Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
COKE > SEC Filings for COKE > Form 10-Q on 10-May-2013All Recent SEC Filings

Show all filings for COCA COLA BOTTLING CO CONSOLIDATED /DE/ | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for COCA COLA BOTTLING CO CONSOLIDATED /DE/


10-May-2013

Quarterly Report


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

Revision of Prior Period Financial Statements

During the fourth quarter of 2012, Coca-Cola Bottling Co. Consolidated ("the Company") identified an error in the treatment of a certain prior year deferred tax asset in the Consolidated Balance Sheets. This resulted in an understatement of the net noncurrent deferred income tax liability and an overstatement of retained earnings, and therefore equity, for each of the impacted periods. This error affected the Consolidated Balance Sheets and Consolidated Statements of Changes in Stockholders' Equity as presented in each of the quarters of 2012. The Company has revised prior period financial statements to correct this immaterial error. Refer to Note 1 Significant Accounting Policies - Revision of Prior Financial Statements for further details. This revision did not affect the Company's Consolidated Statements of Operations or Consolidated Statements of Cash Flows for any of these periods. The discussion and analysis included herein is based on the financial results (and revised Consolidated Balance Sheets and Consolidated Statements of Changes in Stockholders' Equity) for the periods ended March 31, 2013, December 30, 2012 and April 1, 2012.

The following Management's Discussion and Analysis of Financial Condition and Results of Operations ("M,D&A") of Coca-Cola Bottling Co. Consolidated (the "Company") should be read in conjunction with the Company's consolidated financial statements and the accompanying notes to the consolidated financial statements. M,D&A includes the following sections:

Our Business and the Nonalcoholic Beverage Industry - a general description of the Company's business and the nonalcoholic beverage industry.

Areas of Emphasis - a summary of the Company's key priorities.

Overview of Operations and Financial Condition - a summary of key information and trends concerning the financial results for the first quarter of 2013 ("Q1 2013") and changes from the first quarter of 2012 ("Q1 2012").

Discussion of Critical Accounting Policies, Estimates and New Accounting Pronouncements - a discussion of accounting policies that are most important to the portrayal of the Company's financial condition and results of operations and that require critical judgments and estimates and the expected impact of new accounting pronouncements.

Results of Operations - an analysis of the Company's results of operations for Q1 2013 compared to Q1 2012.

Financial Condition - an analysis of the Company's financial condition as of the end of Q1 2013 compared to year-end 2012 and the end of Q1 2012 as presented in the consolidated financial statements.

Liquidity and Capital Resources - an analysis of capital resources, cash sources and uses, operating activities, investing activities, financing activities, off-balance sheet arrangements, aggregate contractual obligations and hedging activities.

Cautionary Information Regarding Forward-Looking Statements.

The consolidated financial statements include the consolidated operations of the Company and its majority-owned subsidiaries including Piedmont Coca-Cola Bottling Partnership ("Piedmont"). The noncontrolling interest primarily consists of The Coca-Cola Company's interest in Piedmont, which was 22.7% for all periods presented.

The Company announced on April 16, 2013 that it has signed a non-binding letter of intent with The Coca-Cola Company to expand the Company's franchise territory. The letter of intent provides


Table of Contents

additional distribution rights for the Company in parts of Tennessee and Kentucky which include major markets, Knoxville, TN and Lexington and Louisville, KY. Coca-Cola Refreshments USA, Inc. ("CCR"), a wholly owned subsidiary of The Coca-Cola Company, currently serves this territory. The proposed transaction for acquiring distribution rights to the expanded territory would be accomplished by a sub-bottling arrangement with CCR under which the Company would make ongoing payments to CCR in exchange for the exclusive distribution rights in the territory. CCR would also transfer its rights in the territory to distribute brands not owned by The Coca-Cola Company to the Company as part of the transaction. In addition to territory rights, the Company would also acquire distribution assets and certain working capital from CCR relating to the expanded territory. The Company would not acquire any production assets from CCR. The new territory will be covered by a new form of comprehensive beverage agreement between the parties. This proposed transaction with The Coca-Cola Company is subject to the parties reaching definitive agreements by the end of 2013 with closing of the transaction expected during the latter part of 2014. There is no assurance, however, that the definitive agreements will be reached and the closing of the proposed transaction will occur.

Our Business and the Nonalcoholic Beverage Industry

The Company produces, markets and distributes nonalcoholic beverages, primarily products of The Coca-Cola Company, which include some of the most recognized and popular beverage brands in the world. The Company is the largest independent bottler of products of The Coca-Cola Company in the United States, distributing these products in eleven states primarily in the Southeast. The Company also distributes several other beverage brands. These product offerings include both sparkling and still beverages. Sparkling beverages are carbonated beverages, including energy products. Still beverages are noncarbonated beverages such as bottled water, tea, ready to drink coffee, enhanced water, juices and sports drinks. The Company had full year net sales of $1.6 billion in 2012.

The nonalcoholic beverage market is highly competitive. The Company's competitors include bottlers and distributors of nationally and regionally advertised and marketed products and private label products. In each region in which the Company operates, between 85% and 95% of sparkling beverage sales in bottles, cans and other containers are accounted for by the Company and its principal competitors, which in each region includes the local bottler of Pepsi-Cola and, in some regions, the local bottler of Dr Pepper, Royal Crown and/or 7-Up products. The sparkling beverage category (including energy products) represents 83% of the Company's Q1 2013 bottle/can net sales.

The principal methods of competition in the nonalcoholic beverage industry are point-of-sale merchandising, new product introductions, new vending and dispensing equipment, packaging changes, pricing, price promotions, product quality, retail space management, customer service, frequency of distribution and advertising. The Company believes it is competitive in its territories with respect to each of these methods.

Historically, operating results for the first quarter of the fiscal year have not been representative of results for the entire fiscal year. Business seasonality results primarily from higher unit sales of the Company's products in the second and third quarters versus the first and fourth quarters of the fiscal year. Fixed costs, such as depreciation expense, are not significantly impacted by business seasonality.

The Company performs its annual impairment test of franchise rights and goodwill as of the first day of the fourth quarter. During Q1 2013, the Company did not experience any triggering events or changes in circumstances that indicated the carrying amounts of the Company's franchise rights or goodwill exceeded fair values. As such, the Company has not recognized any impairments of franchise rights or goodwill.


Table of Contents

Net sales by product category were as follows:

                                                             First Quarter
      In Thousands                                        2013          2012
      Bottle/can sales:
      Sparkling beverages (including energy products)   $ 254,473     $ 256,717
      Still beverages                                      52,623        50,904

      Total bottle/can sales                              307,096       307,621
      Other sales:
      Sales to other Coca-Cola bottlers                    40,128        33,465
      Post-mix and other                                   36,327        36,099

      Total other sales                                    76,455        69,564

      Total net sales                                   $ 383,551     $ 377,185

Areas of Emphasis

Key priorities for the Company include revenue management, product innovation and beverage portfolio expansion, distribution cost management and productivity.

Revenue Management

Revenue management requires a strategy which reflects consideration for pricing of brands and packages within product categories and channels, highly effective working relationships with customers and disciplined fact-based decision-making. Revenue management has been and continues to be a key performance driver which has significant impact on the Company's results of operations.

Product Innovation and Beverage Portfolio Expansion

Innovation of both new brands and packages has been and will continue to be critical to the Company's overall revenue. New packaging introductions included the 1.25-liter bottle in 2011, the 7.5-ounce sleek can in 2010 and the 2-liter contour bottle for Coca-Cola products during 2009.

The Company has invested in its own brand portfolio with products such as Tum-E Yummies, a vitamin C enhanced flavored drink, and Fuel in a Bottle power shots. These brands enable the Company to participate in strong growth categories and capitalize on distribution channels that may include the Company's traditional Coca-Cola franchise territory as well as third party distributors outside the Company's traditional Coca-Cola franchise territory. While the growth prospects of Company-owned or exclusively licensed brands appear promising, the cost of developing, marketing and distributing these brands is anticipated to be significant as well.

Distribution Cost Management

Distribution costs represent the costs of transporting finished goods from Company locations to customer outlets. Total distribution costs amounted to $48.6 million in both Q1 2013 and Q1 2012. 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 an increasing number of products. In addition, the Company has closed a number of smaller sales distribution centers over the past several years, reducing its fixed warehouse-related costs.


Table of Contents

The Company has three primary delivery systems for its current business:

bulk delivery for large supermarkets, mass merchandisers and club stores;

advanced sales delivery for convenience stores, drug stores, small supermarkets and certain on-premise accounts; and

full service delivery for its full service vending customers.

Distribution cost management will continue to be a key area of emphasis for the Company.

Productivity

A key driver in the Company's selling, delivery and administrative ("S,D&A") expense management relates to ongoing improvements in labor productivity and asset productivity.

Overview of Operations and Financial Condition

The following items affect the comparability of the financial results presented below:

Q1 2013

a $.5 million pre-tax unfavorable mark-to-market adjustment to cost of sales related to the Company's 2013 commodity hedging program.

a $1.2 million gain on the sale of a distribution facility that was no longer used.

a $.4 million decrease to income tax expense related to the American Taxpayer Relief Act.

Q1 2012

a $.7 million additional income tax expense to increase the valuation allowance for certain deferred tax assets of the Company.

The following overview provides a summary of key information concerning the Company's financial results for Q1 2013 compared to Q1 2012.

                                               First Quarter                           %
 In Thousands (Except Per Share Data)       2013          2012         Change       Change
 Net sales                                $ 383,551     $ 377,185     $  6,366          1.7
 Cost of sales                              229,852       221,591        8,261          3.7
 Gross margin                               153,699       155,594       (1,895 )       (1.2 )
 S,D&A expenses                             138,211       136,961        1,250           .9
 Income from operations                      15,488        18,633       (3,145 )      (16.9 )
 Interest expense, net                        7,379         9,071       (1,692 )      (18.7 )
 Income before taxes                          8,109         9,562       (1,453 )      (15.2 )
 Income tax expense                           2,440         4,467       (2,027 )      (45.4 )
 Net income                                   5,669         5,095          574         11.3
 Net income attributable to the Company       4,862         4,565          297          6.5

 Basic net income per share:
 Common Stock                             $     .53     $     .50     $    .03          6.0
 Class B Common Stock                     $     .53     $     .50     $    .03          6.0

 Diluted net income per share:
 Common Stock                             $     .52     $     .49     $    .03          6.1
 Class B Common Stock                     $     .52     $     .49     $    .03          6.1


Table of Contents

The Company's net sales increased 1.7% in Q1 2013 compared to Q1 2012. The increase in net sales in Q1 2013 compared to Q1 2012 was primarily due to a 22.7% increase in sales volume to other Coca-Cola bottlers and a 1.8% increase in bottle/can sales price per unit partially offset by a 2.0% decrease in bottle/can volume to retail customers. The increase in sales volume to other Coca-Cola bottlers was primarily due to an increase in sales volume of sparkling beverages. The 1.8% increase in bottle/can sales price per unit was primarily due to an increase in sales price per unit in all sparkling beverages except energy products. The 2.0% decrease in bottle/can volume to retail customers was primarily due to a volume decrease in all beverage categories except bottled water.

Gross margin dollars decreased 1.2% in Q1 2013 compared to Q1 2012. The Company's gross margin percentage decreased to 40.1% in Q1 2013 from 41.3% in Q1 2012. The decrease in gross margin percentage in Q1 2013 compared to Q1 2012 was primarily due to higher sales volume to other Coca-Cola bottlers which has lower gross margin than bottle/can sales, an increase in raw material costs and an increase in purchases of finished products partially offset by higher bottle/can sales price per unit.

The following inputs represent a substantial portion of the Company's total cost of goods sold: (1) sweeteners, (2) packaging materials, including plastic bottles and aluminum cans, and (3) finished products purchased from other vendors. The Company anticipates that the costs of some of the underlying commodities related to these inputs, particularly corn, will continue to face upward pressure and gross margins on all categories of products will be lower throughout the remainder of 2013 compared to 2012, unless rising commodity costs can be offset with price increases.

S,D&A expenses increased .9% in Q1 2013 from Q1 2012. The increase in S,D&A expenses in Q1 2013 from Q1 2012 was attributable primarily to an increase in employee salaries including bonuses and incentives and an increase in software amortization partially offset by a decrease in depreciation and amortization of property, plant and equipment and the gain on the sale of a distribution facility that was no longer in use.

Net interest expense decreased 18.7% in Q1 2013 compared to Q1 2012. The decrease was primarily due to the repayment at maturity of $150 million of Senior Notes in November 2012. The Company's overall weighted average interest rate on its debt and capital lease obligations decreased to 5.7% during Q1 2013 from 6.1% during Q1 2012.

Income tax expense decreased 45.4% in Q1 2013 as compared to Q1 2012. The decrease to income tax expense was primarily due to a reduction of $.4 million associated with the American Taxpayer Relief Act enacted on January 2, 2013, a lower adjustment to the valuation allowance in Q1 2013 of $.1 million as compared to $.7 million in Q1 2012, and lower income before taxes for Q1 2013 as compared to Q1 2012.

Net debt and capital lease obligations were summarized as follows:

                                                    Mar. 31,      Dec. 30,       Apr. 1,
 In Thousands                                         2013          2012          2012
 Debt                                               $ 458,430     $ 423,386     $ 523,260
 Capital lease obligations                             68,306        69,581        73,012

 Total debt and capital lease obligations             526,736       492,967       596,272
 Less: Cash and cash equivalents                       11,890        10,399        57,649

 Total net debt and capital lease obligations (1)   $ 514,846     $ 482,568     $ 538,623

(1) The non-GAAP measure "Total net debt and capital lease obligations" is used to provide investors with additional information which management believes is helpful in the evaluation of the Company's capital


Table of Contents
structure and financial leverage. This non-GAAP financial information is not presented elsewhere in this report and may not be comparable to the similarly titled measures used by other companies. Additionally, this information should not be considered in isolation or as a substitute for performance measures calculated in accordance with GAAP.

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 30, 2012 a discussion of the Company's most critical accounting policies, which are those most important to the portrayal of the Company's financial condition and results of operations and require management's most difficult, subjective and complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.

The Company did not make changes in any critical accounting policies during Q1 2013. 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 December 2011, the Financial Accounting Standards Board ("FASB") issued new guidance that is intended to enhance current disclosures on offsetting financial assets and liabilities. The new guidance requires an entity to disclose both gross and net information about financial instruments eligible for offset on the balance sheet and instruments and transactions subject to an agreement similar to a master netting arrangement. The provisions of the new guidance are effective for fiscal years, and interim periods within those years, beginning on or after January 1, 2013. The new guidance did not have a material impact on the Company's consolidated financial statements.

In February 2013, the FASB issued new guidance which establishes new requirements for disclosing reclassifications of items out of accumulated other comprehensive income. The new guidance requires a company to report the effect of significant reclassifications from accumulated other comprehensive income to the respective line items in net income or cross-reference to other disclosures for items not reclassified entirely to net income. The new guidance was effective for annual and interim periods beginning after December 15, 2012. The new guidance expands disclosure of other comprehensive income but does not change the manner in which items of other comprehensive income are accounted or the way in which net income or other comprehensive income is reported in the financial statements. The Company elected to report this information within the notes to the consolidated financial statements.


Table of Contents

Results of Operations

Q1 2013 Compared to Q1 2012

Net Sales

Net sales increased $6.4 million, or 1.7%, to $383.6 million in Q1 2013 compared
to $377.2 million in Q1 2012.

The increase in net sales for Q1 2013 compared to Q1 2012 was principally
attributable to the following:



    Q1 2013            Attributable to:
 (In Millions)
$           7.6        22.7% increase in sales volume to other Coca-Cola bottlers
                       primarily due to volume increases in sparkling beverages
           (6.1 )      2.0% decrease in bottle/can volume to retail customers
                       primarily due to a volume decrease in all beverages except
                       bottled water
            5.5        1.8% increase in bottle/can sales price per unit primarily due
                       to an increase in sales price per unit in sparkling beverages
                       except energy products
            1.5        Increase in sales of the Company's own brand portfolio
                       (primarily Tum-E Yummies)
           (0.9 )      2.3% decrease in sales price per unit of sales to other
                       Coca-Cola bottlers primarily due to a decrease in sales price
                       per unit in sparkling beverages
           (0.8 )      4.0% decrease in post-mix sales volume
            0.3        1.8% increase in post-mix sales price per unit
           (0.7 )      Other

$           6.4        Total increase in net sales

In Q1 2013, the Company's bottle/can sales to retail customers accounted for 80.1% of the Company's total net sales. Bottle/can net pricing is based on the invoice price charged to customers reduced by promotional allowances. Bottle/can net pricing per unit is impacted by the price charged per package, the volume generated in each package and the channels in which those packages are sold.

Product category sales volume in Q1 2013 and Q1 2012 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                         Q1 2013              Q1 2012             % Increase (Decrease)
Sparkling beverages (including
energy products)                              83.5 %              84.7 %                             (3.3 )
Still beverages                               16.5 %              15.3 %                              5.6

Total bottle/can sales volume                100.0 %             100.0 %                             (2.0 )

The Company's products are sold and distributed through various channels. They include selling directly to retail stores and other outlets such as food markets, institutional accounts and vending machine outlets. During Q1 2013 and Q1 2012, approximately 69% and 68% of the Company's bottle/can volume was sold for future consumption, respectively, while the remaining bottle/can volume of approximately 31% and 32% was sold for immediate consumption, respectively. The Company's largest customer, Wal-Mart Stores, Inc., accounted for


Table of Contents

approximately 20% and approximately 22% of the Company's total bottle/can volume during Q1 2013 and Q1 2012, respectively. The Company's second largest customer, Food Lion, LLC, accounted for approximately 8% and approximately 9% of the Company's total bottle/can volume during Q1 2013 and Q1 2012, respectively. All of the Company's beverage sales are to customers in the United States.

The Company recorded delivery fees in net sales of $1.5 million and $1.7 million in Q1 2013 and Q1 2012, respectively. These fees are used to offset a portion of the Company's delivery and handling costs.

Cost of Sales

Cost of sales includes the following: raw material costs, manufacturing labor, manufacturing overhead including depreciation expense, manufacturing warehousing costs and shipping and handling costs related to the movement of finished goods from manufacturing locations to sales distribution centers.

Cost of sales increased 3.7%, or $8.3 million, to $229.9 million in Q1 2013 compared to $221.6 million in Q1 2012.

The increase in cost of sales for Q1 2013 compared to Q1 2012 was principally attributable to the following:

    Q1 2013            Attributable to:
 (In Millions)
$           7.4        22.7% increase in sales volume to other Coca-Cola bottlers
                       primarily due to volume increases in sparkling beverages
           (3.6 )      2.0% decrease in bottle/can volume to retail customers
                       primarily due to a volume decrease in all beverages except
                       bottled water
            2.9        Increase in raw material costs and increased purchases of
                       finished products
            1.0        Increase in sales of the Company's own brand portfolio
                       (primarily Tum-E Yummies)
            0.6        Increase in cost due to the Company's commodity hedging program
                       including the mark-to-market adjustment, settlement and premium
                       amortization
           (0.6 )      4.0% decrease in post-mix sales volume
            0.4        Decrease in marketing funding support received primarily from
                       The Coca-Cola Company
            0.2        Other

$           8.3        Total increase in cost of sales

The following inputs represent a substantial portion of the Company's total cost of goods sold: (1) sweeteners, (2) packaging materials, including plastic bottles and aluminum cans, and (3) finished products purchased from other vendors. The Company anticipates that the costs of some of the underlying commodities related to these inputs, particularly corn, will continue to face upward pressure and gross margins on all categories of products will be lower throughout the remainder of 2013 compared to 2012, unless rising commodity costs can be offset with price increases.

. . .

  Add COKE to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for COKE - All Recent SEC Filings
Sign Up for a Free Trial to the NEW EDGAR Online Pro
Detailed SEC, Financial, Ownership and Offering Data on over 12,000 U.S. Public Companies.
Actionable and easy-to-use with searching, alerting, downloading and more.
Request a Trial Sign Up Now


Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.