jobs Creation Act of 2004” (“FAS 109-1”), which was effective immediately. FAS 109-1 provides guidanceCompany is subject due to loss carryforwards.
The Company’s income tax assets and liabilities are subject to adjustment in future periods based on the accounting forCompany’s ongoing evaluations of such assets and liabilities and new information that becomes available to the provision withinCompany.
In 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 adoptionfirst quarter of
FAS 109-1 reduced the Company’s effective income tax rate by approximately 1% in 2005 and 2006.In 2006,2009, the Company reached agreementsan agreement with two statea taxing authoritiesauthority to settle certain prior tax positions for which the Company had previously provided reserves due to uncertainty of resolution. As a result, the Company reduced the valuation allowance on related deferredliability for uncertain tax assetspositions by $2.6$1.7 million andwith a corresponding decrease to income tax expense.
In the third quarter of 2009, the Company reduced
its liability for uncertain tax positions by $5.4 million with a corresponding decrease to income tax expense of approximately $5.4 million. The reduction of the liability for uncertain tax positions
by $2.3 million in the fourth quarter of 2006 (“Q4 2006”). This adjustment was
reflected as a $4.9 million reduction of income tax expense in Q4 2006. Also during Q4 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 adjustmentsdue mainly to the
valuation allowance and liability for uncertain tax positions during Q4 2006 was a reduction in income tax expenselapse of
$4.4 million.During 2005, the Company entered into settlement agreements with two states regarding certain tax years. The effectapplicable statutes 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, which the Company now believes more likely than not will be utilized to reduce state liabilities in the future.
During 2005, the Company also entered into a settlement agreement with another 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 2005 and was 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 2005. Based on an analysis of facts and available information, the Company also made adjustments for income tax exposure in other states in 2005 which had the effect of decreasing income tax expense by $3.8 million in 2005.
The Company’s income tax 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.
limitations.
The valuation allowance decreases in 2006, 20052009, 2008 and 20042007 were due to the Company’s assessments of its ability to use certain state net operating loss carryforwards primarily due to agreements with state taxing authorities as previously discussed.
79
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:
| | | | | | | | |
| | | Dec. 31, 2006 | | | Jan. 1, 2006 | |
| In Thousands | | | | | | |
Intangible assets | | $ | 118,690 | | | $ | 117,478 | |
Depreciation | | | 75,258 | | | | 85,567 | |
Investment in Piedmont | | | 34,149 | | | | 29,422 | |
Pension | | | 7,455 | | | | 10,407 | |
Debt exchange premium | | | 5,072 | | | | 5,762 | |
Inventory | | | 5,002 | | | | 5,040 | |
| | | | | | | | |
Gross deferred income tax liabilities | | | 245,626 | | | | 253,676 | |
| | | | | | | | |
Net operating loss carryforwards | | | (14,264 | ) | | | (16,292 | ) |
Alternative minimum tax credits | | | | | | | (5,092 | ) |
Deferred compensation | | | (28,896 | ) | | | (27,149 | ) |
Postretirement benefits | | | (14,534 | ) | | | (14,398 | ) |
Termination of interest rate agreements | | | (2,286 | ) | | | (2,950 | ) |
Capital lease agreements | | | (2,704 | ) | | | (2,121 | ) |
Other | | | (3,384 | ) | | | (1,723 | ) |
| | | | | | | | |
Gross deferred income tax assets | | | (66,068 | ) | | | (69,725 | ) |
| | | | | | | | |
Valuation allowance for deferred tax assets | | | 1,091 | | | | 3,728 | |
| | | | | | | | |
Total deferred income tax liability | | | 180,649 | | | | 187,679 | |
Net current deferred income tax liability | | | 86 | | | | 802 | |
| | | | | | | | |
Net noncurrent deferred income tax liability | | | 180,563 | | | | 186,877 | |
| | | | | | | | |
Accumulated other comprehensive income | | | (17,869 | ) | | | (19,746 | ) |
| | | | | | | | |
Net noncurrent deferred income tax liability | | $ | 162,694 | | | $ | 167,131 | |
| | | | | | | | |
| | | | | | | | | |
| | | Jan. 3,
| | | Dec. 28,
| |
In thousands | | 2010 | | | 2008 | |
| |
| Intangible assets | | $ | 121,620 | | | $ | 120,956 | |
| Depreciation | | | 70,848 | | | | 66,513 | |
| Investment in Piedmont | | | 40,615 | | | | 40,152 | |
| Pension (nonunion) | | | 14,649 | | | | 11,550 | |
| Debt exchange premium | | | 3,187 | | | | 2,726 | |
| Inventory | | | 6,013 | | | | 5,550 | |
| | | | | | | | | |
| Deferred income tax liabilities | | | 256,932 | | | | 247,447 | |
| | | | | | | | | |
| Net operating loss carryforwards | | | (8,802 | ) | | | (10,565 | ) |
| Deferred compensation | | | (33,211 | ) | | | (31,594 | ) |
| Postretirement benefits | | | (14,441 | ) | | | (14,567 | ) |
| Termination of interest rate agreements | | | — | | | | (2,791 | ) |
| Capital lease agreements | | | (4,277 | ) | | | (3,939 | ) |
| Pension (union) | | | (4,147 | ) | | | (4,262 | ) |
| Other | | | (5,851 | ) | | | (6,157 | ) |
| | | | | | | | | |
| Deferred income tax assets | | | (70,729 | ) | | | (73,875 | ) |
| | | | | | | | | |
| Valuation allowance for deferred tax assets | | | 530 | | | | 535 | |
| | | | | | | | | |
| Total deferred income tax liability | | | 186,733 | | | | 174,107 | |
| Net current deferred income tax liability (asset) | | | (2,354 | ) | | | (3,081 | ) |
| | | | | | | | | |
| Net noncurrent deferred income tax liability before accumulated other comprehensive income | | | 189,087 | | | | 177,188 | |
| | | | | | | | | |
| Deferred taxes recognized in other comprehensive income | | | (30,539 | ) | | | (37,850 | ) |
| | | | | | | | | |
| Net noncurrent deferred income tax liability | | $ | 158,548 | | | $ | 139,338 | |
| | | | | | | | | |
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
state net operating loss carryforwards, the Company records liabilities for uncertain tax positions
principally related to
certain state
income taxes and
certain 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 statutes
and/or settlements with individual state or federal jurisdictions may result in material adjustments to these estimates in the future.
The valuation allowance of $1.1 million and $3.7$.5 million as of both January 3, 2010 and December 31, 2006 and January 1, 2006, respectively,28, 2008, was established primarily for certain state net operating loss carryforwards which expire in varying amounts through 2023. There were no AMT credit carryforwards as of December 31, 2006 as the Company used its AMT credits to reduce its federal tax obligation for fiscal 2006.2024.
80
COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS15. Accumulated Other Comprehensive Income (Loss)
| |
| 15. | Accumulated Other Comprehensive Income (Loss) |
Accumulated other comprehensive income (loss)loss is comprised of net incomeadjustments relative to the Company’s pension and otherpostretirement medical benefit plans, foreign currency translation adjustments including derivatives gain (loss)required for a subsidiary of the Company that performs data analysis and minimum pension liability adjustment. In addition,provides consulting services outside the adjustment to initially apply SFAS No. 158 “Employers’ Accounting for Defined PensionUnited States and Other Postretirement Plans” was recorded directly to accumulatedthe Company’s share of Southeastern’s other comprehensive income (loss) at the end of 2006. loss.
A summary of accumulated other comprehensive
income (loss)loss is as follows:
| | | | | | | | | | | | |
| | | Derivatives
Gain/(Loss) | | | Unrecognized
Losses and
Prior Service
Cost, net | | | Total | |
| In Thousands | | | | | | | | | |
Balance at December 28, 2003 | | $ | (62 | ) | | $ | (23,868 | ) | | $ | (23,930 | ) |
Pretax activity | | | 101 | | | | (3,174 | ) | | | (3,073 | ) |
Tax effect | | | (39 | ) | | | 1,239 | | | | 1,200 | |
| | | | | | | | | | | | |
Balance at January 2, 2005 | | | | | | | (25,803 | ) | | | (25,803 | ) |
Pretax activity | | | | | | | (7,073 | ) | | | (7,073 | ) |
Tax effect | | | | | | | 2,760 | | | | 2,760 | |
| | | | | | | | | | | | |
Balance at January 1, 2006 | | | | | | | (30,116 | ) | | | (30,116 | ) |
Pretax activity | | | | | | | 8,977 | | | | 8,977 | |
Tax effect | | | | | | | (3,535 | ) | | | (3,535 | ) |
| | | | | | | | | | | | |
| | | | | | | (24,674 | ) | | | (24,674 | ) |
Adjustment to initially apply SFAS No. 158 | | | | | | | | | | | | |
Pretax activity | | | | | | | (4,210 | ) | | | (4,210 | ) |
Tax effect | | | | | | | 1,658 | | | | 1,658 | |
| | | | | | | | | | | | |
Balance at December 31, 2006 | | $ | — | | | $ | (27,226 | ) | | $ | (27,226 | ) |
| | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | Dec. 28,
| | | Pre-tax
| | | Tax
| | | Jan. 3,
| |
In thousands | | 2008 | | | Activity | | | Effect | | | 2010 | |
| Net pension activity: | | | | | | | | | | | | | | | | |
| Actuarial loss | | $ | (56,717 | ) | | $ | 26,536 | | | $ | (10,445 | ) | | $ | (40,626 | ) |
| Prior service costs | | | (45 | ) | | | 13 | | | | (5 | ) | | | (37 | ) |
| Net postretirement benefits activity: | | | | | | | | | | | | | | | | |
| Actuarial loss | | | (9,625 | ) | | | (6,341 | ) | | | 2,496 | | | | (13,470 | ) |
| Prior service costs | | | 8,459 | | | | (1,785 | ) | | | 702 | | | | 7,376 | |
| Transition asset | | | 41 | | | | (25 | ) | | | 10 | | | | 26 | |
| Ownership share of Southeastern OCI | | | — | | | | (81 | ) | | | 32 | | | | (49 | ) |
| Foreign currency translation adjustment | | | 14 | | | | (2 | ) | | | 1 | | | | 13 | |
| | | | | | | | | | | | | | | | | |
| Total | | $ | (57,873 | ) | | $ | 18,315 | | | $ | (7,209 | ) | | $ | (46,767 | ) |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | Remeasurement
| | | | | | | | | | |
| | | Dec. 30,
| | | Adjustment
| | | 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. |
| |
16. Capital Transactions16. | Capital Transactions |
The Company has two classes of common stock outstanding, Common Stock and Class B Common Stock. The Common Stock is traded on the
NasdaqNASDAQ Global
Select Market
sm tier of The Nasdaq Stock Market, LLC® under the symbol COKE. There is no established public trading market for the Class B Common Stock. Shares of the Class B Common Stock are convertible on ashare-for-share basis into shares of Common Stock at any time at the option of the holders of Class B Common Stock.Pursuant to the Company’s Certificate of Incorporation, no
No cash dividend or dividend of property or stock other than stock of the Company, as specifically described in the
CertificateCompany’s certificate 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. During
2006, 20052009, 2008 and
2004,2007, 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 at all meetings of stockholders and each share of Class B Common Stock is entitled to 20 votes per share at such meetings.all meetings of shareholders. Except to the extentas otherwise required by law, holders of the
81
COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Common 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.
COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Pursuant to a
On February 19, 2009, the Company entered into an Amended and Restated Stock Rights and
RestrictionRestrictions Agreement
dated January 27, 1989, between the(the “Amended Rights and Restrictions Agreement”) with TheCoca-Cola Company and
J. Frank Harrison, III, the Company’s Chairman and Chief Executive Officer. The
Coca-Cola Company, inAmended Rights and Restrictions Agreement provides, among other things, (1) that so long as no person or group controls more of the
eventCompany’s voting power than is controlled by Mr. Harrison, III, trustees under the will of J. Frank Harrison, Jr. and any trust that
the Company issues newholds shares of
Class B Common Stock upon the
exchange or exerciseCompany’s stock for the benefit of
any security, warrant or optiondescendents of J. Frank Harrison, Jr. (collectively, the “Harrison Family”), TheCoca-Cola Company will not acquire additional shares of the Company
which results inwithout 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
owning less than 20% of
the outstanding shares of
Class B Common Stock and less than 20% ofCompany stock; (2) the
total votes of all outstanding shares of all classes of the Company, The Coca-Cola Company has the right
through January 2019 to
exchangeredeem shares of
the Company’s stock to reduce TheCoca-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 TheCoca-Cola Company; (4) and certain rights of TheCoca-Cola Company regarding the election of a designee on the Company’s Board of Directors. The Amended Rights and Restrictions Agreement also provides TheCoca-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 to 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 the shares of restricted stock
vestwere 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
doesdid not entitle Mr. Harrison, III to participate in dividend or voting rights until each installment
hashad vested and the shares
arewere issued.
On February 23, 2005, The restricted stock award expired at the end of fiscal 2008. Each annual 20,000 share tranche had an independent performance requirement as it was not established until the Company’s Annual Bonus Plan targets were approved each year by the Company’s Board of Directors. As a result, each 20,000 share tranche was 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, were approved by the Compensation Committee of the Board of Directors in the first quarter of each year. The Company reimbursed Mr. Harrison, III, for income taxes to be paid on the shares if the performance requirement was met and the shares issued. The Company accrued the estimated cost of the income tax reimbursement over the one-year service period.
On February 27, 2008, the Compensation Committee of the Board of Directors determined that 20,000 shares of restricted Class B Common Stock vested and should be issued pursuant to the performance-based award discussed above, to Mr. Harrison, III in connection with his services as Chairman of the Board of Directors and Chief Executive Officer of the Company for the fiscal year ended January 2, 2005.December 30, 2007. On February 22, 2006,March 4, 2009, the Compensation Committee determined an additional 20,000 shares of restricted Class B Common Stock vested and should be issued to Mr. Harrison, III in connection with his services for the fiscal year ended January 1, 2006.December 28, 2008.
A summary of restricted stock awards is as follows:
| | | | | | | | | | | | | |
| | | | | | | Annual
|
| | | Shares
| | Grant-Date
| | Compensation
|
Year | | Awarded | | Price | | Expense |
| |
| 2007 | | | 20,000 | | | $ | 58.53 | | | $ | 1,170,600 | |
| 2008 | | | 20,000 | | | | 56.50 | | | | 1,130,000 | |
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
82
COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
share of the Company’s Class B Common Stock, subject to certain terms and conditions. The Company adopted StatementUnits will vest in annual increments over a ten-year period starting in fiscal year 2009. The number of Financial Accounting Standards (“SFAS”Units that vest each year will equal the product of 40,000 multiplied by the overall goal achievement factor (not to exceed 100%) No. 123 (revised 2004), “Share-Based Payment,” on January 2, 2006.under the Company’s Annual Bonus Plan. The Company applied the modified prospective transition method and prior periods were not restated. The Company’s only share based compensation isPerformance Unit Award Agreement replaced the restricted stock award to Mr. Harrison, III, as previously described. discussed.
Each annual
20,000 share40,000 unit 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 share40,000 unit 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 requirementrequirements for the restricted stock award in 2006, werePerformance Unit Award Agreement, are approved by the Compensation Committee of the Board of Directors in the first quarter of 2006 and the Company recorded the 20,000 share award at the grant-date price of $46.45 per share. Total stock compensation expense was $929,000 over the one-year service period (fiscal 2006) as the Company achieved at least 80% of the overall goal achievement factor in the Company’s Annual Bonus Plan. In addition, the Company reimburseseach year. The Performance Unit Award Agreement does not entitle Mr. Harrison, III for income taxes to be paid on the shares if the performance requirement is metparticipate in dividends or voting rights until each installment has vested and the shares are issued. The Company accrues the estimated cost of the incomeMr. Harrison, III may satisfy tax reimbursement over the one-year service period.
Prior to the adoption of this statement,withholding requirements in whole or in part by requiring the Company accrued compensationto settle in cash such number of Units otherwise payable in Class B Common Stock to meet the maximum statutory tax withholding requirements.
Compensation expense
overfor the
course of the one-year service period with the full year expensePerformance Unit Award Agreement recognized in 2009 was $2.2 million, which was based upon
the enda share price of
the period stock price.COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table illustrates the effect$54.02 on reported net income and earnings per share for 2005 and 2004 had the Company accounted for the stock grant using the fair value method in SFAS No. 123:
| | | | | | | | |
| | | Fiscal Year | |
| | | 2005 | | | 2004 | |
| In Thousands (Except Per Share Data) | | | | | | |
Net income as reported | | $ | 22,951 | | | $ | 21,848 | |
Add: Restricted stock grant expense, net of tax | | | 891 | | | | 1,194 | |
Less: Restricted stock grant expense under SFAS No. 123, net of tax | | | (1,104 | ) | | | (1,087 | ) |
| | | | | | | | |
Net income—pro forma | | $ | 22,738 | | | $ | 21,955 | |
| | | | | | | | |
Net income per share: | | | | | | | | |
Common Stock: | | | | | | | | |
Basic—as reported | | $ | 2.53 | | | $ | 2.41 | |
| | | | | | | | |
Basic—pro forma | | $ | 2.50 | | | $ | 2.42 | |
| | | | | | | | |
Diluted—as reported | | $ | 2.53 | | | $ | 2.41 | |
| | | | | | | | |
Diluted—pro forma | | $ | 2.50 | | | $ | 2.42 | |
| | | | | | | | |
Class B Common Stock: | | | | | | | | |
Basic—as reported | | $ | 2.53 | | | $ | 2.41 | |
| | | | | | | | |
Basic—pro forma | | $ | 2.50 | | | $ | 2.42 | |
| | | | | | | | |
Diluted—as reported | | $ | 2.53 | | | $ | 2.41 | |
| | | | | | | | |
Diluted—pro forma | | $ | 2.49 | | | $ | 2.41 | |
| | | | | | | | |
December 31, 2009.
The increase in the number of shares of Class B Common Stock outstanding in 20062009 was due to the issuance of 20,000 shares of Class B Common Stock related to the restricted stock award in 2006 reduced by the conversion of 100 shares of Class B Common Stock into 100 shares of Common Stock.award. The increase in the number of shares of Class B Common Stock outstanding in 20052008 was due to the issuance of 20,000 shares of Class B Common Stock related to the restricted stock award in 2005 reduced byaward.
On February 19, 2009, TheCoca-Cola Company converted all of its 497,670 shares of the
conversion of 500 shares ofCompany’s Class B Common Stock into
500an equivalent number of shares of
the Common
Stock.Stock of the Company.
| |
COCA-COLA BOTTLING CO. CONSOLIDATEDNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17. | Benefit Plans |
Benefit PlansRecently Adopted Pronouncement
In September 2006, the FASB issued new guidance on employers’ accounting for defined pension and other postretirement plans, which was effective for the year ended December 31, 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, which was effective for the year ended December 28, 2008. The Company adopted
SFAS No. 158, “Employers’ Accounting for Defined Benefit Pensionthe measurement date provisions of this new guidance on the first day of the first quarter of 2008 and
Other Postretirement Plans,” (“SFAS No. 158”) atused the
end of fiscal 2006. The Company applied the modified prospective transition method and prior periods were not restated.“one measurement” approach. The incremental effect of applying
SFAS No. 158 inthe measurement date provisions on the balance sheet
asin the first quarter of
December 31, 20062008 was as follows:
| | | | | | | | | | | | | | | | | | | | |
| | | Prior to
Recording
Minimum Pension Liability
Adjustment | | | Minimum
Pension
Liability
Adjustment | | | Before
Application
of SFAS No. 158 | | | Adjustments | | | After
Application
of SFAS No. 158 | |
| In Thousands | | | | | | | | | | | | | | | |
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 | |
| | | | | | | | | | | | | |
| | | Before
| | | | | | After
| |
| | | Remeasurement
| | | | | | Remeasurment
| |
In thousands | | Adjustment | | | Adjustment | | | Adjustment | |
| |
| 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 equity | | | 168,509 | | | | (267 | ) | | | 168,242 | |
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
83
COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, “Employers’ Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits (as amended).” The curtailment resulted in a reduction of the Company’s projected benefit obligation which was offset against the Company’s unrecognized net loss. The impacts of the curtailment on net income and the effect on net periodic pension expense prior to the effective date of June 30, 2006 were immaterial. Net periodic pension expense was reduced beginning in the third quarter of 2006 as the Company no longer accrues current service cost for the principal Company-sponsored pension plan.
COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following tables set forth pertinent information for the two Company-sponsored pension plans:
Changes in Projected Benefit Obligation | | | | | | | | |
| | | Fiscal Year | |
| | | 2006 | | | 2005 | |
| In Thousands | | | | | | |
Projected benefit obligation at beginning of year | | $ | 200,093 | | | $ | 170,800 | |
Service cost | | | 5,386 | | | | 6,987 | |
Interest cost | | | 10,377 | | | | 10,115 | |
Actuarial loss | | | 2,931 | | | | 17,001 | |
Benefits paid | | | (4,981 | ) | | | (4,810 | ) |
Change in plan provisions | | | (28,002 | ) | | | — | |
| | | | | | | | |
Projected benefit obligation at end of year | | $ | 185,804 | | | $ | 200,093 | |
| | | | | | | | |
| | | | | | | | | |
| | | Fiscal Year | |
In thousands | | 2009 | | | 2008 | |
| |
| Projected benefit obligation at beginning of year | | $ | 188,983 | | | $ | 175,592 | |
| Service cost(1) | | | 71 | | | | 89 | |
| Interest cost(1) | | | 11,136 | | | | 11,706 | |
| Actuarial (gain) loss(1) | | | (255 | ) | | | 8,292 | |
| Benefits paid(1) | | | (6,352 | ) | | | (6,696 | ) |
| | | | | | | | | |
| Projected benefit obligation at end of year | | $ | 193,583 | | | $ | 188,983 | |
| | | | | | | | | |
| | |
| (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 gain of $26.5 million in 2009 primarily due to an increase in the fair market value of the plan assets in 2009. The gain of $26.5 million consists of both an experience gain and the net amortization of previously existing losses during 2009. The actuarial gain, net of tax, was recorded in other comprehensive income. The Company recognized an actuarial loss of $72.6 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 also recorded in other comprehensive income.
The projected benefit obligations and accumulated benefit obligations for both of the Company’s pension plans were in excess of plan assets at
January 3, 2010 and December
31, 2006 and January 1, 2006.28, 2008. The accumulated benefit obligation was
$185.8$193.6 million and
$173.8$189.0 million at
January 3, 2010 and December
31, 2006 and January 1, 2006,28, 2008, respectively.
Change in Plan Assets
| | | | | | | | | |
In thousands | | 2009 | | | 2008 | |
| |
| Fair value of plan assets at beginning of year | | $ | 116,519 | | | $ | 173,099 | |
| Actual return on plan assets(1) | | | 26,297 | | | | (50,034 | ) |
| Employer contributions(1) | | | 10,100 | | | | 150 | |
| Benefits paid(1) | | | (6,352 | ) | | | (6,696 | ) |
| | | | | | | | | |
| Fair value of plan assets at end of year | | $ | 146,564 | | | $ | 116,519 | |
| | | | | | | | | |
| | |
| (1) | | 2008 amounts are for the 13 month period from the 2007 measurement date (November 30) to the 2008 year-end. |
84
| | | | | | | | |
| | | 2006 | | | 2005 | |
| In Thousands | | | | | | |
Fair value of plan assets at beginning of year | | $ | 150,400 | | | $ | 135,843 | |
Actual return on plan assets | | | 17,839 | | | | 11,367 | |
Employer contributions | | | 550 | | | | 8,000 | |
Benefits paid | | | (4,981 | ) | | | (4,810 | ) |
| | | | | | | | |
Fair value of plan assets at end of year | | $ | 163,808 | | | $ | 150,400 | |
| | | | | | | | |
Funded Status
| | | | | | | | |
| | | Dec. 31, 2006 | | | Jan. 1, 2006 | |
| In Thousands | | | | | | |
Funded status of the plans | | | (1) | | | $ | (49,694 | ) |
Unrecognized prior service cost | | | (1) | | | | 75 | |
Unrecognized net loss | | | (1) | | | | 76,134 | |
Projected benefit obligation | | $ | (185,804 | ) | | | (1) | |
Plan assets at fair value | | | 163,808 | | | | (1) | |
| | | | | | | | |
Net funded status | | $ | (21,996) | | | $ | 26,515 | |
| | | | | | | | |
COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Funded Status
| | | | | | | | | |
| | | Jan. 3,
| | | Dec. 28,
| |
In thousands | | 2010 | | | 2008 | |
| |
| Projected benefit obligation | | $ | (193,583 | ) | | $ | (188,983 | ) |
| Plan assets at fair value | | | 146,564 | | | | 116,519 | |
| | | | | | | | | |
| Net funded status | | $ | (47,019 | ) | | $ | (72,464 | ) |
| | | | | | | | | |
Amounts Recognized in the Consolidated Balance SheetSheets | | | | | | | | |
| | | Dec. 31, 2006 | | | Jan. 1, 2006 | |
| In Thousands | | | | | | |
Accrued benefit liability | | $ | (1) | | | $ | (23,422 | ) |
Intangible asset | | | (1) | | | | 75 | |
Accumulated other comprehensive income | | | (1) | | | | 49,862 | (2) |
Current liabilities | | | (550) | | | | (1) | |
Noncurrent liabilities | | | (21,446) | | | | (1) | |
| | | | | | | | |
Net amount recognized | | $ | (21,996) | | | $ | 26,515 | |
| | | | | | | | |
(1)
| These disclosures are not applicable since SFAS No. 158 was effective at the end of fiscal 2006.
|
(2)
| Gross accumulated other comprehensive loss, net of tax effect of $19,746, was reflected in accumulated other comprehensive loss.
|
| | | | | | | | | |
| | | Jan. 3,
| | | Dec. 28,
| |
In thousands | | 2010 | | | 2008 | |
| |
| Current liabilities | | $ | — | | | $ | — | |
| Noncurrent liabilities | | | (47,019 | ) | | | (72,464 | ) |
| | | | | | | | | |
| Net amount recognized | | $ | (47,019 | ) | | $ | (72,464 | ) |
| | | | | | | | | |
Net Periodic Pension Cost | | | | | | | | | | | | |
| | | Fiscal Year | |
| | | 2006 | | | 2005 | | | 2004 | |
| In Thousands | | | | | | | | | |
Service cost | | $ | 5,386 | | | $ | 6,987 | | | $ | 5,908 | |
Interest cost | | | 10,377 | | | | 10,115 | | | | 9,062 | |
Expected return on plan assets | | | (12,106 | ) | | | (10,689 | ) | | | (9,306 | ) |
Amortization of prior service cost | | | 24 | | | | 24 | | | | 20 | |
Recognized net actuarial loss | | | 4,444 | | | | 5,341 | | | | 4,840 | |
| | | | | | | | | | | | |
Net periodic pension cost | | $ | 8,125 | | | $ | 11,778 | | | $ | 10,524 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | Fiscal Year | |
In thousands | | 2009 | | | 2008 | | | 2007 | |
| |
| Service cost | | $ | 71 | | | $ | 82 | | | $ | 78 | |
| Interest cost | | | 11,136 | | | | 10,806 | | | | 10,536 | |
| Expected return on plan assets | | | (9,342 | ) | | | (13,641 | ) | | | (12,899 | ) |
| Amortization of prior service cost | | | 13 | | | | 16 | | | | 24 | |
| Recognized net actuarial loss | | | 9,327 | | | | 444 | | | | 2,490 | |
| | | | | | | | | | | | | |
| Net periodic pension cost (income) | | $ | 11,205 | | | $ | (2,293 | ) | | $ | 229 | |
| | | | | | | | | | | | | |
Significant Assumptions Used
| | | | | | | | | | | | | |
| | | 2009 | | | 2008 | | | 2007 | |
| |
| Projected benefit obligation at the measurement date: | | | | | | | | | | | | |
| Discount rate | | | 6.00 | % | | | 6.00 | % | | | 6.25 | % |
| Weighted average rate of compensation increase | | | N/A | | | | N/A | | | | N/A | |
| Net periodic pension cost for the fiscal year: | | | | | | | | | | | | |
| Discount rate | | | 6.00 | % | | | 6.25 | % | | | 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 | | | | N/A | |
85
| | | | | | |
| | | 2006 | | 2005 | | 2004 |
Projected benefit obligation at the measurement date: | | | | | | |
Discount rate | | 5.75% | | 5.75% | | 6.00% |
Weighted average rate of compensation increase | | 4.00% | | 4.00% | | 4.00% |
Net periodic pension cost for the fiscal year: | | | | | | |
Discount rate | | 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 |
The Company anticipates changing the measurement date to its fiscal year end date in fiscal 2008.
COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Cash Flows | | | |
| In Thousands | | |
| |
Anticipated future pension benefit payments reflecting expected future service for the fiscal years: | | | |
2007 | | $ | 5,148 |
2008 | | | 5,570 |
2009 | | | 5,917 |
2010 | | | 6,560 |
2011 | | | 7,143 |
2012—2016 | | | 46,931 |
There is no minimum actuarial required contribution
| | | | | |
In thousands | | | |
| |
| Anticipated future pension benefit payments for the fiscal years: | | | | |
| 2010 | | $ | 6,498 | |
| 2011 | | | 6,763 | |
| 2012 | | | 7,159 | |
| 2013 | | | 7,626 | |
| 2014 | | | 8,046 | |
| 2015 – 2019 | | | 45,541 | |
Anticipated contributions for the two Company-sponsored pension plans
will be in
2007.the range of $5 million to $7 million in 2010.
The Company’s pension plans target asset allocation for
2007,2010, actual asset allocation at
January 3, 2010 and December
31, 2006 and January 1, 200628, 2008 and the expected weighted average long-term rate of return by asset category were as follows:
| | | | | | | | | | | | |
| | | Target
Allocation 2007 | | | Percentage of Plan
Assets at Fiscal Year-End | | | Weighted Average
Expected Long-Term Rate of Return—2006 | |
| | | | 2006 | | | 2005 | | |
U.S. large capitalization equity securities | | 40 | % | | 47 | % | | 46 | % | | 4.0 | % |
U.S. small/mid-capitalization equity securities | | 10 | % | | 5 | % | | 5 | % | | .5 | % |
International equity securities | | 15 | % | | 15 | % | | 15 | % | | 1.5 | % |
Debt securities | | 35 | % | | 33 | % | | 34 | % | | 2.0 | % |
| | | | | | | | | | | | |
Total | | 100 | % | | 100 | % | | 100 | % | | 8.0 | % |
| | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | Weighted
| |
| | | | | | | | | | | | Average
| |
| | | | | | | | | | | | Expected
| |
| | | Target
| | | Percentage of Plan
| | | Long-Term
| |
| | | Allocation
| | | Assets at Fiscal Year-End | | | Rate of
| |
| | | 2010 | | | 2009 | | | 2008 | | | Return - 2009 | |
| |
| U.S. large capitalization equity securities | | | 40 | % | | | 41 | % | | | 42 | % | | | 3.9 | % |
| U.S. small/mid-capitalization equity securities | | | 10 | % | | | 4 | % | | | 4 | % | | | .4 | % |
| International equity securities | | | 15 | % | | | 11 | % | | | 12 | % | | | 1.1 | % |
| Debt securities | | | 35 | % | | | 44 | % | | | 42 | % | | | 2.6 | % |
| | | | | | | | | | | | | | | | | |
| 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
67%56% of its plan investments in equity securities and
33%44% in debt securities.
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
December 31, 2006January 3, 2010 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
20062009 and
2005.2008. 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
COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
86
COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes the Company’s pension plan assets measured at fair value on a recurring basis (at least annually) at January 3, 2010:
| | | | | | | | | | | | | |
| | | Quoted Prices
| | | | | | | |
| | | in Active
| | | | | | | |
| | | Market for
| | | Significant Other
| | | | |
| | | Identical Assets
| | | Observable Input
| | | | |
In thousands | | (Level 1) | | | (Level 2) | | | Total | |
| |
| Cash equivalents(1) | | | | | | | | | | | | |
| Common/collective trust funds | | $ | — | | | $ | 323 | | | $ | 323 | |
| Equity securities(2) | | | | | | | | | | | | |
| U.S. large capitalization | | | 19,387 | | | | — | | | | 19,387 | |
| U.S. mid-capitalization | | | 4,174 | | | | — | | | | 4,174 | |
| International | | | 101 | | | | — | | | | 101 | |
| Common/collective trust funds(3) | | | | | | | 58,500 | | | | 58,500 | |
| Other | | | 726 | | | | — | | | | 726 | |
| Fixed income | | | | | | | | | | | | |
| Common/collective trust funds(3) | | | — | | | | 63,353 | | | | 63,353 | |
| | | | | | | | | | | | | |
| Total | | $ | 24,388 | | | $ | 122,176 | | | $ | 146,564 | |
| | | | | | | | | | | | | |
| | |
| (1) | | Cash equivalents are valued at $100/unit which approximates fair value. |
|
| (2) | | Equity securities other than common/collective trust funds consist primarily of common stock. Investments in common stocks are valued using quoted market prices multiplied by the number of shares owned. |
|
| (3) | | The underlying investments held in common/collective trust funds are actively managed equity securities and fixed income investment vehicles that are valued at the net asset value per share multiplied by the number of shares held as of the measurement date. |
The Company
also participates in various multi-employerdoes not have any unobservable inputs (Level 3) pension
plans covering certain employees who are part of collective bargaining agreements. Total pension expense for multi-employer plans in 2006, 2005 and 2004 was $1.4 million, $1.4 million and $1.3 million, respectively.plan assets.
The Company provides a 401(k) Savings Plan for substantially all of its employees who are not part of collective bargaining agreements.
Under provisionsThe Company suspended matching contributions to its 401(k) Savings Plan effective April 1, 2009. The Company maintained the option to match its employees’ 401(k) Savings Plan contributions based on the financial results for 2009. In the third quarter of
2009, the Company decided to match the first 5% of its employees’ contributions for the period of April 1, 2009 through August 31, 2009. The Company paid $3.6 million to the 401(k) Savings Plan
an employee is vested with respectfor the five month period in the fourth quarter of 2009. In the fourth quarter of 2009, the Company decided to
match the first 5% of its employees’ contributions from September 1, 2009 to the end of the fiscal year. The Company
contributions uponaccrued $2.9 million in the
completion of two years of service with the Company.fourth quarter for this payment. The total costs for this benefit
in 2006, 2005 and 2004 were
$4.7$8.6 million,
$4.6$10.0 million and
$4.3$8.5 million
in 2009, 2008 and 2007, respectively.
In 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 to increase the Company’s matching contribution under the 401(k) Savings Plan effective January 1, 2007. The amendment to the 401(k) Savings Plan will provide for fully vested matching contributions equal to one hundred percent of a participant’s elective deferrals to the 401(k) Savings Plan up to a maximum of 5% of a participant’s eligible compensation.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.
87
In October 2005, the Company changed certain provisions of its postretirement health care plan that reduced future benefit obligations to eligible participants. Subsequent to these changes, the Company’s expense and liability related to its postretirement health care plan was reduced.
COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 | |
| | | 2006 | | | 2005 | |
| In Thousands | | | | | | |
Benefit obligation at beginning of year | | $ | 41,718 | | | $ | 53,356 | |
Service cost | | | 332 | | | | 689 | |
Interest cost | | | 2,227 | | | | 3,125 | |
Plan participants’ contributions | | | 595 | | | | 789 | |
Actuarial loss (gain) | | | (2,218 | ) | | | 5,428 | |
Benefits paid | | | (3,002 | ) | | | (3,514 | ) |
Change in plan provisions | | | — | | | | (18,155 | ) |
Medicare Part D subsidy reimbursement | | | 72 | | | | — | |
| | | | | | | | |
Benefit obligation at end of year | | $ | 39,724 | | | $ | 41,718 | |
| | | | | | | | |
Fair value of plan assets at beginning of year | | $ | — | | | $ | — | |
Employer contributions | | | 2,335 | | | | 2,725 | |
Plan participants’ contributions | | | 595 | | | | 789 | |
Benefits paid | | | (3,002 | ) | | | (3,514 | ) |
Medicare Part D subsidy reimbursement | | | 72 | | | | — | |
| | | | | | | | |
Fair value of plan assets at end of year | | $ | — | | | $ | — | |
| | | | | | | | |
| | | | | | | | |
| | | Dec. 31, 2006 | | | Jan. 1, 2006 | |
| In Thousands | | | | | | |
Funded status of the plan | | | (1 | ) | | $ | (41,718 | ) |
Unrecognized net loss | | | (1 | ) | | | 25,855 | |
Unrecognized prior service cost and transition obligation | | | (1 | ) | | | (19,932 | ) |
Contributions between measurement date and fiscal year-end | | $ | 635 | | | | 818 | |
Benefit obligation | | | (39,724 | ) | | | (1 | ) |
| | | | | | | | |
Accrued liability | | $ | (39,089 | ) | | $ | (34,977 | ) |
| | | | | | | | |
Plan assets at fair value | | $ | — | | | $ | — | |
Accrued liability at beginning of year | | | (1 | ) | | | (33,215 | ) |
Contribution during the year | | | (1 | ) | | | 2,761 | |
Net periodic postretirement benefit cost | | | (1 | ) | | | (4,523 | ) |
Current liabilities | | | (2,778 | ) | | | (1 | ) |
Noncurrent liabilities | | | (36,311 | ) | | | (1 | ) |
| | | | | | | | |
Accrued liability at end of year | | $ | (39,089 | ) | | $ | (34,977 | ) |
| | | | | | | | |
| | | | | | | | | |
| | | Fiscal Year | |
In thousands | | 2009 | | | 2008 | |
| |
| Benefit obligation at beginning of year | | $ | 36,832 | | | $ | 35,437 | |
| Service cost(1) | | | 617 | | | | 638 | |
| Interest cost(1) | | | 2,295 | | | | 2,681 | |
| Plan participants’ contributions(1) | | | 537 | | | | 675 | |
| Actuarial loss (gain)(1) | | | 7,384 | | | | 678 | |
| Benefits paid(1) | | | (2,957 | ) | | | (3,368 | ) |
| Medicare Part D subsidy reimbursement | | | 103 | | | | 91 | |
| | | | | | | | | |
| Benefit obligation at end of year | | $ | 44,811 | | | $ | 36,832 | |
| | | | | | | | | |
| Fair value of plan assets at beginning of year | | $ | — | | | $ | — | |
| Employer contributions(1) | | | 2,317 | | | | 2,602 | |
| Plan participants’ contributions(1) | | | 537 | | | | 675 | |
| Benefits paid(1) | | | (2,957 | ) | | | (3,368 | ) |
| Medicare Part D subsidy reimbursement | | | 103 | | | | 91 | |
| | | | | | | | | |
| Fair value of plan assets at end of year | | $ | — | | | $ | — | |
| | | | | | | | | |
(1)
| These disclosures
| |
| (1) | | 2008 amounts are not applicable since SFAS No. 158 was effective atfor the end of fiscal 2006.15 month period from the 2007 measurement date (September 30) to the 2008 year-end. |
COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| | | | | | | | | |
| | | Jan. 3,
| | | Dec. 28,
| |
In thousands | | 2010 | | | 2008 | |
| |
| Current liabilities | | $ | (2,524 | ) | | $ | (2,291 | ) |
| Noncurrent liabilities | | | (42,287 | ) | | | (34,541 | ) |
| | | | | | | | | |
| Accrued liability at end of year | | $ | (44,811 | ) | | $ | (36,832 | ) |
| | | | | | | | | |
The components of net periodic postretirement benefit cost were as follows:
| | | | | | | | | | | | | |
| | | Fiscal Year | |
In thousands | | 2009 | | | 2008 | | | 2007 | |
| |
| Service cost | | $ | 617 | | | $ | 511 | | | $ | 425 | |
| Interest cost | | | 2,295 | | | | 2,145 | | | | 2,209 | |
| Amortization of unrecognized transitional assets | | | (25 | ) | | | (25 | ) | | | (25 | ) |
| Recognized net actuarial loss | | | 1,043 | | | | 916 | | | | 1,220 | |
| Amortization of prior service cost | | | (1,784 | ) | | | (1,784 | ) | | | (1,784 | ) |
| | | | | | | | | | | | | |
| Net periodic postretirement benefit cost | | $ | 2,146 | | | $ | 1,763 | | | $ | 2,045 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Significant Assumptions Used | | 2009 | | 2008 | | 2007 |
| |
| Benefit obligation at the measurement date: | | | | | | | | | | | | |
| Discount rate | | | 5.75 | % | | | 6.25 | % | | | 6.25 | % |
| Net periodic postretirement benefit cost for the fiscal year: | | | | | | | | | | | | |
| Discount rate | | | 6.25 | % | | | 6.25 | % | | | 5.75 | % |
88
| | | | | | | | | | | | |
| | | Fiscal Year | |
| | | 2006 | | | 2005 | | | 2004 | |
| In Thousands | | | | | | | | | |
Service cost | | $ | 332 | | | $ | 689 | | | $ | 549 | |
Interest cost | | | 2,227 | | | | 3,125 | | | | 2,819 | |
Amortization of unrecognized transitional assets | | | (25 | ) | | | (25 | ) | | | (25 | ) |
Recognized net actuarial loss | | | 1,355 | | | | 1,006 | | | | 827 | |
Amortization of prior service cost | | | (1,784 | ) | | | (272 | ) | | | (272 | ) |
| | | | | | | | | | | | |
Net periodic postretirement benefit cost | | $ | 2,105 | | | $ | 4,523 | | | $ | 3,898 | |
| | | | | | | | | | | | |
| | | | | | | | | |
| | | 2006 | | | 2005 | | | 2004 | |
| Significant Assumptions Used | | | | | | | | | |
Benefit obligation at the measurement date: | | | | | | | | | |
Discount rate | | 5.75 | % | | 5.50 | % | | 6.00 | % |
Net periodic postretirement benefit cost for the fiscal year: | | | | | | | | | |
Discount rate | | 5.50 | % | | 6.00 | % | | 6.00 | % |
| | | |
Measurement date | | Sept. 30 | | | Sept. 30 | | | Sept. 30 | |
The Company anticipates changing the measurement date to its fiscal year end date in fiscal 2008.
COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The weighted average health care cost trend used in measuring the postretirement benefit expense in
20062009 was 9% graded down to an ultimate rate of 5% by
2011.2013. 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
2010.2012. 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
2009.2011.
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 31, 2006 | | $ | 4,423 | | $ | (3,797 | ) |
Service cost and interest cost in 2006 | | | 342 | | | (305 | ) |
| | | | | | | | | |
In thousands | | 1% Increase | | 1% Decrease |
| |
| Increase (decrease) in: | | | | | | | | |
| Postretirement benefit obligation at January 3, 2010 | | $ | 3,983 | | | $ | (3,473 | ) |
| Service cost and interest cost in 2009 | | | 353 | | | | (307 | ) |
Cash Flows | | | |
| In Thousands | | |
Anticipated future postretirement benefit payments reflecting expected future service for the fiscal years: |
2007 | | $ | 2,627 |
2008 | | | 2,753 |
2009 | | | 2,862 |
2010 | | | 2,931 |
2011 | | | 2,977 |
2012—2016 | | | 15,175 |
COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| | | | | |
In thousands | | |
| Anticipated future postretirement benefit payments reflecting expected future service for the fiscal years: | | | | |
| 2010 | | $ | 2,524 | |
| 2011 | | | 2,663 | |
| 2012 | | | 2,783 | |
| 2013 | | | 2,846 | |
| 2014 | | | 3,025 | |
| 2015 — 2019 | | | 16,091 | |
Anticipated future postretirement benefit payments are shown net of Medicare Part D subsidy reimbursements, which are not material.
The amounts in accumulated other comprehensive income that have not yet been recognized as components of net periodic benefit cost at December 31, 200628, 2008, the activity during 2009, and the balances at January 3, 2010 are as follows:
| | | | | | | | | | | | | | | | | |
| | | Dec. 28,
| | | Actuarial
| | | Reclassification
| | | Jan. 3,
| |
In thousands | | 2008 | | | Gain (Loss) | | | Adjustments | | | 2010 | |
| |
| Pension Plans: | | | | | | | | | | | | | | | | |
| Actuarial loss | | $ | (93,735 | ) | | $ | 17,210 | | | $ | 9,326 | | | $ | (67,199 | ) |
| Prior service cost (credit) | | | (73 | ) | | | — | | | | 12 | | | | (61 | ) |
| Postretirement Medical: | | | | | | | | | | | | | | | | |
| Actuarial loss | | | (15,891 | ) | | | (7,384 | ) | | | 1,043 | | | | (22,232 | ) |
| Prior service cost (credit) | | | 13,985 | | | | — | | | | (1,784 | ) | | | 12,201 | |
| Transition asset | | | 67 | | | | — | | | | (24 | ) | | | 43 | |
| | | | | | | | | | | | | | | | | |
| | | $ | (95,647 | ) | | $ | 9,826 | | | $ | 8,573 | | | $ | (77,248 | ) |
| | | | | | | | | | | | | | | | | |
89
| | | | | | | | | | | |
| | | Pension
Plans | | Postretirement
Medical | | | Total | |
| In Thousands | | | | | | | | |
Actuarial loss | | $ | 40,885 | | $ | 22,282 | | | $ | 63,167 | |
Prior service cost (credit) | | | 51 | | | (18,000 | ) | | | (17,949 | ) |
Transitional asset | | | — | | | (123 | ) | | | (123 | ) |
| | | | | | | | | | | |
| | $ | 40,936 | | $ | 4,159 | | | $ | 45,095 | |
| | | | | | | | | | | |
COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The amounts of accumulated other comprehensive income that are expected to be recognized as components of net periodic cost during
20072010 are as follows:
| | | | | | | | | | | |
| | | Pension
Plans | | Postretirement
Medical | | | Total | |
| In Thousands | | | | | | | | |
Actuarial loss | | $ | 2,490 | | $ | 1,221 | | | $ | 3,711 | |
Prior service cost (credit) | | | 24 | | | (1,784 | ) | | | (1,760 | ) |
Transitional asset | | | — | | | (25 | ) | | | (25 | ) |
| | | | | | | | | | | |
| | $ | 2,514 | | $ | (588 | ) | | $ | 1,926 | |
| | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | Pension
| | | Postretirement
| | | | |
In thousands | | Plans | | | Medical | | | Total | |
| |
| Actuarial loss | | $ | 5,980 | | | $ | 1,365 | | | $ | 7,345 | |
| Prior service cost (credit) | | | 12 | | | | (1,784 | ) | | | (1,772 | ) |
| Transitional asset | | | — | | | | (25 | ) | | | (25 | ) |
| | | | | | | | | | | | | |
| | | $ | 5,992 | | | $ | (444 | ) | | $ | 5,548 | |
| | | | | | | | | | | | | |
18. Related Party TransactionsMulti-Employer BenefitsThe 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 2009, 2008 and 2007 was $.5 million, $1.0 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 of 7%, that will be paid to the Central States and had been recorded in other liabilities. The Company will pay approximately $1 million annually over the next 19 years. The Company will also make future contributions on behalf of these employees to 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 December 31, 2006,January 3, 2010, 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.
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.
90
COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes the significant transactions between the Company and The
Coca-Cola Company:
| | | | | | | | | |
| | | Fiscal Year |
| | | 2006 | | 2005 | | 2004 |
| In Millions | | | | | | |
Payments by the Company for concentrate, syrup, sweetener and other purchases | | $ | 341.7 | | $ | 333.4 | | $ | 287.2 |
Less: marketing funding support payments to the Company | | | 22.9 | | | 19.6 | | | 31.3 |
| | | | | | | | | |
Payments by the Company net of marketing funding support | | $ | 318.8 | | $ | 313.8 | | $ | 255.9 |
| | | |
Payments by the Company for customer marketing programs | | $ | 46.6 | | $ | 45.2 | | $ | 39.3 |
Payments by the Company for cold drink equipment parts | | | 6.0 | | | 3.8 | | | 4.0 |
Fountain delivery and equipment repair fees paid to the Company | | | 8.8 | | | 8.1 | | | 7.6 |
Presence marketing support provided by The Coca-Cola Company on the Company’s behalf | | | 4.2 | | | 6.4 | | | 6.3 |
Sale of energy products to The Coca-Cola Company | | | 40.9 | | | 27.9 | | | .6 |
COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 in 2005.
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 | | 2009 | | | 2008 | | | 2007 | |
| |
| Payments by the Company for concentrate, syrup, sweetener and other purchases | | $ | 361.7 | | | $ | 363.3 | | | $ | 334.9 | |
| Marketing funding support payments to the Company | | | 46.0 | | | | 42.9 | | | | 38.1 | |
| | | | | | | | | | | | | |
| Payments by the Company net of marketing funding support | | $ | 315.7 | | | $ | 320.4 | | | $ | 296.8 | |
| Payments by the Company for customer marketing programs | | $ | 52.0 | | | $ | 48.6 | | | $ | 44.2 | |
| Payments by the Company for cold drink equipment parts | | | 7.2 | | | | 7.1 | | | | 5.7 | |
| Fountain delivery and equipment repair fees paid to the Company | | | 11.2 | | | | 10.4 | | | | 9.3 | |
Presence marketing support provided by TheCoca-Cola Company on the Company’s behalf | | | 4.5 | | | | 4.0 | | | | 4.3 | |
Payments to the Company to facilitate the distribution of certain brands and packages to otherCoca-Cola bottlers | | | 1.0 | | | | — | | | | — | |
Sales of finished products to TheCoca-Cola Company | | | 1.1 | | | | 6.3 | | | | 26.1 | |
The Company has a production arrangement with
CCECoca-Cola Enterprises Inc. (“CCE”) to buy and sell finished products at cost. Sales to CCE under this agreement were
$56.5$50.0 million,
$46.6$40.2 million and
$26.2$40.2 million in
2006, 20052009, 2008 and
2004,2007, respectively. Purchases from CCE under this arrangement were
$15.7$14.7 million,
$17.2$18.4 million and
$19.0$13.9 million in
2006, 20052009, 2008 and
2004,2007, respectively. The
Coca-Cola Company has significant equity interests in the Company and CCE. As of
December 31, 2006,January 3, 2010, CCE held
10.5%5.2% of the Company’s outstanding Common Stock but held no shares of the Company’s Class B Common
Stock, giving CCE a 7.6% 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 is a member in
Coca-Cola Bottlers’ Sales and Services Company, LLC (“CCBSS”), which was formed in 2003 for the purposes of facilitating various procurement functions and distributing certain specified beverage products of The
Coca-Cola Company with the intention of enhancing the efficiency and competitiveness of the
Coca-Cola bottling system in the United States. CCBSS
negotiatednegotiates the procurement for the majority of the Company’s raw materials (excluding concentrate)
in 2006, 2005 and 2004.. The Company paid $.3
million, $.2 million and $.4 million to CCBSS for its share of CCBSS’ administrative costs in
2006, 2005each of the years 2009, 2008 and
2004, respectively.2007. Amounts due from CCBSS for rebates on raw material purchases were
$2.9$3.9 million and
$2.5$4.1 million as of
January 3, 2010 and December
31, 2006 and January 1, 2006,28, 2008, 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 to Piedmont during 2006, 2005 and 2004 totaling $77.1 million, $65.9 million and $77.2 million, respectively. The Company received $21.7 million, $21.1 million and $20.8 million for management services pursuant to its management agreement with Piedmont for 2006, 2005 and 2004, respectively. The Company provides financing for Piedmont at the Company’s average cost of funds plus 0.50%. As of December 31, 2006, the Company had loaned $89.5 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 $8.0 million, $8.6 million and $8.7 million in 2006, 2005 and 2004, respectively. All significant intercompany accounts and transactions between the Company and Piedmont have been eliminated.The Company’s Snyder Production Center (“SPC”) in Charlotte, North Carolina, is leasedleases from Harrison Limited Partnership One (“HLP”) pursuantthe Snyder Production Center and an adjacent sales facility, which are located in Charlotte, North Carolina. The current lease originally was to a ten-year lease that expiresexpire on December 31, 2010. HLP’s sole limited partnerHLP 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.director of the Company, are trustees and beneficiaries. On March 23, 2009, the Company modified the lease agreement (new terms to begin January 1, 2011) with HLP related to the SPC lease. The modified lease would not have changed the classification of the existing lease had it been in effect in the first quarter of 2002, when the capital lease was recorded, as the Company received a renewal option to extend the term of the lease, which it expected to exercise. The modified lease did not extend the term of the existing lease (remaining lease term was reduced from approximately 22 years to approximately 12 years). Accordingly, the present value of the leased property under capital leases and capital lease obligations was adjusted by an amount equal to the difference between the future minimum lease payments under the modified lease agreement and the present value of the existing obligation on the modification date. The capital lease obligations and leased property under capital leases were both decreased by $7.5 million in March 2009. The annual base rent the Company is obligated to pay under the modified lease is subject to an adjustment for itsan inflation factor. The prior lease of this property isannual base rent was subject to adjustment for an
91
COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 in 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
December 31, 2006January 3, 2010 was
$39.1$28.9 million.
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 | |
| | | 2006 | | | 2005 | | | 2004 | |
| In Millions | | | | | | | | | |
Minimum rentals | | $ | 4.5 | | | $ | 4.3 | | | $ | 4.3 | |
Contingent rentals | | | (.5 | ) | | | (.9 | ) | | | (1.5 | ) |
| | | | | | | | | | | | |
Total rental payments | | $ | 4.0 | | | $ | 3.4 | | | $ | 2.8 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | Fiscal Year | |
In millions | | 2009 | | | 2008 | | | 2007 | |
| |
| Minimum rentals | | $ | 4.8 | | | $ | 4.7 | | | $ | 4.6 | |
| Contingent rentals | | | (1.4 | ) | | | (.9 | ) | | | (.4 | ) |
| | | | | | | | | | | | | |
| Total rental payments | | $ | 3.4 | | | $ | 3.8 | | | $ | 4.2 | |
| | | | | | | | | | | | | |
The contingent rentals in
2006, 20052009, 2008 and
20042007 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.
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 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 been 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 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
principal balance outstanding as of December 31, 2006 was $30.7 million. 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, 20073, 2010 was
$35.8$30.9 million. The annual base rent the Company is obligated to pay under the 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 adjusted Eurodollar Rate as the measurement device.
The minimum rentals and contingent rental payments that relate to this lease were as follows:
| | | | | | | | | | |
| | | Fiscal Year | |
| | | 2006 | | 2005 | | 2004 | |
| In Millions | | | | | | | |
Minimum rentals | | $ | 3.2 | | $ | 3.2 | | $ | 3.2 | |
Contingent rentals | | | .6 | | | .1 | | | (.3 | ) |
| | | | | | | | | | |
Total rental payments | | $ | 3.8 | | $ | 3.3 | | $ | 2.9 | |
| | | | | | | | | | |
| | | | | | | | | | | | | |
| | | Fiscal Year | |
In millions | | 2009 | | | 2008 | | | 2007 | |
| |
| Minimum rentals | | $ | 3.6 | | | $ | 3.5 | | | $ | 3.6 | |
| Contingent rentals | | | .1 | | | | .2 | | | | — | |
| | | | | | | | | | | | | |
| Total rental payments | | $ | 3.7 | | | $ | 3.7 | | | $ | 3.6 | |
| | | | | | | | | | | | | |
The contingent rentals in
20062009 and
2005 that relate to this lease increase minimum rentals as2008 are a result of changes
in the Consumer Price Index partially offset by decreases in interest rates. The contingent rentals in 2004 reduce minimum rentals as 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.COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 $70.0$68.3 million, $72.7 million and $69.2 million in 2009, 2008 and $59.3 million in 2006, 2005 and 2004,2007, 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 $23.2$18.7 million as of December 31, 2006. Additionally, theJanuary 3, 2010. The Company has not recorded a capitalany liability associated with this guarantee and holds no assets as collateral against this guarantee. The
92
COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Company’s equity investment
of $2.3 million in one of these
cooperativesentities, Southeastern, was $13.2 million and $11.0 million as of
January 3, 2010 and December
31, 2006.28, 2008, respectively.
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
$133$131 million,
$127$142 million and
$108$149 million in
2006, 20052009, 2008 and
2004,2007, respectively. The Company manages the operations of SAC pursuant to a management agreement. Management fees earned from SAC were
$1.6$1.2 million,
$1.5$1.4 million and
$1.6$1.4 million in
2006, 20052009, 2008 and
2004,2007, respectively. The Company has also guaranteed a portion of debt for SAC. Such guarantee was
$19.7$11.8 million as of
December 31, 2006.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, and 2004 related to the consulting agreement totaled $145,833 and $350,000, respectively.
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 received $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.January 3, 2010. The Company agreed to waive the 50% reductionhas not recorded any liability associated with this guarantee and holds no assets as collateral against this guarantee. The Company’s equity investment in Mr. Singer’s accrued benefits under the Company’s Officer Retention Plan due to the terminationSAC was $5.6 million and $4.1 million as 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.
19. Net Sales by Product Category
January 3, 2010 and December 28, 2008, respectively.
| |
| 19. | Net Sales by Product Category |
Net sales by product category were as follows:
| | | | | | | | | | | | | |
| | | Fiscal Year | |
In thousands | | 2009 | | | 2008 | | | 2007 | |
| |
| Bottle/can sales: | | | | | | | | | | | | |
| Sparkling beverages (including energy products) | | $ | 1,006,356 | | | $ | 1,011,656 | | | $ | 1,007,583 | |
| Still beverages | | | 206,691 | | | | 227,171 | | | | 201,952 | |
| | | | | | | | | | | | | |
| Total bottle/can sales | | | 1,213,047 | | | | 1,238,827 | | | | 1,209,535 | |
| | | | | | | | | | | | | |
| Other sales: | | | | | | | | | | | | |
Sales to otherCoca-Cola bottlers | | | 131,153 | | | | 128,651 | | | | 127,478 | |
| Post-mix and other | | | 98,786 | | | | 96,137 | | | | 98,986 | |
| | | | | | | | | | | | | |
| Total other sales | | | 229,939 | | | | 224,788 | | | | 226,464 | |
| | | | | | | | | | | | | |
| Total net sales | | $ | 1,442,986 | | | $ | 1,463,615 | | | $ | 1,435,999 | |
| | | | | | | | | | | | | |
Sparkling beverages are carbonated beverages and energy products while still beverages are noncarbonated beverages.
93
| | | | | | | | | |
| | | Fiscal Year |
| | | 2006 | | 2005 | | 2004 |
| In Thousands | | | | | | |
Product Category | | | | | | | | | |
Bottle/can sales: | | | | | | | | | |
Carbonated beverages (including energy products) | | $ | 1,021,508 | | $ | 1,004,664 | | $ | 971,719 |
Noncarbonated beverages | | | 182,124 | | | 167,715 | | | 150,199 |
| | | | | | | | | |
Total bottle/can sales | | | 1,203,632 | | | 1,172,379 | | | 1,121,918 |
| | | | | | | | | |
Other sales: | | | | | | | | | |
Sales to other bottlers | | | 152,426 | | | 134,656 | | | 73,805 |
Post-mix | | | 74,947 | | | 73,137 | | | 71,504 |
| | | | | | | | | |
Total other sales | | | 227,373 | | | 207,793 | | | 145,309 |
| | | | | | | | | |
Total net sales | | $ | 1,431,005 | | $ | 1,380,172 | | $ | 1,267,227 |
| | | | | | | | | |
COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS20. Net Income Per Share
The following table sets forth the computation of basic net income per share and diluted net income per share under the two-class method. 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) | | 2009 | | | 2008 | | | 2007 | |
| |
| Numerator for basic and diluted net income per Common Stock and Class B Common Stock share: | | | | | | | | | | | | |
Net income attributable toCoca-Cola Bottling Co. Consolidated | | $ | 38,136 | | | $ | 9,091 | | | $ | 19,856 | |
| Less dividends: | | | | | | | | | | | | |
| Common Stock | | | 7,070 | | | | 6,644 | | | | 6,644 | |
| Class B Common Stock | | | 2,092 | | | | 2,500 | | | | 2,480 | |
| | | | | | | | | | | | | |
| Total undistributed earnings | | $ | 28,974 | | | $ | (53 | ) | | $ | 10,732 | |
| | | | | | | | | | | | | |
| Common Stock undistributed earnings — basic | | $ | 22,360 | | | $ | (39 | ) | | $ | 7,815 | |
| Class B Common Stock undistributed earnings — basic | | | 6,614 | | | | (14 | ) | | | 2,917 | |
| | | | | | | | | | | | | |
| Total undistributed earnings | | $ | 28,974 | | | $ | (53 | ) | | $ | 10,732 | |
| | | | | | | | | | | | | |
| Common Stock undistributed earnings — diluted | | $ | 22,279 | | | $ | (38 | ) | | $ | 7,800 | |
| Class B Common Stock undistributed earnings — diluted | | | 6,695 | | | | (15 | ) | | | 2,932 | |
| | | | | | | | | | | | | |
| Total undistributed earnings — diluted | | $ | 28,974 | | | $ | (53 | ) | | $ | 10,732 | |
| | | | | | | | | | | | | |
| Numerator for basic net income per Common Stock share: | | | | | | | | | | | | |
| Dividends on Common Stock | | $ | 7,070 | | | $ | 6,644 | | | $ | 6,644 | |
| Common Stock undistributed earnings — basic | | | 22,360 | | | | (39 | ) | | | 7,815 | |
| | | | | | | | | | | | | |
| Numerator for basic net income per Common Stock share | | $ | 29,430 | | | $ | 6,605 | | | $ | 14,459 | |
| | | | | | | | | | | | | |
| Numerator for basic net income per Class B Common Stock share: | | | | | | | | | | | | |
| Dividends on Class B Common Stock | | $ | 2,092 | | | $ | 2,500 | | | $ | 2,480 | |
| Class B Common Stock undistributed earnings — basic | | | 6,614 | | | | (14 | ) | | | 2,917 | |
| | | | | | | | | | | | | |
| Numerator for basic net income per Class B Common Stock share | | $ | 8,706 | | | $ | 2,486 | | | $ | 5,397 | |
| | | | | | | | | | | | | |
| Numerator for diluted net income per Common Stock share: | | | | | | | | | | | | |
| Dividends on Common Stock | | $ | 7,070 | | | $ | 6,644 | | | $ | 6,644 | |
| Dividends on Class B Common Stock assumed converted to Common Stock | | | 2,092 | | | | 2,500 | | | | 2,480 | |
| Common Stock undistributed earnings — diluted | | | 28,974 | | | | (53 | ) | | | 10,732 | |
| | | | | | | | | | | | | |
| Numerator for diluted net income per Common Stock share | | $ | 38,136 | | | $ | 9,091 | | | $ | 19,856 | |
| | | | | | | | | | | | | |
94
| | | | | | | | | |
| | | Fiscal Year |
| | | 2006 | | 2005 | | 2004 |
| In Thousands (Except Per Share Data) | | | | | | |
Numerator for basic net income per Common Stock and Class B Common Stock share: | | | | | | | | | |
Net income | | $ | 23,243 | | $ | 22,951 | | $ | 21,848 |
Less dividends: | | | | | | | | | |
Common Stock | | | 6,643 | | | 6,643 | | | 6,642 |
Class B Common Stock | | | 2,460 | | | 2,441 | | | 2,421 |
| | | | | | | | | |
Total undistributed earnings | | $ | 14,140 | | $ | 13,867 | | $ | 12,785 |
| | | | | | | | | |
| | | |
Common Stock undistributed earnings—basic | | $ | 10,319 | | $ | 10,142 | | $ | 9,371 |
Class B Common Stock undistributed earnings—basic | | | 3,821 | | | 3,725 | | | 3,414 |
| | | | | | | | | |
Total undistributed earnings | | $ | 14,140 | | $ | 13,867 | | $ | 12,785 |
| | | | | | | | | |
| | | |
Numerator for basic net income per Common Stock share | | $ | 16,962 | | $ | 16,785 | | $ | 16,013 |
| | | | | | | | | |
Numerator for basic net income per Class B Common Stock share | | $ | 6,281 | | $ | 6,166 | | $ | 5,835 |
| | | | | | | | | |
Numerator for diluted net income per Common Stock share: | | | | | | | | | |
Dividends on Common Stock | | $ | 6,643 | | $ | 6,643 | | $ | 6,642 |
Dividends on Class B Common Stock assumed converted to Common Stock | | | 2,460 | | | 2,441 | | | 2,421 |
Common Stock undistributed earnings—diluted | | | 14,140 | | | 13,867 | | | 12,785 |
| | | | | | | | | |
Numerator for diluted net income per Common Stock share | | $ | 23,243 | | $ | 22,951 | | $ | 21,848 |
| | | | | | | | | |
Numerator for diluted net income per Class B Common Stock share: | | | | | | | | | |
Dividends on Class B Common Stock | | $ | 2,460 | | $ | 2,441 | | $ | 2,421 |
Class B Common Stock undistributed earnings—diluted | | | 3,840 | | | 3,725 | | | 3,414 |
| | | | | | | | | |
Numerator for diluted net income per Class B Common Stock share | | $ | 6,300 | | $ | 6,166 | | $ | 5,835 |
| | | | | | | | | |
Denominator for basic net income per Common Stock and Class B Common Stock share: | | | | | | | | | |
Common Stock weighted average shares outstanding—basic | | | 6,643 | | | 6,643 | | | 6,643 |
Class B Common Stock weighted average shares outstanding—basic | | | 2,460 | | | 2,440 | | | 2,420 |
| | | |
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) | | | 9,120 | | | 9,083 | | | 9,063 |
Class B Common Stock weighted average shares outstanding—diluted | | | 2,477 | | | 2,440 | | | 2,420 |
| | | |
Net income per share—basic: | | | | | | | | | |
Common Stock | | $ | 2.55 | | $ | 2.53 | | $ | 2.41 |
| | | | | | | | | |
Class B Common Stock | | $ | 2.55 | | $ | 2.53 | | $ | 2.41 |
| | | | | | | | | |
Net income per share—diluted: | | | | | | | | | |
Common Stock | | $ | 2.55 | | $ | 2.53 | | $ | 2.41 |
| | | | | | | | | |
Class B Common Stock | | $ | 2.54 | | $ | 2.53 | | $ | 2.41 |
| | | | | | | | | |
COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS | | | | | | | | | | | | | |
| | | Fiscal Year | |
In thousands (except per share data) | | 2009 | | | 2008 | | | 2007 | |
| |
| Numerator for diluted net income per Class B Common Stock share: | | | | | | | | | | | | |
| Dividends on Class B Common Stock | | $ | 2,092 | | | $ | 2,500 | | | $ | 2,480 | |
| Class B Common Stock undistributed earnings — diluted | | | 6,695 | | | | (15 | ) | | | 2,932 | |
| | | | | | | | | | | | | |
| Numerator for diluted net income per Class B Common Stock share | | $ | 8,787 | | | $ | 2,485 | | | $ | 5,412 | |
| | | | | | | | | | | | | |
| Denominator for basic net income per Common Stock and Class B Common Stock share: | | | | | | | | | | | | |
| Common Stock weighted average shares outstanding — basic | | | 7,072 | | | | 6,644 | | | | 6,644 | |
| Class B Common Stock weighted average shares outstanding — basic | | | 2,092 | | | | 2,500 | | | | 2,480 | |
| 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) | | | 9,197 | | | | 9,160 | | | | 9,141 | |
| Class B Common Stock weighted average shares outstanding — diluted | | | 2,125 | | | | 2,516 | | | | 2,497 | |
| Basic net income per share: | | | | | | | | | | | | |
| Common Stock | | $ | 4.16 | | | $ | .99 | | | $ | 2.18 | |
| | | | | | | | | | | | | |
| Class B Common Stock | | $ | 4.16 | | | $ | .99 | | | $ | 2.18 | |
| | | | | | | | | | | | | |
| Diluted net income per share: | | | | | | | | | | | | |
| Common Stock | | $ | 4.15 | | | $ | .99 | | | $ | 2.17 | |
| | | | | | | | | | | | | |
| Class B Common Stock | | $ | 4.13 | | | $ | .99 | | | $ | 2.17 | |
| | | | | | | | | | | | | |
| | |
| (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 2006 includes the diluted effect of shares relative to the restricted stock award.award in 2008 and 2007 and the performance unit award in 2009. |
21. Risks and Uncertainties
| |
| 21. | Risks and Uncertainties |
Approximately
90%88% of the Company’s
2009 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%12% of the Company’s
2009 bottle/can
sales volume to retail customers are products of other beverage
companies.companies or those owned by 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 2006,2009, approximately 68%69% 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 32%31% was sold for immediate consumption. The Company’s largest customers, Wal-Mart Stores, Inc. and Food Lion, LLC, accounted for approximately 16%19% and 12%11%, respectively, of the Company’s total bottle/can salesvolume to retail customers during
95
COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2009; accounted for approximately 19% and 12%, respectively, of the Company’s total bottle/can volume to retail customers during
2006, respectively. Wal-Mart2008; and accounted for approximately
11%19% and 12%, respectively, of the Company’s total bottle/can volume during 2007. Wal-Mart Stores, Inc. accounted for approximately 15%, 14% and 13% of the Company’s total net
sales.sales during 2009, 2008 and 2007, respectively.
The Company
currently obtains all of its aluminum cans from
onetwo domestic
supplier.suppliers. The Company currently obtains all of its plastic bottles from two domestic
cooperatives.entities. See Note 13 and 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. 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, postretirementretirement benefit obligations and the Company’s pension liability.
Approximately 7% of the Company’s labor force is
currently covered by collective bargaining agreements.
One collective bargaining agreement covering approximately .5% of the Company’s employees expired during 2009 and the Company entered into new agreements in 2009. Two collective bargaining contracts covering
less thanapproximately 1% of the Company’s employees
will expire during
2007.COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
22. Supplemental Disclosures of Cash Flow Information
2010.
| |
| 22. | Supplemental Disclosures of Cash Flow Information |
Changes in current assets and current liabilities affecting cash were as follows:
| | | | | | | | | | | | | |
| | | Fiscal Year | |
In thousands | | 2009 | | | 2008 | | | 2007 | |
| |
| Accounts receivable, trade, net | | $ | 7,122 | | | $ | (7,350 | ) | | $ | (1,200 | ) |
Accounts receivable from TheCoca-Cola Company | | | (655 | ) | | | 346 | | | | 1,115 | |
| Accounts receivable, other | | | (4,015 | ) | | | (5,123 | ) | | | 698 | |
| Inventories | | | 6,375 | | | | (1,963 | ) | | | 3,521 | |
| Prepaid expenses and other current assets | | | (13,963 | ) | | | (573 | ) | | | (7,318 | ) |
| Accounts payable, trade | | | (17,218 | ) | | | (8,940 | ) | | | 7,273 | |
Accounts payable to TheCoca-Cola Company | | | (7,431 | ) | | | 23,714 | | | | (10,151 | ) |
| Other accrued liabilities | | | 13,422 | | | | 6,241 | | | | 5,824 | |
| Accrued compensation | | | 517 | | | | (162 | ) | | | 3,776 | |
| Accrued interest payable | | | (2,618 | ) | | | (278 | ) | | | (1,591 | ) |
| | | | | | | | | | | | | |
| (Increase) decrease in current assets less current liabilities | | $ | (18,464 | ) | | $ | 5,912 | | | $ | 1,947 | |
| | | | | | | | | | | | | |
Non-cash activity
Additions to property, plant and equipment of $11.6 million have been accrued but not paid and are recorded in accounts payable, trade.
96
| | | | | | | | | | | | |
| | | Fiscal Year | |
| | | 2006 | | | 2005 | | | 2004 | |
| In Thousands | | | | | | | | | |
Accounts receivable, trade, net | | $ | 3,277 | | | $ | (12,540 | ) | | $ | 186 | |
Accounts receivable from The Coca-Cola Company | | | (2,196 | ) | | | 4,330 | | | | 11,063 | |
Accounts receivable, other | | | (177 | ) | | | (1,751 | ) | | | 1,026 | |
Inventories | | | (8,822 | ) | | | (9,347 | ) | | | (1,597 | ) |
Prepaid expenses and other current assets | | | (4,806 | ) | | | 618 | | | | (1,429 | ) |
Accounts payable, trade | | | 8,717 | | | | 4,344 | | | | (8,504 | ) |
Accounts payable to The Coca-Cola Company | | | 6,232 | | | | (2,707 | ) | | | 6,443 | |
Other accrued liabilities | | | 1,738 | | | | 22,366 | | | | (14,916 | ) |
Accrued compensation | | | 1,562 | | | | 2,064 | | | | (1,986 | ) |
Accrued interest payable | | | 338 | | | | (3,335 | ) | | | 475 | |
| | | | | | | | | | | | |
(Increase) decrease in current assets less current liabilities | | $ | 5,863 | | | $ | 4,042 | | | $ | (9,239 | ) |
| | | | | | | | | | | | |
COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Cash payments for interest and income taxes were as follows:
| | | | | | | | | |
| | | Fiscal Year |
| | | 2006 | | 2005 | | 2004 |
| In Thousands | | | | | | |
Interest | | $ | 50,843 | | $ | 51,663 | | $ | 44,123 |
Income taxes (net of refunds) | | | 17,213 | | | 11,183 | | | 3,381 |
| | | | | | | | | | | | | |
| | | Fiscal Year |
In thousands | | 2009 | | 2008 | | 2007 |
| |
| Interest | | $ | 39,268 | | | $ | 35,133 | | | $ | 51,277 | |
| Income taxes | | | 13,825 | | | | 6,954 | | | | 21,361 | |
| |
| 23. | New Accounting Pronouncements |
New Accounting PronouncementsRecently Adopted Pronouncements
In September 2006,
the FASB issued
SFAS No. 158, “Employers’ Accountingnew guidance which defines fair value, establishes a framework for
Defined Pensionmeasuring fair value in GAAP and
Other Postretirement Plans.” This SFAS requiredexpands disclosures about fair value measurements. The new guidance does not require any new fair value measurements but could change the
following for defined pension and other postretirement plans:(1) | Recognition in the statement of financial position of the overfunded or underfunded status of the plans. |
(2) | Recognition as a component of other comprehensive income, net of tax, the actuarial gains and losses and the prior service costs and credits that arise during the period but are not recognized as components of net periodic benefit costs. |
(3) | Recognition as an adjustment to retained earnings, net of tax, any remaining transition asset or transition obligation. |
(4) | Measurement of defined benefit plan assets and obligations as of the date of the employer’s statement of financial position. |
(5) | Disclosure of additional information in the notes to the consolidated financial statements about certain effects on periodic benefit costs in the upcoming fiscal year that arise from delayed recognition of the actuarial gains and losses and the prior service costs and credits. |
Company’s current practices in measuring fair value. The Statementnew guidance was effective at the beginning of the first quarter of 2008 for fiscal years ending after December 15, 2006, except for the requirement that the benefit planall financial assets and obligations be measured as ofliabilities and for nonfinancial assets and liabilities recognized or disclosed at fair value on a recurring basis. In February 2008, the FASB issued additional guidance which deferred the application date of the employer’s statement of financial
COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
position, which is effective for fiscal years ending after December 15, 2008. The impactprovisions of the adoptionnew guidance for all nonfinancial assets and liabilities until the first quarter of this Statement was to increase2009 except for items that are recognized or disclosed at fair value in the Company’s pension and postretirement liabilities by $4.2 million with a corresponding adjustment to other comprehensive loss, net of tax effect, of $1.6 million. See Note 17 of the consolidated financial statements for additional information.
The SEC issued Staff Accounting Bulletin No. 108 (“SAB 108”) in September 2006. SAB 108 expresses the views of the SEC staff regarding the process of quantifying the materiality of financial misstatements. SAB 108 requires both the balance sheet and income statement approaches be used when quantifying the materiality of misstatement amounts. In addition, SAB 108 contains guidance on correcting errors under the dual approach and provides transition guidance for correcting errors existing in prior years. SAB 108 was effective in the Company’s fourth quarter of 2006. The adoption of SAB 108 did not have a material impact on the Company’s consolidated financial statements.
In December 2004, the FASB issued SFAS No. 123 (revised 2004), “Share-Based Payment.” This Statement is a revision of SFAS No. 123, “Accounting for Stock-Based Compensation” and was effective as of the beginning of 2006. This Statement requires public companies to measure the cost of employee services received in exchange for an award of an equity instrument based on the grant-date fair value of the award.recurring basis. The adoption of this Statementnew guidance did not have a material impact on the Company’s consolidated financial statements. See Note 1611 to the consolidated financial statements for additional information.
Recently Issued Pronouncements
In February 2006,December 2007, the FASB issued SFAS No. 155, “Accountingnew guidance which established principles and requirements for Certain Hybrid Financial Instruments—recognizing and measuring identifiable assets and goodwill acquired, liabilities assumed and any noncontrolling interest in an amendmentacquisition, at their fair values as of SFAS No. 133the acquisition date. The new guidance was effective for the first quarter of 2009. The impact on the Company of adopting this new guidance will depend on the nature, terms and 140.”size of business combinations completed after the effective date.
In December 2007, the FASB issued new guidance to establish new accounting and new reporting standards for the noncontrolling interest in a subsidiary (commonly referred to previously as minority interest) and for the deconsolidation of a subsidiary. This Statement simplifiesnew guidance was effective for the Company as of the beginning of 2009 and is being applied prospectively, except for the presentation and disclosure requirements, which have been applied retrospectively. The adoption of this new guidance did not have a significant impact on the Company’s consolidated financial statements. See Note 1 to the consolidated financial statements for additional information.
In March 2008, the FASB issued new guidance which amends and expands the disclosure requirements relative to derivative instruments 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 new guidance was effective for the first quarter of 2009. The adoption of this new guidance did not impact the Company’s consolidated financial statements other than expanded footnote disclosures related to derivative instruments and related hedged items. See Note 10 to the consolidated financial statements for additional information.
In April 2008, the FASB issued new guidance which amends the factors to be considered in developing renewal or extension assumptions used to determine the useful life of intangible assets. The intent of the new guidance 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. The new guidance was effective for the first quarter of 2009. The Company does not expect this new guidance to have a material impact on the accounting for future acquisitions or renewals of intangible assets, but the potential impact is dependent upon the acquisitions or renewals of intangible assets in the future.
In September 2008, the FASB issued new guidance which requires a seller of credit derivatives to provide certain hybriddisclosures for each credit derivative (or group of similar credit derivatives). The new guidance also requires guarantors to disclose “the current status of payment/performance risk of guarantees” and clarifies the effective date
97
COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
of the new guidance relative to derivative instruments discussed above. The adoption of the new guidance did not have a material impact on the Company’s consolidated financial statements.
In April 2009, the FASB issued new guidance on (1) estimating the fair value of an asset or liability when the volume and level of activity for the asset or liability have significantly decreased and (2) identifying transactions that are not orderly. The new guidance was effective for interim and annual periods ending after June 15, 2009. The adoption of this new guidance did not have a material impact on the Company’s consolidated financial statements.
In April 2009, the FASB issued new guidance which amends theother-than-temporary impairment guidance for debt securities to make theother-than-temporary impairment guidance more operational and to improve the presentation and disclosure ofother-than-temporary impairments on debt and equity securities. The new guidance was effective for interim and annual periods ending after June 15, 2009. The adoption of this new guidance did not have a material impact on the Company’s consolidated financial statements.
In April 2009, the FASB issued new guidance which requires disclosures about the fair value of financial instruments eliminatesin interim reporting periods of publicly traded companies as well as in annual financial statements. The new guidance was effective for interim periods ending after June 15, 2009. The adoption of this new guidance did not have a material impact on the interimCompany’s consolidated financial statements.
In May 2009, the FASB issued new guidance relative to subsequent events which does not result in Statement 133 Implementation Issue No. D1, “Application of Statement 133 to Beneficial Interestsignificant changes in Securitized Financial Assets,” and eliminates a restrictionthe subsequent events that an entity reports in its financial statements. The new guidance requires the disclosure of the passive derivative instrumentsdate through which an entity has evaluated subsequent events and the basis for that date, that is, whether that date represents the date the financial statements were issued or were available to be issued. The new guidance was effective for the Company in the second quarter of 2009. In February 2010, the FASB amended the guidance on subsequent events to remove the requirement to disclose the date through which the entity has evaluated subsequent events. The adoption of this new guidance did not have a qualifying special-purpose entity may hold.significant impact on the Company’s consolidated financial statements.
In June 2009, the FASB issued guidance which establishes the FASB Accounting Standards Codificationtm (“Codification”). The StatementCodification became the source of authoritative United States GAAP recognized by the FASB to be applied by nongovernmental entities. The Codification did not change GAAP and was effective for interim and annual periods ending after September 15, 2009. Pursuant to the provisions of the Codification, the Company updated references to GAAP in the Company’s consolidated financial statements. The Codification did not change GAAP and therefore did not impact the Company’s consolidated financial statements other than the change in references.
In December 2008, the FASB issued new guidance which requires enhanced disclosures about plan assets of a company’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 to measure the fair value of plan assets; (4) the effect of fair value measurements using significant unobservable inputs (Level 3) on changes in plan assets for the period; and (5) concentration of risk within plan assets. The new guidance is effective for fiscal years beginningending after SeptemberDecember 15, 2006.2009. The adoption of this Statementnew guidance did not impact the Company’s consolidated financial statements other than expanded footnote disclosures related to the Company’s pension plan assets. See Note 17 to the consolidated financial statements for additional information.
In August 2009, FASB issued new guidance on measuring the fair value of liabilities. The new guidance clarifies that the quoted price for the identical liability, when traded as an asset in an active market, is a Level 1 measurement for that liability when no adjustment to the quoted price is required. The new guidance also gives guidance on valuation techniques in the absence of a Level 1 measurement. The new guidance is effective for the Company in the fourth quarter of 2009. The adoption of this new guidance did not anticipatedhave a significant impact on the Company’s consolidated financial statements.
98
COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Recently Issued Pronouncements
In June 2009, the FASB issued new guidance which replaces the quantitative-based risks and rewards calculation for determining which enterprise, if any, has a controlling financial interest in a variable interest entity (“VIE”) with an approach focused on identifying which enterprise has the power to direct the activities of the VIE that most significantly impacts the entity’s economic performance and the obligation to absorb losses or the right to receive benefits from the entity. The new guidance is effective for annual reporting periods that begin after November 15, 2009. The Company does not expect this new guidance to have a material impact on the Company’s consolidated financial statements.
In June
2006,2009, the FASB issued
FASB Interpretation No. 48, “Accountingnew guidance which eliminates the exceptions for
Uncertainty in Income Taxes.” This Interpretation clarifiesqualifying special-purpose entities from consolidation guidance and the
exception that permitted sale accounting for
uncertainty in income taxes recognized by prescribingcertain mortgage securitization when a
recognition threshold and measurement attribute fortransferor has not surrendered control over the
transferred financial
statement recognition and measurement of a tax position taken or expected to be taken in a tax return.assets. The
Interpretation also providesnew guidance
on derecognition, classification, interest and penalties, accounting in interim periods and disclosure. The Interpretation is effective for
fiscal years beginningannual reporting periods that begin after
DecemberNovember 15,
2006.2009. The Company
is in the process of determining thedoes not expect this new guidance to have a material impact
of this Interpretation on the
Company’s consolidated financial statements.
In September 2006,January 2010, the FASB issued SFAS No. 157, “Fair Value Measurements.” 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.new guidance that clarifies thedecrease-in-ownership of subsidiaries provisions of GAAP. The Statement does not require any new fair value measurements but could changeguidance clarifies to which subsidiaries the current practice in measuring current fair value measurements.decrease-in-ownership provision of Accounting Standards Codification810-10 apply. The Statementnew guidance is effective for fiscal years beginning after November 15, 2007.the Company in the first quarter of 2010. The Company does not expect this new guidance to have a material impact on the Company’s consolidated financial statements.
In January 2010, the FASB issued new guidance related to the disclosures about transfers into and out of Levels 1 and 2 fair value classifications and separate disclosures about purchases, sales, issuances and settlements relating to the Level 3 fair value classification. The new guidance also clarifies existing fair value disclosures about the level of disaggregation and about inputs and valuation techniques used to measure the fair value. In addition, the new guidance amends guidance on employers’ disclosures about postretirement benefit plan assets to require that disclosures be provided by classes of assets instead of by major categories of assets. The new guidance is effective to the Company in the processfirst quarter of determining2010 except for the impactrequirement to provide the Level 3 activity of purchases, sales, issuances and settlements on a gross basis, which is effective for the Company in the first quarter of 2011. The Company does not expect this Statementnew guidance to have a material impact on the Company’s consolidated financial statements.
99
COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS24. Quarterly Financial Data (Unaudited)
| |
| 24. | Quarterly Financial Data (Unaudited) |
Set forth below are unaudited quarterly financial data for the fiscal years ended
January 3, 2010 and December
31, 2006 and January 1, 2006. | | | | | | | | | | | | |
| | | Quarter |
Year Ended December 31, 2006 | | 1 | | 2 | | 3 | | 4 |
| In Thousands (Except Per Share Data) | | | | | | | | |
Net sales | | $ | 333,179 | | $ | 386,624 | | $ | 370,626 | | $ | 340,576 |
Gross margin | | | 146,026 | | | 167,689 | | | 157,389 | | | 151,475 |
Net income | | | 815 | | | 8,887 | | | 4,941 | | | 8,600 |
| | | | |
Basic net income per share: | | | | | | | | | | | | |
Common Stock | | | .09 | | | .98 | | | .54 | | | .94 |
Class B Common Stock | | | .09 | | | .98 | | | .54 | | | .94 |
Diluted net income per share: | | | | | | | | | | | | |
Common Stock | | | .09 | | | .98 | | | .54 | | | .94 |
Class B Common Stock | | | .09 | | | .97 | | | .54 | | | .94 |
| |
| | | Quarter |
Year Ended January 1, 2006 | | 1 | | 2 | | 3 | | 4 |
| In Thousands (Except Per Share Data) | | | | | | | | |
Net sales | | $ | 309,185 | | $ | 361,224 | | $ | 362,046 | | $ | 347,717 |
Gross margin | | | 139,534 | | | 166,365 | | | 161,140 | | | 151,872 |
Net income | | | 719 | | | 11,519 | | | 8,792 | | | 1,921 |
| | | | |
Basic net income per share: | | | | | | | | | | | | |
Common Stock | | | .08 | | | 1.27 | | | .97 | | | .21 |
Class B Common Stock | | | .08 | | | 1.27 | | | .97 | | | .21 |
Diluted net income per share: | | | | | | | | | | | | |
Common Stock | | | .08 | | | 1.27 | | | .97 | | | .21 |
Class B Common Stock | | | .08 | | | 1.27 | | | .97 | | | .21 |
28, 2008.
| | | | | | | | | | | | | | | | | |
| | | Quarter |
Year Ended January 3, 2010 | | 1(1)(2) | | 2(3)(4) | | 3(5)(6) | | 4(7) |
| In thousands (except per share data) | | | | | | | | |
| |
| Net sales | | $ | 336,261 | | | $ | 377,749 | | | $ | 374,556 | | | $ | 354,420 | |
| Gross margin | | | 147,129 | | | | 160,127 | | | | 157,320 | | | | 155,418 | |
Net income attributable toCoca-Cola Bottling Co. Consolidated | | | 8,531 | | | | 12,187 | | | | 15,428 | | | | 1,990 | |
Basic net income per share based on net income attributable toCoca-Cola Bottling Co. Consolidated: | | | | | | | | | | | | | | | | |
| Common Stock | | | .93 | | | | 1.33 | | | | 1.68 | | | | .22 | |
| Class B Common Stock | | | .93 | | | | 1.33 | | | | 1.68 | | | | .22 | |
Diluted net income per share based on net income attributable toCoca-Cola Bottling Co. Consolidated: | | | | | | | | | | | | | | | | |
| Common Stock | | | .93 | | | | 1.32 | | | | 1.68 | | | | .22 | |
| Class B Common Stock | | | .93 | | | | 1.32 | | | | 1.67 | | | | .21 | |
| | | | | | | | | | | | | | | | | |
| | | Quarter |
Year Ended December 28, 2008 | | 1 | | 2(8) | | 3(9) | | 4(10) |
| 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) attributable toCoca-Cola Bottling Co. Consolidated | | | (4,335 | ) | | | 15,155 | | | | (3,145 | ) | | | 1,416 | |
Basic net income (loss) per share based on net income attributable toCoca-Cola Bottling Co. Consolidated: | | | | | | | | | | | | | | | | |
| Common Stock | | | (.47 | ) | | | 1.66 | | | | (.34 | ) | | | .15 | |
| Class B Common Stock | | | (.47 | ) | | | 1.66 | | | | (.34 | ) | | | .15 | |
Diluted net income (loss) per share based on net income attributable toCoca-Cola Bottling Co. Consolidated: | | | | | | | | | | | | | | | | |
| Common Stock | | | (.47 | ) | | | 1.65 | | | | (.34 | ) | | | .15 | |
| Class B Common Stock | | | (.47 | ) | | | 1.65 | | | | (.34 | ) | | | .15 | |
Sales are seasonal with the highest sales volume occurring in May, June, July and August.
| | |
| (1) | | Net income in the first quarter of 2009 included a $1.7 million credit to income tax expense ($.18 per basic common share) related to the agreement with a state tax authority to settle certain prior tax positions. |
|
| (2) | | Net income in the first quarter of 2009 included a $1.5 million ($0.9 million net of tax, or $0.10 per basic common share) credit for a mark-to-market adjustment related to the Company’s fuel hedging program. |
|
| (3) | | Net income in the second quarter of 2009 included a $1.2 million ($0.7 million net of tax, or $0.08 per basic common share) credit for a mark-to-market adjustment related to the Company’s fuel hedging program. |
|
| (4) | | Net income in the second quarter of 2009 included a $3.2 million ($2.0 million net of tax, or $0.21 per basic common share) credit for a mark-to-market adjustment related to the Company’s aluminum hedging program. |
100
25. Subsequent Events
COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| | |
| (5) | | Net income in the third quarter of 2009 included a $5.4 million credit to income tax expense ($.59 per basic common share) related to the reduction of the liability for uncertain tax positions due mainly to the lapse of applicable statutes of limitations. |
|
| (6) | | Net income in the third quarter of 2009 included a $1.4 million ($0.9 million net of tax, or $0.10 per basic common share) credit for a mark-to-market adjustment related to the Company’s aluminum hedging program. |
|
| (7) | | Net income in the fourth quarter of 2009 included a $5.5 million ($3.3 million net of tax, or $0.36 per basic common share) credit for a mark-to-market adjustment related to the Company’s aluminum hedging program. |
|
| (8) | | 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 a plastic bottle cooperative. |
|
| (9) | | 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. |
|
| (10) | | 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 amark-to-market adjustment related to the Company’s 2009 fuel hedging program. |
| |
| 25. | Restructuring Expenses |
On February 2, 2007, the Company initiated plans to simplify its operating management structure and reduce its workforce in order to improve operating efficiencies across the Company’s business. The Company believes these changes will allow it to better compete in the marketplace. The Company anticipates the completionrestructuring expenses consisted primarily of these plans prior to the end of February 2007. As a result of these plans, the Company estimates incurring $1.5 million to $2.0 million for one-time termination benefits and $1.0 million to $1.5 million for other associated costs, primarily relocation expenses for certain employees,employees. Total pre-tax restructuring expenses under these plans were $2.8 million, all of which were recorded in connection with these changes. In total,fiscal year 2007.
On July 15, 2008, the Company estimates incurring $2.5 millioninitiated a plan to $3.5 million related to these changes. Further,reorganize the structure of its operating units and support services, which resulted in the elimination of approximately 350 positions, or approximately 5% of its workforce. As a result of this plan, the Company estimates that $1.0incurred $4.6 million to $2.0 millionin pre-tax restructuring expenses in 2008 for one-time termination benefits. The plan was substantially completed in 2008 and the majority of the charges identified above will result in cash expenditures subsequent to the first quarter of 2007occurred in 2008.
The following table summarizes restructuring activity, which is included in selling, delivery and anticipates substantially all of the cash expenditures occurring prior to 2007 fiscal year end.administrative expenses for 2009, 2008 and 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 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Balance at December 28, 2008 | | $ | 976 | | | $ | 13 | | | $ | 989 | |
| Cash payments | | | 914 | | | | 13 | | | | 927 | |
| | | | | | | | | | | | | |
| Balance at January 3, 2010 | | $ | 62 | | | $ | — | | | $ | 62 | |
| | | | | | | | | | | | | |
101
On March 8, 2007, the Company entered into a new $200 million revolving credit facility, replacing its $100 million facility. The new facility matures in March 2012 and includes an option to extend the term for an
COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
additional year at the discretion of the participating banks. The facility bears interest at a floating base rate or a floating rate of LIBOR plus an interest rate spread of .35%. In addition, there is a fee of .10% required for this facility. Both the interest rate spread and the facility fee are determined from a commonly-used pricing grid based on the Company’s long-term senior unsecured debt rating. The facility contains similar financial covenants as the previous $100 million facility. The two financial covenants are related to ratio requirements for interest coverage and long-term debt to cash flow, each as defined in the credit agreement.
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. 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
December 31, 2006,January 3, 2010, management assessed the effectiveness of the Company’s internal control over financial reporting based on the framework established in
Internal Control—Control — Integrated Framework issued 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
December 31, 2006 isJanuary 3, 2010 was effective.
Management’s assessment of the
The effectiveness of the Company’s internal control over financial reporting as of December 31, 2006January 3, 2010, has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report appearing on pages 98 and 99, 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 December 31, 2006.page 103.
March 18, 2010
102
March 13, 2007
Report of Independent Registered Public Accounting Firm To the Board of Directors and Stockholders
of
Coca-Cola Bottling Co. Consolidated:
We have completed integrated audits of Coca-Cola Bottling Co. Consolidated’s December 31, 2006 and January 1, 2006 consolidated financial statements and of its internal control over financial reporting as of December 31, 2006, 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 3, 2010 and December
31, 2006 and January 1, 2006,28, 2008, and the results of their operations and their cash flows for each of the three years in the period ended
December 31, 2006January 3, 2010 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
statements andreporting as of January 3, 2010, based on criteria established inInternal Control — Integrated Frameworkissued by the
financial statement schedule are the responsibilityCommittee of Sponsoring Organizations of the
Treadway Commission (COSO). The Company’s
management. Our responsibilitymanagement is
to express an opinion onresponsible for these financial statements and the financial statement schedule,
for maintaining effective internal control over financial reporting and for its assessment of the 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 opinions on these financial statements, on 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.opinions.
As discussed in Note
171 to the consolidated financial statements, the Company changed the manner in which it accounts for
pension and postretirement benefits in 2006.Internal control over financial reporting
Also, in our opinion, management’s assessment, included in Management’s Report on Internal Control over Financial Reporting appearing on page 97, thatnoncontrolling interests during the Company maintained effective internal control over financial reporting as of December 31, 2006 based on criteria established inInternal Control—Integrated Framework issued by 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, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2006, based on criteria established inInternal 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.
fiscal year ended January 3, 2010.
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 LLP
Charlotte, North Carolina
March 18, 2010
103
March 13, 2007
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 24 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
97102 for “Management’s Report on Internal Control over Financial Reporting.” See
pages 98 and 99page 103 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
December 31, 2006January 3, 2010 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.
104
PART IIIItem 10. Directors, Executive Officers and Corporate Governance
| |
| 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 “Proposal 1: Election of Directors” section of the Proxy Statement for the
20072010 Annual Meeting of Stockholders, which is incorporated herein by reference. For information with respect to Section 16 reports, see the
Section“Section 16(a) Beneficial Ownership Reporting Compliance” section of the Proxy Statement for the
20072010 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”Governance — Board Committees” section of the Proxy Statement for the
20072010 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; Chief Operating Officer; Chief Financial Officer; Vice President, Controller; Vice President, 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
Tables,”
“Compensation“Additional Information About Directors and Executive Officers — Compensation Committee Interlocks and Insider Participation,” “Compensation Committee
Report”Report,” “Director Compensation” and
“Director Compensation”“Corporate Governance — The Board’s Role in Risk Oversight” sections of the Proxy Statement for the
20072010 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” and
“Beneficial“Security Ownership of
Management”Directors and Executive Officers” sections of the Proxy Statement for the
20072010 Annual Meeting of Stockholders, which are incorporated herein by reference. 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
20072010 Annual Meeting of Stockholders, which is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence
| |
| Item 13. | Certain Relationships and Related Transactions, and Director Independence |
For information with respect to certain relationships and related transactions, see the
“Certain“Related Persons Transactions” section of the Proxy Statement for the
20072010 Annual Meeting of Stockholders, which is incorporated herein by reference. For certain information with respect to director independence, see the disclosures in the “Corporate Governance” section of the Proxy Statement for the
20072010 Annual Meeting of Stockholders regarding director independence, which are incorporated herein by reference.
Item 14. Principal Accountant Fees and Services
| |
| Item 14. | Principal Accountant Fees and Services |
For information with respect to principal accountant fees and services, see the “Independent“Proposal 2: Ratification of Appointment of Independent Registered Public Accounting Firm” section of the Proxy Statement for the 20072010 Annual Meeting of Stockholders, which is incorporated herein by reference.
105
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
| | | | | |
| | | | Consolidated Balance Sheets |
| | | | Consolidated Statements of Operations |
| | | | 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.
| | | | | |
| | | | 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 |
Exhibit Index
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 agreements and:
| | | | |
Number
| • | 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; |
|
| • | may have been qualified by disclosures that were made to the other party in connection with the negotiation of the applicable agreement, which disclosures are not necessarily reflected in the agreement; |
|
| • | may apply standards of materiality in a way this 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 representation and warranties may not describe the actual state of affairs as of the date they were made or at any other time.
106
Exhibit Index
| | Description
| | |
| | | | 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 onForm 10-Q for the quarter ended June 29, 2003 (FileNo. 0-9286). |
| | |
(3.2) | | Amended and Restated Bylaws of the Company. | | Exhibit 3.23.1 to the Company’s QuarterlyCurrent Report onForm 10-Q for the quarter ended June 29, 2003 (File8-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
(FileNo. 2-97822) onForm S-1 as filed on May 31, 1985 (File(File No.��0-9286). |
| | |
(4.2) | | Supplemental Indenture, dated as of March 3, 1995, between the Company and Citibank, N.A. (as successor to National BankNationsBank of Georgia, National Association, the initial trustee). | | Exhibit 4.2 to the Company’s Annual Report onForm 10-K for the fiscal year ended December 29, 2002 (File
(FileNo. 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)
| | Form of the Company’s 5.00% Senior Notes due 2012. | | Exhibit 4.1 to the Company’s Current Report onForm 8-K filed on November 21, 2002
(File No. 0-9286). |
| | |
(4.7)
(4.4) | | Form of the Company’s 5.30% Senior Notes due 2015. | | Exhibit 4.1 to the Company’s Current Report onForm 8-K filed on March 27, 2003
(FileNo. 0-9286). |
| | |
(4.8)
(4.5) | | Form of the Company’s 5.00% Senior NoteNotes due 2016. | | Exhibit 4.1 to the Company’s Quarterly Report onForm 10-Q for the quarter ended October 2, 2005 (File No. 0-9286). |
| | | | |
Number
(4.6) | | Description
Form of the Company’s 7.00% Senior Notes due 2019. | | Exhibit 4.1 to the Company’s Current Report onIncorporated by ReferenceForm 8-K filed on April 7, 2009
(Fileor Filed HerewithNo. 0-9286). |
(4.9)
(4.7) | | 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 onForm 10-Q for the quarter ended October 2, 2005 (File No. 0-9286). |
| | |
(4.10)
(4.8) | | 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 onForm 8-K filed on March 14, 2007
(FileNo. 0-9286). |
107
| | | | |
| | | | Incorporated by Reference
|
Number | | Description | | or Filed Herewith |
|
| (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 onForm 10-Q for the quarter ended September 28, 2008
(FileNo. 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 onForm 10-K for the fiscal year ended December 29, 2002
(FileNo. 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 onForm 10-K for the fiscal year ended December 30, 2001
(FileNo. 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 onForm 10-K for the fiscal year ended December 30, 2001
(FileNo. 0-9286). |
| (10.6) | | Amended and Restated Stock Rights and Restrictions Agreement, dated January 27, 1989,February 19, 2009, by and among the Company, The Coca-Cola Company and J. Frank Harrison, III. | | Exhibit 10.1 to the Company’s Current Report onForm 8-K filed on February 19, 2009
(FileNo. 0-9286). |
| (10.7) | | Termination of Irrevocable Proxy and Voting Agreement, dated February 19, 2009, by and between The Coca-Cola Company and J. Frank Harrison, III. | | Exhibit 10.2 to the Company’s Current Report onForm 8-K filed on February 19, 2009
(FileNo. 0-9286). |
| (10.8) | | Example of bottling franchise agreement, effective as of May 28, 1999, between the Company and The Coca-Cola Company. | | Exhibit 10.2 to the Company’s Annual Report onForm 10-K for the fiscal year ended December 29, 2002
(FileNo. 0-9286). |
| (10.9) | | Letter Agreement, dated as of March 10, 2008, by and between the Company and The Coca-Cola Company. | | Exhibit 10.1 to the Company’s AnnualQuarterly Report onForm 10-K10-Q for the fiscal yearquarter ended December 29, 2002
March 30, 2008(File No. 0-9286). |
| | |
(10.2)
| | Example of bottling franchise agreement 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)
(10.10) | | Lease, dated as of January 1, 1999, by and between the Company and the Ragland Corporation. | | Exhibit 10.5 to the Company’s Annual Report onForm 10-K for the fiscal year ended December 31, 2000
(FileNo. 0-9286). |
| | |
(10.4)
(10.11) | | PurchaseFirst Amendment to Lease and Sale Agreement,First Amendment to Memorandum of Lease, dated as of December 15, 2000,August 30, 2002, between the Company and Harrison Limited Partnership One.Ragland Corporation. | | Exhibit 10.910.33 to the Company’s Annual Report onForm 10-K for the fiscal year ended December 31, 200029, 2002
(FileNo. 0-9286). |
| | |
(10.5)
(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 onForm 10-K for the fiscal year ended December 31, 2000
(FileNo. 0-9286). |
108
| | | | |
| | | | Incorporated by Reference
|
(10.6)
Number | | Description | | or Filed Herewith |
|
| (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 onForm 8-K filed on December 21, 2006
(FileNo. 0-9286). |
| (10.14) | | Lease Agreement, dated as of March 23, 2009, between the Company and Harrison Limited Partnership One. | | Exhibit 10.1 to the Company’s Current Report onForm 8-K filed on March 26, 2009
(FileNo. 0-9286). |
| (10.15) | | Limited Liability Company Operating Agreement of Coca-Cola Bottlers’ Sales & Services Company, LLC, made as of January 1, 2003, 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 onForm 10-K for the fiscal year ended December 29, 2002
(FileNo. 0-9286). |
| (10.16) | | Amended and Restated Can Supply Agreement, effective as of January 1, 2006, by and between Rexam Beverage Can Company and Coca-Cola Bottlers’ Sales & Services Company, LLC, in its capacity as agent for the Company. | | Exhibit 10.1 to the Company’s Quarterly Report onForm 10-Q for the quarter ended April 1, 2007 (FileNo. 0-9286). |
| (10.17) | | Partnership Agreement of Piedmont Coca-Cola Bottling Partnership (formerly known as Carolina Coca-Cola Bottling Partnership,*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 onForm 10-K for the fiscal year ended December 29, 2002
(FileNo. 0-9286). |
| (10.18) | | 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, CCBCC of Wilmington, Inc., The Coca-Cola Company, Piedmont Partnership Holding Company, Coca-Cola Ventures, Inc. and the Company. | | Exhibit 10.1 to the Company’s Current Report onForm 8-K filed January 14, 2002
(FileNo. 0-9286). |
(10.7)
(10.19) | | 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 onForm 10-Q for the quarter ended March 30, 2003(File No. 0-9286). |
| (10.20) | | Management Agreement, dated as of July 2, 1993, by and among the Company, Piedmont Coca-Cola Bottling Partnership (formerly known as Carolina Coca-Cola Bottling Partnership,*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 onForm 10-K for the fiscal year ended December 29, 2002
(FileNo. 0-9286). |
| | | | |
Number
| | Description
| | Incorporated by Reference
or Filed Herewith
|
(10.8)
(10.21) | | First Amendment to Management Agreement (relating to the Management Agreement designated as Exhibit 10.710.20 of this Exhibit Index) datedeffective as of January 1, 2001. | | Exhibit 10.14 to the Company’s Annual Report onForm 10-K for the fiscal year ended December 31, 2000
(FileNo. 0-9286). |
| | |
(10.9)
| | Amended and Restated Guaranty Agreement, effective as of July 15, 1993, for the benefit of 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)
| | Amended and Restated 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.** | | Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on February 28, 2006
(File No. 0-9286).
|
| | |
(10.15)
(10.22) | | Transfer and Assumption of Liabilities Agreement, dated December 19, 1996, by and between CCBCC, Inc., (a wholly-owned subsidiary of the Company) and Piedmont Coca-Cola Bottling Partnership. | | Exhibit 10.17 to the Company’s Annual Report onForm 10-K for the fiscal year ended December 29, 2002
(FileNo. 0-9286). |
109
| | |
(10.16)
| | Lease | | |
| | | | Incorporated by Reference
|
Number | | Description | | or Filed Herewith |
|
| (10.23) | | Management Agreement, dated as of December 18, 2006, betweenJune 1, 2004, by and among CCBCC Operations LLC, (aa wholly-owned subsidiary of the Company)Company, and Beacon Investment Company.South Atlantic Canners, Inc. | | Exhibit 10.1 to the Company’s CurrentQuarterly Report onForm 8-K filed on December 21, 2006.
10-Q for the quarter ended June 27, 2004(File No. 0-9286). |
| | | | |
Number
(10.24) | | Description
Agreement, dated as of March 1, 1994, between the Company and South Atlantic Canners, Inc. | | Exhibit 10.12 to the Company’s Annual Report onIncorporated by ReferenceForm 10-K for the fiscal year ended December 29, 2002
(Fileor Filed HerewithNo. 0-9286). |
| (10.25) | | 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 (FileNo. 0-9286). |
(10.17)
(10.26) | | 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 (FileNo. 0-9286). |
| (10.27) | | 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 (FileNo. 0-9286). |
| (10.28) | | 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 (FileNo. 0-9286). |
| (10.29) | | Performance Unit Award Agreement, dated February 27, 2008.* | | Appendix A to the Company’s Proxy Statement for the 2008 Annual Meeting of Stockholders (FileNo. 0-9286) |
| (10.30) | | Supplemental Savings Incentive Plan, as amended and restated effective January 1, 2007* | | Exhibit 10.3 to the Company’s Quarterly Report onForm 10-Q for the quarter ended April 1, 2007(File No. 0-9286). |
| (10.31) | | Amendment No. 1 to Supplemental Savings Incentive Plan, effective January 1, 2010.* | | Filed herewith. |
| (10.32) | | Coca-Cola Bottling Co. Consolidated Director Deferral Plan, effective January 1, 2005.** | | Exhibit 10.17 to the Company’s Annual Report onForm 10-K for the fiscal year ended January 1, 2006
(File No. 0-9286). |
| | |
(10.18)
(10.33) | | 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 IncentiveOfficer Retention Plan, as amended and restated effective January 1, 2005, between Eligible Employees of the Company and the Company.*2007.* | | Exhibit 10.1910.4 to the Company’s Quarterly Report onForm 10-Q for the quarter ended April 1, 2007(File No. 0-9286). |
| (10.34) | | Amendment No. 1 to Officer Retention Plan, effective January 1, 2009.* | | Exhibit 10.32 to the Company’s Annual Report onForm 10-K for the fiscal year ended
January 1, 2006
(File No. 0-9286).
|
| | |
(10.20)
| | Officer Retention Plan (ORP), as amended and restated effective January 1, 2005, between Eligible Employees of the Company and the Company.** | | Exhibit 10.20 to the Company’s Annual Report on Form 10-K
for the fiscal year ended
January 1, 2006
(File No. 0-9286).
|
| | |
(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 of this Exhibit Index) 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, 200228, 2008
(FileNo. 0-9286). |
110
| | |
(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.** | | Exhibit 10.24 to the Company’s Annual Report of Form 10-K for the fiscal year ended January 1, 2006
(File No. 0-9286).
Incorporated by Reference
|
| | |
(10.25)
Number | | 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.Description | | Exhibit 4.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 30, 2003
(File No. 0-9286).
|
| | | | |
Number
| | Description
| | Incorporated by Reference
or Filed Herewith
|
| | |
(10.26)
(10.35) | | 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 onForm 10-K for the fiscal year ended December 28, 2003
(FileNo. 0-9286).
|
| | |
(10.27)
(10.36) | | 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 onForm 10-K for the fiscal year ended
December 28, 2003
(FileNo. 0-9286). |
| | |
(10.28)
(10.37) | | ConsultingForm of Amended and Restated Split-Dollar and Deferred Compensation Replacement Benefit Agreement, effective as of MarchNovember 1, 2005, between the Company and Robert D. Pettus, Jr.*eligible employees of the Company.* | | Exhibit 10.110.24 to the Company’s CurrentAnnual Report onForm 8-K filed on March 4, 200510-K for the fiscal year ended January 1, 2006
(FileNo. 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).
|
| | |
(10.31)
(10.38) | | Form of Split-dollarSplit-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 onForm 8-K filed on June 24, 2005
(FileNo. 0-9286). |
| (10.39) | | Consulting Agreement, dated as of June 1, 2005, between the Company and David V. Singer.* | | Exhibit 10.1 to the Company’s Current Report onForm 8-K filed on June 3, 2005
(FileNo. 0-9286). |
(12) | | Ratio of earnings to fixed chargescharges. | | Filed herewith. |
| | |
(21.1)
(21) | | List of subsidiaries. | | Filed herewith. |
| | |
(23.1)
(23) | | Consent of Independent Registered Public Accounting Firm to Incorporation by reference into Form S-3 (Registration No. 33-54657) and Form S-3 (Registration No. 333-71003)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. |
| | |
| * | 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
111
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 January 3, 2010 | | $ | 1,188 | | | $ | 1,593 | | | $ | 594 | | | $ | 2,187 | |
| | | | | | | | | | | | | | | | | |
| Fiscal year ended December 28, 2008 | | $ | 1,137 | | | $ | 523 | | | $ | 472 | | | $ | 1,188 | |
| | | | | | | | | | | | | | | | | |
| Fiscal year ended December 30, 2007 | | $ | 1,334 | | | $ | 213 | | | $ | 410 | | | $ | 1,137 | |
| | | | | | | | | | | | | | | | | |
112
(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 December 31, 2006 | | $ | 1,318 | | $ | 314 | | $ | 298 | | $ | 1,334 |
| | | | | | | | | | | | |
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 |
| | | | | | | | | | | | |
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)
| | | | |
| | | | COCA-COLA BOTTLING CO. CONSOLIDATED |
| | | | (REGISTRANT) |
| | |
Date: March 14, 2007 | | By: | | /s/ J.FRANK HARRISON, III |
| | | | 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 18, 2010
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 14, 2007 18, 2010 |
| | | |
By:
| | | | |
By: /s/ H. W. MCKAY BELK H. W. McKay Belk | | Director | | March 14, 2007 18, 2010 |
| | | |
By:
| | | | |
By: Alexander B. Cummings, Jr. | | Director | | |
| | | | |
By: /s/ SHARON A. DECKER Sharon A. Decker | | Director | | March 14, 2007 18, 2010 |
| | | |
By:
| | | | |
By: /s/ WILLIAM B. ELMORE William B. Elmore | | President, Chief Operating Officer
and Director | | March 14, 2007 18, 2010 |
| | | |
By:
| | /s/ JAMES E. HARRIS
James E. Harris
| | Director
|
By: /s/ Deborah H. Everhart Deborah H. Everhart | | March 14, 2007
|
| | | |
By:
Director | | /s/ DEBORAH S. HARRISON
Deborah S. Harrison
March 18, 2010 |
| | Director
| | March 14, 2007
|
| | | |
By: /s/ Henry W. Flint Henry W. Flint | | /s/ NED R. MCWHERTER
Ned R. McWherter
| | Director
| | March 14, 2007
|
| | | |
By:
| | /s/ JOHN W. MURREY, III
John W. Murrey, III
| | Director
| | March 14, 2007
|
| | | |
By:
| | /s/ ROBERT D. PETTUS, JR.
Robert D. Pettus, Jr.
| | Vice Chairman of the Board of Directors and Director | | March 14, 2007 18, 2010 |
| | | |
By:
| | /s/ CARL WARE
Carl Ware
| | Director
|
By: /s/ Ned R. McWherter Ned R. McWherter | | March 14, 2007
|
| | | |
By:
Director | | March 18, 2010 |
| | | | |
By: /s/ DENNIS A. WICKER James H. Morgan | | Director | | March 18, 2010 |
| | | | |
By: /s/ John W. Murrey, III John W. Murrey, III | | Director | | March 18, 2010 |
| | | | |
By: /s/ Dennis A. Wicker Dennis A. Wicker | | Director | | March 14, 2007 18, 2010 |
| | | |
By:
| | /s/ STEVEN D. WESTPHAL
Steven D. Westphal
| | |
By: /s/ James E. Harris James E. Harris | | Senior Vice President and
Chief Financial Officer | | March 14, 2007 18, 2010 |
| | | |
By:
| | | | |
By: /s/ WILLIAM J. BILLIARD William J. Billiard | | Vice President, Controller and
Chief Accounting Officer | | March 14, 2007 18, 2010 |
113
109
