Coca-Cola Bottling Co. Consolidated
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended September 30, 2007
Commission
File Number 0-9286
COCA-COLA BOTTLING CO. CONSOLIDATED
(Exact name of registrant as specified in its charter)
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Delaware
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56-0950585 |
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(State or other jurisdiction of incorporation or
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(I.R.S. Employer Identification No.) |
organization) |
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4100 Coca-Cola Plaza, Charlotte, North Carolina 28211
(Address of principal executive offices) (Zip Code)
(704) 557-4400
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or
a non-accelerated filer. See definition of accelerated filer and large accelerated
filer in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer o |
Accelerated filer þ |
Non-accelerated filer 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 þ
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of
the latest practicable date.
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Class
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Outstanding at October 31, 2007 |
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Common Stock, $1.00 Par Value
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6,643,677 |
Class B Common Stock, $1.00 Par Value
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2,479,652 |
COCA-COLA BOTTLING CO. CONSOLIDATED
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2007
INDEX
2
PART I FINANCIAL INFORMATION
Item l. Financial Statements.
Coca-Cola Bottling Co. Consolidated
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
In Thousands (Except Per Share Data)
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|
|
|
|
|
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|
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|
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Third Quarter |
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First Nine Months |
|
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2007 |
|
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2006 |
|
|
2007 |
|
|
2006 |
|
Net sales |
|
$ |
367,360 |
|
|
$ |
370,626 |
|
|
$ |
1,095,359 |
|
|
$ |
1,090,429 |
|
Cost of sales |
|
|
212,148 |
|
|
|
213,237 |
|
|
|
619,366 |
|
|
|
619,325 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin |
|
|
155,212 |
|
|
|
157,389 |
|
|
|
475,993 |
|
|
|
471,104 |
|
Selling, delivery and administrative expenses |
|
|
134,861 |
|
|
|
135,421 |
|
|
|
402,376 |
|
|
|
405,459 |
|
Amortization of intangibles |
|
|
111 |
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|
136 |
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|
334 |
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|
426 |
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|
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
|
20,240 |
|
|
|
21,832 |
|
|
|
73,283 |
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|
|
65,219 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Interest expense |
|
|
12,135 |
|
|
|
12,745 |
|
|
|
36,647 |
|
|
|
37,808 |
|
Minority interest |
|
|
110 |
|
|
|
841 |
|
|
|
1,960 |
|
|
|
2,546 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
7,995 |
|
|
|
8,246 |
|
|
|
34,676 |
|
|
|
24,865 |
|
Income taxes |
|
|
2,722 |
|
|
|
3,305 |
|
|
|
13,061 |
|
|
|
10,222 |
|
|
|
|
|
|
|
|
|
|
|
|
|
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Net income |
|
$ |
5,273 |
|
|
$ |
4,941 |
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|
$ |
21,615 |
|
|
$ |
14,643 |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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Basic net income per share: |
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|
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|
|
|
|
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Common Stock |
|
$ |
.58 |
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|
$ |
.54 |
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$ |
2.37 |
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$ |
1.61 |
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|
|
|
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|
|
|
|
|
|
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|
Weighted average number of Common Stock
shares outstanding |
|
|
6,644 |
|
|
|
6,643 |
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|
|
6,644 |
|
|
|
6,643 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class B Common Stock |
|
$ |
.58 |
|
|
$ |
.54 |
|
|
$ |
2.37 |
|
|
$ |
1.61 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of Class B Common
Stock shares outstanding |
|
|
2,480 |
|
|
|
2,460 |
|
|
|
2,480 |
|
|
|
2,460 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Diluted net income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Common Stock |
|
$ |
.58 |
|
|
$ |
.54 |
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|
$ |
2.36 |
|
|
$ |
1.61 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of Common Stock
shares outstanding assuming dilution |
|
|
9,144 |
|
|
|
9,123 |
|
|
|
9,140 |
|
|
|
9,120 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Class B Common Stock |
|
$ |
.58 |
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|
$ |
.54 |
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$ |
2.36 |
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$ |
1.60 |
|
|
|
|
|
|
|
|
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|
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|
Weighted average number of Class B Common
Stock shares outstanding assuming dilution |
|
|
2,500 |
|
|
|
2,480 |
|
|
|
2,496 |
|
|
|
2,476 |
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
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|
Cash dividends per share: |
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|
|
|
|
|
|
|
|
|
|
|
|
|
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Common Stock |
|
$ |
.25 |
|
|
$ |
.25 |
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$ |
.75 |
|
|
$ |
.75 |
|
Class B Common Stock |
|
$ |
.25 |
|
|
$ |
.25 |
|
|
$ |
.75 |
|
|
$ |
.75 |
|
See Accompanying Notes to Consolidated Financial Statements
3
Coca-Cola Bottling Co. Consolidated
CONSOLIDATED BALANCE SHEETS
In Thousands (Except Share Data)
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|
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Unaudited |
|
|
|
|
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|
Unaudited |
|
|
|
Sept. 30, |
|
|
Dec. 31, |
|
|
Oct. 1, |
|
|
|
2007 |
|
|
2006 |
|
|
2006 |
|
ASSETS |
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|
|
|
|
|
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|
|
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|
|
|
|
|
|
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|
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Current Assets: |
|
|
|
|
|
|
|
|
|
|
|
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Cash and cash equivalents |
|
$ |
88,400 |
|
|
$ |
61,823 |
|
|
$ |
57,420 |
|
Accounts receivable, trade, less allowance for
doubtful accounts of $1,056, $1,334 and $1,373,
respectively |
|
|
96,914 |
|
|
|
91,299 |
|
|
|
90,749 |
|
Accounts receivable from The Coca-Cola Company |
|
|
19,768 |
|
|
|
4,915 |
|
|
|
8,322 |
|
Accounts receivable, other |
|
|
10,128 |
|
|
|
8,565 |
|
|
|
8,731 |
|
Inventories |
|
|
62,822 |
|
|
|
67,055 |
|
|
|
56,799 |
|
Prepaid expenses and other current assets |
|
|
16,000 |
|
|
|
13,485 |
|
|
|
14,627 |
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
294,032 |
|
|
|
247,142 |
|
|
|
236,648 |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Property, plant and equipment, net |
|
|
359,391 |
|
|
|
384,464 |
|
|
|
389,856 |
|
Leased property under capital leases, net |
|
|
71,896 |
|
|
|
69,851 |
|
|
|
70,681 |
|
Other assets |
|
|
34,670 |
|
|
|
35,542 |
|
|
|
36,791 |
|
Franchise rights |
|
|
520,672 |
|
|
|
520,672 |
|
|
|
520,672 |
|
Goodwill |
|
|
102,049 |
|
|
|
102,049 |
|
|
|
102,049 |
|
Other identifiable intangible assets, net |
|
|
4,413 |
|
|
|
4,747 |
|
|
|
4,871 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
1,387,123 |
|
|
$ |
1,364,467 |
|
|
$ |
1,361,568 |
|
|
|
|
|
|
|
|
|
|
|
See Accompanying Notes to Consolidated Financial Statements
4
Coca-Cola Bottling Co. Consolidated
CONSOLIDATED BALANCE SHEETS
In Thousands (Except Share Data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unaudited |
|
|
|
|
|
|
Unaudited |
|
|
|
Sept. 30, |
|
|
Dec. 31, |
|
|
Oct. 1, |
|
|
|
2007 |
|
|
2006 |
|
|
2006 |
|
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of debt |
|
$ |
100,000 |
|
|
$ |
100,000 |
|
|
$ |
|
|
Current portion of obligations under capital leases |
|
|
2,559 |
|
|
|
2,435 |
|
|
|
1,583 |
|
Accounts payable, trade |
|
|
38,445 |
|
|
|
44,050 |
|
|
|
34,994 |
|
Accounts payable to The Coca-Cola Company |
|
|
21,896 |
|
|
|
21,748 |
|
|
|
22,863 |
|
Other accrued liabilities |
|
|
53,993 |
|
|
|
51,030 |
|
|
|
59,087 |
|
Accrued compensation |
|
|
16,652 |
|
|
|
19,671 |
|
|
|
14,781 |
|
Accrued interest payable |
|
|
18,760 |
|
|
|
10,008 |
|
|
|
18,537 |
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
252,305 |
|
|
|
248,942 |
|
|
|
151,845 |
|
Deferred income taxes |
|
|
152,392 |
|
|
|
162,694 |
|
|
|
158,529 |
|
Pension and postretirement benefit obligations |
|
|
57,064 |
|
|
|
57,757 |
|
|
|
65,161 |
|
Other liabilities |
|
|
97,175 |
|
|
|
88,598 |
|
|
|
90,393 |
|
Obligations under capital leases |
|
|
78,280 |
|
|
|
75,071 |
|
|
|
76,328 |
|
Long-term debt |
|
|
591,450 |
|
|
|
591,450 |
|
|
|
691,450 |
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
1,228,666 |
|
|
|
1,224,512 |
|
|
|
1,233,706 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Commitments and Contingencies (Note 14) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interest |
|
|
47,963 |
|
|
|
46,002 |
|
|
|
45,330 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders Equity: |
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock, $1.00 par value: |
|
|
|
|
|
|
|
|
|
|
|
|
Authorized 30,000,000 shares;
Issued 9,706,051, 9,705,551 and 9,705,551 shares,
respectively |
|
|
9,706 |
|
|
|
9,705 |
|
|
|
9,705 |
|
Class B Common Stock, $1.00 par value: |
|
|
|
|
|
|
|
|
|
|
|
|
Authorized 10,000,000 shares;
Issued 3,107,766, 3,088,266 and 3,088,266 shares,
respectively |
|
|
3,107 |
|
|
|
3,088 |
|
|
|
3,088 |
|
Capital in excess of par value |
|
|
102,003 |
|
|
|
101,145 |
|
|
|
100,913 |
|
Retained earnings |
|
|
83,267 |
|
|
|
68,495 |
|
|
|
62,171 |
|
Accumulated other comprehensive loss |
|
|
(26,335 |
) |
|
|
(27,226 |
) |
|
|
(32,091 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
171,748 |
|
|
|
155,207 |
|
|
|
143,786 |
|
Less: Treasury stock, at cost |
|
|
|
|
|
|
|
|
|
|
|
|
Common 3,062,374 shares |
|
|
60,845 |
|
|
|
60,845 |
|
|
|
60,845 |
|
Class B Common 628,114 shares |
|
|
409 |
|
|
|
409 |
|
|
|
409 |
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity |
|
|
110,494 |
|
|
|
93,953 |
|
|
|
82,532 |
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
1,387,123 |
|
|
$ |
1,364,467 |
|
|
$ |
1,361,568 |
|
|
|
|
|
|
|
|
|
|
|
See Accompanying Notes to Consolidated Financial Statements
5
Coca-Cola Bottling Co. Consolidated
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY (UNAUDITED)
In Thousands
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital |
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
Class B |
|
|
in |
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
Common |
|
|
Common |
|
|
Excess of |
|
|
Retained |
|
|
Comprehensive |
|
|
Treasury |
|
|
|
|
|
|
Stock |
|
|
Stock |
|
|
Par Value |
|
|
Earnings |
|
|
Loss |
|
|
Stock |
|
|
Total |
|
Balance on
January 1, 2006 |
|
$ |
9,705 |
|
|
$ |
3,068 |
|
|
$ |
99,376 |
|
|
$ |
54,355 |
|
|
$ |
(30,116 |
) |
|
$ |
(61,254 |
) |
|
$ |
75,134 |
|
Comprehensive
income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,643 |
|
|
|
|
|
|
|
|
|
|
|
14,643 |
|
Net change in
minimum pension
liability adjustment,
net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,975 |
) |
|
|
|
|
|
|
(1,975 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive
income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,668 |
|
Cash dividends paid |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
($.75 per share) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,982 |
) |
|
|
|
|
|
|
|
|
|
|
(4,982 |
) |
Class B Common
($.75 per share) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,845 |
) |
|
|
|
|
|
|
|
|
|
|
(1,845 |
) |
Issuance of 20,000
shares of Class B
Common Stock |
|
|
|
|
|
|
20 |
|
|
|
840 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
860 |
|
Stock compensation expense |
|
|
|
|
|
|
|
|
|
|
697 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
697 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance on
October 1, 2006 |
|
$ |
9,705 |
|
|
$ |
3,088 |
|
|
$ |
100,913 |
|
|
$ |
62,171 |
|
|
$ |
(32,091 |
) |
|
$ |
(61,254 |
) |
|
$ |
82,532 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance on
December 31, 2006 |
|
$ |
9,705 |
|
|
$ |
3,088 |
|
|
$ |
101,145 |
|
|
$ |
68,495 |
|
|
$ |
(27,226 |
) |
|
$ |
(61,254 |
) |
|
$ |
93,953 |
|
Comprehensive
income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,615 |
|
|
|
|
|
|
|
|
|
|
|
21,615 |
|
Foreign currency
translation
adjustments, net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15 |
|
|
|
|
|
|
|
15 |
|
Pension and
postretirement benefit
adjustments, net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
876 |
|
|
|
|
|
|
|
876 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive
income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,506 |
|
Cash dividends paid |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
($.75 per share) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,983 |
) |
|
|
|
|
|
|
|
|
|
|
(4,983 |
) |
Class B Common
($.75 per share) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,860 |
) |
|
|
|
|
|
|
|
|
|
|
(1,860 |
) |
Issuance of 20,000
shares of Class B
Common Stock |
|
|
|
|
|
|
20 |
|
|
|
(20 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock compensation expense |
|
|
|
|
|
|
|
|
|
|
878 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
878 |
|
Conversion of Class B
Common Stock into
Common Stock |
|
|
1 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance on
September 30, 2007 |
|
$ |
9,706 |
|
|
$ |
3,107 |
|
|
$ |
102,003 |
|
|
$ |
83,267 |
|
|
$ |
(26,335 |
) |
|
$ |
(61,254 |
) |
|
$ |
110,494 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Accompanying Notes to Consolidated Financial Statements
6
Coca-Cola Bottling Co. Consolidated
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
In Thousands
|
|
|
|
|
|
|
|
|
|
|
First Nine Months |
|
|
|
2007 |
|
|
2006 |
|
Cash
Flows from Operating Activities |
|
|
|
|
|
|
|
|
Net income |
|
$ |
21,615 |
|
|
$ |
14,643 |
|
Adjustments to reconcile net income to net cash provided
by operating activities: |
|
|
|
|
|
|
|
|
Depreciation expense |
|
|
50,793 |
|
|
|
50,371 |
|
Amortization of intangibles |
|
|
334 |
|
|
|
426 |
|
Deferred income taxes |
|
|
5,092 |
|
|
|
2,061 |
|
Losses on disposal of property, plant and equipment |
|
|
298 |
|
|
|
1,327 |
|
Amortization of debt costs |
|
|
2,051 |
|
|
|
1,986 |
|
Amortization of deferred gain related to terminated
interest rate agreements |
|
|
(1,273 |
) |
|
|
(1,266 |
) |
Stock compensation expense |
|
|
878 |
|
|
|
697 |
|
Minority interest |
|
|
1,960 |
|
|
|
2,546 |
|
(Increase) decrease in current assets less current liabilities |
|
|
(9,154 |
) |
|
|
13,168 |
|
Decrease in other noncurrent assets |
|
|
1,499 |
|
|
|
2,102 |
|
Decrease in other noncurrent liabilities |
|
|
(13,330 |
) |
|
|
(4,011 |
) |
Other |
|
|
15 |
|
|
|
|
|
|
|
|
|
|
|
|
Total adjustments |
|
|
39,163 |
|
|
|
69,407 |
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
60,778 |
|
|
|
84,050 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Flows from Investing Activities |
|
|
|
|
|
|
|
|
Additions to property, plant and equipment |
|
|
(30,603 |
) |
|
|
(50,742 |
) |
Proceeds from the sale of property, plant and equipment |
|
|
7,684 |
|
|
|
950 |
|
Investment in plastic bottle manufacturing cooperative |
|
|
(2,256 |
) |
|
|
(1,515 |
) |
Other |
|
|
|
|
|
|
(243 |
) |
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(25,175 |
) |
|
|
(51,550 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Flows from Financing Activities |
|
|
|
|
|
|
|
|
Payment of current portion of long-term debt |
|
|
|
|
|
|
(39 |
) |
Payment of lines of credit, net |
|
|
|
|
|
|
(6,500 |
) |
Cash dividends paid |
|
|
(6,843 |
) |
|
|
(6,827 |
) |
Principal payments on capital lease obligations |
|
|
(1,811 |
) |
|
|
(1,291 |
) |
Other |
|
|
(372 |
) |
|
|
(31 |
) |
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
(9,026 |
) |
|
|
(14,688 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase in cash |
|
|
26,577 |
|
|
|
17,812 |
|
Cash at
beginning of period |
|
|
61,823 |
|
|
|
39,608 |
|
|
|
|
|
|
|
|
Cash at
end of period |
|
$ |
88,400 |
|
|
$ |
57,420 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Significant
non-cash investing and financing activities: |
|
|
|
|
|
|
|
|
Issuance of Class B Common Stock in connection with stock award |
|
$ |
929 |
|
|
$ |
860 |
|
Capital lease obligations incurred |
|
|
5,144 |
|
|
|
|
|
See Accompanying Notes to Consolidated Financial Statements
7
Coca-Cola Bottling Co. Consolidated
Notes to Consolidated Financial Statements (Unaudited)
1. Significant Accounting Policies
The consolidated financial statements include the accounts of Coca-Cola Bottling Co.
Consolidated and its majority owned subsidiaries (the Company). All significant intercompany
accounts and transactions have been eliminated.
The consolidated financial statements reflect all adjustments which, in the opinion of
management, are necessary for a fair statement of the results for the interim periods presented.
All such adjustments are of a normal, recurring nature.
The 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 accounting policies followed in the presentation of interim financial results are consistent
with those followed on an annual basis. These policies are presented in Note 1 to the
consolidated financial statements included in the Companys Annual Report on Form 10-K for the
year ended December 31, 2006 filed with the United States Securities and Exchange Commission
(SEC).
Certain prior year amounts have been reclassified to conform to current classifications.
2. Seasonality of Business
Operating results for the third quarter of 2007 (Q3 2007) and the first nine months of 2007
(YTD 2007) are not indicative of results that may be expected for the fiscal year ending
December 30, 2007 because of business seasonality. Business seasonality results primarily from
higher sales of the Companys products in the second and third quarters versus the first and
fourth quarters of the fiscal year. Fixed costs, such as depreciation and interest expense, are
not significantly impacted by business seasonality.
3. Piedmont Coca-Cola Bottling Partnership
On July 2, 1993, the Company and The Coca-Cola Company formed Piedmont Coca-Cola Bottling
Partnership (Piedmont) to distribute and market nonalcoholic beverages primarily in portions
of North Carolina and South Carolina. The Company provides a portion of the finished products
to Piedmont at cost and receives a fee for managing the business of Piedmont pursuant to a
management agreement. These intercompany transactions are eliminated in the consolidated
financial statements.
Minority interest as of September 30, 2007, December 31, 2006 and October 1, 2006 represents the
portion of Piedmont owned by The Coca-Cola Company, which was 22.7% for all periods presented.
8
Coca-Cola Bottling Co. Consolidated
Notes to Consolidated Financial Statements (Unaudited)
4. Inventories
Inventories were summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sept. 30, |
|
Dec. 31, |
|
Oct. 1, |
In Thousands |
|
2007 |
|
2006 |
|
2006 |
|
Finished products |
|
$ |
37,340 |
|
|
$ |
32,934 |
|
|
$ |
32,884 |
|
Manufacturing materials |
|
|
8,150 |
|
|
|
19,333 |
|
|
|
7,397 |
|
Plastic shells, pallets and other inventories |
|
|
17,332 |
|
|
|
14,788 |
|
|
|
16,518 |
|
|
Total inventories |
|
$ |
62,822 |
|
|
$ |
67,055 |
|
|
$ |
56,799 |
|
|
5. Property, Plant and Equipment
The principal categories and estimated useful lives of property, plant and equipment were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sept. 30, |
|
Dec. 31, |
|
Oct. 1, |
|
Estimated |
In Thousands |
|
2007 |
|
2006 |
|
2006 |
|
Useful Lives |
|
Land |
|
$ |
12,280 |
|
|
$ |
12,455 |
|
|
$ |
12,495 |
|
|
|
|
|
Buildings |
|
|
110,454 |
|
|
|
110,444 |
|
|
|
110,586 |
|
|
10-50 years |
Machinery and equipment |
|
|
103,400 |
|
|
|
100,519 |
|
|
|
99,980 |
|
|
5-20 years |
Transportation equipment |
|
|
176,966 |
|
|
|
184,861 |
|
|
|
185,324 |
|
|
4-13 years |
Furniture and fixtures |
|
|
40,363 |
|
|
|
39,184 |
|
|
|
40,135 |
|
|
4-10 years |
Cold drink dispensing equipment |
|
|
325,685 |
|
|
|
331,174 |
|
|
|
340,617 |
|
|
6-13 years |
Leasehold and land improvements |
|
|
59,047 |
|
|
|
57,837 |
|
|
|
57,871 |
|
|
5-20 years |
Software for internal use |
|
|
49,608 |
|
|
|
36,665 |
|
|
|
34,778 |
|
|
3-10 years |
Construction in progress |
|
|
3,524 |
|
|
|
13,464 |
|
|
|
12,076 |
|
|
|
|
|
|
Total property, plant and equipment, at cost |
|
|
881,327 |
|
|
|
886,603 |
|
|
|
893,862 |
|
|
|
|
|
Less: Accumulated depreciation
and amortization |
|
|
521,936 |
|
|
|
502,139 |
|
|
|
504,006 |
|
|
|
|
|
|
Property, plant and equipment, net |
|
$ |
359,391 |
|
|
$ |
384,464 |
|
|
$ |
389,856 |
|
|
|
|
|
|
Depreciation and amortization expense was $50.8 million in YTD 2007 and $50.4 million in the first
nine months of 2006 (YTD 2006). These amounts included amortization expense for leased property
under capital leases.
9
Coca-Cola Bottling Co. Consolidated
Notes to Consolidated Financial Statements (Unaudited)
6. Leased Property Under Capital Leases
Leased property under capital leases was summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sept. 30, |
|
Dec. 31, |
|
Oct. 1, |
|
Estimated |
In Thousands |
|
2007 |
|
2006 |
|
2006 |
|
Useful Lives |
|
Leased property under capital leases |
|
$ |
88,619 |
|
|
$ |
83,475 |
|
|
$ |
84,035 |
|
|
3-29 years |
Less: Accumulated amortization |
|
|
16,723 |
|
|
|
13,624 |
|
|
|
13,354 |
|
|
|
|
|
|
Leased property under capital leases, net |
|
$ |
71,896 |
|
|
$ |
69,851 |
|
|
$ |
70,681 |
|
|
|
|
|
|
As of September 30, 2007, real estate represented all of the leased property under capital
leases and $65.8 million of this real estate is leased from related parties as described in
Note 19 to the consolidated financial statements.
7. Franchise Rights and Goodwill
There was no change in franchise rights and goodwill in the periods presented.
8. Other Identifiable Intangible Assets
Other identifiable intangible assets were summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sept. 30, |
|
Dec. 31, |
|
Oct. 1, |
|
Estimated |
In Thousands |
|
2007 |
|
2006 |
|
2006 |
|
Useful Lives |
|
Other identifiable intangible assets |
|
$ |
6,599 |
|
|
$ |
6,599 |
|
|
$ |
8,374 |
|
|
1-18 years |
Less: Accumulated amortization |
|
|
2,186 |
|
|
|
1,852 |
|
|
|
3,503 |
|
|
|
|
|
|
Other identifiable intangible assets, net |
|
$ |
4,413 |
|
|
$ |
4,747 |
|
|
$ |
4,871 |
|
|
|
|
|
|
Other identifiable intangible assets primarily represent customer relationships.
10
Coca-Cola Bottling Co. Consolidated
Notes to Consolidated Financial Statements (Unaudited)
9. Other Accrued Liabilities
Other accrued liabilities were summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sept. 30, |
|
Dec. 31, |
|
Oct. 1, |
In Thousands |
|
2007 |
|
2006 |
|
2006 |
|
Accrued marketing costs |
|
$ |
6,798 |
|
|
$ |
6,659 |
|
|
$ |
7,745 |
|
Accrued insurance costs |
|
|
13,392 |
|
|
|
12,495 |
|
|
|
12,596 |
|
Accrued taxes (other than income taxes) |
|
|
2,822 |
|
|
|
2,068 |
|
|
|
3,029 |
|
Accrued income taxes |
|
|
3,086 |
|
|
|
1,558 |
|
|
|
3,132 |
|
Employee benefit plan accruals |
|
|
8,429 |
|
|
|
8,427 |
|
|
|
8,872 |
|
Checks and transfers yet to be presented for payment from
zero balance cash account |
|
|
9,958 |
|
|
|
10,199 |
|
|
|
15,312 |
|
All other accrued liabilities |
|
|
9,508 |
|
|
|
9,624 |
|
|
|
8,401 |
|
|
Total other accrued liabilities |
|
$ |
53,993 |
|
|
$ |
51,030 |
|
|
$ |
59,087 |
|
|
10. Debt
Debt was summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest |
|
Interest |
|
Sept. 30, |
|
Dec. 31, |
|
Oct. 1, |
In Thousands |
|
Maturity |
|
Rate |
|
Paid |
|
2007 |
|
2006 |
|
2006 |
|
Debentures |
|
|
2007 |
|
|
|
6.85 |
% |
|
Semi-annually |
|
$ |
100,000 |
|
|
$ |
100,000 |
|
|
$ |
100,000 |
|
Debentures |
|
|
2009 |
|
|
|
7.20 |
% |
|
Semi-annually |
|
|
57,440 |
|
|
|
57,440 |
|
|
|
57,440 |
|
Debentures |
|
|
2009 |
|
|
|
6.375 |
% |
|
Semi-annually |
|
|
119,253 |
|
|
|
119,253 |
|
|
|
119,253 |
|
Senior Notes |
|
|
2012 |
|
|
|
5.00 |
% |
|
Semi-annually |
|
|
150,000 |
|
|
|
150,000 |
|
|
|
150,000 |
|
Senior Notes |
|
|
2015 |
|
|
|
5.30 |
% |
|
Semi-annually |
|
|
100,000 |
|
|
|
100,000 |
|
|
|
100,000 |
|
Senior Notes |
|
|
2016 |
|
|
|
5.00 |
% |
|
Semi-annually |
|
|
164,757 |
|
|
|
164,757 |
|
|
|
164,757 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
691,450 |
|
|
|
691,450 |
|
|
|
691,450 |
|
Less: Current portion of debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100,000 |
|
|
|
100,000 |
|
|
|
|
|
|
Long-term debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
591,450 |
|
|
$ |
591,450 |
|
|
$ |
691,450 |
|
|
11
Coca-Cola Bottling Co. Consolidated
Notes to Consolidated Financial Statements (Unaudited)
10. Debt
On March 8, 2007, the Company entered into a $200 million revolving credit facility ($200 million
facility), replacing its $100 million facility. The $200 million facility matures in March 2012
and includes an option to extend the term for an additional year at the discretion of the
participating banks. The $200 million facility bears interest at a floating base rate or a
floating rate of LIBOR plus an interest rate spread of .35%. 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 Companys long-term senior unsecured debt rating. The
$200 million facility contains two financial covenants related to ratio requirements for interest
coverage and long-term debt to cash flow, each as defined in the credit agreement. These covenants
do not currently, and the Company does not anticipate they will, restrict its liquidity or capital
resources. On September 30, 2007, the Company had no outstanding borrowings on the $200 million
facility.
The Company borrows periodically under its available lines of credit. These lines of credit, in
the aggregate amount of $60 million at September 30, 2007, 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. On September 30, 2007, the Company had no outstanding borrowings on the lines
of credit.
After taking into account all of its interest rate hedging activities, the Company had a weighted
average interest rate of 6.7%, 6.9% and 6.8% for its debt and capital lease obligations as of
September 30, 2007, December 31, 2006 and October 1, 2006, respectively. The Companys overall
weighted average interest rate on its debt and capital lease obligations was 6.7% for YTD 2007
compared to 6.6% for YTD 2006. As of September 30, 2007, approximately 48% of the Companys debt
and capital lease obligations of $772.3 million was subject to changes in short-term interest
rates.
The Companys public debt is not subject to financial covenants but does limit the incurrence of
certain liens and encumbrances as well as the incurrence of indebtedness by the Companys
subsidiaries in excess of certain amounts.
All of the outstanding long-term debt has been issued by the Company with none being issued by any
of the Companys subsidiaries. There are no guarantees of the Companys debt.
12
Coca-Cola Bottling Co. Consolidated
Notes to Consolidated Financial Statements (Unaudited)
11. Derivative Financial Instruments
The Company periodically uses interest rate hedging products to mitigate risk from interest rate
fluctuations. The Company has historically altered its fixed/floating rate mix based upon
anticipated cash flows from operations relative to the Companys debt level and the potential
impact of changes in interest rates on the Companys overall financial condition. Sensitivity
analyses are performed to review the impact on the Companys financial position and coverage of
various interest rate movements. The Company does not use derivative financial instruments for
trading purposes nor does it use leveraged financial instruments. All of the Companys outstanding
interest rate swap agreements are LIBOR-based.
Derivative financial instruments were summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2007 |
|
December 31, 2006 |
|
October 1, 2006 |
|
|
Notional |
|
Remaining |
|
Notional |
|
Remaining |
|
Notional |
|
Remaining |
In Thousands |
|
Amount |
|
Term |
|
Amount |
|
Term |
|
Amount |
|
Term |
|
Interest rate swap agreement - floating |
|
$ |
25,000 |
|
|
0.17 years |
|
$ |
25,000 |
|
|
0.92 years |
|
$ |
25,000 |
|
|
1.17 years |
Interest rate swap agreement - floating |
|
|
25,000 |
|
|
0.17 years |
|
|
25,000 |
|
|
0.92 years |
|
|
25,000 |
|
|
1.17 years |
Interest rate swap agreement - floating |
|
|
50,000 |
|
|
1.67 years |
|
|
50,000 |
|
|
2.42 years |
|
|
50,000 |
|
|
2.67 years |
Interest rate swap agreement - floating |
|
|
50,000 |
|
|
0.17 years |
|
|
50,000 |
|
|
0.92 years |
|
|
50,000 |
|
|
1.17 years |
Interest rate swap agreement - floating |
|
|
50,000 |
|
|
1.83 years |
|
|
50,000 |
|
|
2.58 years |
|
|
50,000 |
|
|
2.83 years |
Interest rate swap agreement - floating |
|
|
50,000 |
|
|
5.17 years |
|
|
50,000 |
|
|
5.92 years |
|
|
50,000 |
|
|
6.17 years |
Interest rate swap agreement - floating |
|
|
25,000 |
|
|
1.58 years |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap agreement - floating |
|
|
25,000 |
|
|
7.50 years |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap agreement - floating |
|
|
25,000 |
|
|
5.17 years |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company had nine interest rate swap agreements as of September 30, 2007 with varying terms
that effectively converted $325 million of the Companys fixed rate debt to floating rate debt.
All of the interest rate swap agreements have been accounted for as fair value hedges.
The counterparties to these contractual arrangements are major financial institutions with which
the Company also has other financial relationships. The Company uses several different financial
institutions for interest rate derivative contracts 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 counterparties. The Company has master
agreements with the counterparties to its derivative financial agreements that provide for net
settlement of the derivative transactions.
During the first quarter of 2007, the Company began using derivative instruments to hedge a portion
of the Companys vehicle fuel purchases. These derivative instruments relate to diesel fuel and
unleaded gasoline used in the Companys delivery fleet. Derivative instruments used include puts
and calls which effectively establish an upper and lower limit on the Companys price of fuel
within periods covered by the instruments. The Company currently accounts for its fuel hedges on a
mark-to-market basis with any expense or income being reflected as an adjustment of fuel costs.
13
Coca-Cola Bottling Co. Consolidated
Notes to Consolidated Financial Statements (Unaudited)
12. Fair Values of Financial Instruments
The following methods and assumptions were used by the Company in estimating the fair values of
its financial instruments:
Cash and Cash Equivalents, Accounts Receivable and Accounts Payable
The fair values of cash and cash equivalents, accounts receivable and accounts payable
approximate carrying values due to the short maturity of these items.
Public Debt Securities
The fair values of the Companys public debt securities are based on estimated market prices.
Derivative Financial Instruments
The fair values for the Companys interest rate swap and fuel hedging agreements are based on
current settlement values.
Letters of Credit
The fair values of the Companys letters of credit, obtained from financial institutions, are
based on the notional amounts of the instruments. These letters of credit primarily relate to
the Companys property and casualty insurance programs.
The carrying amounts and fair values of the Companys debt, derivative financial instruments and
letters of credit were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sept. 30, 2007 |
|
Dec. 31, 2006 |
|
Oct. 1, 2006 |
|
|
Carrying |
|
Fair |
|
Carrying |
|
Fair |
|
Carrying |
|
Fair |
In Thousands |
|
Amount |
|
Value |
|
Amount |
|
Value |
|
Amount |
|
Value |
|
Public debt securities |
|
$ |
691,450 |
|
|
$ |
676,324 |
|
|
$ |
691,450 |
|
|
$ |
679,991 |
|
|
$ |
691,450 |
|
|
$ |
682,132 |
|
Interest rate swap agreements |
|
|
2,353 |
|
|
|
2,353 |
|
|
|
6,950 |
|
|
|
6,950 |
|
|
|
7,608 |
|
|
|
7,608 |
|
Fuel hedging agreements |
|
|
|
|
|
|
(154 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Letters of credit |
|
|
|
|
|
|
21,271 |
|
|
|
|
|
|
|
22,068 |
|
|
|
|
|
|
|
20,927 |
|
The fair values of the interest rate swap agreements at September 30, 2007, December 31, 2006
and October 1, 2006 represent the estimated amounts the Company would have paid upon
termination of these agreements, which are the current settlement values. The fair value of the
fuel hedging agreements at September 30, 2007 represents the estimated amount the Company would
have received upon termination of these agreements, which are the current settlement values.
14
Coca-Cola Bottling Co. Consolidated
Notes to Consolidated Financial Statements (Unaudited)
13. Other Liabilities
Other liabilities were summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sept. 30, |
|
Dec. 31, |
|
Oct. 1, |
In Thousands |
|
2007 |
|
2006 |
|
2006 |
|
Accruals for executive benefit plans |
|
$ |
74,462 |
|
|
$ |
69,547 |
|
|
$ |
68,134 |
|
Other |
|
|
22,713 |
|
|
|
19,051 |
|
|
|
22,259 |
|
|
Total other liabilities |
|
$ |
97,175 |
|
|
$ |
88,598 |
|
|
$ |
90,393 |
|
|
14. Commitments and Contingencies
The Company is a member of South Atlantic Canners, Inc. (SAC), a manufacturing cooperative from
which it is obligated to purchase 17.5 million cases of finished product on an annual basis
through May 2014. The Company is also a member of Southeastern Container (Southeastern), a
plastic bottle manufacturing cooperative, from which it is obligated to purchase at least 80% of
its requirements of plastic bottles for certain designated territories. See Note 19 to the
consolidated financial statements for additional information concerning SAC and Southeastern.
The Company guarantees a portion of SACs and Southeasterns debt and lease obligations. The
amounts guaranteed were $43.0 million, $42.9 million and $41.4 million as of September 30, 2007,
December 31, 2006 and October 1, 2006, respectively. The Company has not recorded any liability
associated with these guarantees. The Company holds no assets as collateral against these
guarantees and no contractual recourse exists that would enable the Company to recover amounts
guaranteed. The guarantees relate to the debt and lease obligations of SAC and Southeastern,
which resulted primarily from the purchase of production equipment and facilities. These
guarantees expire at various times through 2021. The members of both cooperatives consist solely
of Coca-Cola bottlers. The Company does not anticipate either of these cooperatives will fail to
fulfill their commitments under these agreements. The Company further believes each of these
cooperatives has sufficient assets, including production equipment, facilities and working
capital, and the ability to adjust selling prices of their products to adequately mitigate the
risk of material loss.
The Company has identified SAC and Southeastern as variable interest entities and has determined
it is not the primary beneficiary of either of the cooperatives. The Companys variable interest
in these cooperatives includes an equity ownership in each of the entities and the guarantee of
certain indebtedness. As of September 30, 2007, SAC had total assets of $42.6 million and total
debt of $20.6 million. SAC had total revenue for YTD 2007 of $144.2 million. As of September
30, 2007, Southeastern had total assets of $383.5 million and total debt of $269.1 million.
Southeastern had total revenue for YTD 2007 of $422.7 million.
In the event either of these cooperatives fails to fulfill its commitments under the related debt
and lease obligations, the Company would be responsible for payments to the lenders up to the
level of the guarantees. If these cooperatives had borrowed up to their borrowing capacity, the
Companys maximum exposure under these guarantees on September 30, 2007 would have been $55.4
million and the Companys maximum total exposure, including its equity investment, would have
been $34.2 million for SAC and $31.5 million for Southeastern.
15
Coca-Cola
Bottling Co. Consolidated
Notes to Consolidated Financial Statements (Unaudited)
14. Commitments and Contingencies
The Company has been purchasing plastic bottles from Southeastern and finished products from SAC
for more than ten years.
The Company has standby letters of credit, primarily related to its property and casualty
insurance programs. On September 30, 2007, these letters of credit totaled $21.3 million.
The Company participates in long-term marketing contractual arrangements with certain prestige
properties, athletic venues and other locations. The future payments related to these contractual
arrangements as of September 30, 2007 amounted to $23.4 million and expire at various dates
through 2016.
The Company is involved in various claims and legal proceedings which have arisen in the ordinary
course of its business. Although it is difficult to predict the ultimate outcome of these claims
and legal proceedings, management believes the ultimate disposition of these matters will not have
a material adverse effect on the financial condition, cash flows or results of operations of the
Company. No material amount of loss in excess of recorded amounts is believed to be reasonably
possible as a result of these claims and legal proceedings.
The Companys tax filings are subject to audit by tax authorities in jurisdictions where it
conducts business. These audits may result in assessments of additional taxes that are
subsequently resolved with the authorities or potentially through the courts. Management believes
the Company has adequately provided for any ultimate amounts that are likely to result from these
audits; however, final assessments, if any, could be different than the amounts recorded in the
consolidated financial statements.
16
Coca-Cola Bottling Co. Consolidated
Notes to Consolidated Financial Statements (Unaudited)
15. Income Taxes
The Companys effective income tax rate for YTD 2007 and YTD 2006 was 37.7% and 41.1%,
respectively.
The following table provides a reconciliation of the income tax expense at the statutory federal
rate to actual income tax expense.
|
|
|
|
|
|
|
|
|
|
|
First Nine Months |
In Thousands |
|
2007 |
|
2006 |
|
Statutory expense |
|
$ |
12,137 |
|
|
$ |
8,703 |
|
State income taxes, net of federal benefit |
|
|
1,510 |
|
|
|
1,139 |
|
Manufacturing deduction benefit |
|
|
(1,141 |
) |
|
|
(448 |
) |
Meals and entertainment |
|
|
440 |
|
|
|
534 |
|
Other, net |
|
|
115 |
|
|
|
294 |
|
|
Income tax expense |
|
$ |
13,061 |
|
|
$ |
10,222 |
|
|
In June 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes (FIN 48), an interpretation of FASB Statement No.
109, Accounting for Income Taxes. FIN 48 clarifies the accounting for uncertainty in income taxes
recognized by prescribing a recognition threshold and measurement attribute for the financial
statement recognition and measurement of a tax position taken or expected to be taken in a tax
return. FIN 48 also provides guidance on derecognition, classification, interest and penalties,
accounting in interim periods and disclosure. In May 2007, FASB issued FASB Staff Position FIN
48-1, Definition of Settlement in FASB Interpretation No. 48 (FSP FIN 48-1). FSP FIN 48-1
provides guidance on whether a tax position is effectively settled for the purpose of recognizing
previously unrecognized tax benefits. The Company adopted the provisions of FIN 48 and FSP FIN
48-1 effective as of January 1, 2007. As a result of the implementation of FIN 48 and FSP FIN
48-1, the Company recognized no material adjustment in the liability for unrecognized income tax
benefits. At the adoption date of January 1, 2007, the Company had $13.0 million of unrecognized
tax benefits, of which $7.6 million would affect the Companys effective tax rate if recognized.
As of September 30, 2007, the Company had $13.0 million of unrecognized tax benefits including
accrued interest of which $7.8 million would effect the Companys effective rate if recognized. It
is expected that the amount of unrecognized tax benefits will change in the next 12 months,
however, the Company does not expect the change to have a significant impact on the consolidated
financial statements.
The Company recognizes potential interest and penalties related to uncertain tax positions in
income tax expense. At the adoption date of January 1, 2007, the Company had approximately $1.6
million of accrued interest related to uncertain tax positions. As of September 30, 2007, the
Company had approximately $2.0 million of accrued interest related to uncertain tax positions.
Various tax years from 1989 forward remain open due to loss carryforwards. The tax years 2004
through 2006 remain open to examination by taxing jurisdictions to which the Company is subject.
17
Coca-Cola Bottling Co. Consolidated
Notes to Consolidated Financial Statements (Unaudited)
15. Income Taxes
The Companys income tax assets and liabilities are subject to adjustment in future periods based
on the Companys ongoing evaluations of such assets and liabilities and new information that
becomes available to the Company.
16. Accumulated Other Comprehensive Loss
Accumulated other comprehensive loss is comprised of adjustments relative to the Companys pension
and postretirement medical benefit plans and foreign currency translation adjustments required
because of a small subsidiary of the Company that performs data analysis and provides consulting
services primarily in Europe. The Company adopted Statement of Financial Accounting Standards No.
158, Employers Accounting for Defined Pension and Other Postretirement Plans (SFAS No. 158),
at the end of 2006.
A summary of accumulated other comprehensive loss is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dec. 31, |
|
Pre-tax |
|
Tax |
|
Sept. 30, |
In Thousands |
|
2006 |
|
Activity |
|
Effect |
|
2007 |
|
Net pension activity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial loss |
|
$ |
(24,673 |
) |
|
$ |
1,868 |
|
|
$ |
(735 |
) |
|
$ |
(23,540 |
) |
Prior service costs |
|
|
(31 |
) |
|
|
18 |
|
|
|
(7 |
) |
|
|
(20 |
) |
Net postretirement benefits activity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial loss |
|
|
(13,512 |
) |
|
|
916 |
|
|
|
(360 |
) |
|
|
(12,956 |
) |
Prior service costs |
|
|
10,915 |
|
|
|
(1,339 |
) |
|
|
527 |
|
|
|
10,103 |
|
Transition asset |
|
|
75 |
|
|
|
(19 |
) |
|
|
7 |
|
|
|
63 |
|
Foreign currency translation adjustment |
|
|
|
|
|
|
22 |
|
|
|
(7 |
) |
|
|
15 |
|
|
Total |
|
$ |
(27,226 |
) |
|
$ |
1,466 |
|
|
$ |
(575 |
) |
|
$ |
(26,335 |
) |
|
The only change in accumulated other comprehensive loss in YTD 2006 was an increase in minimum
pension liability adjustment, net of tax, of $2.0 million.
17. Capital Transactions
The Company has two classes of common stock outstanding, Common Stock and Class B Common Stock.
The Common Stock is traded on The NASDAQ Global Marketsm 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 a share-for-share
basis into shares of Common Stock at any time at the option of the holders of Class B Common
Stock.
18
Coca-Cola Bottling Co. Consolidated
Notes to Consolidated Financial Statements (Unaudited)
17. Capital Transactions
Pursuant to the Companys Certificate of Incorporation, no cash dividend or dividend of property
or stock other than stock of the Company, as specifically described in the Certificate of
Incorporation, may be declared and paid on the Class B Common Stock unless an equal or greater
dividend is declared and paid on the Common Stock. During YTD 2007 and YTD 2006, dividends of
$.75 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. Except to
the extent otherwise required by law, holders of the Common Stock and Class B Common Stock vote
together as a single class on all matters brought before the Companys stockholders.
In the event of liquidation, there is no preference between the two classes of common stock.
On
May 12, 1999, the stockholders of the Company approved a
restricted stock award program for J. Frank
Harrison, III, the Companys Chairman of the Board of Directors and Chief Executive Officer,
consisting of 200,000 shares of the Companys Class B
Common Stock. Under the award program, the shares of restricted stock
are granted at a rate of 20,000 shares per year over the 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 Companys Annual Bonus Plan. The restricted stock award
does not entitle Mr. Harrison, III to participate in dividend or voting rights until each
installment has vested and the shares are issued.
On February 22, 2006, the Compensation Committee of the Board of Directors determined 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 1,
2006. On February 28, 2007, 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 December 31, 2006.
The Companys only share based compensation is the restricted stock award to Mr. Harrison, III, as
previously described. Each annual 20,000 share tranche granted has an independent performance
requirement as it is not established until the Companys Annual Bonus Plan targets are approved
each year by the Companys Board of Directors. As a result, each 20,000 share tranche is
considered to have its own service inception date, grant-date fair value and requisite service
period.
The Companys Annual Bonus Plan targets, which establish the performance requirement for the
restricted stock awards, are approved by the Board of Directors in the first quarter of each year.
19
Coca-Cola Bottling Co. Consolidated
Notes to Consolidated Financial Statements (Unaudited)
17. Capital Transactions
A summary of restricted stock awards is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annual |
|
Nine Month |
|
|
Shares |
|
Grant-Date |
|
Compensation |
|
Compensation |
Year |
|
Awarded |
|
Price |
|
Expense |
|
Expense |
|
2006 |
|
|
20,000 |
|
|
$ |
46.45 |
|
|
$ |
929,000 |
|
|
$ |
696,750 |
|
2007 |
|
|
20,000 |
|
|
|
58.53 |
|
|
|
1,170,600 |
|
|
|
877,950 |
|
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.
The increase in the number of shares outstanding in YTD 2007 was due to the issuance of 20,000
shares of Class B Common Stock related to the restricted stock award and the conversion of 500
shares from Class B Common Stock to Common Stock. The increase in the number of shares
outstanding in YTD 2006 was due to the issuance of 20,000 shares of Class B Common Stock related
to the restricted stock award and the conversion of 100 shares of Class B Common Stock into
100 shares of Common Stock in the third quarter of 2006.
18. Benefit Plans
Pension Plans
Retirement benefits under the two Company-sponsored pension plans are based on the employees
length of service, average compensation over the five consecutive years which gives the highest
average compensation and the average of the Social Security taxable wage base during the 35-year
period before a participant reaches Social Security retirement age. Contributions to the plans
are based on the projected unit credit actuarial funding method and are limited to the amounts
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 Companys projected
benefit obligation which was offset against the Companys unrecognized net loss. As a result of
the curtailment, the impact on net income and on net pension expense prior to the effective date
of June 30, 2006 was immaterial. Periodic pension expense was reduced beginning in the third
quarter of 2006 and current service cost no longer accrues.
20
Coca-Cola Bottling Co. Consolidated
Notes to Consolidated Financial Statements (Unaudited)
18. Benefit Plans
The components of net periodic pension cost were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter |
|
First Nine Months |
In Thousands |
|
2007 |
|
2006 |
|
2007 |
|
2006 |
|
Service cost |
|
$ |
20 |
|
|
$ |
19 |
|
|
$ |
59 |
|
|
$ |
5,367 |
|
Interest cost |
|
|
2,634 |
|
|
|
2,512 |
|
|
|
7,902 |
|
|
|
7,866 |
|
Expected return on plan assets |
|
|
(3,224 |
) |
|
|
(3,047 |
) |
|
|
(9,674 |
) |
|
|
(9,056 |
) |
Amortization of prior service cost |
|
|
6 |
|
|
|
6 |
|
|
|
18 |
|
|
|
18 |
|
Recognized net actuarial loss |
|
|
623 |
|
|
|
962 |
|
|
|
1,868 |
|
|
|
3,482 |
|
|
Net periodic pension cost |
|
$ |
59 |
|
|
$ |
452 |
|
|
$ |
173 |
|
|
$ |
7,677 |
|
|
The Company did not contribute to its Company-sponsored pension plans during YTD 2007 and does not
expect to make contributions to its principal Company-sponsored pension plan during the remainder
of 2007.
Postretirement Benefits
The Company provides postretirement benefits for a portion of its current employees. The Company
recognizes the cost of postretirement benefits, which consist principally of medical benefits,
during employees periods of active service. The Company does not pre-fund these benefits and has
the right to modify or terminate certain of these benefits in the future.
The components of net periodic postretirement benefit cost were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter |
|
First Nine Months |
In Thousands |
|
2007 |
|
2006 |
|
2007 |
|
2006 |
|
Service cost |
|
$ |
107 |
|
|
$ |
83 |
|
|
$ |
319 |
|
|
$ |
249 |
|
Interest cost |
|
|
552 |
|
|
|
557 |
|
|
|
1,657 |
|
|
|
1,671 |
|
Amortization of unrecognized transitional assets |
|
|
(7 |
) |
|
|
(6 |
) |
|
|
(19 |
) |
|
|
(18 |
) |
Recognized net actuarial loss |
|
|
306 |
|
|
|
339 |
|
|
|
916 |
|
|
|
1,017 |
|
Amortization of prior service cost |
|
|
(447 |
) |
|
|
(446 |
) |
|
|
(1,339 |
) |
|
|
(1,338 |
) |
|
Net periodic postretirement benefit cost |
|
$ |
511 |
|
|
$ |
527 |
|
|
$ |
1,534 |
|
|
$ |
1,581 |
|
|
401(k) Savings Plan
In conjunction with the change to the principal Company-sponsored pension plan discussed above, the
Companys Board of Directors also approved an amendment to the 401(k) Savings Plan to
increase the Companys matching contribution under the 401(k) Savings Plan effective January 1,
2007. The amendment to the 401(k) Savings Plan provided for fully vested matching
contributions equal to 100% of a participants elective deferrals to the 401(k) Savings Plan up to
a maximum of 5% of a participants eligible compensation. Total costs for this benefit in YTD 2007
and YTD 2006 were $6.3 million and $3.6 million, respectively.
21
Coca-Cola Bottling Co. Consolidated
Notes to Consolidated Financial Statements (Unaudited)
19. Related Party Transactions
The Companys business consists primarily of the production, marketing and distribution of
nonalcoholic beverages of The Coca-Cola Company, which is the sole owner of the secret formulas
under which the primary components (either concentrate or syrup) of its soft drink products are
manufactured. As of September 30, 2007, The Coca-Cola Company had a 27.2% interest in the
Companys 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 The Coca-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 The Coca-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 The Coca-Cola Company.
The following table summarizes the significant transactions between the Company and The Coca-Cola
Company:
|
|
|
|
|
|
|
|
|
|
|
First Nine Months |
|
In Millions |
|
2007 |
|
|
2006 |
|
|
Payments by the Company for concentrate, syrup,
sweetener and other purchases |
|
$ |
254.4 |
|
|
$ |
262.2 |
|
Marketing funding support payments to the Company |
|
|
28.4 |
|
|
|
17.9 |
|
|
|
|
|
|
|
|
Payments net of marketing funding support |
|
$ |
226.0 |
|
|
$ |
244.3 |
|
|
|
|
|
|
|
|
|
|
Payments by the Company for customer marketing programs |
|
$ |
35.0 |
|
|
$ |
35.6 |
|
Payments by the Company for cold drink equipment parts |
|
|
4.2 |
|
|
|
4.8 |
|
Fountain delivery and equipment repair fees paid to the Company |
|
|
4.7 |
|
|
|
6.8 |
|
Presence marketing funding support provided by
The Coca-Cola Company on the Companys behalf |
|
|
3.2 |
|
|
|
4.8 |
|
Sales of finished products to The Coca-Cola Company |
|
|
24.8 |
|
|
|
31.9 |
|
|
The Company has a production arrangement with Coca-Cola Enterprises, Inc. (CCE) to buy and sell
finished products at cost. Sales to CCE under this arrangement were $31.9 million and $44.5
million in YTD 2007 and YTD 2006, respectively. Purchases from CCE under this arrangement were
$10.4 million and $12.0 million in YTD 2007 and YTD 2006, respectively. The Coca-Cola Company has
significant equity interests in the Company and CCE. As of September 30, 2007, CCE held 10.0% of
the Companys outstanding Common Stock but held no shares of the Companys Class B
Common Stock, giving CCE a 7.3% interest in the Companys total outstanding Common Stock and Class
B Common Stock on a combined basis.
22
Coca-Cola Bottling Co. Consolidated
Notes to Consolidated Financial Statements (Unaudited)
19. Related Party Transactions
Along with all other Coca-Cola bottlers in the United States, the Company is a member in Coca-Cola
Bottlers Sales and Services Company, LLC (CCBSS), which was formed in 2003 for the
purposes of facilitating various procurement functions and distributing certain specified beverage
products of The Coca-Cola Company with the intention of enhancing the efficiency and
competitiveness of the Coca-Cola bottling system in the United States. CCBSS negotiates the
procurement of the majority of the Companys raw materials (excluding concentrate). The Company
pays an administrative fee to CCBSS for its services.
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 YTD 2007 and YTD 2006 totaling $60.2 million and $59.5 million,
respectively. The Company received $17.1 million and $16.6 million for management services
pursuant to its management agreement with Piedmont for YTD 2007 and YTD 2006, respectively. The
Company provides financing for Piedmont at the Companys average cost of funds plus 0.50%. As of
September 30, 2007, the Company had loaned $78.8 million to Piedmont. The loan has a December 31,
2010 maturity date. The Company also subleases various fleet and vending equipment to Piedmont at
cost. These sublease rentals amounted to $5.6 million and $6.1 million in YTD 2007 and YTD 2006,
respectively. All intercompany accounts and transactions between the Company and Piedmont have
been eliminated.
The Company is a shareholder in two cooperatives from which it purchases substantially all its
requirements for plastic bottles. Net purchases from these cooperatives were $51.9 million and
$53.0 million in YTD 2007 and YTD 2006, respectively. In connection with its participation in one
of these cooperatives, the Company has guaranteed a portion of the cooperatives debt. Such
guarantee amounted to $22.4 million as of September 30, 2007.
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 $112.8 million and $103.2 million in YTD 2007 and YTD 2006, respectively. The Company also
manages the operations of SAC pursuant to a management agreement. Management fees earned from SAC
were $1.0 million and $1.1 million in YTD 2007 and YTD 2006, respectively. The Company has also
guaranteed a portion of debt for SAC. Such guarantee amounted to $20.6 million as of September 30,
2007.
The Company leases from Harrison Limited Partnership One (HLP) the Snyder Production Center and
an adjacent sales facility, which are located in Charlotte, North Carolina. HLP is directly and
indirectly owned by trusts of which J. Frank Harrison, III, Chairman of the Board of Directors and
Chief Executive Officer of the Company, and Deborah S. Harrison, a director of the Company, are
trustees and beneficiaries. The principal balance outstanding under this capital lease as of
September 30, 2007 was $38.6 million. Rental payments related to this lease were $3.2 million and
$3.0 million in YTD 2007 and YTD 2006, respectively.
The Company leases from Beacon Investment Corporation (Beacon), the Companys headquarters office
facility and an adjacent office facility. Beacons sole shareholder is J. Frank Harrison, III. On
December 18, 2006, the Company modified this lease agreement (effective January 1, 2007) with
Beacon which expires in
23
Coca-Cola Bottling Co. Consolidated
Notes to Consolidated Financial Statements (Unaudited)
19. Related Party Transactions
December 2021. The modifications 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. 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 obligations under
capital leases and leased property under capital leases were increased by $5.1 million on January
1, 2007. The principal balance outstanding as of September 30, 2007 was $34.7 million. Rental
payments related to the lease were $2.7 million and $2.8 million in YTD 2007 and YTD 2006,
respectively.
20. Net Sales by Product Category
Net sales by product category were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter |
|
First Nine Months |
In Thousands |
|
2007 |
|
2006 |
|
2007 |
|
2006 |
|
Bottle/can sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sparkling beverages (including energy products) |
|
$ |
255,804 |
|
|
$ |
252,482 |
|
|
$ |
760,359 |
|
|
$ |
762,575 |
|
Still beverages |
|
|
58,897 |
|
|
|
54,617 |
|
|
|
158,280 |
|
|
|
143,380 |
|
|
Total bottle/can sales |
|
|
314,701 |
|
|
|
307,099 |
|
|
|
918,639 |
|
|
|
905,955 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales to other Coca-Cola bottlers |
|
|
27,804 |
|
|
|
39,463 |
|
|
|
101,774 |
|
|
|
118,546 |
|
Postmix and other |
|
|
24,855 |
|
|
|
24,064 |
|
|
|
74,946 |
|
|
|
65,928 |
|
|
Total other sales |
|
|
52,659 |
|
|
|
63,527 |
|
|
|
176,720 |
|
|
|
184,474 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales |
|
$ |
367,360 |
|
|
$ |
370,626 |
|
|
$ |
1,095,359 |
|
|
$ |
1,090,429 |
|
|
Sparkling beverages are primarily carbonated beverages while still beverages are primarily
noncarbonated beverages.
24
Coca-Cola Bottling Co. Consolidated
Notes to Consolidated Financial Statements (Unaudited)
21. Net Income Per Share
The following table sets forth the computation of basic net income per share and diluted net income
per share under the two-class method:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter |
|
|
First Nine Months |
|
In Thousands (Except Per Share Data) |
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
|
Numerator for basic and diluted net income per
Common Stock and Class B Common Stock share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
5,273 |
|
|
$ |
4,941 |
|
|
$ |
21,615 |
|
|
$ |
14,643 |
|
Less dividends: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
|
1,661 |
|
|
|
1,661 |
|
|
|
4,983 |
|
|
|
4,982 |
|
Class B Common Stock |
|
|
620 |
|
|
|
615 |
|
|
|
1,860 |
|
|
|
1,845 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total undistributed earnings |
|
$ |
2,992 |
|
|
$ |
2,665 |
|
|
$ |
14,772 |
|
|
$ |
7,816 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock undistributed earnings basic |
|
$ |
2,179 |
|
|
$ |
1,945 |
|
|
$ |
10,757 |
|
|
$ |
5,704 |
|
Class B Common Stock undistributed earnings basic |
|
|
813 |
|
|
|
720 |
|
|
|
4,015 |
|
|
|
2,112 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total undistributed earnings basic |
|
$ |
2,992 |
|
|
$ |
2,665 |
|
|
$ |
14,772 |
|
|
$ |
7,816 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock undistributed earnings diluted |
|
$ |
2,174 |
|
|
$ |
1,941 |
|
|
$ |
10,738 |
|
|
$ |
5,694 |
|
Class B Common Stock undistributed earnings diluted |
|
|
818 |
|
|
|
724 |
|
|
|
4,034 |
|
|
|
2,122 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total undistributed earnings diluted |
|
$ |
2,992 |
|
|
$ |
2,665 |
|
|
$ |
14,772 |
|
|
$ |
7,816 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator for basic net income per Common
Stock share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends on Common Stock |
|
$ |
1,661 |
|
|
$ |
1,661 |
|
|
$ |
4,983 |
|
|
$ |
4,982 |
|
Common Stock undistributed earnings basic |
|
|
2,179 |
|
|
|
1,945 |
|
|
|
10,757 |
|
|
|
5,704 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator for basic net income per Common
Stock share |
|
$ |
3,840 |
|
|
$ |
3,606 |
|
|
$ |
15,740 |
|
|
$ |
10,686 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator for basic net income per Class B
Common Stock share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends on Class B Common Stock |
|
$ |
620 |
|
|
$ |
615 |
|
|
$ |
1,860 |
|
|
$ |
1,845 |
|
Class B Common Stock undistributed earnings basic |
|
|
813 |
|
|
|
720 |
|
|
|
4,015 |
|
|
|
2,112 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator for basic net income per Class B
Common Stock share |
|
$ |
1,433 |
|
|
$ |
1,335 |
|
|
$ |
5,875 |
|
|
$ |
3,957 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25
Coca-Cola Bottling Co. Consolidated
Notes to Consolidated Financial Statements (Unaudited)
21. Net Income Per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter |
|
|
First Nine Months |
|
In Thousands (Except Per Share Data) |
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
|
Numerator for diluted net income per
Common Stock share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends on Common Stock |
|
$ |
1,661 |
|
|
$ |
1,661 |
|
|
$ |
4,983 |
|
|
$ |
4,982 |
|
Dividends on Class B Common Stock
assumed converted to Common Stock |
|
|
620 |
|
|
|
615 |
|
|
|
1,860 |
|
|
|
1,845 |
|
Common Stock undistributed earnings diluted |
|
|
2,992 |
|
|
|
2,665 |
|
|
|
14,772 |
|
|
|
7,816 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator for diluted net income per
Common Stock share |
|
$ |
5,273 |
|
|
$ |
4,941 |
|
|
$ |
21,615 |
|
|
$ |
14,643 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator for diluted net income per Class B
Common Stock share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends on Class B Common Stock |
|
$ |
620 |
|
|
$ |
615 |
|
|
$ |
1,860 |
|
|
$ |
1,845 |
|
Class B Common Stock undistributed earnings diluted |
|
|
818 |
|
|
|
724 |
|
|
|
4,034 |
|
|
|
2,122 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator for diluted net income per Class B
Common Stock share |
|
$ |
1,438 |
|
|
$ |
1,339 |
|
|
$ |
5,894 |
|
|
$ |
3,967 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26
Coca-Cola Bottling Co. Consolidated
Notes to Consolidated Financial Statements (Unaudited)
21. Net Income Per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter |
|
|
First Nine Months |
|
In Thousands (Except Per Share Data) |
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
|
Denominator for basic net income per Common
Stock and Class B Common Stock share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock weighted average shares
outstanding basic |
|
|
6,644 |
|
|
|
6,643 |
|
|
|
6,644 |
|
|
|
6,643 |
|
Class B Common Stock weighted average shares
outstanding basic |
|
|
2,480 |
|
|
|
2,460 |
|
|
|
2,480 |
|
|
|
2,460 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for diluted net income per Common
Stock and Class B Common Stock share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock weighted average shares
outstanding diluted (assumes conversion of
Class B Common Stock to Common Stock) |
|
|
9,144 |
|
|
|
9,123 |
|
|
|
9,140 |
|
|
|
9,120 |
|
Class B Common Stock weighted average shares
outstanding diluted |
|
|
2,500 |
|
|
|
2,480 |
|
|
|
2,496 |
|
|
|
2,476 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
$ |
.58 |
|
|
$ |
.54 |
|
|
$ |
2.37 |
|
|
$ |
1.61 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class B Common Stock |
|
$ |
.58 |
|
|
$ |
.54 |
|
|
$ |
2.37 |
|
|
$ |
1.61 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
$ |
.58 |
|
|
$ |
.54 |
|
|
$ |
2.36 |
|
|
$ |
1.61 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class B Common Stock |
|
$ |
.58 |
|
|
$ |
.54 |
|
|
$ |
2.36 |
|
|
$ |
1.60 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTES TO TABLE |
|
(1) |
|
For purposes of the diluted net income per share computation for Common Stock, shares of
Class B Common Stock are assumed to be converted; therefore, 100% of undistributed earnings is
allocated to Common Stock. |
|
(2) |
|
For purposes of the diluted net income per share computation for Class B Common Stock,
weighted average shares of Class B Common Stock are assumed to be outstanding for the entire
period and not converted. |
|
(3) |
|
The denominator for diluted net income per share for Common Stock and Class B Common Stock
includes the diluted effect of shares relative to the restricted stock award. |
27
Coca-Cola Bottling Co. Consolidated
Notes to Consolidated Financial Statements (Unaudited)
22. Risks and Uncertainties
Approximately 89% of the Companys YTD 2007 bottle/can volume to retail customers are products of
The Coca-Cola Company, which is the sole supplier of the concentrates or syrups required to
manufacture these products. The remaining 11% of the Companys YTD 2007 bottle/can volume to
retail customers are products of other beverage companies and the Company. The Company has
bottling contracts under which it has various requirements to meet. Failure to meet the
requirements of these bottling contracts could result in the loss of distribution rights for the
respective product.
The Companys products are sold and distributed directly by its employees to retail stores and
other outlets. During YTD 2007, approximately 68% of the Companys bottle/can volume to retail
customers was sold for future consumption. The remaining bottle/can volume to retail customers of
approximately 32% was sold for immediate consumption. The Companys largest customers, Wal-Mart
Stores, Inc. and Food Lion, LLC, accounted for approximately 18% and 12% of the Companys total
bottle/can volume to retail customers during YTD 2007, respectively. Wal-Mart Stores, Inc.
accounted for approximately 13% of the Companys total net sales during YTD 2007.
The Company obtains all of its aluminum cans from one domestic supplier. The Company currently
obtains all of its plastic bottles from two domestic cooperatives.
Certain liabilities of the Company are subject to risk due to changes in both long-term and
short-term interest rates. These liabilities include floating rate debt, leases with payments
determined on floating interest rates, postretirement benefit obligations and the Companys pension
liability.
Approximately 7% of the Companys labor force is currently covered by collective bargaining
agreements. One collective bargaining contract covering less than .5% of the Companys employees
will expire during the fourth quarter of 2007.
28
Coca-Cola Bottling Co. Consolidated
Notes to Consolidated Financial Statements (Unaudited)
23. Supplemental Disclosures of Cash Flow Information
Changes in current assets and current liabilities affecting cash were as follows:
|
|
|
|
|
|
|
|
|
|
|
First Nine Months |
In Thousands |
|
2007 |
|
2006 |
|
Accounts receivable, trade, net |
|
$ |
(5,615 |
) |
|
$ |
3,827 |
|
Accounts receivable from The Coca-Cola Company |
|
|
(14,853 |
) |
|
|
(5,603 |
) |
Accounts receivable, other |
|
|
(1,563 |
) |
|
|
(343 |
) |
Inventories |
|
|
4,233 |
|
|
|
1,434 |
|
Prepaid expenses and other current assets |
|
|
(2,564 |
) |
|
|
(5,863 |
) |
Accounts payable, trade |
|
|
(5,605 |
) |
|
|
(339 |
) |
Accounts payable to The Coca-Cola Company |
|
|
148 |
|
|
|
7,347 |
|
Other accrued liabilities |
|
|
10,932 |
|
|
|
7,168 |
|
Accrued compensation |
|
|
(3,019 |
) |
|
|
(3,328 |
) |
Accrued interest payable |
|
|
8,752 |
|
|
|
8,868 |
|
|
(Increase) decrease in current assets less current liabilities |
|
$ |
(9,154 |
) |
|
$ |
13,168 |
|
|
24. New Accounting Pronouncements
Recently Adopted Pronouncements
In September 2006, FASB issued SFAS No. 158, which 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 employers statement of financial position, which is effective for
fiscal years ending after December 15, 2008. The impact of the adoption of this Statement was to
increase the Companys pension and postretirement liabilities by $4.2 million with a corresponding
adjustment to other comprehensive loss, net of tax effect of $1.6 million. The Company
anticipates changing the measurement date to its fiscal year end date in fiscal 2008.
In June 2006, FASB issued FIN 48. FIN 48 clarifies the accounting for uncertainty in income taxes
recognized by prescribing a recognition threshold and measurement attribute for the financial
statement recognition and measurement of a tax position taken or expected to be taken in a tax
return. FIN 48 also provides guidance on derecognition, classification, interest and penalties,
accounting in interim periods and disclosure. In May 2007, FASB issued FSP FIN 48-1. FSP FIN
48-1 provides guidance on whether a tax position is effectively settled for the purpose of
recognizing previously unrecognized tax benefits. FIN 48 and FSP FIN 48-1 were effective as of
January 1, 2007. The adoption of FIN 48 and FSP FIN 48-1 did not have a material impact on the
consolidated financial statements. See Note 15 of the consolidated financial statements for
additional information.
In June 2006, the Emerging Issues Task Force (EITF) reached a consensus on Issue No. 06-03, How
Taxes Collected from Customers and Remitted to Governmental Authorities Should Be Presented in the
Income Statement (That Is, Gross Versus Net Presentation) (EITF 06-03). EITF 06-03 provides
that the
29
Coca-Cola Bottling Co. Consolidated
Notes to Consolidated Financial Statements (Unaudited)
24. New Accounting Pronouncements
presentation of taxes assessed by a governmental authority that are directly imposed on
revenue-producing transactions (e.g. sales, use, value added and excise taxes) between a seller and
a customer on either a gross basis (included in revenues and costs) or on a net basis (excluded
from revenues) is an accounting policy decision that should be disclosed. In addition, for any
such taxes that are reported on a gross basis, the amounts of those taxes should be disclosed in
interim and annual financial statements for each period for which an income statement is presented
if those amounts are significant. EITF 06-03 was effective January 1, 2007. The Company records
substantially all of the taxes within the scope of EITF 06-03 on a net basis.
Recently Issued Pronouncements
In September 2006, FASB issued SFAS No. 157, Fair Value Measurement. This Statement defines fair
value, establishes a framework for measuring fair value in generally accepted accounting principles
(GAAP) and expands disclosures about fair value measurements. The Statement does not require any
new fair value measurements but could change the current practices in measuring current fair value
measurements. The Statement is effective 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.
In February 2007, FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and
Financial Liabilities. This Statement permits entities to choose to measure many financial
instruments and certain other items at fair value. This Statement is effective 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.
30
Coca-Cola Bottling Co. Consolidated
Notes to Consolidated Financial Statements (Unaudited)
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 Companys business. The
restructuring expenses consist primarily of one-time termination benefits and other associated
costs, primarily relocation expenses for certain employees. During YTD 2007, the Company incurred
$2.6 million in restructuring expenses, which are included in selling, delivery and administrative
expenses. The Company anticipates the total restructuring expenses will be in the range of $2.6
million to $2.8 million and anticipates all of the cash expenditures will occur prior to 2007
fiscal year end.
The following summarizes restructuring activity for YTD 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance Pay |
|
Relocation |
|
|
In Thousands |
|
and Benefits |
|
and Other |
|
Total |
|
Balance at December 31, 2006 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Provision |
|
|
1,607 |
|
|
|
988 |
|
|
|
2,595 |
|
Cash payments |
|
|
1,607 |
|
|
|
988 |
|
|
|
2,595 |
|
|
Balance at September 30, 2007 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
31
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
The following Managements Discussion and Analysis of Financial Condition and Results of Operations
(M,D&A) should be read in conjunction with Coca-Cola Bottling Co. Consolidateds (the Company)
consolidated financial statements and the accompanying notes to consolidated financial statements.
M,D&A includes the following sections:
|
|
|
Our Business and the Nonalcoholic Beverage Industry a general description of the
Companys business and the nonalcoholic beverage industry. |
|
|
|
|
Areas of Emphasis a summary of the Companys key priorities. |
|
|
|
|
Overview of Operations and Financial Condition a summary of key information and trends
concerning the financial results for the third quarter of 2007 (Q3 2007) and the first
nine months of 2007 (YTD 2007) and changes from the third quarter of 2006 (Q3 2006) and
the first nine months of 2006 (YTD 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
Companys financial condition and results of operations and that require critical judgments
and estimates and the expected impact of new accounting pronouncements. |
|
|
|
|
Results of Operations an analysis of the Companys results of operations for Q3 2007
and YTD 2007 compared to Q3 2006 and YTD 2006. |
|
|
|
|
Financial Condition an analysis of the Companys financial condition as of the end of
Q3 2007 compared to year-end 2006 and the end of Q3 2006 as presented in the consolidated
financial statements. |
|
|
|
|
Liquidity and Capital Resources an analysis of capital resources, cash sources and
uses, investing activities, financing activities, off-balance sheet arrangements, aggregate
contractual obligations and hedging activities. |
|
|
|
|
Cautionary Information Regarding Forward-Looking Statements. |
The consolidated statements of operations for the quarters ended September 30, 2007 and October 1,
2006 and YTD 2007 and YTD 2006, the consolidated statements of cash flows for YTD 2007 and YTD 2006
and the consolidated balance sheets at September 30, 2007, December 31, 2006 and October 1, 2006
include the consolidated operations of the Company and its majority-owned subsidiaries including
Piedmont Coca-Cola Bottling Partnership (Piedmont). Minority interest consists of The Coca-Cola
Companys interest in Piedmont, which was 22.7% for all periods presented.
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, operating in eleven states primarily in the Southeast. The Company also distributes
several other beverage brands. These product offerings include both sparkling and still beverages.
Sparkling beverages are primarily carbonated beverages including energy products. Still beverages
are primarily noncarbonated beverages such as bottled water, tea, ready to drink coffee, enhanced
water, juices and sports drinks. The Company had net sales of approximately $1.4 billion in 2006.
32
The nonalcoholic beverage market is highly competitive. The Companys competitors in this market
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% and 95% of
sparkling beverage sales in bottles, cans and other containers are accounted for by the Company and
its principal competitors, which in each region includes the local bottler of Pepsi-Cola and, in
some regions, the local bottler of Dr Pepper, Royal Crown and/or 7-Up products. During the last
three years, industry sales of sugar sparkling beverages, other than energy products, have
declined. The decline in sugar sparkling beverages has generally been offset by sales growth in
other nonalcoholic product categories. The sparkling beverage category (including energy products)
represents 83% of the Companys YTD 2007 bottle/can net sales.
The principal methods of competition in the nonalcoholic beverage industry are point-of-sale
merchandising, new product introductions, new vending and dispensing equipment, packaging changes,
pricing, price promotions, product quality, retail space management, customer service, frequency of
distribution and advertising. The Company believes it is competitive in its territories with
respect to each of these methods of competition.
Operating results for Q3 2007 and YTD 2007 are not indicative of results that may be expected for
the fiscal year ending December 30, 2007 because of business seasonality. Business seasonality
results primarily from higher unit sales of the Companys products in the second and third quarters
versus the first and fourth quarters of the fiscal year. Fixed costs, such as depreciation and
interest expense, are not significantly impacted by business seasonality.
Net sales by product category were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter |
|
First Nine Months |
In Thousands |
|
2007 |
|
2006 |
|
2007 |
|
2006 |
|
Bottle/can sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sparkling beverages (including energy products) |
|
$ |
255,804 |
|
|
$ |
252,482 |
|
|
$ |
760,359 |
|
|
$ |
762,575 |
|
Still beverages |
|
|
58,897 |
|
|
|
54,617 |
|
|
|
158,280 |
|
|
|
143,380 |
|
|
Total bottle/can sales |
|
|
314,701 |
|
|
|
307,099 |
|
|
|
918,639 |
|
|
|
905,955 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales to other Coca-Cola bottlers |
|
|
27,804 |
|
|
|
39,463 |
|
|
|
101,774 |
|
|
|
118,546 |
|
Postmix and other |
|
|
24,855 |
|
|
|
24,064 |
|
|
|
74,946 |
|
|
|
65,928 |
|
|
Total other sales |
|
|
52,659 |
|
|
|
63,527 |
|
|
|
176,720 |
|
|
|
184,474 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales |
|
$ |
367,360 |
|
|
$ |
370,626 |
|
|
$ |
1,095,359 |
|
|
$ |
1,090,429 |
|
|
Areas of Emphasis
Key priorities for the Company include revenue management, innovation and beverage portfolio
expansion, distribution cost management and productivity.
Revenue Management
Revenue management requires a strategy which reflects consideration for pricing of brands and
packages within product categories and channels, as well as highly effective working relationships
with customers and disciplined
33
fact-based decision-making. Revenue management has been and continues to be a key performance
driver which has significant impact on the Companys results of operations.
Innovation and Beverage Portfolio Expansion
Sparkling beverages volume, other than energy products, has declined over the past several years.
Innovation of both new brands and packages has been and will continue to be critical to the
Companys overall revenue. The Company introduced new products, which included Country Breeze tea,
juice products from Fuze, a subsidiary of The Coca-Cola Company, and V8 juice products from
Campbells, during Q3 2007. The Company also modified its energy product portfolio in Q3 2007 with
the addition of NOS© products from Fuze.
In
August 2007, the Company entered into a distribution agreement with
Energy Brands Inc. (Energy Brands), a wholly-owned
subsidiary of The Coca-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 The Coca-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 The Coca-Cola Company.
The Company has invested in its own brand portfolio with products such as Respect, a vitamin
enhanced beverage, Tum-E Yummies, a noncarbonated flavored drink, Country Breeze tea, and its own
energy drink, and has become the exclusive licensee of Cinnabon Premium Coffee Lattes in the United
States. These brands enable the Company to participate in strong growth categories and capitalize
on distribution channels that include the Companys traditional Coca-Cola franchise territory as
well as third party distributors outside the Companys traditional territory. While the growth
prospects of Company-owned or exclusive licensed brands appear very promising, the costs of
developing, marketing and distributing these brands is anticipated to be significant as well.
The Company has also fostered innovation as evidenced by the development of specialty packaging for
customers, the conversion of a portion of the Companys operations to the CooLift®
delivery system, and the implementation in the second quarter of 2006 of a service module in
our enterprise resource planning software platform (SAP) for the automation, scheduling,
installation, delivery and repair of cold drink dispensing equipment.
Distribution Cost Management
Distribution costs represent the costs of transporting finished goods from Company locations to
customer outlets. Total distribution costs amounted to $144.1 million and $147.7 million in YTD
2007 and YTD 2006, respectively. Over the past several years, the Company has focused on converting
its distribution system from a conventional routing system to a predictive system. This conversion
to a predictive system has allowed the Company to more efficiently handle increasing numbers of
brands and packages. 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; |
|
|
|
|
advance sale delivery for convenience stores, drug stores, small supermarkets and
certain on-premise accounts; and |
|
|
|
|
full service delivery for its full service vending customers. |
In 2006, the Company began changing its delivery method for its route 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 customers order. The Company began
using a new CooLift® delivery system in 2006 in a portion of our operations which
involves pre-building orders in the warehouse on a small pallet the delivery employee can roll off
a truck directly into the customers location. The CooLift® delivery system involves the
use of a rear-loading truck rather than conventional side loading truck. The Company anticipates the
implementation of this delivery system will continue over the next several years. This rollout
will continue to require additional
34
capital expenditures for the rear-loading delivery vehicle. The Company anticipates that this
change in delivery methodology will result in significant savings in future years and more
effective delivery of a greater number of products.
Distribution cost management will continue to be a key area of emphasis for the Company for the
next several years.
Productivity
A key driver in the Companys selling, delivery and administrative (S,D&A) expense management
relates to ongoing improvements in labor and asset productivity. On February 2, 2007, the Company
initiated a restructuring plan to simplify and streamline its operating management structure, which
included a separation of the sales function from the delivery function to provide dedicated focus
on each function and enhanced productivity in the future. The Company continues to focus on its
supply chain, sales and distribution functions for opportunities to improve its overall
productivity.
35
Overview of Operations and Financial Condition
The following overview provides a summary of key information concerning the Companys financial
results for Q3 2007 and YTD 2007 compared to Q3 2006 and YTD 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter |
|
|
|
|
|
% |
In Thousands (Except Per Share Data) |
|
2007 |
|
2006 |
|
Change |
|
Change |
|
Net sales |
|
$ |
367,360 |
|
|
$ |
370,626 |
|
|
$ |
(3,266 |
) |
|
|
(0.9 |
) |
Gross margin |
|
|
155,212 |
|
|
|
157,389 |
|
|
|
(2,177 |
) |
|
|
(1.4 |
) |
S,D&A expenses |
|
|
134,861 |
|
|
|
135,421 |
|
|
|
(560 |
) |
|
|
(0.4 |
) |
Income from operations |
|
|
20,240 |
|
|
|
21,832 |
|
|
|
(1,592 |
) |
|
|
(7.3 |
) |
Interest expense |
|
|
12,135 |
|
|
|
12,745 |
|
|
|
(610 |
) |
|
|
(4.8 |
) |
Income before income taxes |
|
|
7,995 |
|
|
|
8,246 |
|
|
|
(251 |
) |
|
|
(3.0 |
) |
Net income |
|
|
5,273 |
|
|
|
4,941 |
|
|
|
332 |
|
|
|
6.7 |
|
Basic net income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
$ |
.58 |
|
|
$ |
.54 |
|
|
$ |
.04 |
|
|
|
7.4 |
|
Class B Common Stock |
|
$ |
.58 |
|
|
$ |
.54 |
|
|
$ |
.04 |
|
|
|
7.4 |
|
Diluted net income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
$ |
.58 |
|
|
$ |
.54 |
|
|
$ |
.04 |
|
|
|
7.4 |
|
Class B Common Stock |
|
$ |
.58 |
|
|
$ |
.54 |
|
|
$ |
.04 |
|
|
|
7.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Nine Months |
|
|
|
|
|
% |
In Thousands (Except Per Share Data) |
|
2007 |
|
2006 |
|
Change |
|
Change |
|
Net sales |
|
$ |
1,095,359 |
|
|
$ |
1,090,429 |
|
|
$ |
4,930 |
|
|
|
0.5 |
|
Gross margin |
|
|
475,993 |
|
|
|
471,104 |
|
|
|
4,889 |
|
|
|
1.0 |
|
S,D&A expenses |
|
|
402,376 |
|
|
|
405,459 |
|
|
|
(3,083 |
) |
|
|
(0.8 |
) |
Income from operations |
|
|
73,283 |
|
|
|
65,219 |
|
|
|
8,064 |
|
|
|
12.4 |
|
Interest expense |
|
|
36,647 |
|
|
|
37,808 |
|
|
|
(1,161 |
) |
|
|
(3.1 |
) |
Income before income taxes |
|
|
34,676 |
|
|
|
24,865 |
|
|
|
9,811 |
|
|
|
39.5 |
|
Net income |
|
|
21,615 |
|
|
|
14,643 |
|
|
|
6,972 |
|
|
|
47.6 |
|
Basic net income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
$ |
2.37 |
|
|
$ |
1.61 |
|
|
$ |
.76 |
|
|
|
47.2 |
|
Class B Common Stock |
|
$ |
2.37 |
|
|
$ |
1.61 |
|
|
$ |
.76 |
|
|
|
47.2 |
|
Diluted net income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
$ |
2.36 |
|
|
$ |
1.61 |
|
|
$ |
.75 |
|
|
|
46.6 |
|
Class B Common Stock |
|
$ |
2.36 |
|
|
$ |
1.60 |
|
|
$ |
.76 |
|
|
|
47.5 |
|
The Companys net sales decreased .9% in Q3 2007 and grew .5% in YTD 2007 from the same periods in
2006. The net sales decrease in Q3 2007 was primarily due to a 29.5%, or $11.7 million, decrease in
sales to other Coca-Cola bottlers (bottler sales) offset by a 2.4% increase in sales price per
unit. The net sales increase in YTD 2007 was primarily due to a 2.4% increase in sales price per
unit offset by a 14.1%, or $16.8 million, decrease in bottler sales. Bottle/can volume was
relatively flat in Q3 2007 and YTD 2007 compared to the same periods in 2006 as a decrease in
sparkling beverages (other than energy) was offset by increases in still beverages (primarily tea
sales). The decrease in sparkling beverages volume reflects the impact of higher prices and weak
performance of sugar sparkling beverages. The decrease in bottler sales was due to a decrease in
sales of sparkling beverages (primarily energy products) partially offset by an increase in tea
sales.
36
The Company has seen declines in the demand for sugar sparkling beverages over the past several
years and anticipates this trend will continue. The Company anticipates overall bottle/can revenue
will be primarily dependent upon continued growth in diet sparkling products, sports drinks,
bottled water, tea and energy products; the introduction of new beverage products and the
appropriate pricing of brands and packaging within sales channels.
Gross margin decreased 1.4% in Q3 2007 and increased 1.0% in YTD 2007 compared to Q3 2006 and YTD
2006, respectively. The Companys gross margin percentage was 42.3% in Q3 2007 compared to 42.5%
in Q3 2006 and 43.5% in YTD 2007 compared to 43.2% in YTD 2006. The Companys gross margin
percentage excluding bottler sales, which have lower margins than the Companys bottle/can sales to
retail customers, was 45.5% in Q3 2007 compared to 47.1% in Q3 2006 and 47.5% in YTD 2007 compared
to 48.1% in YTD 2006. The decreases in gross margin percentage were primarily due to higher raw
material costs, partially offset by higher sales price per unit, increases in marketing funding
from The Coca-Cola Company and reduced manufacturing overhead costs.
S,D&A expenses decreased .4% and .8% in Q3 2007 and YTD 2007 from Q3 2006 and YTD 2006,
respectively. The decrease in S,D&A expenses in YTD 2007 was primarily attributable to decreases
in property and casualty insurance of approximately 15% and a gain from the sale of aircraft,
partially offset by restructuring expenses.
Interest expense decreased 4.8% in Q3 2007 compared to Q3 2006 and 3.1% in YTD 2007 compared to YTD
2006. The decrease in Q3 2007 and YTD 2007 was primarily due to an increase in interest earned on
short-term investments. The overall weighted average interest rate was 6.7% for YTD 2007 compared
to 6.6% for YTD 2006. Interest earned on short-term cash investments in Q3 2007 and YTD 2007 was
$.9 million and $2.3 million, respectively, compared to $.4 million and $.8 million in Q3 2006 and
YTD 2006, respectively. See the Liquidity and Capital Resources Hedging Activities Interest
Rate Hedging section of M,D&A for additional information.
Net debt and capital lease obligations were summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sept. 30, |
|
Dec. 31, |
|
Oct. 1, |
In Thousands |
|
2007 |
|
2006 |
|
2006 |
|
Debt |
|
$ |
691,450 |
|
|
$ |
691,450 |
|
|
$ |
691,450 |
|
Capital lease obligations |
|
|
80,839 |
|
|
|
77,506 |
|
|
|
77,911 |
|
|
Total debt and capital lease obligations |
|
|
772,289 |
|
|
|
768,956 |
|
|
|
769,361 |
|
Less: Cash and cash equivalents |
|
|
88,400 |
|
|
|
61,823 |
|
|
|
57,420 |
|
|
Total net debt and capital lease obligations (1) |
|
$ |
683,889 |
|
|
$ |
707,133 |
|
|
$ |
711,941 |
|
|
|
|
|
(1) |
|
The non-GAAP measure Total net debt and capital lease obligations is used to
provide investors with additional information to more clearly evaluate the Companys capital
structure and financial leverage. |
The Company continues to focus on reducing its net debt and capital lease obligations over time.
37
Discussion of Critical Accounting Policies, Estimates and New Accounting Pronouncements
Critical 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 included in its Annual Report on Form 10-K for
the year ended December 31, 2006 a discussion of the Companys most critical accounting policies,
which are those most important to the portrayal of the Companys financial condition and results of
operations and require managements most difficult, subjective and complex judgments, often as a
result of the need to make estimates about the effect of matters that are inherently uncertain.
The Company has not made changes in any critical accounting policies during YTD 2007. Any changes
in critical accounting policies and estimates are discussed with the Audit Committee of the Board
of Directors of the Company during the quarter in which a change is made.
New Accounting Pronouncements
Recently Adopted Pronouncements
In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards No. 158, Employers Accounting for Defined Pension and Other Postretirement
Plans (SFAS No. 158). This Statement 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 employers statement of financial position, which is effective for fiscal years
ending after December 15, 2008. The impact of the adoption of this Statement was to increase the
Companys pension and postretirement liabilities by $4.2 million with a corresponding adjustment
to other comprehensive loss, net of tax effect of $1.6 million. The Company anticipates changing
the measurement date to its fiscal year end date in fiscal 2008.
In June 2006, FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes
(FIN 48). FIN 48 clarifies the accounting for uncertainty in income taxes recognized by
prescribing a recognition threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN
48 also provides guidance on derecognition, classification, interest and penalties, accounting in
interim periods and disclosure. In May 2007, FASB issued FASB Staff Position FIN 48-1,
Definition of Settlement in FASB Interpretation No. 48 (FSP FIN 48-1). FSP FIN 48-1 provides
guidance on whether a tax position is effectively settled for the purpose of recognizing
previously unrecognized tax benefits. FIN 48 and FSP FIN 48-1 were effective as of January 1,
2007. The adoption of FIN 48 and FSP FIN 48-1 did not have a material impact on the consolidated
financial statements. See Note 15 of the consolidated financial statements for additional
information.
In June 2006, the Emerging Issues Task Force (EITF) reached a consensus on Issue No. 06-03, How
Taxes Collected from Customers and Remitted to Governmental Authorities Should Be Presented in the
Income Statement (That Is, Gross Versus Net Presentation) (EITF 06-03). EITF 06-03 provides
that the presentation of taxes assessed by a governmental authority that are directly imposed on
revenue-producing
transactions (e.g. sales, use, value added and excise taxes) between a seller and a customer on
either a gross basis (included in revenues and costs) or on a net basis (excluded from revenues) is
an accounting policy
38
decision that should be disclosed. In addition, for any such taxes that are
reported on a gross basis, the amounts of those taxes should be disclosed in interim and annual
financial statements for each period for which an income statement is presented if those amounts
are significant. EITF 06-03 was effective January 1, 2007. The Company records substantially all
of the taxes within the scope of EITF 06-03 on a net basis.
Recently Issued Pronouncements
In September 2006, FASB issued SFAS No. 157, Fair Value Measurement. This Statement defines fair
value, establishes a framework for measuring fair value in generally accepted accounting principles
(GAAP) and expands disclosures about fair value measurements. The Statement does not require any
new fair value measurements but could change the current practices in measuring current fair value
measurements. The Statement is effective 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.
In February 2007, FASB issued SFAS No. 159, Fair Value Option for Financial Assets and Financial
Liabilities. This Statement permits entities to choose to measure many financial instruments and
certain other items at fair value. This Statement is effective 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.
39
Results of Operations
Q3 2007 Compared to Q3 2006 and YTD 2007 Compared to YTD 2006
Net Sales
Net sales decreased $3.3 million, or .9%, to $367.4 million in Q3 2007 compared to $370.6 million
in Q3 2006. Net sales increased $4.9 million, or .5%, to $1,095.4 million in YTD 2007 compared to
$1,090.4 million in YTD 2006.
The changes in net sales were the result of the following:
|
|
|
|
|
|
Q3 2007 |
|
|
Attributable to: |
(In Millions) |
|
|
|
$ |
7.2 |
|
|
2.4% increase in bottle/can sales price per unit primarily
due to higher net pricing for sparkling beverages |
|
(6.1 |
) |
|
15.4%
decrease in other bottler sales volume primarily due to a decrease in sales of
sparkling beverages (primarily energy drinks) |
|
(5.6 |
) |
|
16.7% decrease in other bottler sales price per unit primarily due to change in
product mix (energy drinks have higher sales price per unit) |
|
1.2 |
|
|
6.1% increase in sales price per unit of postmix primarily due to higher sales price
for sparkling beverages |
|
1.1 |
|
|
Increase in delivery fees to certain customers |
|
(1.1 |
) |
|
Other |
|
|
|
|
$ |
(3.3 |
) |
|
Total decrease in net sales |
|
|
|
|
|
|
|
|
|
|
YTD 2007 |
|
|
Attributable to: |
(In Millions) |
|
$ |
13.4 |
|
|
2.4% increase in bottle/can sales price per unit primarily
due to higher net pricing for sparkling beverages offset by
lower net pricing for water |
|
(12.6 |
) |
|
10.7%
decrease in other bottler sales volume primarily due to a decrease in sales of
sparkling beverages offset partially by an increase in sales of tea products |
|
(4.2 |
) |
|
3.9% decrease in other bottler sales price per unit primarily due to change in product
mix (energy drinks have higher sales price per unit) |
|
3.2 |
|
|
5.7% increase in sales price per unit of postmix primarily due to higher sales prices
for sparkling beverages |
|
3.1 |
|
|
Increase in delivery fees to certain customers |
|
2.0 |
|
|
Other |
|
|
|
|
$ |
4.9 |
|
|
Total increase in net sales |
|
|
|
|
In Q3 2007 and YTD 2007, the Companys bottle/can sales to retail customers accounted for 85.7% and
83.9%, respectively, of the Companys 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 Companys bottle/can net pricing per
unit in Q3 2007 and YTD 2007 increased compared to Q3 2006 and YTD 2006
primarily due to higher prices for sparkling beverages offset by a decrease in net pricing of
bottled water in the supermarket channel.
40
Product category sales volume in Q3 2007 and Q3 2006 and YTD 2007 and YTD 2006 as a percentage of
total bottle/can sales volume and the percentage change by product category was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bottle/Can Sales Volume |
|
Bottle/Can Sales Volume |
Product Category |
|
|
Q3 2007 |
|
Q3 2006 |
|
% Increase (Decrease) |
Sparkling beverages (including
energy products) |
|
|
83.2 |
% |
|
|
84.1 |
% |
|
|
(1.4 |
) |
Still beverages |
|
|
16.8 |
% |
|
|
15.9 |
% |
|
|
5.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total bottle/can sales volume |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
(0.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bottle/Can Sales Volume |
|
Bottle/Can Sales Volume |
Product Category |
|
|
YTD 2007 |
|
YTD 2006 |
|
% Increase (Decrease) |
Sparkling beverages (including
energy products) |
|
|
84.5 |
% |
|
|
86.1 |
% |
|
|
(2.5 |
) |
Still beverages |
|
|
15.5 |
% |
|
|
13.9 |
% |
|
|
10.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total bottle/can sales volume |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
(0.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product innovation will continue to be an important factor impacting the Companys overall
bottle/can revenue in the future. Beginning in the first quarter of 2007 (Q1 2007), the Company
began distribution of Enviga and Gold Peak, new tea products from The Coca-Cola Company, and
distribution of two of its own products, Respect and Tum-E Yummies. Respect is an all-natural
vitamin enhanced beverage, while Tum-E Yummies is a flavored noncarbonated drink. Beginning in the
second quarter of 2007, the Company began distribution of Diet Coke Plus, a vitamin enhanced cola,
and Dasani Plus, an enhanced water beverage, two new products from The Coca-Cola Company, and
distribution of BooKoo energy products and the Companys own energy product. Beginning in Q3 2007,
the Company began distribution of NOS© products (energy drinks from Fuze), juice
products from Fuze, V8 juice products from Campbells and Country Breeze tea products.
The Companys products are sold and distributed through various channels. These channels include
selling directly to retail stores and other outlets such as food markets, institutional accounts
and vending machine outlets. During YTD 2007, approximately 68% of the Companys bottle/can volume
was sold for future consumption. The remaining bottle/can volume of approximately 32% was sold for
immediate consumption. The Companys largest customer, Wal-Mart Stores, Inc., accounted for
approximately 18% of the Companys total bottle/can volume during YTD 2007. The Companys second
largest customer, Food Lion, LLC, accounted for approximately 12% of the Companys total bottle/can
volume in YTD 2007. All of the Companys beverage sales are to customers in the United States.
The Company charges certain customers a delivery fee to offset a portion of the Companys delivery
and handling costs. The Company initiated this delivery fee in October 2005. The delivery fee is
recorded in net sales and was $5.1 million and $2.0 million in YTD 2007 and YTD 2006, respectively.
41
Cost of Sales
Cost of sales includes the following: raw material costs, manufacturing labor, manufacturing
overhead including depreciation expense, manufacturing warehousing costs and shipping and handling
costs related to the movement of finished goods from manufacturing locations to sales distribution
centers.
Cost of sales decreased .5%, or $1.1 million, to $212.1 million in Q3 2007 compared to $213.2
million in Q3 2006. Cost of sales was flat at $619.4 million in YTD 2007 compared to $619.3
million in YTD 2006.
The changes in cost of sales were principally attributable to the following:
|
|
|
|
|
|
Q3 2007 |
|
|
Attributable to: |
(In Millions) |
|
|
|
$ |
14.0 |
|
|
Increase in raw material costs (primarily aluminum
packaging, sweetener and concentrate costs) |
|
(5.9 |
) |
|
15.4%
decrease in other bottler sales volume primarily due to a decrease in sales of
sparkling beverages (primarily energy drinks) |
|
(5.1 |
) |
|
Decrease
in other bottler sales cost per unit primarily due to the change in product mix
(energy drinks have higher cost per unit) |
|
(3.5 |
) |
|
Increase in marketing funding received primarily from The Coca-Cola Company
|
|
(2.3 |
) |
|
Decrease in manufacturing overhead costs |
|
1.7 |
|
|
Other |
|
|
|
|
$ |
(1.1 |
) |
|
Total decrease in cost of sales |
|
|
|
|
|
|
|
|
|
|
YTD 2007 |
|
|
Attributable to: |
(In Millions) |
|
|
|
$ |
33.7 |
|
|
Increase in raw material costs (primarily aluminum
packaging, sweetener and concentrate costs) |
|
(12.2 |
) |
|
10.7%
decrease in other bottler sales volume primarily due to a decrease in sales of
sparkling beverages offset partially by an increase in sales of tea products |
|
(9.9 |
) |
|
Increase in marketing funding received primarily from The Coca-Cola Company
|
|
(8.1 |
) |
|
Decrease in manufacturing overhead costs |
|
(4.9 |
) |
|
Decrease
in other bottler sales cost per unit primarily due to the change in product mix
(energy drinks have higher cost per unit) |
|
1.4 |
|
|
Other |
|
|
|
|
$ |
|
|
|
Total change in cost of sales |
|
|
|
|
Beginning in Q1 2007, the majority of the Companys aluminum packaging requirements did not have
any ceiling price protection. The cost of aluminum cans has increased
approximately 18% in YTD 2007.
High fructose corn syrup costs also increased significantly during 2007 as a result of increasing
demand for corn products around the world such as for ethanol production. The cost of high
fructose corn syrup has increased approximately 26% in YTD 2007. The combined impact of increasing
costs for aluminum cans and high fructose corn syrup is anticipated to continue increasing cost of
sales during the remainder of 2007.
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
42
provide marketing funding
support, it is not obligated to do so under the Companys Bottle Contracts. 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 $35.5
million for YTD 2007 compared to $25.6 million for YTD 2006 and was recorded as a reduction in cost
of sales.
Gross Margin
Gross margin decreased $2.2 million, or 1.4%, to $155.2 million in Q3 2007 from $157.4 million in
Q3 2006. Gross margin as a percentage of net sales decreased to 42.3% in Q3 2007 from 42.5% in Q3
2006. Gross margin increased $4.9 million or 1.0%, to $476.0 million in YTD 2007 compared to
$471.1 million in YTD 2006. Gross margin as a percentage of net sales increased to 43.5% in YTD
2007 from 43.2% in YTD 2006.
The changes in gross margin were primarily the result of the following:
|
|
|
|
|
|
Q3 2007 |
|
|
Attributable to: |
(In Millions) |
|
|
|
$ |
(14.0 |
) |
|
Increase in raw material costs (primarily aluminum
packaging, sweetener and concentrate costs) |
|
7.2 |
|
|
2.4% increase in bottle/can sales price per unit primarily due to higher net pricing
for sparkling beverages |
|
3.5 |
|
|
Increase in marketing funding received primarily from The Coca-Cola Company
|
|
2.3 |
|
|
Decrease in manufacturing overhead costs |
|
1.2 |
|
|
6.1% increase in sales price per unit of postmix primarily due to higher sales price
for sparkling beverages |
|
1.1 |
|
|
Increase in delivery fees to certain customers |
|
(3.5 |
) |
|
Other |
|
|
|
|
$ |
(2.2 |
) |
|
Total decrease in gross margin |
|
|
|
|
|
|
|
|
|
|
YTD 2007 |
|
|
Attributable to: |
(In Millions) |
|
|
|
$ |
(33.7 |
) |
|
Increase in raw material costs (primarily aluminum
packaging, sweetener and concentrate costs) |
|
13.4 |
|
|
2.4% increase in bottle/can sales price per unit primarily due to higher net pricing for
sparkling beverages offset by lower net pricing for water |
|
9.9 |
|
|
Increase in marketing funding received primarily from The Coca-Cola Company
|
|
8.1 |
|
|
Decrease in manufacturing overhead costs |
|
3.2 |
|
|
5.7% increase in sales price per unit of postmix primarily due to higher sales price
for sparkling beverages |
|
3.1 |
|
|
Increase in delivery fees to certain customers |
|
0.9 |
|
|
Other |
|
|
|
|
$ |
4.9 |
|
|
Total increase in gross margin |
|
|
|
|
The Companys gross margin percentage excluding bottler sales, which have lower margins than the
Companys bottle/can sales to retail customers, was 45.5% in Q3 2007 compared to 47.1% in Q3 2006
and 47.5% in YTD 2007 compared to 48.1% in YTD 2006. The decreases in gross margin percentage were
primarily due to higher
raw material costs, partially offset by higher sales price per unit, increases in marketing funding
from The Coca-Cola Company and reduced manufacturing overhead costs.
43
The Companys gross margins may not be comparable to other companies, since some entities include
all costs related to their distribution network in cost of sales. The Company includes a portion
of these costs in S,D&A expenses.
S,D&A Expenses
S,D&A expenses include the following: sales management labor costs, distribution costs from sales
distribution centers to customer locations, sales distribution center warehouse costs,
depreciation expense related to sales centers, delivery vehicles and cold drink equipment,
point-of-sale expenses, advertising expenses, cold drink dispensing equipment repair costs and
administrative support labor and operating costs such as treasury, legal, information services,
accounting, internal audit, human resources and executive management costs.
S,D&A expenses decreased by $.6 million, or .4%, to $134.9 million in Q3 2007 from $135.4 million
in Q3 2006. S,D&A expenses decreased by $3.1 million, or .8%, to $402.4 million in YTD 2007 from
$405.5 million in YTD 2006.
The decreases in S,D&A expenses were primarily due to the following:
|
|
|
|
|
|
Q3 2007 |
|
|
Attributable to: |
(In Millions) |
|
|
|
$ |
0.7 |
|
|
Increase in employee related expenses primarily related to wage increases |
|
0.5 |
|
|
Increase in employee benefit costs primarily due to increases in the Companys 401(k) Savings Plan contributions |
|
(0.5 |
) |
|
Decrease in property and casualty claims and insurance costs |
|
0.2 |
|
|
Restructuring costs related to the simplification of the Companys operating management
structure and reduction in work force in order to improve operating efficiencies |
|
(1.5 |
) |
|
Other |
|
|
|
|
$ |
(0.6 |
) |
|
Total decrease in S,D&A expenses |
|
|
|
|
|
|
|
|
|
|
YTD 2007 |
|
|
Attributable to: |
(In Millions) |
|
|
|
$ |
3.6 |
|
|
Increase in employee related expenses primarily related to wage increases |
|
(2.5 |
) |
|
Decrease in employee benefit costs primarily due to the amendment of the principal Company-sponsored pension
plan, net of increases in the Companys 401(k) Savings Plan contributions and health insurance expenses |
|
2.6 |
|
|
Restructuring costs related to the simplification of the Companys operating management
structure and reduction in work force in order to improve operating efficiencies |
|
(2.3 |
) |
|
Decrease in property and casualty claims and insurance costs
|
|
(1.6 |
) |
|
Gain on sale of aviation equipment |
|
(1.0 |
) |
|
Decrease in fuel and other energy costs related to the movement of finished goods from
sales distribution centers to customer locations |
|
(1.9 |
) |
|
Other |
|
|
|
|
$ |
(3.1 |
) |
|
Total decrease in S,D&A expenses |
|
|
|
|
Shipping and handling costs related to the movement of finished goods from manufacturing locations
to sales distribution centers are included in cost of sales. Shipping and handling costs related
to the movement of finished goods from sales distribution centers to customer locations are
included in S,D&A expenses and totaled $144.1 million and $147.7 million in YTD 2007 and YTD 2006,
respectively.
44
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 Companys business. The
restructuring expenses consist primarily of one-time termination benefits and other associated
costs, primarily relocation expenses for certain employees. The Company incurred $.2 million and
$2.6 million in restructuring expenses in Q3 2007 and YTD 2007, respectively. The Company
anticipates that total restructuring expenses will be in the range of $2.6 million to $2.8 million
and that all of the cash expenditures will occur prior to 2007 fiscal year end.
In February 2006, the Company announced an amendment to its principal Company-sponsored pension
plan to cease further benefit accruals under the plan effective June 30, 2006. Net periodic
pension expense decreased to less than $.1 million in Q3 2007 from $.5 million in Q3 2006 and to
$.2 million in YTD 2007 from $7.7 million in YTD 2006. The Company also announced in February 2006
plans to enhance its 401(k) Savings Plan for eligible employees beginning in the first quarter of
2007. The Companys expense related to its 401(k) Savings Plan increased to $2.2 million in Q3
2007 from $1.2 million in Q3 2006 and $6.3 million in YTD 2007 from $3.6 million in YTD 2006.
Amortization of Intangibles
Amortization of intangibles expense for Q3 2007 and YTD 2007 was flat compared to Q3 2006 and YTD
2006.
Interest Expense
Interest expense decreased 4.8%, or $.6 million, in Q3 2007 compared to Q3 2006 and decreased 3.1%,
or $1.2 million, in YTD 2007 compared to YTD 2006. The decrease in Q3 2007 and YTD 2007 was
primarily due to an increase in interest earned on short-term investments. The overall weighted
average interest rate was 6.7% for YTD 2007 compared to 6.6% for YTD 2006. Interest earned on
short-term cash investments in Q3 2007 and YTD 2007 was $.9 million and $2.3 million, respectively,
compared to $.4 million and $.8 million in Q3 2006 and YTD 2006, respectively. See the Liquidity
and Capital Resources Hedging Activities Interest Rate Hedging section of M,D&A for additional
information.
Minority Interest
The Company recorded minority interest of $2.0 million in YTD 2007 compared to $2.5 million in YTD
2006 related to the portion of Piedmont owned by The Coca-Cola Company. The decreased amount in
YTD 2007 was due to lower operating results at Piedmont.
Income Taxes
The Companys effective income tax rate for YTD 2007 was 37.7% compared to 41.1% in YTD 2006. The
lower effective tax rate in YTD 2007 resulted primarily from an increased manufacturing deduction
benefit in 2007 compared to 2006. The manufacturing deduction was enacted as part of the American
Jobs Creation Act of 2004, which provides a tax deduction for qualified production activities. The
allowed manufacturing
deduction increased to 6% in 2007 from 3% in 2006. The Companys income tax rate for the
remainder of 2007 is dependent upon results of operations and may change if the results for 2007
are different from current expectations.
45
The adoption of FIN 48 and FSP FIN 48-1, effective January 1, 2007, did not have a material impact
on the consolidated financial statements. See Note 15 to the consolidated financial statements for
additional information related to the implementation of FIN 48 and FSP FIN 48-1.
The Companys income tax assets and liabilities are subject to adjustment in future periods based
on the Companys ongoing evaluations of such assets and liabilities and new information that
becomes available to the Company.
Financial Condition
Total
assets increased to $1.39 billion at September 30, 2007
from $1.36 billion at both December 31,
2006 and October 1, 2006 primarily due to an increase in cash and cash equivalents and accounts receivable partially
offset by a decrease in property, plant and equipment, net. The decrease in property, plant and
equipment, net was primarily due to lower levels of capital spending over the last several years.
Net working capital, defined as current assets less current liabilities, increased by $43.5 million
at September 30, 2007 from December 31, 2006 and decreased by $43.1 million at September 30, 2007
from October 1, 2006.
Significant changes in net working capital from December 31, 2006 were as follows:
|
|
An increase in cash and cash equivalents of $26.6 million primarily due to cash flows from
operating activities. |
|
|
|
An increase in accounts receivable, trade of $5.6 million primarily due to higher sales in
September 2007 compared to December 2006. |
|
|
|
An increase in accounts receivable from The Coca-Cola Company of $14.9 million primarily
due to higher marketing funding support and the timing of payments. |
|
|
|
A decrease in accounts payable, trade of $5.6 million primarily due to the timing of
payments. |
|
|
|
An increase in other accrued interest payable of $8.8 million primarily due to the timing
of payments. |
Significant changes in net working capital from October 1, 2006 were as follows:
|
|
An increase in cash and cash equivalents of $31.0 million primarily due to cash flows from
operating activities. |
|
|
|
An increase in accounts receivable, trade of $6.2 million primarily due to higher sales in
September 2007 compared to September 2006. |
|
|
|
An increase in accounts receivable from The Coca-Cola Company of $11.4 million primarily
due to higher marketing funding support and the timing of payments. |
|
|
|
An increase in inventory of $6.0 million primarily due to the introduction of new products. |
|
|
|
An increase in the current portion of debt of $100 million primarily due to the
reclassification from long-term to current of $100 million in debentures which mature in
November 2007. |
|
|
|
A decrease in other accrued liabilities of $5.1 million primarily due to the timing of
payments. |
Debt and capital lease obligations were $772.3 million as of September 30, 2007 compared to $769.0
million as of December 31, 2006 and $769.4 million as of October 1, 2006. Debt and capital lease
obligations as of September 30, 2007 included $80.8 million of capital lease obligations related to
Company facilities.
46
Liquidity and Capital Resources
Capital Resources
The Companys sources of capital include cash flows from operations, available credit facilities
and the issuance of debt and equity securities. Management believes the Company, through these
sources, has sufficient financial resources available to maintain its 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 amount and
frequency of future dividends will be determined by the Companys Board of Directors in light of
the earnings and financial condition of the Company at such time, and no assurance can be given
that dividends will be declared in the future.
As of September 30, 2007, the Company had $200 million available under its revolving credit
facility to meet its cash requirements. Also, the Company borrows periodically under its available
lines of credit. These lines of credit, in the aggregate amount of $60 million at September 30,
2007, 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.
The
Company used its cash on hand and availability under its lines of
credit to satisfy the $100 million maturity of debentures in November 2007.
The Company has obtained all of its long-term financing, other than capital leases, from public
markets. As of September 30, 2007, $691.5 million of the Companys total outstanding balance of
debt and capital lease obligations of $772.3 million was financed through publicly offered debt.
The Company had capital lease obligations of $80.8 million as of September 30, 2007. The Companys
interest rate derivative contracts are with several different financial institutions to minimize
the concentration of credit risk. The Company has master agreements with the counterparties to its
derivative financial agreements that provide for net settlement of derivative transactions.
Cash Sources and Uses
The primary sources of cash for the Company have been cash provided by operating activities. The
primary uses of cash have been for capital expenditures, the payment of debt and capital lease
obligations, income tax payments and dividends.
47
A summary of cash activity for YTD 2007 and YTD 2006 follows:
|
|
|
|
|
|
|
|
|
|
|
First Nine Months |
In Millions |
|
2007 |
|
2006 |
|
Cash Sources |
|
|
|
|
|
|
|
|
Cash provided by operating activities
(excluding income tax payments) |
|
$ |
77.8 |
|
|
$ |
100.6 |
|
Other |
|
|
7.7 |
|
|
|
1.0 |
|
|
Total cash sources |
|
$ |
85.5 |
|
|
$ |
101.6 |
|
|
|
|
|
|
|
|
|
|
|
Cash Uses |
|
|
|
|
|
|
|
|
Capital expenditures |
|
$ |
30.6 |
|
|
$ |
50.7 |
|
Investment in plastic bottle manufacturing cooperative |
|
|
2.3 |
|
|
|
1.5 |
|
Payment of debt and capital lease obligations |
|
|
1.8 |
|
|
|
7.8 |
|
Dividends |
|
|
6.8 |
|
|
|
6.8 |
|
Income tax payments |
|
|
17.0 |
|
|
|
16.5 |
|
Other |
|
|
.4 |
|
|
|
.5 |
|
|
Total cash uses |
|
$ |
58.9 |
|
|
$ |
83.8 |
|
|
Increase in cash |
|
$ |
26.6 |
|
|
$ |
17.8 |
|
|
Based on current projections which include a number of assumptions such as the Companys pre-tax
earnings, the Company anticipates its cash requirements for income taxes will be in the range of
$18 million to $21 million in 2007 as compared to $17.2 million in 2006. Income tax
payments in YTD 2006 included $5.0 million related to the settlement of a state tax audit,
which was paid in the first quarter of 2006.
Investing Activities
Additions to property, plant and equipment during YTD 2007 were $30.6 million compared to $50.7
million during YTD 2006. Capital expenditures during YTD 2007 were funded with cash flows from
operations and cash on hand. 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 additions to property, plant and equipment in fiscal 2007 will be in the
range of $45 million to $52 million and plans to fund such additions through cash flows from
operations, its available lines of credit and cash on hand. Additions to property, plant and
equipment during fiscal 2006 were $63.2 million.
Financing Activities
On March 8, 2007, the Company entered into a $200 million revolving credit facility ($200 million
facility), replacing its $100 million facility. The $200 million facility matures in March 2012
and includes an option to extend the term for an additional year at the discretion of the
participating banks. The $200 million facility bears interest at a floating base rate or a
floating rate of LIBOR plus an interest rate spread of .35%. In addition, there is a fee of .10%
required for the facility. Both the interest rate spread and the facility fee are determined from
a commonly-used pricing grid based on the Companys long-term senior unsecured debt rating. The
$200 million facility contains two financial covenants related to ratio requirements for interest
coverage, and long-term debt to cash flow, each as defined in the credit agreement. These
covenants do not currently, and the Company does not
48
anticipate they will, restrict its liquidity or capital resources. There were no
amounts outstanding under the credit facilities at September 30, 2007, December 31, 2006 and
October 1, 2006.
The Company borrows periodically under its available lines of credit. These lines of credit, in
the aggregate amount of $60 million at September 30, 2007, are 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 facility in the event the
lines of credit are not available. There were no amounts outstanding under the lines of credit at
September 30, 2007, December 31, 2006 and October 1, 2006.
All of the outstanding debt has been issued by the Company with none having been issued by any of
the Companys subsidiaries. There are no guarantees of the Companys debt.
At September 30, 2007, the Companys credit ratings were as follows:
|
|
|
|
|
|
|
Long-Term Debt |
Standard & Poors |
|
BBB |
Moodys |
|
Baa2 |
The Companys credit ratings are reviewed periodically by the respective rating agencies. Changes
in the Companys operating results or financial position could result in changes in the Companys
credit ratings. Lower credit ratings could result in higher borrowing costs for the Company.
There were no changes in these credit ratings from the prior year. It is the Companys intent to
continue to reduce its financial leverage over time.
The Companys public debt is not subject to financial covenants but does limit the incurrence of
certain liens and encumbrances as well as indebtedness by the Companys subsidiaries in excess of
certain amounts.
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 2006 performance, effective
January 1, 2007, 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
Companys Annual Bonus Plan.
The Companys 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 Companys Annual Bonus Plan. Each annual
20,000 share tranche has an independent performance requirement as it is not established until the
Companys 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 Companys Annual Bonus Plan targets, which establish the performance
requirement for 2007, were set in Q1 2007 and the Company recorded the 20,000 share award at the
grant-date price of $58.53 per share. Total stock compensation expense will be approximately $1.2
million over the one-year service period of which $.9 million was recognized in YTD 2007. 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.
49
Off-Balance Sheet Arrangements
The Company is a member of two manufacturing cooperatives, which are variable interest entities.
The Company has guaranteed $43.0 million of debt and related lease obligations for these
cooperatives as of September 30, 2007. The Companys variable interest in these cooperatives
includes an equity ownership in each of the entities and the guarantees. As of September 30,
2007, the Companys maximum exposure, if the cooperatives borrowed up to their borrowing capacity,
would have been $65.7 million including the Companys equity interest. The Company has determined
it is not the primary beneficiary of either of the cooperatives. See Note 14 of the consolidated
financial statements for additional information about these cooperatives.
Aggregate Contractual Obligations
The following table summarizes the Companys contractual obligations and commercial commitments as
of September 30, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period |
|
|
|
|
|
|
Oct. 2007- |
|
Oct. 2008- |
|
Oct. 2010- |
|
After |
In Thousands |
|
Total |
|
Sept. 2008 |
|
Sept. 2010 |
|
Sept. 2012 |
|
Sept. 2012 |
|
Contractual obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt, net of interest |
|
$ |
691,450 |
|
|
$ |
100,000 |
|
|
$ |
176,693 |
|
|
$ |
|
|
|
$ |
414,757 |
|
Capital lease obligations,
net of interest |
|
|
80,839 |
|
|
|
2,559 |
|
|
|
5,658 |
|
|
|
6,471 |
|
|
|
66,151 |
|
Estimated interest on
long-term debt and capital
lease obligations (1) |
|
|
300,897 |
|
|
|
39,322 |
|
|
|
63,239 |
|
|
|
55,382 |
|
|
|
142,954 |
|
Purchase obligations (2) |
|
|
607,615 |
|
|
|
91,424 |
|
|
|
186,031 |
|
|
|
186,077 |
|
|
|
144,083 |
|
Other long-term liabilities (3) |
|
|
93,820 |
|
|
|
5,716 |
|
|
|
11,027 |
|
|
|
10,379 |
|
|
|
66,698 |
|
Operating leases |
|
|
17,061 |
|
|
|
3,268 |
|
|
|
4,241 |
|
|
|
2,442 |
|
|
|
7,110 |
|
Long-term contractual
arrangements (4) |
|
|
23,407 |
|
|
|
6,830 |
|
|
|
9,983 |
|
|
|
4,423 |
|
|
|
2,171 |
|
Interest rate swap agreements (1) |
|
|
6,280 |
|
|
|
2,556 |
|
|
|
2,410 |
|
|
|
1,144 |
|
|
|
170 |
|
Purchase orders (5) |
|
|
27,515 |
|
|
|
27,515 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations |
|
$ |
1,848,884 |
|
|
$ |
279,190 |
|
|
$ |
459,282 |
|
|
$ |
266,318 |
|
|
$ |
844,094 |
|
|
|
|
|
(1) |
|
Includes interest payments based on contractual terms and current interest rates for variable
rate debt. |
|
(2) |
|
Represents an estimate of the Companys obligation to purchase 17.5 million cases of
finished product on an annual basis through May 2014 from South Atlantic Canners, a
manufacturing cooperative, and other purchase commitments. |
|
(3) |
|
Includes obligations under executive benefit plans, unrecognized income tax benefits and
other long-term liabilities. |
|
(4) |
|
Includes contractual arrangements with certain prestige properties, athletics venues and
other locations, and other long-term marketing commitments. |
|
(5) |
|
Purchase orders include commitments in which a written purchase order has been issued to a
vendor, but the goods have not been received or the services have not been performed. |
The Company has $13.0 million of unrecognized income tax benefits as of September 30, 2007
(included in other long-term liabilities in the above table) pursuant to FIN 48, of which $7.8
million would affect the Companys effective tax rate if recognized. The Company does not
anticipate any material impact on its liquidity and capital resources due to the resolution of
income tax positions reserved for as uncertain. See Note 15 of the consolidated financial
statements for additional information related to the Companys adoption of FIN 48.
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
50
territories. This obligation is not included in the Companys
table of contractual obligations and commercial commitments since there are no minimum purchase
requirements.
The Company has $21.3 million of standby letters of credit, primarily related to its property and
casualty insurance programs, as of September 30, 2007. See Note 14 of the consolidated financial
statements for additional information related to commercial commitments, guarantees, legal and tax
matters.
The Company anticipates there will be no contributions to the principal Company-sponsored pension
plan in 2007. Postretirement medical care payments are expected to be approximately $2.7 million
in 2007. See Note 18 to the consolidated financial statements for additional information related
to pension and postretirement obligations.
Hedging Activities
Interest Rate Hedging
The Company periodically uses interest rate hedging products to mitigate risk from interest rate
fluctuations. The Company has historically altered its fixed/floating rate mix based upon
anticipated cash flows from operations relative to the Companys debt level and the potential
impact of changes in interest rates on the Companys overall financial condition. Sensitivity
analyses are performed to review the impact on the Companys financial position and coverage of
various interest rate movements. The Company does not use derivative financial instruments for
trading purposes nor does it use leveraged financial instruments.
The Company currently has nine interest rate swap agreements. These interest rate swap agreements
effectively convert $325 million of the Companys debt from a fixed rate to a floating rate and are
accounted for as fair value hedges.
Interest expense was reduced due to the amortization of deferred gains on previously terminated
interest rate swap agreements and forward interest rate agreements by $1.3 million during both YTD
2007 and YTD 2006.
The weighted average interest rate of the Companys debt and capital lease obligations after taking
into account all of the interest rate hedging activities was 6.7% as of September 30, 2007 compared
to 6.9% as of December 31, 2006 and 6.8% as of October 1, 2006. Approximately 48% of the Companys
debt and capital lease obligations of $772.3 million as of September 30, 2007 was maintained on a
floating rate basis and was subject to changes in short-term interest rates.
Assuming no changes in the Companys capital structure, if market interest rates average 1% more
over the next twelve months than the interest rates as of September 30, 2007, interest expense for
the next twelve months would increase by approximately $2.8 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 September 30, 2007, including the effects of the Companys
derivative financial instruments. This calculated, hypothetical increase in interest expense for
the following twelve months may be different from the actual increase in interest expense from a 1%
increase in interest rates due to varying interest rate reset dates on the Companys floating rate
debt and derivative financial instruments.
51
Fuel Hedging
During Q1 2007, the Company began using derivative instruments to hedge a portion of the Companys
vehicle fuel purchases. These derivative instruments relate to diesel fuel and unleaded gasoline
used in the Companys delivery fleet. Derivative instruments used include puts and calls which
effectively establish an upper and lower limit on the Companys 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.
52
Cautionary Information Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q, as well as information included in future filings by the
Company with the Securities and Exchange Commission and information contained in written material,
press releases and oral statements issued by or on behalf of the Company, contains, or may contain,
forward-looking management comments and other statements that reflect managements current outlook
for future periods.
These statements include, among others, statements relating to:
|
|
|
potential marketing funding support from The Coca-Cola Company and other beverage
companies; |
|
|
|
|
the Companys belief that disposition of certain claims and legal proceedings will not
have a material adverse effect on its financial condition, cash flows or results of
operations and that no material amount of loss in excess of recorded amounts is reasonably
possible; |
|
|
|
|
managements belief that the Company has adequately provided for any ultimate amounts
that are likely to result from tax audits; |
|
|
|
|
managements belief that the Company has sufficient 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 Companys intention to reduce its financial leverage over time; |
|
|
|
|
the Companys belief that the cooperatives whose debt and lease obligations the Company
guarantees have sufficient assets and the ability to adjust selling prices of their
products to adequately mitigate the risk of material loss and that the cooperatives will
perform their obligations under their debt and lease agreements; |
|
|
|
|
the Companys belief that its liquidity or capital resources will not be restricted by
certain financial covenants in the Companys credit agreements; |
|
|
|
|
the Companys 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 September 30, 2007; |
|
|
|
|
the Companys belief that there will be no contribution to the principal
Company-sponsored pension plan in 2007; |
|
|
|
|
anticipated cash payments for income taxes will be in the range of $18
million to $21 million in 2007; |
|
|
|
|
anticipated additions to
property, plant and equipment in fiscal 2007 will be in the range of
$45 million to $52 million; |
|
|
|
|
the Companys belief that demand for sugar sparkling beverages will continue to decline; |
|
|
|
|
the Companys beliefs and estimates regarding the impact of the adoption of certain new
accounting pronouncements; |
|
|
|
|
the Companys belief that other parties to certain contractual arrangements will perform
their obligations; |
|
|
|
|
the Companys key priorities which are revenue management, innovation and beverage
portfolio expansion, distribution cost management and productivity; |
|
|
|
|
the Companys belief that postretirement benefit payments are expected to be
approximately $2.7 million in 2007; |
|
|
|
|
the Companys expectation that its overall bottle/can revenue will be primarily
dependent upon continued growth in diet sparkling products, sports drinks, bottled water,
tea and energy products, the introduction of new products and the pricing of brands and
packages within channels; |
|
|
|
|
the Companys belief that total restructuring expense will be in the range of $2.6
million to $2.8 million and that all of the cash expenditures will occur prior to 2007
fiscal year end; |
53
|
|
|
the Companys beliefs that the growth of Company-owned or exclusive licensed brands
appear very promising and the cost of developing, marketing and distributing these brands
may be significant; |
|
|
|
|
the Companys belief
that the implementation of its new route delivery system will
continue over the next several years and should generate significant savings and more
effective delivery of a greater number of products; |
|
|
|
|
the Companys belief there will not be any material impact on its liquidity and capital
resources due to the resolution of income tax positions reserved for as uncertain; |
|
|
|
|
the Companys belief that the impact of increasing costs for aluminum cans and high
fructose corn syrup is anticipated to increase cost of sales during
the remainder of
2007; and |
|
|
|
|
the Companys belief that changes in unrecognized tax benefits over the next 12 months
will not have a significant impact on the consolidated financial statements. |
These statements and expectations are based on currently available competitive, financial and
economic data along with the Companys operating plans, and are subject to future events and
uncertainties that could cause anticipated events not to occur or actual results to differ
materially from historical or anticipated results. Factors that could impact those differences or
adversely affect future periods include, but are not limited to, the factors set forth in the
Companys Annual Report on Form 10-K for the year ended December 31, 2006 under Item 1A. Risk
Factors.
Caution should be taken not to place undue reliance on the Companys forward-looking statements,
which reflect the expectations of management of the Company only as of the time such statements are
made. 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.
54
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Raw Material and Commodity Price Risk
Beginning in 2007, the majority of the Companys aluminum packaging requirements did not have any
ceiling price protection and the cost of aluminum cans increased
during 2007. High fructose corn syrup costs also increased significantly during 2007
as a result of increasing demand for corn products around the world such as for ethanol production.
The combined impact of increasing costs for aluminum cans and high fructose corn syrup is
anticipated to continue increasing cost of sales during the remainder of 2007. In addition, there
is no limit on the price The Coca-Cola Company and other beverage companies can charge for
concentrate.
The Company is also subject to commodity price risk arising from price movements for certain other
commodities included as part of its raw materials. The Company manages this commodity price risk
in some cases by entering into contracts with adjustable prices. The Company has not historically
used derivative commodity instruments in the management of this risk.
During Q1 2007, the Company began using derivative instruments to hedge a portion of the Companys
vehicle fuel purchases. These derivative instruments relate to diesel fuel and unleaded gasoline
used in the Companys delivery fleet. Derivative instruments used include puts and calls which
effectively establish an upper and lower limit on the Companys 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.
Item 4. Controls and Procedures.
As of the end of the period covered by this report, the Company carried out an evaluation, under
the supervision and with the participation of the Companys management, including the Companys
Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and
operation of the Companys disclosure controls and procedures (as defined in Rule 13a-15(e) of
the Securities Exchange Act of 1934 (the Exchange Act)), pursuant to Rule 13a-15(b) of the
Exchange Act. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer
concluded the Companys disclosure controls and procedures are effective for the purpose of
providing reasonable assurance 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 SECs rules and forms and (ii) is accumulated and communicated to
the Companys management, including its Chief Executive Officer and Chief Financial Officer as
appropriate to allow timely decisions regarding required disclosures.
There has been no change in the Companys internal control over financial reporting during the
quarter ended September 30, 2007 that has materially affected, or is reasonably likely to
materially affect, the Companys internal control over financial reporting.
55
PART II OTHER INFORMATION
Item 1A. Risk Factors.
There have been no material changes to the factors disclosed in Part I, Item 1A. Risk Factors in
the Companys Annual Report on Form 10-K for the year ended December 31, 2006.
56
Item 6. Exhibits.
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Exhibit |
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Number |
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Description |
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4.1
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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. |
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12
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Ratio of earnings to fixed charges (filed herewith). |
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31.1
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Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed
herewith). |
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31.2
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Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed
herewith). |
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32
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Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002 (filed herewith). |
57
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.
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COCA-COLA BOTTLING CO. CONSOLIDATED
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(REGISTRANT)
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Date: November 8, 2007
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By:
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/s/ Steven D. Westphal
Steven D. Westphal
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Principal Financial Officer of the Registrant |
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and |
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Senior Vice President and Chief Financial Officer |
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58