UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 1, 2017September 30, 2018
Commission File Number 0-9286
COCA‑COLA BOTTLING CO. CONSOLIDATED
(Exact name of registrant as specified in its charter)
Delaware |
| 56-0950585 |
(State or other jurisdiction of |
| (I.R.S. Employer |
4100 Coca‑Cola Plaza
Charlotte, North Carolina 28211
(Address of principal executive offices) (Zip Code)
(704) 557-4400
(Registrant’s 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 ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
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| Accelerated filer |
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Non-accelerated filer | ☐ |
| Smaller reporting company | ☐ |
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| Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.
Class | Outstanding at October |
Common Stock, $1.00 Par Value | 7,141,447 |
Class B Common Stock, $1.00 Par Value |
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COCA‑COLA BOTTLING CO. CONSOLIDATED
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED OCTOBER 1, 2017SEPTEMBER 30, 2018
INDEX
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Item 1. |
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| 6 | |
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| 7 | |
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Item 2. |
| Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
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Item 4. |
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Item 1. |
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Item 1A. |
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Item 6. |
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PART I - FINANCIAL INFORMATION
COCA‑COLA BOTTLING CO. CONSOLIDATED
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
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| Third Quarter |
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| First Three Quarters |
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| Third Quarter |
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| First Three Quarters |
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(in thousands, except per share data) |
| 2017 |
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| 2016 |
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| 2017 |
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| 2016 |
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| 2018 |
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| 2017 |
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| 2018 |
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| 2017 |
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Net sales |
| $ | 1,162,526 |
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| $ | 849,028 |
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| $ | 3,197,519 |
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| $ | 2,314,868 |
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| $ | 1,211,661 |
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| $ | 1,162,526 |
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| $ | 3,510,997 |
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| $ | 3,197,519 |
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Cost of sales |
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| 752,202 |
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| 521,838 |
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| 2,039,996 |
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| 1,424,073 |
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| 791,317 |
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| 752,202 |
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| 2,313,728 |
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| 2,039,996 |
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Gross profit |
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| 410,324 |
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| 327,190 |
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| 1,157,523 |
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| 890,795 |
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| 420,344 |
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| 410,324 |
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| 1,197,269 |
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| 1,157,523 |
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Selling, delivery and administrative expenses |
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| 374,194 |
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| 287,389 |
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| 1,060,472 |
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| 783,857 |
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| 375,940 |
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| 372,852 |
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| 1,152,183 |
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| 1,056,446 |
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Income from operations |
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| 36,130 |
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| 39,801 |
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| 97,051 |
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| 106,938 |
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| 44,404 |
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| 37,472 |
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| 45,086 |
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| 101,077 |
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Interest expense, net |
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| 10,697 |
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| 8,452 |
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| 30,607 |
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| 27,621 |
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| 12,827 |
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| 10,697 |
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| 37,617 |
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| 30,607 |
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Other income (expense), net |
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| 5,226 |
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| 7,325 |
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| (32,569 | ) |
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| (26,100 | ) |
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| 1,696 |
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| 3,884 |
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| (3,612 | ) |
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| (36,595 | ) |
Loss on exchange of franchise territory |
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| - |
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| - |
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| - |
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| 692 |
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Gain on exchange transactions |
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| 10,170 |
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| - |
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| 10,170 |
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| - |
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Income before income taxes |
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| 30,659 |
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| 38,674 |
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| 33,875 |
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| 52,525 |
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| 43,443 |
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| 30,659 |
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| 14,027 |
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| 33,875 |
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Income tax expense |
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| 11,748 |
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| 13,121 |
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| 11,800 |
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| 18,681 |
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| 16,493 |
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| 11,748 |
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| 3,387 |
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| 11,800 |
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Net income |
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| 18,911 |
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| 25,553 |
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| 22,075 |
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| 33,844 |
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| 26,950 |
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| 18,911 |
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| 10,640 |
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| 22,075 |
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Less: Net income attributable to noncontrolling interest |
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| 1,595 |
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| 2,411 |
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| 3,462 |
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| 5,091 |
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| 1,786 |
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| 1,595 |
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| 3,594 |
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| 3,462 |
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Net income attributable to Coca-Cola Bottling Co. Consolidated |
| $ | 17,316 |
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| $ | 23,142 |
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| $ | 18,613 |
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| $ | 28,753 |
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| $ | 25,164 |
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| $ | 17,316 |
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| $ | 7,046 |
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| $ | 18,613 |
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Basic net income per share based on net income attributable to Coca-Cola Bottling Co. Consolidated: |
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Common Stock |
| $ | 1.86 |
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| $ | 2.48 |
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| $ | 2.00 |
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| $ | 3.09 |
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| $ | 2.69 |
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| $ | 1.86 |
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| $ | 0.75 |
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| $ | 2.00 |
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Weighted average number of Common Stock shares outstanding |
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| 7,141 |
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| 7,141 |
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| 7,141 |
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| 7,141 |
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| 7,141 |
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| 7,141 |
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| 7,141 |
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| 7,141 |
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Class B Common Stock |
| $ | 1.86 |
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| $ | 2.48 |
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| $ | 2.00 |
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| $ | 3.09 |
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| $ | 2.69 |
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| $ | 1.86 |
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| $ | 0.75 |
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| $ | 2.00 |
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Weighted average number of Class B Common Stock shares outstanding |
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| 2,193 |
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| 2,172 |
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| 2,188 |
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| 2,167 |
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| 2,213 |
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| 2,193 |
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| 2,208 |
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| 2,188 |
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Diluted net income per share based on net income attributable to Coca-Cola Bottling Co. Consolidated: |
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Common Stock |
| $ | 1.85 |
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| $ | 2.47 |
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| $ | 1.99 |
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| $ | 3.08 |
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| $ | 2.69 | �� |
| $ | 1.85 |
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| $ | 0.75 |
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| $ | 1.99 |
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Weighted average number of Common Stock shares outstanding – assuming dilution |
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| 9,374 |
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| 9,353 |
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| 9,369 |
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| 9,348 |
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| 9,405 |
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| 9,374 |
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| 9,400 |
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| 9,369 |
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Class B Common Stock |
| $ | 1.84 |
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| $ | 2.47 |
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| $ | 1.97 |
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| $ | 3.07 |
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| $ | 2.68 |
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| $ | 1.84 |
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| $ | 0.74 |
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| $ | 1.97 |
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Weighted average number of Class B Common Stock shares outstanding – assuming dilution |
|
| 2,233 |
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| 2,212 |
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| 2,228 |
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| 2,207 |
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| 2,264 |
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| 2,233 |
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| 2,259 |
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| 2,228 |
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Cash dividends per share: |
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Common Stock |
| $ | 0.25 |
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| $ | 0.25 |
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| $ | 0.75 |
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| $ | 0.75 |
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| $ | 0.25 |
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| $ | 0.25 |
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| $ | 0.75 |
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| $ | 0.75 |
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Class B Common Stock |
| $ | 0.25 |
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| $ | 0.25 |
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| $ | 0.75 |
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| $ | 0.75 |
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| $ | 0.25 |
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| $ | 0.25 |
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| $ | 0.75 |
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| $ | 0.75 |
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See accompanying notes to consolidated condensed financial statements.
COCA‑COLA BOTTLING CO. CONSOLIDATED
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
|
|
| Third Quarter |
|
| First Three Quarters |
|
| Third Quarter |
|
| First Three Quarters |
| ||||||||||||||||||||
(in thousands) |
|
| 2017 |
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| 2016 |
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| 2017 |
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| 2016 |
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| 2018 |
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| 2017 |
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| 2018 |
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| 2017 |
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Net income |
| $ | 18,911 |
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| $ | 25,553 |
|
| $ | 22,075 |
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| $ | 33,844 |
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| $ | 26,950 |
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| $ | 18,911 |
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| $ | 10,640 |
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| $ | 22,075 |
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Other comprehensive income, net of tax: |
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Defined benefit plans reclassification including pension costs: |
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Actuarial gains |
|
| 496 |
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| 455 |
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| 1,487 |
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| 1,365 |
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| 703 |
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| 496 |
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| 2,109 |
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|
| 1,487 |
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Prior service benefits |
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| 4 |
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| 4 |
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| 13 |
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| 13 |
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| 4 |
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| 4 |
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| 13 |
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| 13 |
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Postretirement benefits reclassification included in benefits costs: |
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Actuarial gains |
|
| 398 |
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| 361 |
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| 1,194 |
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| 1,082 |
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| 376 |
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| 398 |
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| 1,128 |
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| 1,194 |
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Prior service costs |
|
| (458 | ) |
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| (516 | ) |
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| (1,374 | ) |
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| (1,548 | ) |
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| (348 | ) |
|
| (458 | ) |
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| (1,044 | ) |
|
| (1,374 | ) | |
Foreign currency translation adjustment |
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| 7 |
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| 3 |
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| 23 |
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| 7 |
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| (1 | ) |
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| 7 |
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| (7 | ) |
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| 23 |
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Other comprehensive income, net of tax |
|
| 447 |
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|
| 307 |
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| 1,343 |
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|
| 919 |
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| 734 |
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| 447 |
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| 2,199 |
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| 1,343 |
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Comprehensive income |
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| 19,358 |
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| 25,860 |
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| 23,418 |
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| 34,763 |
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| 27,684 |
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| 19,358 |
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| 12,839 |
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| 23,418 |
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Less: Comprehensive income attributable to noncontrolling interest |
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| 1,595 |
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| 2,411 |
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| 3,462 |
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| 5,091 |
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| 1,786 |
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| 1,595 |
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| 3,594 |
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|
| 3,462 |
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Comprehensive income attributable to Coca-Cola Bottling Co. Consolidated |
| $ | 17,763 |
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| $ | 23,449 |
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| $ | 19,956 |
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| $ | 29,672 |
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| $ | 25,898 |
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| $ | 17,763 |
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| $ | 9,245 |
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| $ | 19,956 |
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See accompanying notes to consolidated condensed financial statements.
COCA‑COLA BOTTLING CO. CONSOLIDATED
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
(in thousands, except share data) |
| October 1, 2017 |
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| January 1, 2017 |
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| September 30, 2018 |
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| December 31, 2017 |
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ASSETS |
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Current Assets: |
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Cash and cash equivalents |
| $ | 11,922 |
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| $ | 21,850 |
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| $ | 9,337 |
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| $ | 16,902 |
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Accounts receivable, trade |
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| 382,073 |
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| 271,661 |
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| 432,384 |
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| 396,022 |
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Allowance for doubtful accounts |
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| (5,837 | ) |
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| (4,448 | ) |
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| (9,069 | ) |
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| (7,606 | ) |
Accounts receivable from The Coca-Cola Company |
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| 65,900 |
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| 67,591 |
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| 62,541 |
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|
| 65,996 |
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Accounts receivable, other |
|
| 38,078 |
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|
| 29,770 |
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|
| 28,632 |
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|
| 38,960 |
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Inventories |
|
| 191,943 |
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|
| 143,553 |
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|
| 229,892 |
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|
| 183,618 |
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Prepaid expenses and other current assets |
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| 129,674 |
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|
| 63,834 |
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|
| 91,514 |
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|
| 100,646 |
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Assets held for sale |
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| 128,963 |
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|
| - |
| ||||||||
Total current assets |
|
| 942,716 |
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|
| 593,811 |
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|
| 845,231 |
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|
| 794,538 |
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Property, plant and equipment, net |
|
| 939,270 |
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|
| 812,989 |
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|
| 998,117 |
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|
| 1,031,388 |
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Leased property under capital leases, net |
|
| 29,259 |
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|
| 33,552 |
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|
| 25,208 |
|
|
| 29,837 |
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Other assets |
|
| 104,111 |
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|
| 86,091 |
|
|
| 119,193 |
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|
| 116,209 |
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Franchise rights |
|
| - |
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|
| 533,040 |
| ||||||||
Goodwill |
|
| 152,701 |
|
|
| 144,586 |
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|
| 165,903 |
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|
| 169,316 |
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Distribution agreements, net |
|
| 729,777 |
|
|
| 234,988 |
|
|
| 901,831 |
|
|
| 913,352 |
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Customer lists and other identifiable intangible assets, net |
|
| 13,262 |
|
|
| 10,427 |
|
|
| 16,941 |
|
|
| 18,320 |
|
Total assets |
| $ | 2,911,096 |
|
| $ | 2,449,484 |
|
| $ | 3,072,424 |
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| $ | 3,072,960 |
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LIABILITIES AND EQUITY |
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Current Liabilities: |
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Current portion of obligations under capital leases |
| $ | 7,963 |
|
| $ | 7,527 |
|
| $ | 8,438 |
|
| $ | 8,221 |
|
Accounts payable, trade |
|
| 182,690 |
|
|
| 116,821 |
|
|
| 186,706 |
|
|
| 197,049 |
|
Accounts payable to The Coca-Cola Company |
|
| 165,279 |
|
|
| 135,155 |
|
|
| 142,849 |
|
|
| 171,042 |
|
Other accrued liabilities |
|
| 148,282 |
|
|
| 133,885 |
|
|
| 153,609 |
|
|
| 185,530 |
|
Accrued compensation |
|
| 53,622 |
|
|
| 60,880 |
|
|
| 57,651 |
|
|
| 72,484 |
|
Accrued interest payable |
|
| 9,279 |
|
|
| 3,639 |
|
|
| 9,363 |
|
|
| 5,126 |
|
Liabilities held for sale |
|
| 19,967 |
|
|
| - |
| ||||||||
Total current liabilities |
|
| 587,082 |
|
|
| 457,907 |
|
|
| 558,616 |
|
|
| 639,452 |
|
Deferred income taxes |
|
| 153,765 |
|
|
| 174,854 |
|
|
| 123,248 |
|
|
| 112,364 |
|
Pension and postretirement benefit obligations |
|
| 99,835 |
|
|
| 126,679 |
|
|
| 98,738 |
|
|
| 118,392 |
|
Other liabilities |
|
| 524,287 |
|
|
| 378,572 |
|
|
| 600,310 |
|
|
| 620,579 |
|
Obligations under capital leases |
|
| 35,164 |
|
|
| 41,194 |
|
|
| 28,840 |
|
|
| 35,248 |
|
Long-term debt |
|
| 1,127,847 |
|
|
| 907,254 |
|
|
| 1,194,109 |
|
|
| 1,088,018 |
|
Total liabilities |
|
| 2,527,980 |
|
|
| 2,086,460 |
|
|
| 2,603,861 |
|
|
| 2,614,053 |
|
Commitments and Contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock, $1.00 par value: 30,000,000 shares authorized; 10,203,821 shares issued |
|
| 10,204 |
|
|
| 10,204 |
|
|
| 10,204 |
|
|
| 10,204 |
|
Class B Common Stock, $1.00 par value: 10,000,000 shares authorized; 2,820,836 and 2,799,816 shares issued, respectively |
|
| 2,819 |
|
|
| 2,798 |
| ||||||||
Class B Common Stock, $1.00 par value: 10,000,000 shares authorized; 2,841,132 and 2,820,836 shares issued, respectively |
|
| 2,839 |
|
|
| 2,819 |
| ||||||||
Capital in excess of par value |
|
| 120,417 |
|
|
| 116,769 |
|
|
| 124,228 |
|
|
| 120,417 |
|
Retained earnings |
|
| 313,129 |
|
|
| 301,511 |
|
|
| 388,750 |
|
|
| 388,718 |
|
Accumulated other comprehensive loss |
|
| (91,554 | ) |
|
| (92,897 | ) |
|
| (92,003 | ) |
|
| (94,202 | ) |
Treasury stock, at cost: Common Stock – 3,062,374 shares |
|
| (60,845 | ) |
|
| (60,845 | ) |
|
| (60,845 | ) |
|
| (60,845 | ) |
Treasury stock, at cost: Class B Common Stock – 628,114 shares |
|
| (409 | ) |
|
| (409 | ) |
|
| (409 | ) |
|
| (409 | ) |
Total equity of Coca-Cola Bottling Co. Consolidated |
|
| 293,761 |
|
|
| 277,131 |
|
|
| 372,764 |
|
|
| 366,702 |
|
Noncontrolling interest |
|
| 89,355 |
|
|
| 85,893 |
|
|
| 95,799 |
|
|
| 92,205 |
|
Total equity |
|
| 383,116 |
|
|
| 363,024 |
|
|
| 468,563 |
|
|
| 458,907 |
|
Total liabilities and equity |
| $ | 2,911,096 |
|
| $ | 2,449,484 |
|
| $ | 3,072,424 |
|
| $ | 3,072,960 |
|
See accompanying notes to consolidated condensed financial statements.
COCA‑COLA BOTTLING CO. CONSOLIDATED
CONSOLIDATED CONDENSED STATEMENTS OF CHANGES IN EQUITY
(Unaudited)
(in thousands, except share data) |
| Common Stock |
|
| Class B Common Stock |
|
| Capital in Excess of Par Value |
|
| Retained Earnings |
|
| Accumulated Other Comprehensive Loss |
|
| Treasury Stock - Common Stock |
|
| Treasury Stock - Class B Common Stock |
|
| Total Equity of Coca-Cola Bottling Co. Consolidated |
|
| Non- controlling Interest |
|
| Total Equity |
|
| Common Stock |
|
| Class B Common Stock |
|
| Capital in Excess of Par Value |
|
| Retained Earnings |
|
| Accumulated Other Comprehensive Loss |
|
| Treasury Stock - Common Stock |
|
| Treasury Stock - Class B Common Stock |
|
| Total Equity of Coca-Cola Bottling Co. Consolidated |
|
| Non- controlling Interest |
|
| Total Equity |
| ||||||||||||||||||||
Balance on December 31, 2017 |
| $ | 10,204 |
|
| $ | 2,819 |
|
| $ | 120,417 |
|
| $ | 388,718 |
|
| $ | (94,202 | ) |
| $ | (60,845 | ) |
| $ | (409 | ) |
| $ | 366,702 |
|
| $ | 92,205 |
|
| $ | 458,907 |
| ||||||||||||||||||||||||||||||||||||||||
Net income |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 7,046 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 7,046 |
|
|
| 3,594 |
|
|
| 10,640 |
| ||||||||||||||||||||||||||||||||||||||||
Other comprehensive income, net of tax |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 2,199 |
|
|
| - |
|
|
| - |
|
|
| 2,199 |
|
|
| - |
|
|
| 2,199 |
| ||||||||||||||||||||||||||||||||||||||||
Cash dividends paid: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||
Common Stock ($0.75 per share) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (5,357 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (5,357 | ) |
|
| - |
|
|
| (5,357 | ) | ||||||||||||||||||||||||||||||||||||||||
Class B Common Stock ($0.75 per share) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (1,657 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (1,657 | ) |
|
| - |
|
|
| (1,657 | ) | ||||||||||||||||||||||||||||||||||||||||
Issuance of 20,296 shares of Class B Common Stock |
|
| - |
|
|
| 20 |
|
|
| 3,811 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 3,831 |
|
|
| - |
|
|
| 3,831 |
| ||||||||||||||||||||||||||||||||||||||||
Balance on September 30, 2018 |
| $ | 10,204 |
|
| $ | 2,839 |
|
| $ | 124,228 |
|
| $ | 388,750 |
|
| $ | (92,003 | ) |
| $ | (60,845 | ) |
| $ | (409 | ) |
| $ | 372,764 |
|
| $ | 95,799 |
|
| $ | 468,563 |
| ||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||
Balance on January 1, 2017 |
| $ | 10,204 |
|
| $ | 2,798 |
|
| $ | 116,769 |
|
| $ | 301,511 |
|
| $ | (92,897 | ) |
| $ | (60,845 | ) |
| $ | (409 | ) |
| $ | 277,131 |
|
| $ | 85,893 |
|
| $ | 363,024 |
|
| $ | 10,204 |
|
| $ | 2,798 |
|
| $ | 116,769 |
|
| $ | 301,511 |
|
| $ | (92,897 | ) |
| $ | (60,845 | ) |
| $ | (409 | ) |
| $ | 277,131 |
|
| $ | 85,893 |
|
| $ | 363,024 |
|
Net income |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 18,613 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 18,613 |
|
|
| 3,462 |
|
|
| 22,075 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 18,613 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 18,613 |
|
|
| 3,462 |
|
|
| 22,075 |
|
Other comprehensive income, net of tax |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 1,343 |
|
|
| - |
|
|
| - |
|
|
| 1,343 |
|
|
| - |
|
|
| 1,343 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 1,343 |
|
|
| - |
|
|
| - |
|
|
| 1,343 |
|
|
| - |
|
|
| 1,343 |
|
Cash dividends paid: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common ($0.75 per share) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (5,356 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (5,356 | ) |
|
| - |
|
|
| (5,356 | ) | ||||||||||||||||||||||||||||||||||||||||
Class B Common ($0.75 per share) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (1,639 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (1,639 | ) |
|
| - |
|
|
| (1,639 | ) | ||||||||||||||||||||||||||||||||||||||||
Common Stock ($0.75 per share) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (5,356 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (5,356 | ) |
|
| - |
|
|
| (5,356 | ) | ||||||||||||||||||||||||||||||||||||||||
Class B Common Stock ($0.75 per share) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (1,639 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (1,639 | ) |
|
| - |
|
|
| (1,639 | ) | ||||||||||||||||||||||||||||||||||||||||
Issuance of 21,020 shares of Class B Common Stock |
|
| - |
|
|
| 21 |
|
|
| 3,648 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 3,669 |
|
|
| - |
|
|
| 3,669 |
|
|
| - |
|
|
| 21 |
|
|
| 3,648 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 3,669 |
|
|
| - |
|
|
| 3,669 |
|
Balance on October 1, 2017 |
| $ | 10,204 |
|
| $ | 2,819 |
|
| $ | 120,417 |
|
| $ | 313,129 |
|
| $ | (91,554 | ) |
| $ | (60,845 | ) |
| $ | (409 | ) |
| $ | 293,761 |
|
| $ | 89,355 |
|
| $ | 383,116 |
|
| $ | 10,204 |
|
| $ | 2,819 |
|
| $ | 120,417 |
|
| $ | 313,129 |
|
| $ | (91,554 | ) |
| $ | (60,845 | ) |
| $ | (409 | ) |
| $ | 293,761 |
|
| $ | 89,355 |
|
| $ | 383,116 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance on January 3, 2016 |
| $ | 10,204 |
|
| $ | 2,777 |
|
| $ | 113,064 |
|
| $ | 260,672 |
|
| $ | (82,407 | ) |
| $ | (60,845 | ) |
| $ | (409 | ) |
| $ | 243,056 |
|
| $ | 79,376 |
|
| $ | 322,432 |
| ||||||||||||||||||||||||||||||||||||||||
Net income |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 28,753 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 28,753 |
|
|
| 5,091 |
|
|
| 33,844 |
| ||||||||||||||||||||||||||||||||||||||||
Other comprehensive income, net of tax |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 919 |
|
|
| - |
|
|
| - |
|
|
| 919 |
|
|
| - |
|
|
| 919 |
| ||||||||||||||||||||||||||||||||||||||||
Cash dividends paid: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||
Common ($0.75 per share) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (5,356 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (5,356 | ) |
|
| - |
|
|
| (5,356 | ) | ||||||||||||||||||||||||||||||||||||||||
Class B Common ($0.75 per share) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (1,624 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (1,624 | ) |
|
| - |
|
|
| (1,624 | ) | ||||||||||||||||||||||||||||||||||||||||
Issuance of 20,920 shares of Class B Common Stock |
|
| - |
|
|
| 21 |
|
|
| 3,705 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 3,726 |
|
|
| - |
|
|
| 3,726 |
| ||||||||||||||||||||||||||||||||||||||||
Balance on October 2, 2016 |
| $ | 10,204 |
|
| $ | 2,798 |
|
| $ | 116,769 |
|
| $ | 282,445 |
|
| $ | (81,488 | ) |
| $ | (60,845 | ) |
| $ | (409 | ) |
| $ | 269,474 |
|
| $ | 84,467 |
|
| $ | 353,941 |
| ||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated condensed financial statements.
COCA‑COLA BOTTLING CO. CONSOLIDATED
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
|
| First Three Quarters |
|
| First Three Quarters |
| ||||||||||
(in thousands) |
| 2017 |
|
| 2016 |
|
| 2018 |
|
| 2017 |
| ||||
Cash Flows from Operating Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
| $ | 22,075 |
|
| $ | 33,844 |
|
| $ | 10,640 |
|
| $ | 22,075 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense |
|
| 108,697 |
|
|
| 79,899 |
|
|
| 123,542 |
|
|
| 108,697 |
|
Amortization of intangible assets and deferred proceeds |
|
| 11,596 |
|
|
| 3,487 |
| ||||||||
Amortization of intangible assets and deferred proceeds, net |
|
| 16,954 |
|
|
| 11,596 |
| ||||||||
Deferred income taxes |
|
| (24,741 | ) |
|
| 5,509 |
|
|
| 9,903 |
|
|
| (24,741 | ) |
Gain on exchange transactions |
|
| (10,170 | ) |
|
| - |
| ||||||||
Loss on sale of property, plant and equipment |
|
| 3,420 |
|
|
| 1,880 |
|
|
| 6,123 |
|
|
| 3,420 |
|
Impairment of property, plant and equipment |
|
| - |
|
|
| 382 |
|
|
| 299 |
|
|
| - |
|
Loss on exchange of franchise territory |
|
| - |
|
|
| 692 |
| ||||||||
Proceeds from conversion of Legacy Territories bottling agreements |
|
| 87,066 |
|
|
| - |
| ||||||||
Fair value adjustment of acquisition related contingent consideration |
|
| 1,584 |
|
|
| 23,140 |
| ||||||||
Stock compensation expense |
|
| 4,494 |
|
|
| 6,473 |
| ||||||||
Amortization of debt costs |
|
| 806 |
|
|
| 1,510 |
|
|
| 1,103 |
|
|
| 806 |
|
Stock compensation expense |
|
| 6,473 |
|
|
| 4,445 |
| ||||||||
Fair value adjustment of acquisition related contingent consideration |
|
| 23,140 |
|
|
| 26,060 |
| ||||||||
Proceeds from Territory Conversion Fee |
|
| - |
|
|
| 87,066 |
| ||||||||
Change in current assets less current liabilities (exclusive of acquisitions) |
|
| (19,036 | ) |
|
| (13,623 | ) |
|
| (120,421 | ) |
|
| (19,036 | ) |
Change in other noncurrent assets (exclusive of acquisitions) |
|
| (13,391 | ) |
|
| (12,613 | ) |
|
| 724 |
|
|
| (13,391 | ) |
Change in other noncurrent liabilities (exclusive of acquisitions) |
|
| (3,746 | ) |
|
| (3,384 | ) |
|
| (18,762 | ) |
|
| (3,746 | ) |
Other |
|
| 66 |
|
|
| 37 |
|
|
| 17 |
|
|
| 66 |
|
Total adjustments |
|
| 180,350 |
|
|
| 94,281 |
|
|
| 15,390 |
|
|
| 180,350 |
|
Net cash provided by operating activities |
|
| 202,425 |
|
|
| 128,125 |
|
| $ | 26,030 |
|
| $ | 202,425 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of Expansion Territories, net of cash acquired |
|
| (227,769 | ) |
|
| (174,571 | ) | ||||||||
Additions to property, plant and equipment (exclusive of acquisitions) |
|
| (114,953 | ) |
|
| (124,599 | ) |
| $ | (113,104 | ) |
| $ | (114,953 | ) |
Investment in CONA Services LLC |
|
| (2,098 | ) |
|
| (1,976 | ) | ||||||||
Acquisition of distribution territories and regional manufacturing facilities, net of cash acquired and purchase price settlements |
|
| 1,811 |
|
|
| (227,769 | ) | ||||||||
Proceeds from cold drink equipment |
|
| 3,789 |
|
|
| 8,400 |
| ||||||||
Proceeds from the sale of property, plant and equipment |
|
| 3,555 |
|
|
| 493 |
| ||||||||
Glacéau distribution agreement consideration |
|
| - |
|
|
| (15,598 | ) | ||||||||
Prepayment of funds for October 2017 Expansion Transactions |
|
| (56,498 | ) |
|
| - |
|
|
| - |
|
|
| (56,498 | ) |
Glacéau distribution agreement consideration |
|
| (15,598 | ) |
|
| - |
| ||||||||
Proceeds from cold drink equipment |
|
| 8,400 |
|
|
| - |
| ||||||||
Investment in CONA Services LLC |
|
| (1,976 | ) |
|
| (7,216 | ) | ||||||||
Proceeds from the sale of property, plant and equipment |
|
| 493 |
|
|
| 333 |
| ||||||||
Net cash used in investing activities |
|
| (407,901 | ) |
|
| (306,053 | ) |
| $ | (106,047 | ) |
| $ | (407,901 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings under Term Loan Facility |
|
| - |
|
|
| 300,000 |
| ||||||||
Payments on Revolving Credit Facility |
| $ | (322,000 | ) |
| $ | (238,000 | ) | ||||||||
Borrowings under Revolving Credit Facility |
|
| 333,000 |
|
|
| 310,000 |
|
|
| 285,000 |
|
|
| 333,000 |
|
Payments on Revolving Credit Facility |
|
| (238,000 | ) |
|
| (245,000 | ) | ||||||||
Proceeds from issuance of Senior Notes |
|
| 125,000 |
|
|
| - |
|
|
| 150,000 |
|
|
| 125,000 |
|
Payments on Senior Notes |
|
| - |
|
|
| (164,757 | ) | ||||||||
Payment of acquisition related contingent consideration |
|
| (18,312 | ) |
|
| (11,650 | ) | ||||||||
Payment on Term Loan Facility |
|
| (7,500 | ) |
|
| - |
| ||||||||
Cash dividends paid |
|
| (6,995 | ) |
|
| (6,980 | ) |
|
| (7,014 | ) |
|
| (6,995 | ) |
Payment of acquisition related contingent consideration |
|
| (11,650 | ) |
|
| (10,470 | ) | ||||||||
Principal payments on capital lease obligations |
|
| (5,594 | ) |
|
| (5,279 | ) |
|
| (6,191 | ) |
|
| (5,594 | ) |
Other |
|
| (213 | ) |
|
| (867 | ) | ||||||||
Debt issuance fees |
|
| (1,531 | ) |
|
| (213 | ) | ||||||||
Net cash provided by financing activities |
|
| 195,548 |
|
|
| 176,647 |
|
| $ | 72,452 |
|
| $ | 195,548 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash |
|
| (9,928 | ) |
|
| (1,281 | ) |
| $ | (7,565 | ) |
| $ | (9,928 | ) |
Cash at beginning of period |
|
| 21,850 |
|
|
| 55,498 |
|
|
| 16,902 |
|
|
| 21,850 |
|
Cash at end of period |
| $ | 11,922 |
|
| $ | 54,217 |
|
| $ | 9,337 |
|
| $ | 11,922 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Significant noncash investing and financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to property, plant and equipment accrued and recorded in accounts payable, trade |
| $ | 4,081 |
|
| $ | 13,724 |
| ||||||||
Issuance of Class B Common Stock in connection with stock award |
| $ | 3,669 |
|
| $ | 3,726 |
|
|
| 3,831 |
|
|
| 3,669 |
|
Additions to property, plant and equipment accrued and recorded in accounts payable, trade |
|
| 13,724 |
|
|
| 8,776 |
|
See accompanying notes to consolidated condensed financial statements.
COCA‑COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1.Significant Accounting Policies and New Accounting Pronouncements
The consolidated condensed 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 condensed financial statements reflect all adjustments, including normal, recurring accruals, which, in the opinion of management, are necessary for a fair statement of the results for the interim periods presented:
The financial position as of October 1, 2017September 30, 2018 and January 1,December 31, 2017.
The results of operations and comprehensive income for the 13 week periods ended September 30, 2018 (“third quarter” of fiscal 2018 (“2018”)) and October 1, 2017 (“third quarter” of fiscal 2017 (“2017”)) and October 2, 2016 (“third quarter” of fiscal 2016 (“2016”)), and the 39 week periods ended September 30, 2018 (“first three quarters” of 2018) and October 1, 2017 (“first three quarters” of 2017) and October 2, 2016 (“first three quarters” of 2016).
The changes in equity and cash flows for the first three quarters of 20172018 and the first three quarters of 2016.2017.
The consolidated condensed financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial reporting and the instructions to Form 10-Q and Article 10 of Regulation S-X. 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 condensed financial statements included in the Company’s Annual Report on Form 10‑K for 20162017 filed with the Securities and Exchange Commission (the “SEC”).
The preparation of consolidated condensed financial statements, in conformity with GAAP, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the 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.
Significant Accounting Policies
In the ordinary course of business, the Company has made a number of estimates and assumptions relating to the reporting of results of operations and financial position in the preparation of its consolidated condensed financial statements in conformity with GAAP. 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 20162017 under the caption “Discussion of Critical Accounting Policies, Estimates and New Accounting Pronouncements” in Part II, “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” a discussion of the Company’s most critical accounting policies, which are those the Company believes to be the most important to the portrayal of the Company’sits 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 significant accounting policies during the third quarter of 2017. 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 contemplated and prior to making such change.
Recently Adopted Pronouncements
In March 2016,May 2014, the Financial Accounting Standards Board (“FASB”(the “FASB”) issued Accounting Standards Update (“ASU”) 2016-09 “Improvements2014-09 “Revenue from Contracts with Customers,” (the “revenue recognition standard”). Subsequent to Employee Share-Based Payment Accounting,” which simplifiesthe issuance of ASU 2014‑09, the FASB issued several aspectsadditional accounting standards for revenue recognition to update the effective date of the accounting for employee share-based transactions includingrevenue recognition guidance and to provide additional clarification on the accounting for income taxes, forfeitures and statutory tax withholding requirements, as well as classification in the statement of cash flows.updated standard. The new guidance is effective for annual and interim periods beginning after December 15, 2016. 2017. The Company adopted this guidancethe revenue recognition standard in the first quarter of 2017 and there was no impact to the Company’s consolidated condensed financial statements.2018, as discussed in Note 2.
In July 2015,January 2016, the FASB issued ASU 2015-11 “Simplifying the2016-01 “Recognition and Measurement of Inventory.Financial Assets and Financial Liabilities,” The new guidance requires an entity to measure most inventory “at lowerwhich revises the classification and measurement of costinvestments in equity securities and net realizable value” thereby simplifying the current guidance under which an entity must measure inventorypresentation of certain fair value changes in financial liabilities measured at the lower of cost or market.fair value. The new guidance is effective for annual and interim periods beginning after December 15, 2016. 31, 2017. The Company adopted this guidance in the first quarter of 20172018 and there was no material impact to the Company’s consolidated condensed financial statements.
In January 2017, the FASB issued ASU 2017-01 “Clarifying the Definition of a Business,” which clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions or disposals of assets or businesses. The new guidance is effective for annual periods beginning after December 15, 2017, including
Recently Issued Pronouncementsinterim periods within those periods. The Company adopted this guidance in the first quarter of 2018 and there was no material impact to the Company’s consolidated condensed financial statements.
In January 2017, the FASB issued ASU 2017-04 “Simplifying the Test for Goodwill Impairment,” which simplifies how an entity is required to test goodwill for impairment by eliminating step 2 from the goodwill impairment test, which measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount. Under the new guidance, entities should instead perform annual or interim goodwill impairment tests by comparing the fair value of a reporting unit with its carrying amount and recognize an impairment charge for the excess of the carrying amount over the fair value of the respective reporting unit. The new guidance is effective for the annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. The Company does not anticipate the adoption ofadopted this guidance will have ain the first quarter of 2018 and there was no material impact on itsto the Company’s consolidated condensed financial statements.
In JanuaryMarch 2017, the FASB issued ASU 2017-01 “Clarifying2017‑07 “Improving the DefinitionPresentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost,” which requires that the service cost component of the Company’s net periodic pension cost and net periodic postretirement benefit cost be included in the same line item as other compensation costs arising from services rendered by employees, with the non-service cost components of net periodic benefit cost being classified outside of a Business,” which clarifiessubtotal of income from operations. Of the definitioncomponents of a business withnet periodic benefit cost, only the objective of adding guidance to assist entities with evaluating whether transactions should be accountedservice cost component is eligible for as acquisitions or disposals of assets or businesses.asset capitalization. The new guidance is effective for annual periods beginning after December 15,31, 2017, including interim periods within those annual periods. The impactCompany adopted this guidance in the first quarter of 2018 using the practical expedient which allows entities to use information previously disclosed in their pension and other postretirement benefit plans note as the Company’sestimation basis to apply the retrospective presentation requirements in ASU 2017-07.
With the adoption of this guidance in the first quarter of 2018, the Company recorded the non-service cost component of net periodic benefit cost, which totaled $0.6 million in the third quarter of 2018 and $2.0 million in the first three quarters of 2018, to other income (expense), net in the consolidated condensed financial statements of operations. The Company reclassified $1.3 million from the third quarter of 2017 and $4.0 million from the first three quarters of 2017 of non-service cost components of net periodic benefit cost and other benefit plan charges from selling, delivery and administrative (“S,D&A”) expenses to other income (expense), net in the consolidated condensed statements of operations. The non-service cost component of net periodic benefit cost is included in the Nonalcoholic Beverages segment.
Recently Issued Pronouncements
In February 2018, the FASB issued ASU 2018‑02 “Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income,” which provides the option to reclassify stranded tax effects resulting from the Tax Cuts and Jobs Act (the “Tax Act”) from accumulated other comprehensive income to retained earnings. The new guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, and can be early adopted. The Company is currently evaluating whether it will depend on the facts and circumstances of any specific future transactions.adopt this guidance.
In February 2016, the FASB issued ASU 2016-02 “Leases,” which requires lessees to recognize a right-to-use asset and a lease liability for virtually all leases (other than leases meeting the definition of a short-term lease). The new guidance is effective for fiscal years beginning after December 15, 2018 and interim periods beginning the following fiscal year. The Company anticipates adopting the new accounting standard on December 31, 2018, the first day of fiscal 2019, using the optional transition method, which was approved by the FASB in March 2018 and allows companies the option to use the effective date as the date of initial application on transition and to not adjust comparative period financial information or make the new required disclosures for periods prior to the effective date.
The Company has formed a project team, which is in the process of evaluatingreviewing its existing lease portfolio, including certain service contracts for embedded leases, to determine the size of the Company’s lease portfolio in order to evaluate the impact of thethis new guidance on the Company’s consolidated condensed financial statements. The Company anticipates the impact of adopting this new guidance will be material to its consolidated condensed balance sheets. The impact on the Company’s consolidated condensed statements of operations is still being evaluated. As the impact of the new guidance is non-cash in nature, the Company does not anticipate the impact of adopting this new guidance will be material to its consolidated condensed statements of cash flows. Additionally, the Company is evaluating the impacts of the standardASU 2016‑02 beyond accounting, including system, data and process changes required to comply with this standard. The Company anticipates implementing new controls and utilizing a lease accounting software application with the standard.adoption of this new guidance and on a go-forward basis in order to properly approve, track and account for its entire lease portfolio.
In January 2016, the FASB issued ASU 2016-01 “Recognition and Measurement of Financial Assets and Financial Liabilities,” which revises the classification and measurement of investments in equity securities and the presentation of certain fair value changes in financial liabilities measured at fair value. The new guidance is effective for annual and interim periods beginning after December 31, 2017.
The Company isadopted the revenue recognition standard, including all relevant amendments and practical expedients, in the processfirst quarter of evaluating2018 using the modified retrospective approach for all contracts not completed at the date of initial adoption, considering materiality and applicability. Upon adoption of this guidance, there was no material impact of the new guidance onto the Company’s consolidated condensed financial statements.
OverThe Company’s contracts are derived from customer orders, including customer sales incentives, generated through an order processing and replenishment model. The Company has defined its performance obligations for its contracts as either at a point in time or over time.
The Company offers a range of nonalcoholic beverage products and flavors designed to meet the past several years,demands of its consumers, including both sparkling and still beverages. Sparkling beverages are carbonated beverages and the FASB has issued several accounting standardsCompany’s principal sparkling beverage is Coca‑Cola. Still beverages include energy products and noncarbonated beverages such as bottled water, tea, ready to drink coffee, enhanced water, juices and sports drinks.
The Company’s products are sold and distributed through various channels, which include selling directly to retail stores and other outlets such as food markets, institutional accounts and vending machine outlets. During the first three quarters of 2018, approximately 66% of the Company’s bottle/can sales volume to retail customers was sold for revenue recognition:future consumption, while the remaining bottle/can sales volume to retail customers was sold for immediate consumption. All the Company’s beverage sales were to customers in the United States. The Company typically collects payment from customers within 30 days from the date of sale.
The Company’s sales are divided into two main categories: (i) bottle/can sales and (ii) other sales. Bottle/can sales include products packaged primarily in plastic bottles and aluminum cans. Other sales include sales to other Coca‑Cola bottlers, “post-mix” products, transportation and equipment maintenance revenue. Post-mix products are dispensed through equipment that mixes fountain syrups with carbonated or still water, enabling fountain retailers to sell finished products to consumers in cups or glasses. Net sales by category were as follows:
|
| Third Quarter |
|
| First Three Quarters |
| ||||||||||
(in thousands) |
| 2018 |
|
| 2017 |
|
| 2018 |
|
| 2017 |
| ||||
Bottle/can sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sparkling beverages (carbonated) |
| $ | 605,614 |
|
| $ | 582,710 |
|
| $ | 1,787,451 |
|
| $ | 1,670,093 |
|
Still beverages (noncarbonated, including energy products) |
|
| 413,282 |
|
|
| 384,495 |
|
|
| 1,142,764 |
|
|
| 1,009,508 |
|
Total bottle/can sales |
|
| 1,018,896 |
|
|
| 967,205 |
|
|
| 2,930,215 |
|
|
| 2,679,601 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales to other Coca-Cola bottlers |
|
| 92,139 |
|
|
| 104,619 |
|
|
| 300,819 |
|
|
| 274,317 |
|
Post-mix and other |
|
| 100,626 |
|
|
| 90,702 |
|
|
| 279,963 |
|
|
| 243,601 |
|
Total other sales |
|
| 192,765 |
|
|
| 195,321 |
|
|
| 580,782 |
|
|
| 517,918 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales |
| $ | 1,211,661 |
|
| $ | 1,162,526 |
|
| $ | 3,510,997 |
|
| $ | 3,197,519 |
|
ASU 2014‑09 “Revenue from Contracts with Customers” was issued
Bottle/can sales represented approximately 83% and 84% in May 2014,the first three quarters of 2018 and the first three quarters of 2017, respectively. The sparkling beverage category represented approximately 61% and 62% of total bottle/can sales during the first three quarters of 2018 and the first three quarters of 2017, respectively.
Bottle/can sales, sales to other Coca‑Cola bottlers and post-mix sales are recognized when control transfers to a customer, which was originally going to be effectiveis generally upon delivery and is considered a single point in time (“point in time”). Point in time sales accounted for annual and interim periods beginning after December 15, 2016.
ASU 2015-14 “Revenue from Contracts with Customers (Topic 606): Deferralapproximately 97% of the Effective Date” was issuedCompany’s net sales in August 2015,both the first three quarters of 2018 and the first three quarters of 2017. Substantially all of the Company’s revenue is recognized at a point in time and is included in the Nonalcoholic Beverages segment.
Other sales, which deferredinclude revenue for service fees related to the effective daterepair of cold drink equipment and delivery fees for freight hauling and brokerage services, are recognized over time (“over time”). Revenues related to annualcold drink equipment repair are recognized as the respective services are completed using a cost-to-cost input method. Repair services are generally completed in less than one day but can extend up to one month. Revenues related to freight hauling and interim periods beginning after December 15, 2017.
ASU 2016-08 “Principal Versus Agent Considerations (Reporting Revenue Gross Versus Net)” was issuedbrokerage services are recognized as the delivery occurs using a miles driven output method. Generally, delivery occurs and freight charges are recognized in March 2016, which amended certain aspects of ASU 2014‑09.
ASU 2016-11 “Rescission of SEC Guidance Because of Accounting Standards Updates 2014-09 and 2014-16 Pursuant to Staff Announcementsthe same day. Over time sales orders open at the March 3, 2016 EITF Meeting” was issuedend of a financial period are not considered material to the Company’s consolidated condensed financial statements.
The Company participates in May 2016,various sales programs with The Coca‑Cola Company, other beverage companies and customers to increase the sale of its products. Programs negotiated with customers include arrangements under which amended certain aspectsallowances can be earned for attaining agreed-upon sales levels. The cost of ASU 2014‑09.these various sales incentives are not considered a separate performance obligation and are included as deductions to net sales.
ASU 2016-12 “Revenue
Revenues do not include sales or other taxes collected from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients” was issued in May 2016, which amended certain aspects of ASU 2014‑09.customers.
ASU 2016-20 “Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers” was issued in December 2016, which clarified the new revenue standard and corrected unintended application
The majority of the guidance.Company’s contracts include multiple performance obligations related to the delivery of specifically identifiable products, which generally have a duration of less than one year. For sales contracts with multiple performance obligations, the Company allocates the contract’s transaction price to each performance obligation using stated contractual price, which represents the standalone selling price of each distinct good sold under the contract. Generally, the Company’s service contracts have a single performance obligation.
The following table represents a disaggregation of revenue from contracts with customers:
|
| Third Quarter |
|
| First Three Quarters |
| ||||||||||
(in thousands) |
| 2018 |
|
| 2017 |
|
| 2018 |
|
| 2017 |
| ||||
Point in time net sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonalcoholic - point in time |
| $ | 1,168,276 |
|
| $ | 1,132,181 |
|
| $ | 3,394,253 |
|
| $ | 3,112,777 |
|
Total point in time net sales |
| $ | 1,168,276 |
|
| $ | 1,132,181 |
|
| $ | 3,394,253 |
|
| $ | 3,112,777 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Over time net sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonalcoholic - over time |
| $ | 11,936 |
|
| $ | 10,057 |
|
| $ | 33,239 |
|
| $ | 27,197 |
|
Other - over time |
|
| 31,449 |
|
|
| 20,288 |
|
|
| 83,505 |
|
|
| 57,545 |
|
Total over time net sales |
| $ | 43,385 |
|
| $ | 30,345 |
|
| $ | 116,744 |
|
| $ | 84,742 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales |
| $ | 1,211,661 |
|
| $ | 1,162,526 |
|
| $ | 3,510,997 |
|
| $ | 3,197,519 |
|
The Company does not plansells its products and extends credit, generally without requiring collateral, based on an ongoing evaluation of the customer’s business prospects and financial condition. The Company evaluates the collectability of its trade accounts receivable based on a number of factors, including the Company’s historic collections pattern and changes to early adopt this guidance and is in the process of determining whethera specific customer’s ability to adopt a full retrospective approach or a modified retrospective approach.meet its financial obligations. The Company has started its assessmentestablished an allowance for doubtful accounts to adjust the recorded receivable to the estimated amount the Company believes will ultimately be collected.
The nature of the impactCompany’s contracts gives rise to several types of variable consideration, including prospective and retrospective rebates. The Company accounts for its prospective and retrospective rebates using the new guidanceexpected value method, which estimates the net price to the customer based on the Company’s consolidated financial statements by identifying and performing detailed walkthroughs of key revenue streams, including high level contract review. The Company will continue its assessment with detailed contract reviews for all revenue streams in order to evaluate revenue recognition requirements and prepare an implementation work plan. Based on the Company’s current assessment, it does not expect this guidance to have a material impact on the Company’s consolidated condensed financial statements. As the Company completes its overall assessment, the Company will identify and prepare to implement changes to its accounting policies and practices, business processes, systems and controls to support the new revenue recognition and disclosure requirements.customer’s expected annual sales volume projections.
2.The Company experiences customer returns primarily as a result of damaged or out-of-date product. At any given time, the Company estimates less than 1% of bottle/can sales and post-mix sales could be at risk for return by customers. The Company’s reserve for customer returns was $2.3 million as of September 30, 2018 and was included in the allowance for doubtful accounts in the consolidated condensed balance sheet. Returned product is recognized as a reduction of net sales.
3.Acquisitions and Divestitures
As part of The Coca‑Cola Company’s plans to refranchise its North American bottling territories, the Company has engaged inand Piedmont Coca‑Cola Bottling Partnership, a partnership formed by the Company and The Coca‑Cola Company (“Piedmont”), completed a series of transactions sincefrom April 2013 to October 2017 with The Coca‑Cola Company, and Coca‑Cola Refreshments USA, Inc. (“CCR”), a wholly-
ownedwholly-owned subsidiary of The Coca‑Cola Company and Coca‑Cola Bottling Company United, Inc. (“United”), an independent bottler that is unrelated to the Company, to significantly expand the Company’s distribution and manufacturing operations. This expansion includesoperations (the “System Transformation”). The System Transformation included the acquisition and exchange of the rights to serve additional distribution territories previously served by CCR (the “Expansion Territories”) and related distribution assets, as well as the acquisition and exchange of regional manufacturing facilities previously owned by CCR (the “Expansion Facilities”) and related manufacturing assets (collectively, the “Expansion Transactions”).assets.
Year-to-Date 2017 Expansion Transactions
DuringA summary of the first quarter of 2017,System Transformation transactions (the “System Transformation Transactions”) completed by the Company acquired distribution rights and related assetsis included in the Company’s Annual Report on Form 10‑K for 2017. Following is a summary of the following Expansion Territories: Anderson, Bloomington, Fort Wayne, Indianapolis, Lafayette, South Bend and Terre Haute, Indiana and Columbus and Mansfield, Ohio. Additionally, during the first quarter of 2017, the Company acquired Expansion Facilities and related manufacturing assets located in Indianapolis and Portland, Indiana.
During the second quarter of 2017, the Company acquired distribution rights and related assetsSystem Transformation Transactions for the following Expansion Territories: Akron, Elyria, Toledo, Willoughby and Youngstown, Ohio. Additionally, during the second quarter of 2017, the Company acquired an Expansion Facility and related manufacturing assets located in Twinsburg, Ohio. Collectively, these Expansion Transactionswhich final post-closing adjustments were completed during the first three quartersthird quarter of 2017 are2018 in accordance with the “YTD 2017 Expansion Transactions.” Detailsterms
and conditions of the YTD 2017 Expansionapplicable asset purchase agreement or asset exchange agreement for such transactions. As of September 30, 2018, the cash purchase prices or settlement amounts for all System Transformation Transactions are included below.have been resolved according to the terms of the transaction agreements. The post-closing adjustments made during the third quarter of 2018 resulted in a $10.2 million net adjustment to the gain on exchange transactions in the consolidated condensed statements of operations.
Anderson, Fort Wayne, Lafayette,Acquisition of Arkansas Distribution Territories and Memphis, Tennessee and West Memphis, Arkansas Regional Manufacturing Facilities in exchange for the Company’s Deep South Bend and Terre Haute, Indiana ExpansionSomerset Distribution Territories Acquisitions (“January 2017 Expansionand Mobile, Alabama Manufacturing Facility (the “CCR Exchange Transaction”)
On January 27,October 2, 2017, the Company completed a portion of the transactions contemplated by a distribution and asset purchase agreement entered into by the Company and(i) acquired from CCR in September 2016 (the “September 2016 Distribution APA”) by acquiring distribution rights and related assets in Expansion Territoriesterritories previously served by CCR through CCR’s facilities and equipment located in Anderson, Fort Wayne, Lafayette, South Bendcentral and Terre Haute, Indiana. The closing ofsouthern Arkansas and two regional manufacturing facilities located in Memphis, Tennessee and West Memphis, Arkansas and related manufacturing assets (collectively, the January 2017 Expansion Transaction occurred“CCR Exchange Business”) in exchange for a cash purchase price of $31.6 million, which will remain subject to adjustment in accordance with the terms and conditions of the September 2016 Distribution APA.
Bloomington and Indianapolis, Indiana and Columbus and Mansfield, Ohio Expansion Territories Acquisitions and Indianapolis and Portland, Indiana Expansion Facilities Acquisitions (“March 2017 Expansion Transactions”)
On March 31, 2017, the Company completed the final transactions contemplated by (i) the September 2016 Distribution APA, by acquiring(ii) transferred to CCR distribution rights and related assets in Expansionterritories previously served by the Company through its facilities and equipment located in portions of southern Alabama, southeastern Mississippi, southwestern Georgia and northwestern Florida and in and around Somerset, Kentucky and a regional manufacturing facility located in Mobile, Alabama and related manufacturing assets (collectively, the “Deep South and Somerset Exchange Business”), pursuant to an asset exchange agreement entered into by the Company, certain of its wholly-owned subsidiaries and CCR on September 29, 2017.
At closing, the Company paid CCR $15.9 million toward the settlement amount for the CCR Exchange Transaction, representing an estimate of the difference between the value of the CCR Exchange Business acquired by the Company and the value of the Deep South and Somerset Exchange Business acquired by CCR. During the fourth quarter of 2017, the Company recorded certain adjustments to this settlement amount as a result of changes in estimated net working capital and other fair value adjustments. The settlement amount was included in accounts payable to The Coca‑Cola Company in the consolidated condensed balance sheet as of December 31, 2017.
During the third quarter of 2018, all post-closing adjustments were finalized for the CCR Exchange Transaction, resulting in a final settlement amount for the CCR Exchange Transaction of $26.2 million. A net balance of $10.3 million related to the settlement amount for the CCR Exchange Transaction remained payable to CCR by the Company as of September 30, 2018. This balance was paid to CCR during the fourth quarter of 2018.
Acquisition of Memphis, Tennessee Distribution Territories (the “Memphis Transaction”)
On October 2, 2017, the Company acquired distribution rights and related assets in territories previously served by CCR through CCR’s facilities and equipment located in Bloomington and around Memphis, Tennessee, including portions of northwestern Mississippi and eastern Arkansas (the “Memphis Territory”), pursuant to an asset purchase agreement entered by the Company and CCR on September 29, 2017 (the “September 2017 APA”). At closing, the Company paid CCR $39.6 million toward the purchase price for the Memphis Transaction. During the second and third quarters of 2018, all post-closing adjustments were finalized for the Memphis Transaction, resulting in a net increase of $2.6 million in the cash purchase price, which was paid to CCR during the third quarter of 2018.
Acquisition of Spartanburg and Bluffton, South Carolina Distribution Territories in exchange for the Company’s Florence and Laurel Territories and Piedmont’s Northeastern Georgia Territories (the “United Exchange Transaction”)
On October 2, 2017, the Company and Piedmont completed exchange transactions in which (i) the Company acquired from United distribution rights and related assets in territories previously served by United through United’s facilities and equipment located in and around Spartanburg, South Carolina and a portion of United’s territory located in and around Bluffton, South Carolina (collectively, the “United Distribution Business”) and Piedmont acquired from United similar rights, assets and liabilities, and working capital in the remainder of United’s Bluffton, South Carolina territory, in exchange for which (ii) the Company transferred to United distribution rights and related assets in territories previously served by the Company through its facilities and equipment located in parts of northwestern Alabama, south-central Tennessee and southeastern Mississippi previously served by the Company’s distribution centers located in Florence, Alabama and Laurel, Mississippi (collectively, the “Florence and Laurel Distribution Business”) and Piedmont transferred to United similar rights, assets and liabilities, and working capital of Piedmont’s in territory located in parts of northeastern Georgia (the “Northeastern Georgia Distribution Business”), pursuant to an asset exchange agreement between the Company, certain of its wholly-owned subsidiaries and United dated September 29, 2017 and an asset exchange agreement between Piedmont and United dated September 29, 2017.
At closing, the Company and Piedmont paid United $3.4 million toward the settlement amount for the United Exchange Transaction, representing an estimate of (i) the difference between the value of the United Distribution Business acquired by the Company and the value of the Florence and Laurel Distribution Business acquired by United, plus (ii) the difference between the value of the portion of
the Bluffton, South Carolina territory acquired by Piedmont and the value of the Northeastern Georgia Distribution Business acquired by United. During the third quarter of 2018, all post-closing adjustments were finalized for the United Exchange Transaction, resulting in an increase of $2.8 million in the settlement amount, which was included in accounts payable, trade in the consolidated condensed balance sheet as of September 30, 2018. The Company anticipates this balance will be paid to United during the fourth quarter of 2018.
Collectively, the CCR Exchange Transaction, the Memphis Transaction and the United Exchange Transaction are the “October 2017 Transactions,” the CCR Exchange Business, the Memphis Territory and the United Distribution Business are the “October 2017 Acquisitions” and the Deep South and Somerset Exchange Business and the Florence and Laurel Distribution Business are the “October 2017 Divestitures.”
In addition to the October 2017 Transactions summarized above, the Company completed three additional System Transformation Transactions with CCR in 2017 for which all post-closing adjustments have been completed: (i) the acquisition from CCR of distribution rights and related assets for territories in Anderson, Fort Wayne, Lafayette, South Bend and Terre Haute, Indiana on January 27, 2017 (the “January 2017 Transaction”), (ii) the acquisition from CCR of distribution rights and related assets for territories in Indianapolis and Bloomington, Indiana and Columbus and Mansfield, Ohio and (ii) aregional manufacturing asset purchase agreement entered into by the Companyfacilities and CCR in September 2016 (the “September 2016 Manufacturing APA”), by acquiring Expansion Facilities and related manufacturing assets located in Indianapolis and Portland, Indiana. The closing of theIndiana on March 2017 Expansion Transactions occurred for a cash purchase price of $108.7 million, which will remain subject to adjustment in accordance with the terms and conditions of the September 2016 Distribution APA and the September 2016 Manufacturing APA.
Akron, Elyria, Toledo, Willoughby and Youngstown, Ohio Expansion Territories Acquisitions and Twinsburg, Ohio Expansion Facility Acquisition (“April 2017 Expansion Transactions”)
On April 28, 2017, the Company completed the transactions contemplated by (i) a distribution asset purchase agreement entered into by the Company and CCR in April31, 2017 (the “April“March 2017 Distribution APA”Transactions”), by acquiringand (iii) the acquisition from CCR of distribution rights and related assets in Expansion Territories previously served by CCR through CCR’s facilities and equipment locatedfor territories in Akron, Elyria, Toledo, Willoughby and Youngstown, Ohio and (ii) a regional manufacturing asset purchase agreement entered into by the Companyfacility and CCRrelated assets located in Twinsburg, Ohio on April 28, 2017 (the “April 2017 Manufacturing APA”Transactions”), by acquiring an Expansion Facility.
Post-closing adjustments for the January 2017 Transaction and related manufacturing assets located in Twinsburg, Ohio. The closing ofthe March 2017 Transactions were completed during 2017 and post-closing adjustments for the April 2017 Expansion Transactions occurred for awere completed during the second quarter of 2018. During the fourth quarter of 2017, the cash purchase price of $87.7 million, which will remain subject to adjustment in accordance with the terms offor the April 2017 Distribution APATransactions decreased by $4.7 million as a result of net working capital and other fair value adjustments, which was paid to the AprilCompany by The Coca‑Cola Company during the second quarter of 2018.
The fair value of acquired assets and assumed liabilities of the System Transformation Transactions that closed during 2017 Manufacturing APA.(the “2017 System Transformation Transactions”), as of the acquisition dates, is summarized as follows:
(in thousands) |
| January 2017 Transaction |
|
| March 2017 Transactions |
|
| April 2017 Transactions |
|
| October 2017 Acquisitions |
|
| Total 2017 System Transformation Transactions Acquisitions |
| |||||
Cash |
| $ | 107 |
|
| $ | 211 |
|
| $ | 103 |
|
| $ | 191 |
|
| $ | 612 |
|
Inventories |
|
| 5,953 |
|
|
| 20,952 |
|
|
| 14,554 |
|
|
| 14,850 |
|
|
| 56,309 |
|
Prepaid expenses and other current assets |
|
| 1,155 |
|
|
| 5,117 |
|
|
| 4,068 |
|
|
| 4,573 |
|
|
| 14,913 |
|
Accounts receivable from The Coca-Cola Company |
|
| 1,042 |
|
|
| 1,807 |
|
|
| 2,552 |
|
|
| 1,447 |
|
|
| 6,848 |
|
Property, plant and equipment |
|
| 25,708 |
|
|
| 81,638 |
|
|
| 52,263 |
|
|
| 71,589 |
|
|
| 231,198 |
|
Other assets (including deferred taxes) |
|
| 1,158 |
|
|
| 3,227 |
|
|
| 3,960 |
|
|
| 1,300 |
|
|
| 9,645 |
|
Goodwill |
|
| 1,544 |
|
|
| 2,527 |
|
|
| 16,941 |
|
|
| 11,442 |
|
|
| 32,454 |
|
Distribution agreements |
|
| 22,000 |
|
|
| 46,750 |
|
|
| 19,500 |
|
|
| 129,450 |
|
|
| 217,700 |
|
Customer lists |
|
| 1,500 |
|
|
| 1,750 |
|
|
| 1,000 |
|
|
| 4,950 |
|
|
| 9,200 |
|
Total acquired assets |
| $ | 60,167 |
|
| $ | 163,979 |
|
| $ | 114,941 |
|
| $ | 239,792 |
|
| $ | 578,879 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities (acquisition related contingent consideration) |
| $ | 1,350 |
|
| $ | 2,958 |
|
| $ | 1,475 |
|
| $ | 1,501 |
|
| $ | 7,284 |
|
Other current liabilities |
|
| 324 |
|
|
| 3,760 |
|
|
| 2,860 |
|
|
| 8,311 |
|
|
| 15,255 |
|
Other liabilities (acquisition related contingent consideration) |
|
| 26,377 |
|
|
| 49,739 |
|
|
| 25,616 |
|
|
| 20,676 |
|
|
| 122,408 |
|
Other liabilities |
|
| 43 |
|
|
| 2,953 |
|
|
| 1,792 |
|
|
| 102 |
|
|
| 4,890 |
|
Total assumed liabilities |
| $ | 28,094 |
|
| $ | 59,410 |
|
| $ | 31,743 |
|
| $ | 30,590 |
|
| $ | 149,837 |
|
The fair value of acquired assets and assumed liabilities ofin the YTDOctober 2017 Expansion TransactionsAcquisitions as of the acquisition datesdate is summarized as follows:
(in thousands) |
| January 2017 Expansion Transaction |
|
| March 2017 Expansion Transactions |
|
| April 2017 Expansion Transactions |
|
| Total YTD 2017 Expansion Transactions |
|
| CCR Exchange Business |
|
| Memphis Territory |
|
| United Exchange Business |
|
| Total October 2017 Acquisitions |
| ||||||||
Cash |
| $ | 107 |
|
| $ | 211 |
|
| $ | 103 |
|
| $ | 421 |
|
| $ | 91 |
|
| $ | 100 |
|
| $ | - |
|
| $ | 191 |
|
Inventories |
|
| 5,953 |
|
|
| 21,108 |
|
|
| 14,554 |
|
|
| 41,615 |
|
|
| 10,667 |
|
|
| 3,354 |
|
|
| 829 |
|
|
| 14,850 |
|
Prepaid expenses and other current assets |
|
| 1,155 |
|
|
| 5,117 |
|
|
| 4,350 |
|
|
| 10,622 |
|
|
| 3,172 |
|
|
| 1,087 |
|
|
| 314 |
|
|
| 4,573 |
|
Accounts receivable from The Coca-Cola Company |
|
| 1,042 |
|
|
| 1,807 |
|
|
| 1,000 |
|
|
| 3,849 |
|
|
| 674 |
|
|
| 563 |
|
|
| 210 |
|
|
| 1,447 |
|
Property, plant and equipment |
|
| 25,708 |
|
|
| 81,638 |
|
|
| 53,818 |
|
|
| 161,164 |
|
|
| 47,484 |
|
|
| 21,321 |
|
|
| 2,784 |
|
|
| 71,589 |
|
Other assets (including deferred taxes) |
|
| 886 |
|
|
| 4,363 |
|
|
| 482 |
|
|
| 5,731 |
|
|
| 753 |
|
|
| 547 |
|
|
| - |
|
|
| 1,300 |
|
Goodwill |
|
| 800 |
|
|
| 8,605 |
|
|
| 9,630 |
|
|
| 19,035 |
|
|
| 3,546 |
|
|
| 5,199 |
|
|
| 2,697 |
|
|
| 11,442 |
|
Distribution agreements |
|
| 9,300 |
|
|
| 18,900 |
|
|
| 8,600 |
|
|
| 36,800 |
|
|
| 80,100 |
|
|
| 35,400 |
|
|
| 13,950 |
|
|
| 129,450 |
|
Customer lists |
|
| 1,350 |
|
|
| 1,500 |
|
|
| 950 |
|
|
| 3,800 |
|
|
| 3,200 |
|
|
| 1,200 |
|
|
| 550 |
|
|
| 4,950 |
|
Total acquired assets |
| $ | 46,301 |
|
| $ | 143,249 |
|
| $ | 93,487 |
|
| $ | 283,037 |
|
| $ | 149,687 |
|
| $ | 68,771 |
|
| $ | 21,334 |
|
| $ | 239,792 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities (acquisition related contingent consideration) |
| $ | 727 |
|
| $ | 1,921 |
|
| $ | 227 |
|
| $ | 2,875 |
|
| $ | - |
|
| $ | 1,501 |
|
| $ | - |
|
| $ | 1,501 |
|
Other current liabilities |
|
| 324 |
|
|
| 3,760 |
|
|
| 1,186 |
|
|
| 5,270 |
|
|
| 3,497 |
|
|
| 4,323 |
|
|
| 491 |
|
|
| 8,311 |
|
Other liabilities (acquisition related contingent consideration) |
|
| 13,408 |
|
|
| 26,260 |
|
|
| 3,543 |
|
|
| 43,211 |
|
|
| - |
|
|
| 20,676 |
|
|
| - |
|
|
| 20,676 |
|
Other liabilities |
|
| 239 |
|
|
| 2,604 |
|
|
| 626 |
|
|
| 3,469 |
|
|
| 15 |
|
|
| 87 |
|
|
| - |
|
|
| 102 |
|
Total assumed liabilities |
| $ | 14,698 |
|
| $ | 34,545 |
|
| $ | 5,582 |
|
| $ | 54,825 |
|
| $ | 3,512 |
|
| $ | 26,587 |
|
| $ | 491 |
|
| $ | 30,590 |
|
The goodwill for the YTD 2017 ExpansionSystem Transformation Transactions is included in the Nonalcoholic Beverages segment and is primarily attributed to operational synergies and the workforce acquired. Goodwill of $2.1$11.4 million, $3.5 million, $8.6 million and $15.0$2.7 million is expected to be deductible for tax purposes for the MarchApril 2017 Expansion Transactions, the CCR Exchange Business, the Memphis Territory and the April 2017 Expansion Transactions,United Exchange Business, respectively. No goodwill is expected to be deductible for tax purposes for the January 2017 Expansion Transaction.
Identifiable intangible assets acquired byTransaction or the Company in the YTDMarch 2017 Expansion Transactions consist of distribution agreements and customer lists, which have an estimated useful life of 40 years and 12 years, respectively.
2016 Expansion Transactions
During 2016, the Company acquired distribution rights and related assets for the following Expansion Territories: Easton, Salisbury, Capitol Heights, La Plata, Baltimore, Hagerstown and Cumberland, Maryland; Richmond, Yorktown and Alexandria, Virginia; Cincinnati, Dayton, Lima and Portsmouth, Ohio; and Louisa, Kentucky. The Company also acquired Expansion Facilities and related manufacturing assets in Sandston, Virginia; Silver Spring and Baltimore, Maryland; and Cincinnati, Ohio during 2016. Collectively, these are the “2016 Expansion Transactions.” Details of the 2016 Expansion Transactions are included below.
Easton and Salisbury, Maryland and Richmond and Yorktown, Virginia Expansion Territories Acquisitions and Sandston, Virginia Expansion Facility Acquisition (“January 2016 Expansion Transactions”)
An asset purchase agreement entered into by the Company and CCR in September 2015 (the “September 2015 APA”) contemplated, in part, the Company’s acquisition of distribution rights and related assets in Expansion Territories previously served by CCR through CCR’s facilities and equipment located in Easton and Salisbury, Maryland and Richmond and Yorktown, Virginia. In addition, an asset purchase agreement entered into by the Company and CCR in October 2015 (the “October 2015 APA”) contemplated, in part, the Company’s acquisition of an Expansion Facility and related manufacturing assets in Sandston, Virginia. The closing of the January 2016 Expansion Transactions occurred on January 29, 2016, for a cash purchase price of $65.7 million. During the second quarter of 2017, the cash purchase price for the January 2016 Expansion Transactions increased by $9.4 million, which remains payable to The Coca‑Cola Company, as a result of net working capital and other fair value adjustments. As these adjustments were made beyond one year from the acquisition date, the Company recorded the adjustments through its consolidated condensed statements of operations. The cash purchase price for the January 2016 Expansion Transactions will remain subject to adjustment in accordance with the terms and conditions of the September 2015 APA and the October 2015 APA.
Alexandria, Virginia and Capitol Heights and La Plata, Maryland Expansion Territories Acquisitions (“April 1, 2016 Expansion Transaction”)
The September 2015 APA also contemplated the Company’s acquisitioncarrying value of distribution rightsassets and related assetsliabilities divested in Expansion Territories previously served by CCR through CCR’s facilities and equipment located in Alexandria, Virginia and Capitol Heights and La Plata, Maryland. The closing of the April 1, 2016 Expansion Transaction occurred on April 1, 2016, for a cash purchase price of $35.6 million, which will remain subject to adjustment in accordance with the terms and conditions of the September 2015 APA.
Baltimore, Hagerstown and Cumberland, Maryland Expansion Territories Acquisitions and Silver Spring and Baltimore, Maryland Expansion Facilities Acquisitions (“April 29, 2016 Expansion Transactions”)
On April 29, 2016, the Company completed the remaining transactions contemplated by (i) the September 2015 APA, by acquiring distribution rights and related assets in Expansion Territories previously served by CCR through CCR’s facilities and equipment located in Baltimore, Hagerstown and Cumberland, Maryland, and (ii) the October 2015 APA, by acquiring Expansion Facilities and related manufacturing assets in Silver Spring and Baltimore, Maryland. The closing of the April 29, 2016 Expansion Transactions occurred for a cash purchase price of $69.0 million, which will remain subject to adjustment in accordance with the terms and conditions of the September 2015 APA and the October 2015 APA.
Cincinnati, Dayton, Lima and Portsmouth, Ohio and Louisa, Kentucky Expansion Territories Acquisitions and Cincinnati, Ohio Expansion Facility Acquisition (“October 2016 Expansion Transactions”)
On October 28, 2016, the Company completed the initial transactions contemplated by (i) the September 2016 Distribution APA, by acquiring distribution rights and related assets in Expansion Territories previously served by CCR through CCR’s facilities and equipment located in Cincinnati, Dayton, Lima and Portsmouth, Ohio and Louisa, Kentucky, and (ii) the September 2016 Manufacturing APA, by acquiring an Expansion Facility and related manufacturing assets located in Cincinnati, Ohio. The closing of the October 2016 Expansion Transactions occurred for a cash purchase price of $98.2 million, which will remain subject to adjustment in accordance with the terms and conditions of the September 2016 Distribution APA and the September 2016 Manufacturing APA.
The fair value of acquired assets and assumed liabilities of the 2016 Expansion Transactions as of the acquisition dates2017 Divestitures is summarized as follows:
(in thousands) |
| January 2016 Expansion Transactions |
|
| April 1, 2016 Expansion Transaction |
|
| April 29, 2016 Expansion Transactions |
|
| October 2016 Expansion Transactions |
|
| Total 2016 Expansion Transactions |
|
| October 2017 Divestitures |
| ||||||
Cash |
| $ | 179 |
|
| $ | 219 |
|
| $ | 161 |
|
| $ | 150 |
|
| $ | 709 |
|
| $ | 303 |
|
Inventories |
|
| 10,159 |
|
|
| 3,748 |
|
|
| 13,850 |
|
|
| 18,513 |
|
|
| 46,270 |
|
|
| 13,717 |
|
Prepaid expenses and other current assets |
|
| 2,775 |
|
|
| 1,945 |
|
|
| 3,774 |
|
|
| 4,228 |
|
|
| 12,722 |
|
|
| 1,199 |
|
Accounts receivable from The Coca-Cola Company |
|
| 1,121 |
|
|
| 1,162 |
|
|
| 1,126 |
|
|
| 1,327 |
|
|
| 4,736 |
| ||||
Property, plant and equipment |
|
| 46,149 |
|
|
| 54,135 |
|
|
| 57,738 |
|
|
| 67,943 |
|
|
| 225,965 |
|
|
| 44,380 |
|
Other assets (including deferred taxes) |
|
| 2,351 |
|
|
| 1,541 |
|
|
| 5,514 |
|
|
| 682 |
|
|
| 10,088 |
|
|
| 604 |
|
Goodwill |
|
| 9,396 |
|
|
| 1,962 |
|
|
| 8,368 |
|
|
| 8,343 |
|
|
| 28,069 |
|
|
| 13,073 |
|
Distribution agreements |
|
| 750 |
|
|
| - |
|
|
| 22,000 |
|
|
| 63,900 |
|
|
| 86,650 |
|
|
| 65,043 |
|
Customer lists |
|
| 550 |
|
|
| - |
|
|
| 1,450 |
|
|
| 2,600 |
|
|
| 4,600 |
| ||||
Total acquired assets |
| $ | 73,430 |
|
| $ | 64,712 |
|
| $ | 113,981 |
|
| $ | 167,686 |
|
| $ | 419,809 |
| ||||
Total divested assets |
| $ | 138,319 |
| ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities (acquisition related contingent consideration) |
| $ | 361 |
|
| $ | 742 |
|
| $ | 1,307 |
|
| $ | 3,318 |
|
| $ | 5,728 |
| ||||
Other current liabilities |
|
| 591 |
|
|
| 4,231 |
|
|
| 5,482 |
|
|
| 8,513 |
|
|
| 18,817 |
|
| $ | 5,683 |
|
Accounts payable to The Coca-Cola Company |
|
| 650 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 650 |
| ||||
Other liabilities (acquisition related contingent consideration) |
|
| 6,144 |
|
|
| 23,924 |
|
|
| 35,561 |
|
|
| 57,066 |
|
|
| 122,695 |
| ||||
Other liabilities |
|
| - |
|
|
| 266 |
|
|
| 2,635 |
|
|
| 573 |
|
|
| 3,474 |
| ||||
Total assumed liabilities |
| $ | 7,746 |
|
| $ | 29,163 |
|
| $ | 44,985 |
|
| $ | 69,470 |
|
| $ | 151,364 |
| ||||
Pension and postretirement benefit obligation |
|
| 16,855 |
| ||||||||||||||||||||
Total divested liabilities |
| $ | 22,538 |
|
The goodwill for the 2016 Expansion Transactions is includedOctober 2017 Divestitures were recorded in the Company’s Nonalcoholic Beverages segment and is primarily attributedprior to operational synergies and the workforce acquired. Goodwill of $15.4 million and $14.4 million is expected to be deductible for tax
purposes for the January 2016 Expansion Transactions and the October 2016 Expansion Transactions, respectively. No goodwill is expected to be deductible for tax purposes for the April 1, 2016 Expansion Transaction or the April 29, 2016 Expansion Transactions.divestiture.
Identifiable intangible assets acquired by the Company in the 2016 Expansion Transactions consist of distribution agreements and customer lists, which have an estimated useful life of 40 years and 12 years, respectively.
The Company has preliminarily allocated the purchase prices of the YTD 2017 Expansion Transactions and the 2016 Expansion Transactions to the individual acquired assets and assumed liabilities. The valuations are subject to adjustment as additional information is obtained. Any adjustments made beyond one year from each transaction’s acquisition date are recorded through the Company’s consolidated condensed statements of operations.
YTD 2017 Expansion Transactions and 2016 ExpansionSystem Transformation Transactions Financial Results
The financial results of the YTD 2017 Expansion Transactions and the 2016 ExpansionSystem Transformation Transactions have been included in the Company’s consolidated condensed financial statements from their respective acquisition or exchange dates. These ExpansionNet sales and income from operations for certain territories and regional manufacturing facilities acquired and divested by the Company during 2017 are impracticable to separately calculate, as the operations were absorbed into territories and facilities owned by the Company prior to the System Transformation, and therefore have been omitted from the results below. Omission of net sales and income from operations for such territories and facilities is not
considered material to the results presented below. The remaining 2017 System Transformation Transactions contributed the following amounts to the Company’s consolidated condensed statementstatements of operations:
|
| Third Quarter |
|
| First Three Quarters |
| ||||||||||
(in thousands) |
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
Net sales from 2016 Expansion Transactions |
| $ | 257,238 |
|
| $ | 174,420 |
|
| $ | 761,653 |
|
| $ | 372,550 |
|
Net sales from YTD 2017 Expansion Transactions |
|
| 221,034 |
|
|
| - |
|
|
| 454,174 |
|
|
| - |
|
Total impact to net sales |
| $ | 478,272 |
|
| $ | 174,420 |
|
| $ | 1,215,827 |
|
| $ | 372,550 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income from 2016 Expansion Transactions |
| $ | 7,153 |
|
| $ | 2,512 |
|
| $ | 16,504 |
|
| $ | 17,220 |
|
Operating income from YTD 2017 Expansion Transactions |
|
| 3,176 |
|
|
| - |
|
|
| 13,595 |
|
|
| - |
|
Total impact to income from operations |
| $ | 10,329 |
|
| $ | 2,512 |
|
| $ | 30,099 |
|
| $ | 17,220 |
|
|
| Third Quarter |
|
| First Three Quarters |
| ||||||||||
(in thousands) |
| 2018 |
|
| 2017 |
|
| 2018 |
|
| 2017 |
| ||||
Impact to net sales - total 2017 System Transformation Transactions acquisitions |
| $ | 308,825 |
|
| $ | 221,034 |
|
| $ | 896,179 |
|
| $ | 454,174 |
|
Impact to net sales - October 2017 Divestitures |
|
| - |
|
|
| 79,032 |
|
|
| - |
|
|
| 231,301 |
|
Total impact to net sales |
| $ | 308,825 |
|
| $ | 300,066 |
|
| $ | 896,179 |
|
| $ | 685,475 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact to income from operations - total 2017 System Transformation Transactions acquisitions |
| $ | 11,874 |
|
| $ | 3,176 |
|
| $ | 14,635 |
|
| $ | 13,595 |
|
Impact to income from operations - October 2017 Divestitures |
|
| - |
|
|
| 7,689 |
|
|
| - |
|
|
| 22,973 |
|
Total impact to income from operations |
| $ | 11,874 |
|
| $ | 10,865 |
|
| $ | 14,635 |
|
| $ | 36,568 |
|
The Company incurred transaction related expenses for these Expansionthe System Transformation Transactions of $5.6 million in the first three quarters of 2017, and $5.1 million in the first three quarters of 2016. These expenses arewhich were included within selling,S,D&A delivery and administrative expenses on the consolidated condensed statements of operations.
YTD 2017 Expansion Transactions and 2016 ExpansionSystem Transformation Transactions Pro Forma Financial Information
The purpose of the pro forma disclosure is to present the net sales and the income from operations of the combined entity as though the YTD 2017 Expansion Transactions and the 2016 ExpansionSystem Transformation Transactions had occurred as of the beginning of 2016.2017. The pro forma combined net sales and income from operations do not necessarily reflect what the combined Company’s net sales and income from operations would have been had the acquisitions occurred at the beginning of 2016.2017. The pro forma financial information also may not be useful in predicting the future financial results of the combined company. The actual results may differ significantly from the pro forma amounts reflected herein due to a variety of factors.
The following tables representtable represents the Company’s unaudited pro forma net sales and unaudited pro forma income from operations for the YTD 2017 Expansion Transactions and the 2016 ExpansionSystem Transformation Transactions.
|
| Third Quarter |
|
| First Three Quarters |
| ||||||||||
(in thousands) |
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
Net sales as reported |
| $ | 1,162,526 |
|
| $ | 849,028 |
|
| $ | 3,197,519 |
|
| $ | 2,314,868 |
|
Pro forma adjustments (unaudited) |
|
| - |
|
|
| 299,639 |
|
|
| 215,242 |
|
|
| 1,066,001 |
|
Net sales pro forma (unaudited) |
| $ | 1,162,526 |
|
| $ | 1,148,667 |
|
| $ | 3,412,761 |
|
| $ | 3,380,869 |
|
|
| Third Quarter |
|
| First Three Quarters |
|
| Third Quarter 2017 |
|
| First Three Quarters 2017 |
| ||||||||||||||||||||
(in thousands) |
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
|
| Net Sales |
|
| Income from Operations |
|
| Net Sales |
|
| Income from Operations |
| ||||||||
Income from operations as reported |
| $ | 36,130 |
|
| $ | 39,801 |
|
| $ | 97,051 |
|
| $ | 106,938 |
| ||||||||||||||||
Balance as reported |
| $ | 1,162,526 |
|
| $ | 37,472 |
|
| $ | 3,197,519 |
|
| $ | 101,077 |
| ||||||||||||||||
Pro forma adjustments (unaudited) |
|
| - |
|
|
| 11,073 |
|
|
| 9,328 |
|
|
| 49,761 |
|
|
| 1,754 |
|
|
| 55 |
|
|
| 231,183 |
|
|
| 4,262 |
|
Income from operations pro forma (unaudited) |
| $ | 36,130 |
|
| $ | 50,874 |
|
| $ | 106,379 |
|
| $ | 156,699 |
| ||||||||||||||||
Balance including pro forma adjustments (unaudited) |
| $ | 1,164,280 |
|
| $ | 37,527 |
|
| $ | 3,428,702 |
|
| $ | 105,339 |
|
The net sales pro forma and the income from operations pro forma reflect adjustments for (i) the inclusion of historic results of operations for the distribution territories and the regional manufacturing facilities acquired in the System Transformation Transactions for the period prior to the Company’s acquisition of the applicable territories or facility, for each period presented and (ii) the elimination of historic results of operations for the October 2017 Divestitures.
4.Inventories
Inventories consisted of the following:
(in thousands) |
| October 1, 2017 |
|
| January 1, 2017 |
|
| September 30, 2018 |
|
| December 31, 2017 |
| ||||
Finished products |
| $ | 125,489 |
|
| $ | 90,259 |
|
| $ | 156,669 |
|
| $ | 116,354 |
|
Manufacturing materials |
|
| 29,469 |
|
|
| 23,196 |
|
|
| 35,703 |
|
|
| 33,073 |
|
Plastic shells, plastic pallets and other inventories |
|
| 36,985 |
|
|
| 30,098 |
|
|
| 37,520 |
|
|
| 34,191 |
|
Total inventories |
| $ | 191,943 |
|
| $ | 143,553 |
|
| $ | 229,892 |
|
| $ | 183,618 |
|
There was $12.5 million of inventories related to territory exchanges and acquisitions that closed on October 2, 2017, which was classified as held for sale as of October 1, 2017. Refer to Note 24 for additional information.
The growth in the inventories balance at October 1, 2017, as compared to January 1, 2017, is primarily a result of inventory acquired through the completion of the YTD 2017 Expansion Transactions.
4.5.Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consisted of the following:
(in thousands) |
| October 1, 2017 |
|
| January 1, 2017 |
|
| September 30, 2018 |
|
| December 31, 2017 |
| ||||
Prepayment of funds for October 2017 Expansion Transactions |
| $ | 56,498 |
|
| $ | - |
| ||||||||
Prepaid repair parts |
|
| 30,346 |
|
|
| 20,338 |
| ||||||||
Prepayments for sponsorships |
|
| 9,388 |
|
|
| 1,879 |
| ||||||||
Repair parts |
| $ | 29,535 |
|
| $ | 30,530 |
| ||||||||
Current portion of income taxes |
|
| 22,896 |
|
|
| 35,930 |
| ||||||||
Prepaid software |
|
| 6,845 |
|
|
| 5,331 |
|
|
| 5,786 |
|
|
| 5,855 |
|
Current portion of income taxes |
|
| 6,136 |
|
|
| 21,227 |
| ||||||||
Prepayments for sponsorship contracts |
|
| 5,644 |
|
|
| 6,358 |
| ||||||||
Commodity hedges at fair market value |
|
| 1,047 |
|
|
| 4,420 |
| ||||||||
Other prepaid expenses and other current assets |
|
| 20,461 |
|
|
| 15,059 |
|
|
| 26,606 |
|
|
| 17,553 |
|
Total prepaid expenses and other current assets |
| $ | 129,674 |
|
| $ | 63,834 |
|
| $ | 91,514 |
|
| $ | 100,646 |
|
There was $1.6 million of prepaid expenses and other current assets related to territory exchanges and acquisitions that closed on October 2, 2017, which was classified as held for sale as of October 1, 2017. Refer to Note 24 for additional information.
The growth in the prepaid expenses and other current assets balance at October 1, 2017, as compared to January 1, 2017, is primarily a result of a $56.5 million payment during the third quarter of 2017 toward the purchase price of the October 2017 Expansion Transactions (as defined in Note 24), which closed subsequent to the end of the third quarter of 2017.
5.6.Property, Plant and Equipment, Net
The principal categories and estimated useful lives of property, plant and equipment, net were as follows:
(in thousands) |
| October 1, 2017 |
|
| January 1, 2017 |
|
| Estimated Useful Lives |
| September 30, 2018 |
|
| December 31, 2017 |
|
| Estimated Useful Lives | ||||
Land |
| $ | 76,573 |
|
| $ | 68,541 |
|
|
|
| $ | 78,478 |
|
| $ | 78,825 |
|
|
|
Buildings |
|
| 220,789 |
|
|
| 201,247 |
|
| 8-50 years |
|
| 216,821 |
|
|
| 211,308 |
|
| 8-50 years |
Machinery and equipment |
|
| 296,473 |
|
|
| 229,119 |
|
| 5-20 years |
|
| 320,447 |
|
|
| 315,117 |
|
| 5-20 years |
Transportation equipment |
|
| 333,067 |
|
|
| 316,929 |
|
| 4-20 years |
|
| 373,426 |
|
|
| 351,479 |
|
| 4-20 years |
Furniture and fixtures |
|
| 86,779 |
|
|
| 78,219 |
|
| 3-10 years |
|
| 92,000 |
|
|
| 89,559 |
|
| 3-10 years |
Cold drink dispensing equipment |
|
| 501,920 |
|
|
| 484,771 |
|
| 5-17 years |
|
| 497,008 |
|
|
| 488,208 |
|
| 5-17 years |
Leasehold and land improvements |
|
| 117,087 |
|
|
| 112,393 |
|
| 5-20 years |
|
| 130,257 |
|
|
| 125,348 |
|
| 5-20 years |
Software for internal use |
|
| 112,192 |
|
|
| 105,405 |
|
| 3-10 years |
|
| 120,767 |
|
|
| 113,490 |
|
| 3-10 years |
Construction in progress |
|
| 26,688 |
|
|
| 14,818 |
|
|
|
|
| 13,524 |
|
|
| 25,490 |
|
|
|
Total property, plant and equipment, at cost |
|
| 1,771,568 |
|
|
| 1,611,442 |
|
|
|
|
| 1,842,728 |
|
|
| 1,798,824 |
|
|
|
Less: Accumulated depreciation and amortization |
|
| 832,298 |
|
|
| 798,453 |
|
|
|
|
| 844,611 |
|
|
| 767,436 |
|
|
|
Property, plant and equipment, net |
| $ | 939,270 |
|
| $ | 812,989 |
|
|
|
| $ | 998,117 |
|
| $ | 1,031,388 |
|
|
|
There was $38.4 million of property, plant and equipment, net related to territory exchanges and acquisitions that closed on October 2, 2017, which was classified as held for sale as of October 1, 2017. Refer to Note 24 for additional information.
The growth in the property, plant and equipment, net balance at October 1, 2017, as compared to January 1, 2017, is primarily a result of property, plant and equipment acquired through the completion of the YTD 2017 Expansion Transactions and property, plant and equipment acquired through the normal course of business.
Depreciation and amortization expense, which includes both amortization expense for leased property under capital leases, and amortization of the deferred liability associated with the fee received from CCR upon conversion of the Company’s bottling agreements to the Final CBA (as defined in Note 6) on March 31, 2017, was $38.4$123.5 million in the third quarterfirst three quarters of 2017, $30.0 million in the third quarter of 2016,2018 and $108.7 million in the first three quarters of 2017 and $79.9 million in the first three quarters of 2016.
6.Franchise Rights
A reconciliation of the activity for franchise rights for the first three quarters of 2017 and the first three quarters of 2016 is as follows:
(in thousands) |
| Franchise rights |
| |
Balance on January 1, 2017 |
| $ | 533,040 |
|
Conversion from franchise rights to distribution rights |
|
| (533,040 | ) |
Balance on October 1, 2017 |
| $ | - |
|
|
|
|
|
|
Balance on January 3, 2016 |
| $ | 527,540 |
|
Lexington Asset Exchange Transaction |
|
| 5,500 |
|
Balance on October 2, 2016 |
| $ | 533,040 |
|
In connection with the closing of the March 2017 Expansion Transactions, the Company, The Coca-Cola Company and CCR entered into a comprehensive beverage agreement (as amended, the “Final CBA”) on March 31, 2017, and concurrently converted the Company’s franchise rights within the territories in which the Company distributed Coca‑Cola products prior to beginning the Expansion Transactions (the “Legacy Territories”) to distribution agreements, net on the consolidated condensed financial statements. Prior to this conversion, the Company’s franchise rights resided entirely within the Nonalcoholic Beverage segment.
During the second quarter of 2016, the Company recorded $5.5 million in franchise rights for an Expansion Territory previously served by CCR’s facilities and equipment located in Lexington, Kentucky, which the Company acquired in an exchange transaction with CCR on May 1, 2015 (the “Lexington Asset Exchange Transaction”).2017.
7.Goodwill
A reconciliation of the activity for goodwill for the first three quarters of 20172018 and the first three quarters of 20162017 is as follows:
(in thousands) |
| Goodwill |
| |
Balance on January 1, 2017 |
| $ | 144,586 |
|
YTD 2017 Expansion Transactions |
|
| 19,035 |
|
Measurement period adjustment |
|
| 1,807 |
|
Balance held for sale |
|
| (12,727 | ) |
Balance on October 1, 2017 |
| $ | 152,701 |
|
|
|
|
|
|
Balance on January 3, 2016 |
| $ | 117,954 |
|
Q1, Q2 and Q3 2016 Expansion Transactions(1) |
|
| 22,031 |
|
Lexington Asset Exchange Transaction |
|
| (682 | ) |
Measurement period adjustment |
|
| 1,968 |
|
Balance on October 2, 2016 |
| $ | 141,271 |
|
|
| First Three Quarters |
| |||||
(in thousands) |
| 2018 |
|
| 2017 |
| ||
Beginning balance - goodwill |
| $ | 169,316 |
|
| $ | 144,586 |
|
System Transformation Transactions acquisitions |
|
| - |
|
|
| 19,035 |
|
Measurement period adjustments(1) |
|
| (3,413 | ) |
|
| 1,807 |
|
Balance held for sale(2) |
|
| - |
|
|
| (12,727 | ) |
Ending balance - goodwill |
| $ | 165,903 |
|
| $ | 152,701 |
|
|
|
|
|
|
|
|
|
|
(1) | Measurement period adjustments relate to post-closing adjustments made in accordance with the terms and conditions of the applicable asset purchase agreement or asset exchange agreement for each System Transformation Transaction. See Note 3 to the consolidated condensed financial statements for additional information on the System Transformation Transactions. |
(2) | Goodwill of $12.7 million related to the October 2017 Divestitures was classified as held for sale as of October 1, 2017. |
(1) The 2016 Expansion Transactions completed during the first three quarters of 2016 are the “Q1, Q2 and Q3 2016 Expansion Transactions.”
The Company’s goodwill resides entirely within the Nonalcoholic BeverageBeverages segment. The Company performs its annual impairment test of goodwill as of the first day of the fourth quarter of each fiscal year. There was $12.7 million of goodwill related to territory exchanges and acquisitions that closed on October 2, 2017, which was classified as held for sale as of October 1, 2017 and will be omitted from the Company’s annual impairment test of goodwill. Refer to Note 24 for additional information. During the first three quarters of 2017,2018, the
Company did not experience any additional triggering events or changes in circumstances indicating the carrying amounts of the Company’s goodwill exceeded fair values.
8.Distribution Agreements, Net
Distribution agreements, net, which are amortized on a straight line basis and have an estimated useful life of 20 to 40 years, consisted of the following:
(in thousands) |
| October 1, 2017 |
|
| January 1, 2017 |
|
| September 30, 2018 |
|
| December 31, 2017 |
| ||||
Distribution agreements at cost |
| $ | 812,370 |
|
| $ | 242,486 |
|
| $ | 945,895 |
|
| $ | 939,527 |
|
Less: Balance held for sale |
|
| 63,321 |
|
|
| - |
| ||||||||
Less: Accumulated amortization |
|
| 19,272 |
|
|
| 7,498 |
|
|
| (44,064 | ) |
|
| (26,175 | ) |
Distribution agreements, net |
| $ | 729,777 |
|
| $ | 234,988 |
|
| $ | 901,831 |
|
| $ | 913,352 |
|
A reconciliation of the activity for distribution agreements, net for the first three quarters of 20172018 and the first three quarters of 20162017 is as follows:
|
| First Three Quarters |
|
| First Three Quarters |
| ||||||||||
(in thousands) |
| 2017 |
|
| 2016 |
|
| 2018 |
|
| 2017 |
| ||||
Beginning balance - distribution agreements, net |
| $ | 234,988 |
|
| $ | 129,786 |
|
| $ | 913,352 |
|
| $ | 234,988 |
|
Expansion Transactions |
|
| 36,800 |
|
|
| 22,750 |
| ||||||||
Conversion to distribution rights from franchise rights |
|
| 533,040 |
|
|
| - |
| ||||||||
Conversion to distribution rights from franchise rights(1) |
|
| - |
|
|
| 533,040 |
| ||||||||
System Transformation Transactions acquisitions |
|
| - |
|
|
| 36,800 |
| ||||||||
Measurement period adjustment(2) |
|
| 4,700 |
|
|
| - |
| ||||||||
Other distribution agreements |
|
| 44 |
|
|
| 1,696 |
|
|
| 1,668 |
|
|
| 44 |
|
Additional accumulated amortization |
|
| (11,774 | ) |
|
| (2,899 | ) |
|
| (17,889 | ) |
|
| (11,774 | ) |
Balance held for sale |
|
| (63,321 | ) |
|
| - |
| ||||||||
Balance held for sale(3) |
|
| - |
|
|
| (63,321 | ) | ||||||||
Ending balance - distribution agreements, net |
| $ | 729,777 |
|
| $ | 151,333 |
|
| $ | 901,831 |
|
| $ | 729,777 |
|
There was $63.3 million of distribution agreements, net related to territory exchanges and acquisitions that closed on October 2, 2017, which was classified as held for sale as of October 1, 2017. Refer to Note 24 for additional information.
(1) In connection with the closing of the March 2017 Transactions, the Company, The Coca-Cola Company and CCR entered into a comprehensive beverage agreement (as amended, the “CBA”) on March 31, 2017, and concurrently converted the Company’s franchise rights within the territories in which the Company distributed Coca‑Cola products prior to beginning the System Transformation to distribution agreements, net on the consolidated condensed financial statements. Prior to this conversion, the Company’s franchise rights resided entirely within the Nonalcoholic Beverages segment. (2) Measurement period adjustment relates to post-closing adjustments made in relation to the Memphis Transaction in accordance with the terms and conditions of the September 2017 APA. The adjustment to amortization expense associated with this measurement period adjustment was not material to the consolidated condensed financial statements. See Note 3 to the consolidated condensed financial statements for additional information on the System Transformation Transactions. (3) Distribution agreements, net of $63.3 million related to the October 2017 Divestitures was classified as held for sale as of October 1, 2017. 9.Customer Lists and Other Identifiable Intangible Assets, Net Customer lists and other identifiable intangible assets, net, which are amortized on a straight line basis and have an estimated useful life of 12 to 20 years, consisted of the following: (in thousands) October 1, 2017 January 1, 2017 September 30, 2018 December 31, 2017 Customer lists and other identifiable intangible assets at cost $ 19,738 $ 15,938 $ 25,288 $ 25,288 Less: Accumulated amortization 6,476 5,511 (8,347 ) (6,968 ) Customer lists and other identifiable intangible assets, net $ 13,262 $ 10,427 $ 16,941 $ 18,320 A reconciliation of the activity for customer lists and other identifiable intangible assets, net for the first three quarters of First Three Quarters First Three Quarters (in thousands) 2017 2016 2018 2017 Beginning balance - customer lists and other identifiable intangible assets, net $ 10,427 $ 6,662 $ 18,320 $ 10,427 Expansion Transactions 3,800 2,000 System Transformation Transactions acquisitions - 3,800 Additional accumulated amortization (965 ) (588 ) (1,379 ) (965 ) Ending balance - customer lists and other identifiable intangible assets, net $ 13,262 $ 8,074 $ 16,941 $ 13,262 Other accrued liabilities consisted of the following: (in thousands) October 1, 2017 January 1, 2017 September 30, 2018 December 31, 2017 Accrued insurance costs $ 34,226 $ 28,248 $ 39,299 $ 35,433 Employee and retiree benefit plan accruals 30,169 23,858 25,950 27,024 Accrued marketing costs 26,977 24,714 25,875 33,376 Current portion of acquisition related contingent consideration 19,491 15,782 25,306 23,339 Checks and transfers yet to be presented for payment from zero balance cash accounts 11,900 37,262 Accrued taxes (other than income taxes) 7,201 2,836 5,811 6,391 Checks and transfers yet to be presented for payment from zero balance cash accounts 5,987 19,326 Current deferred proceeds from conversion of Legacy Territories bottling agreements 2,286 - All other accrued liabilities 21,945 19,121 Current deferred proceeds from Territory Conversion Fee(1) 2,286 2,286 All other accrued expenses 17,182 20,419 Total other accrued liabilities $ 148,282 $ 133,885 $ 153,609 $ 185,530 (1) Pursuant to a territory conversion agreement entered into by the Company, The Coca‑Cola Company and CCR in September 2015 (as amended), upon the conversion of the Company’s then-existing bottling agreements to the CBA on March 31, 2017, the Company received a one-time fee from CCR, which, after final adjustments made during the second quarter of 2017, totaled $91.5 million (the “Territory Conversion Fee”). The Territory Conversion Fee was recorded as a deferred liability and will be amortized as a reduction to cost of sales over a period of 40 years. The portion of the deferred liability that is expected to be amortized in the next twelve months was classified as current. 11.Debt Following is a summary of the Company’s debt: (in thousands) Maturity Interest Rate Interest Paid Public / Non-public October 1, 2017 January 1, 2017 Maturity Date Interest Rate Interest Paid Public / Non-public September 30, 2018 December 31, 2017 Senior Notes(1) 4/15/2019 7.00% Semi-annually Public $ 110,000 $ 110,000 Term Loan Facility(1) 6/7/2021 Variable Varies Non-public 292,500 300,000 Senior Notes 2/27/2023 3.28% Semi-annually Non-public 125,000 125,000 Revolving Credit Facility 2019 Variable Varies Non-public $ 247,000 $ 152,000 6/8/2023 Variable Varies Non-public 170,000 207,000 Term Loan 2021 Variable Varies Non-public 300,000 300,000 Senior Notes 2023 3.28% Semi-annually Non-public 125,000 - Senior Notes 2019 7.00% Semi-annually Public 110,000 110,000 11/25/2025 3.80% Semi-annually Public 350,000 350,000 Senior Notes 2025 3.80% Semi-annually Public 350,000 350,000 3/21/2030 3.96% Quarterly Non-public 150,000 - Unamortized discount on Senior Notes(1) 2019 (393 ) (570 ) 4/15/2019 (143 ) (332 ) Unamortized discount on Senior Notes 2025 (72 ) (78 ) Unamortized discount on Senior Notes 11/25/2025 (63 ) (70 ) Debt issuance costs (3,688 ) (4,098 ) (3,185 ) (3,580 ) Total debt 1,127,847 907,254 1,194,109 1,088,018 Less: Current portion of debt - - - - Long-term debt $ 1,127,847 $ 907,254 $ 1,194,109 $ 1,088,018 (1) The Company had capital lease obligations of On June 8, 2018, the Company entered into a second amended and restated credit agreement for a five-year unsecured revolving credit facility (as amended, the “Revolving Credit Facility”), which amended and restated its prior credit agreement dated October 16, 2014. The Revolving Credit Facility has an aggregate maximum borrowing capacity of $500 million, which may be increased at the Company’s option to $750 million, subject to obtaining commitments from the lenders and satisfying other conditions specified in the credit agreement. Borrowings under the Revolving Credit Facility bear interest at a floating base rate or a floating Eurodollar rate plus an applicable margin, at the Company’s option, dependent on the Company’s credit ratings at the time of borrowing. At the Company’s current credit ratings, the Company must pay an annual facility fee of 0.15% of the lenders’ aggregate commitments under the Revolving Credit Facility. The Revolving Credit Facility has a scheduled maturity date of June 8, 2023. On March 21, 2018, the Company sold $150 million aggregate principal amount of senior unsecured notes due 2030 to NYL Investors LLC (“NYL”) and certain of its affiliates pursuant to the Note Purchase and Private Shelf Agreement dated March 6, 2018 between the Company, NYL and the other parties thereto (as amended, the “NYL Shelf Facility”). These notes bear interest at 3.96%, payable quarterly in arrears on March 21, June 21, September 21 and December 21 of each year, and will mature on March 21, 2030, unless earlier redeemed by the Company. In February In June 2016, the Company entered into a five-year term loan agreement for a senior unsecured term loan facility During the third quarter of 2018, the Company amended each of the Revolving Credit Facility, the NYL Shelf Facility, the Prudential Shelf Facility and the Term Loan Facility to (i) align the calculation of the two financial covenants and certain events of default under each agreement and (ii) with regard to the Term Loan Facility, to revise the calculation of the rates at which borrowings bear interest to conform with the calculation of such rates under the Revolving Credit Facility. The Revolving Credit Facility, the The indentures under which the Company’s public debt was issued do not include financial covenants but do limit the incurrence of certain liens and encumbrances as well as All outstanding long-term debt has been issued by the Company and none has been issued by any of its subsidiaries. There are no guarantees of the Company’s debt. 12.Derivative Financial InstrumentsConcurrent with its entrance into the Final CBA in the first quarter of 2017, the Company converted its franchise rights for the Legacy Territories to distribution rights, with an estimated useful life of 40 years.20172018 and the first three quarters of 20162017 is as follows:There was $5.3 million of other accrued liabilities related to territory exchanges and acquisitions that closed on October 2, 2017, which was classified as held for sale as of October 1, 2017. Refer to Note 24 for additional information.(1)The Senior NotesPursuant to the Company’s Term Loan Facility (as defined below) and the indenture under which the senior notes due in 2019 were issued, at 98.238% of parprincipal payments will be due in the next twelve months. The Company intends to refinance these amounts and has the Senior Notescapacity to do so under its Revolving Credit Facility (as defined below), which is classified as long-term debt. As such, any amounts due 2025in the next twelve months were issued at 99.975% of par.classified as non-current.$43.1$37.3 million on October 1, 2017September 30, 2018 and $48.7$43.5 million on January 1,December 31, 2017. The Company mitigates its financing risk by using multiple financial institutions and only entering into credit arrangements with institutions with investment grade credit ratings. The Company monitors counterparty credit ratings on an ongoing basis. 27, 2017, the Company sold $125 million aggregate principal amount of senior unsecured notes due 2023 to PGIM, Inc. (“Prudential”) and certain of its affiliates pursuant to the Note Purchase and Private Shelf Agreement dated June 10, 2016 between the Company, Prudential and the other parties thereto (the “Private(as amended, the “Prudential Shelf Facility”). These notes bear interest at 3.28%, payable semi-annually in arrears on February 27 and August 27 of each year, and will mature on February 27, 2023 unless earlier redeemed by the Company. The Company may request that Prudential to consider the purchase of additional senior unsecured notes of the Company under the PrivatePrudential Shelf Facility in an aggregate principal amount of up to $175 million.In October 2014, the Company entered into a five-year unsecured revolving credit facility (the “Revolving Credit Facility”), and in April 2015, the Company exercised an accordion feature which established a $450 million aggregate maximum borrowing capacity on the Revolving Credit Facility. The $450 million borrowing capacity includes up to $50 million available for the issuance of letters of credit. Borrowings under the Revolving Credit Facility bear interest at a floating base rate or a floating Eurodollar rate plus an applicable margin, at the Company’s option, dependent on the Company’s credit rating at the time of borrowing. At the Company’s current credit ratings, the Company must pay an annual facility fee of 0.15% of the lenders’ aggregate commitments under the Revolving Credit Facility. The Revolving Credit Facility has a scheduled maturity date of October 16, 2019.(the(as amended, the “Term Loan Facility”) in the aggregate principal amount of $300 million, maturing June 7, 2021. The Company may request additional term loans under the agreement, provided the Company’s aggregate borrowings under the Term Loan Facility do not exceed $500 million. Borrowings under the Term Loan Facility bear interest at a floating base rate or a floating Eurodollar rate plus an applicable margin, at the Company’s option, dependent on the Company’s credit rating.ratings.Term LoanNYL Shelf Facility, the Prudential Shelf Facility and the Private ShelfTerm Loan Facility include two financial covenants: a consolidated cash flow/fixed charges ratio and a consolidated funded indebtedness/cash flow ratio, each as defined in the respective agreements. The Company was in compliance with these covenants as of October 1, 2017.September 30, 2018. These covenants do not currently, and the Company does not anticipate they will, restrict its liquidity or capital resources. the indebtedness by the Company’s subsidiaries in excess of certain amounts.
The Company is subject to the risk of increased costs arising from adverse changes in certain commodity prices. In the normal course of business, the Company manages these risks through a variety of strategies, including the use of derivative instruments. The Company does not use derivative instruments for trading or speculative purposes. All derivative instruments are recorded at fair value as either assets or liabilities in the Company’s consolidated condensed balance sheets. These derivative instruments are not designated as hedging instruments under GAAP and are used as “economic hedges” to manage certain commodity price risk. Derivative instruments held are marked to market on a monthly basis and recognized in earnings consistent with the expense classification of the underlying hedged item. Settlements of derivative agreements are included in cash flows from operating activities on the Company’s consolidated condensed statements of cash flows.
The Company uses several different financial institutions for commodity derivative instruments to minimize the concentration of credit risk. While the Company would be exposed to credit loss in the event of nonperformance by these counterparties, the Company does not anticipate nonperformance by these parties.
The following table summarizes pre-tax changes in the fair value of the Company’s commodity derivative financial instruments and the classification of such changes in the consolidated condensed statements of operations.
|
|
|
| Third Quarter |
|
| First Three Quarters |
|
|
|
| Third Quarter |
|
| First Three Quarters |
| ||||||||||||||||||||
(in thousands) |
| Classification of Gain |
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
|
| Classification of Gain (Loss) |
| 2018 |
|
| 2017 |
|
| 2018 |
|
| 2017 |
| ||||||||
Commodity hedges |
| Cost of sales |
| $ | 2,042 |
|
| $ | 401 |
|
| $ | 2,066 |
|
| $ | 2,695 |
|
| Cost of sales |
| $ | (260 | ) |
| $ | 2,042 |
|
| $ | (2,776 | ) |
| $ | 2,066 |
|
Commodity hedges |
| Selling, delivery and administrative expenses |
|
| 1,359 |
|
|
| (13 | ) |
|
| 475 |
|
|
| 1,503 |
|
| Selling, delivery and administrative expenses |
|
| (209 | ) |
|
| 1,359 |
|
|
| (363 | ) |
|
| 475 |
|
Total gain |
|
|
| $ | 3,401 |
|
| $ | 388 |
|
| $ | 2,541 |
|
| $ | 4,198 |
| ||||||||||||||||||
Total gain (loss) |
|
|
| $ | (469 | ) |
| $ | 3,401 |
|
| $ | (3,139 | ) |
| $ | 2,541 |
|
The following table summarizes the fair values and classification in the consolidated condensed balance sheets of derivative instruments held by the Company:
(in thousands) |
| Balance Sheet Classification |
| October 1, 2017 |
|
| January 1, 2017 |
|
| Balance Sheet Classification |
| September 30, 2018 |
|
| December 31, 2017 |
| ||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity hedges at fair market value |
| Prepaid expenses and other current assets |
| $ | 3,153 |
|
| $ | 1,289 |
|
| Prepaid expenses and other current assets |
| $ | 1,047 |
|
| $ | 4,420 |
|
Commodity hedges at fair market value |
| Other assets |
|
| 679 |
|
|
| - |
|
| Other assets |
|
| 234 |
|
|
| - |
|
Total assets |
|
|
| $ | 3,832 |
|
| $ | 1,289 |
|
|
|
| $ | 1,281 |
|
| $ | 4,420 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Liabilities: |
|
|
|
|
|
|
|
|
|
| ||||||||||
Commodity hedges at fair market value |
| Other accrued liabilities |
| $ | 2 |
|
| $ | - |
| ||||||||||
Total liabilities |
|
|
| $ | 2 |
|
| $ | - |
|
The Company has master agreements with the counterparties to its derivative financial agreements that provide for net settlement of derivative transactions. Accordingly, the net amounts of derivative assets are recognized in either prepaid expenses and other current assets or other assets in the Company’s consolidated condensed balance sheets and the net amounts of derivative liabilities are
recognized in other accrued liabilities or other liabilities in the consolidated condensed balance sheets. The following table summarizes the Company’s gross derivative assets and gross derivative liabilities in the consolidated condensed balance sheets:
(in thousands) |
| October 1, 2017 |
|
| January 1, 2017 |
|
| September 30, 2018 |
|
| December 31, 2017 |
| ||||
Gross derivative assets |
| $ | 4,166 |
|
| $ | 1,297 |
|
| $ | 15,633 |
|
| $ | 4,481 |
|
Gross derivative liabilities |
|
| 336 |
|
|
| 8 |
|
|
| 14,352 |
|
|
| 61 |
|
The following table summarizes the Company’s outstanding commodity derivative agreements:
(in thousands) |
| October 1, 2017 |
|
| January 1, 2017 |
|
| September 30, 2018 |
|
| December 31, 2017 |
| ||||
Notional amount of outstanding commodity derivative agreements |
| $ | 77,752 |
|
| $ | 13,146 |
|
| $ | 143,282 |
|
| $ | 59,564 |
|
Latest maturity date of outstanding commodity derivative agreements |
| December 2018 |
|
| December 2017 |
|
| December 2019 |
|
| December 2018 |
|
13.Fair Values of Financial Instruments
GAAP requires assets and liabilities carried at fair value to be classified and disclosed in one of the following categories:
Level 1: Quoted market prices in active markets for identical assets or liabilities.
Level 2: Observable market based inputs or unobservable inputs that are corroborated by market data.
Level 3: Unobservable inputs that are not corroborated by market data.
The following methods and assumptions were used by the Company in estimating the fair values of its financial instruments. There were no transfers of assets or liabilities between levels in any period presented.
Financial Instrument |
| Fair Value Level |
| Method and Assumptions |
Deferred compensation plan assets and liabilities |
| Level 1 |
| The fair value of the Company’s non-qualified deferred compensation plan for certain executives and other highly compensated employees is based on the fair values of associated assets and liabilities, which are held in mutual funds and are based on the quoted market value of the securities held within the mutual funds. |
Commodity hedging agreements |
| Level 2 |
| The fair values of the Company’s commodity hedging agreements are based on current settlement values at each balance sheet date. The fair values of the commodity hedging agreements at each balance sheet date represent the estimated amounts the Company would have received or paid upon termination of these agreements. The Company’s credit risk related to the derivative financial instruments is managed by requiring high standards for its counterparties and periodic settlements. The Company considers nonperformance risk in determining the fair value of derivative financial instruments. |
Non-public variable rate debt |
| Level 2 |
| The carrying amounts of the Company’s non-public variable rate debt approximate their fair values due to variable interest rates with short reset periods. |
Non-public fixed rate debt |
| Level 2 |
| The fair values of the Company’s non-public fixed rate debt are based on estimated current market prices. |
Public debt securities |
| Level 2 |
| The fair values of the Company’s public debt securities are based on estimated current market prices. |
Acquisition related contingent consideration |
| Level 3 |
| The fair values of acquisition related contingent consideration are based on internal forecasts and the weighted average cost of capital (“WACC”) derived from market data. |
The following tables summarize, by assets and liabilities, the carrying amounts and fair values by level of the Company’s deferred compensation plan, commodity hedging agreements, debt and acquisition related contingent consideration:
|
| October 1, 2017 |
|
| September 30, 2018 |
| ||||||||||||||||||||||||||||||||||
|
| Carrying |
|
| Total |
|
| Fair Value |
|
| Fair Value |
|
| Fair Value |
|
| Carrying |
|
| Total |
|
| Fair Value |
|
| Fair Value |
|
| Fair Value |
| ||||||||||
(in thousands) |
| Amount |
|
| Fair Value |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Amount |
|
| Fair Value |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| ||||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation plan assets |
| $ | 30,968 |
|
| $ | 30,968 |
|
| $ | 30,968 |
|
| $ | - |
|
| $ | - |
|
| $ | 36,291 |
|
| $ | 36,291 |
|
| $ | 36,291 |
|
| $ | - |
|
| $ | - |
|
Commodity hedging agreements |
|
| 3,832 |
|
|
| 3,832 |
|
|
| - |
|
|
| 3,832 |
|
|
| - |
|
|
| 1,281 |
|
|
| 1,281 |
|
|
| - |
|
|
| 1,281 |
|
|
| - |
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation plan liabilities |
|
| 30,968 |
|
|
| 30,968 |
|
|
| 30,968 |
|
|
| - |
|
|
| - |
|
|
| 36,291 |
|
|
| 36,291 |
|
|
| 36,291 |
|
|
| - |
|
|
| - |
|
Commodity hedging agreements |
|
| 2 |
|
|
| 2 |
|
|
| - |
|
|
| 2 |
|
|
| - |
| ||||||||||||||||||||
Non-public variable rate debt |
|
| 546,354 |
|
|
| 547,000 |
|
|
| - |
|
|
| 547,000 |
|
|
| - |
|
|
| 462,031 |
|
|
| 462,500 |
|
|
| - |
|
|
| 462,500 |
|
|
| - |
|
Non-public fixed rate debt |
|
| 124,814 |
|
|
| 126,000 |
|
|
| - |
|
|
| 126,000 |
|
|
| - |
|
|
| 274,697 |
|
|
| 256,200 |
|
|
| - |
|
|
| 256,200 |
|
|
| - |
|
Public debt securities |
|
| 456,679 |
|
|
| 482,600 |
|
|
| - |
|
|
| 482,600 |
|
|
| - |
|
|
| 457,381 |
|
|
| 457,800 |
|
|
| - |
|
|
| 457,800 |
|
|
| - |
|
Acquisition related contingent consideration |
|
| 308,933 |
|
|
| 308,933 |
|
|
| - |
|
|
| - |
|
|
| 308,933 |
|
|
| 363,836 |
|
|
| 363,836 |
|
|
| - |
|
|
| - |
|
|
| 363,836 |
|
|
| January 1, 2017 |
|
| December 31, 2017 |
| ||||||||||||||||||||||||||||||||||
|
| Carrying |
|
| Total |
|
| Fair Value |
|
| Fair Value |
|
| Fair Value |
|
| Carrying |
|
| Total |
|
| Fair Value |
|
| Fair Value |
|
| Fair Value |
| ||||||||||
(in thousands) |
| Amount |
|
| Fair Value |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Amount |
|
| Fair Value |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| ||||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation plan assets |
| $ | 24,903 |
|
| $ | 24,903 |
|
| $ | 24,903 |
|
| $ | - |
|
| $ | - |
|
| $ | 33,166 |
|
| $ | 33,166 |
|
| $ | 33,166 |
|
| $ | - |
|
| $ | - |
|
Commodity hedging agreements |
|
| 1,289 |
|
|
| 1,289 |
|
|
| - |
|
|
| 1,289 |
|
|
| - |
|
|
| 4,420 |
|
|
| 4,420 |
|
|
| - |
|
|
| 4,420 |
|
|
| - |
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation plan liabilities |
|
| 24,903 |
|
|
| 24,903 |
|
|
| 24,903 |
|
|
| - |
|
|
| - |
|
|
| 33,166 |
|
|
| 33,166 |
|
|
| 33,166 |
|
|
| - |
|
|
| - |
|
Non-public variable rate debt |
|
| 451,222 |
|
|
| 452,000 |
|
|
| - |
|
|
| 452,000 |
|
|
| - |
|
|
| 506,398 |
|
|
| 507,000 |
|
|
| - |
|
|
| 507,000 |
|
|
| - |
|
Non-public fixed rate debt |
|
| 124,829 |
|
|
| 126,400 |
|
|
| - |
|
|
| 126,400 |
|
|
| - |
| ||||||||||||||||||||
Public debt securities |
|
| 456,032 |
|
|
| 475,800 |
|
|
| - |
|
|
| 475,800 |
|
|
| - |
|
|
| 456,791 |
|
|
| 475,100 |
|
|
| - |
|
|
| 475,100 |
|
|
| - |
|
Acquisition related contingent consideration |
|
| 253,437 |
|
|
| 253,437 |
|
|
| - |
|
|
| - |
|
|
| 253,437 |
|
|
| 381,291 |
|
|
| 381,291 |
|
|
| - |
|
|
| - |
|
|
| 381,291 |
|
Under the Final CBA, the Company willis required to make a quarterly sub-bottling paymentpayments to CCR on a continuing basis for the grant of exclusive rights to distribute, promote, market and sell specified covered beverages and beverage products in the Expansion Territories.distribution territories acquired in the System Transformation, excluding territories the Company acquired in an exchange transaction. This
acquisition related contingent consideration is valued using a probability weighted discounted cash flow model based on internal forecasts and the WACC derived from market data, which are considered Level 3 inputs. Each reporting period, the Company adjusts its acquisition related contingent consideration liability related to the Expansion Territoriesdistribution territories to fair value by discounting future expected sub-bottling payments required under the Final CBA using the Company’s estimated WACC.
These future expected sub-bottling payments extend through the life of the related distribution assets acquired in each Expansion Territory,distribution territory, which is generally 40 years. As a result, the fair value of the acquisition related contingent consideration liability is impacted by the Company’s WACC, management’s estimate of the amounts that will be paid in the future under the Final CBA, and current sub-bottling payments (all Level 3 inputs). Changes in any of these Level 3 inputs, particularly the underlying risk-free interest rate used to estimate the Company’s WACC, could result in material changes to the fair value of the acquisition related contingent consideration and could materially impact the amount of noncash expense (or income) recorded each reporting period.
The acquisition related contingent consideration is the Company’s only Level 3 asset or liability. A reconciliation of the Level 3 activity is as follows:
|
| Third Quarter |
|
| First Three Quarters |
|
| Third Quarter |
|
| First Three Quarters |
| ||||||||||||||||||||
(in thousands) |
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
|
| 2018 |
|
| 2017 |
|
| 2018 |
|
| 2017 |
| ||||||||
Opening balance - Level 3 liability |
| $ | 319,102 |
|
| $ | 228,768 |
|
| $ | 253,437 |
|
| $ | 136,570 |
| ||||||||||||||||
Increase due to acquisitions |
|
| - |
|
|
| - |
|
|
| 46,086 |
|
|
| 68,039 |
| ||||||||||||||||
Payments/current payables |
|
| (4,944 | ) |
|
| (2,995 | ) |
|
| (13,730 | ) |
|
| (12,261 | ) | ||||||||||||||||
Beginning balance - Level 3 liability |
| $ | 374,537 |
|
| $ | 319,102 |
|
| $ | 381,291 |
|
| $ | 253,437 |
| ||||||||||||||||
Increase due to System Transformation Transactions acquisitions |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 46,086 |
| ||||||||||||||||
Measurement period adjustments(1) |
|
| (1,279 | ) |
|
| - |
|
|
| 813 |
|
|
| - |
| ||||||||||||||||
Payment of acquisition related contingent consideration |
|
| (7,049 | ) |
|
| (5,094 | ) |
|
| (18,312 | ) |
|
| (11,650 | ) | ||||||||||||||||
Reclassification to current payables |
|
| - |
|
|
| 150 |
|
|
| (1,540 | ) |
|
| (2,080 | ) | ||||||||||||||||
(Favorable)/unfavorable fair value adjustment |
|
| (5,225 | ) |
|
| (7,365 | ) |
|
| 23,140 |
|
|
| 26,060 |
|
|
| (2,373 | ) |
|
| (5,225 | ) |
|
| 1,584 |
|
|
| 23,140 |
|
Ending balance - Level 3 liability |
| $ | 308,933 |
|
| $ | 218,408 |
|
| $ | 308,933 |
|
| $ | 218,408 |
|
| $ | 363,836 |
|
| $ | 308,933 |
|
| $ | 363,836 |
|
| $ | 308,933 |
|
(1) | Measurement period adjustments relate to post-closing adjustments made in relation to the April 2017 Transactions and the October 2017 Transactions in accordance with the terms and conditions of the applicable asset purchase agreement or asset exchange agreement. See Note 3 to the consolidated condensed financial statements for additional information on the System Transformation Transactions. |
The fair value adjustments to the acquisition related contingent consideration liability during the third quarterfirst three quarters of 20172018 were primarily driven by changes to the risk-free interest rate and the projected future operating results of the distribution territories acquired as part of the System Transformation subject to sub-bottling fees, partially offset by cash payments. The fair value adjustments to the acquisition related contingent consideration liability during the first three quarters of 2017 were primarily driven by a change in the risk-free interest rate. The fair value adjustments to the acquisition related contingent consideration liability during the third quarter and first three quarters of 2016 were primarily driven by a change in
the projected future operating results of the Expansion Territories subject to sub-bottling fees and changes in the risk-free interest rate. These adjustments were recorded in other income (expense), net onin the Company’s consolidated condensed statements of operations.
The anticipated amount the Company could pay annually under the acquisition related contingent consideration arrangements for the ExpansionSystem Transformation Transactions is expected to be in the range of $1925 million to $37$47 million.
14.Other Liabilities
Other liabilities consisted of the following:
(in thousands) |
| October 1, 2017 |
|
| January 1, 2017 |
|
| September 30, 2018 |
|
| December 31, 2017 |
| ||||
Non-current portion of acquisition related contingent consideration |
| $ | 289,442 |
|
| $ | 237,655 |
|
| $ | 338,530 |
|
| $ | 357,952 |
|
Accruals for executive benefit plans |
|
| 125,713 |
|
|
| 123,078 |
|
|
| 128,079 |
|
|
| 125,791 |
|
Non-current deferred proceeds from conversion of Legacy Territories bottling agreements |
|
| 88,021 |
|
|
| - |
| ||||||||
Non-current deferred proceeds from Territory Conversion Fee |
|
| 85,734 |
|
|
| 87,449 |
| ||||||||
Non-current deferred proceeds from Legacy Facilities Credit(1) |
|
| 30,568 |
|
|
| 29,881 |
| ||||||||
Other |
|
| 21,111 |
|
|
| 17,839 |
|
|
| 17,399 |
|
|
| 19,506 |
|
Total other liabilities |
| $ | 524,287 |
|
| $ | 378,572 |
|
| $ | 600,310 |
|
| $ | 620,579 |
|
Pursuant to a territory conversion agreement entered into by the Company, The Coca‑Cola Company and CCR in September 2015 (as amended), upon the conversion of the Company’s bottling agreements to the Final CBA on March 31, 2017, the Company received a one-time fee from CCR, which, after final adjustments made during the second quarter of 2017, totaled $91.5 million. This one-time fee was recorded as a deferred liability and will be amortized as a reduction to cost of sales over a period of 40 years. As of October 1, 2017, $2.3 million of this fee was recorded in other accrued liabilities, $88.0 million of this fee was recorded to other liabilities and $1.2 million was amortized during the first three quarters of 2017 on the consolidated condensed financial statements.
manufacturing agreement entered into by the Company and The Coca‑Cola Company on March 31, 2017, as amended. The Company immediately recognized the portion of the Legacy Facilities Credit applicable to a regional manufacturing facility in Mobile, Alabama which the Company transferred to CCR as part of the CCR Exchange Transaction. The remaining balance of the Legacy Facilities Credit will be amortized as a reduction to cost of sales over a period of 40 years. |
15.Commitments and Contingencies
Manufacturing Cooperatives
The Company is a shareholder of South Atlantic Canners, Inc. (“SAC”), a manufacturing cooperative in Bishopville, South Carolina. All eightof SAC’s shareholders of SAC are Coca‑Cola bottlers and each has equal voting rights. The Company accounts for SAC as an equity method investment. The Company receives a fee for managing the day-to-day operations of SAC pursuant to a management agreement. Proceeds from management fees received from SAC were $6.8 million in the first three quarters of 2018 and $6.9 million in the first three quarters of 2017 and $7.0 million in the first three quarters of 2016.2017.
The Company is obligated to purchase 17.5 million cases of finished product from SAC on an annual basis through June 2024. The Company purchased 22.622.2 million cases and 23.222.6 million cases of finished product from SAC in the first three quarters of 20172018 and the first three quarters of 2016,2017, respectively.
The Company is also a shareholder of Southeastern Container (“Southeastern”), a plastic bottle manufacturing cooperative from which the Company is obligated to purchase at least 80% of its requirements of plastic bottles for certain designated territories. The Company accounts for Southeastern as an equity method investment.
The following table summarizes the Company’s purchases from these manufacturing cooperatives:
|
| Third Quarter |
|
| First Three Quarters |
|
| Third Quarter |
|
| First Three Quarters |
| ||||||||||||||||||||
(in thousands) |
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
|
| 2018 |
|
| 2017 |
|
| 2018 |
|
| 2017 |
| ||||||||
Purchases from SAC |
| $ | 37,267 |
|
| $ | 39,831 |
|
| $ | 111,408 |
|
| $ | 115,563 |
|
| $ | 38,569 |
|
| $ | 37,267 |
|
| $ | 117,729 |
|
| $ | 111,408 |
|
Purchases from Southeastern |
|
| 29,344 |
|
|
| 20,530 |
|
|
| 80,301 |
|
|
| 57,839 |
|
|
| 32,379 |
|
|
| 29,344 |
|
|
| 92,613 |
|
|
| 80,301 |
|
Total purchases from manufacturing cooperatives |
| $ | 66,611 |
|
| $ | 60,361 |
|
| $ | 191,709 |
|
| $ | 173,402 |
|
| $ | 70,948 |
|
| $ | 66,611 |
|
| $ | 210,342 |
|
| $ | 191,709 |
|
The Company guarantees a portion of SAC’s and Southeastern’s debt, which resulted primarily from the purchase of production equipment and facilities and expires at various dates through 2023.2021. The amounts guaranteed were $23.9 million as follows:
(in thousands) |
| October 1, 2017 |
|
| January 1, 2017 |
| ||
Guaranteed portion of debt - SAC |
| $ | 23,938 |
|
| $ | 23,297 |
|
Guaranteed portion of debt - Southeastern |
|
| 8,551 |
|
|
| 9,277 |
|
Total guaranteed portion of debt - manufacturing cooperatives |
| $ | 32,489 |
|
| $ | 32,574 |
|
In the event either of these cooperatives fails to fulfill its commitments under the related debt, the Company would be responsible for payments to the lenders up to the level of the guarantees. The following table summarizes the Company’s maximum exposure under these guarantees if these cooperatives had borrowed up to their aggregate borrowing capacity:
|
| October 1, 2017 |
| |||||||||
(in thousands) |
| South Atlantic Canners, Inc. |
|
| Southeastern Container |
|
| Total Manufacturing Cooperatives |
| |||
Maximum guaranteed debt |
| $ | 23,938 |
|
| $ | 25,251 |
|
| $ | 49,189 |
|
Equity investments(1) |
|
| 7,327 |
|
|
| 17,768 |
|
|
| 25,095 |
|
Maximum total exposure, including equity investments |
| $ | 31,265 |
|
| $ | 43,019 |
|
| $ | 74,284 |
|
|
|
The members of both cooperatives consist solely of Coca‑Cola bottlers.September 30, 2018 and December 31, 2017. The Company does not anticipate either of these cooperativesSAC will fail to fulfill its commitments.commitment related to the debt. The Company further believes each of these cooperativesSAC has sufficient assets, including production equipment, facilities and working capital, and the ability to adjust selling prices of its products to adequately mitigate the risk of material loss from the Company’s guarantees.guarantee.
In the event SAC fails to fulfill its commitments under the related debt, the Company would be responsible for payments to the lenders up to the level of the guarantee. The following table summarizes the Company’s maximum exposure under this guarantee if SAC had borrowed up to its aggregate borrowing capacity:
(in thousands) |
| September 30, 2018 |
| |
Maximum guaranteed debt |
| $ | 23,938 |
|
Equity investments(1) |
|
| 8,175 |
|
Maximum total exposure, including equity investments |
| $ | 32,113 |
|
(1) | Recorded in other assets on the Company’s consolidated condensed balance sheets. |
The Company holds no assets as collateral against the SAC or Southeastern guarantees,guarantee, the fair value of which is immaterial to the Company’s consolidated condensed financial statements. The Company monitors its investments in SAC and Southeastern and would be required to write down its investment if an impairment was identified and the Company determined it to be other than temporary. No impairment of the Company’s investments in SAC or Southeastern was identified as of October 1, 2017,September 30, 2018, and there was no impairment identified in 2016.2017.
Other Commitments and Contingencies
The Company has standby letters of credit, primarily related to its property and casualty insurance programs. These letters of credit totaled $35.6 million on October 1, 2017as of both September 30, 2018 and $29.7 million on January 1,December 31, 2017.
The Company participates in long-term marketing contractual arrangements with certain prestige properties, athletic venues and other locations. As of October 1, 2017,September 30, 2018, the future payments related to these contractual arrangements, which expire at various dates through 2030,2033, amounted to $124.4$160.0 million.
The Company is from time to time a party toinvolved in various lawsuits, claims and other legal proceedings that arisewhich have arisen in the ordinary course of its business. With respectAlthough it is difficult to all such lawsuits,predict the ultimate outcome of these claims and legal proceedings, management believes that the Company records reserves when it is probable a liability has been incurred and the amount of loss can be reasonably estimated. The Company does not believe that anyultimate disposition of these proceedings, individually or in the aggregate, would be expected tomatters will not have a material adverse effect on itsthe financial condition, cash flows or results of operations financial position or cash flows. The Company maintains liability insurance for certain risks thatof the Company. No material amount of loss in excess of recorded amounts is subjectbelieved to certain self-insurance limits.be reasonably possible as a result of these claims and legal proceedings.
The Company is subject to audits by tax authorities in jurisdictions where it conducts business. These audits may result in assessments that are subsequently resolved with the authorities or potentially through the courts. Management believes the Company has adequately provided for any assessments likely to result from these audits; however, final assessments, if any, could be different than the amounts recorded in the consolidated condensed financial statements.
16.Income Taxes
The Company’s effective income tax rate, as calculated by dividing income tax expense by income before income taxes, was 24.1% for the first three quarters of 2018 and 34.8% for the first three quarters of 2017 and 35.6% for the first three quarters of 2016.2017. The decrease in the effective tax rate was primarily driven by athe corporate rate reduction in the valuation allowance resulting from the Company’s assessment of its ability to use certain loss carryforwards and a reductiondue to the Company’s uncertain tax positions resulting from the expiration of the statute of limitations.Tax Act and its impact on prior estimates and lower income before income taxes, which was offset by an increase in certain non-deductible expenses.
The Company’s effective income tax rate, as calculated by dividing income tax expense by income before income taxes minus net income attributable to noncontrolling interest, was 32.5% for the first three quarters of 2018 and 38.8% for the first three quarters of 20172017.
Shortly after the Tax Act was enacted, the SEC issued guidance under Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and 39.4%Jobs Act (“SAB 118”) to address the application of GAAP and direct taxpayers to consider the impact of the Tax Act as “provisional” when a registrant does not have the necessary information available, prepared or analyzed (including computations) in reasonable detail to complete the accounting for the first three quarterschange in tax law. In accordance with SAB 118, the Company recognized a provisional tax benefit related to the re-measurement of 2016.its net deferred tax liability of $69.0 million as of December 31, 2017. During the third quarter of 2018, the Company recorded an additional provisional tax benefit of $1.9 million attributable to the re-measurement of its net deferred tax liability in connection with the filing of its 2017 federal income tax return.
The ultimate impact may differ from the provisional amounts, possibly materially, due to, among other things, the significant complexity of the Tax Act, anticipated additional regulatory guidance or related interpretations that may be issued by the Internal Revenue Service (the “IRS”), changes in accounting standards, legislative actions, future actions by states within the U.S. and changes in estimates, analysis, interpretations and assumptions made by the Company.
The Company had uncertain tax positions, including accrued interest, of $1.8$3.0 million on October 1, 2017September 30, 2018 and $2.9$2.4 million on January 1,December 31, 2017, all of which would affect the Company’s effective tax rate if recognized. While it is expected the amount of uncertain tax positions may change in the next 12 months, the Company does not expect such change would have a significant impact on the consolidated condensed financial statements.
Prior tax years beginning in year 2002 remain open to examination by the Internal Revenue Service,IRS, and various tax years beginning in year 1998 remain open to examination by certain state tax jurisdictions due to loss carryforwards.jurisdictions.
17.AccumulatedAccumulated Other Comprehensive Income (Loss)
Accumulated other comprehensive income (loss) (“AOCI(L)”) is comprised of adjustments relative to the Company’s pension and postretirement medical benefit plans and foreign currency translation adjustments required for a subsidiary of the Company that performs data analysis and provides consulting services outside the United States.
A summary of AOCI(L) for the third quarter of 20172018 and the third quarter of 20162017 is as follows:
(in thousands) |
| July 1, 2018 |
|
| Pre-tax Activity |
|
| Tax Effect |
|
| September 30, 2018 |
| ||||
Net pension activity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial loss |
| $ | (77,212 | ) |
| $ | 934 |
|
| $ | (231 | ) |
| $ | (76,509 | ) |
Prior service costs |
|
| (34 | ) |
|
| 6 |
|
|
| (2 | ) |
|
| (30 | ) |
Net postretirement benefits activity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial loss |
|
| (22,767 | ) |
|
| 499 |
|
|
| (123 | ) |
|
| (22,391 | ) |
Prior service costs |
|
| 1,048 |
|
|
| (462 | ) |
|
| 114 |
|
|
| 700 |
|
Recognized loss due to October 2017 Divestitures(1) |
|
| 6,220 |
|
|
| - |
|
|
| - |
|
|
| 6,220 |
|
Foreign currency translation adjustment |
|
| 8 |
|
|
| (2 | ) |
|
| 1 |
|
|
| 7 |
|
Total |
| $ | (92,737 | ) |
| $ | 975 |
|
| $ | (241 | ) |
| $ | (92,003 | ) |
(1) | Recognized loss due to the divestiture of the Deep South and Somerset Exchange Business and the Florence and Laurel Distribution Business during the fourth quarter of 2017. |
(in thousands) |
| July 2, 2017 |
|
| Pre-tax Activity |
|
| Tax Effect |
|
| October 1, 2017 |
| ||||
Net pension activity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial loss |
| $ | (71,402 | ) |
| $ | 807 |
|
| $ | (311 | ) |
| $ | (70,906 | ) |
Prior service costs |
|
| (52 | ) |
|
| 7 |
|
|
| (3 | ) |
|
| (48 | ) |
Net postretirement benefits activity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial loss |
|
| (23,315 | ) |
|
| 648 |
|
|
| (250 | ) |
|
| (22,917 | ) |
Prior service costs |
|
| 2,763 |
|
|
| (745 | ) |
|
| 287 |
|
|
| 2,305 |
|
Foreign currency translation adjustment |
|
| 5 |
|
|
| 11 |
|
|
| (4 | ) |
|
| 12 |
|
Total |
| $ | (92,001 | ) |
| $ | 728 |
|
| $ | (281 | ) |
| $ | (91,554 | ) |
(in thousands) |
| July 3, 2016 |
|
| Pre-tax Activity |
|
| Tax Effect |
|
| October 2, 2016 |
| ||||
Net pension activity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial loss |
| $ | (67,333 | ) |
| $ | 741 |
|
| $ | (286 | ) |
| $ | (66,878 | ) |
Prior service costs |
|
| (69 | ) |
|
| 7 |
|
|
| (3 | ) |
|
| (65 | ) |
Net postretirement benefits activity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial loss |
|
| (19,104 | ) |
|
| 587 |
|
|
| (226 | ) |
|
| (18,743 | ) |
Prior service costs |
|
| 4,712 |
|
|
| (840 | ) |
|
| 324 |
|
|
| 4,196 |
|
Foreign currency translation adjustment |
|
| (1 | ) |
|
| 4 |
|
|
| (1 | ) |
|
| 2 |
|
Total |
| $ | (81,795 | ) |
| $ | 499 |
|
| $ | (192 | ) |
| $ | (81,488 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A summary of AOCI(L) for the first three quarters of 20172018 and the first three quarters of 20162017 is as follows:
(in thousands) |
| January 1, 2017 |
|
| Pre-tax Activity |
|
| Tax Effect |
|
| October 1, 2017 |
|
| December 31, 2017 |
|
| Pre-tax Activity |
|
| Tax Effect |
|
| September 30, 2018 |
| ||||||||
Net pension activity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial loss |
| $ | (72,393 | ) |
| $ | 2,421 |
|
| $ | (934 | ) |
| $ | (70,906 | ) |
| $ | (78,618 | ) |
| $ | 2,800 |
|
| $ | (691 | ) |
| $ | (76,509 | ) |
Prior service costs |
|
| (61 | ) |
|
| 21 |
|
|
| (8 | ) |
|
| (48 | ) |
|
| (43 | ) |
|
| 18 |
|
|
| (5 | ) |
|
| (30 | ) |
Net postretirement benefits activity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial loss |
|
| (24,111 | ) |
|
| 1,944 |
|
|
| (750 | ) |
|
| (22,917 | ) |
|
| (23,519 | ) |
|
| 1,497 |
|
|
| (369 | ) |
|
| (22,391 | ) |
Prior service costs |
|
| 3,679 |
|
|
| (2,237 | ) |
|
| 863 |
|
|
| 2,305 |
|
|
| 1,744 |
|
|
| (1,386 | ) |
|
| 342 |
|
|
| 700 |
|
Recognized loss due to October 2017 Divestitures(1) |
|
| 6,220 |
|
|
| - |
|
|
| - |
|
|
| 6,220 |
| ||||||||||||||||
Foreign currency translation adjustment |
|
| (11 | ) |
|
| 37 |
|
|
| (14 | ) |
|
| 12 |
|
|
| 14 |
|
|
| (10 | ) |
|
| 3 |
|
|
| 7 |
|
Total |
| $ | (92,897 | ) |
| $ | 2,186 |
|
| $ | (843 | ) |
| $ | (91,554 | ) |
| $ | (94,202 | ) |
| $ | 2,919 |
|
| $ | (720 | ) |
| $ | (92,003 | ) |
(in thousands) |
| January 3, 2016 |
|
| Pre-tax Activity |
|
| Tax Effect |
|
| October 2, 2016 |
| ||||
Net pension activity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial loss |
| $ | (68,243 | ) |
| $ | 2,222 |
|
| $ | (857 | ) |
| $ | (66,878 | ) |
Prior service costs |
|
| (78 | ) |
|
| 21 |
|
|
| (8 | ) |
|
| (65 | ) |
Net postretirement benefits activity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial loss |
|
| (19,825 | ) |
|
| 1,762 |
|
|
| (680 | ) |
|
| (18,743 | ) |
Prior service costs |
|
| 5,744 |
|
|
| (2,520 | ) |
|
| 972 |
|
|
| 4,196 |
|
Foreign currency translation adjustment |
|
| (5 | ) |
|
| 11 |
|
|
| (4 | ) |
|
| 2 |
|
Total |
| $ | (82,407 | ) |
| $ | 1,496 |
|
| $ | (577 | ) |
| $ | (81,488 | ) |
(1) | Recognized loss due to the divestiture of the Deep South and Somerset Exchange Business and the Florence and Laurel Distribution Business during the fourth quarter of 2017. |
(in thousands) |
| January 1, 2017 |
|
| Pre-tax Activity |
|
| Tax Effect |
|
| October 1, 2017 |
| ||||
Net pension activity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial loss |
| $ | (72,393 | ) |
| $ | 2,421 |
|
| $ | (934 | ) |
| $ | (70,906 | ) |
Prior service costs |
|
| (61 | ) |
|
| 21 |
|
|
| (8 | ) |
|
| (48 | ) |
Net postretirement benefits activity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial loss |
|
| (24,111 | ) |
|
| 1,944 |
|
|
| (750 | ) |
|
| (22,917 | ) |
Prior service costs |
|
| 3,679 |
|
|
| (2,237 | ) |
|
| 863 |
|
|
| 2,305 |
|
Foreign currency translation adjustment |
|
| (11 | ) |
|
| 37 |
|
|
| (14 | ) |
|
| 12 |
|
Total |
| $ | (92,897 | ) |
| $ | 2,186 |
|
| $ | (843 | ) |
| $ | (91,554 | ) |
A summary of the impact of AOCI(L) on certain statementstatements of operations line items is as follows:
|
| Third Quarter 2018 |
| |||||||||||||
(in thousands) |
| Net Pension Activity |
|
| Net Postretirement Benefits Activity |
|
| Foreign Currency Translation Adjustment |
|
| Total |
| ||||
Cost of sales |
| $ | 217 |
|
| $ | 6 |
|
| $ | - |
|
| $ | 223 |
|
Selling, delivery and administrative expenses |
|
| 723 |
|
|
| 31 |
|
|
| (2 | ) |
|
| 752 |
|
Subtotal pre-tax |
|
| 940 |
|
|
| 37 |
|
|
| (2 | ) |
|
| 975 |
|
Income tax expense |
|
| 233 |
|
|
| 9 |
|
|
| (1 | ) |
|
| 241 |
|
Total after tax effect |
| $ | 707 |
|
| $ | 28 |
|
| $ | (1 | ) |
| $ | 734 |
|
|
| Third Quarter 2017 |
| |||||||||||||
(in thousands) |
| Net Pension Activity |
|
| Net Postretirement Benefits Activity |
|
| Foreign Currency Translation Adjustment |
|
| Total |
| ||||
Cost of sales |
| $ | 171 |
|
| $ | (21 | ) |
| $ | - |
|
| $ | 150 |
|
Selling, delivery and administrative expenses |
|
| 643 |
|
|
| (76 | ) |
|
| 11 |
|
|
| 578 |
|
Subtotal pre-tax |
|
| 814 |
|
|
| (97 | ) |
|
| 11 |
|
|
| 728 |
|
Income tax expense |
|
| 314 |
|
|
| (37 | ) |
|
| 4 |
|
|
| 281 |
|
Total after tax effect |
| $ | 500 |
|
| $ | (60 | ) |
| $ | 7 |
|
| $ | 447 |
|
|
| Third Quarter 2016 |
|
| First Three Quarters 2018 |
| ||||||||||||||||||||||||||
(in thousands) |
| Net Pension Activity |
|
| Net Postretirement Benefits Activity |
|
| Foreign Currency Translation Adjustment |
|
| Total |
|
| Net Pension Activity |
|
| Net Postretirement Benefits Activity |
|
| Foreign Currency Translation Adjustment |
|
| Total |
| ||||||||
Cost of sales |
| $ | 75 |
|
| $ | (38 | ) |
| $ | - |
|
| $ | 37 |
|
| $ | 648 |
|
| $ | 19 |
|
| $ | - |
|
| $ | 667 |
|
Selling, delivery and administrative expenses |
|
| 673 |
|
|
| (215 | ) |
|
| 4 |
|
|
| 462 |
|
|
| 2,170 |
|
|
| 92 |
|
|
| (10 | ) |
|
| 2,252 |
|
Subtotal pre-tax |
|
| 748 |
|
|
| (253 | ) |
|
| 4 |
|
|
| 499 |
|
|
| 2,818 |
|
|
| 111 |
|
|
| (10 | ) |
|
| 2,919 |
|
Income tax expense |
|
| 289 |
|
|
| (98 | ) |
|
| 1 |
|
|
| 192 |
|
|
| 696 |
|
|
| 27 |
|
|
| (3 | ) |
|
| 720 |
|
Total after tax effect |
| $ | 459 |
|
| $ | (155 | ) |
| $ | 3 |
|
| $ | 307 |
|
| $ | 2,122 |
|
| $ | 84 |
|
| $ | (7 | ) |
| $ | 2,199 |
|
|
| First Three Quarters 2017 |
| |||||||||||||
(in thousands) |
| Net Pension Activity |
|
| Net Postretirement Benefits Activity |
|
| Foreign Currency Translation Adjustment |
|
| Total |
| ||||
Cost of sales |
| $ | 497 |
|
| $ | (64 | ) |
| $ | - |
|
| $ | 433 |
|
Selling, delivery and administrative expenses |
|
| 1,945 |
|
|
| (230 | ) |
|
| 37 |
|
|
| 1,752 |
|
Subtotal pre-tax |
|
| 2,442 |
|
|
| (294 | ) |
|
| 37 |
|
|
| 2,185 |
|
Income tax expense |
|
| 942 |
|
|
| (114 | ) |
|
| 14 |
|
|
| 842 |
|
Total after tax effect |
| $ | 1,500 |
|
| $ | (180 | ) |
| $ | 23 |
|
| $ | 1,343 |
|
|
| First Three Quarters 2016 |
| |||||||||||||
(in thousands) |
| Net Pension Activity |
|
| Net Postretirement Benefits Activity |
|
| Foreign Currency Translation Adjustment |
|
| Total |
| ||||
Cost of sales |
| $ | 224 |
|
| $ | (114 | ) |
| $ | - |
|
| $ | 110 |
|
Selling, delivery and administrative expenses |
|
| 2,019 |
|
|
| (644 | ) |
|
| 11 |
|
|
| 1,386 |
|
Subtotal pre-tax |
|
| 2,243 |
|
|
| (758 | ) |
|
| 11 |
|
|
| 1,496 |
|
Income tax expense |
|
| 865 |
|
|
| (292 | ) |
|
| 4 |
|
|
| 577 |
|
Total after tax effect |
| $ | 1,378 |
|
| $ | (466 | ) |
| $ | 7 |
|
| $ | 919 |
|
18.Capital Transactions
During the first quarter of each year, the Compensation Committee of the Company’s Board of Directors (the “Committee”) determines whether any shares of the Company’s Class B Common Stock should be issued to J. Frank Harrison, III, in connection with his services for the prior year as Chairman of the Board of Directors and Chief Executive Officer of the Company, pursuant to a performance unit award agreement approved in 2008 (the “Performance Unit Award Agreement”). The Performance Unit Award Agreement expires at the end of 2018, with the final potential award to be issued in the first quarter of 2019 in connection with Mr. Harrison’s services during 2018.
As permitted under the terms of the Performance Unit Award Agreement, a number of shares were settled in cash in 20172018 and 20162017 to satisfy tax withholding obligations in connection with the vesting of the performance units. The remaining number of shares increased the total shares of Class B Common Stock outstanding. A summary of the awards issued in 20172018 and 20162017 is as follows:
|
| Fiscal Year |
| |||||
|
| 2017 |
|
| 2016 |
| ||
Date of approval for award |
| March 7, 2017 |
|
| March 8, 2016 |
| ||
Fiscal year of service covered by award |
| 2016 |
|
| 2015 |
| ||
Shares settled in cash to satisfy tax withholding obligations |
|
| 18,980 |
|
|
| 19,080 |
|
Increase in Class B Common Stock shares outstanding |
|
| 21,020 |
|
|
| 20,920 |
|
Total Class B Common Stock awarded |
|
| 40,000 |
|
|
| 40,000 |
|
|
| Fiscal Year |
| |||||
|
| 2018 |
|
| 2017 |
| ||
Date of approval for award |
| March 6, 2018 |
|
| March 7, 2017 |
| ||
Fiscal year of service covered by award |
| 2017 |
|
| 2016 |
| ||
Shares settled in cash to satisfy tax withholding obligations |
|
| 16,504 |
|
|
| 18,980 |
|
Increase in Class B Common Stock shares outstanding |
|
| 20,296 |
|
|
| 21,020 |
|
Total Class B Common Stock awarded |
|
| 36,800 |
|
|
| 40,000 |
|
Compensation expense for the awards issued pursuant to the Performance Unit Award Agreement, recognized on the closing share price of the last trading day prior to the end of the fiscal period, was as follows:
|
| First Three Quarters |
|
| First Three Quarters |
| ||||||||||
(in thousands, except share price) |
| 2017 |
|
| 2016 |
|
| 2018 |
|
| 2017 |
| ||||
Total compensation expense |
| $ | 6,473 |
|
| $ | 4,445 |
|
| $ | 4,494 |
|
| $ | 6,473 |
|
Share price for compensation expense |
| $ | 215.75 |
|
| $ | 148.16 |
|
| $ | 182.28 |
|
| $ | 215.75 |
|
Share price date for compensation expense |
| September 29, 2017 |
|
| September 30, 2016 |
|
| September 28, 2018 |
|
| September 29, 2017 |
|
During the second quarter of 2018, the Committee and the Company’s stockholders approved a long-term performance equity plan (the “Long-Term Performance Equity Plan”), which will compensate J. Frank Harrison, III based on the Company’s performance and will succeed the Performance Unit Award Agreement upon its expiration. Awards granted under the Long-Term Performance Equity Plan will be earned based on the Company’s attainment during a performance period of certain performance measures, each as specified by the Committee. These awards may be settled in cash and/or shares of Class B Common Stock, based on the average of the closing prices of shares of Common Stock during the last twenty trading days of the performance period. Compensation expense for the Long-Term Performance Equity Plan, which is included in S,D&A expenses on the consolidated condensed statements of operations, was $1.5 million for the first three quarters of 2018.
19.Pension and Postretirement Benefit Obligations
Pension Plans
There are two Company-sponsored pension plans. The primary Company-sponsored pension plan (the “Primary Plan”) was frozen onas of June 30, 2006 and no benefits accrued to participants after this date. The second Company-sponsored pension plan (the “Bargaining Plan”) is for certain employees under collective bargaining agreements. Benefits under the Bargaining Plan are determined in accordance with negotiated formulas for the respective participants. Contributions to the plans are based on actuarialactuarially determined amounts and are limited to the amounts currently deductible for income tax purposes.
The components of net periodic pension cost were as follows:
|
| Third Quarter |
|
| First Three Quarters |
|
| Third Quarter |
|
| First Three Quarters |
| ||||||||||||||||||||
(in thousands) |
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
|
| 2018 |
|
| 2017 |
|
| 2018 |
|
| 2017 |
| ||||||||
Service cost |
| $ | 150 |
|
| $ | 28 |
|
| $ | 450 |
|
| $ | 85 |
|
| $ | 1,412 |
|
| $ | 150 |
|
| $ | 4,237 |
|
| $ | 450 |
|
Interest cost |
|
| 2,978 |
|
|
| 3,031 |
|
|
| 8,936 |
|
|
| 9,093 |
|
|
| 2,856 |
|
|
| 2,978 |
|
|
| 8,568 |
|
|
| 8,936 |
|
Expected return on plan assets |
|
| (3,399 | ) |
|
| (3,458 | ) |
|
| (10,197 | ) |
|
| (10,373 | ) |
|
| (3,853 | ) |
|
| (3,399 | ) |
|
| (11,557 | ) |
|
| (10,197 | ) |
Recognized net actuarial loss |
|
| 807 |
|
|
| 741 |
|
|
| 2,421 |
|
|
| 2,222 |
|
|
| 934 |
|
|
| 807 |
|
|
| 2,800 |
|
|
| 2,421 |
|
Amortization of prior service cost |
|
| 7 |
|
|
| 7 |
|
|
| 21 |
|
|
| 21 |
|
|
| 6 |
|
|
| 7 |
|
|
| 18 |
|
|
| 21 |
|
Net periodic pension cost |
| $ | 543 |
|
| $ | 349 |
|
| $ | 1,631 |
|
| $ | 1,048 |
|
| $ | 1,355 |
|
| $ | 543 |
|
| $ | 4,066 |
|
| $ | 1,631 |
|
The Company contributed $10.0$20.0 million to the Primary Plan and $1.6 million to the Bargaining Plantwo Company sponsored pension plans during the third quarter of 2017. The Company2018 and does not anticipate making additional contributions to the Company-sponsored pension plans during the fourth quarter of 2017.2018.
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 covered 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 Three Quarters |
| ||||||||||
(in thousands) |
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
Service cost |
| $ | 572 |
|
| $ | 350 |
|
| $ | 1,716 |
|
| $ | 1,050 |
|
Interest cost |
|
| 910 |
|
|
| 778 |
|
|
| 2,732 |
|
|
| 2,333 |
|
Recognized net actuarial loss |
|
| 648 |
|
|
| 587 |
|
|
| 1,944 |
|
|
| 1,762 |
|
Amortization of prior service cost |
|
| (745 | ) |
|
| (840 | ) |
|
| (2,237 | ) |
|
| (2,520 | ) |
Net periodic postretirement benefit cost |
| $ | 1,385 |
|
| $ | 875 |
|
| $ | 4,155 |
|
| $ | 2,625 |
|
There was $14.7 million postretirement benefit obligations related to territory exchanges and acquisitions that closed on October 2, 2017, which was classified as held for sale as of October 1, 2017. Refer to Note 24 for additional information.
|
| Third Quarter |
|
| First Three Quarters |
| ||||||||||
(in thousands) |
| 2018 |
|
| 2017 |
|
| 2018 |
|
| 2017 |
| ||||
Service cost |
| $ | 502 |
|
| $ | 572 |
|
| $ | 1,507 |
|
| $ | 1,716 |
|
Interest cost |
|
| 696 |
|
|
| 910 |
|
|
| 2,088 |
|
|
| 2,732 |
|
Recognized net actuarial loss |
|
| 499 |
|
|
| 648 |
|
|
| 1,497 |
|
|
| 1,944 |
|
Amortization of prior service cost |
|
| (462 | ) |
|
| (745 | ) |
|
| (1,386 | ) |
|
| (2,237 | ) |
Net periodic postretirement benefit cost |
| $ | 1,235 |
|
| $ | 1,385 |
|
| $ | 3,706 |
|
| $ | 4,155 |
|
Multi-Employer Benefits
Certain employees of the Company whose employment is covered under collective bargaining agreements participate in a multi-employer pension plan, the Employers-Teamsters Local Union Nos. 175 and 505 Pension Fund (the “Teamsters Plan”). The Company makes monthly contributions to the Teamsters Plan on behalf of such employees. CertainThe collective bargaining agreements covering the Teamsters Plan expired on April 29, 2017. These agreements were renewed and will now expire inat various times by April 2020. The remainder ofCompany expects these agreements will expire on July 26, 2018.be re-negotiated.
The risks of participating in the Teamsters Plan are different from single-employer plans as contributed assets are pooled and may be used to provide benefits to employees of other participating employers. If a participating employer stops contributing to the Teamsters Plan, the unfunded obligations of the Teamsters Plan may be borne by the remaining participating employers. If the Company chooses to stop participating in the Teamsters Plan, the Company could be required to pay the Teamsters Plan a withdrawal liability based on the underfunded status of the Teamsters Plan. The Company does not anticipate withdrawing from the Teamsters Plan.
In 2015, the Company increased its contribution rates to the Teamsters Plan, with additional increases occurring annually, as part of a rehabilitation plan, which was incorporated into the renewal of collective bargaining agreements with the unions effective April 28, 2014 and adopted by the Company as a rehabilitation plan effective January 1, 2015. This iswas a result of the Teamsters Plan being certified by its actuary as being in “critical” status for the plan year beginning January 1, 2013.
20.Related Party Transactions
The Coca‑Cola Company
The Company’s 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 of its soft drink products, either concentrate or syrup, are manufactured.
As of October 1, 2017,September 30, 2018, The Coca‑Cola Company owned approximately 35%27% of the Company’s total outstanding Common Stock and Class B Common Stock on a consolidated basis, representing approximately 5% of the total voting power of the Company’s Common Stock and Class B Common Stock voting together. As long as The Coca‑Cola Company holds the number of shares of Common Stock it currently owns, it has the right to have a designee proposed by the Company for nomination to the Company’s Board of Directors, and J. Frank Harrison, III, the Chairman of the Board and the Chief Executive Officer of the Company, and trustees of certain trusts established for the benefit of certain relatives of J. Frank Harrison, Jr. have agreed to vote the shares of the Company’s Class B Common Stock which they control, representing approximately 86% of the total voting power of the Company’s combined Common Stock and Class B Common Stock, in favor of such designee. The Coca‑Cola Company does not own any shares of the Company’s Class B Common Stock.
The following table and the subsequent descriptions summarize the significant transactions between the Company and The Coca‑Cola Company:
|
| Third Quarter |
|
| First Three Quarters |
|
| Third Quarter |
|
| First Three Quarters |
| ||||||||||||||||||||
(in thousands) |
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
|
| 2018 |
|
| 2017 |
|
| 2018 |
|
| 2017 |
| ||||||||
Payments made by the Company to The Coca-Cola Company for: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Concentrate, syrup, sweetener and other purchases |
| $ | 317,040 |
|
| $ | 190,601 |
|
| $ | 806,256 |
|
| $ | 498,825 |
|
| $ | 341,949 |
|
| $ | 317,040 |
|
| $ | 904,244 |
|
| $ | 806,256 |
|
Customer marketing programs |
|
| 27,855 |
|
|
| 29,716 |
|
|
| 102,095 |
|
|
| 79,141 |
|
|
| 34,005 |
|
|
| 27,855 |
|
|
| 110,062 |
|
|
| 102,095 |
|
Cold drink equipment parts |
|
| 6,881 |
|
|
| 5,999 |
|
|
| 18,968 |
|
|
| 16,390 |
|
|
| 7,958 |
|
|
| 6,881 |
|
|
| 22,188 |
|
|
| 18,968 |
|
Glacéau distribution agreement consideration |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 15,598 |
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments made by The Coca-Cola Company to the Company for: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from Territory Conversion Fee |
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | 87,066 |
| ||||||||||||||||
Marketing funding support payments |
| $ | 22,074 |
|
| $ | 20,097 |
|
| $ | 62,235 |
|
| $ | 54,447 |
|
|
| 22,632 |
|
|
| 22,074 |
|
|
| 65,325 |
|
|
| 62,235 |
|
Fountain delivery and equipment repair fees |
|
| 9,286 |
|
|
| 7,628 |
|
|
| 26,138 |
|
|
| 20,084 |
|
|
| 10,199 |
|
|
| 9,286 |
|
|
| 29,899 |
|
|
| 26,138 |
|
Facilitating the distribution of certain brands and packages to other Coca-Cola bottlers |
|
| 1,937 |
|
|
| 1,773 |
|
|
| 7,663 |
|
|
| 6,881 |
| ||||||||||||||||
Presence marketing funding support on the Company’s behalf |
|
| 2,707 |
|
|
| 189 |
|
|
| 3,844 |
|
|
| 2,006 |
|
|
| 1,108 |
|
|
| 2,707 |
|
|
| 6,203 |
|
|
| 3,844 |
|
Facilitating the distribution of certain brands and packages to other Coca-Cola bottlers |
|
| 1,773 |
|
|
| 1,920 |
|
|
| 6,881 |
|
|
| 5,243 |
| ||||||||||||||||
Cold drink equipment |
|
| - |
|
|
| - |
|
|
| 8,400 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 3,789 |
|
|
| 8,400 |
|
Coca‑Cola Refreshments USA, Inc.
The Company haspreviously had a production arrangement with CCR to buy and sell finished products at cost. In addition, the Company transports productcost and transported products for CCR to the Company’s and other Coca-ColaCoca‑Cola bottlers’ locations. Following the completion of the October 2017 Transactions discussed in Note 3, the Company no longer transacts with CCR other than making quarterly sub-bottling payments, as discussed below. The following table summarizes purchases and sales under these arrangements between the Company and CCR:CCR prior to the closing of the October 2017 Transactions:
|
| Third Quarter |
|
| First Three Quarters |
|
| 2017 |
| |||||||||||||||
(in thousands) |
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
|
| Third Quarter |
|
| First Three Quarters |
| ||||||
Purchases from CCR |
| $ | 20,157 |
|
| $ | 69,063 |
|
| $ | 110,451 |
|
| $ | 208,539 |
|
| $ | 20,157 |
|
| $ | 110,451 |
|
Sales to CCR |
|
| 11,873 |
|
|
| 18,388 |
|
|
| 72,930 |
|
|
| 50,877 |
| ||||||||
Sales to CCR for transporting CCR’s product |
|
| 224 |
|
|
| 6,157 |
|
|
| 1,872 |
|
|
| 17,693 |
| ||||||||
Gross sales to CCR |
|
| 11,873 |
|
|
| 72,930 |
|
As discussed above in Note 2,Pursuant to the Company and CCR have completed a number of Expansion Transactions to acquire Expansion Territories and related distribution assets previously served by CCR and Expansion Facilities and related manufacturing assets previously owned by CCR. The following tables summarize the definitive agreements and closing dates for each of the Expansion Transactions completed by the Company as of October 1, 2017:
|
|
| ||
|
|
| ||
|
|
| ||
|
|
| ||
|
|
| ||
|
|
| ||
|
|
| ||
|
|
| ||
|
|
| ||
|
|
| ||
|
|
| ||
|
|
|
| |
|
|
| ||
|
|
| ||
|
|
|
|
|
|
|
| ||
|
|
| ||
|
|
| ||
|
|
| ||
|
|
| ||
|
|
| ||
|
|
|
As part of the Expansion Transactions for the Expansion Territories, the Company entered into the Final CBA, as described above in Note 6. Under the Final CBA, the Company makes ais required to make quarterly sub-bottling paymentpayments to CCR on a continuing basis for the grant of exclusive rights to distribute, promote, market and sell the authorized brands of The Coca‑Cola Company and related products in the Expansion Territories. The quarterlyterritories acquired in the System Transformation, excluding territories the Company acquired in an exchange transaction. These sub-bottling payment ispayments are based on gross profit derived from sales of certain beverages and beverage products that are sold under the same trademarks that identify a covered beverage, beverage product or certain cross-licensed brands. Sub-bottling payments to CCR were $18.3 million during the first three quarters of 2018 and $11.7 million during the first three quarters of 2017. The following table summarizes the liability recorded by the Company to reflect the estimated fair value of contingent consideration related to future sub-bottlingsub‑bottling payments was $308.9 million on October 1, 2017 and $253.4 million on January 1, 2017. Payments to CCR under the Final CBA, including payments under the Company’s initial comprehensive beverage agreements that were converted into the Final CBA as of March 31, 2017, were $11.7 million during the first three quarters of 2017 and $10.5 million during the first three quarters of 2016.
CCR:
(in thousands) |
| September 30, 2018 |
|
| December 31, 2017 |
| ||
Current portion of acquisition related contingent consideration |
| $ | 25,306 |
|
| $ | 23,339 |
|
Non-current portion of acquisition related contingent consideration |
|
| 338,530 |
|
|
| 357,952 |
|
Total acquisition related contingent consideration |
| $ | 363,836 |
|
| $ | 381,291 |
|
Glacéau Distribution Termination Agreement
On January 1, 2017, the Company obtained the rights to market, promote, distribute and sell glacéau vitaminwater, glacéau smartwater and glacéau vitaminwater zero drops in certain geographic territories including the District of Columbia and portions of Delaware, Maryland and Virginia, pursuant to an agreement entered into by the Company, The Coca‑Cola Company and CCR in June 2016. Pursuant to the agreement, the Company made a payment of $15.6 million to The Coca‑Cola Company during the first quarter of 2017, to The Coca‑Cola Company, which represented a portion of the total payment made by The Coca‑Cola Company to terminate a distribution arrangement with a prior distributor in this territory.
Coca‑Cola Bottlers’ Sales and Services Company, LLC (“CCBSS”)
Along with all other Coca‑Cola bottlers in the United States, including CCR, the Company is a member of CCBSS, a company formed in 2003 for the purpose of facilitating various procurement functions and distributing certain specified beverage products of The Coca‑Cola Company with the intention of enhancing the efficiency and competitiveness of the Coca‑Cola bottling system in the United States.
CCBSS negotiates the procurement for the majority of the Company’s raw materials, excluding concentrate, and the Company receives a rebate from CCBSS for the purchase of these raw materials. The Company had rebates due from CCBSS of $17.3$13.9 million on October 1, 2017September 30, 2018 and $7.4$11.2 million on January 1,December 31, 2017, which were classified as accounts receivable, other in the consolidated condensed financial statementsbalance sheets.
In addition, the Company pays an administrative fee to CCBSS for its services. The Company incurred administrative fees to CCBSS of $2.2 million in the first three quarters of 2018 and $2.0 million in the first three quarters of 2017, and $0.6 million in the first three quarters of 2016, which were classified as selling, delivery and administrative (“S,D&A”) expense&A expenses in the consolidated condensed financial statements of operations.
National Product Supply Group Governance Agreement (“NPSG Governance Agreement”NPSG”)
The Company is a member of the NPSG, Governance Agreement was executed in October 2015 byan organization comprised of The Coca‑Cola Company and three other Coca‑Cola bottlers including CCR, who are Regional Producing Bottlersregional producing bottlers (“RPBs”) in The Coca‑Cola Company’s national product supply system. Pursuantsystem, pursuant to a national product supply governance agreement executed in October 2015 with The Coca‑Cola Company and other RPBs (the “NPSG Governance Agreement”). The stated objectives of the NPSG include, among others, (i) Coca‑Cola system strategic infrastructure investment and divestment planning; (ii) network optimization of all plant to distribution center sourcing; and (iii) new product/packaging infrastructure planning.
Under the NPSG Governance Agreement, The Coca‑Cola Company and the RPBs have formed a national product supply group (the “NPSG”) and agreed toNPSG members established certain binding governance mechanisms, including a governing board (the “NPSG Board”) comprised of a representative of (i) the Company, (ii) The Coca‑Cola Company and (iii) each other RPB. As The Coca‑Cola Company continues its multi-year refranchising effort of its North American bottling territories, additional RPBs may be added to the NPSG Board. As of October 1, 2017,September 30, 2018, the NPSG Board consisted of The Coca‑Cola‑Cola Company, the Company and seven other RPBs, including CCR.
The stated objectives of the NPSG include, among others, (i) Coca‑Cola system strategic infrastructure investment and divestment planning; (ii) network optimization of all plant to distribution center sourcing; and (iii) new product/packaging infrastructure planning.RPBs. The NPSG Board makes and/or oversees and directs certain key decisions regarding the NPSG, including decisions regarding the management and staffing of the NPSG and the funding for its ongoing operations.
The Company is obligated to pay a certain portion of the costs of operating the NPSG. The Company incurred NPSG operating costs of $0.8 million in the first three quarters of 2017 and $0.3 million in the first three quarters of 2016, which were classified as S,D&A expense in the consolidated condensed financial statements.. Pursuant to the decisions of the NPSG Board made from time to time and subject to the terms and conditions of the NPSG Governance Agreement, the Company and each other RPB willis required to make investments in theirits respective manufacturing assets and will implement Coca‑Cola system strategic investment opportunities consistent with the NPSG Governance Agreement. The Company is also obligated to pay a certain portion of the costs of operating the NPSG. The Company incurred NPSG operating costs of $0.9 million in the first three quarters of 2018 and $0.8 million in the first three quarters of 2017, which were classified as S,D&A expense in the consolidated condensed statements of operations.
CONA Services LLC (“CONA”)
The Company is a member of CONA, an entity formed with The Coca‑Cola Company and certain other Coca‑Cola bottlers pursuant to a limited liability company agreement executed in January 2016 (as amended, the “CONA LLC Agreement”) to provide business process and information technology services to its members.
Under the CONA limited liability company agreement executed January 27, 2016 (as amended or restated from time to time,LLC Agreement, the “CONA LLC Agreement”), the Companybusiness and other membersaffairs of CONA are required to make capital contributions to CONA if and when approvedmanaged by CONA’sa board of directors which is comprised of representatives of its members (the “CONA Board”). All directors are entitled to one vote, regardless of the members.percentage interest in CONA held by each member. The Company currently has the right to designate one of the members of CONA’s board of directorsthe CONA Board and has a percentage interest in CONA of approximately 19%20%. Most matters to be decided by the CONA Board require approval by a majority of a quorum of the directors, provided that the approval of 80% of the directors is required to, among other things, require members to make additional capital contributions, approve CONA’s annual operating and capital budgets, and approve capital expenditures in excess of certain agreed upon amounts. Each CONA member is required to make capital contributions to CONA if and when approved by the CONA Board.
The Company made capital contributions to CONA of $2.1 million in the first three quarters of 2018 and $2.0 million duringin the first three quarters of 2017, and $7.2 million during the first three quarters of 2016, which were classified as other assets in the consolidated condensed financial statements.balance sheets. No CONA member may transfer its membership interest (or any portion thereof) except to a purchaser of the member’s bottling business (or any portion thereof) and as permitted under the member’s comprehensive beverage agreement with The Coca‑Cola Company.
The CONA LLC Agreement further provides that, if CCR grants any major North American Coca‑Cola bottler other than a CONA member rights to (i) manufacture, produce and package or (ii) market, promote, distribute and sell Coca‑Cola products, CCR will
require the bottler to become a CONA member, to implement the CONA System in the bottler’s operations and to enter into a master services agreement with CONA.
The Company is subjectalso party to a Master Services Agreementan amended and restated master services agreement with CONA (the “Master Services Agreement”“CONA MSA”) with CONA,, pursuant to which CONA agreed to make available, and the Company became authorized to use, the Coke One North America system (the “CONA System”), a uniform information technology system developed to promote operational efficiency and uniformity among North American Coca‑Cola bottlers. As part of making the CONA System available, toCONA provides the Company CONA provideswith certain business process and information technology services, to the Company, including the planning, development, management and operation of the CONA System in connection with the Company’s direct store delivery and manufacture of products (collectively, the “CONA Services”).
Pursuant toThe Company is also authorized under the Master Services Agreement, CONA agreed to make available, and authorized the CompanyMSA to use the CONA System in connection with theits distribution, promotion, marketing, sale marketing and promotionmanufacture of nonalcoholic beverages the Companyit is authorized to distribute or manufacture under the Final CBA, the Company’s regional manufacturing agreement or any other agreement with The Coca‑Cola Company, (the “Beverages”) in the territories the Company serves (the “Territories”), subject to the provisions of the CONA LLC Agreement and any licenses or other agreements relating to products or services provided by third parties and used in connection with the CONA System.
In exchange for the Company’s rightrights to use the CONA System and right to receive the CONA Services under the Master Services Agreement, the CompanyCONA MSA, it is charged quarterly service fees by CONACONA. Currently, the service fees are based on the number of physical cases of Beveragesbeverages the Company distributed by the Companyor manufactured during the applicable period in the Territoriesportion of its territories where the CONA Services have then been implemented (the “Service Fees”). implemented.
Upon the earlier of (i) all members of CONA beginning to use the CONA System in all territories in which they distribute products of Theand manufacture Coca‑Cola Companyproducts (excluding certain territories of CCR that are expected to be sold to bottlers that are neither members of CONA nor users of the CONA System), or (ii) December 31, 2018, the Service Feesservice fees will be changed to be an amount per physical case of Beveragesbeverages distributed or manufactured in any portion of the TerritoriesCompany’s territories equal to the aggregate costs incurred by CONA to maintain and operate the CONA System and provide the CONA Services divided by the total number of cases distributed or manufactured by all of the members of CONA, subject to certain exceptions. exceptions and provided that the aggregate costs related to CONA’s manufacturing functionality will be borne solely amongst the CONA members who have rights to manufacture beverages of The Coca‑Cola Company.
The Company is obligated to pay the Service Feesservice fees under the Master Services AgreementCONA MSA even if it is not using the CONA System for all or any portion of its operations in the Territories.distribution and manufacturing operations. The Company incurred CONA Services Feesservices fees of $9.2$15.5 million duringin the first three quarters of 20172018 and $5.2$9.2 million duringin the first three quarters of 2016.2017.
Snyder Production Center (“SPC”)Related Party Leases
The Company leases its headquarters office facility and an adjacent office facility in Charlotte, North Carolina from Beacon Investment Corporation, of which J. Frank Harrison, III is the majority stockholder and Morgan H. Everett is a minority stockholder. The annual base rent the Company is obligated to pay under this lease agreement is subject to adjustment for increases in the Consumer Price Index and the lease expires on December 31, 2021.
The Company leases the SPCSnyder Production Center and an adjacent sales facility which are located in Charlotte, North Carolina from Harrison Limited Partnership One, (“HLP”). HLPwhich 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 Sue Anne H. Wells, a director of the Company, and Deborah H. Everhart, a former director of the Company, are trustees and beneficiaries.beneficiaries and of which Morgan H. Everett, Vice President and a director of the Company, is a permissible, discretionary beneficiary of the trusts that directly or indirectly own HLP. The SPC lease expires on December 31, 2020. The principal balance outstanding under this capital lease was $12.4 million on October 1, 2017 and $14.7 million on January 1, 2017.beneficiary. The annual base rent the Company is obligated to pay under thethis lease agreement is subject to an adjustment for an inflation factor. Rental payments related to this lease were $3.1 million infactor and the first three quarters of 2017 and $3.0 million in the first three quarters of 2016.
Company Headquarters
The Company leases its headquarters office facility and an adjacent office facility from Beacon Investment Corporation (“Beacon”). The lease expires on December 31, 2021. J. Frank Harrison, III is Beacon’s majority shareholder and Morgan H. Everett is a minority shareholder. The2020.
A summary of the principal balance outstanding under thisthese related party capital lease was $13.5 million on October 1, 2017 and $15.5 million on January 1, 2017. The annual base rent the Companyleases is obligated to pay under the lease is subject to adjustment for increases in the Consumer Price Index. Rental payments related to this lease were $3.3 million in the first three quarters of 2017 and $3.2 million in the first three quarters of 2016.as follows:
(in thousands) |
| September 30, 2018 |
|
| December 31, 2017 |
| ||
Company headquarters |
| $ | 10,597 |
|
| $ | 12,771 |
|
Snyder Production Center |
|
| 9,033 |
|
|
| 11,612 |
|
A summary of rental payments related to these capital leases is as follows:
|
| Third Quarter |
|
| First Three Quarters |
| ||||||||||
(in thousands) |
| 2018 |
|
| 2017 |
|
| 2018 |
|
| 2017 |
| ||||
Company headquarters |
| $ | 1,110 |
|
| $ | 1,091 |
|
| $ | 3,346 |
|
| $ | 3,294 |
|
Snyder Production Center |
|
| 1,049 |
|
|
| 1,018 |
|
|
| 3,147 |
|
|
| 3,055 |
|
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 Three Quarters |
| ||||||||||
(in thousands, except per share data) |
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
Numerator for basic and diluted net income per Common Stock and Class B Common Stock share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Coca-Cola Bottling Co. Consolidated |
| $ | 17,316 |
|
| $ | 23,142 |
|
| $ | 18,613 |
|
| $ | 28,753 |
|
Less dividends: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
| 1,785 |
|
|
| 1,785 |
|
|
| 5,356 |
|
|
| 5,356 |
|
Class B Common Stock |
|
| 548 |
|
|
| 543 |
|
|
| 1,639 |
|
|
| 1,624 |
|
Total undistributed earnings |
| $ | 14,983 |
|
| $ | 20,814 |
|
| $ | 11,618 |
|
| $ | 21,773 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock undistributed earnings – basic |
| $ | 11,463 |
|
| $ | 15,960 |
|
| $ | 8,893 |
|
| $ | 16,704 |
|
Class B Common Stock undistributed earnings – basic |
|
| 3,520 |
|
|
| 4,854 |
|
|
| 2,725 |
|
|
| 5,069 |
|
Total undistributed earnings – basic |
| $ | 14,983 |
|
| $ | 20,814 |
|
| $ | 11,618 |
|
| $ | 21,773 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock undistributed earnings – diluted |
| $ | 11,414 |
|
| $ | 15,891 |
|
| $ | 8,855 |
|
| $ | 16,633 |
|
Class B Common Stock undistributed earnings – diluted |
|
| 3,569 |
|
|
| 4,923 |
|
|
| 2,763 |
|
|
| 5,140 |
|
Total undistributed earnings – diluted |
| $ | 14,983 |
|
| $ | 20,814 |
|
| $ | 11,618 |
|
| $ | 21,773 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator for basic net income per Common Stock share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends on Common Stock |
| $ | 1,785 |
|
| $ | 1,785 |
|
| $ | 5,356 |
|
| $ | 5,356 |
|
Common Stock undistributed earnings – basic |
|
| 11,463 |
|
|
| 15,960 |
|
|
| 8,893 |
|
|
| 16,704 |
|
Numerator for basic net income per Common Stock share |
| $ | 13,248 |
|
| $ | 17,745 |
|
| $ | 14,249 |
|
| $ | 22,060 |
|
|
| Third Quarter |
|
| First Three Quarters |
| ||||||||||||||||||||||||||
(in thousands, except per share data) |
| 2018 |
|
| 2017 |
|
| 2018 |
|
| 2017 |
| ||||||||||||||||||||
Numerator for basic and diluted net income per Common Stock and Class B Common Stock share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Net income attributable to Coca-Cola Bottling Co. Consolidated |
| $ | 25,164 |
|
| $ | 17,316 |
|
| $ | 7,046 |
|
| $ | 18,613 |
| ||||||||||||||||
Less dividends: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Common Stock |
|
| 1,787 |
|
|
| 1,785 |
|
|
| 5,357 |
|
|
| 5,356 |
| ||||||||||||||||
Class B Common Stock |
|
| 556 |
|
|
| 548 |
|
|
| 1,657 |
|
|
| 1,639 |
| ||||||||||||||||
Total undistributed earnings |
| $ | 22,821 |
|
| $ | 14,983 |
|
| $ | 32 |
|
| $ | 11,618 |
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Common Stock undistributed earnings – basic |
| $ | 17,422 |
|
| $ | 11,463 |
|
|
| 24 |
|
| $ | 8,893 |
| ||||||||||||||||
Class B Common Stock undistributed earnings – basic |
|
| 5,399 |
|
|
| 3,520 |
|
|
| 8 |
|
|
| 2,725 |
| ||||||||||||||||
Total undistributed earnings – basic |
| $ | 22,821 |
|
| $ | 14,983 |
|
| $ | 32 |
|
| $ | 11,618 |
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Common Stock undistributed earnings – diluted |
| $ | 17,327 |
|
| $ | 11,414 |
|
|
| 24 |
|
| $ | 8,855 |
| ||||||||||||||||
Class B Common Stock undistributed earnings – diluted |
|
| 5,494 |
|
|
| 3,569 |
|
|
| 8 |
|
|
| 2,763 |
| ||||||||||||||||
Total undistributed earnings – diluted |
| $ | 22,821 |
|
| $ | 14,983 |
|
| $ | 32 |
|
| $ | 11,618 |
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Numerator for basic net income per Common Stock share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Dividends on Common Stock |
| $ | 1,787 |
|
| $ | 1,785 |
|
| $ | 5,357 |
|
| $ | 5,356 |
| ||||||||||||||||
Common Stock undistributed earnings – basic |
|
| 17,422 |
|
|
| 11,463 |
|
|
| 24 |
|
|
| 8,893 |
| ||||||||||||||||
Numerator for basic net income per Common Stock share |
| $ | 19,209 |
|
| $ | 13,248 |
|
| $ | 5,381 |
|
| $ | 14,249 |
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Numerator for basic net income per Class B Common Stock share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends on Class B Common Stock |
| $ | 548 |
|
| $ | 543 |
|
| $ | 1,639 |
|
| $ | 1,624 |
|
| $ | 556 |
|
| $ | 548 |
|
| $ | 1,657 |
|
| $ | 1,639 |
|
Class B Common Stock undistributed earnings – basic |
|
| 3,520 |
|
|
| 4,854 |
|
|
| 2,725 |
|
|
| 5,069 |
|
|
| 5,399 |
|
|
| 3,520 |
|
|
| 8 |
|
|
| 2,725 |
|
Numerator for basic net income per Class B Common Stock share |
| $ | 4,068 |
|
| $ | 5,397 |
|
| $ | 4,364 |
|
| $ | 6,693 |
|
| $ | 5,955 |
|
| $ | 4,068 |
|
| $ | 1,665 |
|
| $ | 4,364 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator for diluted net income per Common Stock share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends on Common Stock |
| $ | 1,785 |
|
| $ | 1,785 |
|
| $ | 5,356 |
|
| $ | 5,356 |
|
| $ | 1,787 |
|
| $ | 1,785 |
|
| $ | 5,357 |
|
| $ | 5,356 |
|
Dividends on Class B Common Stock assumed converted to Common Stock |
|
| 548 |
|
|
| 543 |
|
|
| 1,639 |
|
|
| 1,624 |
|
|
| 556 |
|
|
| 548 |
|
|
| 1,657 |
|
|
| 1,639 |
|
Common Stock undistributed earnings – diluted |
|
| 14,983 |
|
|
| 20,814 |
|
|
| 11,618 |
|
|
| 21,773 |
|
|
| 22,821 |
|
|
| 14,983 |
|
|
| 32 |
|
|
| 11,618 |
|
Numerator for diluted net income per Common Stock share |
| $ | 17,316 |
|
| $ | 23,142 |
|
| $ | 18,613 |
|
| $ | 28,753 |
|
| $ | 25,164 |
|
| $ | 17,316 |
|
| $ | 7,046 |
|
| $ | 18,613 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator for diluted net income per Class B Common Stock share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends on Class B Common Stock |
| $ | 548 |
|
| $ | 543 |
|
| $ | 1,639 |
|
| $ | 1,624 |
|
| $ | 556 |
|
| $ | 548 |
|
| $ | 1,657 |
|
| $ | 1,639 |
|
Class B Common Stock undistributed earnings – diluted |
|
| 3,569 |
|
|
| 4,923 |
|
|
| 2,763 |
|
|
| 5,140 |
|
|
| 5,494 |
|
|
| 3,569 |
|
|
| 8 |
|
|
| 2,763 |
|
Numerator for diluted net income per Class B Common Stock share |
| $ | 4,117 |
|
| $ | 5,466 |
|
| $ | 4,402 |
|
| $ | 6,764 |
|
| $ | 6,050 |
|
| $ | 4,117 |
|
| $ | 1,665 |
|
| $ | 4,402 |
|
| Third Quarter |
|
| First Three Quarters |
|
| Third Quarter |
|
| First Three Quarters |
| |||||||||||||||||||||
(in thousands, except per share data) |
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
|
| 2018 |
|
| 2017 |
|
| 2018 |
|
| 2017 |
| ||||||||
Denominator for basic net income per Common Stock and Class B Common Stock share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock weighted average shares outstanding – basic |
|
| 7,141 |
|
|
| 7,141 |
|
|
| 7,141 |
|
|
| 7,141 |
|
|
| 7,141 |
|
|
| 7,141 |
|
|
| 7,141 |
|
|
| 7,141 |
|
Class B Common Stock weighted average shares outstanding – basic |
|
| 2,193 |
|
|
| 2,172 |
|
|
| 2,188 |
|
|
| 2,167 |
|
|
| 2,213 |
|
|
| 2,193 |
|
|
| 2,208 |
|
|
| 2,188 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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) |
|
| 9,374 |
|
|
| 9,353 |
|
|
| 9,369 |
|
|
| 9,348 |
|
|
| 9,405 |
|
|
| 9,374 |
|
|
| 9,400 |
|
|
| 9,369 |
|
Class B Common Stock weighted average shares outstanding – diluted |
|
| 2,233 |
|
|
| 2,212 |
|
|
| 2,228 |
|
|
| 2,207 |
|
|
| 2,264 |
|
|
| 2,233 |
|
|
| 2,259 |
|
|
| 2,228 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
| $ | 1.86 |
|
| $ | 2.48 |
|
| $ | 2.00 |
|
| $ | 3.09 |
|
| $ | 2.69 |
|
| $ | 1.86 |
|
| $ | 0.75 |
|
| $ | 2.00 |
|
Class B Common Stock |
| $ | 1.86 |
|
| $ | 2.48 |
|
| $ | 2.00 |
|
| $ | 3.09 |
|
| $ | 2.69 |
|
| $ | 1.86 |
|
| $ | 0.75 |
|
| $ | 2.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
| $ | 1.85 |
|
| $ | 2.47 |
|
| $ | 1.99 |
|
| $ | 3.08 |
|
| $ | 2.69 |
|
| $ | 1.85 |
|
| $ | 0.75 |
|
| $ | 1.99 |
|
Class B Common Stock |
| $ | 1.84 |
|
| $ | 2.47 |
|
| $ | 1.97 |
|
| $ | 3.07 |
|
| $ | 2.68 |
|
| $ | 1.84 |
|
| $ | 0.74 |
|
| $ | 1.97 |
|
NOTES TO TABLE
(1) | For purposes of the diluted net income per share computation for Common Stock, all shares of Class B Common Stock are assumed to be converted; therefore, 100% of undistributed earnings is allocated to Common Stock. |
(2) | For purposes of the diluted net income per share computation for Class B Common Stock, weighted average shares of Class B Common Stock are assumed to be outstanding for the entire period and not converted. |
(3) |
|
(4) | The Company does not have anti-dilutive shares. |
22.Supplemental Disclosures of Cash Flow IInformationnformation
Changes in current assets and current liabilities affecting cash flows were as follows:
|
| First Three Quarters |
|
| First Three Quarters |
| ||||||||||
(in thousands) |
| 2017 |
|
| 2016 |
|
| 2018 |
|
| 2017 |
| ||||
Accounts receivable, trade, net |
| $ | (109,023 | ) |
| $ | (80,728 | ) |
| $ | (34,899 | ) |
| $ | (109,023 | ) |
Accounts receivable from The Coca-Cola Company |
|
| 1,548 |
|
|
| (21,215 | ) |
|
| (2,083 | ) |
|
| 1,548 |
|
Accounts receivable, other |
|
| (8,308 | ) |
|
| (8,447 | ) |
|
| 10,328 |
|
|
| (8,308 | ) |
Inventories |
|
| (19,254 | ) |
|
| (9,300 | ) |
|
| (46,274 | ) |
|
| (19,254 | ) |
Prepaid expenses and other current assets |
|
| (281 | ) |
|
| 10,798 |
|
|
| 8,951 |
|
|
| (281 | ) |
Accounts payable, trade |
|
| 67,058 |
|
|
| 39,540 |
|
|
| 3,749 |
|
|
| 67,058 |
|
Accounts payable to The Coca-Cola Company |
|
| 45,722 |
|
|
| 44,413 |
|
|
| (15,222 | ) |
|
| 45,722 |
|
Other accrued liabilities |
|
| 7,924 |
|
|
| 13,485 |
|
|
| (33,712 | ) |
|
| 7,924 |
|
Accrued compensation |
|
| (10,062 | ) |
|
| (7,433 | ) |
|
| (15,496 | ) |
|
| (10,062 | ) |
Accrued interest payable |
|
| 5,640 |
|
|
| 5,264 |
|
|
| 4,237 |
|
|
| 5,640 |
|
Change in current assets less current liabilities (exclusive of acquisitions) |
| $ | (19,036 | ) |
| $ | (13,623 | ) |
| $ | (120,421 | ) |
| $ | (19,036 | ) |
23.Segments
The Company evaluates segment reporting in accordance with the FASB Accounting Standards Codification (“ASC”) 280, Segment Reporting, each reporting period, including evaluating the reporting package reviewed by the Chief Operation Decision Maker (“CODM”). The Company has concluded the Chief Executive Officer, Chief Operating Officer and Chief Financial Officer, as a group, represent the CODM.CODM. In conjunction with the completion of the System Transformation Transactions in October 2017 and integration of acquired operations, management continues to assess whether changes are necessary to the Company’s reportable segments.
The Company believes four operating segments exist. Nonalcoholic Beverages represents the vast majority of the Company’s consolidated revenues, operating income from operations and assets. The remainingadditional three operating segments do not meet the quantitative thresholds for separate reporting, either individually or in the aggregate, and therefore have been combined into “All Other.”
The Company’s segment results are as follows:
|
| Third Quarter |
|
| First Three Quarters |
| ||||||||||
(in thousands) |
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
Net sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonalcoholic Beverages |
| $ | 1,103,017 |
|
| $ | 826,683 |
|
| $ | 3,043,587 |
|
| $ | 2,251,491 |
|
All Other |
|
| 120,660 |
|
|
| 59,530 |
|
|
| 317,121 |
|
|
| 163,636 |
|
Eliminations(1) |
|
| (61,151 | ) |
|
| (37,185 | ) |
|
| (163,189 | ) |
|
| (100,259 | ) |
Consolidated net sales |
| $ | 1,162,526 |
|
| $ | 849,028 |
|
| $ | 3,197,519 |
|
| $ | 2,314,868 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonalcoholic Beverages |
| $ | 32,525 |
|
| $ | 38,421 |
|
| $ | 86,228 |
|
| $ | 102,267 |
|
All Other |
|
| 3,605 |
|
|
| 1,380 |
|
|
| 10,823 |
|
|
| 4,671 |
|
Consolidated income from operations |
| $ | 36,130 |
|
| $ | 39,801 |
|
| $ | 97,051 |
|
| $ | 106,938 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonalcoholic Beverages |
| $ | 41,151 |
|
| $ | 29,263 |
|
| $ | 114,166 |
|
| $ | 78,469 |
|
All Other |
|
| 2,095 |
|
|
| 1,794 |
|
|
| 6,127 |
|
|
| 4,917 |
|
Consolidated depreciation and amortization |
| $ | 43,246 |
|
| $ | 31,057 |
|
| $ | 120,293 |
|
| $ | 83,386 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures (exclusive of acquisitions): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonalcoholic Beverages |
| $ | 33,675 |
|
| $ | 33,675 |
|
| $ | 99,021 |
|
| $ | 94,501 |
|
All Other |
|
| 4,969 |
|
|
| 10,989 |
|
|
| 13,952 |
|
|
| 24,868 |
|
Consolidated capital expenditures (exclusive of acquisitions) |
| $ | 38,644 |
|
| $ | 44,664 |
|
| $ | 112,973 |
|
| $ | 119,369 |
|
|
| Third Quarter |
|
| First Three Quarters |
| ||||||||||||||||||
(in thousands) |
| October 1, 2017 |
|
| January 1, 2017 |
|
| 2018 |
|
| 2017 |
|
| 2018 |
|
| 2017 |
| ||||||
Total assets: |
|
|
|
|
|
|
|
| ||||||||||||||||
Net sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Nonalcoholic Beverages(1) |
| $ | 1,180,212 |
|
| $ | 1,142,238 |
|
| $ | 3,427,492 |
|
| $ | 3,139,974 |
| ||||||||
All Other(1) |
|
| 93,493 |
|
|
| 81,439 |
|
|
| 273,490 |
|
|
| 220,734 |
| ||||||||
Eliminations(2) |
|
| (62,044 | ) |
|
| (61,151 | ) |
|
| (189,985 | ) |
|
| (163,189 | ) | ||||||||
Consolidated net sales |
| $ | 1,211,661 |
|
| $ | 1,162,526 |
|
| $ | 3,510,997 |
|
| $ | 3,197,519 |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Income from operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Nonalcoholic Beverages |
| $ | 2,797,485 |
|
| $ | 2,349,284 |
|
| $ | 39,361 |
|
| $ | 33,867 |
|
| $ | 32,705 |
|
| $ | 90,254 |
|
All Other |
|
| 118,862 |
|
|
| 105,785 |
|
|
| 5,043 |
|
|
| 3,605 |
|
|
| 12,381 |
|
|
| 10,823 |
|
Eliminations(1) |
|
| (5,251 | ) |
|
| (5,585 | ) | ||||||||||||||||
Consolidated total assets |
| $ | 2,911,096 |
|
| $ | 2,449,484 |
| ||||||||||||||||
Consolidated income from operations |
| $ | 44,404 |
|
| $ | 37,472 |
|
| $ | 45,086 |
|
| $ | 101,077 |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Depreciation and amortization: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Nonalcoholic Beverages |
| $ | 44,050 |
|
| $ | 41,151 |
|
| $ | 133,095 |
|
| $ | 114,166 |
| ||||||||
All Other |
|
| 2,539 |
|
|
| 2,095 |
|
|
| 7,401 |
|
|
| 6,127 |
| ||||||||
Consolidated depreciation and amortization |
| $ | 46,589 |
|
| $ | 43,246 |
|
| $ | 140,496 |
|
| $ | 120,293 |
|
(1) | In order to correct an error in the prior year segment presentation, the Company revised net sales by $39.2 million for the third quarter of 2017 and $96.4 million for the first three quarters of 2017 to reflect sales in the Nonalcoholic Beverages segment which were previously attributed to All Other. Total net sales remain unchanged in prior periods and these revisions were not considered material to the prior periods presented. |
(2) | The entire net sales elimination for each period presented represents net sales from |
Net sales by product category were as follows:
|
| Third Quarter |
|
| First Three Quarters |
| ||||||||||
(in thousands) |
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
Bottle/can sales(1): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sparkling beverages (carbonated) |
| $ | 582,710 |
|
| $ | 455,748 |
|
| $ | 1,670,093 |
|
| $ | 1,273,277 |
|
Still beverages (noncarbonated, including energy products) |
|
| 384,495 |
|
|
| 261,508 |
|
|
| 1,009,508 |
|
|
| 674,069 |
|
Total bottle/can sales |
|
| 967,205 |
|
|
| 717,256 |
|
|
| 2,679,601 |
|
|
| 1,947,346 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales to other Coca-Cola bottlers |
|
| 104,619 |
|
|
| 58,683 |
|
|
| 274,317 |
|
|
| 169,938 |
|
Post-mix and other |
|
| 90,702 |
|
|
| 73,089 |
|
|
| 243,601 |
|
|
| 197,584 |
|
Total other sales |
|
| 195,321 |
|
|
| 131,772 |
|
|
| 517,918 |
|
|
| 367,522 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales |
| $ | 1,162,526 |
|
| $ | 849,028 |
|
| $ | 3,197,519 |
|
| $ | 2,314,868 |
|
|
|
24.Subsequent Events
On October 2, 2017, the Company closed the following transactions and entered into the following agreements, each as described in the Company’s Current Report on Form 8‑K filed with the SEC on October 4, 2017.
Acquisition of Arkansas Expansion Territory and Memphis and West Memphis Expansion Facilities in exchange for the Company’s Deep South and Somerset Territory and Mobile Facility (“CCR Exchange Transaction”)
On October 2, 2017, the Company (i) acquired from CCR certain of CCR’s exclusive rights, associated distribution assets and liabilities, and working capital relating to the distribution, promotion, marketing and sale of The Coca‑Cola Company-owned and -licensed beverage products and certain cross-licensed brands in territory located in central and southern Arkansas and two regional manufacturing facilities previously owned by CCR in Memphis, Tennessee and West Memphis, Arkansas and related manufacturing assets and certain associated liabilities (collectively, the “CCR Exchange Business”) in exchange for which the Company (ii) transferred to CCR certain of the Company’s exclusive rights, associated distribution assets and liabilities, and working capital relating to the distribution, promotion, marketing and sale of The Coca‑Cola Company-owned and -licensed beverage products and certain cross-licensed brands in territory located in portions of southern Alabama, southeastern Mississippi, southwestern Georgia and northwestern Florida and in and around Somerset, Kentucky, as well as a regional manufacturing facility previously owned by the Company in Mobile, Alabama and related manufacturing assets and certain associated liabilities (collectively, the “Deep South and Somerset Exchange Business”), pursuant to an asset exchange agreement between the Company, certain of its wholly-owned subsidiaries and CCR dated September 29, 2017 (the “CCR Asset Exchange Agreement”).
During the third quarter of 2017, the Company paid CCR $16.9 million toward the closing of the CCR Exchange Transaction, representing an estimate of the difference between the value of the CCR Exchange Business acquired by the Company and the value of the Deep South and Somerset Exchange Business acquired by CCR, which such amount remains subject to final resolution pursuant to the CCR Asset Exchange Agreement. As it is impracticable at the time of the filing of this report, the Company has not yet completed the calculation to allocate the purchase price to the individual acquired assets and assumed liabilities or to determine the fair value associated with the acquired assets and assumed liabilities related to this transaction. Additionally, the Company has not completed the calculations to determine whether a gain or loss will occur as a result of the CCR Exchange Transaction, however, following the Company’s preliminary assessment, the Company expects to record a gain related to this transaction during the fourth quarter of 2017. This transaction will be accounted for as a business combination under FASB ASC 805.
The payment for the CCR Exchange Transaction reflects the agreement of the Company and The Coca‑Cola Company to apply the remaining $4.8 million of the aggregate valuation adjustment discount of $33.1 million on the purchase price for the Expansion Facilities (the “Expansion Facilities Discount”), pursuant to a letter agreement between them dated March 31, 2017 in connection with the Company’s acquisitions of the Expansion Facilities and the impact on transaction value from certain adjustments made by The Coca‑Cola Company to the authorized pricing under the Final RMA (as defined below) on sales of certain beverages produced by the Company at the Expansion Facilities and sold to The Coca‑Cola Company and certain U.S. Coca‑Cola bottlers (the “Manufacturing Facilities Letter Agreement”), representing the portion of the Expansion Facilities Discount applicable to the two
Expansion Facilities acquired in the CCR Exchange Transaction. Following the closing of the CCR Exchange Transaction, no amounts remain outstanding under the Manufacturing Facilities Letter Agreement.
Acquisition of Memphis Expansion Territory (“Memphis Territory Acquisition”)
On October 2, 2017, the Company acquired from CCR certain of CCR’s rights, associated distribution assets and liabilities, and working capital relating to the distribution, promotion, marketing and sale of The Coca‑Cola Company-owned and -licensed beverage products as well as certain cross-licensed brands in and around Memphis, Tennessee (the “Memphis Territory”), including in portions of northwestern Mississippi and eastern Arkansas, pursuant to an asset exchange agreement between the Company and CCR dated September 29, 2017 (the “Memphis Purchase Agreement”).
During the third quarter of 2017, the Company paid CCR $39.6 million toward the closing of the Memphis Territory Acquisition, which represents the cash purchase price and remains subject to adjustment in accordance with the terms of the Memphis Purchase Agreement. As it is impracticable at the time of the filing of this report, the Company has not yet completed the calculation to allocate the purchase price to the individual acquired assets and assumed liabilities or to determine the fair value associated with the acquired assets and assumed liabilities related to this transaction. This transaction will be accounted for as a business combination under FASB ASC 805.
Acquisition of Spartanburg and Bluffton Expansion Territory in exchange for the Company’s Florence and Laurel Territory and Piedmont’s Northeastern Georgia Territory (“United Exchange Transactions”)
On October 2, 2017, the Company and Piedmont Coca‑Cola Bottling Partnership, a non-wholly owned subsidiary of the Company (“Piedmont”), completed transactions in which (i) the Company acquired from Coca‑Cola Bottling Company United, Inc. (“United”), an independent bottler that is unrelated to the Company, certain of United’s exclusive rights, associated distribution assets and liabilities, and working capital relating to the distribution, promotion, marketing and sale of The Coca‑Cola Company-owned and -licensed beverage products and certain cross-licensed brands in territories located in and around Spartanburg, South Carolina and a portion of United’s territory located in and around Bluffton, South Carolina and Piedmont acquired from United similar rights, assets and liabilities, and working capital in the remainder of United’s Bluffton, South Carolina territory (collectively, the “United Distribution Business”), in exchange for which (ii) the Company transferred to United certain of the Company’s exclusive rights, associated distribution assets and liabilities, and working capital relating to the distribution, promotion, marketing and sale of The Coca‑Cola Company-owned and -licensed beverage products and certain cross-licensed brands in territory located in parts of northwestern Alabama, south-central Tennessee and southeastern Mississippi previously served by the Company’s distribution centers located in Florence, Alabama and Laurel, Mississippi (collectively, the “Florence and Laurel Distribution Business”) and Piedmont transferred to United similar rights, assets and liabilities, and working capital of Piedmont’s in territory located in parts of northeastern Georgia (the “Northeastern Georgia Distribution Business”), pursuant to an asset exchange agreement between the Company, certain of its wholly-owned subsidiaries and United dated September 29, 2017 (the “United Asset Exchange Agreement”) and an asset exchange agreement between Piedmont and United dated September 29, 2017 (the “Piedmont – United Asset Exchange Agreement”). Each of the United Asset Exchange Agreement and the Piedmont – United Asset Exchange Agreement provides that, to the extent the value of the portion of the United Distribution Business acquired by the Company or Piedmont, as applicable, is not equal to the value of the Florence and Laurel Distribution Business or the Northeastern Georgia Distribution Business, as applicable, acquired by United (as such values are finally determined under the United Asset Exchange Agreement or the Piedmont – United Asset Exchange Agreement), the party receiving assets and distribution rights with the greater value is obligated to make a cash payment to the other party equal to the difference between the values.
At closing, the Company and Piedmont paid United a net cash purchase price of $3.4 million, representing an estimate of (i) the difference between the value of the portion of the United Distribution Business acquired by the Company and the value of the Florence and Laurel Distribution Business acquired by United, plus (ii) the difference between the value of the portion of the United Distribution Business acquired by Piedmont and the value of the Northeastern Georgia Distribution Business acquired by United, which such amounts remain subject to final resolution pursuant to the United Asset Exchange Agreement and the Piedmont – United Asset Exchange Agreement, respectively.
As it is impracticable at the time of the filing of this report, the Company has not yet completed the calculation to allocate the purchase price to the individual acquired assets and assumed liabilities or to determine the fair value associated with the acquired assets and assumed liabilities related to these transactions. Additionally, the Company has not completed the calculations to determine whether a gain or loss will occur as a result of the United Exchange Transactions, however, following the Company’s preliminary assessment, the Company expects to record a gain related to these transactions during the fourth quarter of 2017. These transactions will be accounted for as a business combination under FASB ASC 805.
Amendments to Final Comprehensive Beverage Agreements and Final Regional Manufacturing Agreement
On October 2, 2017, in connection with the CCR Exchange Transaction, the Memphis Territory Acquisition and the United Exchange Transactions (collectively, the “October 2017 Expansion Transactions”), (i) the Company, Piedmont and CCBC of Wilmington, Inc., a subsidiary of the Company, entered into an amendment to comprehensive beverage agreements (the “CBA Amendment”) with The Coca‑Cola Company and CCR to amend each of the final comprehensive beverage agreements between The Coca‑Cola Company and CCR, on the one hand, and each of the Company, Piedmont and CCBC of Wilmington, Inc., on the other hand, and (ii) the Company and The Coca‑Cola Company entered into an amendment (the “RMA Amendment”) to the final regional manufacturing agreement among them dated March 31, 2017 (as amended, the “Final RMA”), each to reflect the effects of the October 2017 Expansion Transactions. In the CBA Amendment, the Company agreed to make a quarterly sub-bottling payment to CCR with respect to the Memphis Territory on a continuing basis, based on sales of certain beverages and beverage products that are sold under the same trademarks that identify a Covered Beverage, Related Product (as those terms are defined in the Final CBA) or certain cross-licensed brands. Summaries of the Final CBA and the Final RMA are provided in the Company’s Current Report on Form 8-K filed with the SEC on April 4, 2017 and the Company intends to file the CBA Amendment and the RMA Amendment with its Annual Report on Form 10-K for the fiscal year ending December 31, 2017.
As of October 1, 2017, the business being exchanged in the CCR Exchange Transaction, which is included in the Nonalcoholic Beverages segment, met the accounting guidance criteria to be classified as held for sale. As such, the Company evaluated the assets and liabilities to determine whether the carrying value exceeded the fair value less any costs to sell based on the agreed-upon sale price. No impairments were recorded as of October 1, 2017 and the aggregate assets and liabilities held for sale have been presented as separate line items in the consolidated condensed balance sheet. The business being exchanged in the CCR Exchange Transaction did not meet the accounting guidance criteria to be classified as discontinued operations. The remaining October 2017 Expansion Transactions were not considered material for additional disclosure.
Following is a summary of the CCR Exchange Transaction balances included in assets held for sale and liabilities held for sale:
(in thousands) |
| October 1, 2017 |
| |
Inventories |
| $ | 12,479 |
|
Prepaid expenses and other current assets |
|
| 1,608 |
|
Property, plant and equipment, net |
|
| 38,412 |
|
Other assets |
|
| 416 |
|
Goodwill |
|
| 12,727 |
|
Distribution agreements, net |
|
| 63,321 |
|
Total assets held for sale |
| $ | 128,963 |
|
|
|
|
|
|
Other accrued liabilities |
| $ | 5,306 |
|
Pension and postretirement benefit obligations |
|
| 14,661 |
|
Total liabilities held for sale |
| $ | 19,967 |
|
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations of Coca‑Cola Bottling Co. Consolidated (together with its majority-owned subsidiaries, the “Company,” “we” or “our”) should be read in conjunction with the consolidated condensed financial statements of the Company and the accompanying notes to the consolidated condensed financial statements.
The Company’s fiscal year generally ends on the Sunday closest to December 31 of each year. The consolidated condensed financial statements presented are:
The financial position as of October 1, 2017September 30, 2018 and January 1,December 31, 2017.
The results of operations and comprehensive income for the 13 week periods ended September 30, 2018 (“third quarter” of fiscal 2018 (“2018”)) and October 1, 2017 (“third quarter” of fiscal 2017 (“2017”)) and October 2, 2016 (“third quarter” of fiscal 2016 (“2016”)), and the 39 week periods ended September 30, 2018 (“first three quarters” of 2018) and October 1, 2017 (“first three quarters” of 2017) and October 2, 2016 (“first three quarters” of 2016).
The changes in equity and cash flows for the first three quarters of 20172018 and the first three quarters of 2016.2017.
The consolidated condensed financial statements include the consolidated condensed operations of the Company and its majority-owned subsidiaries including Piedmont Coca‑Cola Bottling Partnership (“Piedmont”), the Company’s only subsidiary with a significant noncontrolling interest. This noncontrolling interest consists of The Coca‑Cola Company’s interest in Piedmont, which was 22.7% for all periods presented.
Expansion Transactions
As part of The Coca‑Cola Company’s plans to refranchise its North American bottling territories, the Company has engaged in a series of transactions since April 2013 with The Coca‑Cola Company and Coca‑Cola Refreshments USA, Inc. (“CCR”), a wholly-owned subsidiary of The Coca‑Cola Company, to significantly expand the Company’s distribution and manufacturing operations. This expansion includes acquisition of the rights to serve additional distribution territories previously served by CCR (the “Expansion Territories”) and related distribution assets, as well as the acquisition of regional manufacturing facilities previously owned by CCR (the “Expansion Facilities”) and related manufacturing assets (collectively, the “Expansion Transactions”). As of October 1, 2017, the Expansion Transactions completed and the respective net cash paid amounts were as follows:
Expansion Territories / Expansion Facilities Acquired |
| Acquisition / Exchange Date |
| Net Cash Paid (In Millions) | |||
Johnson City and Morristown, Tennessee |
| May 23, 2014 |
| $ | 12.2 |
|
|
Knoxville, Tennessee |
| October 24, 2014 |
|
| 30.9 |
|
|
Cleveland and Cookeville, Tennessee |
| January 30, 2015 |
|
| 13.2 |
|
|
Louisville, Kentucky and Evansville, Indiana |
| February 27, 2015 |
|
| 18.0 |
|
|
Paducah and Pikeville, Kentucky |
| May 1, 2015 |
|
| 7.0 |
|
|
Lexington, Kentucky for Jackson, Tennessee Exchange |
| May 1, 2015 |
|
| 15.3 |
|
|
Norfolk, Fredericksburg and Staunton, Virginia and Elizabeth City, North Carolina |
| October 30, 2015 |
|
| 26.7 |
|
|
Annapolis, Maryland Make-Ready Center |
| October 30, 2015 |
|
| 5.4 |
|
|
Easton and Salisbury, Maryland, Richmond and Yorktown, Virginia, and Sandston, Virginia Expansion Facility |
| January 29, 2016 |
|
| 65.7 |
| * |
Alexandria, Virginia and Capitol Heights and La Plata, Maryland |
| April 1, 2016 |
|
| 35.6 |
| * |
Baltimore, Hagerstown and Cumberland, Maryland, and Silver Spring and Baltimore, Maryland Expansion Facilities |
| April 29, 2016 |
|
| 69.0 |
| * |
Cincinnati, Dayton, Lima and Portsmouth, Ohio and Louisa, Kentucky and Cincinnati, Ohio Expansion Facility |
| October 28, 2016 |
|
| 98.2 |
| * |
Anderson, Fort Wayne, Lafayette, South Bend and Terre Haute, Indiana |
| January 27, 2017 |
|
| 31.6 |
| * |
Indianapolis and Bloomington, Indiana and Columbus and Mansfield, Ohio and Indianapolis and Portland, Indiana Expansion Facilities |
| March 31, 2017 |
|
| 108.7 |
| * |
Akron, Elyria, Toledo, Willoughby and Youngstown, Ohio and Twinsburg, Ohio Expansion Facility |
| April 28, 2017 |
|
| 87.7 |
| * |
|
|
The financial results of the Expansion Territories and the Expansion Facilities have been included in the Company’s consolidated condensed financial statements from their respective acquisition or exchange dates. These Expansion Territories and Expansion Facilities contributed the following amounts to the Company’s consolidated condensed statement of operations:
|
| Third Quarter |
|
| First Three Quarters |
| ||||||||||
(in thousands) |
| 2017(1) |
|
| 2016(2) |
|
| 2017(1) |
|
| 2016(2) |
| ||||
Net sales |
| $ | 478,272 |
|
| $ | 174,420 |
|
| $ | 1,215,827 |
|
| $ | 372,550 |
|
Income from operations |
|
| 10,329 |
|
|
| 2,512 |
|
|
| 30,099 |
|
|
| 17,220 |
|
|
|
|
|
Expansion Transactions
A summary of the Expansion Transactions completed by the Company prior to 2017 is included in the Company’s Annual Report on Form 10-K for 2016. During the first three quarters of 2017, the Company closed the following Expansion Transactions with CCR:
Anderson, Fort Wayne, Lafayette, South Bend and Terre Haute, Indiana Expansion Territories Acquisitions (“January 2017 Expansion Transaction”)
On January 27, 2017, the Company acquired distribution rights and related assets in Expansion Territories previously served by CCR through CCR’s facilities and equipment located in Anderson, Fort Wayne, Lafayette, South Bend and Terre Haute, Indiana, for a cash purchase price of approximately $31.6 million, which remains subject to post-closing adjustment.
The January 2017 Expansion Transaction was completed pursuant to the distribution asset purchase agreement entered into by the Company and CCR on September 1, 2016, as described in the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission (the “SEC”) on September 6, 2016 (the “September 2016 Form 8‑K”) and filed as Exhibit 2.1 thereto (as amended by Amendment No. 1 to Asset Purchase Agreement filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K filed with the SEC on January 27, 2017, the “September 2016 Distribution APA”).
Bloomington and Indianapolis, Indiana and Columbus and Mansfield, Ohio Expansion Territories Acquisitions and Indianapolis and Portland, Indiana Expansion Facilities Acquisitions (“March 2017 Expansion Transactions”)
On March 31, 2017, the Company acquired distribution rights and related assets in Expansion Territories previously served by CCR through CCR’s facilities and equipment located in Indianapolis and Bloomington, Indiana and Columbus and Mansfield, Ohio (the “March 2017 Expansion Territories”). In addition, on March 31, 2017, the Company acquired two Expansion Facilities located in Indianapolis and Portland, Indiana and related manufacturing assets (the “March 2017 Expansion Facilities”). The Company completed these two acquisitions for a cash purchase price of approximately $108.7 million, which remains subject to post-closing adjustment.
The March 2017 Expansion Territories acquisition was completed pursuant to the September 2016 Distribution APA and the March 2017 Expansion Facilities acquisition was completed pursuant to the manufacturing asset purchase agreement entered into by the Company and CCR on September 1, 2016 (the “September 2016 Manufacturing APA”), as described in the September 2016 Form 8‑K and filed as Exhibit 2.2 thereto.
Akron, Elyria, Toledo, Willoughby and Youngstown, Ohio Expansion Territories Acquisitions and Twinsburg, Ohio Expansion Facility Acquisition (“April 2017 Expansion Transactions”)
On April 28, 2017, the Company acquired distribution rights and related assets in Expansion Territories previously served by CCR through CCR’s facilities and equipment located in Akron, Elyria, Toledo, Willoughby and Youngstown, Ohio (the “April 2017 Expansion Territories”). In addition, on April 28, 2017, the Company acquired an Expansion Facility located in Twinsburg, Ohio and related manufacturing assets (the “April 2017 Expansion Facility”). The Company completed these two acquisitions for a cash purchase price of approximately $87.7 million, which remains subject to post-closing adjustment.
The April 2017 Expansion Territories acquisition was completed pursuant to the distribution asset purchase agreement entered into by the Company and CCR on April 13, 2017, and the April 2017 Expansion Facility acquisition was completed pursuant to the
manufacturing asset purchase agreement entered into by the Company and CCR on April 13, 2017, as described in the Company’s Current Report on Form 8-K filed with the SEC on April 17, 2017 and filed as Exhibits 2.1 and 2.2, respectively, thereto.
Together, the January 2017 Expansion Transaction, the March 2017 Expansion Transactions and the April 2017 Expansion Transactions are the “YTD 2017 Expansion Transactions.”
Final Comprehensive Beverage Agreement
In connection with the closings for the March 2017 Expansion Territories described above, the Company, The Coca‑Cola Company and CCR entered into a comprehensive beverage agreement on March 31, 2017 (as amended, the “Final CBA”), pursuant to which CCR granted the Company certain exclusive rights to distribute, promote, market and sell the Covered Beverages and Related Products distinguished by the Trademarks (as such terms are defined in the Final CBA) in the Expansion Territories, in exchange for the Company agreeing to make a quarterly sub-bottling payment to CCR on a continuing basis, based on gross profit derived from sales of certain beverages and beverage products that are sold under the same trademarks that identify a Covered Beverage, Related Product or certain “cross-licensed” beverage brands not owned or licensed by The Coca‑Cola Company.
As described below under “Bottling Agreement and RMA Conversions,” each of the Company’s initial comprehensive beverage agreements with The Coca‑Cola Company and CCR for the Expansion Territories the Company previously acquired from CCR (the “Initial CBAs”) and other Bottling Agreements (as defined below) has been amended, restated and converted into the Final CBA as of March 31, 2017. A summary of the Final CBA is provided in the Company’s Current Report on Form 8-K filed with the SEC on April 4, 2017 (the “April 2017 Form 8-K”), and the Final CBA is filed as Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q filed with the SEC on May 11, 2017 (the “Q1 2017 Form 10-Q”). A copy of an amendment to the Final CBA entered into by the Company, The Coca‑Cola Company and CCR on April 28, 2017 to add the April 2017 Expansion Territories to the territories covered by the Final CBA is filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed with the SEC on August 8, 2017 (the “Q2 2017 Form 10-Q”).
Final Regional Manufacturing Agreement
In connection with the closings for the March 2017 Expansion Facilities described above, the Company and The Coca‑Cola Company entered into a regional manufacturing agreement on March 31, 2017 (as amended, the “Final RMA”), pursuant to which The Coca‑Cola Company granted the Company the rights to manufacture, produce and package Authorized Covered Beverages (as defined in the Final RMA) at the Expansion Facilities (i) for distribution by the Company for its own account in accordance with the Final CBA, and (ii) for sale by the Company to certain other U.S. Coca‑Cola bottlers and to the Coca‑Cola North America division of The Coca‑Cola Company, at prices unilaterally established by The Coca‑Cola Company from time to time, in accordance with the Final RMA.
As described below under “Bottling Agreement and RMA Conversions,” each of the Company’s initial regional manufacturing agreements with The Coca‑Cola Company for the Expansion Facilities the Company previously acquired from CCR (the “Initial RMAs”) has been amended, restated and converted into the Final RMA as of March 31, 2017. A summary of the Final RMA is provided in the April 2017 Form 8-K, and the Final RMA is filed as Exhibit 10.7 to the Q1 2017 Form 10-Q. A copy of an amendment to the Final RMA entered into by the Company and The Coca‑Cola Company on April 28, 2017 to add the April 2017 Expansion Facility to the regional manufacturing facilities covered by the Final RMA is filed as Exhibit 10.2 to the Q2 2017 Form 10-Q.
Bottling Agreement and RMA Conversions
Upon the consummation of the March 2017 Expansion Transactions, each of the Company’s existing bottling agreements for The Coca‑Cola Company beverage brands, including each of the Company’s Initial CBAs, master bottle contracts, allied bottle contracts and other bottling agreements with The Coca‑Cola Company or CCR that authorize the Company to produce and/or distribute the Covered Beverages or Related Products (collectively, the “Bottling Agreements”), were automatically amended, restated and converted into the Final CBA (the “Bottling Agreement Conversion”) pursuant to the territory conversion agreement entered into by the Company, The Coca‑Cola Company and CCR on September 23, 2015, as described in the Company’s Current Report on Form 8‑K filed September 28, 2015 and filed as Exhibit 10.1 thereto (as amended by the First Amendment to Territory Conversion Agreement filed as Exhibit 10.47 to the Company’s Annual Report on Form 10-K filed with the SEC on March 18, 2016, the “Territory Conversion Agreement”). The Bottling Agreement Conversion included all of the Company’s Bottling Agreements for the Expansion Territories and for all other territories in the United States where the Company (or one of its affiliates) has rights to market, promote, distribute and sell beverage products owned or licensed by The Coca‑Cola Company (the “Legacy Territories”), provided that the sub-bottling payment required under the Final CBA does not apply with regards to the Legacy Territories.
Concurrent with the Bottling Agreement Conversion on March 31, 2017, each of the Company’s Initial RMAs were also automatically amended, restated and converted, pursuant to their terms, into the Final RMA (the “RMA Conversion”). The Final RMA also provides the Company the rights to manufacture, produce and package Authorized Covered Beverages at the Company’s four legacy manufacturing facilities (the “Legacy Facilities”), which rights were previously granted to the Company pursuant to certain Bottling Agreements that have now been amended, restated and converted into the Final CBA as part of the Bottling Agreement Conversion.
Pursuant to the Territory Conversion Agreement, on March 31, 2017, CCR paid the Company and its subsidiaries a one-time fee, which was subject to final adjustment, of $87.1 million upon the Bottling Agreement Conversion, an amount equivalent to 0.5 times the EBITDA the Company and its subsidiaries generated during the twelve-month period ended January 1, 2017 from sales in the Legacy Territories of Beverages (as defined in the Final CBA) either (i) owned by The Coca‑Cola Company or licensed to The Coca‑Cola Company and sublicensed to the Company and its subsidiaries, or (ii) owned by or licensed to Monster Energy Company on which the Company and its subsidiaries pay, and The Coca‑Cola Company receives, a facilitation fee. During the second quarter of 2017, the fee was finalized and increased by $4.4 million, for a total of $91.5 million.
Expansion Facilities Discount and Legacy Facilities Credit Letter Agreement
In connection with the Company’s acquisitions of the Expansion Facilities and the impact on transaction value from certain adjustments made by The Coca‑Cola Company to the authorized pricing under the Final RMA on sales of Authorized Covered Beverages produced by the Company at the Expansion Facilities and sold to The Coca‑Cola Company and certain U.S. Coca‑Cola bottlers, the Company and The Coca‑Cola Company also entered into a letter agreement on March 31, 2017 (as amended, the “Manufacturing Facilities Letter Agreement”), pursuant to which The Coca‑Cola Company agreed to provide the Company with an aggregate valuation adjustment discount of $33.1 million (the “Expansion Facilities Discount”) on the purchase prices for the Expansion Facilities.
The parties agreed to apply $22.9 million of the total Expansion Facilities Discount upon the Company’s acquisition of the March 2017 Expansion Facilities, representing the portion of the Expansion Facilities Discount applicable to (i) the March 2017 Expansion Facilities and (ii) the Expansion Facilities previously acquired by the Company from CCR, and agreed to apply an additional $5.4 million of the total Expansion Facilities Discount upon the Company’s acquisition of the April 2017 Expansion Facility. The parties agreed to apply the remaining $4.8 million of the total Expansion Facilities Discount upon the Company’s acquisition of two additional Expansion Facilities as part of the CCR Exchange Transaction (as discussed below) on October 2, 2017, after which time no amounts remain outstanding under the Manufacturing Facilities Letter Agreement.
The Manufacturing Facilities Letter Agreement also establishes a mechanism to compensate the Company with a payment or credit for the net economic impact to the Legacy Facilities of the changes made by The Coca‑Cola Company to the authorized pricing under the Final RMA on sales of Authorized Covered Beverages produced by the Company at the Legacy Facilities and sold to The Coca‑Cola Company and certain U.S. Coca‑Cola bottlers versus the Company’s historical returns for products produced at the Legacy Facilities prior to the RMA Conversion (the “Legacy Facilities Credit”).
The Coca‑Cola Company and the Company amended the formula for the calculation of the Legacy Facilities Credit pursuant to an amendment dated June 22, 2017 (the “Amendment to the Manufacturing Facilities Letter Agreement”) and have agreed to work together to calculate the Legacy Facilities Credit as promptly as reasonably practicable. A summary of the Manufacturing Facilities Letter Agreement is provided in the April 2017 Form 8-K, and the Manufacturing Facilities Letter Agreement is filed as Exhibit 10.8 to the Q1 2017 Form 10-Q. A copy of the Amendment to the Manufacturing Facilities Letter Agreement is filed as Exhibit 10.3 to the Q2 2017 Form 10-Q.
Somerset Letter of Intent
On April 11, 2017, the Company and The Coca‑Cola Company entered into a non-binding letter of intent (the “April 2017 LOI”), which contemplates the Company exchanging certain of its exclusive distribution rights and associated assets and working capital relating to the distribution, promotion, marketing and sale of beverage products owned and licensed by The Coca-Cola Company and certain cross-licensed brands in territory located in south-central Kentucky currently served by the Company’s distribution center located in Somerset, Kentucky for certain like kind assets of CCR as part of the exchange transactions contemplated by the non-binding letter of intent entered into by the Company and The Coca-Cola Company on June 14, 2016, as described in the Company’s Current Report on Form 8-K filed with the SEC on June 16, 2016 and filed as Exhibit 99.2 thereto. A summary of the April 2017 LOI was provided in the Company’s Current Report on Form 8-K filed with the SEC on April 12, 2017, and a copy of the April 2017 LOI was filed as Exhibit 99.1 thereto. Subsequent to the end of the third quarter of 2017, on October 2, 2017, the Company closed the transaction contemplated by the April 2017 LOI.
On September 29, 2017, the Company, certain of its wholly-owned subsidiaries and CCR entered into an asset exchange agreement (the “CCR Asset Exchange Agreement”) that provides (i) the Company would acquire from CCR certain of CCR’s exclusive rights, associated distribution assets and liabilities, and working capital relating to the distribution, promotion, marketing and sale of The Coca‑Cola Company-owned and -licensed beverage products and certain cross-licensed brands in territory located in central and southern Arkansas and two regional manufacturing facilities previously owned by CCR in Memphis, Tennessee and West Memphis, Arkansas and related manufacturing assets and certain associated liabilities (collectively, the “CCR Exchange Business”) in exchange for (ii) the Company transferring to CCR certain of the Company’s exclusive rights, associated distribution assets and liabilities, and working capital relating to the distribution, promotion, marketing and sale of The Coca‑Cola Company-owned and -licensed beverage products and certain cross-licensed brands in territory located in portions of southern Alabama, southeastern Mississippi, southwestern Georgia and northwestern Florida and in and around Somerset, Kentucky as well as a regional manufacturing facility previously owned by the Company in Mobile, Alabama and related manufacturing assets and certain associated liabilities (collectively, the “Deep South and Somerset Exchange Business”). A summary of the CCR Asset Exchange Agreement was provided in the Company’s Current Report on Form 8-K filed October 4, 2017 (the “October 2017 Form 8-K”), and a copy of the CCR Asset Exchange Agreement was filed as Exhibit 2.1 thereto.
Subsequent to the end of the third quarter of 2017, on October 2, 2017, the Company closed the transactions contemplated by the CCR Asset Exchange Agreement (the “CCR Exchange Transaction”). During the third quarter of 2017, the Company paid CCR $16.9 million toward the closing of the CCR Exchange Transaction, representing an estimate of the difference between the value of the CCR Exchange Business acquired by the Company and the value of the Deep South and Somerset Exchange Business acquired by CCR, which such amount remains subject to final resolution pursuant to the CCR Asset Exchange Agreement. As it is impracticable at the time of the filing of this report, the Company has not yet completed the calculation to allocate the purchase price to the individual acquired assets and assumed liabilities or to determine the fair value associated with the acquired assets and assumed liabilities related to this transaction. Additionally, the Company has not completed the calculations to determine whether a gain or loss will occur as a result of the CCR Exchange Transaction, however, following the Company’s preliminary assessment, the Company expects to record a gain related to this transaction during the fourth quarter of 2017. This transaction will be accounted for as a business combination under FASB ASC 805.
The payment for the CCR Exchange Transaction reflects the agreement of the Company and The Coca‑Cola Company to apply the remaining $4.8 million of the Expansion Facilities Discount, pursuant to the Manufacturing Facilities Letter Agreement, representing the portion of the Expansion Facilities Discount applicable to the two Expansion Facilities acquired in the CCR Exchange Transaction. Following the closing of the CCR Exchange Transaction, no amounts remain outstanding under the Manufacturing Facilities Letter Agreement.
Memphis Purchase Agreement
On September 29, 2017, concurrent with the execution of the CCR Asset Exchange Agreement, the Company and CCR entered into an asset purchase agreement (the “Memphis Purchase Agreement”) pursuant to which the Company would acquire from CCR certain of its rights, associated distribution assets and liabilities, and working capital relating to the distribution, promotion, marketing and sale of The Coca‑Cola Company-owned and -licensed beverage products as well as certain cross-licensed brands in and around Memphis, Tennessee, including in portions of northwestern Mississippi and eastern Arkansas. A summary of the Memphis Purchase Agreement was provided in the October 2017 Form 8-K, and a copy of the Memphis Purchase Agreement was filed as Exhibit 2.2 thereto.
Subsequent to the end of the third quarter of 2017, on October 2, 2017, the Company closed the transactions contemplated by the Memphis Purchase Agreement (the “Memphis Territory Acquisition”). During the third quarter of 2017, the Company paid CCR $39.6 million toward the closing of the Memphis Territory Acquisition, which represents the cash purchase price and remains subject to adjustment in accordance with the terms of the Memphis Purchase Agreement. As it is impracticable at the time of the filing of this report, the Company has not yet completed the calculation to allocate the purchase price to the individual acquired assets and assumed liabilities or to determine the fair value associated with the acquired assets and assumed liabilities related to this transaction. This transaction will be accounted for as a business combination under FASB ASC 805.
United Asset Exchange Agreement and Piedmont – United Asset Exchange Agreement
On September 29, 2017, the Company and United entered into an asset exchange agreement (the “United Asset Exchange Agreement”) that provides (i) the Company would acquire from United certain of its exclusive rights, associated distribution assets and liabilities, and working capital relating to the distribution, promotion, marketing and sale of The Coca‑Cola Company-owned and -licensed beverage products and certain cross-licensed brands in territory located in and around Spartanburg, South Carolina and in a
portion of United’s territory located in and around Bluffton, South Carolina (collectively, the “United Distribution Business”) in exchange for (ii) the Company transferring to United certain of the Company’s exclusive rights, associated distribution assets and liabilities, and working capital relating to the distribution, promotion, marketing and sale of The Coca‑Cola Company-owned and -licensed beverage products and certain cross-licensed brands in territory located in parts of northwestern Alabama, south-central Tennessee and southeastern Mississippi previously served by the Company’s distribution centers located in Florence, Alabama and Laurel, Mississippi (collectively, the “Florence and Laurel Distribution Business”). A summary of the United Asset Exchange Agreement was provided in the October 2017 Form 8-K, and a copy of the United Asset Exchange Agreement was filed as Exhibit 2.3 thereto.
Concurrent with the execution of the United Asset Exchange Agreement, Piedmont Coca‑Cola Bottling Partnership, a non-wholly owned subsidiary of the Company (“Piedmont”), and United entered into an asset purchase agreement (the “Piedmont – United Asset Exchange Agreement”) that provides Piedmont would acquire from United the remainder of United’s Bluffton, South Carolina territory in exchange for Piedmont transferring to United certain of Piedmont’s territory located in northeastern Georgia (the “Northeastern Georgia Distribution Business”).
Subsequent to the end of the third quarter of 2017, on October 2, 2017, the Company and Piedmont closed the transactions contemplated by the United Asset Exchange Agreement and the Piedmont – United Asset Exchange Agreement (the “United Exchange Transactions” and, together with the CCR Exchange Transaction and the Memphis Territory Acquisition, the “October 2017 Expansion Transactions”). Each of the United Asset Exchange Agreement and the Piedmont – United Asset Exchange Agreement provides that, to the extent the value of the portion of the United Distribution Business acquired by the Company or Piedmont, as applicable, is not equal to the value of the Florence and Laurel Distribution Business or the Northeastern Georgia Distribution Business, as applicable, acquired by United (as such values are finally determined under the United Asset Exchange Agreement or the Piedmont – United Asset Exchange Agreement), the party receiving assets and distribution rights with the greater value is obligated to make a cash payment to the other party equal to the difference between the values.
At closing, the Company and Piedmont paid United a net cash purchase price of $3.4 million, representing an estimate of (i) the difference between the value of the portion of the United Distribution Business acquired by the Company and the value of the Florence and Laurel Distribution Business acquired by United, plus (ii) the difference between the value of the portion of the United Distribution Business acquired by Piedmont and the value of the Northeastern Georgia Distribution Business acquired by United, which such amounts remain subject to final resolution pursuant to the United Asset Exchange Agreement and the Piedmont – United Asset Exchange Agreement, respectively.
As it is impracticable at the time of the filing of this report, the Company has not yet completed the calculation to allocate the purchase price to the individual acquired assets and assumed liabilities or to determine the fair value associated with the acquired assets and assumed liabilities related to these transactions. Additionally, the Company has not completed the calculations to determine whether a gain or loss will occur as a result of the United Exchange Transactions, however, following the Company’s preliminary assessment, the Company expects to record a gain related to these transactions during the fourth quarter of 2017. These transactions will be accounted for as a business combination under FASB ASC 805.
As of October 1, 2017, the business being exchanged in the CCR Exchange Transaction met the accounting guidance criteria to be classified as held for sale. As such, the Company evaluated the assets and liabilities to determine whether the carrying value exceeded the fair value less any costs to sell based on the agreed-upon sale price. No impairments were recorded as of October 1, 2017 and the aggregate assets and liabilities held for sale have been presented as separate line items in the consolidated condensed balance sheet. The business being exchanged in the CCR Exchange Transaction did not meet the accounting guidance criteria to be classified as discontinued operations. The remaining transactions that closed on October 2, 2017 were not considered material for additional disclosure.
Our Business and the Nonalcoholic Beverage Industry
Coca‑Cola Bottling Co. Consolidated, a Delaware corporation, produces,distributes, markets and distributesmanufactures nonalcoholic beverages in territories spanning 14 states and the District of Columbia. The Company was incorporated in 1980 and, together with its predecessors, has been in the nonalcoholic beverage manufacturing and distribution business since 1902. We are the largest independent Coca‑Cola bottler in the United States. Approximately 93%94% of our total bottle/can sales volume to retail customers consists of products of The Coca‑Cola Company, which include some of the most recognized and popular beverage brands in the world. We also distribute products for several other beverage brands including Dr Pepper, Sundrop and Monster Energy. Our purpose is to honor God, to serve others, to pursue excellence and to grow profitably. Our stock is traded on the NASDAQ Global Select Market under the symbol “COKE.”
We offer a range of nonalcoholic beverage products and flavors designed to meet the demands of our consumers. Our product offerings includeconsumers, including both sparkling and still beverages. Sparkling beverages are carbonated beverages and the Company’s principal sparkling beverage is Coca‑Cola. Still
beverages include energy products and noncarbonated beverages such as bottled water, tea, ready to drink coffee, enhanced water, juices and sports drinks.
ThereOur sales are divided into two main categories of sales, which includecategories: (i) bottle/can sales and (ii) other sales. Bottle/can sales include products packaged primarily in plastic bottles and aluminum cans. Other sales include sales to other Coca‑Cola bottlers, “post-mix” products, transportation revenue and “post-mix” products.equipment maintenance revenue. Post-mix products are dispensed through equipment that mixes the fountain syrupsyrups with carbonated or still water, enabling fountain retailers to sell finished products to consumers in cups or glasses.
Net sales by product category were as follows:
|
| Third Quarter |
|
| First Three Quarters |
| ||||||||||
(in thousands) |
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
Bottle/can sales(1): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sparkling beverages (carbonated) |
| $ | 582,710 |
|
| $ | 455,748 |
|
| $ | 1,670,093 |
|
| $ | 1,273,277 |
|
Still beverages (noncarbonated, including energy products) |
|
| 384,495 |
|
|
| 261,508 |
|
|
| 1,009,508 |
|
|
| 674,069 |
|
Total bottle/can sales |
|
| 967,205 |
|
|
| 717,256 |
|
|
| 2,679,601 |
|
|
| 1,947,346 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales to other Coca-Cola bottlers |
|
| 104,619 |
|
|
| 58,683 |
|
|
| 274,317 |
|
|
| 169,938 |
|
Post-mix and other |
|
| 90,702 |
|
|
| 73,089 |
|
|
| 243,601 |
|
|
| 197,584 |
|
Total other sales |
|
| 195,321 |
|
|
| 131,772 |
|
|
| 517,918 |
|
|
| 367,522 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales |
| $ | 1,162,526 |
|
| $ | 849,028 |
|
| $ | 3,197,519 |
|
| $ | 2,314,868 |
|
|
|
|
| Third Quarter |
|
| First Three Quarters |
| ||||||||||
(in thousands) |
| 2018 |
|
| 2017 |
|
| 2018 |
|
| 2017 |
| ||||
Bottle/can sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sparkling beverages (carbonated) |
| $ | 605,614 |
|
| $ | 582,710 |
|
| $ | 1,787,451 |
|
| $ | 1,670,093 |
|
Still beverages (noncarbonated, including energy products) |
|
| 413,282 |
|
|
| 384,495 |
|
|
| 1,142,764 |
|
|
| 1,009,508 |
|
Total bottle/can sales |
|
| 1,018,896 |
|
|
| 967,205 |
|
|
| 2,930,215 |
|
|
| 2,679,601 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales to other Coca-Cola bottlers |
|
| 92,139 |
|
|
| 104,619 |
|
|
| 300,819 |
|
|
| 274,317 |
|
Post-mix and other |
|
| 100,626 |
|
|
| 90,702 |
|
|
| 279,963 |
|
|
| 243,601 |
|
Total other sales |
|
| 192,765 |
|
|
| 195,321 |
|
|
| 580,782 |
|
|
| 517,918 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales |
| $ | 1,211,661 |
|
| $ | 1,162,526 |
|
| $ | 3,510,997 |
|
| $ | 3,197,519 |
|
The nonalcoholic beverage market which includes sparkling beverages and still beverages, is highly competitive.competitive for both sparkling and still beverages. Our competitors include bottlers and distributors of nationally and regionally advertised and marketed products, as well as bottlers and distributors of private label beverages. Our principal competitors include local bottlers of Pepsi-Cola and, in some regions, local bottlers of Dr Pepper, Royal Crown and/or 7‑Up products.
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. We believe we are competitive in our territories with respect to these methods of competition.
Business seasonality results primarily from higher unit sales of the Company’s products in the second and third quarters of the fiscal year. We have, and believe CCRthat we and other bottlersmanufacturers from whom we purchase finished goods have adequate production capacity to meet sales demand for sparkling and still beverages during these peak periods. Sales volume can also be impacted by weather conditions. Fixed costs, such as depreciation expense, are not significantly impacted by business seasonality.
Executive Summary
During the third quarter of 2018, our Company made meaningful progress towards the strategic priorities we set during the second quarter of 2018, even in the midst of continued challenges in the commodities and transportation markets. Our pricing actions delivered over 4% revenue growth versus the third quarter of 2017 on relatively flat volume of almost 87 million physical cases. Our performance during the third quarter of 2018 brings our year-to-date volume growth to 5.9% and our year-to-date revenue growth to 9.8%. Our organic case volume decline in the third quarter of 2018 was 0.4% versus the third quarter of 2017, and our year-to-date organic case volume growth was 0.3% versus the prior year period. Beginning in the fourth quarter of 2018, we will have cycled all of the transactions completed during our system transformation initiative, and results should be comparable on a year-over-year basis. As discussed last quarter, the mid-week July 4th holiday resulted in volume being split between the second and third quarters in 2018. Additionally, Hurricane Florence impacted our operations in much of our coastal territory in September, although identified incremental costs due to the storm were immaterial.
Integral to the strategic priorities we set during the second quarter of 2018, we implemented numerous pricing actions throughout our territory in the third quarter of 2018 to address our increased input costs. Gross margin in the third quarter of 2018 was 60 basis points lower than the third quarter of 2017 (34.7% in the third quarter of 2018 versus 35.3% in the third quarter of 2017), which reflects significant and sequential improvement over the gross margin declines we experienced in the first half of 2018. The primary drivers of the year-over-year margin decline remain (in order of significance): (i) rising commodity costs, (ii) the volume shift to lower-margin still products, and (iii) newly acquired territories generally experiencing margins lower than our legacy territories. We continue to refine our pricing strategies and focus on driving operating efficiencies in our supply chain to improve margin performance and address the rising input costs across the consumer products landscape.
Selling, delivery and administrative (“S,D&A”) expenses in the third quarter of 2018 increased approximately $3.0 million, or 0.8%, as compared to the third quarter of 2017. Notably, our S,D&A expenses as a percent of revenue declined to 31.0% in the third quarter of 2018 from 32.1% in the third quarter of 2017. We believe this leveraging of operating expenses was the result of our actions taken during the second quarter of 2018 and our strong revenue performance in the third quarter of 2018. These improvements were partially offset by the expenses associated with our continuing territory integration efforts. While we are pleased with our operating expense performance in the third quarter, we will continue to refine and optimize our operating model across our Company to drive improvements in efficiency and profitability.
Income from operations was $44.4 million in the third quarter of 2018, increasing from $37.5 million in the third quarter of 2017. We have completed our system transformation transactions and are nearing steady state from an IT system perspective. As such, we incurred $2.7 million less in system transformation expenses in the third quarter of 2018, as compared to the third quarter of 2017. We are encouraged with our progress in operating income performance and recognize we have additional improvement opportunities.
During the third quarter of 2018, we spent $10.4 million on system transformation expenses, which primarily related to the implementation of our integrated CONA information systems platform. We anticipate spending between $6 million and $8 million on system transformation expenses in the fourth quarter of 2018 and expect to see these expenses continue to decrease over the next few quarters.
Capital spending for the third quarter was approximately $27.8 million, bringing our year-to-date total capital investments to $113.1 million. We anticipate capital spending in the range of $25 million to $35 million in the fourth quarter of 2018. Diligent capital management processes have been put in place to continue our focus on debt reduction, while investing in the highest impact projects. In addition to our capital spending, the Company contributed $20 million to fund our pension plans during the third quarter of 2018.
We expect to begin distribution of the fast-growing premium sports drink, BodyArmor, in a portion of our territories in the fourth quarter of 2018. We are excited about the addition of BodyArmor to our powerful portfolio of brands, and, while we do not expect the impact on our 2018 results to be material, we do anticipate our BodyArmor distribution rights will provide ongoing benefits and round out our sports drink portfolio.
System Transformation Transactions
As part of The Coca‑Cola Company’s plans to refranchise its North American bottling territories, the Company completed a series of transactions from April 2013 to October 2017 with The Coca‑Cola Company, Coca‑Cola Refreshments USA, Inc. (“CCR”), a wholly-owned subsidiary of The Coca‑Cola Company, and Coca‑Cola Bottling Company United, Inc. (“United”), an independent bottler that is unrelated to the Company, to significantly expand the Company’s distribution and manufacturing operations (the “System Transformation”). The System Transformation included the acquisition and exchange of rights to serve distribution territories and related distribution assets, as well as the acquisition and exchange of regional manufacturing facilities and related manufacturing assets. A summary of the System Transformation transactions (the “System Transformation Transactions”) completed by the Company is included in the Company’s Annual Report on Form 10-K for 2017. As of September 30, 2018, the cash purchase prices or settlement amounts for all System Transformation Transactions have been resolved according to the terms of the transaction agreements. The post-closing adjustments made during the third quarter of 2018 resulted in a $10.2 million net adjustment to the gain on exchange transactions in the consolidated condensed statements of operations.
The financial results of the System Transformation Transactions have been included in the Company’s consolidated condensed financial statements from their respective acquisition or exchange dates. Net sales and income from operations for certain territories and regional manufacturing facilities acquired and divested by the Company during 2017 are impracticable to separately calculate, as the operations were absorbed into territories and facilities owned by the Company prior to the System Transformation, and therefore have been omitted from the results below. Omission of net sales and income from operations for such territories and facilities is not considered material to the results presented below. The remaining System Transformation Transactions that closed during 2017 (the “2017 System Transformation Transactions”) contributed the following amounts to the Company’s consolidated condensed statements of operations:
|
| Third Quarter |
|
| First Three Quarters |
| ||||||||||
(in thousands) |
| 2018 |
|
| 2017 |
|
| 2018 |
|
| 2017 |
| ||||
Impact to net sales - total 2017 System Transformation Transactions acquisitions |
| $ | 308,825 |
|
| $ | 221,034 |
|
| $ | 896,179 |
|
| $ | 454,174 |
|
Impact to net sales - October 2017 Divestitures |
|
| - |
|
|
| 79,032 |
|
|
| - |
|
|
| 231,301 |
|
Total impact to net sales |
| $ | 308,825 |
|
| $ | 300,066 |
|
| $ | 896,179 |
|
| $ | 685,475 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact to income from operations - total 2017 System Transformation Transactions acquisitions |
| $ | 11,874 |
|
| $ | 3,176 |
|
| $ | 14,635 |
|
| $ | 13,595 |
|
Impact to income from operations - October 2017 Divestitures |
|
| - |
|
|
| 7,689 |
|
|
| - |
|
|
| 22,973 |
|
Total impact to income from operations |
| $ | 11,874 |
|
| $ | 10,865 |
|
| $ | 14,635 |
|
| $ | 36,568 |
|
See Note 3 to the consolidated condensed financial statements for additional information on the October 2017 Divestitures.
Areas of Emphasis
Key priorities for the Company include territoryintegration of the territories and regional manufacturing expansion, as discussed above,facilities acquired during the System Transformation, revenue management, product innovation and beverage portfolio expansion, distribution cost management and productivity.
Revenue Management: Revenue management requires a strategy that 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 driver which has a 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 is expected to continue to be important to the Company’s overall revenue. Recent product introductions from the Company and The Coca‑Coca‑Cola Company include new flavor varieties within certain brands such as Coca‑Cola Zero Sugar, Fanta Sparkling Fruit,Sprite Cherry, POWERade Citrus Passionfruit, Monster Ultra Violet, Monster Juice Mango Loco, Peace Tea Georgia Peach, Peace Tea Razzleberry, Minute Maid Refreshment, Monster, Dasani Drops, NOS, and Dasani Sparkling. New packaging introductions over the last several years include the 253-ml bottle, the 1.25-liter bottle, the 7.5-ounce sleek can, the 2-liter contour bottle for Coca‑Cola products, and the 16-ounce bottle/24-ounce bottle package.5% Berry Punch,
Dunkin’ Donuts Mocha Iced Coffee, Dunkin’ Donuts French Vanilla Iced Coffee and Coke Zero Sugar. Recent packaging introductions include the 13.7-ounce bottle for Dunkin’ Donuts Iced Coffees, 0.5-liter energy drink cans and eight-packs of 16-ounce energy drinks.
Distribution Cost Management: Distribution costs represent the costs of transporting finished goods from Company locations to customer outlets. Total distribution costs, including warehouse costs, were $458.7 million in the first three quarters of 2018 and $407.1 million in the first three quarters of 2017 and $285.3 million in the first three quarters of 2016.2017. Management of these costs will continue to be a key area of emphasis for the Company.
The Company has three primary delivery systems: (i) bulk delivery for large supermarkets, mass merchandisers and club stores, (ii) advanced sale delivery for convenience stores, drug stores, small supermarkets and on-premises accounts and (iii) full service delivery for its full service vending customers.
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.
Results of Operations
Third Quarter Results
Our results of operations for the third quarter of 20172018 and the third quarter of 20162017 are highlighted in the table below and discussed in the following paragraphs:
|
| Third Quarter |
|
|
|
|
|
|
|
|
|
| Third Quarter |
|
|
|
|
|
|
|
|
| ||||||||||
(in thousands) |
| 2017 |
|
| 2016 |
|
| Change |
|
| % Change |
|
| 2018 |
|
| 2017 |
|
| Change |
|
| % Change |
| ||||||||
Net sales |
| $ | 1,162,526 |
|
| $ | 849,028 |
|
| $ | 313,498 |
|
| 36.9% |
|
| $ | 1,211,661 |
|
| $ | 1,162,526 |
|
| $ | 49,135 |
|
| 4.2% |
| ||
Cost of sales |
|
| 752,202 |
|
|
| 521,838 |
|
|
| 230,364 |
|
|
| 44.1 |
|
|
| 791,317 |
|
|
| 752,202 |
|
|
| 39,115 |
|
|
| 5.2 |
|
Gross profit |
|
| 410,324 |
|
|
| 327,190 |
|
|
| 83,134 |
|
|
| 25.4 |
|
|
| 420,344 |
|
|
| 410,324 |
|
|
| 10,020 |
|
|
| 2.4 |
|
Selling, delivery and administrative expenses |
|
| 374,194 |
|
|
| 287,389 |
|
|
| 86,805 |
|
|
| 30.2 |
|
|
| 375,940 |
|
|
| 372,852 |
|
|
| 3,088 |
|
|
| 0.8 |
|
Income from operations |
|
| 36,130 |
|
|
| 39,801 |
|
|
| (3,671 | ) |
|
| (9.2 | ) |
|
| 44,404 |
|
|
| 37,472 |
|
|
| 6,932 |
|
|
| 18.5 |
|
Interest expense, net |
|
| 10,697 |
|
|
| 8,452 |
|
|
| 2,245 |
|
|
| 26.6 |
|
|
| 12,827 |
|
|
| 10,697 |
|
|
| 2,130 |
|
|
| 19.9 |
|
Other income, net |
|
| 5,226 |
|
|
| 7,325 |
|
|
| (2,099 | ) |
|
| (28.7 | ) |
|
| 1,696 |
|
|
| 3,884 |
|
|
| (2,188 | ) |
|
| (56.3 | ) |
Gain on exchange transactions |
|
| 10,170 |
|
|
| - |
|
|
| 10,170 |
|
|
| - |
| ||||||||||||||||
Income before income taxes |
|
| 30,659 |
|
|
| 38,674 |
|
|
| (8,015 | ) |
|
| (20.7 | ) |
|
| 43,443 |
|
|
| 30,659 |
|
|
| 12,784 |
|
|
| 41.7 |
|
Income tax expense |
|
| 11,748 |
|
|
| 13,121 |
|
|
| (1,373 | ) |
|
| (10.5 | ) |
|
| 16,493 |
|
|
| 11,748 |
|
|
| 4,745 |
|
|
| 40.4 |
|
Net income |
|
| 18,911 |
|
|
| 25,553 |
|
|
| (6,642 | ) |
|
| (26.0 | ) |
|
| 26,950 |
|
|
| 18,911 |
|
|
| 8,039 |
|
|
| 42.5 |
|
Less: Net income attributable to noncontrolling interest |
|
| 1,595 |
|
|
| 2,411 |
|
|
| (816 | ) |
|
| (33.8 | ) |
|
| 1,786 |
|
|
| 1,595 |
|
|
| 191 |
|
|
| 12.0 |
|
Net income attributable to Coca-Cola Bottling Co. Consolidated |
| $ | 17,316 |
|
| $ | 23,142 |
|
| $ | (5,826 | ) |
| (25.2)% |
|
| $ | 25,164 |
|
| $ | 17,316 |
|
| $ | 7,848 |
|
| 45.3% |
|
Items Impacting Operations and Financial Condition
The following items affect the comparability of the financial results:
Third Quarter 20172018
$478.2308.8 million in net sales and $10.3$11.8 million of operating income from operations related to Expansion Territories and Expansion Facilities;the 2017 System Transformation Transactions;
$13.210.4 million of expenses related to acquiring and transitioning Expansion Territories and Expansion Facilities;the System Transformation; and
$10.2 million net adjustment to the gain on exchange transactions as a result of final post-closing adjustments related to the 2017 System Transformation Transactions.
Third Quarter 2017
$221.1 million in net sales and $3.2 million of income from operations related to the 2017 System Transformation Transactions;
$79.0 million in net sales and $7.7 million of income from operations related to the October 2017 Divestitures;
• | $13.2 million of expenses related to the acquisition and transition of the distribution territories and the regional manufacturing facilities acquired as part of the System Transformation; and |
$5.3 million recorded in other income, net as a result of a favorable fair value adjustment to the Company’s contingent consideration liability related to Expansion Territories.the distribution territories acquired as part of the System Transformation.
Third Quarter 2016
$174.5 million in net sales and $2.5 million of operating income related to Expansion Territories;
$9.8 million of expenses related to acquiring and transitioning Expansion Territories; and
$7.3 million recorded in other income, net as a result of a favorable fair value adjustment to the Company’s contingent consideration liability related to Expansion Territories.
Net sales increased $313.5$49.1 million, or 36.9%4.2%, to $1.21 billion in the third quarter of 2018, as compared to $1.16 billion in the third quarter of 2017, as compared to $849.0 million in the third quarter of 2016.2017. The increase in net sales was primarily attributable to the following (in millions):
Third Quarter 2017 |
|
| Attributable to: | |||||
Third Quarter 2018 | Third Quarter 2018 |
|
| Attributable to: | ||||
$ | 303.9 |
|
| Net sales increase related to the YTD 2017 Expansion Transactions and the 2016 Expansion Transactions | 50.7 |
|
| Increase in net sales primarily related to bottle/can sales price per unit to retail customers and the shift in product mix to higher revenue still products in order to meet consumer preferences |
| 5.6 |
|
| 1.0% increase in bottle/can sales price per unit to retail customers in the Legacy Territories, the Expansion Territories acquired in fiscal 2014 (the “2014 Expansion Territories”) and the Expansion Territories acquired in fiscal 2015 (the “2015 Expansion Territories”) | (12.6 | ) |
| Decrease in sales volume to other Coca-Cola bottlers |
| 4.0 |
|
| Other | 11.0 |
|
| Increase in volume of external freight revenue to external customers (other than non-alcoholic beverages) |
$ | 313.5 |
|
| Total increase in net sales | 49.1 |
|
| Total increase in net sales |
The Company’s bottle/can sales to retail customers accounted for approximately 83%84% of the Company’s total net sales in the third quarter of 2017,2018, as compared to approximately 84%83% in the third quarter of 2016.2017. 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 sales volume generated infor each package and the channels in which those packages are sold.
Product category sales volume of physical cases in the third quarter of 2018 and the third quarter of 2017 as a percentage of total bottle/can sales volume and the percentage change by product category were as follows:
|
| Bottle/Can Sales Volume |
|
| Bottle/Can |
|
| Bottle/Can Sales Volume |
|
| Bottle/Can | |||||||||||
|
| Third Quarter |
|
| Sales Volume |
|
| Third Quarter |
|
| Sales Volume | |||||||||||
Product Category |
| 2017 |
|
| 2016 |
|
| Increase |
|
| 2018 |
|
| 2017 |
|
| Increase / (Decrease) | |||||
Sparkling beverages |
|
| 65.1 | % |
|
| 67.4 | % |
|
| 27.2 | % |
|
| 66.0 | % |
|
| 65.1 | % |
| 1.3% |
Still beverages (including energy products) |
|
| 34.9 | % |
|
| 32.6 | % |
|
| 41.2 | % |
|
| 34.0 | % |
|
| 34.9 | % |
| (2.7)% |
Total bottle/can sales volume |
|
| 100.0 | % |
|
| 100.0 | % |
|
| 31.8 | % |
|
| 100.0 | % |
|
| 100.0 | % |
| (0.1)% |
Bottle/can sales volume to retail customers, excluding the YTD 2017 Expansion Transactions and the 2016 Expansion Transactions, increased 1.0% in the third quarter of 2017, which represented a 0.6% decrease in sparkling beverages and a 4.3% increase in still beverages as compared to the third quarter of 2016.
Cost of Sales
Cost of sales includes the following: raw material costs, manufacturing labor, manufacturing overhead including depreciation expense, manufacturing warehousing costs, shipping and handling costs related to the movement of finished goods from manufacturing locations to sales distribution centers and the purchase of finished goods.
Cost of sales increased $230.4 million, or 44.1%, to $752.2 million in the third quarter of 2017, as compared to $521.8 million in the third quarter of 2016. The increase in cost of sales was primarily attributable to the following (in millions):
Third Quarter 2017 |
|
| Attributable to: | |
$ | 215.8 |
|
| Cost of sales increase related to the YTD 2017 Expansion Transactions and the 2016 Expansion Transactions |
| 11.5 |
|
| Increase in purchases of finished goods and an increase in raw materials costs and manufacturing costs |
| 3.1 |
|
| Other |
$ | 230.4 |
|
| Total increase in cost of sales |
The following inputs represent Inputs representing a substantial portion of the Company’s total cost of sales:sales include: (i) sweeteners, (ii) packaging materials, including plastic bottles and aluminum cans, and (iii) finished products purchased from other vendors.
Cost of sales increased $39.1 million, or 5.2%, to $791.3 million in the third quarter of 2018, as compared to $752.2 million in the third quarter of 2017. The increase in cost of sales was primarily attributable to the following (in millions):
Third Quarter 2018 |
|
| Attributable to: | |
$ | 42.9 |
|
| Increase in cost of sales primarily related to, in order of magnitude, commodities, the change in product mix to meet consumer preferences and higher costs in the territories acquired in the System Transformation |
| (12.7 | ) |
| Decrease in sales volume to other Coca-Cola bottlers |
| 9.8 |
|
| Increase in costs related to increased volume of freight revenue to external customers (other than non-alcoholic beverages) |
| (0.9 | ) |
| Other |
$ | 39.1 |
|
| Total increase in cost of sales |
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.Company’s territories. Certain of the marketing expenditures by The Coca‑Cola Company and other beverage companies are made pursuant to annual arrangements. Total marketing funding supportThe Company also benefits from
national advertising programs conducted by The Coca‑Cola Company and other beverage companies. Total marketing funding support from The Coca‑Cola Company and other
beverage companies, which includes both direct payments to the Company and payments to customers for marketing programs, was $33.1 million in the third quarter of 2018, as compared to $32.5 million in the third quarter of 2017, as compared to $27.1 million in the third quarter of 2016.2017.
The Company’s cost of sales may not be comparable to other peer companies, as some peer companies 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, as described below.
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 expenseexpenses related to sales centers, delivery vehicles and cold drink equipment, point-of-sale expenses, advertising expenses, cold drink equipment repair costs, amortization of intangibles and administrative support labor and operating costs.
S,D&A expenses increased by $86.8$3.0 million, or 30.2%0.8%, to $374.2$375.9 million in the third quarter of 2017,2018, as compared to $287.4$372.9 million in the third quarter of 2016.2017. S,D&A expenses as a percentage of net sales decreasedincreased to 32.2%31.0% in the third quarter of 20172018 from 33.8%32.1% in the third quarter of 2016.2017. The increase in S,D&A expenses was primarily attributable to the following (in millions):
Third Quarter 2017 |
|
| Attributable to: | |||||
Third Quarter 2018 | Third Quarter 2018 |
|
| Attributable to: | ||||
$ | 45.4 |
|
| Increase in employee salaries including bonus and incentives due to additional personnel added in the Expansion Transactions | (3.7 | ) |
| Decrease in marketing expenses primarily related to sponsorship contracts |
| 8.4 |
|
| Increase in employee benefit costs primarily due to additional group insurance expense and 401(k) employer matching contributions for employees added in the Expansion Transactions | 2.9 |
|
| Increase in employee salaries including bonuses and incentives due to additional personnel added in the System Transformation and normal salary increases |
| 5.2 |
|
| Increase in depreciation and amortization of property, plant and equipment primarily due to depreciation for fleet and vending equipment from the Expansion Transactions | 2.6 |
|
| Increase in fuel costs related to the movement of finished goods from sales distribution centers to customer locations primarily as a result of territories acquired in the System Transformation |
| 4.0 |
|
| Increase in marketing expense primarily due to increased spending for media and cold drink sponsorships | 1.2 |
|
| Other individually immaterial expense increases primarily related to the System Transformation |
| 3.7 |
|
| Increase in employer payroll taxes primarily due to additional personnel added from the Expansion Transactions | ||||
| 3.4 |
|
| Increase in expenses related to the Expansion Transactions, primarily professional fees and travel expenses related to due diligence | ||||
| 2.5 |
|
| Increase in software expenses primarily due to increased maintenance expense | ||||
| 10.4 |
|
| Other individually immaterial expense increases primarily related to the Expansion Transactions | ||||
| 3.8 |
|
| Other individually immaterial increases | ||||
$ | 86.8 |
|
| Total increase in S,D&A expenses | 3.0 |
|
| Total increase in S,D&A expenses |
Shipping and handling costs related to the movement of finished goods from manufacturing locations to sales distribution centers are included in cost of sales. Shipping and handling costs related to the movement of finished goods from sales distribution centers to customer locations, including warehouse costs, are included in S,D&A expenses and totaled $157.5 million in the third quarter of 2018 and $147.9 million in the third quarter of 2017.
As a result of the Company adopting Accounting Standards Update 2017-07 “Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost” (“ASU 2017‑07”) issued by the Financial Accounting Standards Board in March 2017, and $104.9the Company reclassified $1.3 million infrom the third quarter of 2016.2017 of non-service cost components of net periodic benefit cost and other benefit plan charges from S,D&A expenses to other income, net. The non-service cost component of net periodic benefit cost is included in the Nonalcoholic Beverages segment.
Interest Expense, Net
Interest expense, net, increased $2.2$2.1 million or 26.6%,to $12.8 million in the third quarter of 2018, as compared to $10.7 million in the third quarter of 2017, as compared to $8.5 million in the third quarter of 2016.2017. The increase was primarily a result of interest paid on additional borrowings to fundfinance the 2017 Expansion Transactions.System Transformation Transactions and additional borrowings during 2018 to support working capital and capital expenditure needs.
Other Income, Net
OtherA summary of other income, net included noncash income of $5.3 million in the third quarter of 2017 and noncash income of $7.3 million in the third quarter of 2016, eachis as a result of fair value adjustments of the Company’s contingent consideration liability related to the Expansion Territories. The fair value adjustment to the acquisition related contingent consideration liability during the third quarter of 2017 was primarily driven by a change in the risk-free interest rate. The fair value adjustments to the acquisition related contingent consideration liability during the third quarter of 2016 was primarily driven by a change in the projected future operating results of the Expansion Territories subject to sub-bottling fees and changes in the risk-free interest rate.follows:
|
| Third Quarter |
| |||||
(in thousands) |
| 2018 |
|
| 2017 |
| ||
Favorable fair value adjustment to acquisition related contingent consideration |
| $ | 2,373 |
|
| $ | 5,225 |
|
Non-service cost component of net periodic benefit cost |
|
| (677 | ) |
|
| (1,341 | ) |
Total other income, net |
| $ | 1,696 |
|
| $ | 3,884 |
|
Each reporting period, the Company adjusts its contingent consideration liability related to the Expansion territories acquired as part of the System Transformation, excluding territories acquired pursuant to an exchange transaction,Territories to fair value. The fair value is determined by discounting future expected sub-bottling payments required under the Final CBA, using the Company’s estimated weighted average cost of capital (“WACC”), which is impacted by many factors, including long-term interest rates; projected future operating results; and post-closing settlement of cash purchase prices for the Expansion Territoriesterritories acquired as part of the System Transformation. . These future expected
expected sub-bottling payments extend through the life of the related distribution asset acquired in each Expansion Transaction for Expansion Territories,the System Transformation, which is generally 40 years. The Company is required to pay the current portion of the sub-bottling fee on a quarterly basis.
The fair value adjustments to the acquisition related contingent consideration liability during the third quarter of 2018 were primarily driven by changes to the risk-free interest rate and the projected future operating results of the distribution territories acquired as part of the System Transformation subject to sub-bottling fees, partially offset by cash payments. The fair value adjustments to the acquisition related contingent consideration liability during the third quarter of 2017 were primarily a result of a change in the risk-free interest rate.
Gain on Exchange Transactions
As a result of final post-closing adjustments for the 2017 System Transformation Transactions made during the third quarter of 2018, the Company recorded a $10.2 million net adjustment to the gain on exchange transactions.
Income Tax Expense
The Company’s effective income tax rate, calculated by dividing income tax expense by income before income taxes, was 38.338.0% for the third quarter of 20172018 and 33.9%38.3% for the third quarter of 2016.2017. The increasedecrease in the effective tax rate was primarily driven by lowerhigher income before income taxes for the third quarter of 2018 as compared to income before income taxes for the third quarter of 2017 and the corporate rate reduction due to the Tax Cuts and Jobs Act (the “Tax Act”) and its impact on prior estimates, which was offset by an increase in certain non-deductible expenses. The Company’s effective tax rate, calculated by dividing income tax expense by income before income taxes minus net income attributable to noncontrolling interest, was 40.439.6% for the third quarter of 20172018 and 36.2%40.4% for the third quarter of 2016.2017.
Noncontrolling Interest
The Company recorded net income attributable to noncontrolling interest which isof $1.8 million in the third quarter of 2018 and $1.6 million in the third quarter of 2017, each related to the portion of Piedmont owned by The Coca‑Cola Company, of $1.6 million in the third quarter of 2017 and $2.4 million in the third quarter of 2016.Company.
Other Comprehensive Income, Net of Tax
Other comprehensive income, net of tax was $0.7 million in the third quarter of 2018 and $0.4 million in the third quarter of 2017 and $0.3 million in the third quarter of 2016.2017. The increase was primarily a result of actuarial lossesgains on the Company’s pension and postretirement benefit plans.
First Three Quarters Results
Our results of operations for the first three quarters of 20172018 and the first three quarters of 20162017 are highlighted in the table below and discussed in the following paragraphs:
|
| First Three Quarters |
|
|
|
|
|
|
|
|
|
| First Three Quarters |
|
|
|
|
|
|
|
|
| ||||||||||
(in thousands) |
| 2017 |
|
| 2016 |
|
| Change |
|
| % Change |
|
| 2018 |
|
| 2017 |
|
| Change |
|
| % Change |
| ||||||||
Net sales |
| $ | 3,197,519 |
|
| $ | 2,314,868 |
|
| $ | 882,651 |
|
| 38.1% |
|
| $ | 3,510,997 |
|
| $ | 3,197,519 |
|
| $ | 313,478 |
|
| 9.8% |
| ||
Cost of sales |
|
| 2,039,996 |
|
|
| 1,424,073 |
|
|
| 615,923 |
|
|
| 43.3 |
|
|
| 2,313,728 |
|
|
| 2,039,996 |
|
|
| 273,732 |
|
|
| 13.4 |
|
Gross profit |
|
| 1,157,523 |
|
|
| 890,795 |
|
|
| 266,728 |
|
|
| 29.9 |
|
|
| 1,197,269 |
|
|
| 1,157,523 |
|
|
| 39,746 |
|
|
| 3.4 |
|
Selling, delivery and administrative expenses |
|
| 1,060,472 |
|
|
| 783,857 |
|
|
| 276,615 |
|
|
| 35.3 |
|
|
| 1,152,183 |
|
|
| 1,056,446 |
|
|
| 95,737 |
|
|
| 9.1 |
|
Income from operations |
|
| 97,051 |
|
|
| 106,938 |
|
|
| (9,887 | ) |
|
| (9.2 | ) |
|
| 45,086 |
|
|
| 101,077 |
|
|
| (55,991 | ) |
|
| (55.4 | ) |
Interest expense, net |
|
| 30,607 |
|
|
| 27,621 |
|
|
| 2,986 |
|
|
| 10.8 |
|
|
| 37,617 |
|
|
| 30,607 |
|
|
| 7,010 |
|
|
| 22.9 |
|
Other expense, net |
|
| 32,569 |
|
|
| 26,100 |
|
|
| 6,469 |
|
|
| 24.8 |
|
|
| (3,612 | ) |
|
| (36,595 | ) |
|
| 32,983 |
|
|
| (90.1 | ) |
Loss on exchange of franchise territory |
|
| - |
|
|
| 692 |
|
|
| (692 | ) |
|
| (100.0 | ) | ||||||||||||||||
Gain on exchange transactions |
|
| 10,170 |
|
|
| - |
|
|
| 10,170 |
|
|
| - |
| ||||||||||||||||
Income before income taxes |
|
| 33,875 |
|
|
| 52,525 |
|
|
| (18,650 | ) |
|
| (35.5 | ) |
|
| 14,027 |
|
|
| 33,875 |
|
|
| (19,848 | ) |
|
| (58.6 | ) |
Income tax expense |
|
| 11,800 |
|
|
| 18,681 |
|
|
| (6,881 | ) |
|
| (36.8 | ) |
|
| 3,387 |
|
|
| 11,800 |
|
|
| (8,413 | ) |
|
| (71.3 | ) |
Net income |
|
| 22,075 |
|
|
| 33,844 |
|
|
| (11,769 | ) |
|
| (34.8 | ) |
|
| 10,640 |
|
|
| 22,075 |
|
|
| (11,435 | ) |
|
| (51.8 | ) |
Less: Net income attributable to noncontrolling interest |
|
| 3,462 |
|
|
| 5,091 |
|
|
| (1,629 | ) |
|
| (32.0 | ) |
|
| 3,594 |
|
|
| 3,462 |
|
|
| 132 |
|
|
| 3.8 |
|
Net income attributable to Coca-Cola Bottling Co. Consolidated |
| $ | 18,613 |
|
| $ | 28,753 |
|
| $ | (10,140 | ) |
| (35.3)% |
|
| $ | 7,046 |
|
| $ | 18,613 |
|
| $ | (11,567 | ) |
| (62.1)% |
|
Items Impacting Operations and Financial Condition
The following items affect the comparability of the financial results:
First Three Quarters 2018
$896.2 million in net sales and $14.6 million of income from operations related to the 2017 System Transformation Transactions;
$32.7 million of expenses related to the System Transformation;
$10.2 million net adjustment to the gain on exchange transactions as a result of final post-closing adjustments related to the 2017 System Transformation Transactions;
$4.8 million recorded in S,D&A expenses related to severance and outplacement expenses incurred to optimize labor expense; and
$3.1 million pre-tax unfavorable mark-to-market adjustments related to the Company’s commodity hedging program.
First Three Quarters 2017
$1.22 billion454.2 million in net sales and $30.1$13.6 million of operating income from operations related to Expansion Territoriesthe 2017 System Transformation Transactions;
$231.3 million in net sales and Expansion Facilities;$23.0 million of income from operations related to the October 2017 Divestitures;
$32.4 million of expenses related to acquiringthe acquisition and transitioning Expansion Territoriestransition of the distribution territories and Expansion Facilities;the regional manufacturing facilities acquired as part of the System Transformation Transactions;
$23.1 million recorded in other expense, net as a result of an unfavorable fair value adjustment to the Company’s contingent consideration liability related to Expansion Territories;the distribution territories acquired as part of the System Transformation; and
$9.4 million recorded in other expense, net for net working capital and other fair value adjustments related to the System Transformation Transactions completed in January 2016 Expansion Transactions (as defined in Note 2 to the consolidated condensed financial statements)(the “January 2016 Transactions”) that were made beyond one year from the acquisition date. This amount remains payable to The Coca‑Cola Company.
$372.6 million in net sales and $17.2 million of operating income related to Expansion Territories;
$26.1 million recorded in other expense, net as a result of an unfavorable fair value adjustment to the Company’s contingent consideration liability related to Expansion Territories;
$23.2 million of expenses related to acquiring and transitioning Expansion Territories;
$4.2 million pre-tax favorable mark-to-market adjustments related to the Company’s commodity hedging program; and
$4.0 million of additional expense related to increased charitable contributions.
Net Sales
Net sales increased $882.7$313.5 million, or 38.1%9.8%, to $3.51 billion in the first three quarters of 2018, as compared to $3.20 billion in the first three quarters of 2017, as compared to $2.31 billion in the first three quarters of 2016.2017. The increase in net sales was primarily attributable to the following (in millions):
First Three Quarters 2017 |
|
| Attributable to: | |||||
First Three Quarters 2018 | First Three Quarters 2018 |
|
| Attributable to: | ||||
$ | 843.3 |
|
| Net sales increase related to the YTD 2017 Expansion Transactions and the 2016 Expansion Transactions | 168.4 |
|
| Net sales increase related to increased volume, primarily related to the 2017 System Transformation Transactions |
| 25.8 |
|
| 1.6% increase in bottle/can sales volume to retail customers in the Legacy Territories, the 2014 Expansion Territories and the 2015 Expansion Territories | 86.4 |
|
| Increase in net sales primarily related to bottle/can sales price per unit to retail customers and the shift in product mix to higher revenue still products in order to meet consumer preferences |
| 13.5 |
|
| 0.8% increase in bottle/can sales price per unit to retail customers in the Legacy Territories, the 2014 Expansion Territories and the 2015 Expansion Territories | 26.5 |
|
| Increase in sales volume to other Coca-Cola bottlers |
| (5.7 | ) |
| Decrease in external transportation revenue | 25.2 |
|
| Increase in volume of external freight revenue to external customers (other than non-alcoholic beverages) |
| 5.4 |
|
| 5.7% increase in post-mix sales price per unit | 7.0 |
|
| Other |
| (4.0 | ) |
| 3.0% decrease in sales price per unit to other Coca-Cola bottlers | ||||
| 4.4 |
|
| Other | ||||
$ | 882.7 |
|
| Total increase in net sales | 313.5 |
|
| Total increase in net sales |
The Company’s bottle/can sales to retail customers accounted for approximately 84%83% of the Company’s total net sales in both the first three quarters of 2017 and2018, as compared to approximately 84% in the first three quarters of 2016.2017.
Product category sales volume as a percentage of total bottle/can sales volume and the percentage change by product category were as follows:
|
| Bottle/Can Sales Volume |
|
| Bottle/Can |
|
| Bottle/Can Sales Volume |
|
| Bottle/Can |
| ||||||||||||
|
| First Three Quarters |
|
| Sales Volume |
|
| First Three Quarters |
|
| Sales Volume |
| ||||||||||||
Product Category |
| 2017 |
|
| 2016 |
|
| Increase |
|
| 2018 |
|
| 2017 |
|
| Increase |
| ||||||
Sparkling beverages |
|
| 67.9 | % |
|
| 69.7 | % |
|
| 30.5 | % |
|
| 68.7 | % |
|
| 67.9 | % |
|
| 7.2 | % |
Still beverages (including energy products) |
|
| 32.1 | % |
|
| 30.3 | % |
|
| 42.3 | % |
|
| 31.3 | % |
|
| 32.1 | % |
|
| 3.3 | % |
Total bottle/can sales volume |
|
| 100.0 | % |
|
| 100.0 | % |
|
| 34.1 | % |
|
| 100.0 | % |
|
| 100.0 | % |
|
| 5.9 | % |
Bottle/can sales volume to retail customers, excluding the
YTD 2017 Expansion Transactions and the 2016 Expansion Transactions, increased 1.6% in the first three quarters of 2017, which represented a 0.5% increase in sparkling beverages and a 4.1% increase in still beverages as compared to the first three quarters of 2016.
The Company’s products are sold and distributed through various channels, which include selling directly to retail stores and other outlets such as food markets, institutional accounts and vending machine outlets. During the first three quarters of 2017,2018, approximately 64%66% of the Company’s bottle/can sales volume to retail customers was sold for future consumption, while the remaining bottle/can sales volume to retail customers was sold for immediate consumption.
The following table summarizes the percentage of the Company’s total bottle/can sales volume andto its largest customers, as well as the percentage of the Company’s total net sales which are included in the Nonalcoholic Beverages operating segment, attributed to its largest customers:that such volume represents:
|
| First Three Quarters |
|
| First Three Quarters |
| ||||||||||
|
| 2017 |
|
| 2016 |
|
| 2018 |
|
| 2017 |
| ||||
Approximate percent of the Company’s total bottle/can sales volume: |
|
|
|
|
|
|
|
| ||||||||
Approximate percentage of the Company’s total bottle/can sales volume: |
|
|
|
|
|
|
|
| ||||||||
Wal-Mart Stores, Inc. |
|
| 19 | % |
|
| 20 | % |
|
| 19 | % |
|
| 19 | % |
The Kroger Company |
|
| 9 | % |
|
| 6 | % |
|
| 11 | % |
|
| 9 | % |
Food Lion, LLC |
|
| 6 | % |
|
| 8 | % |
|
| 6 | % |
|
| 6 | % |
Total approximate percent of the Company’s total bottle/can sales volume |
|
| 34 | % |
|
| 34 | % | ||||||||
Total approximate percentage of the Company’s total bottle/can sales volume |
|
| 36 | % |
|
| 34 | % | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Approximate percent of the Company’s total net sales: |
|
|
|
|
|
|
|
| ||||||||
Approximate percentage of the Company’s total net sales: |
|
|
|
|
|
|
|
| ||||||||
Wal-Mart Stores, Inc. |
|
| 14 | % |
|
| 14 | % |
|
| 14 | % |
|
| 14 | % |
The Kroger Company |
|
| 7 | % |
|
| 4 | % |
|
| 8 | % |
|
| 7 | % |
Food Lion, LLC |
|
| 4 | % |
|
| 6 | % |
|
| 4 | % |
|
| 4 | % |
Total approximate percent of the Company’s total net sales |
|
| 25 | % |
|
| 24 | % | ||||||||
Total approximate percentage of the Company’s total net sales |
|
| 26 | % |
|
| 25 | % |
Cost of Sales
Cost of sales increased $615.9$273.7 million, or 43.3%13.4%, to $2.31 billion in the first three quarters of 2018, as compared to $2.04 billion in the first three quarters of 2017, as compared to $1.42 billion in the first three quarters of 2016.2017. The increase in cost of sales was primarily attributable to the following (in millions):
First Three Quarters 2017 |
|
| Attributable to: | |||||
First Three Quarters 2018 | First Three Quarters 2018 |
|
| Attributable to: | ||||
$ | 579.4 |
|
| Cost of sales increase related to the YTD 2017 Expansion Transactions and the 2016 Expansion Transactions | 118.4 |
|
| Increase in cost of sales primarily related to, in order of magnitude, commodities, the change in product mix to meet consumer preferences, higher costs in the territories acquired in the System Transformation and higher transportation costs |
| 23.8 |
|
| Increase in purchases of finished goods and an increase in raw materials costs and manufacturing costs | 103.0 |
|
| Cost of sales increase related to increased volume, primarily related to the 2017 System Transformation Transactions |
| 15.0 |
|
| 1.6% increase in bottle/can sales volume to retail customers in the Legacy Territories, the 2014 Expansion Territories and the 2015 Expansion Territories | 29.7 |
|
| Increase in sales volume to other Coca-Cola bottlers |
| (12.8 | ) |
| Decrease in external transportation cost of sales | 22.6 |
|
| Increase in costs related to increased volume of freight revenue to external customers (other than non-alcoholic beverages) |
| 10.5 |
|
| Other | ||||
$ | 615.9 |
|
| Total increase in cost of sales | 273.7 |
|
| Total increase in cost of sales |
Total marketing funding support from The Coca‑Cola Company and other beverage companies, which includes both direct payments to the Company and payments to customers for marketing programs, was $96.9 million in the first three quarters of 2018, as compared to $89.4 million in the first three quarters of 2017, as compared to $73.4 million in the first three quarters of 2016.2017.
S,D&A expenses increased by $276.6$95.7 million, or 35.3%9.1%, to $1.15 billion in the first three quarters of 2018, as compared to $1.06 billion in the first three quarters of 2017, as compared to $783.9 million in the first three quarters of 2016.2017. S,D&A expenses as a percentage of net sales decreased to 33.2%32.8% in the first three quarters of 20172018 from 33.9%33.0% in the first three quarters of 2016.2017. The increase in S,D&A expenses was primarily attributable to the following (in millions):
First Three Quarters 2017 |
|
| Attributable to: | |||||
First Three Quarters 2018 | First Three Quarters 2018 |
|
| Attributable to: | ||||
$ | 139.8 |
|
| Increase in employee salaries including bonus and incentives due to additional personnel added in the Expansion Transactions | 44.6 |
|
| Increase in employee salaries including bonuses and incentives due to additional personnel added in the System Transformation and normal salary increases |
| 26.3 |
|
| Increase in employee benefit costs primarily due to additional group insurance expense and 401(k) employer matching contributions for employees added in the Expansion Transactions | 11.3 |
|
| Increase in employee benefit costs primarily due to additional group insurance expense, 401(k) employer matching contributions and bargaining pension plan expense for employees added in the System Transformation |
| 17.9 |
|
| Increase in depreciation and amortization of property, plant and equipment primarily due to depreciation for fleet and vending equipment from the Expansion Transactions | 7.5 |
|
| Increase in depreciation and amortization of property, plant and equipment primarily due to depreciation for vending equipment, fleet, furniture and fixtures acquired in the System Transformation |
| 13.2 |
|
| Increase in expenses related to the Expansion Transactions, primarily professional fees and travel expenses | 6.5 |
|
| Increase in software expenses primarily due to increased maintenance expense |
| 12.9 |
|
| Increase in marketing expense primarily due to increased spending for media and cold drink sponsorships | 4.8 |
|
| Increase in fuel costs related to the movement of finished goods from sales distribution centers to customer locations primarily as a result of territories acquired in the System Transformation |
| 11.6 |
|
| Increase in employer payroll taxes primarily due to additional personnel added from the Expansion Transactions | 4.8 |
|
| Severance and outplacement expenses incurred to optimize labor expense in the Nonalcoholic Beverages segment |
| 6.4 |
|
| Increase in vending and fountain parts expense primarily related to the Expansion Territories | 3.1 |
|
| Increase in employer payroll taxes primarily due to additional personnel added from the System Transformation |
| 6.1 |
|
| Increase in software expenses primarily due to increased maintenance expense | 13.1 |
|
| Other individually immaterial expense increases primarily related to the System Transformation |
| 5.8 |
|
| Increase in property, vehicle and other taxes primarily related to the Expansion Territories | ||||
| 5.7 |
|
| Increase in property and casualty insurance expense primarily due to an increase in insurance premiums and insurance claims due to additional personnel added from the Expansion Transactions | ||||
| 5.5 |
|
| Increase in fuel costs related to the movement of finished goods from sales distribution centers to customer locations primarily due to the Expansion Transactions and commodity hedging activities | ||||
| 3.5 |
|
| Increase in rental expense due primarily to additional equipment and facilities rent expense related to the Expansion Territories | ||||
| 3.2 |
|
| Increase in facilities expense from Expansion Facilities | ||||
| 11.6 |
|
| Other individually immaterial expense increases primarily related to the Expansion Territories | ||||
| 7.1 |
|
| Other individually immaterial increases | ||||
$ | 276.6 |
|
| Total increase in S,D&A expenses | 95.7 |
|
| Total increase in S,D&A expenses |
During the first three quarters of 2018, the Company incurred $32.7 million of expenses related to the System Transformation, the majority of which were information technologies related costs. The Company anticipates System Transformation expenses for the remainder of 2018 to be in the range of $6 million to $8 million.
Shipping and handling costs related to the movement of finished goods from sales distribution centers to customer locations, including warehouse costs, are included in S,D&A expenses and totaled $458.7 million in the first three quarters of 2018 and $407.1 million in the first three quarters of 2017 and $285.32017.
As a result of the Company adopting ASU 2017‑07, the Company reclassified $4.0 million in the first three quarters of 2016.2017 of non-service cost components of net periodic benefit cost and other benefit plan charges from S,D&A expenses to other expense, net.
Interest Expense, Net
Interest expense, net, increased $3.0$7.0 million or 10.8%,to $37.6 million in the first three quarters of 2018, as compared to $30.6 million in the first three quarters of 2017, as compared to $27.6 million in the first three quarters of 2016.2017. The increase was primarily a result of interest paid on additional borrowings to fundfinance the 2017 Expansion Transactions.System Transformation Transactions and additional borrowings during the first three quarters of 2018 to support working capital and capital expenditure needs.
Other Expense, Net
OtherA summary of other expense, net included a noncash charge of $23.1 millionis as follows:
|
| First Three Quarters |
| |||||
(in thousands) |
| 2018 |
|
| 2017 |
| ||
Unfavorable fair value adjustment to acquisition related contingent consideration |
| $ | (1,584 | ) |
| $ | (23,140 | ) |
Non-service cost component of net periodic benefit cost |
|
| (2,028 | ) |
|
| (4,025 | ) |
January 2016 Transactions settlement |
|
| - |
|
|
| (9,442 | ) |
Other |
|
| - |
|
|
| 12 |
|
Total other expense, net |
| $ | (3,612 | ) |
| $ | (36,595 | ) |
The fair value adjustments to acquisition related contingent consideration liability in the first three quarters of 20172018 were primarily driven by changes to the risk-free interest rate and a noncash charge of $26.1 million in the first three quarters of 2016, each as a result of fair value adjustmentsprojected future operating results of the Company’s contingent consideration liability relateddistribution territories acquired as part of the System Transformation subject to the Expansion Territories.sub-bottling fees, partially offset by cash payments. The fair value adjustment to the acquisition related contingent consideration liability duringin the first three quarters of 2017 was primarily driven bya result of a change in the risk-free interest rate. The fair value adjustments to the acquisition related contingent consideration liability during the first three quarters of 2016 was primarily driven by a change in the projected future operating results of the Expansion Territories subject to sub-bottling fees and changes in the risk-free interest rate.
Other expense, net also included $9.4 millionGain on Exchange Transactions
As a result of final post-closing adjustments for net working capital and other fair value adjustments related to the January 2016 Expansion Transactions. As these adjustments were2017 System Transformation Transactions made beyond one year fromduring the acquisition date,third quarter of 2018, the Company recorded a $10.2 million net adjustment to the adjustments through its consolidated condensed statements of operations. This amount remains payable to The Coca‑Cola Company.gain on exchange transactions.
The Company’s effective income tax rate, calculated by dividing income tax expense by income before income taxes, was 34.824.1% in the first three quarters % forof 2018 and 34.8% in the first three quarters of 2017 and 35.6% for the first three quarters of 2016.2017. The decrease in the effective tax rate was primarily driven by athe corporate rate reduction in the valuation allowance resulting from the Company’s assessment of its ability to use certain loss carryforwards and a reductiondue to the Company’s uncertain tax positions resulting from the expiration of the statute of limitations.
Tax Act and its impact on prior estimates and lower income before income taxes, which was offset by an increase in certain non-deductible expenses. The Company’s effective tax rate, calculated by dividing income tax expense by income before income taxes minus net income attributable to noncontrolling interest, was 38.832.5% in the first three quarters % forof 2018 and 38.8% in the first three quarters of 2017 and 39.4% for the first three quarters of 2016.2017.
Noncontrolling Interest
The Company recorded net income attributable to noncontrolling interest which isof $3.6 million in the first three quarters of 2018 and $3.5 million in the first three quarters of 2017, each related to the portion of Piedmont owned by The Coca‑Cola Company, of $3.5 million in the first three quarters of 2017 and $5.1 million in the first three quarters of 2016.Company.
Other Comprehensive Income, Net of Tax
Other comprehensive income, net of tax was $2.2 million in the first three quarters of 2018 and $1.3 million in the first three quarters of 2017 and $0.9 million in the first three quarters of 2016.2017. The increase was primarily a result of actuarial lossesgains on the Company’s pension and postretirement benefit plans.
Segment Operating Results
The Company evaluates segment reporting in accordance with the Financial Accounting Standards Board ASCAccounting Standards Codification 280, Segment Reporting, each reporting period, including evaluating the reporting package reviewed by the Chief Operation Decision Maker (“CODM”). The Company has concluded the Chief Executive Officer, Chief Operating Officer and Chief Financial Officer, as a group, represent the CODM.In conjunction with the completion of the System Transformation Transactions in October 2017 and integration of acquired operations, management continues to assess whether changes are necessary to the Company’s reportable segments.
The Company believes four operating segments exist. Nonalcoholic Beverages represents the vast majority of the Company’s consolidated revenues, operating income from operations and assets. The remainingadditional three operating segments do not meet the quantitative thresholds for separate reporting, either individually or in the aggregate, and therefore have been combined into an “All Other” reportable segment.Other.”
The Company’s segment results for its two reportable segments are as follows:
|
| Third Quarter |
|
| First Three Quarters |
|
| Third Quarter |
|
| First Three Quarters |
| ||||||||||||||||||||
(in thousands) |
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
|
| 2018 |
|
| 2017 |
|
| 2018 |
|
| 2017 |
| ||||||||
Net sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonalcoholic Beverages |
| $ | 1,103,017 |
|
| $ | 826,683 |
|
| $ | 3,043,587 |
|
| $ | 2,251,491 |
| ||||||||||||||||
Nonalcoholic Beverages(1) |
| $ | 1,180,212 |
|
| $ | 1,142,238 |
|
| $ | 3,427,492 |
|
| $ | 3,139,974 |
| ||||||||||||||||
All Other |
|
| 120,660 |
|
|
| 59,530 |
|
|
| 317,121 |
|
|
| 163,636 |
|
|
| 93,493 |
|
|
| 81,439 |
|
|
| 273,490 |
|
|
| 220,734 |
|
Eliminations |
|
| (61,151 | ) |
|
| (37,185 | ) |
|
| (163,189 | ) |
|
| (100,259 | ) |
|
| (62,044 | ) |
|
| (61,151 | ) |
|
| (189,985 | ) |
|
| (163,189 | ) |
Consolidated net sales |
| $ | 1,162,526 |
|
| $ | 849,028 |
|
| $ | 3,197,519 |
|
| $ | 2,314,868 |
|
| $ | 1,211,661 |
|
| $ | 1,162,526 |
|
| $ | 3,510,997 |
|
| $ | 3,197,519 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonalcoholic Beverages |
| $ | 32,525 |
|
| $ | 38,421 |
|
| $ | 86,228 |
|
| $ | 102,267 |
|
| $ | 39,361 |
|
| $ | 33,867 |
|
| $ | 32,705 |
|
| $ | 90,254 |
|
All Other |
|
| 3,605 |
|
|
| 1,380 |
|
|
| 10,823 |
|
|
| 4,671 |
|
|
| 5,043 |
|
|
| 3,605 |
|
|
| 12,381 |
|
|
| 10,823 |
|
Consolidated income from operations |
| $ | 36,130 |
|
| $ | 39,801 |
|
| $ | 97,051 |
|
| $ | 106,938 |
|
| $ | 44,404 |
|
| $ | 37,472 |
|
| $ | 45,086 |
|
| $ | 101,077 |
|
(1) | In order to correct an error in the prior year segment presentation, the Company revised net sales by $39.2 million for the third quarter of 2017 and $96.4 million for the first three quarters of 2017 to reflect sales in the Nonalcoholic Beverages segment which were previously attributed to All Other. Total net sales remain unchanged in prior periods and these revisions were not considered material to the prior periods presented. |
(2) | The entire net sales elimination for each period presented represents net sales from |
Comparable /AdjustedOrganic / Adjusted Results
The Company reports its financial results in accordance with U.S. generally accepted accounting principles (“GAAP”). However, management believes that certain non-GAAP financial measures provide users with additional meaningful financial information that should be considered when assessing the Company’s ongoing performance. Further, with the transformation of the Company’s business through System Transformation Transactions with The Coca‑Cola Company and the conversion of its information technology systems, the Company believes these non-GAAP financial measures allow users to better appreciate the impact of these transactions on the Company’s performance.
Management also uses these non-GAAP financial measures in making financial, operating and planning decisions and in evaluating the Company’s performance. Non-GAAP financial measures should be viewed in addition to, and not as an alternative for, the Company’s reported results prepared in accordance with GAAP. The Company’s non-GAAP financial information does not represent a comprehensive basis of accounting.
The following tables reconcile reported GAAP results to comparableorganic / adjusted results (non-GAAP) for the third quarter of 2017 and the third quarter of 2016::
|
| Third Quarter 2017 |
| |||||||||||||||||
(in thousands, except per share data) |
| Net sales |
|
| Income from operations |
|
| Income before income taxes |
|
| Net income |
|
| Basic net income per share |
| |||||
Reported results (GAAP) |
| $ | 1,162,526 |
|
| $ | 36,130 |
|
| $ | 30,659 |
|
| $ | 17,316 |
|
| $ | 1.86 |
|
Fair value adjustments for commodity hedges | A |
| - |
|
|
| (3,401 | ) |
|
| (3,401 | ) |
|
| (2,088 | ) |
|
| (0.22 | ) |
Amortization of converted distribution rights | B |
| - |
|
|
| 2,760 |
|
|
| 2,760 |
|
|
| 1,695 |
|
|
| 0.18 |
|
2017 & 2016 acquisitions impact | C |
| (478,272 | ) |
|
| (10,329 | ) |
|
| (10,329 | ) |
|
| (6,342 | ) |
|
| (0.68 | ) |
Expansion Transaction expenses | D |
| - |
|
|
| 13,148 |
|
|
| 13,148 |
|
|
| 8,073 |
|
|
| 0.85 |
|
Fair value adjustment of acquisition related contingent consideration | E |
| - |
|
|
| - |
|
|
| (5,225 | ) |
|
| (3,208 | ) |
|
| (0.34 | ) |
Total reconciling items |
|
| (478,272 | ) |
|
| 2,178 |
|
|
| (3,047 | ) |
|
| (1,870 | ) |
|
| (0.21 | ) |
Comparable results (non-GAAP) |
| $ | 684,254 |
|
| $ | 38,308 |
|
| $ | 27,612 |
|
| $ | 15,446 |
|
| $ | 1.65 |
|
|
| Third Quarter |
|
| First Three Quarters |
| ||||||||||
(in thousands) |
| 2018 |
|
| 2017 |
|
| 2018 |
|
| 2017 |
| ||||
Total bottle/can sales |
| $ | 1,018,896 |
|
| $ | 967,205 |
|
| $ | 2,930,215 |
|
| $ | 2,679,601 |
|
Total other sales |
|
| 192,765 |
|
|
| 195,321 |
|
|
| 580,782 |
|
|
| 517,918 |
|
Total net sales |
| $ | 1,211,661 |
|
| $ | 1,162,526 |
|
| $ | 3,510,997 |
|
| $ | 3,197,519 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total bottle/can sales |
| $ | 1,018,896 |
|
| $ | 967,205 |
|
| $ | 2,930,215 |
|
| $ | 2,679,601 |
|
Less: Acquisition/divestiture related sales |
|
| 117,684 |
|
|
| 103,171 |
|
|
| 546,284 |
|
|
| 370,992 |
|
Organic net bottle/can sales (non-GAAP)(1) |
| $ | 901,212 |
|
| $ | 864,034 |
|
| $ | 2,383,931 |
|
| $ | 2,308,609 |
|
Increase in organic net bottle/can sales |
|
| 4.3 | % |
|
|
|
|
|
| 3.3 | % |
|
|
|
|
|
| Third Quarter 2016 |
| |||||||||||||||||
(in thousands, except per share data) |
| Net sales |
|
| Income from operations |
|
| Income before income taxes |
|
| Net income |
|
| Basic net income per share |
| |||||
Reported results (GAAP) |
| $ | 849,028 |
|
| $ | 39,801 |
|
| $ | 38,674 |
|
| $ | 23,142 |
|
| $ | 2.48 |
|
Fair value adjustments for commodity hedges | A |
| - |
|
|
| (388 | ) |
|
| (388 | ) |
|
| (239 | ) |
|
| (0.03 | ) |
2016 acquisitions impact | C |
| (174,420 | ) |
|
| (2,512 | ) |
|
| (2,512 | ) |
|
| (1,545 | ) |
|
| (0.17 | ) |
Expansion Transaction expenses | D |
| - |
|
|
| 9,780 |
|
|
| 9,780 |
|
|
| 6,015 |
|
|
| 0.65 |
|
Impact of changes in product supply governance | F |
| - |
|
|
| (1,614 | ) |
|
| (1,614 | ) |
|
| (993 | ) |
|
| (0.11 | ) |
Fair value adjustment of acquisition related contingent consideration | E |
| - |
|
|
| - |
|
|
| (7,365 | ) |
|
| (4,530 | ) |
|
| (0.48 | ) |
Total reconciling items |
|
| (174,420 | ) |
|
| 5,266 |
|
|
| (2,099 | ) |
|
| (1,292 | ) |
|
| (0.14 | ) |
Comparable results (non-GAAP) |
| $ | 674,608 |
|
| $ | 45,067 |
|
| $ | 36,575 |
|
| $ | 21,850 |
|
| $ | 2.34 |
|
|
| Third Quarter |
|
| First Three Quarters |
| ||||||||||
(in millions) |
| 2018 |
|
| 2017 |
|
| 2018 |
|
| 2017 |
| ||||
Physical case volume |
|
| 86.7 |
|
|
| 86.8 |
|
|
| 254.8 |
|
|
| 240.5 |
|
Less: Acquisition/divestiture related physical case volume |
|
| 10.6 |
|
|
| 10.4 |
|
|
| 48.7 |
|
|
| 35.1 |
|
Organic physical case volume(1) |
|
| 76.1 |
|
|
| 76.4 |
|
|
| 206.1 |
|
|
| 205.4 |
|
Increase (decrease) in organic physical case volume |
| (0.4)% |
|
|
|
|
|
|
| 0.3 | % |
|
|
|
|
The following tables reconcile reported GAAP results to comparable results (non-GAAP) for the first three quarters of 2017 and the first three quarters of 2016:
|
| First Three Quarters 2017 |
| |||||||||||||||||
(in thousands, except per share data) |
| Net sales |
|
| Income from operations |
|
| Income before income taxes |
|
| Net income |
|
| Basic net income per share |
| |||||
Reported results (GAAP) |
| $ | 3,197,519 |
|
| $ | 97,051 |
|
| $ | 33,875 |
|
| $ | 18,613 |
|
| $ | 2.00 |
|
Fair value adjustments for commodity hedges | A |
| - |
|
|
| (2,541 | ) |
|
| (2,541 | ) |
|
| (1,560 | ) |
|
| (0.16 | ) |
Amortization of converted distribution rights | B |
| - |
|
|
| 5,520 |
|
|
| 5,520 |
|
|
| 3,390 |
|
|
| 0.36 |
|
January 2016 Expansion Transactions settlement | G |
| - |
|
|
| - |
|
|
| 9,442 |
|
|
| 5,797 |
|
|
| 0.62 |
|
2017 & 2016 acquisitions impact | C |
| (1,215,827 | ) |
|
| (30,099 | ) |
|
| (30,099 | ) |
|
| (18,480 | ) |
|
| (1.97 | ) |
Expansion Transaction expenses | D |
| - |
|
|
| 32,374 |
|
|
| 32,374 |
|
|
| 19,877 |
|
|
| 2.09 |
|
Fair value adjustment of acquisition related contingent consideration | E |
| - |
|
|
| - |
|
|
| 23,140 |
|
|
| 14,208 |
|
|
| 1.52 |
|
Total reconciling items |
|
| (1,215,827 | ) |
|
| 5,254 |
|
|
| 37,836 |
|
|
| 23,232 |
|
|
| 2.46 |
|
Comparable results (non-GAAP) |
| $ | 1,981,692 |
|
| $ | 102,305 |
|
| $ | 71,711 |
|
| $ | 41,845 |
|
| $ | 4.46 |
|
|
| Third Quarter 2018 |
| |||||||||||||||||||||
(in thousands, except per share data) |
| Net sales |
|
| Gross profit |
|
| Income from operations |
|
| Income before income taxes |
|
| Net income |
|
| Basic net income per share |
| ||||||
Reported results (GAAP) |
| $ | 1,211,661 |
|
| $ | 420,344 |
|
| $ | 44,404 |
|
| $ | 43,443 |
|
| $ | 25,164 |
|
| $ | 2.69 |
|
System Transformation Transactions expenses(2) |
|
| - |
|
|
| 112 |
|
|
| 10,417 |
|
|
| 10,417 |
|
|
| 7,834 |
|
|
| 0.83 |
|
Gain on exchange transactions(3) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (10,170 | ) |
|
| (7,648 | ) |
|
| (0.82 | ) |
Fair value adjustment of acquisition related contingent consideration(4) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (2,373 | ) |
|
| (1,785 | ) |
|
| (0.19 | ) |
Fair value adjustments for commodity hedges(5) |
|
| - |
|
|
| 260 |
|
|
| 469 |
|
|
| 469 |
|
|
| 353 |
|
|
| 0.04 |
|
Other tax adjustment(6) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 3,534 |
|
|
| 0.38 |
|
Total reconciling items |
|
| - |
|
|
| 372 |
|
|
| 10,886 |
|
|
| (1,657 | ) |
|
| 2,288 |
|
|
| 0.24 |
|
Adjusted results (non-GAAP) |
| $ | 1,211,661 |
|
| $ | 420,716 |
|
| $ | 55,290 |
|
| $ | 41,786 |
|
| $ | 27,452 |
|
| $ | 2.93 |
|
| First Three Quarters 2016 |
| ||||||||||||||||||
(in thousands, except per share data) |
| Net sales |
|
| Income from operations |
|
| Income before income taxes |
|
| Net income |
|
| Basic net income per share |
| |||||
Reported results (GAAP) |
| $ | 2,314,868 |
|
| $ | 106,938 |
|
| $ | 52,525 |
|
| $ | 28,753 |
|
| $ | 3.09 |
|
Fair value adjustments for commodity hedges | A |
| - |
|
|
| (4,198 | ) |
|
| (4,198 | ) |
|
| (2,583 | ) |
|
| (0.28 | ) |
2016 acquisitions impact | C |
| (372,550 | ) |
|
| (17,220 | ) |
|
| (17,220 | ) |
|
| (10,591 | ) |
|
| (1.14 | ) |
Expansion Transaction expenses | D |
| - |
|
|
| 23,208 |
|
|
| 23,208 |
|
|
| 14,273 |
|
|
| 1.54 |
|
Special charitable contribution | H |
| - |
|
|
| 4,000 |
|
|
| 4,000 |
|
|
| 2,460 |
|
|
| 0.26 |
|
Exchange of franchise territories | I |
| - |
|
|
| - |
|
|
| 692 |
|
|
| 426 |
|
|
| 0.05 |
|
Impact of changes in product supply governance | F |
| - |
|
|
| (4,932 | ) |
|
| (4,932 | ) |
|
| (3,034 | ) |
|
| (0.33 | ) |
Fair value adjustment of acquisition related contingent consideration | E |
| - |
|
|
| - |
|
|
| 26,060 |
|
|
| 16,027 |
|
|
| 1.72 |
|
Total reconciling items |
|
| (372,550 | ) |
|
| 858 |
|
|
| 27,610 |
|
|
| 16,978 |
|
|
| 1.82 |
|
Comparable results (non-GAAP) |
| $ | 1,942,318 |
|
| $ | 107,796 |
|
| $ | 80,135 |
|
| $ | 45,731 |
|
| $ | 4.91 |
|
| Third Quarter 2017 |
| ||||||||||||||||||||||
(in thousands, except per share data) |
| Net sales |
|
| Gross profit |
|
| Income from operations |
|
| Income before income taxes |
|
| Net income |
|
| Basic net income per share |
| ||||||
Reported results (GAAP) |
| $ | 1,162,526 |
|
| $ | 410,324 |
|
| $ | 37,472 |
|
| $ | 30,659 |
|
| $ | 17,316 |
|
| $ | 1.86 |
|
System Transformation Transactions expenses(2) |
|
| - |
|
|
| 113 |
|
|
| 13,148 |
|
|
| 13,148 |
|
|
| 9,265 |
|
|
| 0.99 |
|
Fair value adjustment of acquisition related contingent consideration(4) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (5,225 | ) |
|
| (2,386 | ) |
|
| (0.25 | ) |
Fair value adjustments for commodity hedges(5) |
|
| - |
|
|
| (2,042 | ) |
|
| (3,401 | ) |
|
| (3,401 | ) |
|
| (2,187 | ) |
|
| (0.24 | ) |
Other tax adjustment(6) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (1,690 | ) |
|
| (0.18 | ) |
Total reconciling items |
|
| - |
|
|
| (1,929 | ) |
|
| 9,747 |
|
|
| 4,522 |
|
|
| 3,002 |
|
|
| 0.32 |
|
Adjusted results (non-GAAP) |
| $ | 1,162,526 |
|
| $ | 408,395 |
|
| $ | 47,219 |
|
| $ | 35,181 |
|
| $ | 20,318 |
|
| $ | 2.18 |
|
|
| First Three Quarters 2018 |
| |||||||||||||||||||||
(in thousands, except per share data) |
| Net sales |
|
| Gross profit |
|
| Income from operations |
|
| Income before income taxes |
|
| Net income |
|
| Basic net income per share |
| ||||||
Reported results (GAAP) |
| $ | 3,510,997 |
|
| $ | 1,197,269 |
|
| $ | 45,086 |
|
| $ | 14,027 |
|
| $ | 7,046 |
|
| $ | 0.75 |
|
System Transformation Transactions expenses(2) |
|
| - |
|
|
| 339 |
|
|
| 32,738 |
|
|
| 32,738 |
|
|
| 24,619 |
|
|
| 2.63 |
|
Gain on exchange transactions(3) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (10,170 | ) |
|
| (7,648 | ) |
|
| (0.82 | ) |
Workforce optimization expenses(7) |
|
| - |
|
|
| - |
|
|
| 4,810 |
|
|
| 4,810 |
|
|
| 3,617 |
|
|
| 0.39 |
|
Fair value adjustment of acquisition related contingent consideration(4) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 1,584 |
|
|
| 1,191 |
|
|
| 0.13 |
|
Amortization of converted distribution rights, net(8) |
|
| - |
|
|
| 2,231 |
|
|
| 2,231 |
|
|
| 2,231 |
|
|
| 1,678 |
|
|
| 0.18 |
|
Fair value adjustments for commodity hedges(5) |
|
| - |
|
|
| 2,776 |
|
|
| 3,139 |
|
|
| 3,139 |
|
|
| 2,361 |
|
|
| 0.25 |
|
Other tax adjustment(6) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (2,648 | ) |
|
| (0.28 | ) |
Total reconciling items |
|
| - |
|
|
| 5,346 |
|
|
| 42,918 |
|
|
| 34,332 |
|
|
| 23,170 |
|
|
| 2.48 |
|
Adjusted results (non-GAAP) |
| $ | 3,510,997 |
|
| $ | 1,202,615 |
|
| $ | 88,004 |
|
| $ | 48,359 |
|
| $ | 30,216 |
|
| $ | 3.23 |
|
|
| First Three Quarters 2017 |
| |||||||||||||||||||||
(in thousands, except per share data) |
| Net sales |
|
| Gross profit |
|
| Income from operations |
|
| Income before income taxes |
|
| Net income |
|
| Basic net income per share |
| ||||||
Reported results (GAAP) |
| $ | 3,197,519 |
|
| $ | 1,157,523 |
|
| $ | 101,077 |
|
| $ | 33,875 |
|
| $ | 18,613 |
|
| $ | 2.00 |
|
System Transformation Transactions expenses(2) |
|
| - |
|
|
| 379 |
|
|
| 32,374 |
|
|
| 32,374 |
|
|
| 21,108 |
|
|
| 2.26 |
|
January 2016 Transactions settlement(9) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 9,442 |
|
|
| 5,816 |
|
|
| 0.62 |
|
Fair value adjustment of acquisition related contingent consideration(4) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 23,140 |
|
|
| 15,087 |
|
|
| 1.62 |
|
Fair value adjustments for commodity hedges(5) |
|
| - |
|
|
| (2,066 | ) |
|
| (2,541 | ) |
|
| (2,541 | ) |
|
| (1,657 | ) |
|
| (0.18 | ) |
Other tax adjustment(6) |
|
| - |
|
|
|
|
|
|
| - |
|
|
| - |
|
|
| (2,156 | ) |
|
| (0.23 | ) |
Total reconciling items |
|
| - |
|
|
| (1,687 | ) |
|
| 29,833 |
|
|
| 62,415 |
|
|
| 38,198 |
|
|
| 4.09 |
|
Adjusted results (non-GAAP) |
| $ | 3,197,519 |
|
| $ | 1,155,836 |
|
| $ | 130,910 |
|
| $ | 96,290 |
|
| $ | 56,811 |
|
| $ | 6.09 |
|
Following is an explanation of non-GAAP adjustments:
| Organic net bottle/can sales and organic physical case volume include results from the Company’s distribution territories not impacted by acquisition or divestiture related activity during 2017. |
(2) | Adjustment reflects expenses related to the System Transformation, which primarily includes information technologies system conversions and professional fees and expenses related to due diligence. |
(3) | Adjustment reflects gain on exchange transactions as a result of final post-closing adjustments for the 2017 System Transformation Transactions made during the third quarter of 2018. |
(4) | This non-cash, fair value adjustment of acquisition related contingent consideration fluctuates based on factors such as long-term interest rates, projected future results, and final settlements of acquired territory values. |
(5) | The Company enters into derivative instruments from time to time to hedge some or all of its projected purchases of aluminum, PET resin, diesel fuel and unleaded gasoline |
|
|
(7) | Adjustment reflects severance and outplacement expenses relating to the Company’s optimization of its labor expense. |
(8) | Concurrent with entering into the |
|
|
|
|
|
|
|
|
| Adjustment includes a charge within other |
|
|
|
|
Financial Condition
Total assets increased to $2.91were $3.07 billion on October 1, 2017, from $2.45 billion on January 1, 2017. The increase in total assets is primarily attributable to the Expansion Transactions, contributing to an increase in total assetsSeptember 30, 2018, which was a decrease of $283.0$0.5 million from January 1,December 31, 2017. In addition, the Company had additions to property, plant and equipment of $115.0 million during the first three quarters of 2017, which excludes $161.2 million in property, plant and equipment acquired in the YTD 2017 Expansion Transactions.
Net working capital, defined as current assets less current liabilities, was $355.6$286.6 million on October 1, 2017,September 30, 2018, which was an increase of $219.7$131.5 million from January 1,December 31, 2017.
Significant changes in net working capital on October 1, 2017September 30, 2018 from January 1,December 31, 2017 were as follows:
An increase in accounts receivable, trade of $110.4$36.4 million primarily as a result of accounts receivable from the YTD 2017 Expansion Transactions.timing of cash receipts.
An increase of $30.1 millionA decrease in accounts payable to The Coca‑Cola Companyreceivable, other of $10.3 million primarily as a result of activity from the YTD 2017 Expansion Transactions and the timing of payments.payments received for marketing funding and rebates.
An increase in inventories of $48.4$46.3 million primarily as a result of inventories fromrising commodity costs and expanded product selection offered by the YTD 2017 Expansion Transactions.Company.
An increaseA decrease in prepaid and other current assets of $65.8$9.1 million primarily as a result of a $56.5 million payment duringdecrease in the third quartercurrent portion of 2017 toward the purchase price of the October 2017 Expansion Transactions, which closed subsequent to the end of the third quarter.income taxes.
An increase in assets held for sale of $129.0 million and an increase in liabilities held for sale of $20.0 million, related to the October 2017 Expansion Transactions.
An increaseA decrease in accounts payable, trade of $65.9 million primarily as a result of purchases from the YTD 2017 Expansion Transactions.
An increase in other accrued liabilities of $14.4$10.3 million primarily as a result of the timing of payments.
A decrease in accounts payable to The Coca‑Cola Company of $28.2 million primarily as a result of the timing of purchases of raw materials and payments.
A decrease in other accrued liabilities of $31.9 million primarily as a result of the timing of payments.
A decrease in accrued compensation of $14.8 million primarily as a result of the timing of bonus and incentive payments in the first quarter of the fiscal year.
Liquidity and Capital Resources
Capital Resources
The Company’s sources of capital include cash flows from operations, available credit facilities and the issuance of debt and equity securities. The Company has obtained the majority of its long-term debt, other than capital leases, from public markets, private placements and bank facilities. Management believes the Company has sufficient sources of capital available to refinance its maturing debt, finance its business plan, meet its working capital requirements and maintain an appropriate level of capital spending for at least the next 12 months from the issuance of these consolidated condensed financial statements. The amount and frequency of future dividends will be determined by the Company’s Board of Directors in light of the earnings and financial condition of the Company at such time, and no assurance can be given that dividends will be declared or paid in the future.
On June 8, 2018, the Company entered into a second amended and restated credit agreement for a five-year unsecured revolving credit facility (as amended, the “Revolving Credit Facility”), which amended and restated its prior credit agreement dated October 16, 2014. The Revolving Credit Facility has an aggregate maximum borrowing capacity of $500 million, which may be increased at the Company’s option to $750 million, subject to obtaining commitments from the lenders and satisfying other conditions specified in the credit agreement. Borrowings under the Revolving Credit Facility bear interest at a floating base rate or a floating Eurodollar rate, at the Company’s option, plus an applicable margin dependent on the Company’s credit ratings. At the Company’s current credit ratings,
the Company must pay an annual facility fee of 0.15% of the lenders’ aggregate commitments under the Revolving Credit Facility. The Revolving Credit Facility has a scheduled maturity date of June 8, 2023. As of September 30, 2018, the Company had borrowed $170.0 million under the Revolving Credit Facility, and therefore had $330.0 million borrowing capacity remaining. The Company currently believes all banks participating in the Revolving Credit Facility have the ability to and will meet any funding requests from the Company.
On March 21, 2018, the Company sold $150 million aggregate principal amount of senior unsecured notes due 2030 to NYL Investors LLC (“NYL”) and certain of its affiliates pursuant to the Note Purchase and Private Shelf Agreement dated March 6, 2018 between the Company, NYL and the other parties thereto (as amended, the “NYL Shelf Facility”). These notes bear interest at 3.96%, payable quarterly in arrears on March 21, June 21, September 21 and December 21 of each year, and will mature on March 21, 2030 unless earlier redeemed by the Company. The Company used the proceeds for general corporate purposes.
In February 27, 2017, the Company sold $125 million aggregate principal amount of senior unsecured notes due 2023 to PGIM, Inc. (“Prudential”) and certain of its affiliates pursuant to the Note Purchase and Private Shelf Agreement dated June 10, 2016 between the Company, Prudential and the other parties thereto (the “Private(as amended, the “Prudential Shelf Facility”). These notes bear interest at 3.28%, payable semi-annually in arrears on February 27 and August 27 of each year, and will mature on February 27, 2023 unless earlier redeemed by the Company. The Company used the proceeds toward repayment of outstanding indebtedness under the Revolving Credit Facility (as defined below) and for other general corporate purposes. The Company may request that Prudential consider the purchase of additional senior unsecured notes of the Company under the PrivatePrudential Shelf Facility in an aggregate principal amount of up to $175 million.
In October 2014, the Company entered into a five-year unsecured revolving credit facility (the “Revolving Credit Facility”), and in April 2015, the Company exercised an accordion feature which established a $450 million aggregate maximum borrowing capacity on the Revolving Credit Facility. The $450 million borrowing capacity includes up to $50 million available for the issuance of letters of credit. Borrowings under the Revolving Credit Facility bear interest at a floating base rate or a floating Eurodollar rate plus an applicable margin, at the Company’s option, dependent on the Company’s credit rating at the time of borrowing. At the Company’s current credit ratings, the Company must pay an annual facility fee of 0.15% of the lenders’ aggregate commitments under the Revolving Credit Facility. The Revolving Credit Facility has a scheduled maturity date of October 16, 2019.
The Company currently believes all banks participating in the Revolving Credit Facility have the ability to and will meet any funding requests from the Company. The Company had outstanding borrowings on the Revolving Credit Facility of $247.0 million on October 1, 2017 and $152.0 million on January 1, 2017.
In June 2016, the Company entered into a five-year term loan agreement for a senior unsecured term loan facility (the(as amended, the “Term Loan Facility”) in the aggregate principal amount of $300 million, maturing June 7, 2021. The Company may request additional term loans under the agreement, provided the Company’s aggregate borrowings under the Term Loan Facility do not exceed $500 million. Borrowings under the Term Loan Facility bear interest at a floating base rate or a floating Eurodollar rate, at the Company’s option, plus an applicable margin at the Company’s option, dependent on the Company’s credit rating. Theratings.
During the third quarter of 2018, the Company used $210 millionamended each of the proceeds fromRevolving Credit Facility, the NYL Shelf Facility, the Prudential Shelf Facility and the Term Loan Facility to repay outstanding indebtedness(i) align the calculation of the two financial covenants and certain events of default under each agreement and (ii) with regard to the Term Loan Facility, to revise the calculation of the rates at which borrowings bear interest to conform with the calculation of such rates under the Revolving Credit Facility. The Company then used the remaining proceeds, as well as borrowings under the Revolving Credit Facility, to repay the $164.8 million of Senior Notes that matured on June 15, 2016.
The Revolving Credit Facility,Pursuant to the Term Loan Facility and the Privateindenture under which the senior notes due in 2019 were issued, principal payments will be due in the next twelve months. The Company intends to refinance these amounts and has the capacity to do so under the Revolving Credit Facility, which is classified as long-term debt. As such, any amounts due in the next twelve months were classified as non-current as of September 30, 2018. See Note 11 to the consolidated condensed financial statements for additional information on the senior notes due in 2019.
The Revolving Credit Facility, the NYL Shelf Facility, the Prudential Shelf Facility and the Term Loan Facility include two financial covenants: a consolidated cash flow/fixed charges ratio and a consolidated funded indebtedness/cash flow ratio, each as defined in the respective agreements. The Company was in compliance with these covenants as of October 1, 2017.September 30, 2018. These covenants do not currently, and the Company does not anticipate they will, restrict its liquidity or capital resources for the next twelve months.resources.
The indentures under which the Company’s public debt was issued do not include financial covenants but do limit the incurrence of certain liens and encumbrances as well as indebtedness by the Company’s subsidiaries in excess of certain amounts.
All outstanding long-term debt has been issued by the Company and none has been issued by any of its subsidiaries. There are no guarantees of the Company’s debt.
The Company’s credit ratings are reviewed periodically by the respective rating agencies. Changes in the Company’s operating results or financial position could result in changes in the Company’s credit ratings. Lower credit ratings could result in higher borrowing costs for the Company or reduced access to capital markets, which could have a material impact on the Company’s financial position or results of operations. There were no changes in these credit ratings duringDuring the first three quarterssecond quarter of 20172018, Standard & Poor’s reaffirmed the Company’s BBB rating and revised the Company’s rating outlook to negative from stable. Moody’s rating outlook for the prior year and the credit ratings areCompany is currently stable. As of October 1, 2017,September 30, 2018, the Company’s credit ratings were as follows:
|
| Long-Term Debt |
Standard & Poor’s |
| BBB |
Moody’s |
| Baa2 |
Net
Total net debt and capital lease obligations as of September 30, 2018 and December 31, 2017 were as follows:
(in thousands) |
| October 1, 2017 |
|
| January 1, 2017 |
|
| September 30, 2018 |
|
| December 31, 2017 |
| ||||
Debt |
| $ | 1,127,847 |
|
| $ | 907,254 |
|
| $ | 1,194,109 |
|
| $ | 1,088,018 |
|
Capital lease obligations |
|
| 43,127 |
|
|
| 48,721 |
|
|
| 37,278 |
|
|
| 43,469 |
|
Total debt and capital lease obligations |
|
| 1,170,974 |
|
|
| 955,975 |
|
|
| 1,231,387 |
|
|
| 1,131,487 |
|
Less: Cash and cash equivalents |
|
| 11,922 |
|
|
| 21,850 |
|
|
| 9,337 |
|
|
| 16,902 |
|
Total net debt and capital lease obligations (1) |
| $ | 1,159,052 |
|
| $ | 934,125 |
|
| $ | 1,222,050 |
|
| $ | 1,114,585 |
|
(1) | The non-GAAP measure “Total net debt and capital lease obligations” is used to provide investors with additional information which management believes is helpful in the evaluation of the Company’s capital structure and financial leverage. This non-GAAP financial information is not presented elsewhere in this |
The Company is subject to interest rate risk on its floating rate debt, including the Revolving Credit Facility and the Term Loan Facility. Assuming no changes in the Company’s financial structure, if market interest rates average 1% more over the next twelve months than the interest rates as of October 1, 2017,September 30, 2018, interest expense for the next twelve months would increase by approximately $5.5$4.6 million.
The Company’s only Level 3 asset or liability is the acquisition related contingent consideration liability incurred as a result of the ExpansionSystem Transformation Transactions. There were no transfers from Level 1 or Level 2. Fair value adjustments were noncash, and therefore did not impact the Company’s liquidity or capital resources. The followingFollowing is a summary of the Level 3 activity:
|
| Third Quarter |
|
| First Three Quarters |
|
| Third Quarter |
|
| First Three Quarters |
| ||||||||||||||||||||
(in thousands) |
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
|
| 2018 |
|
| 2017 |
|
| 2018 |
|
| 2017 |
| ||||||||
Opening balance - Level 3 liability |
| $ | 319,102 |
|
| $ | 228,768 |
|
| $ | 253,437 |
|
| $ | 136,570 |
| ||||||||||||||||
Increase due to acquisitions |
|
| - |
|
|
| - |
|
|
| 46,086 |
|
|
| 68,039 |
| ||||||||||||||||
Payments/current payables |
|
| (4,944 | ) |
|
| (2,995 | ) |
|
| (13,730 | ) |
|
| (12,261 | ) | ||||||||||||||||
Beginning balance - Level 3 liability |
| $ | 374,537 |
|
| $ | 319,102 |
|
| $ | 381,291 |
|
| $ | 253,437 |
| ||||||||||||||||
Increase due to System Transformation Transactions acquisitions |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 46,086 |
| ||||||||||||||||
Measurement period adjustments(1) |
|
| (1,279 | ) |
|
| - |
|
|
| 813 |
|
|
| - |
| ||||||||||||||||
Payment of acquisition related contingent consideration |
|
| (7,049 | ) |
|
| (5,094 | ) |
|
| (18,312 | ) |
|
| (11,650 | ) | ||||||||||||||||
Reclassification to current payables |
|
| - |
|
|
| 150 |
|
|
| (1,540 | ) |
|
| (2,080 | ) | ||||||||||||||||
(Favorable)/unfavorable fair value adjustment |
|
| (5,225 | ) |
|
| (7,365 | ) |
|
| 23,140 |
|
|
| 26,060 |
|
|
| (2,373 | ) |
|
| (5,225 | ) |
|
| 1,584 |
|
|
| 23,140 |
|
Ending balance - Level 3 liability |
| $ | 308,933 |
|
| $ | 218,408 |
|
| $ | 308,933 |
|
| $ | 218,408 |
|
| $ | 363,836 |
|
| $ | 308,933 |
|
| $ | 363,836 |
|
| $ | 308,933 |
|
(1) | Measurement period adjustments relate to post-closing adjustments made in relation to the April 2017 Transactions and the October 2017 Transactions in accordance with the terms and conditions of the applicable asset purchase agreement or asset exchange agreement. See Note 3 to the consolidated condensed financial statements for additional information on the April 2017 Transactions and the October 2017 Transactions. |
The primary sources of cash for the Company in the first three quarters of 20172018 were debt financings, a one-time fee paid to the Company by CCR pursuant to the Territory Conversion Agreement in connection with the conversion of the Bottling Agreements to
the Final CBA and operating activities.financings. The primary uses of cash in the first three quarters of 20172018 were acquisitionsrepayments of Expansion Territories and Expansion Facilitiesdebt and additions to property, plant and equipment. The primary sources of cash for the Company in the first three quarters of 20162017 were debt financings, the Territory Conversion Fee (as defined below) received from The Coca‑Cola Company and operating activities. The primary uses of cash in the first three quarters of 20162017 were repayments of debt, acquisitions of Expansion Territoriesterritories and Expansion Facilities, debt repaymentsregional manufacturing facilities as part of the System Transformation and additions to property, plant and equipment. A summary of cash-based activity is as follows:
|
| First Three Quarters |
|
| First Three Quarters |
| ||||||||||
(in thousands) |
| 2017 |
|
| 2016 |
|
| 2018 |
|
| 2017 |
| ||||
Cash Sources: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings under Revolving Credit Facility |
| $ | 333,000 |
|
| $ | 310,000 |
|
| $ | 285,000 |
|
| $ | 333,000 |
|
Borrowings under Term Loan Facility |
|
| - |
|
|
| 300,000 |
| ||||||||
Adjusted cash provided by operating activities(1) |
|
| 141,672 |
|
|
| 131,061 |
| ||||||||
Proceeds from issuance of Senior Notes |
|
| 125,000 |
|
|
| - |
|
|
| 150,000 |
|
|
| 125,000 |
|
Bottling conversion agreement fee |
|
| 87,066 |
|
|
| - |
| ||||||||
Territory Conversion Fee(1) |
|
| - |
|
|
| 87,066 |
| ||||||||
Adjusted cash provided by operating activities(2) |
|
| 26,030 |
|
|
| 141,672 |
| ||||||||
Refund of income tax payments |
|
| 23,573 |
|
|
| - |
| ||||||||
System Transformation acquisitions, net of cash acquired and purchase price settlements |
|
| 1,811 |
|
|
| - |
| ||||||||
Proceeds from cold drink equipment |
|
| 8,400 |
|
|
| - |
|
|
| 3,789 |
|
|
| 8,400 |
|
Refund of income tax payments |
|
| - |
|
|
| 8,147 |
| ||||||||
Proceeds from the sale of property, plant and equipment |
|
| 3,555 |
|
|
| 493 |
| ||||||||
Other |
|
| 559 |
|
|
| 370 |
|
|
| 17 |
|
|
| 66 |
|
Total cash sources |
| $ | 695,697 |
|
| $ | 749,578 |
|
| $ | 493,775 |
|
| $ | 695,697 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Uses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments on Revolving Credit Facility |
| $ | 238,000 |
|
| $ | 245,000 |
|
| $ | 322,000 |
|
| $ | 238,000 |
|
Acquisition of Expansion Territories and Expansion Facilities, net of cash acquired |
|
| 227,769 |
|
|
| 174,571 |
| ||||||||
Payments on Senior Notes |
|
| - |
|
|
| 164,757 |
| ||||||||
System Transformation acquisitions, net of cash acquired and purchase price settlements |
|
| - |
|
|
| 227,769 |
| ||||||||
Additions to property, plant and equipment (exclusive of acquisitions) |
|
| 114,953 |
|
|
| 124,599 |
|
|
| 113,104 |
|
|
| 114,953 |
|
Prepayment of funds for October 2017 Expansion Transactions |
|
| 56,498 |
|
|
| - |
|
|
| - |
|
|
| 56,498 |
|
Pension plans contributions |
|
| 20,000 |
|
|
| 11,600 |
| ||||||||
Glacéau distribution agreement consideration |
|
| 15,598 |
|
|
| - |
|
|
| - |
|
|
| 15,598 |
|
Income tax payments |
|
| 14,779 |
|
|
| - |
| ||||||||
Payment of acquisition related contingent consideration |
|
| 11,650 |
|
|
| 10,470 |
|
|
| 18,312 |
|
|
| 11,650 |
|
Pension plans contributions |
|
| 11,600 |
|
|
| 11,120 |
| ||||||||
Payment on Term Loan Facility |
|
| 7,500 |
|
|
| - |
| ||||||||
Cash dividends paid |
|
| 6,995 |
|
|
| 6,980 |
|
|
| 7,014 |
|
|
| 6,995 |
|
Principal payments on capital lease obligations |
|
| 5,594 |
|
|
| 5,279 |
|
|
| 6,191 |
|
|
| 5,594 |
|
Income tax payments |
|
| 3,590 |
|
|
| 14,779 |
| ||||||||
Investment in CONA Services LLC |
|
| 1,976 |
|
|
| 7,216 |
|
|
| 2,098 |
|
|
| 1,976 |
|
Other |
|
| 213 |
|
|
| 867 |
| ||||||||
Debt issuance fees |
|
| 1,531 |
|
|
| 213 |
| ||||||||
Total cash uses |
| $ | 705,625 |
|
| $ | 750,859 |
|
| $ | 501,340 |
|
| $ | 705,625 |
|
Net increase (decrease) in cash |
| $ | (9,928 | ) |
| $ | (1,281 | ) | ||||||||
Net decrease in cash |
| $ | (7,565 | ) |
| $ | (9,928 | ) |
(1) |
|
(2) | Adjusted cash provided by operating activities excludes amounts received with regard to the Territory Conversion Fee, net income tax payments/refunds and |
Cash Flows From Operating Activities
During the first three quarters of 2017,2018, cash provided by operating activities was $202.4$26.0 million, which was an increasea decrease of $74.3$176.4 million as compared to the first three quarters of 2016. In addition to the cash generated from the Expansion Territories, the increase2017. The decrease was primarily driven by an $87.1 million, one-time fee paid toa result of the Company by CCR pursuant tonon-reoccurrence of the Territory Conversion Agreement.Fee, which was received during the first quarter of 2017, and changes in net working capital, as discussed above.
Cash Flows From Investing Activities
During the first three quarters of 2017,2018, cash used in investing activities was $407.9$106.0 million, which was an increasea decrease of $101.8$301.9 million as compared to the first three quarters of 2016.2017. The increasedecrease was driven primarily by $227.8 millionthe Company’s completion of its System Transformation Transactions in cash used to finance the Expansion Transactions, a $56.5 million payment toward the October 2017 Expansion Transactions and a $15.6 million payment to The Coca‑Cola Company in order to acquire rights to market, promote, distribute and sell glacéau products in certain geographic territories and for The Coca‑Cola Company to terminate a distribution arrangement with the prior distributor in these territories.2017.
Additions to property, plant and equipment were $113.1 million during the first three quarters of 2018. As of September 30, 2018, $4.1 million of additions to property, plant and equipment were accrued in accounts payable, trade. The Company anticipates additions to property, plant and equipment for the remainder of 2018 will be in the range of $25 million to $35 million.
Additions to property, plant and equipment during the first three quarters of 2017 were $115.0 million. As of October 1, 2017, $13.7 million of which $13.7 millionadditions to property, plant and equipment were accrued in accounts payable, trade. These additions exclude $161.2 million in property, plant and equipment acquired in the YTD 2017 ExpansionSystem Transformation Transactions and $8.4 million in proceeds from cold drink equipment.
Additions to property, plant and equipment during the first three quarters of 2017 were funded with cash flows from operations and available credit facilities. The Company anticipates additions to property, plant and equipment for the remainder of 2017 will be in the range of $70 million to $95 million, excluding the October 2017 Expansion Transactions.
Additions to property, plant and equipment during the first three quarters of 2016 were $124.6 million, of which $8.8 million were accrued in accounts payable, trade. These additions exclude $159.0 million in property, plant and equipment acquired in the 2016 Expansion Transactions completed during the first three quarters of 2016.equipment.
Cash Flows From Financing Activities
During the first three quarters of 2017,2018, cash provided by financing activities was $195.5$72.5 million, which was an increasea decrease of $18.9$123.0 million as compared to the first three quarters of 2016.2017. The increasedecrease was primarily driven by borrowings, neta reduced need for capital as a result of the Company’s completion of its System Transformation Transactions in October 2017.
The Company had cash payments on debt facilities, across all debt instrumentsfor acquisition related contingent consideration of $18.3 million during the first three quarters of 2017 as compared to2018 and $11.7 million during the first three quarters of 2016, which was driven by an increase in cash requirements to fund the 2017 Expansion Transactions.
During the first three quarters of 2017. The Company anticipates that the Company had cash payments of $11.7 million for acquisition related contingent consideration. The anticipated amount the Companyit could pay annually under the acquisition related contingent consideration arrangements for the Expansion Transactions isdistribution territories acquired in the System Transformation, excluding territories the Company acquired in exchange transactions, will be in the range of $19$25 million to $37$47 million.
Significant Accounting Policies
See Note 1 and Note 2 to the consolidated condensed financial statements for information on the Company’s significant accounting policies.
Off-Balance Sheet Arrangements
The Company is a member of, twoand has equity ownership in, South Atlantic Canners, Inc. (“SAC”), a manufacturing cooperativescooperative comprised of Coca‑Cola bottlers, and has guaranteed $32.5$23.9 million of SAC’s debt for these entities as of October 1, 2017. In addition, the Company has an equity ownership in each of the entities. The members of both cooperatives consist solely of Coca‑Cola bottlers.September 30, 2018. The Company does not anticipate either of these cooperativesSAC will fail to fulfill their commitments.its commitments related to the debt. The Company further believes each of these cooperativesSAC has sufficient assets, including production equipment, facilities and working capital, and the ability to adjust selling prices of theirits products to adequately mitigate the risk of material loss from the Company’s guarantees.guarantee.
In the event either of these manufacturing cooperativesSAC fails to fulfill its commitments under the related debt, the Company would be responsible for payment to the lenders up to the level of the guarantees.guarantee. As of October 1, 2017,September 30, 2018, the Company’s maximum exposure under these guarantees,the guarantee, if both cooperativesSAC borrowed up to theirits aggregate borrowing capacity, would have been $74.3$32.1 million, including the Company’s equity interests. See Note 15 to the consolidated condensed financial statements for additional information.
Hedging Activities
The Company uses derivative financial instruments to manage its exposure to movements in certain commodity prices. Fees paid by the Company for derivative instruments are amortized over the corresponding period of the instrument. The Company accounts for its commodity hedges on a mark-to-market basis with any expense or income reflected as an adjustment to cost of sales or S,D&A expenses.
The Company uses several different financial institutions for commodity derivative instruments to minimize the concentration of credit risk. The Company has master agreements with the counterparties to its derivative financial agreements that provide for net
settlement of derivative transactions. The net impact of the commodity hedges on the consolidated condensed statements of operations was as follows:
|
| Third Quarter |
|
| First Three Quarters |
| ||||||||||
(in thousands) |
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
Cost of sales - increase/(decrease) |
| $ | (2,446 | ) |
| $ | (46 | ) |
| $ | (3,015 | ) |
| $ | (1,214 | ) |
S,D&A expenses - increase/(decrease) |
|
| (1,575 | ) |
|
| 316 |
|
|
| (591 | ) |
|
| (368 | ) |
Net impact |
| $ | (4,021 | ) |
| $ | 270 |
|
| $ | (3,606 | ) |
| $ | (1,582 | ) |
|
| Third Quarter |
|
| First Three Quarters |
| ||||||||||
(in thousands) |
| 2018 |
|
| 2017 |
|
| 2018 |
|
| 2017 |
| ||||
Cost of sales - increase/(decrease) |
| $ | 640 |
|
| $ | (2,446 | ) |
| $ | 2,843 |
|
| $ | (3,015 | ) |
S,D&A expenses - increase/(decrease) |
|
| 50 |
|
|
| (1,575 | ) |
|
| (305 | ) |
|
| (591 | ) |
Net impact |
| $ | 690 |
|
| $ | (4,021 | ) |
| $ | 2,538 |
|
| $ | (3,606 | ) |
Cautionary Information Regarding Forward-Looking Statements
Certain statements contained in this Report,report, or in other public filings, press releases, or other written or oral communications made by Coca‑Cola Bottling Co. Consolidated or its representatives, which are not historical facts, are forward-looking statements subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements address, among other things, Company plans, activities or events which the Company expects will or may occur in the future and may include express or implied projections of revenue or expenditures; statements of plans and objectives for future operations, growth or initiatives; statements of future economic performance, including, but not limited to, the state of the economy, capital investment and financing plans, net sales, cost of sales, S,D&A expenses, gross profit, income tax rates, earnings per diluted share, dividends, pension plan contributions, estimated sub-bottling liabilityacquisition related contingent consideration payments; or statements regarding the outcome or impact of certain new accounting pronouncements and pending or threatened litigation. These statements include:
the Company’s beliefs and estimates regarding the impact of the adoption of certain new accounting pronouncements;pronouncements;
the Company’s expectations that the adoption of Accounting Standards Update 2016-02 “Leases,” (i) will have a material impact on its consolidated condensed balance sheets and (ii) will not have a material impact on its consolidated condensed statements of cash flows as the new guidance is non-cash in nature;
the Company’s expectation that certain amounts of goodwill will, or will not, be deductible for tax purposes;purposes;
the Company’s belief that, at any given time, less than 1% of bottle/can sales and post-mix sales could be at risk for return by customers;
the manufacturing cooperativesCompany’s belief that SAC, whose debt the Company guarantees, havehas sufficient assets and the ability to adjust selling prices of theirits products to adequately mitigate the risk of material loss from the Company’s guaranteesguarantee and that the cooperativescooperative will perform theirits obligations under theirits debt commitments;commitments;
the Company’s belief that it has, and that CCR and other bottlersmanufacturers from whom the Company purchases finished goods have, adequate production capacity to meet sales demand for sparkling and still beverages during peak periods;periods;
the Company’s belief that the ultimate disposition of various lawsuits, claims and other legal proceedings that arisewhich have arisen in the ordinary course of its business will not individually or in the aggregate, have a material adverse effect on the Company’sits financial condition, cash flows or results of operations financial position or cash flows;and that no material amount of loss in excess of recorded amounts is reasonably possible as a result of these claims and legal proceedings;
the Company’s belief that it is competitive in its territories with respect to the principal methods of competition in the nonalcoholic beverage industry;industry;
the Company’s belief that certain non-GAAP financial measures provide users with additional meaningful financial information that should be considered when assessing the Company’s ongoing performance, including information which the Company believes is helpful in the evaluation of its cash sources and uses, capital structure and financial leverage;leverage;
the Company’s belief that it has sufficient sources of capital available to refinance its maturing debt, finance its business plan, meet its working capital requirements and maintain an appropriate level of capital spending for at least the next 12 months;months;
the Company’s belief that all of the banks participating in the Revolving Credit Facility have the ability to and will meet any funding requests from the Company;Company;
the Company’s intention to refinance amounts due in the next twelve months under the Term Loan Facility and the indenture under which the senior notes due in 2019 were issued using the capacity under the Revolving Credit Facility;
the Company’s estimate of the useful lives of certain acquired intangible assets and property, plant and equipment;equipment;
the Company’s estimate that a 10% increase in the market price of certain commodities included as part of its raw materials over the current market prices would cumulatively increase costs during the next 12 months by approximately $54.8$56.5 million, assuming no change in volume;
the Company’s expectation that amounts due to United relating to the System Transformation exchange transaction between the Company and United will be paid by the Company during the fourth quarter of 2018;
the Company’s expectation that the amount of uncertain tax positions may change over the next 12 months but that such changes will not have a significant impact on the consolidated condensed financial statementscondensed ;financial statements;
the Company’s belief that innovation of both new brands and packages will continue to be important to the Company’s overall revenue;
the Company’s estimates of certain inputs used in its calculations, including estimated rates of return, estimates of bad debts and amounts that will ultimately be collected, and estimates of inputs used in the calculation and adjustment of the fair value of its acquisition related contingent consideration liability related to the distribution territories acquired as part of the System Transformation, such as the amounts that will be paid by the Company in the future under the CBA and the Company’s WACC;
the Company’s expectation that certain territories of CCR will be sold to bottlers that are neither members of CONA nor users of the CONA System;
the Company’s belief that the amountrange of undiscounted amounts it could pay annually under the acquisition related contingent consideration arrangements for the ExpansionSystem Transformation Transactions willis expected to be in the range of $19between $25 million to $37$47 million;
the Company’s belief that the covenants in the Revolving Credit Facility, the Term Loan Facility, the Prudential Shelf Facility and the PrivateNYL Shelf Facility will not restrict its liquidity or capital resources for the next twelve months;;
the Company’s belief that other parties to certain of its contractual arrangements will perform their obligations;obligations;
the Company’s beliefexpectation that it will not make any additional contributions to the two Company-sponsored pension plans forduring the remainderfourth quarter of 2017;2018;
the Company’s expectation that it will not withdraw from its participation in the Employers-Teamsters Local Union Nos. 175 and 505 Pension Fund;Fund (the “Teamsters Plan”);
the Company’s expectation that the collective bargaining agreements covering the Teamsters Plan that expire at various times through April 2020 will be re-negotiated;
the Company’s belief that System Transformation expenses will be in the range of $6 million to $8 million in the fourth quarter of 2018 and will decrease over the next few quarters;
the Company’s belief that additions to property, plant and equipment for the remainder of 2017 will2018 are expected to be in the range of $70$25 million to $95$35 million excluding any additional Expansion Transactions expected to close in 2017;
the Company’s belief that, while the addition of BodyArmor products to the Company’s portfolio of brands will not have a material impact on the Company’s 2018 results, BodyArmor will provide ongoing benefits and round out the Company’s sports drink portfolio;
the Company’s belief that it has adequately provided for any assessments likely to result from audits by tax authorities in the jurisdictions in which the Company conducts business;business;
the Company’s belief that key priorities include territory and manufacturing expansion,integration, revenue management, product innovation and beverage portfolio expansion, distribution cost management and productivity;productivity; and
the Company’s hypothetical calculation that, if market interest rates average 1% more over the next twelve months than the interest rates as of October 1, 2017,September 30, 2018, interest expense for the next twelve months would increase by approximately $5.5$4.6 million, assuming no changes in the Company’s financial structure.
These forward-looking statements may be identified by the use of the words “believe,” “plan,” “estimate,” “expect,” “anticipate,” “probably,” “should,” “project,” “intend,” “continue,” and other similar terms and expressions. Various risks, uncertainties and other factors may cause the Company’s actual results to differ materially from those expressed or implied in any forward-looking statements. Factors, uncertainties and risks that may result in actual results differing from such forward-looking information include, but are not limited to, those listed in Part I, “Item 1A. Risk Factors” of our Annual Report on Form 10-K for 2016,2017, as well as other factors discussed throughout this Report,report, including, without limitation, the factors described under “Significant Accounting Policies” in our consolidated condensed financial statements, or in other filings or statements made by the Company. All of the forward-looking statements in this Reportreport and other documents or statements are qualified by these and other factors, risks and uncertainties.
Caution should be taken not to place undue reliance on the forward-looking statements included in this Report.report. The Company assumes no obligation to update any forward-looking statements, even if experience or future changes make it clear that projected results expressed or implied in such statements will not be realized, except as may be required by law. In evaluating forward-looking statements, these risks and uncertainties should be considered, together with the other risks described from time to time in the Company’s other reports and documents filed with the SEC.Securities and Exchange Commission.
ItemItem 3.Quantitative and Qualitative Disclosures About Market Risk.
The Company is exposed to certain market risks that arise in the ordinary course of business. The Company may enter into derivative financial instrument transactions to manage or reduce market risk. The Company does not enter into derivative financial instrument transactions for trading or speculative purposes. A discussion of the Company’s primary market risk exposure and interest rate risk is presented below.
Debt and Derivative Financial Instruments
The Company is subject to interest rate risk on its floating rate debt, including the Revolving Credit Facility and the Term Loan Facility. Assuming no changes in the Company’s financial structure, if market interest rates average 1% more over the next twelve months than the interest rates as of October 1, 2017,September 30, 2018, interest expense for the next twelve months would increase by approximately $5.5$4.6 million. This amount was determined by calculating the effect of the hypothetical interest rate on the Company’s variable rate debt. This calculated, hypothetical increase in interest expense for the following twelve months may be different from the actual increase in interest expense from a 1% increase in interest rates due to varying interest rate reset dates on the Company’s floating debt.
The Company’s acquisition related contingent consideration, which is adjusted to fair value at each reporting period, is also impacted by changes in interest rates. The risk-free interest rate used to estimate the Company’s WACC is a component of the discount rate used to calculate the present value of future cash flows due under the Final CBA related to the Expansion Territories.CBA. As a result, any changes in the underlying risk-free interest rates will impact the fair value of the acquisition related contingent consideration and could materially impact the amount of noncash expense (or income) recorded each reporting period.
Raw Material and Commodity Price Risk
The Company is also subject to commodity price risk arising from price movements for certain 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 to hedge commodity purchases. The Company periodically uses derivative commodity instruments in the management of this risk. The Company estimates a 10% increase in the market prices of these commodities included as part of its raw materials over the current market prices would cumulatively increase costs during the next 12 months by approximately $54.8$56.5 million assuming no change in volume.
Fees paid by the Company for agreements to hedge commodity purchases are amortized over the corresponding period of the instruments. The Company accounts for commodity hedges on a mark-to-market basis with any expense or income being reflected as an adjustment to cost of sales or S,D&A expenses.
The annual rate of inflation in the United States, as measured by year-over-year changes in the consumer price index,Consumer Price Index (the “CPI”), was 2.1% in 2016, as compared to 0.7% in 2015.2017 and 2016. Inflation in the prices of those commodities important to the Company’s business is reflected in changes in the consumer price index,CPI, but commodity prices are volatile and in recent years have moved at a faster rate of change than the consumer price index.CPI.
The principal effect of inflation in both commodity and consumer prices on the Company’s operating results is to increase costs, both of goods sold and S,D&A.&A expenses. Although the Company can offset these cost increases by increasing selling prices for its products, consumers may not have the buying power to cover these increased costs and may reduce their volume of purchases of those products. In that event, selling price increases may not be sufficient to offset completely the Company’s cost increases.
Item 4.Controls and Procedures.
As of the end of the period covered by this Report,report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s “disclosure controls and procedures” (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), pursuant to Rule 13a-15(b) of the Exchange Act. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of October 1, 2017.September 30, 2018.
There has been no change in the Company’s internal control over financial reporting during the quarter ended October 1, 2017September 30, 2018 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
The Company is from time to time a party to various lawsuits, claims and other legal proceedings that arise in the ordinary course of business. With respect to all such lawsuits, claims and proceedings, the Company records reserves when it is probable a liability has been incurred and the amount of loss can be reasonably estimated. The Company does not believe that any of these proceedings, individually or in the aggregate, would be expected to have a material adverse effect on its results of operations, financial position or cash flows. The Company maintains liability insurance for certain risks that is subject to certain self-insurance limits.
There have been no material changes in the Company’s risk factors from those disclosed in Part I, “Item 1A. Risk Factors” in the Company’s Annual Report on Form 10‑K for 2016.2017.
Number |
| Description |
| Incorporated by Reference or Filed Herewith |
|
| |||
|
| |||
|
| |||
3.1 |
|
| Exhibit 3.1 to the Company’s Quarterly Report on Form 10‑Q for the quarter ended July 2, 2017 (File No. 0-9286). | |
3.2 |
|
| Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on May 15, 2017 (File No. 0-9286). | |
4.1 |
| The registrant, by signing this report, agrees to furnish the Securities and Exchange Commission, upon its request, a copy of any instrument which defines the rights of holders of long-term debt of the registrant and its consolidated subsidiaries which authorizes a total amount of securities not in excess of 10 percent of the total assets of the registrant and its subsidiaries on a consolidated basis. |
|
|
|
|
| Exhibit | |
|
|
| Exhibit | |
|
| Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on July 25, 2018 (File No. 0-9286). | ||
10.4 | Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on July 25, 2018 (File No. 0-9286). | |||
10.5* |
| Filed herewith. | ||
31.1 |
| Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| Filed herewith. |
31.2 |
| Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| Filed herewith. |
|
| |||
32 |
|
| Furnished (and not filed) herewith pursuant to Item 601(b)(32)(ii) of Regulation S-K. | |
101 |
| Financial statements (unaudited) from the quarterly report on Form 10-Q of Coca‑Cola Bottling Co. Consolidated for the quarter ended |
|
|
+ * Certain schedules and similar supporting attachments toportions of this agreementexhibit have been omitted and the Company agreespursuant to furnish supplemental copies of any such schedules and similar supporting attachments toa request for confidential treatment filed with the Securities and Exchange Commission upon request.Commission.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| COCA‑COLA BOTTLING CO. CONSOLIDATED | |
| (REGISTRANT) | |
|
|
|
Date: November | By: | /s/ |
|
|
|
|
|
|
|
| (Principal Financial Officer of the Registrant) |
|
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|
Date: November | By: | /s/ William J. Billiard |
|
| William J. Billiard |
|
| Senior Vice President and Chief Accounting Officer |
|
| (Principal Accounting Officer of the Registrant) |
|
|
|
6157