2 0 1 6 A N N U A L R E P O R T
P U R P O S E . P E O P L E . P O R T F O L I O .
W H A T M A K E S U S D I F F E R E N T ?
P U R P O S E . P E O P L E . P O R T F O L I O .
T O O U R S H A R E H O L D E R S
WE BELIEV E Our Purpose — to Honor God in All We
Do, to Serve Others, to Pursue Excellence and to Grow
Profitably — and the passion and dedication of our people
make Coke Consolidated special. When we are successfully
fulfilling Our Purpose, we believe our success as a business
will follow. And this year, as we grew Our Purpose and
our people, we grew our impact as a Company.
In 2016, we continued to grow profit-
ably by focusing on growing our business,
growing our territory footprint, and
growing our people. We also continued
the implementation of best practices
and innovative thinking throughout our
territory to further improve performance,
while expanding our product portfolio and
empowering the finest workforce to serve
our enlarged consumer base even better.
When we first announced our planned
territory expansion in 2013, we had 6,500
employees serving 21 million consumers in
11 states. Through our territory expansions
and manufacturing facility acquisitions
since that time, we have welcomed thou-
sands of talented new teammates into
the Coke Consolidated family, which
now numbers more than 13,000. Today,
our teammates are producing, planning,
selling and delivering a broad portfolio of
more than 300 sparkling and still brands
and flavors to meet the diverse demands
and preferences of more than 41 million
consumers in 16 states. Since the first an-
nouncement of our territory expansion
in 2013, we have nearly doubled our net
sales to over $3 billion in 2016, the highest
in our history.
This year, we thank our teammates
for their incredible passion and dedica-
tion, which helped us achieve ambitious
business goals and manage significant
transition, while continuing to serve others.
Together, we share a deep commitment
to enriching our communities through
servant leadership, which strengthens
our deep ties within our communities
and reflects the core of who we are as
a Company. We believe our solid fiscal
2016 net income of over $50.1 million is
a direct result of these efforts.
We remain firmly committed to pursu-
ing Our Purpose. We are passionate about
offering the greatest beverage portfolio
in the world and creating long-term
value for our shareholders, teammates
and communities. We thank you for your
continued support.
J. FRANK HARRISON, III
CHAIRMAN OF THE BOARD AND
HENRY W. FLINT
PRESIDENT AND
CHIEF EXECUTIVE OFFICER
CHIEF OPERATING OFFICER
1
T H E B O T T L I N G B U S I N E S S I S N ’ T
S I M P L E , B U T O U R
P U R P O S E I S C L E A R :
T O H O N O R G O D I N A L L W E D O .
T O S E R V E O T H E R S . T O P U R S U E
E X C E L L E N C E . T O
G R O W P R O F I T A B L Y .
2
P U R P O S E
O U R P U R P O S E is what drives our business. To honor
God in all we do is the standard we set for ourselves,
to act with respect and integrity, to embrace teamwork
and accountability, to give generously, and to be servant
leaders. By doing this, we believe we will continue to
grow profitably.
Every day, our teammates go the extra
mile to enable moments of happiness, to
inspire communities, and to serve others.
As we humbly serve each other and our
communities, we bring to life our core
values as a Company. Throughout the
year, our teammates served over 50,000
people in their communities, through
more than 380 local organizations —
from food banks to homeless shelters to
veteran support groups. We believe that
enriching the lives of individuals in need
strengthens our communities.
2016 was full of opportunities to pursue
excellence. As we integrated operations
of four manufacturing plants and 13
distribution locations, we worked across
The Coca-Cola System to streamline
our production and sourcing processes
and improve our transportation, ware-
housing, distribution, shared services and
other processes, which are so important
to meeting the needs of our customers
and consumers.
As a business striving to do well while
doing good, we focus daily on our pledge
to grow profitably. In 2016, we focused
on three main areas: growing our busi-
ness, growing our territory footprint,
and growing our people. We believe
our net sales of more than $3 billion
and our 2016 fiscal income of more
than $50.1 million are a direct result of
these efforts.
3
F R O M T H E C U S T O M E R
W H O
P L A C E S A N O R D E R , T O T H E D R I V E R
W H O D E L I V E R S I T, T O T H E
C O N S U M E R
W H O E N J O Y S
A N
I C E - C O L D D R I N K
O N A H O T S U M M E R D A Y , O U R
O R G A N I Z A T I O N B E G I N S A N D
E N D S W I T H P E O P L E.
4
4
P E O P L E
THIS YEAR,
WE WELCOMED
OVER 3,500 NEW
TEAMMATES.
As our Company
grows, we are
privileged to have
the talent, energy
and experience
of teammates
across 16 states.
We have worked
hard together to
implement best
practices, foster
our culture, and
provide broad
support to the
newest members
of our Coke
Consolidated
family.
S I N C E 1 9 0 2 , we have equipped and empowered our
people to thrive. The teammates who make our products,
merchandise our shelves, drive trucks, work with customers,
and provide financial, technological and planning support,
make Coke Consolidated what it is today.
Our success and growth are a direct
result of a committed workforce that pur-
sues excellence every day, and helps us
accomplish our financial and business goals.
From 2015 to 2016, Coke Consolidated
increased its total workforce from 9,500
to over 13,000, and stretched its con-
sumer base from 14 to 16 states, serving
41 million people across the Southeast,
Midwest and Mid-Atlantic regions. The
expertise and dedication of all our team-
mates helped us reach ambitious goals
during a year filled with transition and
new beginnings. We welcome our new
teammates and salute the efforts of all
Coke Consolidated teams.
5
W E A R E
P A S S I O N A T E A B O U T
O U R P O R T F O L I O : 3 0 0 O F T H E
W O R L D ’ S B E S T B R A N D S A N D
F L AVO R S I N 9 B E V E R AG E C AT E G O R I E S .
F R O M E N H A N C E D
W A T E R T O
J U I C E AND
T E A , S P O R T S D R I N K S
T O S PA R K L I N G
B E V E R A G E S .
6
P O R T F O L I O
AT COKE CONSOLIDATED, we provide consumers with
choices that refresh, refuel and rejuvenate. Targeted
strategies have led to growth in our sparkling and still
beverage categories and increased diversification of
our product portfolio. Over the past two years, our still
beverage category has increased from 24% to 34% of total
bottle and can sales. We also provide a diverse selection
of package sizes and low- and zero-calorie options within
our sparkling and still beverage brands. As our portfolio
expands, we are optimizing our facilities and other processes
to manage a much broader total beverage portfolio.
MD
DE
PA
VA
NC
Coke Consolidated
territory as of
12/31/16
WE CELEBRATED THE
GRAND OPENINGS of new
facilities in Piedmont, SC
and Annapolis, MD. These
investments enable us to be
more engaged with and more
efficiently serve customers
and consumers across our
distribution territory.
WE DROVE
SIGNIFICANT
CATEGORY
GROWTH in tea,
energy, sparkling
and dairy brands.
IL
IN
OH
WV
KY
TN
MS
AL
GA
WE CONTINUED TO EXPAND OUR
PORTFOLIO OF PRODUCTS to include
the Coca-Cola Mini Can Fridgepack,
Fanta Blue, Core Power Elite, Gold Peak
Extra Sweet, Minute Maid Refreshment
Watermelon, and Dasani Sparkling
Raspberry Lemonade Sleek Cans.
SC
FL
7
O U R P U R P O S E
T O H O N O R G O D I N A L L W E D O
T O S E R V E O T H E R S
T O P U R S U E E X C E L L E N C E
T O G R O W P R O F I T A B L Y
8
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 1, 2017
Commission file number 0-9286
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
56-0950585
(I.R.S. Employer
Identification Number)
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)
Securities Registered Pursuant to Section 12(b) of the Act:
Title of Each Class
Common Stock, $1.00 Par Value
Name of Each Exchange on Which Registered
The NASDAQ Global Select Market
Securities Registered Pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No
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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment
to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions
of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
Accelerated filer
Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity
was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter.
Common Stock, $l.00 Par Value
Class B Common Stock, $l.00 Par Value
Market Value as of July 1, 2016
$674,640,784
*
*No market exists for the Class B Common Stock, which is neither registered under Section 12 of the Act nor subject to Section 15(d) of the Act. The Class B Common
Stock is convertible into Common Stock on a share-for-share basis at the option of the holder.
Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date.
Class
Common Stock, $1.00 Par Value
Class B Common Stock, $1.00 Par Value
Outstanding as of February 26, 2017
7,141,447
2,171,702
Documents Incorporated by Reference
Portions of the registrant’s Proxy Statement to be filed pursuant to Section 14 of the Exchange Act with respect to the registrant’s 2017
Annual Meeting of Stockholders.
Part III, Items 10-14
Table of Contents
Part I
Page
Business .............................................................................................................................................................................
Item 1.
3
Item 1A. Risk Factors ....................................................................................................................................................................... 17
Item 1B. Unresolved Staff Comments .............................................................................................................................................. 23
Properties ........................................................................................................................................................................... 24
Item 2.
Legal Proceedings .............................................................................................................................................................. 25
Item 3.
Mine Safety Disclosures .................................................................................................................................................... 25
Item 4.
Executive Officers of the Company ................................................................................................................................... 26
Part II
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities .............. 28
Item 5.
Selected Financial Data...................................................................................................................................................... 30
Item 6.
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations............................................. 31
Item 7A. Quantitative and Qualitative Disclosures about Market Risk ............................................................................................ 61
Financial Statements and Supplementary Data .................................................................................................................. 63
Item 8.
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ............................................ 119
Item 9A. Controls and Procedures .................................................................................................................................................... 119
Item 9B. Other Information .............................................................................................................................................................. 119
Item 10. Directors, Executive Officers and Corporate Governance ................................................................................................. 120
Item 11. Executive Compensation ................................................................................................................................................... 120
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters .......................... 120
Item 13. Certain Relationships and Related Transactions, and Director Independence ................................................................... 120
Item 14. Principal Accountant Fees and Services ............................................................................................................................ 120
Part III
Item 15. Exhibits and Financial Statement Schedules...................................................................................................................... 121
Item 16. Form 10-K Summary ......................................................................................................................................................... 127
Signatures .......................................................................................................................................................................... 129
Part IV
2
Item 1.
Business
Introduction
PART I
Coca-Cola Bottling Co. Consolidated, a Delaware corporation (together with its majority-owned subsidiaries, the “Company,” “we,”
“our” or “us”), produces, markets and distributes nonalcoholic beverages. 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. More than 85% of our total bottle/can volume to retail customers consist 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,
serve others, pursue excellence and grow profitably. Our stock is traded on the NASDAQ exchange under the symbol “COKE.”
Ownership
As of January 1, 2017, The Coca-Cola Company owned approximately 35% of the Company’s total outstanding Common Stock,
representing approximately 5% of the total voting power of the Company’s combined Common Stock and Class B Common Stock. As
long as The Coca-Cola Company holds the number of shares of Common Stock that 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 in favor of such
designee. The Coca-Cola Company does not own any shares of Class B Common Stock of the Company. J. Frank Harrison III, the
Chairman of the Board and the Chief Executive Officer of the Company, owns shares of Common Stock and Class B Common Stock
representing approximately 86% of the total voting power of the Company’s combined Common Stock and Class B Common Stock.
Beverage Products
We offer a range of flavors designed to meet the demands of our consumers. Our product offerings include 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.
There are two main categories of sales, which include bottle/can sales and other sales. Bottle/can sales include products packaged in
plastic bottles and aluminum cans. Other sales include sales to other Coca-Cola bottlers and “post-mix” products. Post-mix products
are dispensed through equipment that mixes the fountain syrup with carbonated or still water, enabling fountain retailers to sell
finished products to consumers in cups or glasses.
Bottle/can sales represented approximately 84%, 82% and 80% of total net sales for fiscal 2016 (“2016”), fiscal 2015 (“2015”) and
fiscal 2014 (“2014”), respectively. The sparkling beverage category represented approximately 66%, 70% and 76% of total bottle/can
sales during 2016, 2015 and 2014, respectively.
The following table sets forth some of our most important products, including products The Coca-Cola Company and other beverage
companies have licensed to us.
The Coca-Cola Company Products
Core Power
Dasani
Dasani Flavors
Sparkling Beverages
Barqs Root Beer
Cherry Coke
Cherry Coke Zero
Coca-Cola
Coca-Cola Life
Coca-Cola Vanilla
Coca-Cola Zero
Dasani Sparkling
Diet Coke
Diet Coke Splenda®
Fanta Flavors
Fresca
Mello Yello
Minute Maid Sparkling FUZE
Pibb Xtra
Seagrams Ginger Ale
Sprite
Sprite Zero
TAB
glacéau fruitwater
glacéau smartwater
glacéau vitaminwater Yup Milk
Gold Peak Tea
ZICO
Beverage Products Licensed
by Other Beverage Companies
Diet Dr Pepper
Still Beverages
Honest Tea
Minute Maid Adult Refreshments Dr Pepper
Minute Maid Juices To Go
POWERade
POWERade Zero
Tum-E Yummies
Full Throttle
Monster Energy products
NOS®
Peace Tea
Sundrop
3
Territories
We are the largest independent Coca-Cola bottler in the United States, distributing products in 16 states. Historically, our operational
footprint included markets located in North Carolina, South Carolina, south Alabama, south Georgia, central Tennessee, western
Virginia and West Virginia (the “Legacy Territories”).
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 of related distribution assets (the “Distribution Territory Expansion Transactions”), as well as the acquisition of
regional manufacturing facilities (“Regional Manufacturing Facilities”) and related manufacturing assets previously owned by CCR
(the “Manufacturing Facility Expansion Transactions” and, together with the Distribution Territory Expansion Transactions, the
“Expansion Transactions”).
The Company’s rights to distribute and market beverage products of The Coca-Cola Company in the Expansion Territories are
governed by a Comprehensive Beverage Agreement, as defined below, entered into at each closing for Expansion Territories and are
different from the rights we hold under agreements with The Coca-Cola Company to serve the markets located in the Legacy
Territories. The Company is authorized to manufacture beverages bearing trademarks of The Coca-Cola Company using cold-fill
technology at the Regional Manufacturing Facilities pursuant to a Regional Manufacturing Agreement, as defined below, entered into
at each closing of a Manufacturing Facility Expansion Transaction. The Company has acquired the following Expansion Territories
and Regional Manufacturing Facilities as of January 1, 2017:
Expansion Territories
Johnson City and Morristown, Tennessee(1) .....................................................................................................
Knoxville, Tennessee(1) ....................................................................................................................................
Cleveland and Cookeville, Tennessee(2) ...........................................................................................................
Louisville, Kentucky and Evansville, Indiana(2)...............................................................................................
Paducah and Pikeville, Kentucky(2) ..................................................................................................................
Lexington, Kentucky for Jackson, Tennessee Exchange(2) ..............................................................................
Norfolk, Fredericksburg and Staunton, Virginia and Elizabeth City, North Carolina(2) ..................................
Annapolis, Maryland Make-Ready Center(2) ....................................................................................................
Easton and Salisbury, Maryland and Richmond and Yorktown, Virginia(3) ....................................................
Alexandria, Virginia and Capitol Heights and La Plata, Maryland(3) ...............................................................
Baltimore, Hagerstown and Cumberland, Maryland(3) .....................................................................................
Cincinnati, Dayton, Lima and Portsmouth, Ohio and Louisa, Kentucky(3) ......................................................
Acquisition /
Exchange Date
May 23, 2014
October 24, 2014
January 30, 2015
February 27, 2015
May 1, 2015
May 1, 2015
October 30, 2015
October 30, 2015
January 29, 2016
April 1, 2016
April 29, 2016
October 28, 2016
Regional Manufacturing Facilities
Sandston, Virginia(3) .........................................................................................................................................
Silver Spring and Baltimore, Maryland(3) ........................................................................................................
Cincinnati, Ohio(3) ............................................................................................................................................
Acquisition Date
January 29, 2016
April 29, 2016
October 28, 2016
(1) Collectively, the 2014 Expansion Territories.
(2) Collectively, the 2015 Expansion Territories.
(3) Collectively, the 2016 Expansion Transactions.
4
2016 Letters of Intent for Additional Expansion Transactions
In February 2016, the Company entered into a non-binding letter of intent (the “February 2016 LOI”) with The Coca-Cola Company
to provide exclusive distribution rights for the Company in the following major markets: Akron, Elyria, Toledo, Willoughby, and
Youngstown County in Ohio. Pursuant to the February 2016 LOI, CCR would:
(i) grant the Company exclusive rights for the distribution, promotion, marketing and sale of The Coca-Cola Company-owned
and -licensed products in additional territories served by CCR in northern Ohio;
(ii) sell the Company certain assets that included rights to distribute those cross-licensed brands distributed in the territories by
CCR as well as the assets used by CCR in the distribution of the cross-licensed brands and The Coca-Cola Company brands;
and
(iii) sell to the Company an additional Regional Manufacturing Facility currently owned by CCR located in Twinsburg, Ohio and
related manufacturing assets.
In June 2016, the Company entered into a non-binding letter of intent (the “CCR June 2016 LOI”) with The Coca-Cola Company to
provide exclusive distribution rights for the Company in the following major markets: Little Rock, West Memphis and southern
Arkansas; Memphis, Tennessee; and Louisa, Kentucky. Pursuant to the CCR June 2016 LOI, CCR would:
(i) grant the Company exclusive rights for the distribution, promotion, marketing and sale of The Coca-Cola Company-owned
and –licensed products in additional territories in northeastern Kentucky and southwestern West Virginia served by CCR’s
distribution center in Louisa, Kentucky;
(ii) sell the Company certain assets that included rights to distribute those cross-licensed brands distributed in the territories by
CCR as well as the assets used by CCR in the distribution of the cross-licensed brands and The Coca‑Cola Company brands;
and
(iii) transfer exclusive rights and associated distribution assets and working capital for territory in parts of Arkansas, southwestern
Tennessee and northwestern Mississippi and two additional Regional Manufacturing Facilities located in Memphis,
Tennessee and West Memphis, Arkansas currently owned by CCR in exchange for territory in southern Alabama, southern
Mississippi and southern Georgia and a Regional Manufacturing Facility in Mobile, Alabama currently owned by the
Company. The exchange includes rights to the distribution, promotion, marketing and sale of The Coca-Cola Company-
owned and –licensed products and certain cross-licensed brands in each territory and related manufacturing assets.
In June 2016, the Company entered into a non-binding letter of intent with Coca-Cola Bottling Company United, Inc. (“United”), an
independent bottler that is unrelated to the Company (the “United June 2016 LOI”). Pursuant to this letter of intent, United would
transfer exclusive rights and associated distribution assets and working capital in certain territory in and around Spartanburg and
Bluffton, South Carolina, currently served by United’s distribution centers located in Spartanburg, South Carolina and Savannah,
Georgia, in exchange for certain territory in south-central Tennessee, northwest Alabama and northwest Florida currently served by
the Company’s distribution centers located in Florence, Alabama and Panama City, Florida. The exchange includes rights to the
distribution, promotion, marketing and sale of The Coca-Cola Company–owned and –licensed products and certain cross-licensed
brands in each territory.
The Company is continuing to work towards a definitive agreement or agreements with The Coca-Cola Company and CCR for the
proposed Expansion Transactions described in the February 2016 LOI and the CCR June 2016 LOI. The Company is also continuing
to work towards a definitive agreement or agreements with United for the proposed transactions described in the United June 2016
LOI.
National Product Supply Governance Agreement (the “NPSG Governance Agreement”)
The NPSG Governance Agreement was executed in October 2015 by The Coca-Cola Company and Regional Producing Bottlers in
The Coca-Cola Company’s national product supply system. Pursuant to the NPSG Governance Agreement, The Coca-Cola Company
and the Regional Producing Bottlers (“RPBs”) have formed a national product supply group (the “NPSG”) and agreed to 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 over
its North American bottling territories, additional RPBs will be added to the NPSG Board. As of January 2017, the NPSG Board
consisted of the Company, The Coca-Cola-Company and five 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.
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 the ongoing operations of the NPSG. The Company is obligated to pay a
5
certain portion of the costs of operating the NPSG. 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 will make investments in their
respective manufacturing assets and will implement Coca-Cola system strategic investment opportunities that are consistent with the
NPSG Governance Agreement.
CONA Services LLC (“CONA”)
The Company is a member of CONA, an entity formed with The Coca-Cola Company and certain Coca-Cola bottlers to provide
business process and information technology services to its members. The Company is subject to a Master Services Agreement (the
“Master Services Agreement”) 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 to
the Company, CONA provides 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 of products
(collectively, the “CONA Services”).
Under the CONA limited liability agreement executed January 27, 2016 (as amended or restated from time to time, the “CONA LLC
Agreement”), the Company and other members of CONA are required to make capital contributions to CONA if and when approved
by CONA’s board of directors, which is comprised of representatives of the members. The Company currently has the right to
designate one of the members of CONA’s board of directors and has a percentage interest in CONA of approximately 19%.
Pursuant to the Master Services Agreement, CONA agreed to make available, and authorized the Company to use, the CONA System
in connection with the distribution, sale, marketing and promotion of nonalcoholic beverages the Company is authorized to distribute
under its comprehensive beverage agreements 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 right to use the CONA System and right to receive the CONA Services under the Master Services
Agreement, the Company is charged quarterly service fees by CONA based on the number of physical cases of Beverages distributed
by the Company during the applicable period in the Territories where the CONA Services have been implemented (the “Service
Fees”). Upon the earlier of (i) all members of CONA beginning to use the CONA System in all territories in which they distribute
products of The Coca-Cola Company (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 Fees will be changed to be an amount per
physical case of Beverages distributed in any portion of the 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 by all of the members of
CONA, subject to certain exceptions. The Company is obligated to pay the Service Fees under the Master Services Agreement even if
it is not using the CONA System for all or any portion of its operations in the Territories.
Beverage Agreements for Legacy Territories
We hold numerous contracts with The Coca-Cola Company which entitle us to produce, market and distribute
The Coca-Cola Company’s nonalcoholic beverages in bottles, cans and five gallon pressurized pre-mix containers in the Legacy
Territories. We have similar arrangements with Dr Pepper Snapple Group, Inc., and other beverage companies for the Legacy
Territories.
We purchase concentrates from The Coca-Cola Company to produce, market and distribute its principal sparkling beverages in the
Legacy Territories under two basic forms of beverage agreements with The Coca-Cola Company:
(i) beverage agreements for sparkling beverages bearing the trademark “Coca-Cola” or “Coke” (the “Coca-Cola Trademark
Beverages” and “Cola Beverage Agreements”), and
(ii) beverage agreements for other sparkling beverages of The Coca-Cola Company (the “Allied Beverages” and “Allied
Beverage Agreements” or collectively referred to as the “Cola and Allied Beverage Agreements”).
The Company is subject to Cola Beverage Agreements and Allied Beverage Agreements for various specified Legacy Territories.
We also purchase finished goods and distribute certain still beverages, such as sports drinks and juice drinks, from
The Coca-Cola Company or its designees or joint ventures, and produce, market and distribute Dasani water products, pursuant to the
terms of marketing and distribution agreements applicable to the Legacy Territories (the “Still Beverage Agreements”).
6
Cola Beverage Agreements with The Coca-Cola Company
The Cola Beverage Agreements for the Legacy Territories provide that we will purchase our entire requirements of concentrates or
syrups for Coca-Cola Trademark Beverages from The Coca-Cola Company at prices, terms of payment, and other terms and
conditions of supply determined from time-to-time by The Coca-Cola Company at its sole discretion and prohibit us from producing,
distributing, or handling cola products other than those of The Coca-Cola Company. We have the exclusive right to manufacture and
distribute Coca-Cola Trademark Beverages for sale in authorized containers in the Legacy Territories. The Coca-Cola Company may
determine, at its sole discretion, what types of containers are authorized for use with its products. The Company may not sell
Coca-Cola Trademark Beverages outside the Legacy Territories except by agreement with The Coca-Cola Company.
Pursuant to the Cola Beverage Agreements, we are obligated, among other things, to:
maintain such plant and equipment, staff and distribution and vending facilities capable of manufacturing, packaging and
distributing Coca-Cola Trademark Beverages in accordance with the Cola Beverage Agreements and in sufficient quantities
to fully satisfy the demand for these beverages in the Legacy Territories;
undertake quality control measures and maintain sanitation standards prescribed by The Coca-Cola Company;
develop, stimulate and fully satisfy the demand for Coca-Cola Trademark Beverages in the Legacy Territories, and use all
approved means and spend such funds on advertising and other forms of marketing as may be reasonably required to satisfy
that objective; and
maintain such sound financial capacity as may be reasonably necessary to ensure the performance of our obligations to
The Coca-Cola Company.
We are required to meet annually with The Coca-Cola Company to present our marketing, management and advertising plans for the
Coca-Cola Trademark Beverages for the upcoming year, including financial plans to evidence we have the consolidated financial
capacity to perform our duties and obligations to The Coca-Cola Company. The Coca-Cola Company may not unreasonably withhold
approval of such plans. If we carry out these plans in all material respects, we will be considered to have satisfied our obligations to
develop, stimulate, and fully satisfy the demand for the Coca-Cola Trademark Beverages and to maintain the requisite financial
capacity for the period of time covered by the plan.
Failure to carry out such plans in all material respects would constitute an event of default that, if not cured within 120 days of written
notice of the failure, would give The Coca-Cola Company the right to terminate the Cola Beverage Agreements. If at any time we fail
to carry out a plan in all material respects in any geographic segment of the Legacy Territories, as defined by
The Coca-Cola Company, and such failure is not cured within six months of written notice of the failure, The Coca-Cola Company
may reduce the territory covered by that Cola Beverage Agreement by eliminating the portion of the territory in which such failure has
occurred.
The Coca-Cola Company has no obligation under the Cola Beverage Agreements to participate with us in expenditures for advertising
and marketing. As it has in the past, The Coca-Cola Company may contribute to such expenditures and undertake independent
advertising and marketing activities, as well as advertising and sales promotion programs which require our mutual cooperation and
financial support. The future levels of marketing funding support and promotional funds provided by The Coca-Cola Company may
vary materially from the levels provided in prior years.
If we acquire control, directly or indirectly, of any bottler of Coca-Cola Trademark Beverages, or any party controlling a bottler of
Coca-Cola Trademark Beverages, we must cause the acquired bottler to amend its agreement for the Coca-Cola Trademark Beverages
to conform to the terms of the Cola Beverage Agreements.
The Cola Beverage Agreements are perpetual, subject to termination by The Coca-Cola Company upon the occurrence of an event of
default by the Company. If any Cola Beverage Agreement is terminated as a result of an event of default, The Coca-Cola Company
has the right to terminate all other Cola Beverage Agreements to which we are subject. Events of default with respect to each Cola
Beverage Agreement include:
production, sale or ownership in any entity which produces or sells any cola product not authorized by
The Coca-Cola Company or any cola product that may be confused with or is an imitation of the trade dress, trademark,
tradename or authorized container of a cola product of The Coca-Cola Company;
insolvency, bankruptcy, dissolution, receivership, or the like;
any disposition by the Company of any voting securities of any bottling company subsidiary without the consent of
The Coca-Cola Company; and
any material breach of any of our obligations under such Cola Beverage Agreement remaining unresolved for 120 days after
written notice by The Coca-Cola Company.
7
We are prohibited from assigning, transferring or pledging our Cola Beverage Agreements or any interest therein, whether voluntarily
or by operation of law, without the prior consent of The Coca-Cola Company.
Allied Beverage Agreements with The Coca-Cola Company
The Allied Beverage Agreements contain provisions similar to those of the Cola Beverage Agreements with respect to the sale of
beverages outside the Legacy Territories, authorized containers, planning, quality control, transfer restrictions and related matters, but
have certain significant differences from the Cola Beverage Agreements. Pursuant to the Allied Beverage Agreements, we have
exclusive rights to distribute the Allied Beverages in authorized containers in specified Legacy Territories. Similar to the Cola
Beverage Agreements, we have advertising, marketing, and promotional obligations. However, under the Allied Beverage
Agreements, there is no restriction for most brands as to the marketing of products with similar flavors, as long as there is no
manufacturing or handling of other products imitating, infringing upon, or causing confusion with, the products of
The Coca-Cola Company. The Coca-Cola Company has the right to discontinue any or all Allied Beverages, and the Company has a
right, but not an obligation, under the Allied Beverage Agreements to elect to market any new beverage introduced by
The Coca-Cola Company under the trademarks covered by the respective Allied Beverage Agreements.
Allied Beverage Agreements have a term of 10 years and are renewable at our option for an additional 10 years at the end of each
term. We intend to renew substantially all of the Allied Beverage Agreements as they expire. The Allied Beverage Agreements are
subject to termination in the event of default by the Company. The Coca-Cola Company may terminate an Allied Beverage Agreement
in the event of:
insolvency, bankruptcy, dissolution, receivership, or the like;
termination of a Cola Beverage Agreement by either party for any reason; or
any material breach of any of our obligations under such Allied Beverage Agreement remaining unresolved for 120 days after
required prior written notice by The Coca-Cola Company.
Supplementary Agreement Relating to Cola and Allied Beverage Agreements
The Company and The Coca-Cola Company are parties to a Letter Agreement (the “Supplementary Agreement”) that supplements or
modifies some provisions of the Cola and Allied Beverage Agreements. The Supplementary Agreement provides that
The Coca-Cola Company will:
exercise good faith and fair dealing in its relationship with us under the Cola and Allied Beverage Agreements;
offer marketing funding support and exercise its rights under the Cola and Allied Beverage Agreements in a manner
consistent with its dealings with comparable bottlers;
offer to us any written amendment to the Cola and Allied Beverage Agreements, except amendments dealing with transfer of
ownership, which it enters into with any other bottler in the United States subject to contracts substantially similar to the Cola
and Allied Beverage Agreements; and
subject to certain limited exceptions, sell syrups and concentrates to us at prices no greater than those charged to other
bottlers subject to contracts substantially similar to the Cola and Allied Beverage Agreements.
The Supplementary Agreement also permits transfers of our capital stock otherwise limited by the Cola and Allied Beverage
Agreements.
Impact of Territory Conversion Agreement on Cola and Allied Beverage Agreements
Nearly all of our Cola and Allied Beverage Agreements are subject to being amended, restated and converted into a Final CBA (as
described below) pursuant to the Territory Conversion Agreement described below, as disclosed in the Company’s Current Report on
Form 8-K filed with the Securities and Exchange Commission (the “SEC”) on September 28, 2015.
Pricing of Coca-Cola Trademark Beverages and Allied Beverages
In accordance with the Cola and Allied Beverage Agreements, except as provided in the Supplementary Agreement and in incidence-
based pricing agreements, The Coca-Cola Company establishes the prices charged to the Company for concentrates of Coca-Cola
Trademark Beverages and Allied Beverages. The Coca-Cola Company has no rights under the beverage agreements to establish the
resale prices at which we sell its products.
8
Purchases of concentrate for all sparkling beverages from The Coca-Cola Company are governed by incidence-based pricing
arrangements, which are generally entered into for one- or two-year terms. Under the incidence-based pricing model, the concentrate
price charged to us by The Coca-Cola Company is impacted by a number of factors, including the incidence rate in effect, our pricing
and sales of finished products, the channels in which the finished products are sold and package mix.
During the one-year term of our incidence-based pricing agreement that ended on December 31, 2016, the pricing of such concentrate
was governed by the incidence-based pricing model rather than the Cola and Allied Beverage Agreements for the Legacy Territories.
Beginning January 1, 2017, incidence-based pricing is governed by the Expanding Participating Bottler Revenue Incidence Agreement
entered into with The Coca-Cola Company on September 23, 2015, as disclosed in the Company’s Current Report on Form 8-K filed
with the SEC on September 28, 2015.
Still Beverage Agreements with The Coca-Cola Company
The Still Beverage Agreements for the Legacy Territories contain provisions that are similar to the Cola and Allied Beverage
Agreements with respect to authorized containers, planning, quality control, transfer restrictions and related matters, but have certain
material differences. Unlike the Cola and Allied Beverage Agreements, which grant us exclusivity in the distribution of the covered
beverages in the Legacy Territories, the Still Beverage Agreements grant exclusivity but permit The Coca-Cola Company to test-
market the still beverage products in the Legacy Territories, subject to our right of first refusal, and to sell the still beverages to
commissaries for delivery to retail outlets in the Legacy Territories where still beverages are consumed on-premises, such as
restaurants. The Coca-Cola Company must pay us certain fees for lost volume, delivery, and taxes in the event of such commissary
sales.
Approved alternative route to market projects undertaken by the Company, The Coca-Cola Company, and other bottlers of Coca-Cola
products would, in some instances, permit delivery of certain products of The Coca-Cola Company into the territories of almost all
bottlers, in exchange for compensation in most circumstances, despite the terms of the beverage agreements making such territories
exclusive. Also, under the Still Beverage Agreements for the Legacy Territories, we may not sell other beverages in the same product
category.
The Coca-Cola Company, at its sole discretion, establishes the prices we must pay for the still beverages purchased as finished goods
or, in the case of Dasani, the concentrate or finished goods, but has agreed, under certain circumstances for some products, to give the
benefit of more favorable pricing if such pricing is offered to other bottlers of Coca-Cola products.
Each Still Beverage Agreement for the Legacy Territories has a term of 10 or 15 years and is renewable at our option for an additional
10 years at the end of each term. We intend to renew substantially all of the Still Beverage Agreements as they expire.
Nearly all of our Still Beverage Agreements are subject to amendment, restatement and conversion into a Final CBA pursuant to the
Territory Conversion Agreement, as discussed below.
Other Beverage Agreements with The Coca-Cola Company
We have entered into a distribution agreement with Energy Brands, Inc. (“Energy Brands”), a wholly-owned subsidiary of
The Coca-Cola Company. Energy Brands, also known as glacéau, is a producer and distributor of branded enhanced water products
including vitaminwater and smartwater, which are still beverage products. The agreement has a term of 10 years and automatically
renews for succeeding 10-year terms, subject to a 12-month non-renewal notification by the Company. The agreement covers most of
the Legacy Territories, requires us to distribute Energy Brands enhanced water products exclusively, and permits Energy Brands to
distribute the products in some channels within the Legacy Territories. Nearly all of our agreements with Energy Brands are subject to
amendment, restatement and conversion into a Final CBA pursuant to the Territory Conversion Agreement, as discussed below.
In June 2016, we entered into an agreement with The Coca-Cola Company and CCR which authorizes us 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, beginning on January 1, 2017. This authorization
shall remain valid and effective as long as the Company’s authorization to distribute such products in any other portions of its Legacy
Territories remains in full force and effect under applicable bottling agreements. Pursuant to the agreement, the Company made a
payment to The Coca-Cola Company of $15.6 million on February 16, 2017, 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.
9
We also sell Coca-Cola and other post-mix products of The Coca-Cola Company on a non-exclusive basis. The Coca-Cola Company
establishes the prices charged to us for its post-mix products. In addition, we produce some products for sale to other Coca-Cola
bottlers and CCR. These sales have lower margins but allow us to achieve higher utilization of our production equipment and
facilities.
Beverage Agreements with Other Licensors
We have beverage agreements for the Legacy Territories with Dr Pepper Snapple Group, Inc. for Dr Pepper and Sundrop brands,
which are similar to the Cola and Allied Beverage Agreements for the Legacy Territories. These beverage agreements are perpetual in
nature but may be terminated by us upon 90 days’ notice. The price for syrup or concentrate is set by the beverage companies from
time to time. These beverage agreements also contain similar restrictions on the use of trademarks, approved bottles, cans and labels
and sale of imitations or substitutes, as well as termination for cause provisions. We also sell post-mix products of Dr Pepper Snapple
Group, Inc.
We have a distribution agreement with Monster Energy Company which grants us the rights to distribute energy drink products
offered, packaged and/or marketed by Monster Energy Company under the primary brand name “Monster” in the same geographic
territory the Company services for the distribution of beverage products of The Coca-Cola Company.
The territories covered by beverage agreements with other licensors for the Legacy Territories are not always aligned with the Legacy
Territories covered by the Cola and Allied Beverage Agreements but are generally within those territory boundaries. Sales of
beverages by the Company under these other agreements in the Legacy Territories represented approximately 12%, 13% and 13% of
our bottle/can volume to retail customers for each of 2016, 2015 and 2014, respectively.
Beverage Agreements for Expansion Territories
For the Expansion Territories, the Company has rights to market and distribute The Coca-Cola Company’s nonalcoholic beverages
under Comprehensive Beverage Agreements, which do not include the right to produce such beverages. The beverage agreements
pertaining to the Expansion Territories are described below under the headings “Beverage Agreements with The Coca-Cola Company
for the Expansion Territories” and “Beverage Agreements with Other Licensors for the Expansion Territories.”
As part of these Expansion Transactions, we have agreed, subject to certain limited exceptions, to refrain until January 1, 2020 from
acquiring or developing any line of business inside or outside of our territories governed by a Comprehensive Beverage Agreement or
similar agreement without the consent of The Coca-Cola Company, which consent may not be unreasonably withheld.
Beverage Agreements with The Coca-Cola Company for the Expansion Territories
Each principal asset purchase agreement we entered into for Distribution Territory Expansion Transactions provides for us to:
(a) purchase from CCR (i) certain rights relating to the distribution, promotion, marketing and sale of certain beverage brands
not owned or licensed by The Coca-Cola Company (“cross-licensed brands”) but then distributed by CCR in the applicable
portion of the Expansion Territories and (ii) certain assets related to the distribution, promotion, marketing and sale of both
The Coca-Cola Company brands and cross-licensed brands then distributed by CCR in the applicable portion of the
Expansion Territories, and
(b) assume certain liabilities and obligations of CCR relating to the business acquired.
At each of the closings for the Distribution Territory Expansion Transactions, the Company, CCR and The Coca-Cola Company have
entered into a comprehensive beverage agreement (“Initial CBA”) pursuant to which CCR granted us certain exclusive rights to
distribute, promote, market and sell the Covered Beverages and Related Products distinguished by the Trademarks, as those terms are
defined in the Initial CBAs, in the applicable portion of the Expansion Territories in exchange for us agreeing to make a quarterly sub-
bottling payment to CCR on a continuing basis.
As of January 1, 2017, we had recorded a liability of $253.4 million to reflect the estimated fair value of the contingent consideration
related to future sub-bottling payments. Each quarter, the liability to reflect the estimated fair value of the contingent consideration
related to future sub-bottling payments is adjusted to fair value. See Note 3 and Note 12 to the consolidated financial statements for
additional information.
10
Other than the brands of The Coca-Cola Company and related products and expressly permitted existing cross-licensed brands sold in
an Expansion Territory, each Initial CBA provides that we will not be permitted to produce, manufacture, prepare, package, distribute,
sell, deal in or otherwise use or handle any beverages, beverage components or other beverage products in the Expansion Territory
unless otherwise consented to by The Coca-Cola Company.
Under the Initial CBAs, we are obligated, among other things, to:
make capital expenditures in our business in the Expansion Territories;
buy exclusively from The Coca-Cola Company (directly or through CCR or another affiliate) or an authorized supplier, all
beverage and related products we are authorized to distribute;
expend funds for marketing and promoting the beverage and related products we are authorized to distribute; and
maintain certain financial capacity in order to be financially able to perform our obligations under the Initial CBAs.
Each Initial CBA has a term of ten years and is automatically renewed for successive additional terms of ten years each unless we give
notice to terminate at least one year prior to the expiration of a ten year term. The Initial CBA is subject to customary termination
provisions by The Coca-Cola Company, including the Company’s insolvency, bankruptcy or similar proceedings and cross-default
with other beverage agreements.
Pursuant to a territory conversion agreement entered into with CCR and The Coca-Cola Company in September 2015 (the “Territory
Conversion Agreement”), we have agreed, subject to limited exceptions, to amend, restate and convert all of our Cola and Allied
Beverage Agreements, Still Beverage Agreements, Initial CBAs and other bottling agreements with The Coca-Cola Company or CCR
that authorize us to produce and/or distribute certain covered beverages defined in the Initial CBAs (excluding any bottling
agreements with respect to the greater Lexington, Kentucky territory we received pursuant to the Asset Exchange Transaction) to a
new and final form comprehensive beverage agreement (the “Final CBA” and, together with the Initial CBAs, referred to as the
“CBAs” or the “Comprehensive Beverage Agreements”) in the future.
The Final CBA is similar to the Initial CBA in many respects, but will include certain modifications and several new business,
operational, governance and sale process provisions, including the need to obtain The Coca-Cola Company’s prior approval of a
potential purchase of the Company or our aggregate businesses directly and primarily related to the marketing, promotion, distribution
and sale of certain beverages of The Coca-Cola Company. The Coca-Cola Company will also have the right to terminate the Final
CBA in the event of an uncured default by us.
At the time of the conversion of the bottling agreements for the Legacy Territories to the Final CBA, CCR will pay to us a fee in an
amount equivalent to 0.5 times the EBITDA we generate 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 us, or (ii) owned by or
licensed to Monster Energy Company on which we pay, and The Coca-Cola Company receives, a facilitation fee.
Beverage Agreements with Other Licensors for the Expansion Territories
We have a regional master license agreement for the Expansion Territories with Dr Pepper Snapple Group, Inc., for Dr Pepper brands.
This agreement is generally similar to our beverage agreements with Dr Pepper Snapple Group, Inc. for the Legacy Territories, except
it has a term of ten years, renewable at our option for an additional ten-year term. In addition, we also have the right under our
distribution agreement with Monster Energy Company to distribute energy drink products offered, packaged and/or marketed by
Monster Energy Company under the primary brand name “Monster” within the Expansion Territories.
Product Supply Arrangements
We have historically had a production arrangement with CCR to buy and sell finished products at cost. In the Distribution Territory
Expansion Transactions, we continue to have, with certain exceptions, an agreement to purchase finished beverage products from
CCR’s manufacturing facilities servicing customers in certain Expansion Territories at a cost-based price, subject to adjustment in
accordance with our current incidence-based pricing agreement with The Coca-Cola Company described above, as applicable to the
Expansion Territory. Under certain exceptions, we may produce finished goods for our own distribution in an Expansion Territory.
Regional Manufacturing Agreements with The Coca-Cola Company for the Expansion Territories
In 2016, the Company acquired Regional Manufacturing Facilities in Sandston, Virginia and Baltimore and Silver Spring, Maryland
pursuant to the October 2015 APA. We are now authorized to manufacture beverages bearing trademarks of The Coca-Cola Company
using cold-fill technology at these Regional Manufacturing Facilities pursuant to an Initial Regional Manufacturing Agreement
(“Initial RMA”). The Initial RMA refers to those beverages as “Authorized Covered Beverages.”
11
Subject to the right of The Coca-Cola Company to terminate the Initial RMA in the event of an uncured default by the Company, the
Initial RMA has a term that continues for the duration of the term of our CBAs with The Coca-Cola Company and CCR. Other than
Authorized Covered Beverages, certain cross-licensed brands we are permitted to distribute under our CBAs, and certain other
expressly permitted existing cross-licensed brands, the Initial RMA prohibits us from manufacturing any Beverages, Beverage
Components (as such terms are defined in the form of the Initial RMA) or other beverage products at the Regional Manufacturing
Facilities unless otherwise consented to by The Coca-Cola Company.
Pursuant to its terms, each Initial RMA will be amended, restated and converted into a final form of regional manufacturing agreement
(“Final RMA”) concurrent with the conversion of our bottling agreements to the Final CBA under the Territory Conversion
Agreement. Under the Final RMA, our aggregate business directly and primarily related to the manufacture of Authorized Covered
Beverages, permitted third party beverage products and other beverages and beverage products of The Coca-Cola Company will be
subject to the same agreed upon sale process provisions included in the Final CBA, including the need to obtain
The Coca-Cola Company’s prior approval of a potential purchaser of such manufacturing business. The Coca-Cola Company will
have the right to terminate the Final RMA in the event of an uncured default by us. The Final RMA also will be subject to termination
by The Coca-Cola Company in the event of an uncured default by us under the Final CBA or under the NPSG Governance
Agreement.
12
Markets Served and Production and Distribution Facilities
As of January 1, 2017, we currently hold bottling rights in the Legacy Territories and Expansion Territories from
The Coca-Cola Company covering 10 principal geographic markets and a total population of approximately 41.1 million. Certain
information regarding each of these markets follows:
Approximate
Regional
Population
10.0 million
Production /
Distribution
Facility
in Region
Charlotte, NC
Number of Sales
Distribution
Facilities in Region
12
4.0 million
None
1.0 million
Mobile, AL
1.2 million
None
Geographic
Region
North Carolina
South Carolina
Southern Alabama
/ Mississippi
Georgia / Florida /
Eastern Alabama
Tennessee /
Northwest
Alabama
Region Includes
The majority of North Carolina, including
Charlotte, Raleigh, Greensboro, Winston-
Salem, High Point, Hickory, Asheville,
Fayetteville, Wilmington, Elizabeth City and
the surrounding areas.
The majority of South Carolina, including
Charleston, Columbia, Greenville, Myrtle
Beach and the surrounding areas.
A portion of southwestern Alabama, including
Mobile and surrounding areas, and a portion of
southeastern Mississippi.
A small portion of eastern Alabama, a portion
of southwestern Georgia, including Columbus
and surrounding areas, and a portion of the
Florida Panhandle.
A significant portion of central and eastern
4.4 million
Nashville, TN
Tennessee, including Nashville, Johnson City,
Morristown, Knoxville, Cleveland, Cookeville
and surrounding areas and a small portion of
northwest Alabama.
Virginia
Most of the state of Virginia, including
8.2 million
Roanoke, VA and
Roanoke, Norfolk, Staunton, Alexandria,
Richmond, Yorktown, Fredericksburg and
surrounding areas.
The entire state of Maryland, including Easton,
2.3 million
Salisbury, Capitol Heights, La Plata,
Baltimore, Hagerstown, Cumberland and
surrounding areas and most of the state of
Delaware.
Maryland /
District of
Columbia /
Delaware
Sandston, VA
Baltimore, MD and
Silver Spring, MD
West Virginia /
Pennsylvania
Kentucky / Indiana
/ Illinois
Most of the state of West Virginia and a
portion of southwestern Pennsylvania.
A significant portion of Kentucky, including
Lexington, Louisville, Paducah, Pikeville,
Louisa and surrounding areas, a portion of
southern Indiana, including Evansville, and a
portion of southeastern Illinois.
1.4 million
5.0 million
None
None
Ohio
A significant portion of Ohio, including
3.6 million
Cincinnati, OH
Cincinnati, Dayton, Lima, Portsmouth and
surrounding areas.
6
4
4
7
9
7
8
5
4
Total
41.1 million
8
66
During 2016, the Company entered into two non-binding letters of intent with The Coca-Cola Company, the February 2016 LOI and
the CCR June 2016 LOI, to provide exclusive distribution rights for the Company in the following major markets: Akron, Elyria,
Toledo, Willoughby, and Youngstown County, Ohio; Little Rock, West Memphis and southern Arkansas; Memphis, Tennessee, and
Louisa, Kentucky.
The Company has entered into a non-binding letter of intent with United, the United June 2016 LOI, through which United would
transfer exclusive rights and associated distribution assets and working capital in certain territory in and around Spartanburg and
13
Bluffton, South Carolina, currently served by United’s distribution centers located in Spartanburg, South Carolina and Savannah,
Georgia, in exchange for certain territory in south-central Tennessee, northwest Alabama and northwest Florida currently served by
the Company’s distribution centers located in Florence, Alabama and Panama City, Florida.
The Company is also a shareholder in South Atlantic Canners, Inc. (“SAC”), a manufacturing cooperative from which it is obligated
to purchase 17.5 million cases of finished product on an annual basis through June 2024. SAC is located in Bishopville, South
Carolina, and the Company utilizes a portion of the production capacity from the Bishopville production facility.
Raw Materials
In addition to concentrates purchased from The Coca-Cola Company and other beverage companies for use in our beverage
manufacturing, we also purchase sweetener, carbon dioxide, plastic bottles, cans, closures and other packaging materials, as well as
equipment for the production, distribution and marketing of nonalcoholic beverages.
We purchase substantially all of our plastic bottles, including the 12-ounce, 16-ounce, 20-ounce, 24-ounce, half-liter, 1-liter, 1.25-liter,
2-liter, 253 ml and 300 ml sizes, from manufacturing plants owned and operated by Southeastern Container and Western Container,
two entities owned by various Coca-Cola bottlers, including the Company. We currently obtain all of our aluminum cans, including
the 7.5-ounce, 12-ounce and 16-ounce sizes, from two domestic suppliers. None of the materials or supplies we use are currently in
short supply.
Along with all other Coca-Cola bottlers in the United States, we are a member in Coca-Cola Bottlers’ Sales and Services Company,
LLC (“CCBSS”), which was formed in 2003 to facilitate various procurement functions and the distribution of beverage products of
The Coca-Cola Company with the intent of enhancing the efficiency and competitiveness of the Coca-Cola bottling system in the
United States. CCBSS negotiates the procurement for the majority of our raw materials, excluding concentrate.
We are exposed to price risk on commodities such as aluminum, corn, PET resin (a petroleum-based product), and fuel which affects
the cost of raw materials used in the production of finished products. Examples of the raw materials affected are aluminum cans and
plastic bottles used for packaging and high fructose corn syrup used as a product ingredient. Further, we are exposed to commodity
price risk on oil, which impacts our cost of fuel used in the movement and delivery of our products. We participate in commodity
hedging and risk mitigation programs administered both by CCBSS and by the Company. In addition, no limit is placed on the price
The Coca-Cola Company and other beverage companies can charge for concentrate.
Customers and Marketing
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 2016, approximately 66% of the Company’s
bottle/can volume to retail customers was sold for future consumption, while the remaining bottle/can volume to retail customers was
sold for immediate consumption. All the Company’s beverage sales were to customers in the United States. The Company records
delivery fees in net sales, which are used to offset a portion of the Company’s delivery and handling costs.
The following table summarizes the percentage of our total bottle/can volume and the percentage of our total net sales, which are all
included in the Nonalcoholic Beverages operating segment, attributed to our largest customers:
Customer
Wal-Mart Stores, Inc.
Approximate percent of the Company's total Bottle/can volume .......................................
Approximate percent of the Company's total Net sales ......................................................
Food Lion, LLC
Approximate percent of the Company's total Bottle/can volume .......................................
Approximate percent of the Company's total Net sales ......................................................
The Kroger Company
Approximate percent of the Company's total Bottle/can volume .......................................
Approximate percent of the Company's total Net sales ......................................................
Fiscal Year
2016
2015
20 %
14 %
8 %
5 %
6 %
5 %
22%
15%
7%
5%
6%
5%
14
The loss of Wal-Mart Stores, Inc., Food Lion, LLC or The Kroger Company as a customer could have a material adverse effect on the
operating and financial results of the Company.
New product introductions, packaging changes and sales promotions are the primary sales and marketing practices in the nonalcoholic
beverage industry and have required and are expected to continue to require substantial expenditures. Recent product introductions
from the Company and The Coca-Cola Company include new flavor varieties within certain brands such as Fanta Sparkling Fruit,
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.
We sell our products primarily in non-refillable bottles and cans, in varying proportions from market to market. For example, there
may be as many as 29 different packages for Diet Coke within a single geographic area. Bottle/can volume to retail customers during
2016 was approximately 64% bottles and 36% cans.
Advertising in various media outlets, primarily television and radio, is relied upon extensively in the marketing of our products.
The Coca-Cola Company, Monster Energy Company and Dr Pepper Snapple Group, Inc. (collectively, the “Beverage Companies”)
make substantial expenditures on advertising programs in the Legacy Territories and Expansion Territories from which we have
benefited. Although the Beverage Companies have provided us with marketing funding support in the past, our bottling agreements
generally do not obligate the Beverages Companies to do so. Any significant curtailment of marketing funding support provided by
the Beverage Companies for marketing programs which benefit us could have a material adverse effect on our operating and financial
results.
In addition, we expend substantial funds on our own behalf for extensive local sales promotions of our products. Historically, these
expenses have been partially offset by marketing funding support provided to us by the Beverage Companies in support of a variety of
marketing programs, such as point-of-sale displays and merchandising programs. The funds we expend for marketing and
merchandising programs are considered necessary to maintain or increase revenue.
In addition to our marketing and merchandising programs, we believe a sustained and planned charitable giving program to support
communities is an essential component to the success of our brand. In 2016, the Company made cash donations of approximately
$8.4 million to various charities and donor-advised funds in light of the Company’s financial performance, expanded distribution
territory footprint and future business prospects. The Company intends to continue its charitable contributions in future years subject
to the Company’s financial performance and other business factors.
Seasonality
Business seasonality results primarily from higher unit sales of the Company’s products in the second and third quarters of the fiscal
year. Sales volume can also be impacted by weather conditions. Fixed costs, such as depreciation expense, are not significantly
impacted by business seasonality. We have, and believe CCR and other bottlers from whom we purchase finished goods have,
adequate production capacity to meet sales demand for sparkling and still beverages during these peak periods. See “Item 2.
Properties” for information relating to utilization of our production facilities.
Competition
The nonalcoholic beverage market is highly competitive. Competitive products include nonalcoholic sparkling beverages and still
beverages, which are noncarbonated beverages such as bottled water, energy drinks, tea, ready to drink coffee, enhanced water, juices
and sports drinks. 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.
Government Regulation
Our businesses, including the production, storage, distribution, sale, display, advertising, marketing, labeling, content, quality and
safety of our products, occupational health and safety practices, transportation and use of many of our products, are subject to various
laws and regulations administered by federal, state and local governmental agencies of the United States.
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As a manufacturer, distributor and seller of beverage products of The Coca-Cola Company and other soft drink manufacturers in
exclusive territories, we are subject to antitrust laws of general applicability. However, pursuant to the United States Soft Drink
Interbrand Competition Act, soft drink bottlers, such as us, may have an exclusive right to manufacture, distribute and sell a soft drink
product in a defined geographic territory if that soft drink product is in substantial and effective competition with other products of the
same general class in the market. We believe such competition exists in each of the exclusive geographic territories in the United
States in which we operate.
We are required to comply with a variety of U.S. laws and regulations, including but not limited to: the Federal Food, Drug and
Cosmetic Act and various state laws governing food safety; the Food Safety Modernization Act; the Occupational Safety and Health
Act; the Clean Air Act; the Clean Water Act; the Resource Conservation and Recovery Act; the Comprehensive Environmental
Response, Compensation and Liability Act; the Federal Motor Carrier Safety Act; the Lanham Act; various federal and state laws and
regulations governing competition and trade practices; various federal and state laws and regulations governing our employment
practices, including those related to equal employment opportunity, such as the Equal Employment Opportunity Act and the National
Labor Relations Act; and laws regulating the sale of certain of our products in schools.
In response to the growing health, nutrition and obesity concerns of today’s youth, a number of states have regulations restricting the
sale of soft drinks and other foods in schools, particularly elementary, middle and high schools. Many of these restrictions have
existed for several years in connection with subsidized meal programs in schools. Restrictive legislation, if widely enacted, could have
an adverse impact on our products, image and reputation.
Most beverage products sold by the Company are classified as food or food products and are therefore eligible for purchase using
supplemental nutrition assistance (“SNAP”) benefits by consumers purchasing them for home consumption. Energy drinks with a
Nutrition Facts label are classified as food and are eligible for purchase for home consumption using SNAP benefits, whereas energy
drinks classified as a supplement by the United States Food and Drug Administration are not. Regulators may restrict the use of
benefit programs, including SNAP, to purchase certain beverages and foods.
Certain jurisdictions in which our products are sold have either imposed, or are considering imposing, taxes, labeling requirements or
other limitations on, or regulations pertaining to, the sale of certain of our products, ingredients or substances contained in, or
attributes of, our products or commodities used in the production of our products, including certain of our products that contain added
sugars or sodium, exceed a specified caloric content, or include specified ingredients such as caffeine. We cannot predict whether any
such legislation will be enacted.
Legislation has been proposed in Congress and by certain state and local governments which would prohibit the sale of soft drink
products in non-refillable bottles and cans or require a mandatory deposit as a means of encouraging the return of such containers in
an attempt to reduce solid waste and litter. It is possible that similar or more restrictive legal requirements may be proposed or enacted
in the future. We are currently not impacted by this type of proposed legislation.
We are also subject to national and local environmental laws, including laws related to water consumption and treatment, wastewater
discharge and air emissions. Our facilities must comply with the Clean Air Act, the Clean Water Act, the Comprehensive
Environmental Response, Compensation and Liability Act, the Resource Conservation and Recovery Act and other federal and state
laws regarding handling, storage, release and disposal of wastes generated on-site and sent to third-party owned and operated off-site
licensed facilities.
Environmental Remediation
We do not currently have any material capital expenditure commitments for environmental compliance or environmental remediation
for any of our properties. We do not believe compliance with enacted or adopted federal, state and local provisions pertaining to the
discharge of materials into the environment, or otherwise relating to the protection of the environment, will have a material impact on
our consolidated financial statements or our competitive position.
Employees
As of January 1, 2017, we had approximately 13,200 employees, of which approximately 11,300 were full-time and 1,900 were part-
time. Approximately 9% of our labor force is covered by collective bargaining agreements.
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Exchange Act Reports
The Company makes available free of charge through our website, www.cokeconsolidated.com, our Annual Report on Form 10-K,
Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, proxy statement and all amendments to these reports. These reports
are available on our website as soon as reasonably practicable after such materials are electronically filed with, or furnished to, the
SEC. The information provided on our website is not part of this report and is not incorporated herein by reference.
The SEC also maintains a website, www.sec.gov, which contains reports, proxy and information statements and other information filed
electronically with the SEC. Any materials that we file with the SEC may also be read and copied at the SEC’s Public Reference
Room, 100 F Street, N.E., Room 1580, Washington, DC 20549. Information on the operations of the Public Reference Room is
available by calling the SEC at 1-800-SEC-0330.
Item 1A.
Risk Factors
In addition to other information in this Form 10-K, the following risk factors should be considered carefully in evaluating the
Company’s business. The Company’s business, financial condition or results of operations could be materially and adversely affected
by any of these risks.
The inability of the Company to successfully integrate the operations and employees acquired in the Expansion Transactions and
in any future Expansion Transactions into existing operations could adversely affect the Company’s business, culture or results of
operations.
The Company is engaged in a multi-year series of transactions through which it is acquiring distribution territories and manufacturing
facilities from Coca-Cola Refreshments USA, Inc. (“CCR”), a wholly-owned subsidiary of The Coca-Cola Company. Through these
acquisitions and additional resources needed to support the Company’s growth, the number of employees has grown to more than
13,100 as of January 1, 2017 from 6,500 as of February 1, 2013.
There are many risks faced by the Company as it continues to acquire new workforces in new geographic areas. The Company must
comply with local laws, including employment laws, for the new geographic areas in which it is expanding its business. The Company
must ensure it has proper staffing with the availability and knowledge to support the volume of acquired employees and transactions.
Also, the Company must devote resources to communicate its culture and to integrate new employees from previous employers’
culture to the Company’s culture. The inability to support the volume of employees and the inability to successfully integrate
employees to one common culture could have an adverse impact on the Company’s business.
The Company faces additional risk in its ability to successfully combine the Company’s existing business with the acquired
distribution territories and manufacturing facilities. It must integrate production, distribution, sales and administrative support
activities and information technology systems between the Legacy Territories and the Expansion Territories. It must also conform
standards, controls, including internal controls over financial reporting, environmental compliance and health and safety compliance,
procedures and policies between the Legacy Territories and the Expansion Territories.
The completed Expansion Transactions and any future expansion transactions involve certain other financial and business risks. The
Company may not realize a satisfactory return, including economic benefit and productivity levels, on the Company’s investment. The
Company’s assumptions for potential growth, synergies or cost savings at the time of the Expansion Transactions may prove to be
incorrect. Also, the Expansion Transactions could divert the attention of key members of the Company’s management and other
available resources from its existing business in the Legacy Territories and previously acquired Expansion Territories.
Sustained increases in the costs of labor and employment matters, for current, future and retired employees, could have an adverse
effect on the Company’s profitability.
The Company uses various insurance structures to manage costs related to workers’ compensation, auto liability, medical and other
insurable risks. These structures consist of retentions, deductibles, limits and a diverse group of insurers that serve to strategically
transfer and mitigate the financial impact of losses. The Company uses commercial insurance as a risk reduction strategy to
minimize catastrophic losses from claims. Losses are accrued using assumptions and procedures followed in the insurance industry,
then adjusted for company-specific history and expectations. Although the Company has actively sought to control increases in
these costs, there can be no assurance the Company will succeed in limiting future cost increases, which could reduce the
profitability of the Company’s operations.
The Company’s profitability is substantially affected by the cost of pension retirement benefits, postretirement medical benefits and
current employees’ medical benefits. Macro-economic factors beyond the Company’s control, including increases in health care costs,
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declines in investment returns on pension assets and changes in discount rates used to calculate pension and related liabilities could
result in significant increases in these costs for the Company. Also, the acquisition of Expansion Territories and employees, including
integrating programs in the Expansion Territories, requires additional costs and resources. Although the Company has actively sought
to control increases in these costs, there can be no assurance the Company will succeed in limiting future cost increases, which could
reduce the profitability of the Company’s operations.
As the Company’s workforce grows, it faces additional risk for employment-related claims and assessments. In addition, workplace
safety programs must be expanded to cover a larger workforce.
Miscalculation of the Company’s need for infrastructure investment could impact the Company’s financial results in both the
Company’s Legacy and Expansion Territories and any future expansion territories.
Significant changes from the Company’s expected returns on cold drink equipment, fleet, technology and supply chain infrastructure
investments could adversely affect the Company’s consolidated financial results. Projected requirements of the Company’s
infrastructure investments in the Company’s Legacy Territories, Expansion Territories and any future expansion territories may differ
from actual levels if the Company’s volume growth is not as the Company anticipates. The Company’s infrastructure investments are
generally long-term in nature; therefore, it is possible the investments made today may not generate the returns expected by the
Company as a result of future changes in the marketplace.
Technology failures or cyberattacks on the Company’s systems could disrupt the Company’s operations and negatively impact the
Company’s business.
The Company depends heavily upon the efficient operation of technological resources. A failure in information technology systems or
controls could negatively impact operations. In addition, the Company continuously upgrades and updates current technology or
installs new technology. The inability to implement upgrades, updates, or installations in a timely manner, to train employees
effectively in the use of technology, or to obtain the anticipated benefits of the Company’s technology could adversely impact results
of operations or profitability.
The Company is a member of CONA Services LLC (“CONA”) and party to a Master Services Agreement with CONA, pursuant to
which the Company is an authorized user of the Coke One North America system (the “CONA System”), which is a uniform
information technology system developed to promote operational efficiency and uniformity among all North American Coca-Cola
bottlers. The Company is in process of transitioning Legacy Territories and Expansion Territories to the CONA System. The
Company believes it has taken the necessary steps to mitigate risk associated with a phased cut-over to the CONA System, including a
comprehensive review of internal controls, extensive employee training, and additional verifications and testing to ensure data
integrity. There is additional risk involved with the CONA System as the Company relies on The Coca-Cola Company to resolve
technology issues and is limited in its authority and ability to resolve errors or make changes to the software.
The Company increasingly relies on information technology systems to process, transmit and store electronic information. For
example, the Company’s production and distribution facilities, inventory management and driver handheld devices all utilize
information technology to maximize efficiencies and minimize costs. Furthermore, a significant portion of the communication
between personnel, customers and suppliers depends on information technology. Like most companies, the Company’s information
technology systems may be vulnerable to interruption due to a variety of events beyond the Company’s control, including, but not
limited to, natural disasters, terrorist attacks, telecommunications failures, computer viruses, hackers and other security issues. The
Company may also experience difficulties integrating systems from Expansion Territories with those in its Legacy Territories. The
Company has technology security initiatives and disaster recovery plans in place to mitigate the Company’s risk to these
vulnerabilities, however these measures may not be adequate or implemented properly to ensure that the Company’s operations are
not disrupted.
Changes in public and consumer preferences related to nonalcoholic beverages, including concerns related to obesity and health
concerns, as well as perception of artificial ingredients, could reduce demand for the Company’s products and reduce profitability.
The Company’s business depends substantially on consumer tastes and preferences that change in often unpredictable ways. The
success of the Company’s business depends in large measure on working with the Beverage Companies, and the Company is reliant
upon The Coca-Cola Company and other beverage companies’ product innovations to meet the changing preferences of the broad
consumer market. Failure to satisfy changing consumer preferences could adversely affect the profitability of the Company’s business.
The Company’s success also depends in large part on its ability to maintain consumer confidence in the safety and quality of all its
products. The Company has rigorous product safety and quality standards. However, if beverage products taken to market are or
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become contaminated or adulterated, the Company may be required to conduct costly product recalls and may become subject to
product liability claims and negative publicity, which would cause its business to suffer.
Health and wellness trends over the past several years have resulted in a shift from sugar sparkling beverages to diet sparkling
beverages, tea, sports drinks, enhanced water and bottled water. Consumers, public health officials, public health advocates and
government officials are becoming increasingly concerned about the public health consequences associated with obesity, particularly
among young people. The production and marketing of beverages are subject to the rules and regulations of the United States Food
and Drug Administration (“FDA”) and other federal, state and local health agencies.
In addition, regulatory actions, activities by nongovernmental organizations and public debate and concerns about perceived negative
safety and quality consequences of certain ingredients in the Company’s products, such as non-nutritive sweeteners, may erode
consumers’ confidence in the safety and quality of the Company’s products, whether or not justified, and could result in additional
governmental regulations concerning the production, marketing, labeling or availability of the Company’s products, possible new
taxes or negative publicity resulting from actual or threatened legal actions against the Company or other companies in the same
industry, all of which could damage the reputation of the Company’s products and may reduce demand for the Company’s products,
which could adversely affect the Company’s profitability.
Changes in the Company’s top customer relationships and marketing strategies could impact volume and revenues.
The Company faces concentration risks related to a few customers comprising a large portion of the Company’s annual sales volume
and net revenue. The Company’s results of operations could be adversely affected if revenue from one or more of these significant
customers is significantly reduced or if the cost of complying with the customers’ demands is significant. Additionally, if receivables
from one or more of these significant customers become uncollectible, the Company’s results of operations may be adversely
impacted.
The Company’s largest customers, Wal-Mart Stores, Inc., Food Lion, LLC and The Kroger Company accounted for approximately
34% of the Company’s 2016 bottle/can volume to retail customers and approximately 24% of the Company’s 2016 total net sales.
These customers typically make purchase decisions based on a combination of price, product quality, consumer demand and customer
service performance and generally do not enter into long-term contracts. The Company faces risks to maintain the volume demanded
on a short-term basis from these customers, which can also divert resources away from other customers. The loss of Wal-Mart Stores,
Inc., Food Lion, LLC or The Kroger Company as a customer could have a material adverse effect on the operating and financial
results of the Company.
The Company’s revenue is affected by promotion of the Company’s products by significant customers, such as the customers creating
in-store displays or promoting the Company’s products in their weekly circulars. If the Company’s significant customers change the
manner in which they market or promote the Company’s products, or if the marketing efforts by significant customers become
ineffective, the Company’s volume and revenue could be adversely impacted.
The Company may not be able to respond successfully to changes in the marketplace.
The Company operates in the highly competitive nonalcoholic beverage industry and faces strong competition from other general and
specialty beverage companies. The Company’s response to continued and increased customer and competitor consolidations and
marketplace competition may result in lower than expected net pricing of the Company’s products. The Company’s ability to gain or
maintain the Company’s share of sales or gross margins may be limited by the actions of the Company’s competitors, which may have
advantages in setting prices due to lower raw material costs. Competitive pressures in the markets in which the Company operates
may cause channel and product mix to shift away from more profitable channels and packages. If the Company is unable to maintain
or increase volume in higher-margin products and in packages sold through higher-margin channels such as immediate consumption,
pricing and gross margins could be adversely affected. The Company’s efforts to improve pricing may result in lower than expected
sales volume.
The Company’s financial condition can be impacted by the stability of the general economy.
Unfavorable changes in general economic conditions, such as a recession or economic slowdown in the geographic markets in which
the Company does business, may have the temporary effect of reducing the demand for certain of the Company’s products. For
example, economic forces may cause consumers to shift away from purchasing higher-margin products and packages sold through
immediate consumption and other highly profitable channels. Adverse economic conditions could also increase the likelihood of
customer delinquencies and bankruptcies, which would increase the risk of uncollectibility of certain accounts. Each of these factors
could adversely affect the Company’s overall financial condition and operating results.
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The Company’s capital structure, including its cash positions and debt borrowing capacity with banks or other financial institutions,
exposes it to the risk of default by or failure of counterparty financial institutions. The risk of counterparty default or failure may be
heightened during economic downturns and periods of uncertainty in the financial markets. If one of the Company’s counterparties
were to become insolvent or file for bankruptcy, the Company’s ability to recover losses incurred as a result of default or to retrieve
assets that are deposited or held in accounts with such counterparty may be limited by the counterparty's liquidity or the applicable
laws governing the insolvency or bankruptcy proceedings. The Company’s results of operations and financial condition could be
negatively impacted by an event of default by or failure of one or more of its counterparties.
The Company’s business and results of operations may be adversely affected by increased costs, disruption of supply or shortages
of raw materials and other supplies.
In recent years, there has been consolidation among suppliers of certain of the Company’s raw materials, which could have an adverse
effect on the Company’s ability to negotiate the lowest costs and, in light of the Company’s relatively small in-plant raw material
inventory levels, has the potential for causing interruptions in the Company’s supply of raw materials.
The Company currently obtains all aluminum cans from two domestic suppliers and all plastic bottles from two domestic
cooperatives. The inability of these aluminum can or plastic bottle suppliers to meet the Company’s requirements for containers could
result in the Company not being able to fulfill customer orders and production demand until alternative sources of supply are located.
The Company attempts to mitigate these risks by working closely with key suppliers and by purchasing business interruption
insurance where appropriate. Failure of the aluminum can or plastic bottle suppliers to meet the Company’s purchase requirements
could negatively impact inventory levels, customer confidence and results of operations, including sales levels and profitability.
Raw material costs, including the costs for plastic bottles, aluminum cans and high fructose corn syrup, have historically been subject
to significant price volatility and may continue to be in the future. In addition, there are no limits on the prices
The Coca-Cola Company and other beverage companies can charge for concentrate. If the Company cannot offset higher raw material
costs with higher selling prices, effective commodity price hedging, increased sales volume or reductions in other costs, the
Company’s profitability could be adversely affected.
The reliance on purchased finished goods from external sources could have an adverse impact on the Company’s profitability.
The Company does not manufacture and does not plan to manufacture all products it distributes and, therefore, remains reliant on
purchased finished goods from external sources. As a result, the Company is subject to incremental risk including, but not limited to,
product quality and availability, price variability and production capacity shortfalls for externally purchased finished goods, which
could have an impact on the Company’s profitability.
The decisions made by the National Product Supply Group (the “NPSG”) may be different than decisions that would have been
made by the Company individually.
The NPSG was created in October 2015, and consists of The Coca-Cola Company, the Company and other RPBs in
The Coca-Cola Company’s national product supply system. The Coca-Cola Company and each member RPB has a representative on
the governing board (the “NPSG Board”). As of January 2017, the NPSG Board consisted of The Coca-Cola-Company, the Company
and five other RPBs, including CCR. Pursuant to the NPSG Governance Agreement, the Company has agreed to abide by decisions
made by the NPSG Board, which include decisions regarding strategic investment and divestment, optimal national product supply
sourcing and new product or packaging infrastructure planning. Even though the Company has a representative on the NPSG Board,
the Company will not exercise sole decision-making authority relating to the decisions of the NPSG Board, and the interests of other
members of the NPSG Board may diverge from those of the Company and may require the Company to make investments in its
manufacturing assets consistent with the NPSG Governance Agreement.
Decreases from historic levels of marketing funding provided to the Company from The Coca-Cola Company and other beverage
companies could reduce the Company’s profitability.
The Coca-Cola Company and other beverage companies have historically provided financial support to the Company through
marketing funding. In 2016, the Company received $99.4 million in marketing funding. While the Company does not believe there
will be significant changes to the amount of marketing funding support by the beverage companies, there can be no assurance the
historic levels will continue. Material changes in the marketing funding programs’ performance requirements, decreases in the level of
marketing funding provided or the Company’s inability to meet the performance requirements for marketing funding could adversely
affect the Company’s profitability.
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Changes in The Coca-Cola Company’s and other beverage companies’ levels of external advertising, marketing spending and
product innovation could reduce the Company’s sales volume.
The Coca-Cola Company and other beverage companies have their own external advertising campaigns, marketing spending and
product innovation programs, which directly impact the Company’s operations. Decreases in marketing, advertising and product
innovation spending by the Beverage Companies, or Beverage Company campaigns that are negatively perceived by the public, could
adversely impact the volume growth and profitability of the Company. While the Company does not believe there will be significant
changes in the level of external advertising and marketing spending by the Beverage Companies, there can be no assurance historic
levels will continue. The Company’s volume growth is also dependent on product innovation by the Beverage Companies, especially
The Coca-Cola Company.
The Company’s inability to meet requirements under its beverage agreements could result in the loss of distribution rights.
Approximately 90% of the Company’s bottle/can volume to retail customers in 2016 consisted of products of
The Coca-Cola Company, which is the sole supplier of these products or the concentrates and syrups required to manufacture these
products. The Company enters into CBAs and other beverage agreements with The Coca-Cola Company, which authorize the
Company to produce and/or distribute the covered beverages defined in these beverage agreements. The Company must satisfy
various requirements under its beverage agreements and failure to satisfy these requirements could result in the loss of distribution
rights for the respective products under one or more of these beverage agreements. The occurrence of other events defined in these
agreements could also result in the termination of one or more beverage agreements.
Changes in the Company’s level of debt, borrowing costs and credit ratings could impact access to capital and credit markets,
restrict the Company’s operating flexibility and limit the Company’s ability to obtain additional financing to fund future needs.
As of January 1, 2017, the Company had $956.0 million of debt and capital lease obligations. The Company’s level of debt requires a
substantial portion of future cash flows from operations to be dedicated to the payment of principal and interest, which reduces funds
available for other purposes. The Company’s debt level can negatively impact the Company’s operations by:
Limiting the Company’s ability and/or increasing the cost to obtain funding for working capital, capital expenditures and
other general corporate purposes, including funding the cash purchase price of future territory expansions;
Increasing the Company’s vulnerability to economic downturns and adverse industry conditions by limiting the Company’s
ability to react to changing economic and business conditions; and
Exposing the Company to a risk that a significant decrease in cash flows from operations could make it difficult for the
Company to meet its debt service requirements and to comply with financial covenants in its debt agreements.
The Company’s Revolving Credit Facility, Term Loan Facility and pension and postretirement medical benefits are subject to changes
in interest rates. If interest rates increase in the future, the Company’s borrowing cost could increase, which could result in a reduction
of the Company’s overall profitability and limit the Company’s ability to spend in other areas. A decline in interest rates used to
discount the Company’s pension and postretirement medical liabilities could increase the cost of these benefits and increase the
overall liability.
The Company’s credit rating could be significantly impacted by changes in the methodologies used by rating agencies to assess the
Company’s credit rating and by changes in the credit ratings of The Coca-Cola Company. A lower credit rating could significantly
increase the Company’s interest costs or could have an adverse effect on the Company’s ability to obtain additional financing at
acceptable interest rates or to refinance existing debt.
Changes in the inputs used to calculate the Company’s acquisition related contingent consideration liability could have a material
adverse impact on the Company’s financial results.
The acquisition related contingent consideration liability, which was $253.4 million as of January 1, 2017, consists of the estimated
amounts due to The Coca-Cola Company under the CBAs over the remaining useful life of the related distribution rights. Changes in
business conditions or other events could materially change both the projection of future cash flows and the discount rate used in the
calculation of the fair value of contingent consideration under the CBAs. These changes could materially impact the fair value of the
related contingent consideration and could materially impact the amount of noncash expense (or income) recorded each reporting
period.
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Changes in tax laws, disagreements with tax authorities or additional tax liabilities could have a material adverse impact on the
Company’s financial results.
The Company is subject to income taxes within the United States. The Company’s annual income tax rate is based upon the
Company’s income and the federal tax laws and the various state and local tax laws within the jurisdictions in which the Company
operates. Increases in federal, state or local income tax rates and changes in federal, state or local tax laws could have a material
adverse impact on the Company’s financial results.
Excise or other taxes imposed on the sale of certain of the Company’s products by the federal government and certain state and local
governments, particularly if the taxes were incorporated into shelf prices and passed along to consumers, could cause consumers to
shift away from purchasing products of the Company, which could materially affect the Company’s business and financial results.
In addition, an assessment of additional taxes resulting from audits of the Company’s tax filings could have an adverse impact on the
Company’s profitability, cash flows and financial condition.
Issues surrounding labor relations could adversely impact the Company’s future profitability and/or its operating efficiency.
Approximately 9% of the Company’s employees are covered by collective bargaining agreements. The inability to renegotiate
subsequent agreements on satisfactory terms and conditions could result in work interruptions or stoppages, which could have a
material impact on the profitability of the Company. Also, the terms and conditions of existing or renegotiated agreements could
increase costs or otherwise affect the Company’s ability to fully implement operational changes to improve overall efficiency.
In addition, as the Company has acquired the Expansion Territories, it has become engaged with new and different labor unions than
those with which it has historically interacted. Terms and conditions of the new labor union agreements could result in delays of
closings for new Expansion Territories and also increases the Company’s exposure to work interruptions or stoppages, as an increased
percentage of its workforce is covered by collective bargaining agreements.
Natural disasters, changing weather patterns and unfavorable weather could negatively impact the Company’s future profitability.
Natural disasters or unfavorable weather conditions in the geographic regions in which the Company operates could have an adverse
impact on the Company’s revenue and profitability. For instance, unusually cold or rainy weather during the summer months may
have a temporary effect on the demand for the Company’s products and contribute to lower sales, which could adversely affect the
Company’s profitability for such periods. Prolonged drought conditions could lead to restrictions on water use, which could adversely
affect the Company’s cost and ability to manufacture and distribute products.
Changing weather patterns, along with the increased frequency or duration of extreme weather and climate events could impact some
of the Company’s facilities or the availability and cost of key raw materials used by the Company in production. In addition,
legislative and regulatory initiatives proposed by the United States Environmental Protection Agency could directly or indirectly affect
the Company’s production, distribution and packaging, the cost of raw materials, fuel, ingredients and water, which would impact the
Company’s profitability.
Increases in fuel prices or the inability of the Company to secure adequate supplies of fuel could have an adverse impact on the
Company’s profitability.
The Company uses significant amounts of fuel for its delivery fleet and other vehicles used in the distribution of its products.
International or domestic geopolitical or other events could impact the supply and cost of fuel and could impact the timely delivery of
the Company’s products to its customers. Although the Company strives to reduce fuel consumption and uses commodity hedges to
manage the Company’s fuel costs, there can be no assurance the Company will succeed in limiting the impact of fuel price volatility
on the Company’s business or future cost increases, which could reduce the profitability of the Company’s operations.
Significant additional labeling or warning requirements may inhibit sales of affected products.
The FDA occasionally proposes major changes to the nutrition labels required on all packaged foods and beverages, including those
for most of the Company’s products. If the proposed changes are adopted, the Company and its competitors will be required to
overhaul nutrition labels, including updating serving sizes, information about total calories in a beverage product container and
information about any added sugars or nutrients. Pervasive nutrition label changes could increase the Company’s costs and could
inhibit sales of one or more of the Company’s major products.
22
Provisions in the Final CBA and the Final RMA with The Coca-Cola Company could delay or prevent a change in control of the
Company.
Provisions in the Final CBA and the Final RMA require the Company to obtain The Coca-Cola Company’s prior approval of a
potential buyer of the Company’s Coca-Cola distribution or manufacturing related businesses, which could delay or prevent a change
in control of the Company or the ability of the Company to sell such businesses. The Company can obtain a list of approved third-
party buyers from The Coca-Cola Company annually. In addition, the Company can seek buyer-specific approval from
The Coca-Cola Company upon receipt of a third party offer to purchase the Company or its Coca-Cola related business.
The concentration of the Company’s capital stock ownership with the Harrison family limits other stockholders’ ability to
influence corporate matters.
Members of the Harrison family, including the Company’s Chairman and Chief Executive Officer, J. Frank Harrison, III, beneficially
own shares of Common Stock and Class B Common Stock representing approximately 86% of the total voting power of the
Company’s outstanding capital stock. In addition, three members of the Harrison family, including Mr. Harrison, serve on the Board
of Directors of the Company.
As a result, members of the Harrison family have the ability to exert substantial influence or actual control over the Company’s
management and affairs and over substantially all matters requiring action by the Company’s stockholders. This concentration of
ownership may have the effect of delaying or preventing a change in control otherwise favored by the Company’s other stockholders
and could depress the stock price and limits other stockholders’ ability to influence corporate matters, which could result in the
Company making decisions that stockholders outside the Harrison family may not view as beneficial.
Item 1B.
Unresolved Staff Comments
None.
23
Item 2.
Properties
As of February 26, 2017, the principal properties of the Company include its corporate headquarters, 8 production/distribution
facilities and 71 sales distribution centers. The Company owns 6 production/distribution facilities and 59 sales distribution centers,
and leases its corporate headquarters, 2 production/distribution facilities, 12 sales distribution centers and 5 additional storage
warehouses.
Location
Facility Type
Corporate headquarters(1)(3) .........................................
Charlotte, NC
Charlotte, NC
Customer Center .........................................................
Greenville, SC
Distribution Center ......................................................
Distribution Center ......................................................
Baltimore, MD
La Vergne, TN
Distribution Center ......................................................
Clayton, NC
Distribution Center ......................................................
Charleston, SC
Distribution Center ......................................................
Louisville, KY
Distribution Center ......................................................
Distribution Center ......................................................
Cleveland, TN
Columbus, GA
Distribution Center ......................................................
Knoxville, TN
Distribution Center ......................................................
Norfolk, VA
Distribution Center ......................................................
Lexington, KY
Distribution Center ......................................................
Production Center .......................................................
Baltimore, MD
Production Center ....................................................... Silver Spring, MD
Mobile, AL
Production Center .......................................................
Roanoke, VA
Production Center .......................................................
Production/ Distribution Combination Center(2)(3) ......
Charlotte, NC
Nashville, TN
Production/ Distribution Combination Center ............
Production/ Distribution Combination Center ............
Sandston, VA
Production/ Distribution Combination Center ............
Cincinnati, OH
Charlotte, NC
Warehouse...................................................................
Roanoke, VA
Warehouse...................................................................
Bishopville, SC
Warehouse...................................................................
Square
Feet
175,000
71,000
57,000
290,000
220,000
233,000
50,000
300,000
75,000
132,000
153,000
158,000
171,000
158,000
104,000
271,000
316,000
647,000
330,000
319,000
368,000
367,000
111,000
100,000
Lease/
Own
Lease
Lease
Lease
Lease
Lease
Lease
Lease
Lease
Lease
Own
Own
Own
Own
Own
Own
Own
Own
Lease
Lease
Own
Own
Lease
Lease
Lease
Lease
Expiration
2021
2030
2018
2025
2026
2026
2027
2029
2030
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
2020
2024
N/A
N/A
2022
2025
2026
2016 Rent
(in millions)
4.3
$
0.3
$
0.8
$
1.3
$
0.7
$
1.1
$
0.3
$
1.3
$
0.2
$
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
$
$
$
$
$
Includes two adjacent buildings totaling 175,000 square feet.
Includes a 542,000 square foot production center and adjacent 105,000 square foot distribution center.
(1)
(2)
(3) The leases under these facilities are with a related party.
The Company currently has sufficient production capacity to meet its operational requirements. The approximate percentage
utilization of the Company's production facilities, which fluctuates with the seasonality of the business, as of January 1, 2017, is
indicated below:
Location
Silver Spring, Maryland ....................................................................................................................................
Charlotte, North Carolina ..................................................................................................................................
Nashville, Tennessee .........................................................................................................................................
Roanoke, Virginia .............................................................................................................................................
Cincinnati, Ohio ................................................................................................................................................
Mobile, Alabama ...............................................................................................................................................
Sandston, Virginia .............................................................................................................................................
Baltimore, Maryland .........................................................................................................................................
Utilization*
* NOTE: Estimated 2017 production divided by capacity, based on operations of 6 days per week and 20 hours per day.
In addition to the production facilities noted above, the Company utilizes a portion of the production capacity at SAC, a cooperative
located in Bishopville, South Carolina, that owns a 261,000 square foot production facility.
24
4.0
0.5
0.9
0.8
0.2
78%
77%
77%
73%
71%
64%
64%
54%
The Company’s products are generally transported to sales distribution facilities for storage pending sale. The number of sales
distribution facilities by market area as of February 26, 2017, was as follows:
Location
North Carolina ...................................................................................................................................................
South Carolina ...................................................................................................................................................
Southern Alabama / Mississippi .........................................................................................................................
Georgia / Florida / Eastern Alabama ..................................................................................................................
Tennessee / Northwest Alabama ........................................................................................................................
Virginia ..............................................................................................................................................................
Maryland / District of Columbia / Delaware ......................................................................................................
West Virginia / Pennsylvania .............................................................................................................................
Kentucky / Indiana / Illinois ...............................................................................................................................
Ohio ...................................................................................................................................................................
Indiana(1) ............................................................................................................................................................
Total number of sales distribution facilities ..................................................................................................
Number of
Facilities
12
6
4
4
7
9
7
8
5
4
5
71
(1)
Includes distribution facilities acquired by the Company on January 27, 2017 and located in Anderson, Fort Wayne, Lafayette,
South Bend and Terre Haute, Indiana.
The Company's facilities are all in good condition and are adequate for the Company's operations as presently conducted.
As of February 26, 2017, the Company owned and operated approximately 3,500 vehicles in the sale and distribution of the
Company’s beverage products, of which approximately 2,400 were route delivery trucks. In addition, the Company owned
approximately 426,000 beverage dispensing and vending machines for the sale of the Company’s products in the Company’s bottling
territories as of February 26, 2017.
Item 3.
Legal Proceedings
The Company is involved in various claims and legal proceedings which have arisen in the ordinary course of its business. Although it
is difficult to predict the ultimate outcome of these claims and legal proceedings, management believes that the ultimate disposition of
these matters will not have a material adverse effect on the financial condition, cash flows or results of operations of the Company. No
material amount of loss in excess of recorded amounts is believed to be reasonably possible as a result of these claims and legal
proceedings.
Item 4.
Mine Safety Disclosures
Not applicable.
25
Executive Officers of the Company
The following information is provided with respect to each of the executive officers of the Company as of February 26, 2017.
Name
J. Frank Harrison, III
Henry W. Flint
William J. Billiard
Robert G. Chambless
Clifford M. Deal, III
Morgan H. Everett
E. Beauregarde Fisher III
James E. Harris
Umesh M. Kasbekar
David M. Katz
Kimberly A. Kuo
Position and Office
Chairman of the Board of Directors and Chief Executive Officer
President and Chief Operating Officer
Vice President, Chief Accounting Officer
Executive Vice President, Franchise Strategy and Operations
Senior Vice President and Chief Financial Officer
Vice President
Executive Vice President, General Counsel
Executive Vice President, Business Transformation
Vice Chairman of the Board of Directors and Secretary
Executive Vice President, Human Resources, Product Supply and Culture & Stewardship
Senior Vice President, Public Affairs, Communications and Communities
Age
62
62
50
51
55
35
48
54
59
48
46
Mr. J. Frank Harrison, III, was appointed Chairman of the Board of Directors in December 1996. Mr. Harrison, III served as Vice
Chairman from November 1987 through December 1996 and was appointed as the Company's Chief Executive Officer in May 1994.
He was first employed by the Company in 1977 and has also served as a Division Sales Manager and as a Vice President.
Mr. Henry W. Flint was appointed President and Chief Operating Officer in August 2012. He has served as a Director of the
Company since April 2007. Previously, he was Vice Chairman of the Board of Directors of the Company, a position he held since
April 2007. Previously, he was Executive Vice President and Assistant to the Chairman of the Company, a position to which he was
appointed in July 2004. Prior to that, he was a Managing Partner at the law firm of Kennedy Covington Lobdell & Hickman, L.L.P.,
with which he was associated from 1980 to 2004.
Mr. William J. Billiard was appointed Chief Accounting Officer in February 2006. In addition to his role as Chief Accounting
Officer, he has also served as Vice President, Controller from February 2006 to November 2010, Vice President, Operations Finance
from November 2010 to June 2013 and Vice President, Corporate Controller from June 2013 to November 2014. Before joining the
Company, he was Senior Vice President, Interim Chief Financial Officer and Corporate Controller of Portrait Corporation of America,
Inc., a portrait photography studio company, from September 2005 to January 2006 and Senior Vice President, Corporate Controller
from August 2001 to September 2005. Prior to that, he served as Vice President, Chief Financial Officer of Tailored Management, a
long-term staffing company, from August 2000 to August 2001.
Mr. Robert G. Chambless was appointed Executive Vice President, Franchise Strategy and Operations in April 2016. Prior to this,
he served in various positions within the Company, including Senior Vice President, Sales, Field Operations and Marketing (from
August 2010 to March 2016), Senior Vice President, Sales (from June 2008 to July 2010), Vice President - Franchise Sales (from
2003 to 2008), Region Sales Manager for the Company’s Southern Division (from 2000 to 2003) and Sales Manager in the
Company’s Columbia, South Carolina branch (from 1997 to 2000). He has served the Company in several other positions prior to
1997 and was first employed by the Company in 1986.
Mr. Clifford M. Deal, III, was appointed Senior Vice President and Chief Financial Officer in April 2016. Prior to this, he served in
various positions within the Company including Vice President and Treasurer (from June 1999 to March 2016), Director of
Compensation and Benefits (from October 1997 to May 1999), Corporate Benefits Manager (from December 1995 to September
1997) and Manager of Tax Accounting (November 1993 to November 1995). He worked for PricewaterhouseCoopers LLP prior to
joining the Company in 1993.
Ms. Morgan H. Everett was appointed Vice President in January 2016. Prior to that, she was the Community Relations Director of
the Company, a position she held from January 2009 to December 2015. She has been an employee of the Company since October
2004.
Mr. E. Beauregarde Fisher III, joined the Company and was appointed Executive Vice President, General Counsel in February
2017. Before joining the Company, he was a partner with the law firm of Moore & Van Allen, PLLC where he served on the firm’s
management committee and chaired its business law practice group. He was associated with the firm from 1998 to 2017 and
concentrated his practice on mergers and acquisitions, corporate governance and general corporate matters. From 2011 to 2017, he
served as the Company’s outside corporate counsel.
26
Mr. James E. Harris was appointed Executive Vice President, Business Transformation in April 2016 after serving as Senior Vice
President, Shared Services and Chief Financial Officer since January 2008. He served as a Director of the Company from August 2003
until January 2008 and was a member of the Audit Committee and the Finance Committee. He served as Executive Vice President and
Chief Financial Officer of MedCath Corporation, an operator of cardiovascular hospitals, from December 1999 to January 2008. From
1998 to 1999, he was Chief Financial Officer of Fresh Foods, Inc., a manufacturer of fully cooked food products. From 1987 to 1998,
he served in several different officer positions with The Shelton Companies, Inc. He also served two years with Ernst & Young LLP
as a senior accountant.
Mr. Umesh M. Kasbekar was appointed Vice Chairman of the Board of Directors in January 2016 and is Secretary of the Company,
a position he has held since August 2012. Previously he was Senior Vice President, Planning and Administration, a position he held
since June 2005. Prior to that, he was Vice President, Planning, a position he was appointed to in December 1988.
Mr. David M. Katz was appointed Executive Vice President, Human Resources, Product Supply and Culture & Stewardship in April
2016. Previously, he served as Senior Vice President for the Company from January 2013 to March 2016. He held the position of
Senior Vice President Midwest Region for Coca-Cola Refreshments (“CCR”) from November 2010 to December 2012. Prior to the
formation of CCR, he was Vice President, Sales Operations for Coca-Cola Enterprises Inc.’s (“CCE”) East Business Unit. From 2008
to 2010, he served as President and Chief Executive Officer of Coca-Cola Bottlers’ Sales and Services Company, LLC. He began his
Coca-Cola career in 1993 with CCE as a Logistics Consultant.
Ms. Kimberly A. Kuo was appointed Senior Vice President of Public Affairs, Communications and Communities in January 2016.
Before joining the Company, she operated her own communications and marketing consulting firm, Sterling Strategies, from January
2014 to December 2015. Prior to that, she served as Chief Marketing Officer at Baker and Taylor, a book and entertainment distributor
from February 2009 to July 2013. Prior to her experience at Baker and Taylor, she served in various communications and government
affairs roles on Capitol Hill, in political campaigns, trade associations, and corporations.
27
PART II
Item 5.
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
The Company has two classes of common stock outstanding, Common Stock and Class B Common Stock. The Common Stock is
traded on the NASDAQ Global Select Market under the symbol COKE. The table below sets forth for the periods indicated the high
and low reported sales prices per share of Common Stock. There is no established public trading market for the Class B Common
Stock. Shares of Class B Common Stock are convertible on a share-for-share basis into shares of Common Stock.
2016
2015
High
Low
High
Low
First quarter ........................................................................................ $
Second quarter ...................................................................................
Third quarter ......................................................................................
Fourth quarter .....................................................................................
$
184.20
167.94
161.44
182.26
150.26 $
119.80
138.81
125.00
$
112.00
149.40
194.43
220.93
86.90
111.07
126.31
170.01
A quarterly dividend rate of $0.25 per share on both Common Stock and Class B Common Stock was maintained throughout 2016 and
2015. Pursuant to the Company's certificate of incorporation, no cash dividend or dividend of property or stock other than stock of the
Company, as specifically described in the certificate of incorporation, may be declared and paid on the Class B Common Stock unless
an equal or greater dividend is declared and paid on the Common Stock. Shares of Common Stock and Class B Common Stock have
participated equally in dividends since 1994.
The amount and frequency of future dividends will be determined by the Company's Board of Directors in light of the earnings and
financial condition of the Company at such time, and no assurance can be given that dividends will be declared or paid in the future.
The number of stockholders of record of the Common Stock and Class B Common Stock, as of February 26, 2017, was 2,697 and 10,
respectively.
On March 8, 2016, the Compensation Committee determined that 40,000 shares of restricted Class B Common Stock, $1.00 par value,
should be issued (pursuant to a Performance Unit Award Agreement approved in 2008) to J. Frank Harrison, III, in connection with
his services in 2015 as Chairman of the Board of Directors and Chief Executive Officer of the Company. As permitted under the terms
of the Performance Unit Award Agreement, 19,080 of such shares were settled in cash to satisfy tax withholding obligations in
connection with the vesting of the performance units. The shares issued to Mr. Harrison, III were issued without registration under the
Securities Act of 1933 (the “Securities Act”) in reliance on Section 4(a)(2) of the Securities Act.
Stock Performance Graph
Presented below is a line graph comparing the yearly percentage change in the cumulative total return on the Company’s Common
Stock to the cumulative total return of the Standard & Poor’s 500 Index and a peer group for the period commencing January 1, 2012
and ending January 1, 2017. The peer group is comprised of Dr Pepper Snapple Group, Inc., National Beverage Corp.,
The Coca-Cola Company, Cott Corporation and PepsiCo, Inc.
The graph assumes $100 was invested in the Company’s Common Stock, the Standard & Poor’s 500 Index and the peer group on
January 1, 2012 and all dividends were reinvested on a quarterly basis. Returns for the companies included in the peer group have
been weighted on the basis of the total market capitalization for each company.
28
COMPARISON OF 5 YEAR CUMULATIVE TOTAL
RETURN*
Among Coca-Cola Bottling Co. Consolidated, the S&P 500 Index,
and a Peer Group
$350.00
$300.00
$250.00
$200.00
$150.00
$100.00
$50.00
1/1/2012
$328.32
$177.01
$154.36
$323.84
$198.18
$159.18
$174.60
$153.58
$128.61
$158.11
$145.74
$126.82
$116.00
$113.75
$106.04
12/30/2012
12/29/2013
12/28/2014
1/3/2016
1/1/2017
Coca-Cola Bottling Co. Consolidated
S&P 500
Peer Group
*
$100 invested on 1/1/12 in stock or 12/31/11 in index, including reinvestment of dividends. Index calculated on month-end basis.
29
Item 6.
Selected Financial Data
The following table sets forth certain selected financial data concerning the Company for the five fiscal years ended January 1, 2017.
The data is derived from audited consolidated financial statements of the Company. See Management’s Discussion and Analysis of
Financial Condition and Results of Operations and the accompanying notes to consolidated financial statements for additional
information.
2016(1)
(in thousands, except per share data and number of facilities)
Net sales........................................................................................... $ 3,156,428
Cost of sales ..................................................................................... 1,940,706
Gross profit ...................................................................................... 1,215,722
Selling, delivery and administrative expenses ................................. 1,087,863
127,859
Income from operations ...................................................................
36,325
Interest expense, net .........................................................................
1,870
Other income (expense), net ............................................................
(692)
Gain on exchange of franchise territory ...........................................
-
Gain on sale of business...................................................................
-
Bargain purchase gain, net of tax of $1,265 .....................................
92,712
Income before taxes .........................................................................
36,049
Income tax expense..........................................................................
56,663
Net income .......................................................................................
6,517
Less: Net income attributable to noncontrolling interest .................
Net income attributable to Coca-Cola Bottling Co. Consolidated ... $
50,146
Basic net income per share based on net income attributable to
Coca-Cola Bottling Co. Consolidated:
2015(1)(2)
$ 2,306,458
1,405,426
901,032
802,888
98,144
28,915
(3,576)
8,807
22,651
2,011
99,122
34,078
65,044
6,042
59,002
$
Fiscal Year
2014(1)
$ 1,746,369
1,041,130
705,239
619,272
85,967
29,272
(1,077 )
-
-
-
55,618
19,536
36,082
4,728
31,354
$
2013
$ 1,641,331
982,691
658,640
584,993
73,647
29,403
-
-
-
-
44,244
12,142
32,102
4,427
27,675
$
2012
$ 1,614,433
960,124
654,309
565,623
88,686
35,338
-
-
-
-
53,348
21,889
31,459
4,242
27,217
$
Common Stock .......................................................................... $
Class B Common Stock ............................................................. $
5.39
5.39
$
$
6.35
6.35
$
$
3.38
3.38
$
$
2.99
2.99
$
$
2.95
2.95
Diluted net income per share based on net income attributable to
Coca-Cola Bottling Co. Consolidated:
5.36
Common Stock .......................................................................... $
5.35
Class B Common Stock ............................................................. $
1.00
Cash dividends per share - Common Stock ..................................... $
1.00
Cash dividends per share - Class B Common Stock ........................ $
161,995
Net cash provided by operating activities ........................................ $
(452,026)
Net cash used in investing activities ................................................
Net cash provided by (used in) financing activities .........................
256,383
Total assets(4) ................................................................................... 2,449,484
Working capital(4) ............................................................................
135,904
253,437
Acquisition related contingent consideration ...................................
7,527
Current portion of obligations under capital leases ..........................
41,194
Obligations under capital leases .......................................................
Current portion of debt ....................................................................
-
Long-term debt(4) .............................................................................
907,254
Total equity of Coca-Cola Bottling Co. Consolidated .....................
277,131
Equivalent unit case volume (percentage change)(3): .......................
Sparkling beverages ...................................................................
Still beverages............................................................................
Number of production facilities .......................................................
Number of sales distribution facilities .............................................
36.4%
32.5%
47.3%
8
66
$
$
$
$
$
6.33
6.31
1.00
1.00
108,290
(217,343)
155,456
1,846,565
108,366
136,570
7,063
48,721
-
619,628
243,056
$
$
$
$
$
3.37
3.35
1.00
1.00
91,903
(124,251 )
29,682
1,430,641
58,177
46,850
6,446
52,604
-
442,324
183,609
$
$
$
$
$
2.98
2.97
1.00
1.00
96,374
(55,296)
(39,716)
1,272,361
28,919
-
5,939
59,050
20,000
374,771
191,320
28.9%
24.1%
44.4%
4
53
6.1 %
3.6 %
15.0 %
4
44
0.3%
-2.0%
11.1%
4
41
$
$
$
$
$
2.94
2.92
1.00
1.00
83,172
(49,570)
(113,961)
1,278,208
23,471
-
5,230
64,351
20,000
398,120
135,259
0.9%
-1.7%
10.7%
4
41
(1) For additional information on acquisitions and divestitures in 2016, 2015 and 2014, see Management’s Discussion and Analysis on Financial
Condition and Results of Operations and the accompanying notes to the consolidated financial statements.
(2) All years presented are 52-week fiscal years except 2015 which was a 53-week year. The estimated net sales, gross margin and selling, delivery
and administrative expenses for the additional week in 2015 of approximately $39 million, $14 million and $10 million, respectively, are
included in the reported results for 2015.
(3) Equivalent unit case volume is defined as twenty-four 8-ounce servings or 192 ounces.
(4) On January 4, 2016, the Company retrospectively adopted ASU 2015-03, which requires all cost incurred to issue debt to be presented on the
balance sheet as a direct reduction of the carrying value of the debt. All prior fiscal years’ balances have been retrospectively adjusted to
incorporate this accounting guidance. The impact was not material to any period presented.
30
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“M,D&A”) of Coca-Cola
Bottling Co. Consolidated (the “Company”) should be read in conjunction with the consolidated financial statements of the Company
and the accompanying notes to the consolidated financial statements.
The Company’s fiscal year generally ends on the Sunday closest to December 31 of each year. The fiscal years presented are:
The 52-week period ended January 1, 2017 (“2016”)
The 53-week period ended January 3, 2016 (“2015”); and
The 52-week period ended December 28, 2014 (“2014”).
The estimated net sales, gross profit and S,D&A expenses for the additional selling week in 2015 were approximately $39 million,
$14 million and $10 million, respectively, and were included in reported results in 2015.
The consolidated financial statements include the consolidated operations of the Company and its majority-owned subsidiaries
including Piedmont Coca-Cola Bottling Partnership (“Piedmont”). Piedmont is the Company’s only subsidiary that has a significant
noncontrolling interest. Piedmont distributes and markets nonalcoholic beverages in portions of North Carolina and South Carolina.
The Company provides a portion of the nonalcoholic beverage products to Piedmont at cost and receives a fee for managing the
operations of Piedmont pursuant to a management agreement. Noncontrolling interest consists of The Coca-Cola Company’s interest
in Piedmont, which was 22.7% for all periods presented.
Expansion Transactions with The Coca-Cola Company
As part of The Coca-Cola Company’s plans to refranchise its North American bottling territories, the Company has engaged in a
multi-year 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 rights to serve additional distribution territories previously served by CCR (the
“Expansion Territories”) and of related distribution assets (the “Distribution Territory Expansion Transactions”), as well as the
acquisition of regional manufacturing facilities (“Regional Manufacturing Facilities”) and related manufacturing assets previously
owned by CCR (the “Manufacturing Facility Expansion Transactions” and, together with the Distribution Territory Expansion
Transactions, the “Expansion Transactions”).
Distribution Territory Expansion Transactions
In April 2013, the Company entered into a non-binding letter of intent with The Coca-Cola Company to acquire Expansion Territories
in parts of Tennessee, Kentucky and Indiana, all of which were acquired by the second quarter of 2015.
In May 2015, the Company completed an exchange transaction with CCR through which the Company acquired certain assets and
rights for territory in Lexington, Kentucky from CCR and transferred certain assets and rights for territory in Jackson, Tennessee to
CCR. The assets exchanged relate to the marketing, promotion, distribution and sale of Coca-Cola and other beverage products in each
territory, including the rights to produce such beverages in each territory included in the exchange.
In May 2015, the Company also entered into a second non-binding letter of intent (the “May 2015 LOI”) with
The Coca-Cola Company to acquire Expansion Territories in Baltimore, Maryland; Alexandria, Norfolk and Richmond, Virginia; the
District of Columbia; Cincinnati, Columbus and Dayton, Ohio; and Indianapolis, Indiana. Pursuant to the May 2015 LOI, CCR would:
(i) Grant the Company in two phases certain exclusive rights for the distribution, promotion, marketing and sale of
The Coca-Cola Company-owned and licensed products in additional territories served by CCR; and
(ii) Sell the Company certain assets that included rights to distribute those cross-licensed brands distributed in the territories by
CCR as well as the assets used by CCR in the distribution of the cross-licensed brands and The Coca-Cola Company brands.
31
The first phase of the additional Distribution Territory Expansion Transactions contemplated by the May 2015 LOI was agreed upon
in an asset purchase agreement entered into by the Company and CCR in September 2015 (the “September 2015 APA”). The
September 2015 APA included Expansion Territory in: (i) eastern and northern Virginia, (ii) the entire state of Maryland, (iii) the
District of Columbia, and (iv) parts of Delaware, North Carolina, Pennsylvania and West Virginia, and was completed by the second
quarter of 2016. Following is a summary of key closing dates for the transactions covered by the September 2015 APA:
October 30, 2015 – The first closing under the September 2015 APA occurred for territories served by distribution facilities
in Norfolk, Fredericksburg and Staunton, Virginia and Elizabeth City, North Carolina.
January 29, 2016 – The second closing under the September 2015 APA occurred for territories served by distribution
facilities in Easton and Salisbury, Maryland and Richmond and Yorktown, Virginia.
April 1, 2016 – The third closing under the September 2015 APA occurred for territories served by distribution facilities in
Capitol Heights and La Plata, Maryland and Alexandria, Virginia.
April 29, 2016 – The final closing under the September 2015 APA occurred for territories served by distribution facilities in
Baltimore, Cumberland and Hagerstown, Maryland.
On September 1, 2016, the Company and CCR entered into an asset purchase agreement (the “September 2016 Distribution APA”) for
the second phase of the additional distribution territory contemplated by the May 2015 LOI and for a portion of the additional
distribution territory contemplated by the CCR June 2016 LOI, including territories located in (i) central and southern Ohio,
(ii) northern Kentucky, (iii) large portions of Indiana and (iv) parts of Illinois and West Virginia that are currently served by CCR.
Following is a summary of key closing dates for the transactions covered by the September 2016 Distribution APA:
October 28, 2016 – The first closing under the September 2016 Distribution APA occurred for territories served by
distribution facilities in Cincinnati, Dayton, Lima and Portsmouth, Ohio.
January 27, 2017 – Subsequent to the end of 2016, the second closing under the September 2016 Distribution APA occurred
for territories served by distribution facilities in Anderson, Fort Wayne, Lafayette, South Bend and Terre Haute, Indiana.
At each of the closings under the September 2015 APA and the September 2016 Distribution APA, the Company entered into a
comprehensive beverage agreement with CCR in substantially the same form as the form of comprehensive beverage agreement
currently in effect in the territories acquired in the earlier Distribution Territory Expansion Transactions (the “Initial CBA”) which
requires the Company to make a quarterly sub-bottling payment to CCR on a continuing basis for the grant of exclusive rights to
distribute, promote, market and sell the Covered Beverages and Related Products, as defined in the Initial CBA, in the applicable
territories.
Manufacturing Facility Expansion Transactions
The May 2015 LOI contemplated, among other things, that The Coca-Cola Company would work collaboratively with the Company
and certain other expanding participating bottlers in the U.S. to implement a national product supply system. As a result of subsequent
discussions with The Coca-Cola Company, in September 2015, the Company and The Coca-Cola Company entered into a non-binding
letter of intent (the “September 2016 LOI”) pursuant to which CCR would sell six Regional Manufacturing Facilities and related
manufacturing assets (collectively, the “Manufacturing Assets”) to the Company as the Company becomes a regional producing
bottler (“Regional Producing Bottler”) in the national product supply system. Similar to, and as an integral part of, the Distribution
Territory Expansion Transactions described in the May 2015 LOI, the sale of the Manufacturing Assets by CCR to the Company
would be accomplished in two phases: (i) the first phase would include three Regional Manufacturing Facilities located in Sandston,
Virginia; Silver Spring, Maryland; and Baltimore, Maryland and (ii) the second phase would include three Regional Manufacturing
Facilities located in Indianapolis, Indiana; Portland Indiana; and Cincinnati, Ohio.
On October 30, 2015, the Company and CCR entered into an asset purchase agreement (the “October 2015 APA”) for the first phase
of the Regional Manufacturing Facilities acquisitions contemplated by the September 2015 LOI, including Regional Manufacturing
Facilities located in Sandston, Virginia; Silver Spring, Maryland; and Baltimore, Maryland, and was completed by the second quarter
of 2016. Following is a summary of key closing dates for the transactions covered by the October 2015 APA:
January 29, 2016 – The first closing under the October 2015 APA occurred for the Sandston, Virginia facility.
April 29, 2016 – The interim and final closings under the October 2015 APA occurred for the acquisition of Regional
Manufacturing Facilities located in Silver Spring, Maryland and Baltimore, Maryland.
On September 1, 2016, the Company and CCR entered into an asset purchase agreement (the “September 2016 Manufacturing APA”)
for the second phase of the Regional Manufacturing Facility acquisitions contemplated by the September 2015 LOI which included
Regional Manufacturing Facilities located in Indianapolis, Indiana; Portland, Indiana; and Cincinnati, Ohio. On October 28, 2016, the
first closing under the September 2016 Manufacturing APA occurred for the Regional Manufacturing Facility in Cincinnati, Ohio.
32
The rights for the manufacture, production and packaging of specified beverages at the Regional Manufacturing Facilities acquired by
the Company have been granted by The Coca-Cola Company to the Company pursuant to an initial regional manufacturing agreement
in the form disclosed in the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on May 5,
2016 (the “Initial RMA”). Pursuant to its terms, the Initial RMA will be amended, restated and converted into a final form of regional
manufacturing agreement (the “Final RMA”) concurrent with the conversion of the Company’s Bottling Agreements (as defined
below) to the Final CBA as described in the description of the Territory Conversion Agreement (defined and described below).
Under the Final RMA, the Company’s aggregate business directly and primarily related to the manufacture of Authorized Covered
Beverages, permitted cross-licensed brands and other beverages and beverage products for The Coca-Cola Company will be subject to
the same agreed upon sale process provisions included in the Final CBA as described below, which include the need to obtain
The Coca-Cola Company’s prior approval of a potential purchaser of such manufacturing business. The Coca-Cola Company will also
have the right to terminate the Final RMA in the event of an uncured default by the Company.
Annapolis Make-Ready Center Acquisition
As a part of the Expansion Transactions, on October 30, 2015, the Company acquired from CCR a “make-ready center” in Annapolis,
Maryland for a cash purchase price of $5.4 million, which includes all post-closing adjustments. The Company recorded a bargain
purchase gain of approximately $2.0 million on this transaction after applying a deferred tax liability of approximately $1.3 million.
The Company uses the make-ready center to deploy and refurbish vending and other sales equipment for use in the marketplace.
The net cash purchase price for each of the Expansion Transactions, which includes both Distribution Territory Expansion
Transactions and Manufacturing Facility Expansion Transactions, completed as of January 1, 2017, is as follows:
Territory
Johnson City and Morristown, Tennessee .......................................................................
Knoxville, Tennessee ......................................................................................................
Cleveland and Cookeville, Tennessee .............................................................................
Louisville, Kentucky and Evansville, Indiana.................................................................
Paducah and Pikeville, Kentucky ....................................................................................
Lexington, Kentucky for Jackson, Tennessee Exchange ................................................
Norfolk, Fredericksburg and Staunton, Virginia and Elizabeth City, North Carolina ....
Annapolis, Maryland Make-Ready Center ......................................................................
Easton and Salisbury, Maryland, Richmond and Yorktown, Virginia, and Sandston,
Virginia Regional Manufacturing Facility ......................................................................
Alexandria, Virginia and Capitol Heights and La Plata, Maryland .................................
Baltimore, Hagerstown and Cumberland, Maryland, and Silver Spring and Baltimore,
Maryland Regional Manufacturing Facilities..................................................................
Cincinnati, Dayton, Lima and Portsmouth, Ohio and Louisa, Kentucky and
Cincinnati, Ohio Regional Manufacturing Facility .........................................................
Acquisition /
Exchange Date
May 23, 2014 $
October 24, 2014
January 30, 2015
February 27, 2015
May 1, 2015
May 1, 2015
October 30, 2015
October 30, 2015
January 29, 2016
April 1, 2016
April 29, 2016
October 28, 2016
Net Cash
Purchase Price
(In Millions)
12.2
30.9
13.2
18.0
7.5 *
15.3
26.7
5.4
65.7 *
35.6 *
69.0 *
98.2 *
* NOTE: The cash purchase price amounts are subject to a final post-closing adjustment and, as a result, may either increase or
decrease.
The financial results of the Expansion Transactions, Expansion Territories and Lexington Expansion Territory have been included in
the Company’s consolidated financial statements from their respective acquisition or exchange dates. These territories contributed the
following amounts to the Company’s consolidated statement of operations:
(in thousands)
Net sales .............................................................................................................................. $
Operating income ................................................................................................................
Fiscal Year
2016(1)
2015(2)
1,061,769 $
24,280
437,084
6,917
(1)
(2)
Includes the results of the 2016 Expansion Transactions and the 2015 Expansion Territories.
Includes the results of the 2015 Expansion Territories and the 2014 Expansion Territories.
33
2016 Letters of Intent for Additional Expansion Transactions
In February 2016, the Company entered into a non-binding letter of intent (the “February 2016 LOI”) with The Coca-Cola Company
to provide exclusive distribution rights for the Company in following major markets: Akron, Elyria, Toledo, Willoughby, and
Youngstown County in Ohio. Pursuant to the February 2016 LOI, CCR would:
(i) Grant the Company exclusive rights for the distribution, promotion, marketing and sale of The Coca-Cola Company-owned
and -licensed products in additional territories served by CCR in northern Ohio;
(ii) Sell the Company certain assets that included rights to distribute those cross-licensed brands distributed in the territories by
CCR as well as the assets used by CCR in the distribution of the cross-licensed brands and The Coca-Cola Company brands;
and
(iii) Sell to the Company an additional Regional Manufacturing Facility currently owned by CCR located in Twinsburg, Ohio and
related Manufacturing Assets.
In June 2016, the Company entered into a non-binding letter of intent (the “CCR June 2016 LOI”) with The Coca-Cola Company to
provide exclusive distribution rights for the Company in the following major markets: Little Rock, West Memphis and southern
Arkansas; Memphis, Tennessee; and Louisa, Kentucky. Pursuant to the CCR June 2016 LOI, CCR would:
(i) Grant the Company exclusive rights for the distribution, promotion, marketing and sale of The Coca-Cola Company-owned
and -licensed products in additional territories in northeastern Kentucky and southwestern West Virginia served by CCR’s
distribution center in Louisa, Kentucky;
(ii) Sell the Company certain assets that included rights to distribute those cross-licensed brands distributed in the territories by
CCR as well as the assets used by CCR in the distribution of the cross-licensed brands and The Coca-Cola Company brands;
and
(iii) Transfer exclusive rights and associated distribution assets and working capital for territory in parts of Arkansas,
southwestern Tennessee and northwestern Mississippi and two additional Regional Manufacturing Facilities located in
Memphis, Tennessee and West Memphis, Arkansas currently owned by CCR in exchange for territory in southern Alabama,
southern Mississippi and southern Georgia and a Regional Manufacturing Facility in Mobile, Alabama currently owned by
the Company. The exchange includes rights to the distribution, promotion, marketing and sale of The Coca-Cola Company-
owned and –licensed products and certain cross-licensed brands in each territory and related Manufacturing Assets.
In June 2016, the Company entered into a non-binding letter of intent with Coca-Cola Bottling Company United, Inc. (“United”), an
independent bottler that is unrelated to the Company (the “United June 2016 LOI”). Pursuant to this letter of intent, United would
transfer exclusive rights and associated distribution assets and working capital in certain territory in and around Spartanburg and
Bluffton, South Carolina, currently served by United’s distribution centers located in Spartanburg, South Carolina and Savannah,
Georgia, in exchange for certain territory in south-central Tennessee, northwest Alabama and northwest Florida currently served by
the Company’s distribution centers located in Florence, Alabama and Panama City, Florida. The exchange includes rights to the
distribution, promotion, marketing and sale of The Coca-Cola Company-owned and –licensed products and certain cross-licensed
brands in each territory.
As discussed above, on October 28, 2016, the Company completed the acquisition of territories served by the distribution facility in
Louisa, Kentucky contemplated by the CCR June 2016 LOI. The Company is continuing to work towards a definitive agreement or
agreements with The Coca-Cola Company and CCR for the remaining proposed Expansion Transactions described in the February
2016 LOI and the CCR June 2016 LOI. The Company is also continuing to work towards a definitive agreement or agreements with
United for the proposed transactions described in the United June 2016 LOI.
National Product Supply Governance Agreement (the “NPSG Governance Agreement”)
In October 2015, the Company, The Coca-Cola Company and three other Coca-Cola bottlers, including CCR, who are considered
“Regional Producing Bottlers” (“RPBs”) in The Coca-Cola Company’s national product supply system, entered into the NPSG
Governance Agreement. Pursuant to the NPSG Governance Agreement, The Coca-Cola Company and the RPBs have formed a
national product supply group (the “NPSG”) and agreed to 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 Regional
Producing Bottler. As The Coca-Cola Company continues its multi-year refranchising effort of its North American bottling territories,
additional Regional Producing Bottlers may be added to the NPSG Board. As of January 2017, the NPSG Board consisted of
The Coca-Cola-Company, the Company and five 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.
34
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 the ongoing operations of the NPSG. The Company is obligated to pay a
certain portion of the costs of operating the NPSG. 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 Regional Producing Bottler will make
investments in their respective manufacturing assets and will implement Coca-Cola system strategic investment opportunities that are
consistent with the NPSG Governance Agreement.
Territory Conversion Agreement
Concurrent with their execution of the September 2015 APA, the Company, CCR and The Coca-Cola Company executed a territory
conversion agreement (as amended February 8, 2016, the “Territory Conversion Agreement”), which provides that, subject to certain
exceptions, all of the Company’s master bottle contracts, allied bottle contracts, Initial CBAs 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, as defined therein, (collectively, the “Bottling Agreements”) would be amended, restated and converted, upon the
occurrence of certain events described below, to a new and final comprehensive beverage agreement (the “Final CBA”).
The conversion would include all of the Company’s then existing Bottling Agreements in the Expansion Territories and all other
territories in the United States where the Company has rights to market, promote, distribute and sell beverage products owned or
licensed by The Coca-Cola Company (the “Legacy Territories”), but would not affect any Bottling Agreements with respect to the
greater Lexington, Kentucky territory. At the time of the conversion of the Bottling Agreements for the Legacy Territories to the Final
CBA, CCR will pay a fee to the Company in cash, or another mutually agreed form of payment or credit, in an amount equivalent to
0.5 times the EBITDA the Company generates 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, or (ii) owned by or
licensed to Monster Energy Company (“Monster”) on which the Company pays, and The Coca-Cola Company receives, a facilitation
fee.
The Company may elect to cause the conversion of the Bottling Agreements to the Final CBA to occur at any time by giving written
notice to The Coca-Cola Company. As the transactions contemplated by the September 2015 APA have now been consummated, the
conversion will occur automatically upon the earliest of (i) the consummation of all remaining transactions described in the September
2016 Distribution APA (the “Subsequent Phase Territory Transactions”), (ii) January 1, 2020, as long as The Coca-Cola Company has
satisfied certain obligations described in the Territory Conversion Agreement regarding its intent to complete the Subsequent Phase
Territory Transactions, or (iii) 30 days following the Company’s (a) termination of good faith negotiations of the Subsequent Phase
Territory Transactions on terms similar to the terms for the transactions completed under the September 2015 APA or (b) notification
that it no longer wants to pursue the Subsequent Phase Territory Transactions.
The Final CBA is similar to the Initial CBA in many respects, but also includes certain modifications and several new business,
operational and governance provisions. For example, the Final CBA contains provisions that apply in the event of a potential sale of
the Company or its aggregate businesses directly and primarily related to the marketing, promotion, distribution, and sale of Covered
Beverages and Related Products (collectively, the “Business”). Under the Final CBA, the Company may only sell the Business to
The Coca-Cola Company or third party buyers approved by The Coca-Cola Company. The Company annually can obtain a list of such
approved third party buyers from The Coca-Cola Company or, upon receipt of a third party offer to purchase the Business, may seek
approval of such buyer by The Coca-Cola Company. In addition, the Final CBA contains a sale process that would apply if the
Company notifies The Coca-Cola Company that it wishes to sell the Business to The Coca-Cola Company.
In such event, if the Company and The Coca-Cola Company are unable in good faith to negotiate terms and conditions of a binding
purchase and sale agreement, including the purchase price for the Business, then the Company may either withdraw from negotiations
with The Coca-Cola Company or initiate a third-party valuation process described in the Final CBA to determine the purchase price
for the Business. Upon such third party’s determination of the purchase price, the Company may decide to continue with its potential
sale of the Business to The Coca-Cola Company. The Coca-Cola Company would then have the option to (i) purchase the Business for
such purchase price pursuant to defined terms and conditions set forth in the Final CBA, including, to the extent not otherwise agreed
by the Company and The Coca-Cola Company, default non-price terms and conditions of the acquisition agreement, or (ii) elect not to
purchase the Business, in which case the Final CBA would automatically be amended to, among other things, permit the Company to
sell the Business to any third party without obtaining The Coca-Cola Company’s prior approval of such third party.
The Final CBA also includes terms that would apply in the event The Coca-Cola Company terminates the Final CBA following the
Company’s default thereunder. These terms include a requirement that The Coca-Cola Company acquire the Business upon such
termination as well as the purchase price payable to the Company in such sale. The Final CBA specifies that the purchase price would
be determined in accordance with a third-party valuation process equivalent to that employed if the Company notifies
The Coca-Cola Company that it desires to sell the Business to The Coca-Cola Company; provided, the purchase price would be 85%
35
of the valuation of the Business determined in the third-party valuation process if the Final CBA is terminated as a result of the
Company’s willful misconduct in violating certain obligations in the Final CBA with respect to dealing in other beverage products and
other business activities, if a change in control occurs without the consent of The Coca-Cola Company or if the Company disposes of
a majority of the voting power of any subsidiary of the Company that is a party to an agreement regarding the distribution or sale of
Covered Beverages or Related Products.
Under the Final CBA, the Company will be required to ensure it achieves an equivalent case volume per capita change rate that is not
less than one standard deviation below the median of such rates for all U.S. Coca-Cola bottlers. If the Company fails to comply with
the equivalent case volume per capita change rate obligation for two consecutive years, it would have a twelve-month cure period to
achieve an equivalent case volume per capita change rate within such standard before it would be considered in breach under the Final
CBA and the previously described termination provisions are triggered. The Final CBA also requires the Company to make minimum,
ongoing capital expenditures at a specified level.
Sale of BYB Brands, Inc.
On August 24, 2015, the Company sold BYB Brands, Inc. (“BYB”), a wholly owned subsidiary of the Company to
The Coca-Cola Company. Pursuant to the stock purchase agreement dated July 22, 2015, the Company sold all the issued and
outstanding shares of capital stock of BYB for a cash purchase price of $26.4 million. As a result of the sale, the Company recognized
a gain of $22.7 million, which was recorded to Gain on sale of business in the consolidated financial statements in 2015. BYB
contributed the following amounts to the Company’s consolidated statement of operations:
(in thousands)
Net sales ........................................................................................................................... $
Operating income (loss) ...................................................................................................
Fiscal Year
2015
2014
23,875 $
1,809
34,089
(357)
Monster Distribution Agreement
In March 2015, the Company and Monster Energy Company (“Monster”) entered into a distribution agreement granting the Company
rights to distribute energy drink products packaged and/or marketed by Monster throughout all geographic territories the Company
currently services for the distribution of Coca-Cola products, commencing April 6, 2015. Previously, the Company only distributed
Monster products in certain portions of the Company’s territories.
Net Sales by Product Category
The Company’s net sales in the last three fiscal years by product category were as follows:
(in thousands)
Bottle/can sales*:
Sparkling beverages (carbonated) ..................................................................... $
Still beverages (noncarbonated, including energy products).............................
Total bottle/can sales .......................................................................................
2016
Fiscal Year
2015
2014
$
1,764,558
892,125
2,656,683
$
1,323,712
577,872
1,901,584
1,064,036
339,904
1,403,940
Other sales:
Sales to other Coca-Cola bottlers ......................................................................
Post-mix and other ............................................................................................
Total other sales ..............................................................................................
238,182
261,563
499,745
178,777
226,097
404,874
162,346
180,083
342,429
Total net sales ..................................................................................................
$
3,156,428
$
2,306,458
$
1,746,369
* NOTE: During the second quarter of 2016, energy products were moved from the category of sparkling beverages to still
beverages, which has been reflected in all periods presented. Total bottle/can sales remain unchanged in prior periods.
Areas of Emphasis
Key priorities for the Company include territory and manufacturing expansion, revenue management, product innovation and
beverage portfolio expansion, distribution cost management, and productivity.
36
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‑Cola
Company include new flavor varieties within certain brands such as Fanta Sparkling Fruit, 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.
Distribution Cost Management: Distribution costs represent the costs of transporting finished goods from Company locations to
customer outlets. Total distribution costs amounted to $314.3 million, $222.9 million and $211.6 million in 2016, 2015 and 2014,
respectively. Management of these costs will continue to be a key area of emphasis for the Company.
The Company has three primary delivery systems:
bulk delivery for large supermarkets, mass merchandisers and club stores;
advanced sale delivery for convenience stores, drug stores, small supermarkets and on-premises accounts; and
full service delivery for its full service vending customers.
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.
Items Impacting Operations and Financial Condition
The comparison of operating results for 2015 to the operating results for 2016 and 2014 are affected by the impact of one additional
selling week in 2015 due to the Company’s fiscal year ending on the Sunday closest to December 31st. The estimated net sales, gross
profit and S,D&A expenses for the additional selling week in 2015 of approximately $39 million, $14 million and $10 million,
respectively, are included in reported results in 2015.
The following items also affect the comparability of the financial results presented below:
2016
$1.06 billion in net sales and $24.3 million of operating income related to the Expansion Territories and Regional
Manufacturing Facilities;
$32.3 million of expenses related to acquiring and transitioning Expansion Territories and Regional Manufacturing Facilities;
$4.7 million pretax favorable mark-to-market adjustments related to our commodity hedging program;
$4.0 million of additional expense related to increased charitable contributions; and
$1.9 million recorded in other expense as a result of a favorable fair value adjustment to the Company’s contingent
consideration liability related to the Expansion Territories;
2015
$437.0 million in net sales and $6.9 million of operating income related to Expansion Territories;
$22.7 million gain on the sale of BYB;
$20.0 million of expenses related to acquiring and transitioning Expansion Territories;
$8.8 million gain on the exchange of certain Expansion Territories and related assets and liabilities;
$3.6 million recorded in other expense as a result of an unfavorable fair value adjustment to the Company’s contingent
consideration liability related to the Expansion Territories;
$3.4 million pre-tax unfavorable mark-to-market adjustments related to our commodity hedging program;
37
2014
$45.1 million in net sales and $3.4 million of operating income related to Expansion Territories;
$12.9 million of expenses related to acquiring and transitioning Expansion Territories; and
$1.1 million recorded in other expense as a result of an unfavorable fair value adjustment to the Company’s contingent
consideration liability related to the Expansion Territories.
Results of Operations
2016 Compared to 2015
A summary of the Company’s financial results for 2016 and 2015:
Fiscal Year
Change
2016
2015
(in thousands)
Net sales .................................................................................................. $ 3,156,428 $ 2,306,458 $
Cost of sales ............................................................................................ 1,940,706 1,405,426
901,032
Gross profit ............................................................................................. 1,215,722
802,888
S,D&A expenses ..................................................................................... 1,087,863
98,144
127,859
Income from operations ..........................................................................
28,915
36,325
Interest expense, net ................................................................................
(3,576 )
1,870
Other income (expense), net ...................................................................
8,807
(692)
Gain (loss) on exchange of franchise territory ........................................
22,651
-
Gain on sale of business ..........................................................................
2,011
-
Bargain purchase gain, net of tax of $1,265 ............................................
99,122
92,712
Income before taxes ................................................................................
34,078
36,049
Income tax expense .................................................................................
65,044
56,663
Net income ..............................................................................................
6,042
6,517
Less: Net income attributable to noncontrolling interest ..................
59,002 $
Net income attributable to Coca-Cola Bottling Co. Consolidated.......... $
50,146 $
849,970
535,280
314,690
284,975
29,715
7,410
5,446
(9,499)
(22,651)
(2,011)
(6,410)
1,971
(8,381)
475
% Change
36.9%
38.1
34.9
35.5
30.3
25.6
(152.3)
(107.9)
(100.0)
(100.0)
(6.5)
5.8
(12.9)
7.9
(15.0)%
(8,856)
Net Sales
Net sales increased $850.0 million, or 36.9%, to $3.16 billion in 2016, as compared to $2.31 billion in 2015. The increase in net sales
was principally attributable to the following (in millions):
2016
Attributable to:
$
773.6
54.4
Net sales increase related to the 2016 Expansion Territories, partially offset by the 2015 comparable sales of Legacy
Territories exchanged for Expansion Territories in 2015
3.3% increase in bottle/can sales volume to retail customers in the Legacy Territories, primarily due to an increase in
still beverages
22.6 Increase in external transportation revenue
(21.8 ) Decrease in sales of the Company's own brand products, primarily due to the sale of BYB in the third quarter of 2015
0.9% increase in bottle/can sales price per unit to retail customers in the Company's Legacy Territories, primarily due
15.3
to an increase in energy beverage volume, including Monster products, which have a higher sales price per unit, and an
increase in all beverage categories sales price per unit except the water beverage category
5.9 Other
$
850.0 Total increase in net sales
The Company’s bottle/can sales to retail customers accounted for approximately 84% of the Company’s total net sales in 2016, as
compared to approximately 82% in 2015. Bottle/can net pricing is based on the invoice price charged to customers reduced by
promotional allowances. Bottle/can net pricing per unit is impacted by the price charged per package, the volume generated in each
package and the channels in which those packages are sold.
38
Product category sales volume in 2016 and 2015 as a percentage of total bottle/can sales volume and the percentage change by product
category were as follows:
Product Category
Sparkling beverages .................................................................................
Still beverages (including energy products) .............................................
Total bottle/can sales volume ................................................................
71.2%
28.8%
100.0%
Bottle/Can Sales Volume
2015
2016
Bottle/Can Sales
Volume Increase
32.5%
47.3%
36.4%
73.4 %
26.6 %
100.0 %
Bottle/can volume to retail customers, excluding Expansion Territories, increased 3.3%, which represented a 0.8% increase in
sparkling beverages and a 10.3% increase in still beverages in 2016, as compared to 2015. The increase in still beverages was
primarily due to increases in energy beverages, which was primarily due to the Company expanding the territories in which it
distributes Monster products.
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 2016, approximately 66% of the Company’s
bottle/can volume to retail customers was sold for future consumption, while the remaining bottle/can volume to retail customers was
sold for immediate consumption. All the Company’s beverage sales were to customers in the United States. The Company recorded
delivery fees in net sales of $6.0 million in 2016 and $6.3 million in 2015. These fees are used to offset a portion of the Company’s
delivery and handling costs.
The following table summarizes the percentage of the Company’s total bottle/can volume and the percentage of the Company’s total
net sales, which are all included in the Nonalcoholic Beverages operating segment, attributed to its largest customers:
Customer
Wal-Mart Stores, Inc.
Approximate percent of the Company's total Bottle/can volume .......................................
Approximate percent of the Company's total Net sales ......................................................
Food Lion, LLC
Approximate percent of the Company's total Bottle/can volume .......................................
Approximate percent of the Company's total Net sales ......................................................
The Kroger Company
Approximate percent of the Company's total Bottle/can volume .......................................
Approximate percent of the Company's total Net sales ......................................................
Cost of Sales
Fiscal Year
2016
2015
20 %
14 %
8 %
5 %
6 %
5 %
22%
15%
7%
5%
6%
5%
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 purchase of finished goods.
Cost of sales increased $535.3 million, or 38.1%, to $1.94 billion in 2016, as compared to $1.41 billion in 2015. The increase in cost
of sales was principally attributable to the following (in millions):
39
2016
Attributable to:
$
493.9
30.7
Net sales increase related to the 2016 Expansion Territories, partially offset by the 2015 comparable sales of Legacy
Territories exchanged for Expansion Territories in 2015
3.3% increase in bottle/can sales volume to retail customers in the Legacy Territories, primarily due to an increase in
still beverages
19.3 Increase in raw material costs and increased purchases of finished products
18.0 Increase in external transportation cost of sales
(13.2 ) Increase in marketing funding support received for the Legacy Territories, primarily from The Coca-Cola Company
(11.6 )
Decrease in cost of sales of the Company’s own brand products, primarily due to the sale of BYB in the third quarter of
2015
(5.3 ) Increase in cost due to the Company's commodity hedging program
3.5 Other
$
535.3 Total increase in cost of sales
The following inputs represent a substantial portion of the Company’s total cost of sales: (i) sweeteners, (ii) packaging materials,
including plastic bottles and aluminum cans, and (iii) finished products purchased from other vendors.
The Company relies extensively on advertising and sales promotion in the marketing of its products. The Coca-Cola Company and
other beverage companies that supply concentrates, syrups and finished products to the Company make substantial marketing and
advertising expenditures to promote sales in the local territories served by the Company. The Company also benefits from national
advertising programs conducted by The Coca-Cola Company and other beverage companies. Certain of the marketing expenditures by
The Coca-Cola Company and other beverage companies are made pursuant to annual arrangements. Total marketing funding support
from The Coca-Cola Company and other beverage companies, which includes direct payments to the Company and payments to
customers for marketing programs, was $99.4 million in 2016, as compared to $72.2 million in 2015.
The Company’s cost of sales may not be comparable to other peer companies, as some include all costs related to their distribution
network in cost of sales. The Company includes a portion of these costs in S,D&A expenses.
S,D&A Expenses
S,D&A expenses include the following: sales management labor costs, distribution costs from sales distribution centers to customer
locations, sales distribution center warehouse costs, depreciation expense related to sales centers, delivery vehicles and cold drink
equipment, point-of-sale expenses, advertising expenses, cold drink equipment repair costs, amortization of intangibles and
administrative support labor and operating costs.
40
S,D&A expenses increased by $285.0 million, or 35.5%, to $1.09 billion in 2016, as compared to $802.9 million in 2015. S,D&A
expenses as a percentage of sales decreased to 34.5% in 2016 from 34.8% in 2015. The increase in S,D&A expenses was principally
attributable to the following (in millions):
2016
Attributable to:
$
141.1
23.9
18.1
Increase in employee salaries including bonus and incentives due to additional personnel added from the Expansion
Territories and normal salary increases
Increase in depreciation and amortization of property, plant and equipment primarily due to depreciation for fleet and
vending equipment in the Expansion Territories
Increase in employee benefit costs primarily due to additional medical expense and increased 401(k) employer
matching contributions for employees in the Expansion Territories
12.3 Increase in expenses related to the Expansion Territories, primarily professional fees related to due diligence
11.7
Increase in marketing expense primarily due to increased spending for promotional items and media and cold drink
sponsorships
11.0 Increase in employer payroll taxes primarily due to payroll in the Expansion Territories
7.2
Increase in property and casualty insurance expense primarily due to an increase in insurance premiums and insurance
claims from the addition of the Expansion Territories
6.6 Increase in vending and fountain parts expense due to the addition of the Expansion Territories
6.1 Increase in software expenses primarily due to investment in technology for the Expansion Territories
5.7 Increase in property, vehicle and other taxes due to the addition of the Expansion Territories
4.6
Increase in rental expense due primarily to additional equipment and facilities rent expense for the Expansion
Territories
4.2 Increase in facilities non-rent expenses related to new facilities added in the Expansion Territories
4.0 Increase in charitable contributions made during the first quarter of 2016
19.9 Other individually immaterial expense increases primarily related to the Expansion Territories
8.6 Other individually immaterial increases
$
285.0 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 are included in S,D&A expenses and totaled $314.3 million in 2016 and $222.9 million in 2015.
Interest Expense, Net
Interest expense, net, increased $7.4 million, or 25.6%, to $36.3 million in 2016, as compared to $28.9 million in 2015. The increase
was primarily a result of additional borrowings to finance the territory expansion.
Other Income (Expense), Net
Other income (expense), net, included noncash income of $1.9 million in 2016 and a noncash expense of $3.6 million in 2015 as a
result of fair value adjustments of the Company’s contingent consideration liability related to the Expansion Territories. The
adjustment was primarily a result of a change in the risk-free interest rates. As the contingent consideration is calculated using 40
years of discounted cash flows, any reductions in contingent consideration due to current payments of the liability are effectively
marked to market at the next reporting period, assuming interest rates and future projections remain constant.
Each reporting period, the Company adjusts its contingent consideration liability related to the newly-acquired distribution territories
to fair value. The fair value is determined by discounting future expected sub-bottling payments required under the CBAs using the
Company’s estimated weighted average cost of capital (“WACC”), which is impacted by many factors, including the risk-free interest
rate. These future expected sub-bottling payments extend through the life of the related distribution asset acquired in each distribution
territory expansion, which is generally 40 years. In addition, the Company is required to pay quarterly the current portion of the sub-
bottling fee. As a result, the fair value of the acquisition related contingent consideration liability is impacted by the Company’s
estimated WACC, management’s best estimate of the amounts of sub-bottling payments that will be paid in the future under the
CBAs, and current period sub-bottling payments made. Changes in any of these factors, particularly the underlying risk-free interest
rate used to estimate the Company’s WACC, could materially impact the fair value of the acquisition-related contingent consideration
and consequently the amount of noncash expense (or income) recorded each reporting period.
41
Gain (Loss) on Exchange of Franchise Territory
During 2015, the Company and CCR completed a like-kind exchange transaction where CCR agreed to exchange certain assets of
CCR relating to the marketing, promotion, distribution and sale of Coca-Cola and other beverage products in the territory served by
CCR’s facilities and equipment located in Lexington, Kentucky in exchange for certain assets of the Company relating to the
marketing, promotion, distribution and sale of Coca-Cola and other beverage products in the territory served by the Company’s
facilities and equipment located in Jackson, Tennessee. The fair value in 2015 of the Lexington net assets acquired totaled
$36.8 million and the Company paid cash of approximately $10.5 million. The carrying value of the Jackson net assets was
$17.5 million, resulting in a net gain of $8.8 million. The balances of net assets acquired and cash paid were subsequently adjusted in
2016 as a result of final post-closing adjustments. See Note 3 to the consolidated financial statements for additional information.
Gain on Sale of Business
During 2015, the Company sold BYB, a wholly-owned subsidiary of the Company, to The Coca-Cola Company. The Company
received cash proceeds of $26.4 million. The net assets of BYB at closing totaled $3.7 million, which resulted in a gain of
$22.7 million in 2015.
Bargain Purchase Gain, Net of Tax
In addition to the acquired Expansion Territories, the Company also acquired a “make-ready center” in Annapolis, Maryland from
CCR for approximately $5.3 million in 2015. The cash paid was subsequently adjusted in 2016 as a result of final post-closing
adjustments. See Note 3 to the consolidated financial statements for additional information. The fair value of the net assets acquired
totaled $7.3 million, which resulted in a bargain purchase gain of approximately $2.0 million, net of tax of approximately $1.3 million,
recorded in 2015.
Income Tax Expense
The Company’s effective tax rate, calculated by dividing income tax expense by income before income taxes, was 38.9% for 2016 and
34.4% for 2015. The increase in the effective tax rate was driven primarily by a decrease to the favorable manufacturing deduction, as
a percentage of pre-tax income, less of a decrease to the valuation allowance in 2016 as compared to 2015, and an increase in non-
deductible travel expense. 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 41.8% for 2016 and 36.6% for 2015.
Noncontrolling Interest
The Company recorded net income attributable to noncontrolling interest of $6.5 million in 2016 and $6.0 million in 2015 related to
the portion of Piedmont owned by The Coca-Cola Company.
Other Comprehensive Income (Loss), Net of Tax
Other comprehensive loss, net of tax, was $10.5 million in 2016 and was primarily a result of actuarial losses on the Company’s
pension and postretirement benefit plans.
42
2015 Compared to 2014
A summary of the Company’s financial results for 2015 and 2014 follows:
Fiscal Year
Change
2014
2015
(in thousands)
Net sales .................................................................................................. $ 2,306,458 $ 1,746,369 $
Cost of sales ............................................................................................ 1,405,426 1,041,130
705,239
Gross profit .............................................................................................
619,272
S,D&A expenses .....................................................................................
85,967
Income from operations ..........................................................................
29,272
Interest expense, net ................................................................................
(1,077 )
Other income (expense), net ...................................................................
-
Gain on exchange of franchise territory ..................................................
-
Gain on sale of business ..........................................................................
-
Bargain purchase gain, net of tax of $1,265 ............................................
55,618
Income before taxes ................................................................................
19,536
Income tax expense .................................................................................
36,082
Net income ..............................................................................................
4,728
Less: Net income attributable to noncontrolling interest ..................
31,354 $
Net income attributable to Coca-Cola Bottling Co. Consolidated.......... $
901,032
802,888
98,144
28,915
(3,576)
8,807
22,651
2,011
99,122
34,078
65,044
6,042
59,002 $
560,089
364,296
195,793
183,616
12,177
(357)
(2,499)
8,807
22,651
2,011
43,504
14,542
28,962
1,314
27,648
% Change
32.1%
35.0
27.8
29.7
14.2
(1.2)
232.0
-
-
-
78.2
74.4
80.3
27.8
88.2%
Net Sales
Net sales increased $560.1 million, or 32.1%, to $2.31 billion in 2015, as compared to $1.75 billion in 2014. The increase in net sales
was primarily attributable to the following (in millions):
2015
Attributable to:
$
373.4
80.3
69.3
Net sales increase related to the 2015 Expansion Territories, partially offset by the 2014 comparable sales of Legacy
Territories exchanged for Expansion Territories in 2015
6.0% increase in bottle/can sales volume to retail customers in the Legacy Territories, primarily due to an increase in
still beverages
4.9% increase in bottle/can sales price per unit to retail customers in the Legacy Territories, primarily due to an
increase in energy beverage volume which have a higher sales price per unit, and an increase in all beverage categories
sales price per unit except the water beverage category
25.8 Increase in external transportation revenue
12.4
7.6% increase in sales volume to other Coca-Cola bottlers, primarily due to a volume increase in all beverage
categories
(9.1 ) Decrease in sales of the Company's own brand products, primarily due to the sale of BYB in the third quarter of 2015
4.0
2.3% increase in sales price per unit of sales to other Coca-Cola bottlers primarily due to a higher percentage of still
beverages, which have a higher sales price per unit than non-energy sparkling beverages
3.0 3.4% increase in post-mix sales price per unit
1.0 Other
$
560.1 Total increase in net sales
The Company’s bottle/can sales to retail customers accounted for approximately 82% of the Company’s total net sales in 2015, as
compared to approximately 80% in 2014. Product category sales volume in 2015 and 2014 as a percentage of total bottle/can sales
volume and the percentage change by product category were as follows:
Product Category
Sparkling beverages .................................................................................
Still beverages (including energy products) .............................................
Total bottle/can sales volume ................................................................
43
Bottle/Can Sales Volume
2014
2015
73.4%
26.6%
100.0%
Bottle/Can Sales
Volume Increase
24.1%
44.4%
28.9%
76.2 %
23.8 %
100.0 %
Bottle/can volume to retail customers, excluding Expansion Territories, increased 6.0%, which represented a 2.1% increase in
sparkling beverages and a 19.9% increase in still beverages in 2015, as compared to 2014.
During 2015, approximately 68% of the Company’s bottle/can volume to retail customers was sold for future consumption, while the
remaining bottle/can volume to retail customers was sold for immediate consumption. All the Company’s beverage sales were to
customers in the United States. The Company recorded delivery fees in net sales of $6.3 million in 2015 and $6.2 million in 2014.
The following table summarizes the percentage of the Company’s total bottle/can volume and the percentage of the Company’s total
net sales, which are all included in the Nonalcoholic Beverages operating segment, attributed to its largest customers:
Customer
Wal-Mart Stores, Inc.
Approximate percent of the Company's total Bottle/can volume .......................................
Approximate percent of the Company's total Net sales ......................................................
Food Lion, LLC
Approximate percent of the Company's total Bottle/can volume .......................................
Approximate percent of the Company's total Net sales ......................................................
The Kroger Company
Approximate percent of the Company's total Bottle/can volume .......................................
Approximate percent of the Company's total Net sales ......................................................
Cost of Sales
Fiscal Year
2015
2014
22 %
15 %
7 %
5 %
6 %
5 %
22%
15%
9%
6%
5%
4%
Cost of sales increased $364.3 million, or 35.0%, to $1.41 billion in 2015, as compared to $1.04 billion in 2014. The increase in cost
of sales was principally attributable to the following (in millions):
2015
Attributable to:
$
239.2
Net sales increase related to the 2015 Expansion Territories, partially offset by the 2014 comparable sales of Legacy
Territories exchanged for Expansion Territories in 2015
47.1 Increase in raw material costs and increased purchases of finished products
46.6
6.0% increase in bottle/can sales volume to retail customers in the Legacy Territories, primarily due to an increase in
still beverages
20.9 Increase in external transportation cost of sales
11.9
7.6% increase in sales volume to other Coca-Cola bottlers, primarily due to a volume increase in all beverage
categories
(8.6 ) Increase in marketing funding support received for the Legacy Territories, primarily from The Coca-Cola Company
6.4 Increase in manufacturing cost (primarily labor expense)
(5.1 )
Decrease in cost of sales of the Company’s own brand products, primarily due to the sale of BYB in the third quarter of
2015
4.1 Increase in cost due to the Company's commodity hedging program
1.8 Other
$
364.3 Total increase in cost of sales
Total marketing funding support from The Coca-Cola Company and other beverage companies, which includes direct payments to the
Company and payments to customers for marketing programs, was $72.2 million in 2015, as compared to $55.4 million in 2014.
44
S,D&A Expenses
S,D&A expenses increased by $183.6 million, or 29.7%, to $802.9 million in 2015, as compared to $619.3 million in 2014. S,D&A
expenses as a percentage of sales decreased to 34.8% in 2015 from 35.5% in 2014. The increase in S,D&A expenses was principally
attributable to the following (in millions):
2015
Attributable to:
$
90.7
15.4
13.3
Increase in employee salaries including bonus and incentive compensation as a result of normal salary increases and
additional personnel added from the Expansion Territories
Increase in depreciation and amortization of property, plant and equipment primarily due to depreciation for fleet and
vending equipment in the Expansion Territories
Increase in employee benefit costs primarily due to additional medical expense (for employees from the Expansion
Territories), increased pension expense and increased 401(k) employer matching contributions offset by decreased
retiree medical benefits for legacy employees
7.1 Increase in professional fees expense primarily resulting from due diligence related to the Expansion Territories
6.1
Increase in marketing expense primarily due to increased spending for promotional items and media and cold drink
sponsorship in the Expansion Territories
5.9 Increase in employer payroll taxes primarily due to payroll in the Expansion Territories
5.9 Increase in vending and fountain parts expense due to the addition of the Expansion Territories
18.3 Other individually immaterial expense increases primarily related to the Expansion Territories
20.9 Other individually immaterial increases
$
183.6 Total increase in S,D&A expenses
Shipping and handling costs related to the movement of finished goods from sales distribution centers to customer locations totaled
$222.9 million in 2015 and $211.6 million in 2014.
S,D&A expense of $1.6 million in 2015 and $0.2 million in 2014 was recorded for the two Company-sponsored pension plans.
During 2015 and 2014, the Company matched the maximum 5% of participants’ contributions on its 401(k) Savings Plan, for a total
expense of $9.4 million and $7.7 million, respectively.
Certain employees of the Company participate in a multi-employer pension plan, the Employers-Teamsters Local Union Nos. 175 and
505 Pension Fund (the “Teamsters Plan”), to which the Company makes monthly contributions on behalf of such employees. In 2015,
the Company increased the contribution rates to the Teamsters Plan, with additional increases occurring annually, as part of a
rehabilitation plan. This is a result of the Teamsters Plan being certified by its actuary as being in “critical” status for the plan year
beginning January 1, 2013, 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.
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.
Interest Expense, Net
Interest expense, net, decreased $0.4 million, or 1.2%, to $28.9 million in 2015, as compared to $29.3 million in 2014. The decrease
was primarily related to a decrease in the Company’s overall weighted average interest rate on its debt and capital lease obligations to
4.7% during 2015 from 5.7% during 2014.
Other Income (Expense), Net
Other income (expense), net, included a noncash expense of $3.6 million in 2015 and a noncash expense of $1.1 million in 2014 as a
result of an unfavorable fair value adjustment of the Company’s contingent consideration liability related to the Expansion Territories.
The adjustment was primarily driven by current payments of sub-bottler fees in 2015. As the contingent consideration is calculated
using 40 years of discounted cash flows, any reductions in contingent consideration due to current payments of the liability are
effectively marked to market at the next reporting period, assuming interest rates and future projections remain constant.
45
Gain (Loss) on Exchange of Franchise Territory
During 2015, the Company and CCR completed a like-kind exchange transaction where CCR agreed to exchange certain assets of
CCR relating to the marketing, promotion, distribution and sale of Coca-Cola and other beverage products in the territory served by
CCR’s facilities and equipment located in Lexington, Kentucky in exchange for certain assets of the Company relating to the
marketing, promotion, distribution and sale of Coca-Cola and other beverage products in the territory served by the Company’s
facilities and equipment located in Jackson, Tennessee. The fair value in 2015 of the Lexington net assets acquired totaled
$36.8 million and the Company paid cash of approximately $10.5 million. The carrying value of the Jackson net assets was
$17.5 million, resulting in a net gain of $8.8 million. The balances of net assets acquired and cash paid were subsequently adjusted in
2016 as a result of final post-closing adjustments. See Note 3 to the consolidated financial statements for additional information.
Gain on Sale of Business
During 2015, the Company sold BYB, a wholly-owned subsidiary of the Company, to The Coca-Cola Company. The Company
received cash proceeds of $26.4 million. The net assets of BYB at closing totaled $3.7 million, which resulted in a gain of
$22.7 million in 2015.
Bargain Purchase Gain, Net of Tax
In addition to the acquired Expansion Territories, the Company also acquired a “make-ready center” in Annapolis, Maryland from
CCR for approximately $5.3 million in 2015. The cash paid was subsequently adjusted in 2016 as a result of final post-closing
adjustments. See Note 3 to the consolidated financial statements for additional information. The fair value of the net assets acquired
totaled $7.3 million, which resulted in a bargain purchase gain of approximately $2.0 million, net of tax of approximately $1.3 million,
recorded in 2015.
Income Tax Expense
The Company’s effective tax rate, calculated by dividing income tax expense by income before income taxes, was 34.4% for 2015 and
35.1% for 2014. The decrease in the effective tax rate resulted primarily from a state tax legislation target that was met that caused a
reduction to the corporate tax rate in 2015 and reductions to the valuation allowance due to the Company’s assessment of the
Company’s ability to use certain loss carryforwards primarily related to the sale of BYB. The Company’s effective tax rate, as
calculated by dividing income tax expense by income before income taxes less net income attributable to noncontrolling interest, was
36.6% for 2015 and 38.4% for 2014.
The Company decreased its valuation allowance by $1.3 million for 2015 and increased its valuation allowance by $1.2 million for
2014. The effect for both years was primarily due to the Company’s assessment of its ability to use certain loss carryforwards. See
Note 15 to the consolidated financial statements for additional information.
Noncontrolling Interest
The Company recorded net income attributable to noncontrolling interest of $6.0 million in 2015 and $4.7 million in 2014 related to
the portion of Piedmont owned by The Coca-Cola Company.
Other Comprehensive Income, Net of Tax
Other comprehensive income, net of tax, was $7.5 million in 2015 and was primarily a result of actuarial gains 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 (“FASB”) Accounting
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.
The Company believes four operating segments exist. Nonalcoholic Beverages represents the vast majority of the Company’s
consolidated revenues, operating income, and assets. The remaining 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.
46
Prior to the sale of BYB in the third quarter of fiscal 2015, the Company believed five operating segments existed. Subsequent to this
sale, two operating segments, Franchised Nonalcoholic Beverages and Internally-Developed Nonalcoholic Beverages (made up
entirely of BYB), were aggregated due to their similar economic characteristics as well as the similarity of products, production
processes, types of customers, methods of distribution, and nature of the regulatory environment. This combined segment is
Nonalcoholic Beverages.
The Company’s results for its two reportable segments are as follows:
(in thousands)
Net Sales:
Nonalcoholic Beverages ................................................................................... $
All Other ...........................................................................................................
Eliminations* ....................................................................................................
$
Consolidated net sales .....................................................................................
2016
Fiscal Year
2015
$
3,060,937
234,732
(139,241)
$
3,156,428
$
2,245,836
160,191
(99,569)
$
2,306,458
2014
1,710,040
123,194
(86,865)
1,746,369
Operating Income:
Nonalcoholic Beverages ................................................................................... $
All Other ...........................................................................................................
$
Consolidated operating income ......................................................................
123,230
4,629
127,859
$
$
92,921
5,223
98,144
$
$
82,297
3,670
85,967
Comparable / Adjusted Results
The Company reports its financial results in accordance with U.S. generally accepted accounting principles (“GAAP”). However,
management believes certain non-GAAP financial measures provide users with additional meaningful financial information that
should be considered when assessing the Company’s ongoing 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 comparable results (non-GAAP) for 2016 and 2015:
Net
sales
Income from
operations
2016
Income
before taxes
Net
income
(in thousands, except per share data)
Reported results (GAAP) .............................. $ 3,156,428 $
Fair value adjustments for commodity hedges ....
-
2016 & 2015 acquisitions impact ..................... (1,061,769)
-
Territory expansion expenses ...........................
-
Special charitable contribution .........................
Exchange of franchise territories......................
-
Fair value adjustment of acquisition related
contingent consideration ..................................
-
Total reconciling items ................................... (1,061,769)
Comparable results (non-GAAP) ................. $ 2,094,659 $
92,712 $
(4,728)
(24,280)
32,274
4,000
692
56,663 $
(2,908 )
(14,932 )
19,849
2,460
426
Basic net
income per share
5.39
(0.31)
(1.60)
2.13
0.26
0.05
(1,910)
6,048
98,760 $
(1,175 )
3,720
60,383 $
(0.13)
0.40
5.79
127,859 $
(4,728)
(24,280)
32,274
4,000
-
-
7,266
135,125 $
47
Net
sales
Income from
operations
2015
Income
before taxes
Net
income
(in thousands, except per share data)
Reported results (GAAP) .............................. $ 2,306,458 $
Fair value adjustments for commodity hedges ....
-
2015 acquisitions impact .................................. (278,612)
(31,375)
2015 divestitures impact ..................................
-
Territory expansion expenses ...........................
-
Exchange of franchise territories......................
-
Gain on sale of business ...................................
Bargain purchase gain ......................................
Fair value adjustment of acquisition related
-
contingent consideration ..................................
Results of extra week in fiscal year ..................
(38,587)
Total reconciling items ................................... (348,574)
Comparable results (non-GAAP) ................. $ 1,957,884 $
98,144 $
3,439
(3,365)
(3,222)
19,982
-
-
99,122 $
3,439
(3,365)
(3,222)
19,982
(8,807)
(22,651)
(3,276)
Basic net
income per share
6.35
0.22
(0.22)
(0.21)
1.32
(0.58)
(1.49)
(0.22)
65,044 $
2,112
(2,066 )
(1,979 )
12,269
(5,407 )
(13,908 )
(2,011 )
-
(4,022)
12,812
110,956 $
3,576
(4,022)
(18,346)
80,776 $
2,196
(2,416 )
(11,210 )
53,834 $
0.24
(0.26)
(1.20)
5.15
Financial Condition
Total assets increased $602.9 million to $2.45 billion at January 1, 2017, as compared to $1.85 billion at January 3, 2016. The increase
in total assets was primarily attributable to the acquisition of the Expansion Territories in 2016, contributing to an increase in total
assets of $418.7 million as of January 1, 2017. In addition, the Company had additions to property, plant and equipment of
$172.6 million during 2016, which excludes $227.1 million in property, plant and equipment acquired in the Expansion Transactions
completed in 2016.
Net working capital, defined as current assets less current liabilities, increased $27.5 million to $135.9 million at January 1, 2017,
from $108.4 million at January 3, 2016.
Significant changes in net working capital on January 1, 2017 from January 3, 2016 were as follows:
A decrease in cash and cash equivalents of $33.6 million primarily due to acquisitions of Expansion Territories and Regional
Manufacturing Facilities.
An increase in accounts receivables, trade of $85.5 million primarily due to accounts receivables from sales in newly
acquired territories in 2016.
An increase in accounts receivable from The Coca-Cola Company of $39.0 million and an increase in accounts payable to
The Coca-Cola Company of $56.1 million, primarily as a result of activity from newly acquired territories in 2016 and the
timing of payments.
An increase in inventories of $54.1 million primarily as a result of inventories acquired from the Expansion Transactions in
2016.
An increase in accounts payable, trade of $33.9 million primarily as a result of the Expansion Transactions in 2016.
An increase in other accrued liabilities of $29.7 million primarily as a result of the timing of payments and an increase in the
current portion of acquisition related contingent consideration.
An increase in accrued compensation of $11.0 million primarily as a result of increased incentive compensations accruals
resulting from the Company’s financial performance.
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 and bank
facilities. Management believes the Company has sufficient sources of capital available to refinance its maturing debt, finance its
business plan, including the proposed acquisition of previously announced additional Expansion Territories and Regional
Manufacturing Facilities, meet its working capital requirements and maintain an appropriate level of capital spending for at least the
next 12 months. 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.
48
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, 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 of the banks participating in the Company’s Revolving Credit Facility have the ability to and will
meet any funding requests from the Company. On January 1, 2017, the Company had $152.0 million of outstanding borrowings on the
Revolving Credit Facility. On January 3, 2016, the Company had no outstanding borrowings on the Revolving Credit Facility.
In June 2016, the Company entered into a five-year term loan agreement for a senior unsecured term loan facility (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,
dependent on the Company’s credit rating, at the Company’s option. The Company used $210 million of the proceeds from the Term
Loan Facility to repay outstanding indebtedness 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.
Both the Revolving Credit 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 January 1, 2017. These covenants do not currently, and the Company does not anticipate
they will, restrict its liquidity or capital resources.
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 from the prior year and the credit ratings are currently stable. As
of January 1, 2017, the Company’s credit ratings were as follows:
Standard & Poor’s ..............................................................................................................................................
Moody’s .............................................................................................................................................................
BBB
Baa2
Long-Term Debt
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.
Net debt and capital lease obligations were summarized as follows:
(in thousands)
Debt ........................................................................................................................... $
Capital lease obligations ...........................................................................................
Total debt and capital lease obligations ....................................................................
Less: Cash and cash equivalents ...............................................................................
Total net debt and capital lease obligations (1) ...................................................... $
January 1, 2017
January 3, 2016
907,254 $
48,721
955,975
21,850
934,125 $
619,628
55,784
675,412
55,498
619,914
(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 report and may not be comparable to the similarly titled measures
used by other companies. Additionally, this information should not be considered in isolation or as a substitute for performance
measures calculated in accordance with GAAP.
49
The Company is subject to interest rate risk on its floating rate debt, including the Company’s $450 million Revolving Credit Facility
and its $300 million 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 January 1, 2017, interest expense for the next twelve months would
increase by approximately $4.5 million. Refer to Item 7A for additional information.
The Company’s only Level 3 asset or liability is the contingent consideration liability incurred as a result of the Expansion
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. Following is a summary of the Level 3 activity:
(in thousands)
Opening balance .................................................................................................................... $
Increase due to acquisitions ..................................................................................................
Decrease due to measurement period adjustments ................................................................
Payment/current payables .....................................................................................................
Fair value adjustment - (income) expense .............................................................................
Ending balance .................................................................................................................... $
Fiscal Year
2016
2015
136,570 $
133,857
-
(15,080 )
(1,910 )
253,437 $
46,850
109,784
(18,396)
(5,244)
3,576
136,570
Subsequent to year-end, on 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, PGIM, Inc. and the other parties thereto. 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 expects to use the proceeds for general corporate purposes. As of the date of this filing, the Company may
request that Prudential consider the purchase of additional senior unsecured notes of the Company under the facility in an aggregate
principal amount of up to $175 million.
50
Cash Sources and Uses
The primary sources of cash for the Company in 2016 and 2015 were debt financings and cash flows from operating activities. The
primary uses of cash in 2016 and 2015 were debt repayments, acquisitions of Expansion Territories and Regional Manufacturing
Facilities and additions to property, plant and equipment. A summary of cash-based activity is as follows:
(in thousands)
Cash Sources:
Borrowings under Revolving Credit Facility ................................................................ $
Borrowings under Term Loan Facility ..........................................................................
Cash provided by operating activities (excluding income tax and pension payments) ........
Refund of income tax payments ....................................................................................
Borrowings under Senior Notes, net of discount ..........................................................
Proceeds from sale of business .....................................................................................
Proceeds from the sale of property, plant and equipment .............................................
Other .............................................................................................................................
Total cash sources ....................................................................................................... $
Cash Uses:
Acquisition of Expansion Territories and Regional Manufacturing Facilities, net of
cash acquired ................................................................................................................. $
Payment of Revolving Credit Facility ...........................................................................
Additions to property, plant and equipment (exclusive of acquisition).........................
Payment of Senior Notes ...............................................................................................
Payment of acquisition related contingent consideration ..............................................
Contributions to pension plans ......................................................................................
Cash dividends paid ......................................................................................................
Investment in CONA Services LLC..............................................................................
Principal payments on capital lease obligations ............................................................
Payment on Uncommitted Line of Credit .....................................................................
Income tax payments ....................................................................................................
Other .............................................................................................................................
Total cash uses ............................................................................................................. $
Increase (decrease) in cash ......................................................................................... $
2016
Fiscal Year
2015
2014
410,000 $
300,000
165,979
7,111
-
-
-
1,097
884,187 $
272,637 $
258,000
172,586
164,757
13,550
11,120
9,307
7,875
7,063
-
-
940
917,835 $
(33,648 ) $
334,000
-
150,572
-
349,913
26,360
1,891
-
862,736
81,707
405,000
163,887
100,000
4,039
10,500
9,287
-
6,555
-
31,782
3,576
816,333
46,403
$
$
$
$
$
191,624
-
132,912
-
-
-
1,701
-
326,237
41,588
125,624
84,364
-
212
10,000
9,266
-
5,939
20,000
31,009
901
328,903
(2,666)
Based on current projections, which include a number of assumptions such as the Company’s pre-tax earnings, the Company
anticipates its cash payments for income taxes will be between $5 million and $15 million in fiscal 2017. This projection does not
include any anticipated cash income tax requirements resulting from additional completed Expansion Territory transactions or the
Territory Conversion Agreement.
Cash Flows From Operating Activities
During 2016, cash provided by operating activities was $162.0 million, which was an increase of $53.7 million, as compared to 2015.
During 2015, cash provided by operating activities was $108.3 million, which was an increase of $16.4 million, as compared to 2014.
The increase in both periods was driven primarily by growth in comparable income from operations and cash generated from acquired
Expansion Territories.
Cash Flows From Investing Activities
During 2016, cash used in investing activities was $452.0 million, which was an increase of $234.7 million, as compared to 2015. The
increase was driven primarily by $272.6 million in cash used to acquire Expansion Transactions.
Additions to property, plant and equipment during 2016 were $172.6 million, of which $15.7 million were accrued in accounts
payable, trade. The 2016 additions exclude $227.1 million in property, plant and equipment acquired in the Expansion Transactions
completed in 2016.
51
Capital expenditures during 2016 were funded with cash flows from operations and available credit facilities. The Company
anticipates additions to property, plant and equipment in 2017 will be in the range of $200 million to $250 million, excluding any
additional Expansion Transactions expected to close in 2017.
During 2015, cash used in investing activities was $217.3 million, which was an increase of $93.1 million, as compared to 2014. The
increase was driven by Expansion Transactions and higher levels of property, plant and equipment additions, which was partially
offset by cash proceeds from the sale of BYB. Additions to property, plant and equipment during 2015 were $168.7 million of which
$14.0 million were accrued in accounts payable, trade. The 2015 additions exclude $77.1 million in property, plant and equipment
acquired in the Expansion Transactions completed in 2015.
During 2015, the Company acquired the 2015 Expansion Territories and completed the Lexington-for-Jackson exchange. The total
cash used to acquire these expansion and exchange territories was $81.7 million. Also during 2015, the Company sold BYB to The
Coca-Cola Company for a cash purchase price of $26.4 million.
Cash Flows From Financing Activities
During 2016, cash provided by financing activities was $256.4 million, which was an increase of $100.9 million compared to 2015.
The increase was driven primarily a result of providing funding for the acquisitions of Expansion Territories and associated capital
expenditures. During 2016, the Company entered into a term loan agreement for a senior unsecured term loan facility in the aggregate
principal amount of $300 million and had net borrowings on revolving credit facilities of $152.0 million. These increases in debt were
partially offset by the repayment of $164.8 million of Senior Notes due 2016.
In addition, during 2016 the Company had cash payments of $13.6 million for acquisition related contingent consideration. The
anticipated range of amounts the Company could pay annually under the acquisition related contingent consideration arrangements for
the Expansion Transactions is between $14 million and $25 million.
During 2015, cash provided by financing activities was $155.5 million, which was an increase of $125.8 million compared to 2014.
The increase was driven primarily a result of providing funding for the acquisitions of Expansion Territories and Regional
Manufacturing Facilities and associated capital expenditures. During 2015, the Company’s net borrowings under the Revolving Credit
Facility decreased $71.0 million primarily due to the issuance of the 2025 Senior Notes.
Off-Balance Sheet Arrangements
The Company is a member of two manufacturing cooperatives and has guaranteed $32.6 million of debt for these entities as of
January 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. The Company does not anticipate either of these cooperatives will fail to fulfill their commitments. The
Company further believes each of these cooperatives has sufficient assets, including production equipment, facilities and working
capital, and the ability to adjust selling prices of their products to adequately mitigate the risk of material loss from the Company’s
guarantees. As of January 1, 2017, the Company’s maximum exposure, if both of these cooperatives borrowed up to their aggregate
borrowing capacity, would have been $70.8 million including the Company’s equity interests. See Note 14 to the consolidated
financial statements for additional information.
52
Aggregate Contractual Obligations
The following table summarizes the Company’s contractual obligations and commercial commitments as of January 1, 2017:
Contractual Obligation Payments Due During
Fiscal
2019
Total
Fiscal
2017
Fiscal
2018
Fiscal
Thereafter
2020
(in thousands)
- $ 15,000 $292,000 $ 37,500 $ 217,500 $ 350,000
Total debt, net of interest ................................ $ 912,000 $
Estimated interest on debt obligations (1) ........ 166,174 29,247 29,212 22,645 17,853 15,125
52,092
10,463
5,195
Capital lease obligations, net of interest..........
Estimated interest capital lease obligations (1) .....
1,617
738
Purchase obligations (2) ................................... 673,013 89,735 89,735 89,735 89,735 89,735
224,338
Other long-term liabilities (3) ........................... 406,431 32,905 28,141 25,055 22,011 20,829
277,490
32,805
8,074
Operating leases ..............................................
Long-term contractual arrangements (4) ..........
9,236
7,303
Postretirement obligations (5) ...........................
64,454
4,708
Purchase orders (6) ...........................................
-
-
Total contractual obligations ....................... $ 2,533,346 $270,975 $202,782 $466,076 $ 201,811 $ 369,207 $ 1,022,495
78,034 11,141
8,432
9,211
81,744 22,696 17,184 13,869 11,456
4,495
3,878
3,468
85,255
-
-
70,521 70,521
48,721
11,453
9,135
1,194
8,395
1,754
4,252
-
8,006
2,415
7,527
3,735
Fiscal
2021
8,371
Includes interest payments based on contractual terms.
(1)
(2) Represents an estimate of the Company’s obligation to purchase 17.5 million cases of finished product on an annual basis through
(3)
(4)
(5)
June 2024 from South Atlantic Canners, a manufacturing cooperative.
Includes obligations under acquisition related contingent consideration, executive benefit plans, the liability to exit from a multi-
employer pension plan and other long-term liabilities.
Includes contractual arrangements with certain prestige properties, athletic venues and other locations, and other long-term
marketing commitments.
Includes the liability for postretirement benefit obligations only. The unfunded portion of the Company’s pension plan is excluded
as the timing and/or amount of any cash payment is uncertain.
(6) Purchase orders include commitments in which a written purchase order has been issued to a vendor, but the goods have not been
received or the services performed.
The Company has $2.9 million of uncertain tax positions including accrued interest, as of January 1, 2017 all of which would affect
the Company’s effective tax rate if recognized. The balance is excluded from other long-term liabilities in the table above as the
Company is uncertain if or when such amounts will be 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
financial statements. See Note 15 to the consolidated financial statements for additional information.
The Company is a member 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. This obligation is
not included in the Company’s table of contractual obligations and commercial commitments as there are no minimum purchase
requirements. See Note 14 and Note 19 to the consolidated financial statements for additional information related to Southeastern.
As of January 1, 2017, the Company had $29.7 million of standby letters of credit, primarily related to its property and casualty
insurance programs. See Note 14 to the consolidated financial statements for additional information related to commercial
commitments, guarantees, legal and tax matters.
The Company contributed $11.1 million to its two Company-sponsored pension plans in 2016. Based on information currently
available, the Company estimates it will be required to make cash contributions in the range of $10 million to $12 million to those two
plans in 2017.
Postretirement medical care payments are expected to be approximately $3.5 million in 2017. See Note 18 to the consolidated
financial statements for additional information related to pension and postretirement obligations.
53
Hedging Activities
The Company entered into derivative instruments to hedge certain commodity purchases for 2017, 2016, 2015 and 2014. 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 of 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 cost of sales was a decrease of $1.3 million in 2016
and an increase of $3.5 million in 2015. The net impact of the commodity hedges on SD&A expenses was a decrease of $0.5 million
in 2016 and an increase of $1.4 million in 2015.
Discussion of Critical Accounting Policies, Estimates and New Accounting Pronouncements
Critical Accounting Policies and Estimates
In the ordinary course of business, the Company has made a number of estimates and assumptions relating to the reporting of results
of operations and financial position in the preparation of its consolidated financial statements in conformity with GAAP. Actual
results could differ significantly from those estimates under different assumptions and conditions. The Company believes the
following discussion addresses the Company’s most critical accounting policies, which are those most important to the portrayal of the
Company’s financial condition and results of operations and require management’s most difficult, subjective and complex judgments,
often as a result of the need to make estimates about the effect of inherently uncertain matters.
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.
Allowance for Doubtful Accounts
The Company evaluates the collectability of its trade accounts receivable based on a number of factors. When the Company becomes
aware of a customer’s inability to meet its financial obligations to the Company, a specific reserve for bad debts is estimated and
recorded to reduce the recognized receivable to the estimated amount the Company believes will ultimately be collected. In addition to
specific customer identification of potential bad debts, an allowance for doubtful accounts is recorded based on the Company’s recent
past loss history and an overall assessment of past due trade accounts receivable outstanding.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost, less accumulated depreciation. Depreciation is calculated using the straight-line
method over the estimated useful lives of the assets. Leasehold improvements on operating leases are depreciated over the shorter of
the estimated useful lives or the term of the lease, including renewal options the Company determines are reasonably assured.
Additions and major replacements or betterments are added to the assets at cost. Maintenance and repair costs and minor replacements
are charged to expense when incurred. When assets are replaced or otherwise disposed, the cost and accumulated depreciation are
removed from the accounts and the gains or losses, if any, are reflected in the statement of operations. Gains or losses on the disposal
of manufacturing equipment and manufacturing facilities are included in cost of sales. Gains or losses on the disposal of all other
property, plant and equipment are included in selling, delivery and administrative (“S,D&A”) expenses.
The Company evaluates the recoverability of the carrying amount of its property, plant and equipment when events or circumstances
indicate the carrying amount of an asset or asset group may not be recoverable. These evaluations are performed at a level where
independent cash flows may be attributed to either an asset or an asset group. If the Company determines the carrying amount of an
asset or asset group is not recoverable based upon the expected undiscounted future cash flows of the asset or asset group, an
impairment loss is recorded equal to the excess of the carrying amounts over the estimated fair value of the long-lived assets.
During 2016, 2015 and 2014, the Company performed periodic reviews of property, plant and equipment and determined no material
impairment existed.
Franchise Rights
The Company considers franchise rights with The Coca-Cola Company and other beverage companies to be indefinite lived because
the agreements are perpetual or, when not perpetual, the Company anticipates the agreements will continue to be renewed upon
54
expiration. The cost of renewals is minimal, and the Company has not had any renewals denied. The Company considers franchise
rights as indefinite lived intangible assets and, therefore, does not amortize the value of such assets. Instead, franchise rights are tested
at least annually for impairment.
Impairment Testing of Franchise Rights and Goodwill
GAAP requires testing of intangible assets with indefinite lives and goodwill for impairment at least annually. The Company conducts
its annual impairment test as of the first day of the fourth quarter of each fiscal year. The Company also reviews intangible assets with
indefinite lives and goodwill for impairment if there are significant changes in business conditions that could result in impairment. For
both franchise rights and goodwill, when appropriate, the Company performs a qualitative assessment to determine whether it is more
likely than not the fair value of the franchise rights or goodwill is below its carrying value.
When a quantitative analysis is considered necessary for the annual impairment analysis of franchise rights, the Company utilizes the
Greenfield Method to estimate the fair value. The Greenfield Method assumes the Company is new, owning only franchise rights, and
making investments required to build an operation comparable to the Company’s current operations. The Company estimates the cash
flows required to build a comparable operation and the available future cash flows from these operations. The cash flows are then
discounted using an appropriate discount rate. The estimated fair value based upon the discounted cash flows is compared to the
carrying value on an aggregated basis to determine whether an impairment is needed.
In 2016 and 2015, the Company completed its qualitative assessment and determined a quantitative assessment was not necessary. In
2014 the Company did complete a quantitative analysis. In all years, the Company determined no impairment of the Company’s
franchise rights existed.
The Company has determined it has one reporting unit, within the Nonalcoholic Beverages reportable segment, for the purpose of
assessing goodwill for potential impairment. The Company uses its overall market capitalization as part of its estimate of fair value of
the reporting unit and in assessing the reasonableness of the Company’s internal estimates of fair value.
When a quantitative analysis is considered necessary for the annual impairment analysis of goodwill, the Company develops an
estimated fair value for the reporting unit considering three different approaches:
market value, using the Company’s stock price plus outstanding debt;
multiple of earnings before interest, taxes, depreciation and amortization based upon relevant industry data.
discounted cash flow analysis; and
The estimated fair value of the reporting unit is then compared to its carrying amount, including goodwill. If the estimated fair value
exceeds the carrying amount, goodwill is not considered impaired, and the second step of the impairment test is not necessary. If the
carrying amount, including goodwill, exceeds its estimated fair value, the second step of the impairment test is performed to measure
the amount of the impairment, if any. In the second step, a comparison is made between the book value of goodwill and the implied
fair value of goodwill. Implied fair value of goodwill is determined by comparing the fair value of the reporting unit to the book value
of its net identifiable assets, excluding goodwill. To estimate the implied fair value of goodwill for a reporting unit, the Company
assigns the fair value of the assets and liabilities associated with the reporting unit as if the reporting unit had been acquired in a
business combination. Any excess of the carrying value of goodwill of the reporting unit over its implied fair value is recorded as an
impairment.
To the extent actual and projected cash flows decline in the future, or if market conditions deteriorate significantly, the Company may
be required to perform an interim impairment analysis that could result in an impairment of franchise rights and goodwill. The
Company has determined there has not been an interim impairment trigger since the first day of the fourth quarter of 2016 annual test
date.
Income Tax Estimates
The Company records a valuation allowance to reduce the carrying value of its deferred tax assets if, based on the weight of available
evidence, it is determined that it is more likely than not that such assets will not ultimately be realized. The Company considers future
taxable income and prudent and feasible tax planning strategies in assessing the need for a valuation allowance. However, in the event
the Company determines it will not be able to realize all or part of its net deferred tax assets in the future, an adjustment to the
valuation allowance is charged to income in the period in which such a determination is made. A reduction in the valuation allowance
and corresponding adjustment to income may be required if the likelihood of realizing existing deferred tax assets increases to a more
likely than not level. The Company evaluates the realizability of deferred tax assets annually and when significant changes occur in
the Company’s business that could impact the realizability assessment.
55
In addition to a valuation allowance related to loss carryforwards, the Company records liabilities for uncertain tax positions related to
certain state and federal income tax positions. These liabilities reflect the Company’s best estimate of the ultimate income tax liability
based on currently known facts and information. Material changes in facts or information, as well as the expiration of the statute of
limitations and/or settlements with individual tax jurisdictions, may result in material adjustments to these estimates in the future.
Acquisition Related Contingent Consideration Liability
The Company’s acquisition related contingent consideration liability is subject to risk resulting from changes in the Company’s
probability weighted discounted cash flow model, which is based on internal forecasts and changes in the Company’s weighted
average cost of capital derived from market data.
At each reporting period, the Company evaluates future cash flows associated with its acquired territories as well as the associated
discount rate used to calculate the fair value of its contingent consideration. These cash flows represent the Company’s best estimate
of the future projections of the relevant territories over the same period as the related intangible asset, which is typically 40 years. The
discount rate represents the Company’s weighted average cost of capital at the reporting date for which the fair value calculation is
being performed. Changes in business conditions or other events could materially change both the projections of future cash flows and
the discount rate used in the calculation of the fair value of contingent consideration. These changes could materially impact the fair
value of the related contingent consideration. Changes in the fair value of the acquisition related contingent consideration are included
in “Other income (expense)” on the Consolidated Statements of Operations. The Company will adjust the fair value of the acquisition
related contingent consideration over a period of time consistent with the life of the related distribution rights asset subsequent to
acquisition.
Revenue Recognition
Revenues are recognized when finished products are delivered to customers and both title and the risks and benefits of ownership are
transferred, price is fixed and determinable, collection is reasonably assured and, in the case of full service vending, when cash is
collected from the vending machines. An appropriate provision is made for uncollectible accounts.
The Company receives service fees from The Coca-Cola Company related to the delivery of fountain syrup products to
The Coca-Cola Company’s fountain customers. In addition, the Company receives service fees from The Coca-Cola Company related
to the repair of fountain equipment owned by The Coca-Cola Company. The fees received from The Coca-Cola Company for the
delivery of fountain syrup products to their customers and the repair of their fountain equipment are recognized as revenue when the
respective services are completed. Service revenue represents approximately one percent of net sales.
The Company performs freight hauling and brokerage for third parties, in addition to delivering its own products. The freight charges
are recognized as revenues when the delivery is complete. Freight revenue from third parties represents approximately two percent of
net sales.
Revenues do not include sales or other taxes collected from customers.
Risk Management Programs
The Company uses various insurance structures to manage its workers’ compensation, auto liability, medical and other insurable risks.
These structures consist of retentions, deductibles, limits and a diverse group of insurers that serve to strategically transfer and
mitigate the financial impact of losses. The Company uses commercial insurance for claims as a risk reduction strategy to minimize
catastrophic losses. Losses are accrued using assumptions and procedures followed in the insurance industry, adjusted for company-
specific history and expectations. The Company has standby letters of credit, primarily related to its property and casualty insurance
programs. On January 1, 2017, these letters of credit totaled $29.7 million.
Pension and Postretirement Benefit Obligations
There are two Company-sponsored pension plans. The primary Company-sponsored pension plan (the “Primary Plan”) was frozen as
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 pension plan for collectively bargained
employees are determined in accordance with negotiated formulas for the respective participants. Contributions to the plans are based
on actuarial determined amounts and are limited to the amounts currently deductible for income tax purposes.
56
Several statistical and other factors, which attempt to anticipate future events, are used in calculating the expense and liability related
to the plans. These factors include assumptions about the discount rate, expected return on plan assets, employee turnover and age at
retirement, as determined by the Company, within certain guidelines. In addition, the Company uses subjective factors such as
mortality rates to estimate the projected benefit obligation. The actuarial assumptions used by the Company may differ materially
from actual results due to changing market and economic conditions, higher or lower withdrawal rates or longer or shorter life spans
of participants. These differences may result in a significant impact to the amount of net periodic pension cost recorded by the
Company in future periods.
The discount rate used in determining the actuarial present value of the projected benefit obligation for the Primary Plan and the
Bargaining Plan was 4.44% and 4.49%, respectively, in 2016 and 4.72% for both Company-sponsored plans in 2015. The discount
rate assumption is generally the estimate which can have the most significant impact on net periodic pension cost and the projected
benefit obligation for these pension plans. The Company determines an appropriate discount rate annually based on the annual yield
on long-term corporate bonds as of the measurement date and reviews the discount rate assumption at the end of each year.
In 2016, pension costs were $1.9 million. In 2015, pension costs were $1.7 million. In 2014, there was a pension benefit of
$0.3 million.
A 0.25% increase or decrease in the discount rate assumption would have impacted the projected benefit obligation and net periodic
pension cost of the Company-sponsored pension plans as follows:
(in thousands)
Increase (decrease) in:
0.25% Increase
0.25% Decrease
Projected benefit obligation at January 1, 2017 ................................................... $
Net periodic pension cost in 2016 .......................................................................
(9,642 ) $
(146 )
10,206
143
The weighted average expected long-term rate of return of plan assets was 6.5% for 2016, 6.5% in 2015 and 7.0% in 2014. This rate
reflects an estimate of long-term future returns for the pension plan assets. This estimate is primarily a function of the asset classes
(equities versus fixed income) in which the pension plan assets are invested and the analysis of past performance of these asset classes
over a long period of time. This analysis includes expected long-term inflation and the risk premiums associated with equity and fixed
income investments. See Note 18 to the consolidated financial statements for the details by asset type of the Company’s pension plan
assets and the weighted average expected long-term rate of return of each asset type. The actual return of pension plan assets were
gains of 7.2% in 2016, 0.7% in 2015 and 6.1% in 2014.
The Company sponsors a postretirement health care plan for employees meeting specified qualifying criteria. Several statistical and
other factors, which attempt to anticipate future events, are used in calculating the net periodic postretirement benefit cost and
postretirement benefit obligation for this plan. These factors include assumptions about the discount rate and the expected growth rate
for the cost of health care benefits. In addition, the Company uses subjective factors such as withdrawal and mortality rates to estimate
the projected liability under this plan. The actuarial assumptions used by the Company may differ materially from actual results due to
changing market and economic conditions, higher or lower withdrawal rates or longer or shorter life spans of participants. The
Company does not pre-fund its postretirement benefits and has the right to modify or terminate certain of these benefits in the future.
The discount rate assumption, the annual health care cost trend and the ultimate trend rate for health care costs are key estimates
which can have a significant impact on the net periodic postretirement benefit cost and postretirement obligation in future periods. The
Company annually determines the health care cost trend based on recent actual medical trend experience and projected experience for
subsequent years.
The discount rate assumptions used to determine the pension and postretirement benefit obligations are based on the annual yield on
long-term corporate bonds as of each plan’s measurement date. The discount rate used in determining the postretirement benefit
obligation was 4.36% in 2016, 4.53% in 2015 and 4.13% in 2014. The discount rate was derived using the Aon/Hewitt AA above
median yield curve. Projected benefit payouts for each plan were matched to the Aon/Hewitt AA above median yield curve and an
equivalent flat rate was derived.
A 0.25% increase or decrease in the discount rate assumption would have impacted the postretirement benefit obligation and service
cost and interest cost of the Company’s postretirement benefit plan as follows:
(in thousands)
Increase (decrease) in:
0.25% Increase
0.25% Decrease
Postretirement benefit obligation at January 1, 2017 ........................................... $
Service cost and interest cost in 2016 ..................................................................
(2,642 ) $
(145 )
2,787
152
57
A 1% increase or decrease in the annual health care cost trend would have impacted the postretirement benefit obligation and service
cost and interest cost of the Company’s postretirement benefit plan as follows:
(in thousands)
Increase (decrease) in:
1% Increase
1% Decrease
Postretirement benefit obligation at January 1, 2017 ........................................... $
Service cost and interest cost in 2016 ..................................................................
10,441 $
550
(9,976)
(521)
Recently Adopted Accounting Pronouncements
In August 2014, the FASB issued ASU 2014-15 “Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going
Concern,” which specifies the responsibility an entity’s management has to evaluate whether there is substantial doubt about the
entity’s ability to continue as a going concern. The new guidance is effective for annual and interim periods ending after
December 15, 2016. The Company adopted this guidance in the fourth quarter of 2016 and there was no impact on the Company’s
consolidated financial statements.
In August 2016, the FASB issued ASU 2016-15 “Classification of Certain Cash Receipts and Cash Payments,” which addresses
presentation and classification of certain cash receipts and payments in the statement of cash flows, with the objective to reduce
diversity in practice. The amendment applicable to the Company addresses contingent consideration payments made after a business
combination and states (i) cash payments made soon after an acquisition’s consummation date should be classified as cash outflows
for investing activities; (ii) cash payments made thereafter should be classified as cash outflows for financing activities up to the
amount of the original contingent consideration; and (iii) cash payments made in excess of the original contingent consideration
liability should be classified as cash outflows for operating activities. The new guidance is effective for fiscal years beginning after
December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period,
however if an entity elects to early adopt one amendment, it must adopt all amendments included in the guidance. The Company
adopted the new pronouncements in the third quarter of 2016 and there was no impact on the consolidated financial statements.
In April 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2015-03
“Simplifying the Presentation of Debt Issuance Costs” (“ASU 2015-03”). ASU 2015-03 requires all cost incurred to issue debt be
presented in the balance sheet as a direct reduction from the carrying value of the debt. In August 2015, the FASB issued
ASU 2015-15 “Presentation And Subsequent Measurement Of Debt Issuance Costs Associated With Line-Of-Credit Arrangements,
Amendments To SEC Paragraphs Pursuant To Staff Announcement At June 18, 2015 EITF Meeting.” ASU 2015-15 clarified that an
entity can present debt issuance costs of a line-of-credit arrangement as an asset regardless of whether there are any outstanding
borrowings on the line-of-credit arrangement. The new guidance was effective for annual and interim periods beginning after
December 15, 2015. The standard was retrospectively adopted by the Company on January 4, 2016, and did not have a material
impact on the Company’s consolidated financial statements. At January 3, 2016, $3.1 million and $1.1 million of debt issuance costs
were reclassified to long-term debt from other assets and prepaid expenses and other current assets, respectively.
Recently Issued Accounting Pronouncements
In January 2017, the FASB issued ASU 2017-04 “Simplifying the Test for Goodwill Impairment,” which eliminates the requirement
to calculate the implied fair value of goodwill to measure a goodwill impairment charge. 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 of this guidance will have a significant impact on its consolidated 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
interim periods within those periods. The impact to the Company’s consolidated financial statements will depend on the facts and
circumstances of any specific future transactions.
In March 2016, the FASB issued ASU 2016-09 “Improvements To Employees Share Based Payment Accounting,” which simplifies
several aspects of the accounting for employee-share based transactions including the accounting for income taxes, forfeitures and
statutory tax withholding requirements, as well as classification in the statement of cash flows. The new guidance is effective for
annual and interim reporting periods beginning after December 15, 2016. The Company is in the process of evaluating the impact of
the new guidance on the Company’s consolidated financial statements.
58
In February 2016, the FASB issued ASU 2016-02 “Leases.” The new guidance 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, 2019 and interim periods beginning the following year. The Company is in the process of
evaluating the impact of the new guidance on the Company’s consolidated financial statements. Additionally, the Company is
evaluating the impacts of the standard beyond accounting, including system, data and process changes required to comply with the
standard.
In January 2016, the FASB issued ASU 2016-01 “Recognition And Measurement Of Financial Assets And Financial Liabilities.” The
new guidance 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 reporting periods
beginning after December 31, 2017. The Company is in the process of evaluating the impact of the new guidance on the Company’s
consolidated financial statements.
In July 2015, the FASB issued ASU 2015-11 “Simplifying The Measurement of Inventory.” The new guidance requires an entity to
measure most inventory “at lower of cost and net realizable value” thereby simplifying the current guidance under which an entity
must measure inventory at the lower of cost or market. The new guidance is effective for annual and interim periods beginning after
December 15, 2016. The Company is in the process of evaluating the impact of the new guidance on the Company’s consolidated
financial statements.
Over the past several years, the FASB has issued several accounting standards for revenue recognition:
ASU 2014-09 “Revenue from Contracts with Customers” was issued in May 2014, which was originally going to be effective
for annual and interim periods beginning after December 15, 2016.
ASU 2015-14 “Revenue from Contracts with Customers, Deferral of the Effective Date” was issued in July 2015, which
deferred the effective date to annual and interim periods beginning after December 15, 2017.
ASU 2016-08 “Principal Versus Agent Considerations (Reporting Revenue Gross Versus Net)” was issued in March 2016,
which amends certain aspects of the May 2014 new guidance.
ASU 2016-11 “Rescission of SEC Guidance Because of Accounting Standards Updates 2014-09 and 2014-16, Pursuant to
Staff Announcements at the March 3, 2016 EITF Meeting” was issued in April 2016, which amends certain aspects of the
May 2014 new guidance.
ASU 2016-12 “Revenue From Contracts With Customers (Topic 606): Narrow-Scope Improvements and Practical
Expedients” was issued in May 2016, which amends certain aspects of the May 2014 new guidance.
ASU 2016-20 “Technical Corrections and Improvements to Topic 606: Revenue From Contracts With Customers” was
issued in December 2016 and clarifies the new revenue standard and corrects unintended application of the guidance.
The Company does not plan to early adopt this guidance. The Company has started its evaluation process to assess the impact of the
new guidance on the Company’s consolidated financial statements and to determine whether to adopt a full retrospective approach or
a modified retrospective approach. The evaluation process includes tasks such as performing an initial scoping analysis to identify key
revenue streams, reviewing current revenue-based contracts and evaluating revenue recognition requirements in order to prepare a
high-level road map and implementation work plan. Based on the Company’s preliminary review, it does not expect this guidance to
have a material impact on net sales. As the Company complete its overall assessment, the Company is also identifying and preparing
to implement changes to our accounting policies and practices, business processes, systems and controls to support the new revenue
recognition and disclosure requirements.
59
CAUTIONARY INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in this 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, selling, delivery and administrative (“S,D&A”) expenses, gross profit, income tax rates, earnings per
diluted share, dividends, pension plan contributions, estimated sub-bottling liability payments; or statements regarding the outcome or
impact of certain new accounting pronouncements and pending or threatened litigation.
the Company’s beliefs and estimates regarding the impact of the adoption of certain new accounting pronouncements;
the Company’s expectation that certain amounts of goodwill will be deductible for tax purposes;
the Company’s belief that the cooperatives whose debt the Company guarantees have sufficient assets and the ability to
adjust selling prices of their products to adequately mitigate the risk of material loss from the Company’s guarantees and that
the cooperatives will perform their obligations under their debt commitments;
the Company’s belief that the ultimate disposition of various claims and legal proceedings which have arisen in the ordinary
course of its business will not have a material adverse effect on its financial condition, cash flows or results of operations and
that no material amount of loss in excess of recorded amounts is reasonably possible as a result of these claims and legal
proceedings;
the Company’s belief that CCR and other bottlers from whom the Company purchases finished goods have adequate
production capacity to meet sales demands for sparkling and still beverages during peak periods;
the Company’s belief that it is competitive in its territories with respect to the principal methods of competition in the
nonalcoholic beverage 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 and that these non-GAAP
financial measures allow users to better appreciate the impact of these transactions on the Company’s performance;
the Company’s belief that it has sufficient sources of capital available to refinance its maturing debt, finance its business plan,
including the proposed acquisition of previously announced additional Expansion Territories and Regional Manufacturing
Facilities, meet its working capital requirements and maintain an appropriate level of capital spending for at least the next 12
months;
the Company’s belief that all of the banks participating in the Company’s Revolving Credit Facility have the ability to and
will meet any funding requests from the Company;
the Company’s estimate of the useful lives of certain acquired intangible assets and property, plant and equipment;
the Company’s estimate that a 10% increase in the market price of certain commodities over the current market prices would
cumulatively increase costs during the next 12 months by approximately $44.1 million assuming no change in volume;
the Company’s expectation that the amount of uncertain tax positions may change over the next 12 months but will not have
a significant impact on the consolidated financial statements;
the Company’s belief that it has taken the necessary steps to mitigate risk associated with a phased cut-over to the CONA
System
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 innovation of both new brands and packages will continue to be important to the Company’s
overall revenue;
the Company’s expectations as to the timing of certain Expansion Transaction closings;
the Company’s belief that the range of undiscounted amounts it could pay annually under the acquisition related contingent
consideration arrangements for the Expansion Transactions will be between $14 million and $25 million;
the Company’s belief that the range of income tax payments, excluding any income tax payments resulting from additional
completed Expansion Territory transactions or the Territory Conversion Agreement, will be between $5 million and
$15 million in 2017;
the Company’s belief that the covenants on the Company’s Revolving Credit Facility and Term Loan Facility will not restrict
its liquidity or capital resources;
the Company’s belief that other parties to certain of its contractual arrangements will perform their obligations;
the Company’s belief that cash contributions to the two Company-sponsored pension plans will be in the range of $10 million
to $12 million in 2017;
the Company’s expectation that postretirement medical care payments will be approximately $3.5 million in 2017;
60
the Company’s expectation that it will not withdraw from its participation in the Employers-Teamsters Local Union Nos. 175
and 505 Pension Fund;
the Company’s expectation that additions to property, plant and equipment, excluding additional Expansion Transactions
expected to close in 2017, will be in the range of $200 million to $250 million in 2017;
the Company’s expectations regarding potential changes in the levels of marketing funding support, external advertising and
marketing spending from The Coca-Cola Company and other beverage companies;
the Company’s belief that the Company has adequately provided for any ultimate amounts that are likely to result from tax
audits;
the Company’s belief that certain franchise rights are perpetual or will be renewed upon expiration;
the Company’s expectation that new product introductions, packaging changes and sales promotions will continue to require
substantial expenditures;
the Company’s belief that compliance with environmental laws will not have a material adverse effect on its consolidated
financial statements or competitive position;
the Company’s belief that the majority of its deferred tax assets will be realized;
the Company’s intention to renew substantially all the Allied Beverage Agreements and Still Beverage Agreements as they
expire;
the Company’s belief that key priorities include territory and manufacturing expansion, revenue management, product
innovation and beverage portfolio expansion, distribution cost management and 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 January 1, 2017, interest expense for the next twelve months would increase by approximately
$4.5 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 of this Form 10K, as well as other factors discussed throughout this Report, including,
without limitation, the factors described under “Critical Accounting Policies and Estimates” in Part I – Item 7, or in other filings or
statements made by the Company. All of the forward-looking statements in this Report 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. 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 Securities and Exchange Commission.
Item 7A.
Quantitative and Qualitative Disclosures about Market Risk
The Company is exposed to certain market risks that arise in the ordinary course of business. The Company may enter into derivative
financial instrument transactions to manage or reduce market risk. The Company does not enter into derivative financial instrument
transactions for trading purposes. A discussion of the Company’s primary market risk exposure and interest rate risk is presented
below.
Debt and Derivative Financial Instruments
The Company is subject to interest rate risk on its floating rate debt, including the Company’s $450 million Revolving Credit Facility
and its $300 million 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 January 1, 2017, interest expense for the next twelve months would
increase by approximately $4.5 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 CBAs related to the Expansion Territories. As a result, any changes in
61
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 Prices
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. 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 over the current market prices would cumulatively increase costs during the next 12 months
by approximately $44.1 million assuming no change in volume.
In 2016 and 2015, the Company entered into agreements to hedge a portion of the Company’s 2017, 2016 and 2015 commodity
purchases.
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.
Effect of Changing Prices
The annual rate of inflation in the United States, as measured by year-over-year changes in the consumer price index, was 2.1% in
2016 compared to 0.7% in 2015 and 0.8% in 2014. Inflation in the prices of those commodities important to the Company’s business
is reflected in changes in the consumer price index, but commodity prices are volatile and in recent years have moved at a faster rate
of change than the consumer price index.
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. 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.
62
Item 8.
Financial Statements and Supplementary Data
COCA-COLA BOTTLING CO. CONSOLIDATED
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Net sales ............................................................................................................. $
Cost of sales .......................................................................................................
Gross profit ........................................................................................................
Selling, delivery and administrative expenses ...................................................
Income from operations .....................................................................................
Interest expense, net ...........................................................................................
Other income (expense), net ..............................................................................
Gain (loss) on exchange of franchise territory ...................................................
Gain on sale of business .....................................................................................
Bargain purchase gain, net of tax of $1,265 .......................................................
Income before taxes ...........................................................................................
Income tax expense ............................................................................................
Net income .........................................................................................................
Less: Net income attributable to noncontrolling interest ..............................
$
Net income attributable to Coca-Cola Bottling Co. Consolidated ...............
Basic net income per share based on net income attributable to Coca-
Cola Bottling Co. Consolidated:
Common Stock ................................................................................................... $
Weighted average number of Common Stock shares outstanding .....................
Class B Common Stock ..................................................................................... $
Weighted average number of Class B Common Stock shares outstanding ........
Diluted net income per share based on net income attributable to Coca-
Cola Bottling Co. Consolidated:
Common Stock ................................................................................................... $
Weighted average number of Common Stock shares outstanding – assuming
dilution ...............................................................................................................
Class B Common Stock ..................................................................................... $
Weighted average number of Class B Common Stock shares outstanding –
assuming dilution ...............................................................................................
$
2016
3,156,428
1,940,706
1,215,722
1,087,863
127,859
36,325
1,870
(692)
-
-
92,712
36,049
56,663
6,517
50,146
$
$
Fiscal Year
2015
2,306,458
1,405,426
901,032
802,888
98,144
28,915
(3,576)
8,807
22,651
2,011
99,122
34,078
65,044
6,042
59,002
$
2014
1,746,369
1,041,130
705,239
619,272
85,967
29,272
(1,077)
-
-
-
55,618
19,536
36,082
4,728
31,354
$
5.39
7,141
$
5.39
2,168
$
$
6.35
7,141
6.35
2,147
3.38
7,141
3.38
2,126
5.36
$
6.33
$
3.37
9,349
9,328
9,307
5.35
$
6.31
$
3.35
2,208
2,187
2,166
See Accompanying Notes to Consolidated Financial Statements.
63
COCA-COLA BOTTLING CO. CONSOLIDATED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
Net income ........................................................................................................ $
2016
Fiscal Year
2015
2014
56,663
$
65,044
$
36,082
Other comprehensive income (loss), net of tax:
Defined benefit plans reclassification including pension costs:
Actuarial gain (loss) .....................................................................................
Prior service costs ........................................................................................
(4,150)
17
6,624
21
Postretirement benefits reclassification including benefit costs:
Actuarial gain (loss) .....................................................................................
Prior service costs ........................................................................................
Foreign currency translation adjustment ...........................................................
Other comprehensive income (loss), net of tax .................................................
Comprehensive income .....................................................................................
Less: Comprehensive income attributable to noncontrolling interest ...............
Comprehensive income (loss) attributable to Coca-Cola Bottling Co.
Consolidated ....................................................................................................
$
(4,286)
(2,065)
(6)
(10,490)
46,173
6,517
2,934
(2,068)
(4)
7,507
72,551
6,042
(31,839)
22
(4,318)
4,402
(5)
(31,738)
4,344
4,728
39,656
$
66,509
$
(384)
See Accompanying Notes to Consolidated Financial Statements.
64
COCA-COLA BOTTLING CO. CONSOLIDATED
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
ASSETS
Current Assets:
Cash and cash equivalents ............................................................................................................... $
Accounts receivable, trade ...............................................................................................................
Allowance for doubtful accounts .....................................................................................................
Accounts receivable from The Coca-Cola Company ......................................................................
Accounts receivable, other ..............................................................................................................
Inventories .......................................................................................................................................
Prepaid expenses and other current assets .......................................................................................
Total current assets ..................................................................................................................
Property, plant and equipment, net ..................................................................................................
Leased property under capital leases, net ........................................................................................
Other assets .....................................................................................................................................
Franchise rights ...............................................................................................................................
Goodwill ..........................................................................................................................................
Other identifiable intangible assets, net ...........................................................................................
Total assets ............................................................................................................................... $
LIABILITIES AND EQUITY
Current liabilities:
Current portion of obligations under capital leases ......................................................................... $
Accounts payable, trade...................................................................................................................
Accounts payable to The Coca-Cola Company ...............................................................................
Other accrued liabilities ...................................................................................................................
Accrued compensation ....................................................................................................................
Accrued interest payable .................................................................................................................
Total current liabilities ............................................................................................................
Deferred income taxes .....................................................................................................................
Pension and postretirement benefit obligations ...............................................................................
Other liabilities ................................................................................................................................
Obligations under capital leases ......................................................................................................
Long-term debt ................................................................................................................................
Total liabilities ..........................................................................................................................
Commitments and Contingencies (Note 14) ....................................................................................
Equity:
Convertible Preferred Stock, $100.00 par value: authorized - 50,000 shares; issued - none ..........
Nonconvertible Preferred Stock, $100.00 par value: authorized - 50,000 shares; issued - none ....
Preferred Stock, $.01 par value: authorized - 20,000,000 shares; issued - none .............................
Common Stock, $1.00 par value: authorized - 30,000,000 shares; issued - 10,203,821 shares ......
Class B Common Stock, $1.00 par value: authorized - 10,000,000 shares; issued-2,799,816 and
2,778,896 shares, respectively .........................................................................................................
Class C Common Stock, $1.00 par value: authorized - 20,000,000 shares; issued - none .............
Capital in excess of par value ..........................................................................................................
Retained earnings ............................................................................................................................
Accumulated other comprehensive loss ..........................................................................................
Treasury stock, at cost: Common Stock - 3,062,374 shares ...........................................................
Treasury stock, at cost: Class B Common Stock - 628,114 shares .................................................
Total equity of Coca-Cola Bottling Co. Consolidated .....................................................................
Noncontrolling interest ....................................................................................................................
Total equity ..............................................................................................................................
Total liabilities and equity ............................................................................................................ $
See Accompanying Notes to Consolidated Financial Statements.
65
January 1, 2017
January 3, 2016
21,850 $
271,661
(4,448 )
67,591
29,770
143,553
63,834
593,811
812,989
33,552
86,091
533,040
144,586
245,415
2,449,484 $
7,527 $
116,821
135,155
133,885
60,880
3,639
457,907
174,854
126,679
378,572
41,194
907,254
2,086,460
10,204
2,798
116,769
301,511
(92,897 )
(60,845 )
(409 )
277,131
85,893
363,024
2,449,484 $
55,498
186,126
(2,117)
28,564
24,047
89,464
53,337
434,919
525,820
40,145
63,739
527,540
117,954
136,448
1,846,565
7,063
82,937
79,065
104,168
49,839
3,481
326,553
146,944
115,197
267,090
48,721
619,628
1,524,133
10,204
2,777
113,064
260,672
(82,407)
(60,845)
(409)
243,056
79,376
322,432
1,846,565
COCA-COLA BOTTLING CO. CONSOLIDATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Cash Flows from Operating Activities:
Net income ............................................................................................................................... $
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation expense ..........................................................................................................
Amortization of intangibles ................................................................................................
Deferred income taxes ........................................................................................................
Loss on sale of property, plant and equipment ...................................................................
Impairment of property, plant and equipment.....................................................................
Gain (loss) on exchange of franchise territory ....................................................................
Gain on sale of business .....................................................................................................
Bargain purchase gain .........................................................................................................
Amortization of debt costs ..................................................................................................
Stock compensation expense ..............................................................................................
Fair value adjustment of acquisition related contingent consideration ...............................
Change in current assets less current liabilities (exclusive of acquisition) .........................
Change in other noncurrent assets (exclusive of acquisition) .............................................
Change in other noncurrent liabilities (exclusive of acquisition) ........................................
Other ...................................................................................................................................
Total adjustments .....................................................................................................................
Net cash provided by operating activities .............................................................................
2016
Fiscal Year
2015
2014
56,663 $
65,044
$
36,082
111,613
5,010
42,942
2,892
382
692
-
-
1,855
7,154
(1,910 )
(39,909 )
(14,564 )
(10,850 )
25
105,332
161,995
78,096
2,800
10,408
1,268
148
(8,807)
(22,651)
(2,011)
2,011
7,300
3,576
(18,262)
(4,292)
(6,214)
(124)
43,246
108,290
60,397
733
4,220
677
-
-
-
-
1,938
3,542
1,077
(16,331)
(3,195)
3,333
(570)
55,821
91,903
Cash Flows from Investing Activities:
Additions to property, plant and equipment (exclusive of acquisition) ....................................
Proceeds from the sale of property, plant and equipment .........................................................
Proceeds from the sale of BYB Brands, Inc. ............................................................................
Investment in CONA Services LLC .........................................................................................
Acquisition of Expansion Territories, net of cash acquired ......................................................
Net cash used in investing activities ......................................................................................
(172,586 )
1,072
-
(7,875 )
(272,637 )
(452,026 )
(163,887)
1,891
26,360
-
(81,707)
(217,343)
(84,364)
1,701
-
-
(41,588)
(124,251)
Cash Flows from Financing Activities:
Borrowings under Senior Notes, net of discount ......................................................................
Borrowings under Term Loan Facility .....................................................................................
Borrowing under Revolving Credit Facility .............................................................................
Payment of Revolving Credit Facility ......................................................................................
Payment of Senior Notes ..........................................................................................................
Repayment of Lines of Credit ..................................................................................................
Cash dividends paid ..................................................................................................................
Excess tax expense (benefit) from stock-based compensation .................................................
Payment of acquisition related contingent consideration .........................................................
Principal payments on capital lease obligations .......................................................................
Other .........................................................................................................................................
Net cash provided by financing activities .............................................................................
-
300,000
410,000
(258,000 )
(164,757 )
-
(9,307 )
-
(13,550 )
(7,063 )
(940 )
256,383
349,913
-
334,000
(405,000)
(100,000)
-
(9,287)
-
(4,039)
(6,555)
(3,576)
155,456
Net increase (decrease) in cash .................................................................................................
Cash at beginning of year .........................................................................................................
Cash at end of year ................................................................................................................. $
(33,648 )
55,498
21,850 $
46,403
9,095
55,498
Significant noncash investing and financing activities:
Issuance of Class B Common Stock in connection with stock award ...................................... $
Capital lease obligations incurred .............................................................................................
Additions to property, plant and equipment accrued and recorded in accounts payable, trade ....
3,726 $
-
15,704
2,225
3,361
14,006
See Accompanying Notes to Consolidated Financial Statements.
$
$
-
-
191,624
(125,624)
-
(20,000)
(9,266)
176
(212)
(5,939)
(1,077)
29,682
(2,666)
11,761
9,095
1,763
-
9,185
66
COCA-COLA BOTTLING CO. CONSOLIDATED
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
Class B
Common
Stock
Capital in
Excess of
Par Value
Common
Stock
(in thousands, except share
data)
Balance on Dec. 29, 2013 ..... $ 10,204 $ 2,735 $ 108,942 $188,869 $
Net income .............................
- 31,354
Other comprehensive income
(loss), net of tax .....................
Cash dividends paid:
Retained
Earnings
-
-
-
-
-
-
Common ($1.00 per share) ....
Class B Common ($1.00 per
share) ..................................
-
-
-
-
-
(7,141)
-
(2,125)
-
21
Issuance of 20,900 shares of
Class B Common Stock .........
Stock compensation
adjustment ..............................
-
Balance on Dec. 28, 2014 ..... $ 10,204 $ 2,756 $ 110,860 $210,957 $
Net income .............................
- 59,002
Other comprehensive income
(loss), net of tax .....................
Cash dividends paid:
1,742
176
-
-
-
-
-
-
-
-
-
Common ($1.00 per share) ....
Class B Common ($1.00 per
share) ..................................
-
-
-
-
-
(7,141)
-
(2,146)
Issuance of 20,920 shares of
Class B Common Stock .........
-
Balance on January 3, 2016 .... $ 10,204 $ 2,777 $ 113,064 $260,672 $
Net income .............................
- 50,146
Other comprehensive income
(loss), net of tax .....................
Cash dividends paid:
2,204
21
-
-
-
-
-
-
-
Treasury
Stock -
Common
Stock
Accumulated
Other
Comprehensive
Loss
(58,176) $(60,845) $ (409) $ 191,320 $
31,354
Total
Equity
of Coca-Cola
Bottling Co.
Consolidated
Treasury
Stock -
Class B
Common
Stock
-
-
-
Noncontrolling
Interest
Total
Equity
68,606 $259,926
4,728 36,082
(31,738)
-
-
-
-
-
-
-
-
(31,738 )
- (31,738)
-
(7,141 )
-
(7,141)
-
(2,125 )
-
(2,125)
-
1,763
-
1,763
-
-
176
(89,914) $(60,845) $ (409) $ 183,609 $
59,002
-
-
-
-
-
176
73,334 $256,943
6,042 65,044
7,507
-
-
-
-
-
-
7,507
-
7,507
-
(7,141 )
-
(7,141)
-
(2,146 )
-
(2,146)
-
-
2,225
(82,407) $(60,845) $ (409) $ 243,056 $
50,146
-
-
-
-
-
2,225
79,376 $322,432
6,517 56,663
(10,490)
-
-
-
-
(10,490 )
- (10,490)
-
(7,141 )
-
(7,141)
-
(2,166 )
-
(2,166)
Common ($1.00 per share) ....
Class B Common ($1.00 per
share) ..................................
-
-
-
-
-
(7,141)
-
(2,166)
-
-
Issuance of 20,920 shares of
Class B Common Stock .........
-
Balance on January 1, 2017 .... $ 10,204 $ 2,798 $ 116,769 $301,511 $
3,705
21
-
-
3,726
(92,897) $(60,845) $ (409) $ 277,131 $
-
-
-
3,726
85,893 $363,024
See Accompanying Notes to Consolidated Financial Statements.
67
COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Description of Business and Summary of Significant Accounting Policies
Description of Business
Coca-Cola Bottling Co. Consolidated (the “Company”) produces, markets and distributes nonalcoholic beverages, primarily products
of The Coca-Cola Company, and is the largest independent Coca-Cola bottler in the United States. The Company manages its business
on the basis of four operating segments and two reporting segments.
Piedmont Coca-Cola Bottling Partnership (“Piedmont”) is the Company’s only subsidiary with significant noncontrolling interest.
Piedmont distributes and markets nonalcoholic beverages in portions of North Carolina and South Carolina. The Company provides a
portion of the nonalcoholic beverage products to Piedmont at cost and receives a fee for managing the operations of Piedmont
pursuant to a management agreement. Refer to Note 2 for additional information.
As part of The Coca-Cola Company’s plans to refranchise its North American bottling territories, the Company is engaged in a multi-
year series of transactions with The Coca-Cola Company and Coca-Cola Refreshments, Inc. (“CCR”), a wholly-owned subsidiary of
The Coca-Cola Company, to expand its distribution operations significantly through the acquisition both of rights to serve additional
distribution territories previously served by CCR and of related distribution assets. Refer to Note 3 for additional information.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its majority owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated.
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”)
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Fiscal Year
The Company’s fiscal year generally ends on the Sunday closest to December 31 of each year. The fiscal years presented are:
The 52-week period ended January 1, 2017 (“2016”)
The 53-week period ended January 3, 2016 (“2015”); and
The 52-week period ended December 28, 2014 (“2014”).
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, cash in banks and cash equivalents, which are highly liquid debt instruments with
maturities of less than 90 days. The Company maintains cash deposits with major banks, which, from time to time, may exceed
federally insured limits. The Company periodically assesses the financial condition of the institutions and believes the risk of any loss
is minimal.
Accounts Receivable, Trade
The Company sells its products to mass merchandise retailers, supermarkets retailers, convenience stores and other customers and
extends credit, generally without requiring collateral, based on an ongoing evaluation of the customer’s business prospects and
financial condition. The Company’s trade accounts receivable are typically collected within 30 days from the date of sale.
68
Allowance for Doubtful Accounts
The Company evaluates the collectibility of its trade accounts receivable based on a number of factors, including the specific industry
in which a particular customer operates. When the Company becomes aware of a customer’s inability to meet its financial obligations
to the Company, a specific reserve for bad debts is estimated and recorded to reduce the recognized receivable to the estimated amount
the Company believes will ultimately be collected. In addition to specific customer identification of potential bad debts, an allowance
for doubtful accounts is recorded based on the Company’s recent past loss history and an overall assessment of past due trade accounts
receivable outstanding.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined on the first-in, first-out method for finished products and
manufacturing materials and on the average cost method for plastic shells, plastic pallets and other inventories.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost, less accumulated depreciation. Depreciation is calculated using the straight-line
method over the estimated useful lives of the assets. Leasehold improvements on operating leases are depreciated over the shorter of
the estimated useful lives or the term of the lease, including renewal options the Company determines are reasonably assured.
Additions and major replacements or betterments are added to the assets at cost. Maintenance and repair costs and minor replacements
are charged to expense when incurred. When assets are replaced or otherwise disposed, the cost and accumulated depreciation are
removed from the accounts and the gains or losses, if any, are reflected in the statement of operations. Gains or losses on the disposal
of manufacturing equipment and manufacturing facilities are included in cost of sales. Gains or losses on the disposal of all other
property, plant and equipment are included in selling, delivery and administrative (“S,D&A”) expenses.
The Company evaluates the recoverability of the carrying amount of its property, plant and equipment when events or circumstances
indicate the carrying amount of an asset or asset group may not be recoverable. These evaluations are performed at a level where
independent cash flows may be attributed to either an asset or an asset group. If the Company determines the carrying amount of an
asset or asset group is not recoverable based upon the expected undiscounted future cash flows of the asset or asset group, an
impairment loss is recorded equal to the excess of the carrying amounts over the estimated fair value of the long-lived assets.
Leased Property Under Capital Leases
Leased property under capital leases is depreciated using the straight-line method over the lease term.
Internal Use Software
The Company capitalizes costs incurred in the development or acquisition of internal use software. The Company expenses costs
incurred in the preliminary project planning stage. Costs, such as maintenance and training, are also expensed as incurred. Capitalized
costs are amortized over their estimated useful lives using the straight-line method. Amortization expense, which is included in
depreciation expense, for internal-use software was $10.9 million in 2016, $9.3 million in 2015 and $7.6 million in 2014.
Franchise Rights and Goodwill
All business combinations are accounted for using the acquisition method. Goodwill and intangible assets with indefinite useful lives
are tested for impairment annually, or more frequently if facts and circumstances indicate such assets may be impaired. Franchise
rights and goodwill are the only intangible assets the Company classifies as indefinite lived.
The Company performs its annual impairment test as of the first day of the fourth quarter each year. For both franchise rights and
goodwill, when appropriate, the Company performs a qualitative assessment to determine whether it is more likely than not that the
fair value of the franchise rights or goodwill is below its carrying value.
When a quantitative analysis is considered necessary for the annual impairment analysis of franchise rights, the Company utilizes the
Greenfield Method to estimate the fair value. The Greenfield Method assumes the Company is new, owning only franchise rights, and
making investments required to build an operation comparable to the Company’s current operations. The Company estimates the cash
flows required to build a comparable operation and the available future cash flows from these operations. The cash flows are then
discounted using an appropriate discount rate. The estimated fair value based upon the discounted cash flows is compared to the
carrying value on an aggregated basis to determine whether an impairment is needed.
69
The Company has determined it has one reporting unit, within the Nonalcoholic Beverages reportable segment, for the purpose of
assessing goodwill for potential impairment. The Company uses its overall market capitalization as part of its estimate of fair value of
the reporting unit and in assessing the reasonableness of the Company’s internal estimates of fair value.
When a quantitative analysis is considered necessary for the annual impairment analysis of goodwill, the Company develops an
estimated fair value for the reporting unit considering three different approaches:
market value, using the Company’s stock price plus outstanding debt;
multiple of earnings before interest, taxes, depreciation and amortization based upon relevant industry data.
discounted cash flow analysis; and
The estimated fair value of the reporting unit is then compared to its carrying amount, including goodwill. If the estimated fair value
exceeds the carrying amount, goodwill is not considered impaired, and the second step of the impairment test is not necessary. If the
carrying amount, including goodwill, exceeds its estimated fair value, the second step of the impairment test is performed to measure
the amount of the impairment, if any. In the second step, a comparison is made between the book value of goodwill and the implied
fair value of goodwill. Implied fair value of goodwill is determined by comparing the fair value of the reporting unit to the book value
of its net identifiable assets, excluding goodwill. To estimate the implied fair value of goodwill for a reporting unit, the Company
assigns the fair value of the assets and liabilities associated with the reporting unit as if the reporting unit had been acquired in a
business combination. Any excess of the carrying value of goodwill of the reporting unit over its implied fair value is recorded as an
impairment.
To the extent the actual and projected cash flows decline in the future or if market conditions significantly deteriorate, the Company
may be required to perform an interim impairment analysis that could result in an impairment of franchise rights or goodwill.
Other Identifiable Intangible Assets
Other identifiable intangible assets primarily represent customer relationships and distribution rights, and are amortized on a straight-
line basis over their estimated useful lives.
Acquisition Related Contingent Consideration Liability
The acquisition related contingent consideration liability consists of the estimated amounts due to The Coca-Cola Company under the
Comprehensive Beverage Agreements (“CBAs”) over the remaining useful life of the related distribution rights intangible assets.
Under the CBAs, the Company is required to make quarterly sub-bottling payments on a continuing basis for the grant of exclusive
rights to distribute, promote, market and sell specified covered beverages and related products, as defined in the agreements, in certain
acquired territories. The quarterly sub-bottling payment is based on sales of certain beverages and beverage products sold under the
same trademarks that identify a covered beverage, related product or certain cross-licensed brands, as defined in the CBAs.
Each reporting period, the Company evaluates future cash flows associated with its acquired territories and the associated discount
rate to determine the fair value of the contingent consideration. These cash flows represent the Company’s best estimate of amounts
which will be paid to The Coca-Cola Company under the CBAs over the remaining life of certain distribution rights intangible assets.
The discount rate represents the Company’s weighted average cost of capital at the reporting date of the fair value calculation.
Changes in the fair value of the acquisition related contingent consideration are included in “Other income (expense)” on the
Consolidated Statement of Operations.
Pension and Postretirement Benefit Plans
The Company has a noncontributory pension plan covering certain nonunion employees and a noncontributory pension plan covering
certain union employees. Costs of the plans are charged to current operations and include several components of net periodic pension
cost based on actuarial assumptions regarding future expectations of the plans. In addition, certain other union employees are covered
by plans provided by their respective union organizations and the Company expenses amounts as paid in accordance with union
agreements. The Company recognizes the cost of postretirement benefits, which consist primarily of medical benefits, during
employees’ periods of active service.
Amounts recorded for benefit plans reflect estimates related to interest rates, investment returns, employee turnover and health care
costs. The discount rate assumptions used to determine the pension and postretirement benefit obligations are based on yield rates
available on double-A bonds as of each plan’s measurement date.
70
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to operating losses and tax credit carryforwards, as well as differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax bases. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the enactment date.
A valuation allowance will be provided against deferred tax assets if the Company determines it is more likely than not such assets
will not ultimately be realized.
The Company does not recognize a tax benefit unless it concludes that it is more likely than not that the benefit will be sustained on
audit by the taxing authority based solely on the technical merits of the associated tax position. If the recognition threshold is met, the
Company recognizes a tax benefit measured at the largest amount of the tax benefit that, in the Company’s judgment, is greater than
50 percent likely to be realized. The Company records interest and penalties related to uncertain tax positions in income tax expense.
Revenue Recognition
Revenues are recognized when finished products are delivered to customers and both the title and the risks and benefits of ownership
are transferred, price is fixed and determinable, collection is reasonably assured and, in the event of full service vending, when cash is
collected from the vending machines. Appropriate provisions are made for uncollectible accounts.
The Company receives service fees from The Coca-Cola Company for the delivery of fountain syrup products to
The Coca-Cola Company’s fountain customers and for the repair of fountain equipment owned by The Coca-Cola Company. These
service fees are recognized as revenue when the respective services are completed. Service revenue represents approximately one
percent of net sales, and is presented within the Nonalcoholic Beverages segment.
In addition to delivering its own products, the Company performs freight hauling and brokerage for third parties. The freight charges
are recognized as revenue when the delivery is complete. Freight revenue from third parties represents approximately two percent of
net sales, and is presented within the All Other segment.
Revenues do not include sales or other taxes collected from customers.
Marketing Programs and Sales Incentives
The Company participates in various marketing and sales programs with The Coca-Cola Company, other beverage companies and
customers to increase the sale of its products. In addition, coupon programs are deployed on a territory-specific basis. The cost of
these various marketing programs and sales incentives with The Coca-Cola Company and other beverage companies, included as
deductions to net sales, totaled $117.0 million in 2016, $71.4 million in 2015 and $61.7 million. Programs negotiated with customers
include arrangements under which allowances can be earned for attaining agreed-upon sales levels and/or for participating in specific
marketing programs.
Marketing Funding Support
The Company receives marketing funding support payments in cash from The Coca-Cola Company and other beverage companies.
Payments to the Company for marketing programs to promote the sale of bottle/can volume and fountain syrup volume are recognized
as a reduction of cost of sales, primarily on a per unit basis, as the product is sold. Payments for periodic programs are recognized in
the period during which they are earned.
Cash consideration received by a customer from a vendor is presumed to be a reduction of the price of the vendor’s products or
services. As such, the cash received is accounted for as a reduction of cost of sales unless it is a specific reimbursement of costs or
payments for services. Payments the Company receives from The Coca-Cola Company and other beverage companies for marketing
funding support are classified as reductions of cost of sales.
71
Derivative Financial Instruments
The Company uses derivative financial instruments, with the intent of reducing risk over time, to manage its exposure to movements
in interest rates and certain commodity prices. The Company does not use financial instruments for trading purposes, and it does not
use leveraged financial instruments. Credit risk related to the derivative financial instruments is managed by requiring high credit
standards for its counterparties and periodic settlements. The Company records all derivative instruments in the consolidated financial
statements at fair value.
Commodity Hedges
The Company uses derivative instruments to hedge some or all of its projected purchases of aluminum and of diesel fuel and unleaded
gasoline for the Company’s delivery fleet and other vehicles. The Company generally pays a fee for these instruments, which is
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 of related costs which are included in either cost of sales or S,D&A
expenses.
Risk Management Programs
The Company uses various insurance structures to manage its workers’ compensation, auto liability, medical and other insurable risks.
These structures consist of retentions, deductibles, limits and a diverse group of insurers that serve to strategically transfer and
mitigate the financial impact of losses. The Company uses commercial insurance for claims as a risk reduction strategy to minimize
catastrophic losses. Losses are accrued using assumptions and procedures followed in the insurance industry, adjusted for company-
specific history and expectations.
Cost of Sales
Cost of sales includes raw material costs, manufacturing labor, manufacturing overhead including depreciation expense,
manufacturing warehousing costs and shipping and handling costs related to the movement of finished goods from manufacturing
locations to sales distribution centers.
Selling, Delivery and Administrative Expenses
S,D&A expenses include sales management labor costs, distribution costs from sales distribution centers to customer locations, sales
distribution center warehouse costs, depreciation expense related to sales centers, delivery vehicles and cold drink equipment, point-
of-sale expenses, advertising expenses, cold drink equipment repair costs, amortization of intangibles and administrative support labor
and operating costs such as treasury, legal, information services, accounting, internal control services, human resources and executive
management costs.
Shipping and Handling Costs
Shipping and handling costs related to the movement of finished goods from manufacturing locations to sales distribution centers are
included in cost of sales. Shipping and handling costs related to the movement of finished goods from sales distribution centers to
customer locations are included in S,D&A expenses and were $314.3 million in 2016, $222.9 million in 2015 and $211.6 million in
2014.
Delivery fees charged by the Company are used to offset a portion of the Company’s delivery and handling costs. The fees are
recorded net sales and are presented within the Nonalcoholic Beverages segment. There were delivery fees of $6.0 million in 2016,
$6.3 million in 2015 and $6.2 million in 2014 recorded to net sales.
Stock Compensation with Contingent Vesting
In April 2008, the stockholders of the Company approved a Performance Unit Award Agreement for J. Frank Harrison, III, the
Company’s Chairman of the Board of Directors and Chief Executive Officer, consisting of 400,000 performance units (“Units”). Each
Unit represents the right to receive one share of the Company’s Class B Common Stock, subject to certain terms and conditions. The
Units are subject to vesting in annual increments over a ten-year period starting in fiscal year 2009. The number of Units that vest each
year will be equal the product of 40,000 multiplied by the overall goal achievement factor, not to exceed 100%, under the Company’s
Annual Bonus Plan.
72
Each annual 40,000 unit tranche has an independent performance requirement that is not established until the Company’s Annual
Bonus Plan targets are approved during the first quarter of each year by the Compensation Committee of the Board of Directors. As a
result, each 40,000 unit tranche is considered to have its own service inception date, grant-date and requisite service period. The
Performance Unit Award Agreement does not entitle Mr. Harrison, to participate in dividends or voting rights until each installment
has vested and related shares are issued. Mr. Harrison may satisfy tax withholding requirements in whole or in part by requiring the
Company to settle in cash such a number of units otherwise payable in Class B Common Stock to meet the maximum statutory tax
withholding requirements. The Company recognizes compensation expense over the requisite service period (one fiscal year) based on
the Company’s stock price at the end of each accounting period, unless the achievement of the performance requirement for the fiscal
year is considered unlikely.
See Note 17 to the consolidated financial statements for additional information on Mr. Harrison’s stock compensation program.
Net Income Per Share
The Company applies the two-class method for calculating and presenting net income per share. The two-class method is an earnings
allocation formula that determines earnings per share for each class of common stock according to dividends declared or accumulated
and participation rights in undistributed earnings. Under this method:
(a) Income from continuing operations (“net income”) is reduced by the amount of dividends declared in the current period for
each class of stock and by the contractual amount of dividends that must be paid for the current period.
(b) The remaining earnings (“undistributed earnings”) are allocated to Common Stock and Class B Common Stock to the extent
each security may share in earnings as if all the earnings for the period had been distributed. The total earnings allocated to
each security is determined by adding together the amount allocated for dividends and the amount allocated for a
participation feature.
(c) The total earnings allocated to each security is then divided by the number of outstanding shares of the security to which the
earnings are allocated to determine the earnings per share for the security.
(d) Basic and diluted earnings per share (“EPS”) data are presented for each class of common stock.
In applying the two-class method, the Company determined undistributed earnings should be allocated equally on a per share basis
between the Common Stock and Class B Common Stock due to the aggregate participation rights of the Class B Common Stock (i.e.,
the voting and conversion rights) and the Company’s history of paying dividends equally on a per share basis on the Common Stock
and Class B Common Stock.
Under the Company’s certificate of incorporation, the Board of Directors may declare dividends on Common Stock without declaring
equal or any dividends on the Class B Common Stock. Notwithstanding this provision, Class B Common Stock has voting and
conversion rights that allow the Class B Common Stock to participate equally on a per share basis with the Common Stock.
The Class B Common Stock is entitled to 20 votes per share and the Common Stock is entitled to one vote per share with respect to
each matter to be voted upon by the stockholders of the Company. Except as otherwise required by law, the holders of the Class B
Common Stock and Common Stock vote together as a single class on all matters submitted to the Company’s stockholders, including
the election of the Board of Directors. As a result, the holders of the Class B Common Stock control approximately 86% of the total
voting power of the stockholders of the Company and control the election of the Board of Directors. The Board of Directors has
declared and the Company has paid dividends on the Class B Common Stock and Common Stock and each class of common stock has
participated equally in all dividends declared by the Board of Directors and paid by the Company since 1994.
The Class B Common Stock conversion rights allow the Class B Common Stock to participate in dividends equally with the Common
Stock. The Class B Common Stock is convertible into Common Stock on a one-for-one per share basis at any time at the option of the
holder. Accordingly, the holders of the Class B Common Stock can participate equally in any dividends declared on the Common
Stock by exercising their conversion rights.
Basic EPS excludes potential common shares that were dilutive and is computed by dividing net income available for common
stockholders by the weighted average number of Common and Class B Common shares outstanding. Diluted EPS for Common Stock
and Class B Common Stock gives effect to all securities representing potential common shares that were dilutive and outstanding
during the period.
Recently Adopted Accounting Pronouncements
In August 2014, the FASB issued ASU 2014-15 “Disclosure of Uncertainties About An Entity’s Ability To Continue As A Going
Concern,” which specifies the responsibility an entity’s management has to evaluate whether there is substantial doubt about the
73
entity’s ability to continue as a going concern. The new guidance is effective for annual and interim periods ending after
December 15, 2016. The Company adopted this guidance in the fourth quarter of 2016 and there was no impact on the Company’s
consolidated financial statements.
In August 2016, the FASB issued ASU 2016-15 “Classification of Certain Cash Receipts and Cash Payments,” which addresses
presentation and classification of certain cash receipts and payments in the statement of cash flows, with the objective to reduce
diversity in practice. The amendment applicable to the Company addresses contingent consideration payments made after a business
combination and states (1) cash payments made soon after an acquisition’s consummation date should be classified as cash outflows
for investing activities; (2) cash payments made thereafter should be classified as cash outflows for financing activities up to the
amount of the original contingent consideration; and (3) cash payments made in excess of the original contingent consideration
liability should be classified as cash outflows for operating activities. The new guidance is effective for fiscal years beginning after
December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period,
however if an entity elects to early adopt one amendment, it must adopt all amendments included in the guidance. The Company
adopted the new pronouncements in the third quarter of 2016 and there was no impact on the consolidated financial statements.
In April 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2015-03
“Simplifying the Presentation of Debt Issuance Costs” (“ASU 2015-03”). ASU 2015-03 requires all cost incurred to issue debt be
presented in the balance sheet as a direct reduction from the carrying value of the debt. In August 2015, the FASB issued
ASU 2015-15 “Presentation And Subsequent Measurement Of Debt Issuance Costs Associated With Line-Of-Credit Arrangements,
Amendments To SEC Paragraphs Pursuant To Staff Announcement At June 18, 2015 EITF Meeting.” ASU 2015-15 clarified that an
entity can present debt issuance costs of a line-of-credit arrangement as an asset regardless of whether there are any outstanding
borrowings on the line-of-credit arrangement. The new guidance was effective for annual and interim periods beginning after
December 15, 2015. The standard was retrospectively adopted by the Company on January 4, 2016, and did not have a material
impact on the Company’s consolidated financial statements. At January 3, 2016, $3.1 million and $1.1 million of debt issuance costs
were reclassified to long-term debt from other assets and prepaid expenses and other current assets, respectively.
Recently Issued Accounting Pronouncements
In January 2017, the FASB issued ASU 2017-04 “Simplifying the Test for Goodwill Impairment,” which eliminates the requirement
to calculate the implied fair value of goodwill to measure a goodwill impairment charge. 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 of this guidance will have a significant impact on its consolidated 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
interim periods within those periods. The impact to the Company’s consolidated financial statements will depend on the facts and
circumstances of any specific future transactions.
In March 2016, the FASB issued ASU 2016-09 “Improvements To Employees Share Based Payment Accounting,” which simplifies
several aspects of the accounting for employee-share based transactions including the accounting for income taxes, forfeitures and
statutory tax withholding requirements, as well as classification in the statement of cash flows. The new guidance is effective for
annual and interim reporting periods beginning after December 15, 2016. The Company is in the process of evaluating the impact of
the new guidance on the Company’s consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02 “Leases.” The new guidance 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, 2019 and interim periods beginning the following year. The Company is in the process of
evaluating the impact of the new guidance on the Company’s consolidated financial statements. Additionally, the Company is
evaluating the impacts of the standard beyond accounting, including system, data and process changes required to comply with the
standard.
In January 2016, the FASB issued ASU 2016-01 “Recognition And Measurement Of Financial Assets And Financial Liabilities.” The
new guidance 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 reporting periods
beginning after December 31, 2017. The Company is in the process of evaluating the impact of the new guidance on the Company’s
consolidated financial statements.
74
In July 2015, the FASB issued ASU 2015-11 “Simplifying The Measurement of Inventory.” The new guidance requires an entity to
measure most inventory “at lower of cost and net realizable value” thereby simplifying the current guidance under which an entity
must measure inventory at the lower of cost or market. The new guidance is effective for annual and interim periods beginning after
December 15, 2016. The Company is in the process of evaluating the impact of the new guidance on the Company’s consolidated
financial statements.
Over the past several years, the FASB has issued several accounting standards for revenue recognition:
ASU 2014-09 “Revenue from Contracts with Customers” was issued in May 2014, which was originally going to be effective
for annual and interim periods beginning after December 15, 2016.
ASU 2015-14 “Revenue from Contracts with Customers, Deferral of the Effective Date” was issued in July 2015, which
deferred the effective date to annual and interim periods beginning after December 15, 2017.
ASU 2016-08 “Principal Versus Agent Considerations (Reporting Revenue Gross Versus Net)” was issued in March 2016,
which amends certain aspects of the May 2014 new guidance.
ASU 2016-11 “Rescission of SEC Guidance Because of Accounting Standards Updates 2014-09 and 2014-16, Pursuant to
Staff Announcements at the March 3, 2016 EITF Meeting” was issued in April 2016, which amends certain aspects of the
May 2014 new guidance.
ASU 2016-12 “Revenue From Contracts With Customers (Topic 606): Narrow-Scope Improvements and Practical
Expedients” was issued in May 2016, which amends certain aspects of the May 2014 new guidance.
ASU 2016-20 “Technical Corrections and Improvements to Topic 606: Revenue From Contracts With Customers” was
issued in December 2016 and clarifies the new revenue standard and corrects unintended application of the guidance.
The Company does not plan to early adopt this guidance. The Company has started its evaluation process to assess the impact of the
new guidance on the Company’s consolidated financial statements and to determine whether to adopt a full retrospective approach or
a modified retrospective approach. The evaluation process includes tasks such as performing an initial scoping analysis to identify key
revenue streams, reviewing current revenue-based contracts and evaluating revenue recognition requirements in order to prepare a
high-level road map and implementation work plan. Based on the Company’s preliminary review, it does not expect this guidance to
have a material impact on net sales. As the Company complete its overall assessment, the Company is also identifying and preparing
to implement changes to our accounting policies and practices, business processes, systems and controls to support the new revenue
recognition and disclosure requirements.
2. Piedmont Coca-Cola Bottling Partnership
In 1993, the Company and The Coca-Cola Company formed Piedmont to distribute and market nonalcoholic beverages primarily in
portions of North Carolina and South Carolina. The Company provides a portion of the nonalcoholic beverage products to Piedmont at
cost and receives a fee for managing the operations of Piedmont pursuant to a management agreement. These intercompany
transactions are eliminated in the consolidated financial statements.
The Company currently provides financing to Piedmont under an agreement that expires on December 31, 2017. Piedmont pays the
Company interest on its borrowings at the Company’s average cost of funds plus 0.50%. There were no amounts outstanding under
this agreement at January 1, 2017 or January 3, 2016.
Noncontrolling interest as of January 1, 2017, January 3, 2016 and December 28, 2014 primarily represents the portion of Piedmont
owned by The Coca-Cola Company. The Coca-Cola Company’s interest in Piedmont was 22.7% in all periods reported.
Noncontrolling interest income of $6.5 million in 2016, $6.0 million in 2015 and $4.7 million in 2014 is included in net income on the
Company’s consolidated statements of operations. In addition, the amount of consolidated net income attributable to both the
Company and noncontrolling interest are shown on the Company’s consolidated statements of operations.
Noncontrolling interest primarily related to Piedmont is shown as noncontrolling interest in the equity section of the Company’s
consolidated balance sheets and totaled $85.9 million at January 1, 2017 and $79.4 million at January 3, 2016.
3. Acquisitions and Divestitures
Since April 2013, as a part of The Coca-Cola Company’s plans to refranchise its North American bottling territories, the Company has
engaged in a series of transactions with The Coca-Cola Company and Coca-Cola Refreshments USA, Inc. (“CCR”), a wholly-owned
subsidiary of The Coca-Cola Company, to expand the Company’s distribution operations significantly through the acquisition of
rights to serve additional distribution territories previously served by CCR (the “Expansion Territories”) and of related distribution
assets (the “Distribution Territory Expansion Transactions”). During 2015, the Company completed the remaining Distribution
75
Territory Expansion Transactions announced as part of the April 2013 letter of intent signed with The Coca-Cola Company. These
completed acquisitions include Expansion Territories in parts of Tennessee, Kentucky and Indiana.
On May 12, 2015, the Company and The Coca-Cola Company entered into a non-binding letter of intent (the “May 2015 LOI”)
pursuant to which CCR would in two phases (i) grant the Company certain exclusive rights for the distribution, promotion, marketing
and sale of The Coca-Cola Company-owned and -licensed products in additional territories served by CCR and (ii) sell the Company
certain assets that included rights to distribute those cross-licensed brands distributed in the territories by CCR as well as the assets
used by CCR in the distribution of the cross-licensed brands and The Coca-Cola Company brands. The major markets that would be
served by the Company as part of the expansion contemplated by the May 2015 LOI include: Baltimore, Maryland; Alexandria,
Norfolk and Richmond, Virginia; the District of Columbia; Cincinnati, Columbus and Dayton, Ohio; and Indianapolis, Indiana.
On September 23, 2015, the Company and CCR entered into an asset purchase agreement (the “September 2015 APA”) for the first
phase of the additional distribution territory contemplated by the May 2015 LOI including: (i) eastern and northern Virginia, (ii) the
entire state of Maryland, (iii) the District of Columbia, and (iv) parts of Delaware, North Carolina, Pennsylvania and West Virginia.
Following is a summary of key closing dates for the transactions covered by the September 2015 APA:
October 30, 2015 – The first closing under the September 2015 APA occurred for territories served by distribution facilities
in Norfolk, Fredericksburg and Staunton, Virginia and Elizabeth City, North Carolina.
January 29, 2016 – The second closing under the September 2015 APA occurred for territories served by distribution
facilities in Easton and Salisbury, Maryland and Richmond and Yorktown, Virginia.
April 1, 2016 – The third closing under the September 2015 APA occurred for territories served by distribution facilities in
Alexandria, Virginia and Capitol Heights and La Plata, Maryland.
April 29, 2016 – The final closing for under the September 2015 APA occurred for territories served by distribution facilities
in Baltimore, Hagerstown and Cumberland, Maryland.
The May 2015 LOI contemplated that The Coca-Cola Company would work collaboratively with the Company and certain other
expanding participating bottlers in the U.S. to implement a national product supply system. As a result of subsequent discussions with
The Coca-Cola Company, on September 23, 2015, the Company and The Coca-Cola Company entered into a non-binding letter of
intent (the “September 2015 LOI”) pursuant to which CCR would sell six manufacturing facilities (“Regional Manufacturing
Facilities”) and related manufacturing assets (collectively, “Manufacturing Assets”) to the Company as the Company becomes a
regional producing bottler (“Regional Producing Bottler”) in the national product supply system (the “Manufacturing Facility
Expansion Transactions” and, together with the Distribution Territory Expansion Transactions, the “Expansion Transactions”). Similar
to, and as an integral part of, the Distribution Territory Expansion Transactions described in the May 2015 LOI, the September 2015
LOI contemplated that the sale of the Manufacturing Assets by CCR to the Company would be accomplished in two phases: (i) the
first phase would include three Regional Manufacturing Facilities located in Sandston, Virginia; Silver Spring, Maryland; and
Baltimore, Maryland that serve certain of the distribution territories acquired by the Company under the September 2015 APA and
(ii) the second phase would include three Regional Manufacturing Facilities located in Indianapolis, Indiana; Portland, Indiana; and
Cincinnati, Ohio that serve the distribution territories in central and southern Ohio, northern Kentucky and parts of Indiana and
Illinois.
On October 30, 2015, the Company and CCR entered into an asset purchase agreement (the “October 2015 APA”) for the first phase
of the Manufacturing Facility Expansion Transactions contemplated by the September 2015 LOI, including Regional Manufacturing
Facilities located in Sandston, Virginia; Silver Spring, Maryland; and Baltimore, Maryland. Following is a summary of key closing
dates for the transactions covered by the October 2015 APA:
January 29, 2016 – The first closing under the October 2015 APA occurred for the Sandston, Virginia facility.
April 29, 2016 – The interim and final closings under the October 2015 APA occurred for the Silver Spring, Maryland
facility and the Baltimore, Maryland facility.
On February 8, 2016, the Company and The Coca-Cola Company entered into a non-binding letter of intent (the “February 2016
LOI”) pursuant to which CCR would (i) grant the Company exclusive rights for the distribution, promotion, marketing and sale of
The Coca-Cola Company-owned and -licensed products in additional territories served by CCR in northern Ohio, (ii) sell the
Company certain assets that included rights to distribute those cross-licensed brands distributed in the territories by CCR as well as the
assets used by CCR in the distribution of the cross-licensed brands and The Coca-Cola Company brands, and (iii) sell to the Company
an additional Regional Manufacturing Facility currently owned by CCR located in Twinsburg, Ohio and related Manufacturing
Assets. The transactions proposed in the February 2016 LOI would provide exclusive distribution rights for the Company in the
following major markets: Akron, Elyria, Toledo, Willoughby, and Youngstown County in Ohio.
76
On June 14, 2016, the Company and The Coca-Cola Company entered into a non-binding letter of intent (the “CCR June 2016 LOI”)
pursuant to which CCR would (i) grant the Company exclusive rights for the distribution, promotion, marketing and sale of
The Coca-Cola Company-owned and –licensed products in additional territories in northeastern Kentucky and southwestern West
Virginia served by CCR’s distribution center in Louisa, Kentucky, (ii) sell the Company certain assets that included rights to distribute
those cross-licensed brands distributed in the territories by CCR as well as the assets used by CCR in the distribution of the cross-
licensed brands and The Coca-Cola Company brands and (iii) exchange exclusive rights and associated distribution assets and
working capital of CCR relating to the distribution, promotion, marketing and sale of The Coca-Cola Company-owned and –licensed
products and certain cross-licensed brands in territory in parts of Arkansas, southwestern Tennessee and northwestern Mississippi
served by CCR and two additional Regional Manufacturing Facilities currently owned by CCR located in Memphis, Tennessee and
West Memphis, Arkansas and related Manufacturing Assets for exclusive rights and associated distribution assets and working capital
of the Company relating to the distribution, promotion, marketing and sale of The Coca-Cola Company-owned and –licensed products
and certain cross-licensed brands in territory in southern Alabama, southern Mississippi and southern Georgia currently served by the
Company and a Regional Manufacturing Facility currently owned by the Company in Mobile, Alabama and related Manufacturing
Assets. The transactions proposed by the CCR June 2016 LOI would provide exclusive distribution rights for the Company in the
following major markets: Little Rock, West Memphis and southern Arkansas; Memphis, Tennessee; and Louisa, Kentucky.
On June 14, 2016, the Company and Coca-Cola Bottling Company United, Inc. (“United”), which is an independent bottler and
unrelated to the Company, entered into a non-binding letter of intent pursuant to which the Company would exchange exclusive rights
and associated distribution assets and working capital relating to the distribution, promotion, marketing and sale of
The Coca-Cola Company-owned and –licensed products and certain cross-licensed brands in certain territory in south-central
Tennessee, northwest Alabama and northwest Florida currently served by the Company’s distribution centers located in Florence,
Alabama and Panama City, Florida, for certain of United’s exclusive rights and associated distribution assets and working capital
relating to the distribution, promotion, marketing and sale of The Coca-Cola Company-owned and –licensed products and certain
cross-licensed brands in certain territory in and around Spartanburg and Bluffton, South Carolina currently served by United’s
distribution centers located in Spartanburg, South Carolina and Savannah, Georgia.
On September 1, 2016, the Company and CCR entered into an asset purchase agreement (the “September 2016 Distribution APA”) for
the second phase of the additional distribution territory contemplated by the May 2015 LOI and for a portion of the additional
distribution territory contemplated by the CCR June 2016 LOI, including territories located in (i) central and southern Ohio,
(ii) northern Kentucky, (iii) large portions of Indiana and (iv) parts of Illinois and West Virginia that are currently served by CCR.
Following is a summary of key closing dates for the transactions covered by the September 2016 Distribution APA:
October 28, 2016 – The first closing under the September 2016 Distribution APA occurred for territories served by
distribution facilities in Cincinnati, Dayton, Lima and Portsmouth, Ohio.
January 27, 2017 – Subsequent to the end of 2016, the second closing under the September 2016 Distribution APA occurred
for territories served by distribution facilities in Anderson, Fort Wayne, Lafayette, South Bend and Terre Haute, Indiana.
On September 1, 2016, the Company and CCR also entered into an asset purchase agreement (the “September 2016 Manufacturing
APA”) for the second phase of the Regional Manufacturing Facility acquisitions contemplated by the September 2015 LOI, including
Regional Manufacturing Facilities located in Indianapolis, Indiana; Portland, Indiana; and Cincinnati, Ohio that serve the distribution
territories in central and southern Ohio, northern Kentucky and parts of Indiana and Illinois to be acquired by the Company under the
September 2016 Distribution APA. On October 28, 2016, the first closing under the September 2016 Manufacturing APA occurred for
the Cincinnati, Ohio facility.
At the closings of each of the Distribution Territory Expansion Transactions (excluding the exchange for the Lexington Expansion
Territory, as described below), the Company signed a Comprehensive Beverage Agreement (“CBA”) with The Coca-Cola Company
and CCR for each of the applicable Expansion Territories which has a term of ten years and is automatically renewed for successive
additional terms of ten years unless the Company gives notice to terminate at least one year prior to the expiration of a ten-year term
or unless earlier terminated as provided therein.
Under the CBAs, the Company makes a quarterly sub-bottling payment to CCR on a continuing basis for the grant of exclusive rights
to distribute, promote, market and sell specified covered beverages and related products, as defined in the agreements. The quarterly
sub-bottling payment, which is accounted for as contingent consideration, is based on 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 brands (as defined
in the CBAs). The CBAs impose certain obligations on the Company with respect to serving the Expansion Territories and failure to
meet these obligations could result in termination of a CBA if the Company fails to take corrective measures within a specified time
frame.
77
2014 Expansion Territories
On May 23, 2014, the Company acquired distribution rights and related assets for the Johnson City and Morristown, Tennessee
territory, and on October 24, 2014, the Company acquired distribution rights and related assets for the Knoxville, Tennessee territory
from CCR. The cash purchase price for the 2014 Expansion Territories was $43.1 million, which includes all post-closing
adjustments.
2015 Expansion Territories
During 2015, the Company acquired distribution rights and related assets for the following territories: Cleveland and Cookeville,
Tennessee; Louisville, Kentucky and Evansville, Indiana; Paducah and Pikeville, Kentucky; Norfolk, Fredericksburg and Staunton,
Virginia; and Elizabeth City, North Carolina (the “2015 Expansion Territories”). The Company also acquired a make-ready center in
Annapolis, Maryland in 2015. During the fourth quarter of 2015, the Company made certain measurement period adjustments as a
result of purchase price changes to reflect the revised opening balance sheets for the Cleveland and Cookeville, Tennessee and
Louisville, Kentucky and Evansville, Indiana territories. The details of the transactions are included below.
Cleveland and Cookeville, Tennessee Territory Acquisitions
On December 5, 2014, the Company and CCR entered into an asset purchase agreement related to the territory served by CCR through
CCR’s facilities and equipment located in Cleveland and Cookeville, Tennessee (the “January 2015 Expansion Territory”). The
closing of this transaction occurred on January 30, 2015, for a cash purchase price of $13.2 million, which includes all post-closing
adjustments.
Louisville, Kentucky and Evansville, Indiana Territory Acquisitions
On December 17, 2014, the Company and CCR entered into an asset purchase agreement related to the territory served by CCR
through CCR’s facilities and equipment located in Louisville, Kentucky and Evansville, Indiana (the “February 2015 Expansion
Territory”). The closing of this transaction occurred on February 27, 2015, for a cash purchase price of $18.0 million, which includes
all post-closing adjustments.
Paducah and Pikeville, Kentucky Territory Acquisitions
On February 13, 2015, the Company and CCR entered into an asset purchase agreement (the “February 2015 APA”) related to the
territory served by CCR through CCR’s facilities and equipment located in Paducah and Pikeville, Kentucky (the “May 2015
Expansion Territory”). The closing of this transaction occurred on May 1, 2015, for a cash purchase price of $7.5 million, which will
remain subject to adjustment in accordance with the terms and conditions of the February 2015 APA.
Norfolk, Fredericksburg and Staunton, Virginia; and Elizabeth City, North Carolina Territory Acquisitions
On September 23, 2015, the Company and CCR entered into the September 2015 APA related, in part, to the territory served by CCR
through CCR’s facilities and equipment located in Norfolk, Fredericksburg and Staunton, Virginia, and Elizabeth City, North Carolina
(the “October 2015 Expansion Territory”). The closing of this transaction occurred on October 30, 2015, for a cash purchase price of
$26.7 million, which includes all post-closing adjustments.
Annapolis, Maryland Make-Ready Center Acquisition
As a part of the Expansion Transactions, on October 30, 2015, the Company acquired from CCR a “make-ready center” in Annapolis,
Maryland (the “Annapolis MRC”) for a cash purchase price of $5.4 million, which includes all post-closing adjustments. The
Company recorded a bargain purchase gain of approximately $2.0 million on this transaction after applying a deferred tax liability of
approximately $1.3 million. The Company uses the make-ready center to deploy and refurbish vending and other sales equipment for
use in the marketplace.
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The fair value of acquired assets and assumed liabilities, which for the May 2015 Expansion Territory remains subject to adjustment
in accordance with the terms and conditions of the February 2015 APA, of the 2015 Expansion Territories and the Annapolis MRC as
of the acquisition dates is summarized as follows:
January
2015
Expansion
Territory
February
2015
Expansion
Territory
May 2015
Expansion
Territory
October
2015
Expansion
Territory
Annapolis
MRC
(in thousands)
Cash ............................................................................. $
Inventories....................................................................
Prepaid expenses and other current assets ....................
Accounts receivable from The Coca-Cola Company ...
Property, plant and equipment .....................................
Other assets (including deferred taxes) ........................
Goodwill ......................................................................
Other identifiable intangible assets ..............................
Total acquired assets .................................................. $
59 $
1,238
714
322
6,291
336
1,388
12,950
23,298 $
105 $
1,268
1,108
740
15,656
1,352
1,520
20,350
42,099 $
45 $
1,045
224
294
6,210
494
1,027
1,700
11,039 $
160 $
2,563
1,306
824
24,832
4,392
6,723
49,100
89,900 $
Total 2015
Expansion
Territories
369
6,223
3,352
2,180
61,481
6,574
10,658
84,100
8,601 $ 174,937
- $
109
-
-
8,492
-
-
-
Current liabilities (acquisition related contingent
consideration) ............................................................... $
Other current liabilities ................................................
Other liabilities .............................................................
Other liabilities (acquisition related contingent
consideration) ...............................................................
Total assumed liabilities ............................................ $
843 $
125
-
1,659 $
974
823
281 $
494
10
547 $
4,222
-
- $
-
1,265
3,330
5,815
2,098
9,131
10,099 $
20,625
24,081 $
2,748
3,533 $
58,925
63,694 $
-
91,429
1,265 $ 102,672
The fair value of the acquired identifiable intangible assets of the 2015 Expansion Territories as of the acquisition dates is as follows:
(in thousands)
Distribution agreements ............................................... $
Customer lists ...............................................................
Total acquired identifiable intangible assets............ $
January
2015
Expansion
Territory
February
2015
Expansion
Territory
May 2015
Expansion
Territory
October
2015
Expansion
Territory
12,400 $
550
12,950 $
19,200 $
1,150
20,350 $
1,500 $
200
1,700 $
47,900 $
1,200
49,100 $
Total 2015
Expansion
Territories
81,000
3,100
84,100
Estimated
Useful
Lives
40 years
12 years
The goodwill of $1.4 million, $1.5 million, $1.0 million and $6.7 million for the January 2015 Expansion Territory, February 2015
Expansion Territory, May 2015 Expansion Territory and October 2015 Expansion Territory, respectively, is all included in the
Nonalcoholic Beverages segment and is primarily attributed to the workforce acquired. Goodwill of $1.1 million, $0.2 million and
$0.2 million is expected to be deductible for tax purposes for the January 2015 Expansion Territory, May 2015 Expansion Territory
and October 2015 Expansion Territory, respectively. No goodwill is expected to be deductible for tax purposes for the February 2015
Expansion Territory.
2015 Asset Exchange Agreement
On October 17, 2014, the Company and CCR entered into an agreement (the “Asset Exchange Agreement”) pursuant to which CCR
agreed to exchange certain assets of CCR relating to the marketing, promotion, distribution and sale of Coca-Cola and other beverage
products in the territory served by CCR’s facilities and equipment located in Lexington, Kentucky (the “Lexington Expansion
Territory”), including the rights to produce such beverages in the Lexington Expansion Territory, in exchange for certain assets of the
Company relating to the marketing, promotion, distribution and sale of Coca-Cola and other beverage products in the territory served
by the Company’s facilities and equipment located in Jackson, Tennessee, including the rights to produce such beverages in that
territory (the “Asset Exchange Transaction”). The Company and CCR closed the Asset Exchange Transaction on May 1, 2015. The
net assets received by the Company in the exchange, after deducting the value of certain retained assets and retained liabilities, was
approximately $15.3 million.
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The fair value of acquired assets and assumed liabilities related to the Lexington Expansion Territory as of the exchange date are
summarized as follows:
(in thousands)
Cash ................................................................................................................................................................... $
Inventories..........................................................................................................................................................
Prepaid expenses and other current assets ..........................................................................................................
Accounts receivable from The Coca-Cola Company .........................................................................................
Property, plant and equipment ...........................................................................................................................
Other assets ........................................................................................................................................................
Franchise rights ..................................................................................................................................................
Goodwill ............................................................................................................................................................
Other identifiable intangible assets ....................................................................................................................
Total acquired assets ........................................................................................................................................ $
Current liabilities ............................................................................................................................................... $
The fair value of the acquired identifiable intangible assets is as follows:
Lexington
Expansion
Territory
56
2,231
345
362
12,216
48
23,700
1,856
1,100
41,914
926
(in thousands)
Franchise rights ..................................................................................................................... $
Distribution agreements ........................................................................................................
Customer lists ........................................................................................................................
Total acquired identifiable intangible assets..................................................................... $
Lexington
Expansion
Territory
23,700
300
800
24,800
Estimated
Useful Lives
Indefinite
40 years
12 years
The goodwill of $1.9 million related to the Lexington Expansion Territory, which is included in the Nonalcoholic Beverages segment,
is primarily attributed to the workforce of the territories and is expected to be deductible for tax purposes.
During the second quarter of 2016, the net assets received in the Asset Exchange Transaction, after deducting the value of certain
retained assets and retained liabilities, increased by $4.2 million as a result of completing the post-closing adjustment under the Asset
Exchange Agreement. In addition, the gain on the exchange was reduced by $0.7 million during the second quarter of 2016.
The carrying value of assets exchanged related to the Jackson, Tennessee territory exchanged in the Asset Exchange Transaction was
$17.5 million, resulting in a gain on the exchange of $8.8 million in the second quarter of 2015.
The amount of goodwill and franchise rights allocated to the Jackson, Tennessee territory was determined using a relative fair value
approach comparing the fair value of the Jackson, Tennessee territory to the fair value of the overall Nonalcoholic Beverages reporting
unit.
2016 Expansion Transactions
During 2016, the Company acquired distribution rights and related assets for the following 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 the Regional Manufacturing 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.” The details of the 2016 Expansion Transactions are included below.
Easton and Salisbury, Maryland and Richmond and Yorktown, Virginia Territory Acquisitions and Sandston, Virginia Regional
Manufacturing Facility Acquisition
The September 2015 APA contemplated, in part, the Company’s acquisition of distribution rights and related assets in the territory
served by CCR through CCR’s facilities and equipment located in Easton and Salisbury, Maryland and Richmond and Yorktown,
Virginia and the October 2015 APA contemplated, in part, the Company’s acquisition of the Regional Manufacturing Facility and
80
related Manufacturing Assets in Sandston, Virginia (the “January 2016 Expansion Transactions”). The closing of the January 2016
Expansion Transactions occurred on January 29, 2016, for a cash purchase price of $65.7 million, which will remain subject to
adjustment in accordance with the terms and conditions of the September 2015 APA and October 2015 APA.
Alexandria, Virginia and Capitol Heights and La Plata, Maryland Territory Acquisitions
The September 2015 APA also contemplated the Company’s acquisition of distribution rights and related assets in the territory served
by CCR through CCR’s facilities and equipment located in Alexandria, Virginia and Capitol Heights and La Plata, Maryland (the
“April 1, 2016 Expansion Transaction”). 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 Territory Acquisitions and Silver Spring and Baltimore, Maryland Regional
Manufacturing Facilities Acquisitions
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 served by CCR through CCR’s facilities and equipment located in
Baltimore, Hagerstown and Cumberland, Maryland, and (ii) the October 2015 APA, by acquiring the Regional Manufacturing
Facilities and related Manufacturing Assets in Silver Spring and Baltimore, Maryland (the “April 29, 2016 Expansion Transactions”).
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 October 2015 APA.
Cincinnati, Dayton, Lima and Portsmouth, Ohio and Louisa, Kentucky Territory Acquisitions and Cincinnati, Ohio Regional
Manufacturing Facility Acquisition
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 the Expansion Territories 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 the Regional Manufacturing Facility and related manufacturing assets located in Cincinnati, Ohio (the “October 2016
Expansion Transactions”). 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 dates is summarized
as follows:
January
2016
Expansion
Transactions
April 1,
2016
Expansion
Transaction
April 29,
2016
Expansion
Transactions
October
2016
Expansion
Transactions
(in thousands)
Cash ...................................................................................... $
Inventories.............................................................................
Prepaid expenses and other current assets .............................
Accounts receivable from The Coca-Cola Company ............
Property, plant and equipment ..............................................
Other assets (including deferred taxes) .................................
Goodwill ...............................................................................
Other identifiable intangible assets .......................................
Total acquired assets ........................................................... $
179 $
10,159
2,775
1,135
46,149
2,351
9,388
1,300
73,436 $
219 $
3,748
1,945
1,176
54,135
1,536
1,956
-
64,715 $
161 $
13,850
3,774
1,140
58,679
5,146
7,795
23,450
113,995 $
Total 2016
Expansion
Transactions
709
46,270
12,675
4,704
227,093
9,699
26,272
91,250
418,672
150 $
18,513
4,181
1,253
68,130
666
7,133
66,500
166,526 $
Current liabilities (acquisition related contingent
consideration) ........................................................................ $
Other current liabilities .........................................................
Accounts payable to The Coca-Cola Company ....................
Other liabilities ......................................................................
Other liabilities (acquisition related contingent
consideration) ........................................................................
Total assumed liabilities ..................................................... $
361 $
591
650
-
742 $
4,231
-
266
1,307 $
5,482
-
2,635
3,318 $
7,165
-
761
5,728
17,469
650
3,662
6,144
7,746 $
23,924
29,163 $
35,561
44,985 $
57,066
68,310 $
122,695
150,204
81
The fair value of the acquired identifiable intangible assets as of the acquisition dates is as follows:
(in thousands)
Distribution agreements ........................................................ $
Customer lists ........................................................................
Total acquired identifiable intangible assets..................... $
January
2016
Expansion
Transactions
April 29,
2016
Expansion
Transactions
October
2016
Expansion
Transactions
750 $
550
1,300 $
22,000 $
1,450
23,450 $
63,900 $
2,600
66,500 $
Total 2016
Expansion
Transactions
86,650
4,600
91,250
Estimated
Useful
Lives
40 years
12 years
The goodwill of $9.4 million, $2.0 million, $7.8 million and $7.1 million for the January 2016 Expansion Transactions, April 1, 2016
Expansion Transaction, April 29, 2016 Expansion Transactions and October 2016 Expansion Transactions, respectively, is all
included in the Nonalcoholic Beverages segment and is primarily attributed to operational synergies and the workforce acquired.
Goodwill of $5.9 million and $13.1 million is expected to be deductible for tax purposes for the January 2016 Expansion Transactions
and October 2016 Expansion Transactions, respectively. No goodwill is expected to be deductible for the April 1, 2016 Expansion
Transaction or the April 29, 2016 Expansion Transactions.
The Company has preliminarily allocated the purchase price of the May 2015 Expansion Territory and the 2016 Expansion
Transactions to the individual acquired assets and assumed liabilities. The valuations are subject to adjustment as additional
information is obtained.
The anticipated range of amounts the Company could pay annually under the acquisition related contingent consideration
arrangements for the Expansion Transactions is between $14 million and $25 million.
Expansion Transactions Financial Results
The financial results of the 2016 Expansion Transactions, the 2015 Expansion Territories, the 2015 Asset Exchange and the 2014
Expansion Territories have been included in the Company’s consolidated financial statements from their respective acquisition or
exchange dates. These territories contributed the following amounts to the Company’s consolidated statement of operations:
(in thousands)
Net sales from 2014 Expansion Territories ......................................................... $
Net sales from 2015 Expansion Territories & 2015 Asset Exchange .................
Net sales from 2016 Expansion Transactions .....................................................
Total expansion transactions impact to net sales ........................................... $
2016
Fiscal Year
2015
2014
161,482 $
469,440
592,329
1,223,251 $
158,393 $
278,691
-
437,084 $
Operating income from 2014 Expansion Territories ........................................... $
Operating income from 2015 Expansion Territories & 2015 Asset Exchange ...
Operating income from 2016 Expansion Transactions .......................................
Total expansion transactions impact to operating income ............................ $
4,933 $
1,907
22,373
29,213 $
3,553 $
3,364
-
6,917 $
The Company incurred $6.1 million, $5.8 million and $5.3 million in transaction related expenses for the Expansion Transactions in
2016, 2015 and 2014, respectively. These expenses are included within Selling, delivery and administrative expenses on the
Consolidated Statements of Operations.
2016 Expansion Transactions and 2015 Expansion Territories Pro Forma Financial Information
The purpose of the pro forma is to present the net sales and the income from operations of the combined entity as though the current
year acquisitions had occurred as of the beginning of each period presented. 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 each period presented. 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.
82
45,120
-
-
45,120
3,417
-
-
3,417
The following table represents the unaudited pro forma net sales for the Company for the 2016 Expansion Transactions and the 2015
Expansion Territories.
(in thousands)
Net sales as reported ........................................................................................................ $
Pro forma adjustments (unaudited) ..................................................................................
Net sales pro forma (unaudited) ................................................................................... $
Fiscal Year
2016
2015
3,156,428 $
441,642
3,598,070 $
2,306,458
1,026,245
3,332,703
The following table represents the unaudited pro forma income from operations for the Company for the 2016 Expansion
Transactions. The income from operations for the 2015 Expansion Territories are not presented as these are considered impracticable
for disclosure.
(in thousands)
Income from operations as reported ................................................................................. $
Pro forma adjustments (unaudited) ..................................................................................
Income from operations pro forma (unaudited) ......................................................... $
Fiscal Year
2016
2015
127,859 $
27,263
155,122 $
98,144
39,178
137,322
Glacéau Distribution Termination Agreement
On June 29, 2016, the Company entered into an agreement with The Coca-Cola Company and CCR which authorizes the Company 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, beginning on January 1,
2017.
Pursuant to the agreement, the Company made a payment to The Coca-Cola Company of $15.6 million on February 16, 2017, which
was recorded in Accounts payable to The Coca-Cola Company as of January 1, 2017, and 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. Additionally, the
Company recorded a $5.4 million acquisition related contingent consideration in Other liabilities related to this agreement. The total of
$21.0 million, which represents the Company’s rights to market, promote, distribute and sell glacéau products in certain geographic
territories, was recorded as a Distribution agreement intangible asset as of January 1, 2017.
Sale of BYB Brands, Inc.
On August 24, 2015, the Company sold BYB Brands, Inc. (“BYB”), a wholly owned subsidiary of the Company to
The Coca-Cola Company. Pursuant to the stock purchase agreement dated July 22, 2015, the Company sold all issued and outstanding
shares of capital stock of BYB for a cash purchase price of $26.4 million. As a result of the sale, the Company recognized a gain of
$22.7 million, which was recorded to Gain on sale of business in the consolidated financial statements in 2015. BYB contributed the
following amounts to the Company’s consolidated statement of operations:
(in thousands)
Net sales ........................................................................................................................... $
Operating income (loss) ...................................................................................................
Fiscal Year
2015
2014
23,875 $
1,809
34,089
(357)
4.
Inventories
Inventories consisted of the following:
(in thousands)
Finished products ................................................................................................................. $
Manufacturing materials ......................................................................................................
Plastic shells, plastic pallets and other inventories ...............................................................
$
Total inventories .................................................................................................................
January 1, 2017 January 3, 2016
56,252
12,277
20,935
89,464
90,259 $
23,196
30,098
143,553 $
83
The growth in the inventory balances at January 1, 2017, as compared to January 3, 2016, is primarily a result of inventory acquired
through the acquisitions of the Expansion Territories in 2016.
5. Property, Plant and Equipment
The principal categories and estimated useful lives of property, plant and equipment were as follows:
(in thousands)
Land ........................................................................................................... $
Buildings ....................................................................................................
Machinery and equipment ..........................................................................
Transportation equipment ..........................................................................
Furniture and fixtures .................................................................................
Cold drink dispensing equipment ...............................................................
Leasehold and land improvements .............................................................
Software for internal use ............................................................................
Construction in progress ............................................................................
Total property, plant and equipment, at cost ..............................................
Less: Accumulated depreciation and amortization ...................................
$
Property, plant and equipment, net ........................................................
January 1, 2017
68,541
201,247
229,119
316,929
78,219
484,771
112,393
105,405
14,818
1,611,442
798,453
812,989
January 3, 2016
24,731
$
134,496
165,733
251,712
59,500
398,867
94,208
97,760
24,632
1,251,639
725,819
525,820
$
Estimated
Useful Lives
8-50 years
5-20 years
4-20 years
3-10 years
5-17 years
5-20 years
3-10 years
Depreciation and amortization expense was $111.6 million, $78.1 million and $60.4 million in 2016, 2015, and 2014, respectively.
These amounts included amortization expense for leased property under capital leases.
During 2016, 2015, and 2014, the Company performed periodic reviews of property, plant and equipment and determined no material
impairment existed.
6. Leased Property Under Capital Leases
Leased property under capital leases consisted of the following:
(in thousands)
Leased property under capital leases .......................................................... $
Less: Accumulated amortization ...............................................................
Leased property under capital leases, net .............................................. $
January 1, 2017
94,125
60,573
33,552
January 3, 2016
98,001
$
57,856
40,145
$
Estimated
Useful Lives
3-20 years
As of January 1, 2017, real estate represented all of the leased property under capital leases, net and $19.4 million of this real estate is
leased from related parties as discussed in Note 19 to the consolidated financial statements. The Company’s outstanding lease
obligations for capital leases were $48.7 million as of January 1, 2017 and $55.8 million as of January 3, 2016.
7. Franchise Rights and Goodwill
A reconciliation of the activity for franchise rights and goodwill for 2016 and 2015 follows:
Franchise rights
(in thousands)
520,672
Balance on December 28, 2014 .........................................................
$
-
2015 Expansion Territories .................................................................
6,868
Asset Exchange Transaction ...............................................................
-
Measurement period adjustment .........................................................
527,540
Balance on January 3, 2016 ..............................................................
$
-
2016 Expansion Transactions .............................................................
5,500
Asset Exchange Transaction ...............................................................
-
Measurement period adjustment .........................................................
533,040
$
Balance on January 1, 2017 ..............................................................
$
$
$
Goodwill
Total
106,220 $
10,319
316
1,099
117,954 $
26,272
(682 )
1,042
144,586 $
626,892
10,319
7,184
1,099
645,494
26,272
4,818
1,042
677,626
84
The Company’s goodwill resides entirely within the Nonalcoholic Beverages segment. The Company performed its annual
impairment test of franchise rights and goodwill as of the first day of the fourth quarter of 2016, 2015 and 2014 and determined there
was no impairment of the carrying value of these assets.
8. Other Identifiable Intangible Assets
Other identifiable intangible assets consisted of the following:
(in thousands)
Distribution agreements ................................................... $
Customer lists and other identifiable intangible assets.....
$
Total other identifiable intangible assets .....................
Cost
242,486
15,938
258,424
(in thousands)
Distribution agreements ................................................... $
Customer lists and other identifiable intangible assets.....
$
Total other identifiable intangible assets .....................
Cost
133,109
11,338
144,447
January 1, 2017
Accumulated
Amortization
7,498
5,511
13,009
$
$
January 3, 2016
Accumulated
Amortization
3,323
4,676
7,999
$
$
A reconciliation of the activity for other identifiable intangible assets for 2016 and 2015 follows:
$
$
Total, net
$
234,988
10,427
245,415
Total, net
$
129,786
6,662
136,448
Estimated
Useful Lives
20-40 years
12-20 years
Estimated
Useful Lives
20-40 years
12-20 years
(in thousands)
Balance on December 28, 2014 .................................................
$
2015 Expansion Territories .........................................................
Asset Exchange Transaction .......................................................
Measurement period adjustment .................................................
Accumulated amortization ..........................................................
Balance on January 3, 2016 ......................................................
$
2016 Expansion Transactions .....................................................
Glacéau Distribution Agreement .................................................
Measurement period adjustment and other distribution
agreements ..................................................................................
Accumulated amortization ..........................................................
$
Balance on January 1, 2017 ......................................................
Distribution
Agreements
Customer Lists and
Other Identifiable
Intangible Assets
3,307 $
3,100
800
-
(545 )
6,662 $
4,600
-
Total Other
Identifiable
Intangible Assets
57,148
84,100
1,000
(3,000)
(2,800)
136,448
91,250
21,032
$
53,841
81,000
200
(3,000)
(2,255)
$
129,786
86,650
21,032
1,695
(4,175)
$
234,988
-
(835 )
10,427 $
1,695
(5,010)
245,415
Other identifiable intangible assets are amortized on a straight line basis. Amortization expense related to other identifiable intangible
assets was $5.0 million, $2.8 million and $0.7 million for 2016, 2015 and 2014, respectively. Assuming no impairment of these other
identifiable intangible assets, amortization expense in future years based upon recorded amounts as of January 1, 2017 will be
$7.2 million each year for 2017 through 2021.
85
9. Other Accrued Liabilities
Other accrued liabilities consisted of the following:
(in thousands)
Accrued insurance costs ........................................................................................................ $
Accrued marketing costs .......................................................................................................
Employee and retiree benefit plan accruals ...........................................................................
Checks and transfers yet to be presented for payment from zero balance cash accounts ......
Current portion of acquisition related contingent consideration ...........................................
Commodity hedges mark-to-market accrual .........................................................................
Accrued taxes, other than income taxes ................................................................................
All other accrued expenses....................................................................................................
$
Total other accrued liabilities ............................................................................................
January 1, 2017 January 3, 2016
24,353
24,959
19,155
8,980
7,902
3,442
1,721
13,656
104,168
28,248 $
24,714
23,858
19,326
15,782
-
2,836
19,121
133,885 $
10. Debt
Following is a summary of the Company’s debt:
(in thousands)
Revolving credit facility .........................
Senior Notes ...........................................
Senior Notes ...........................................
Senior Notes ...........................................
Term Loan ..............................................
Unamortized discount on Senior Notes* ...
Unamortized discount on Senior Notes* ...
Debt issuance costs ................................
Total debt ...............................................
Less: Current portion of debt ................
Long-term debt .....................................
Maturity
2019
2016
2019
2025
2021
2019
2025
Interest Rate
Variable
5.00%
7.00%
3.80%
Variable
January 1, 2017 January 3, 2016
Interest Paid
-
$
Varies
164,757
Semi-annually
110,000
Semi-annually
350,000
Semi-annually
-
Varies
(792)
(86)
(4,251)
619,628
-
619,628
152,000 $
-
110,000
350,000
300,000
(570 )
(78 )
(4,098 )
907,254
-
907,254 $
$
* NOTE: The Senior Notes due 2019 were issued at 98.238% of par and the Senior Notes due 2025 were issued at 99.975% of par.
The principal maturities of debt outstanding on January 1, 2017 were as follows:
(in thousands)
2017 ................................................................................................................................................................... $
2018 ...................................................................................................................................................................
2019 ...................................................................................................................................................................
2020 ...................................................................................................................................................................
2021 ...................................................................................................................................................................
Thereafter ...........................................................................................................................................................
Total debt .......................................................................................................................................................... $
Debt Maturities
-
15,000
292,000
37,500
217,500
350,000
912,000
The Company had capital lease obligations of $48.7 million as of January 1, 2017 and $55.8 million as of January 3, 2016. 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.
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, 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.
86
In June 2016, the Company entered into a five-year term loan agreement for a senior unsecured term loan facility (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,
dependent on the Company’s credit rating, at the Company’s option. The Company used $210 million of the proceeds from the Term
Loan Facility to repay outstanding indebtedness 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.
Both the Revolving Credit 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 January 1, 2017. These covenants do not currently, and the Company does not anticipate
they will, restrict its liquidity or capital 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 the 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.
11. Derivative Financial Instruments
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 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
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 is exposed to credit loss in the event of nonperformance by these counterparties, the Company does
not anticipate nonperformance by these parties.
The following 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 statements of operations.
(in thousands)
Commodity hedges
Commodity hedges
Total gain (loss)
Classification of Gain (Loss)
2016
Fiscal Year
2015
2014
Cost of sales
$
Selling, delivery and administrative expenses
$
2,896 $
1,832
4,728 $
(2,354 ) $
(1,085 )
(3,439 ) $
-
-
-
The following table summarizes the fair values and classification in the consolidated balance sheets of derivative instruments held by
the Company.
(in thousands)
Assets:
Commodity hedges at fair market value
Commodity hedges at fair market value
Total assets
Prepaid expenses and other current assets
Other assets
Balance Sheet Classification
January 1, 2017 January 3, 2016
$
$
$
$
1,289 $
-
1,289 $
-
3
3
- $
- $
3,442
3,442
Liabilities:
Commodity hedges at fair market value
Total liabilities
Other liabilities
87
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 balance sheet and the net amounts of derivative liabilities are recognized in other
accrued liabilities or other liabilities in the consolidated balance sheets. The following table summarizes the Company’s gross
derivative assets and gross derivative liabilities in the consolidated balance sheets:
(in thousands)
Gross derivative assets ............................................................................................. $
Gross derivative liabilities .......................................................................................
January 1, 2017
January 3, 2016
1,297 $
8
222
3,661
The following table summarizes the Company’s outstanding commodity derivative agreements:
(in thousands)
Notional amount of outstanding commodity derivative agreements ........................ $
Latest maturity date of outstanding commodity derivative agreements ...................
January 1, 2017
January 3, 2016
13,146 $
64,884
December 2017
December 2017
12. 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
Deferred compensation plan
assets and liabilities
Fair Value
Level
Level 1
Commodity hedging
agreements
Level 2
Method and Assumptions
The fair values of the Company's non-qualified deferred compensation plan for certain
executives and other highly compensated employees has 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.
The fair values for 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. 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.
Public debt securities
Level 2
The fair values of the Company’s public debt securities are based on estimated current
market prices.
Non-public variable rate debt
Level 2
The carrying amounts of the Company’s variable rate borrowings approximate their fair
Acquisition related contingent
consideration
Level 3
values due to variable interest rates with short reset periods.
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.
88
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.
January 1, 2017
(in thousands)
Assets:
Deferred compensation plan assets ..................... $
Commodity hedging agreements .........................
Liabilities:
Deferred compensation plan liabilities ................
Public debt securities ..........................................
Non-public variable rate debt ..............................
Acquisition related contingent consideration ......
(in thousands)
Assets:
Deferred compensation plan assets ..................... $
Commodity hedging agreements .........................
Liabilities:
Deferred compensation plan liabilities ................
Commodity hedging agreements .........................
Public debt securities ..........................................
Acquisition related contingent consideration ......
Carrying
Amount
Total
Fair Value
Fair Value Fair Value Fair Value
Level 1
Level 2
Level 3
24,903
1,289
$
24,903
1,289
$
24,903
-
$
$
-
1,289
-
-
24,903
456,032
451,222
253,437
24,903
475,800
452,000
253,437
24,903
-
-
-
-
475,800
452,000
-
-
-
-
253,437
January 3, 2016
Carrying
Amount
Total
Fair Value
Fair Value Fair Value Fair Value
Level 1
Level 2
Level 3
20,755
3
$
20,755
3
$
20,755
-
$
$
-
3
-
-
20,755
3,442
619,628
136,570
20,755
3,442
645,400
136,570
20,755
-
-
-
-
3,442
645,400
-
-
-
-
136,570
Under the CBAs the Company entered into in 2016, 2015 and 2014, the Company will make a quarterly sub-bottling payment 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 acquired territories. 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 contingent consideration liability related to the territory expansion to fair value by
discounting future expected sub-bottling payments required under the CBAs 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, 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 CBAs, 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 activity is as
follows:
(in thousands)
Opening balance .................................................................................................................... $
Increase due to acquisitions ..................................................................................................
Decrease due to measurement period adjustments ................................................................
Payment/current payables .....................................................................................................
Fair value adjustment - (income) expense .............................................................................
Ending balance .................................................................................................................... $
Fiscal Year
2016
2015
136,570 $
133,857
-
(15,080 )
(1,910 )
253,437 $
46,850
109,784
(18,396)
(5,244)
3,576
136,570
The Company recorded a favorable fair value adjustment to the contingent consideration liability of $1.9 million during 2016 and an
unfavorable fair value adjustment to the contingent consideration liability of $3.6 million during 2015. All adjustments to fair value
were primarily a result of updated projections and changes in the risk-free interest rate. These adjustments were recorded in other
income (expense) on the Company’s Consolidated Statements of Operations.
89
13. Other Liabilities
Other liabilities consisted of the following:
(in thousands)
Non-current portion of acquisition related contingent consideration .................................... $
Accruals for executive benefit plans .....................................................................................
Other .....................................................................................................................................
Total other liabilities ........................................................................................................... $
January 1, 2017 January 3, 2016
128,668
122,077
16,345
267,090
237,655 $
123,078
17,839
378,572 $
See Note 18 and Note 12 to the consolidated financial statements for additional information on benefit plans and acquisition related
contingent consideration, respectively.
14. Commitments and Contingencies
Leases
The Company leases office and warehouse space, machinery and other equipment under noncancellable operating lease agreements
which expire at various dates through 2030. These leases generally contain scheduled rent increases or escalation clauses, renewal
options, or in some cases, purchase options. The Company also leases certain warehouse space and other equipment under capital
lease agreements which expire at various dates through 2030. These leases contain scheduled rent increases or escalation clauses.
Amortization of assets recorded under capital leases is included in depreciation expense.
Rental expense incurred for noncancellable operating leases was $13.6 million in 2016, $8.9 million in 2015 and $7.6 million in 2014.
See Note 6 and Note 19 to the consolidated financial statements for additional information on leased property under capital leases.
The following is a summary of future minimum lease payments, including renewal options the Company has determined to be
reasonably assured, for all noncancellable operating leases and capital leases as of January 1, 2017:
(in thousands)
2017 .................................................................................................................. $
2018 ..................................................................................................................
2019 ..................................................................................................................
2020 ..................................................................................................................
2021 ..................................................................................................................
Thereafter ..........................................................................................................
Total minimum lease payments including interest....................................... $
Less: Amounts representing interest ................................................................
Present value of minimum lease principal payments ........................................
Less: Current portion of principal payment obligations under capital leases ...
Long-term portion of principal payment obligations under capital leases .... $
Capital Leases
Operating Leases
Total
21,636
11,141 $
19,632
9,211
18,520
8,371
18,760
8,432
14,007
8,074
44,886
32,805
78,034 $ 137,441
10,495 $
10,421
10,149
10,328
5,933
12,081
59,407 $
10,686
48,721
7,527
41,194
Manufacturing Cooperatives
The Company is a shareholder of South Atlantic Canners, Inc. (“SAC”), a manufacturing cooperative in Bishopville, South Carolina
from which it is obligated to purchase 17.5 million cases of finished product on an annual basis through June 2024. All eight
shareholders of the cooperative are Coca-Cola bottlers and each has equal voting rights. The Company receives a fee for managing the
day-to-day operations of SAC pursuant to a management agreement. The Company purchased 29.9 million cases, 28.3 million cases
and 25.9 million cases of finished product from SAC in 2016, 2015 and 2014, respectively.
The Company is also a shareholder of Southeastern Container (“Southeastern”), a plastic bottle manufacturing cooperative from which
it is obligated to purchase at least 80% of its requirements of plastic bottles for certain designated territories.
90
The Company has an equity ownership in both SAC and Southeastern. Following is a summary of purchases from these
manufacturing cooperatives:
(in thousands)
Purchases from SAC ......................................................................................... $
Purchases from Southeastern ............................................................................
Total purchases from manufacturing cooperatives...................................... $
2016
Fiscal Year
2015
149,878 $
80,123
230,001 $
144,511 $
63,257
207,768 $
2014
132,635
67,966
200,601
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. The amounts guaranteed were as follows:
(in thousands)
Guaranteed portion of debt - SAC ........................................................................ $
Guaranteed portion of debt - Southeastern ............................................................
Total guaranteed portion of debt - manufacturing cooperatives .................... $
January 1, 2017
January 3, 2016
23,297 $
9,277
32,574 $
19,057
11,467
30,524
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:
(in thousands)
Maximum guaranteed debt ....................................................... $
Equity investments* .................................................................
Maximum total exposure, including equity investments .... $
January 1, 2017
South Atlantic
Canners, Inc.
Southeastern
Container
Total Manufacturing
Cooperatives
23,938 $
4,102
28,040 $
25,251 $
17,501
42,752 $
49,189
21,603
70,792
* NOTE: Recorded in other assets on the Company’s consolidated balance sheets using the equity method.
The members of both cooperatives consist solely of Coca-Cola bottlers. The Company does not anticipate either of these cooperatives
will fail to fulfill its commitments. The Company further believes each of these cooperatives has sufficient assets, including
production equipment, facilities and working capital, and the ability to adjust selling prices of its products to adequately mitigate the
risk of material loss from the Company’s guarantees. Following is a summary of the cooperatives’ 2016 financial results:
(in thousands)
Total assets .................................................................................................. $
Total debt ....................................................................................................
Total revenues .............................................................................................
South Atlantic
Canners, Inc.
Southeastern
Container
53,417 $
23,109
204,144
279,830
111,202
527,609
The Company holds no assets as collateral against the SAC or Southeastern guarantees, the fair value of which is immaterial to the
Company’s consolidated 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 has been identified as of January 1, 2017, and there was no
impairment in 2016, 2015 or 2014.
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 $29.7 million on January 1, 2017 and $26.9 million on January 3, 2016.
The Company participates in long-term marketing contractual arrangements with certain prestige properties, athletic venues and other
locations. The future payments related to these contractual arrangements as of January 1, 2017 amounted to $81.7 million and expire
at various dates through 2026.
91
The Company is involved in various claims and legal proceedings which have arisen in the ordinary course of its business. Although it
is difficult to predict the ultimate outcome of these claims and legal proceedings, management believes the ultimate disposition of
these matters will not have a material adverse effect on the financial condition, cash flows or results of operations of the Company. No
material amount of loss in excess of recorded amounts is believed to be reasonably possible as a result of these claims and legal
proceedings.
The 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 financial statements.
15. Income Taxes
The current income tax provision represents the estimated amount of income taxes paid or payable for the year, as well as changes in
estimates from prior years. The deferred income tax provision represents the change in deferred tax liabilities and assets. The
following table presents the significant components of the provision for income taxes:
(in thousands)
Current:
2016
Fiscal Year
2015
2014
Federal ......................................................................................................... $
State .............................................................................................................
Total current provision (benefit) ................................................................... $
(6,920) $
27
(6,893) $
20,107 $
3,563
23,670 $
Deferred:
Federal ......................................................................................................... $
State .............................................................................................................
Total deferred provision (benefit) .................................................................. $
39,644 $
3,298
42,942 $
10,638 $
(230)
10,408 $
13,153
2,163
15,316
3,638
582
4,220
Income tax expense ......................................................................................... $
36,049 $
34,078 $
19,536
The Company’s effective income tax rate, as calculated by dividing income tax expense by income before income taxes, for 2016,
2015 and 2014 was 38.9%, 34.4% and 35.1%, respectively. The following table provides a reconciliation of income tax expense at the
statutory federal rate to actual income tax expense.
2016
Fiscal Year
2015
2014
(in thousands)
Statutory expense ................................... $
State income taxes, net of federal
benefit ....................................................
Noncontrolling interest – Piedmont .......
Adjustment for uncertain tax positions ..
Adjustment for state tax legislation ........
Valuation allowance change ..................
Bargain purchase gain ............................
Capital loss carryover .............................
Manufacturing deduction benefit ...........
Meals and entertainment ........................
Other, net................................................
Income tax expense .............................. $
Income
tax expense
32,449
% pre-tax
income
35.0% $
Income
tax expense
34,692
% pre-tax
income
Income
tax expense
19,474
35.0 % $
3,243
(2,406)
(43)
(625)
(689)
-
-
(56)
1,879
2,297
36,049
3.5
(2.6)
-
(0.7)
(0.7)
-
-
(0.1)
2.0
2.5
38.9% $
3,496
(2,261)
51
(1,145)
(1,332)
(704)
-
(1,330)
1,666
945
34,078
3.5
(2.3 )
0.1
(1.2 )
(1.3 )
(0.7 )
-
(1.3 )
1.7
0.9
34.4 % $
2,133
(1,835)
30
-
1,203
-
(854)
(1,470)
1,204
(349)
19,536
% pre-tax
income
35.0%
3.8
(3.3)
0.1
-
2.2
-
(1.5)
(2.6)
2.2
(0.8)
35.1%
The Company’s effective tax rate, as calculated by dividing income tax expense by income before income taxes less net income
attributable to noncontrolling interest, for 2016, 2015 and 2014 was 41.8%, 36.6% and 38.4%, respectively.
92
During 2015, a state legislation target threshold was met that caused a reduction to the corporate tax rate in that state to 4.0% from
5.0%, effective January 1, 2016. This reduction in the state corporate tax rate decreased the Company’s income tax expense by
approximately $1.1 million in 2015 due to the impact on the Company’s net deferred tax liabilities and valuation allowance.
During 2016, the Company revalued its existing net deferred tax liabilities for the effects on the state corporate tax rate applied to
deferred taxes which resulted from the 2016 Expansion Transactions. The net impact of this revaluation was an increase to the
recorded income tax expense of $0.8 million. Also during 2016, a state tax legislation target was met that caused a reduction to the
corporate tax rate in that state to 3.0% from 4.0%, effective January 1, 2017. This reduction in the state corporate tax rate resulted in a
decrease to the Company’s recorded income tax expense of $0.6 million due to the Company revaluing its net deferred tax liabilities.
The impact of these two revaluations was a net increase to the recorded income tax expense of $0.2 million in 2016.
The gain on the exchange of franchise territory and the sale of BYB did not have a significant impact on the effective income tax rate
for 2015.
The Company records liabilities for uncertain tax positions related to certain income tax positions. These liabilities reflect the
Company’s best estimate of the ultimate income tax liability based on currently known facts and information. Material changes in
facts or information, as well as the expiration of statute and/or settlements with individual tax jurisdictions, may result in material
adjustments to these estimates in the future.
The Company recognizes potential interest and penalties related to uncertain tax positions in income tax expense. During 2016, 2015
and 2014, the interest and penalties related to uncertain tax positions recognized in income tax expense were not material. In addition,
the amount of interest and penalties accrued at January 1, 2017 and January 3, 2016 were not material.
As of January 1, 2017 and January 3, 2016, the Company had $2.9 million of uncertain tax positions, including accrued interest, 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
financial statements.
The Company reduced its liability for uncertain tax positions in 2016, 2015 and 2014, primarily as a result of the expiration of
applicable statutes of limitation. These reductions resulted in corresponding decreases to income tax expense. A reconciliation of
uncertain tax positions, excluding accrued interest, is as follows:
(in thousands)
Gross uncertain tax positions at the beginning of the year ................................ $
Increase as a result of tax positions taken during a prior period .......................
Decrease as a result of tax positions taken during a prior period ......................
Increase as a result of tax positions taken in the current period ........................
Reduction as a result of the expiration of the applicable statute of limitations...
$
Gross uncertain tax positions at the end of the year ....................................
2016
Fiscal Year
2015
2014
$
2,633
-
-
687
(641)
$
2,679
$
2,620
-
-
547
(534)
$
2,633
2,630
-
-
498
(508)
2,620
93
Deferred income taxes are recorded based upon temporary differences between the financial statement and tax bases of assets and
liabilities and available net operating loss and tax credit carryforwards. Temporary differences and carryforwards that comprised
deferred income tax assets and liabilities were as follows:
(in thousands)
Acquisition related contingent consideration ........................................................................ $
Deferred compensation .........................................................................................................
Postretirement benefits ..........................................................................................................
Accrued liabilities .................................................................................................................
Pension (nonunion) ...............................................................................................................
Transactional costs ................................................................................................................
Capital lease agreements .......................................................................................................
Charitable contribution carryover .........................................................................................
Pension (union) .....................................................................................................................
Net operating loss carryforwards ..........................................................................................
Other .....................................................................................................................................
$
Deferred income tax assets .................................................................................................
Less: Valuation allowance for deferred tax assets ...........................................................
$
Net deferred income tax asset ............................................................................................
January 1, 2017 January 3, 2016
52,306
44,402
27,086
21,853
18,257
5,879
6,105
-
3,290
3,121
-
182,299
2,307
179,992
97,573 $
44,185
32,656
21,666
17,381
7,155
5,817
4,409
3,162
2,148
111
236,263
1,618
234,645 $
Intangible assets .................................................................................................................... $
Depreciation ..........................................................................................................................
Investment in Piedmont ........................................................................................................
Inventory ...............................................................................................................................
Prepaid expenses ...................................................................................................................
Patronage dividend ................................................................................................................
Debt exchange premium .......................................................................................................
Other .....................................................................................................................................
$
Deferred income tax liabilities ...........................................................................................
(204,661 ) $
(134,872 )
(45,128 )
(13,814 )
(6,300 )
(4,724 )
-
-
(409,499 ) $
(169,338)
(95,262)
(43,109)
(9,928)
(4,615)
(4,046)
(204)
(434)
(326,936)
Net deferred income tax liability .......................................................................................
$
(174,854 ) $
(146,944)
Valuation allowances are recognized on deferred tax assets if the Company believes it is more likely than not that some or all of the
deferred tax assets will not be realized. The Company believes the majority of the deferred tax assets will be realized due to the
reversal of certain significant temporary differences and anticipated future taxable income from operations.
The valuation allowance of $1.6 million as of January 1, 2017 and $2.3 million as of January 3, 2016 was established primarily for
certain loss carryforwards which expire in varying amounts through 2035. The reduction in the valuation allowance as of January 1,
2017, was a result of the Company’s assessment of its ability to use certain loss carryforwards. The reduction in the valuation
allowance as of January 3, 2016, was a result of the Company’s assessment of its ability to use certain loss carryforwards primarily
related to the sale of BYB.
As of January 1, 2017, the Company had $1.6 million of federal net operating losses and $39.8 million of state net operating losses
available to reduce future income taxes. The federal net operating losses would expire in varying amounts through 2032. The state net
operating losses would expire in varying amounts through 2035.
Prior tax years beginning in year 2002 remain open to examination by the Internal Revenue Service, and various tax years beginning
in year 1998 remain open to examination by certain state tax jurisdictions due to loss carryforwards.
The Company’s deferred income tax assets and liabilities are subject to adjustment in future periods based on the Company’s ongoing
evaluations of such deferred assets and liabilities and new information available to the Company.
16. Accumulated Other Comprehensive Income (Loss)
Accumulated other comprehensive loss is comprised of adjustments relative to the Company’s pension and postretirement medical
benefit plans and foreign currency translation adjustments required for a subsidiary of the Company that performs data analysis and
provides consulting services outside the United States.
94
A summary of accumulated other comprehensive (loss) (“AOCI(L)”) is as follows:
(in thousands)
Net pension activity:
Gains (Losses) During
the Period
Reclassification to
Income
January 3,
2016
Pre-tax
Activity
Tax
Effect
Pre-tax Tax
Activity Effect
January 1,
2017
Actuarial loss .................................... $
Prior service costs .............................
(68,243) $
(78)
(9,777) $
-
$
3,764
-
3,031 $
28
(1,168) $
(11)
Net postretirement benefits activity:
Actuarial loss ....................................
Prior service costs .............................
Foreign currency translation adjustment ...
Total AOCI(L) ...................................... $
(19,825)
5,744
(5)
(9,152)
-
-
(82,407) $ (18,929) $
3,523
-
-
7,287
$
2,186
(3,360 )
(11 )
1,874 $
(843)
1,295
5
(722) $
(72,393)
(61)
(24,111)
3,679
(11)
(92,897)
(in thousands)
Net pension activity:
Gains (Losses) During
the Period
Reclassification to
Income
December 28,
2014
Pre-tax
Activity
Tax
Effect
Pre-tax Tax
Activity Effect
January 3,
2016
Actuarial loss .................................... $
Prior service costs .............................
(74,867) $
(99)
$
7,513
-
(2,877) $
-
3,230 $
35
(1,242) $
(14)
Net postretirement benefits activity:
Actuarial loss ....................................
Prior service costs .............................
Foreign currency translation adjustment ...
Total AOCI(L) ...................................... $
(22,759)
7,812
(1)
(89,914) $
1,599
-
-
9,112
$
(613)
-
-
(3,490) $
3,164
(3,360 )
(8 )
3,061 $
(1,216)
1,292
4
(1,176) $
(68,243)
(78)
(19,825)
5,744
(5)
(82,407)
(in thousands)
Net pension activity:
Gains (Losses) During
the Period
Reclassification to
Income
December 29,
2013
Pre-tax
Activity
Tax
Effect
Pre-tax Tax
Activity Effect
December 28,
2014
Actuarial loss .................................... $
Prior service costs .............................
(43,028) $ (53,597) $
(121)
-
$
20,688
-
1,743 $
36
(673) $
(14)
Net postretirement benefits activity:
Actuarial loss ....................................
Prior service costs .............................
Foreign currency translation adjustment ...
Total AOCI(L) ...................................... $
(18,441)
3,410
4
(9,324)
8,682
-
(58,176) $ (54,239) $
3,598
(3,351)
-
20,935
$
2,293
(1,513 )
(9 )
2,550 $
(885)
584
4
(984) $
(74,867)
(99)
(22,759)
7,812
(1)
(89,914)
95
A summary of the impact on the income statement line items is as follows:
Fiscal 2016
Net Pension
Activity
Net Postretirement
Benefits Activity
(in thousands)
Cost of sales ................................................... $
S,D&A expenses ............................................
Subtotal pre-tax ..............................................
Income tax expense ........................................
Total after tax effect ..................................... $
(in thousands)
Cost of sales ................................................... $
S,D&A expenses ............................................
Subtotal pre-tax ..............................................
Income tax expense ........................................
Total after tax effect ..................................... $
331
2,728
3,059
1,179
1,880
$
$
359
2,906
3,265
1,256
2,009
$
$
Net Pension
Activity
Net Postretirement
Benefits Activity
Foreign Currency
Translation Adjustment
$
-
(11)
(11)
(5)
(6) $
(174) $
(1,000)
(1,174)
(452)
(722) $
Fiscal 2015
Foreign Currency
Translation Adjustment
$
-
(8)
(8)
(4)
(4) $
(27) $
(169)
(196)
(76)
(120) $
(in thousands)
Cost of sales ................................................... $
S,D&A expenses ............................................
Subtotal pre-tax ..............................................
Income tax expense ........................................
Total after tax effect ..................................... $
Net Pension
Activity
Fiscal 2014
$
Net Postretirement
Benefits Activity
101
679
780
301
479
$
Foreign Currency
Translation Adjustment
$
-
(9)
(9)
(4)
(5) $
$
$
356
1,423
1,779
687
1,092
Total
157
1,717
1,874
722
1,152
Total
332
2,729
3,061
1,176
1,885
Total
457
2,093
2,550
984
1,566
17. Capital Transactions
The Company has two classes of common stock outstanding, Common Stock and Class B Common Stock. The Common Stock is
traded on the NASDAQ Global Select Marketsm under the symbol COKE. There is no established public trading market for the Class
B Common Stock. Shares of the Class B Common Stock are convertible on a share-for-share basis into shares of Common Stock at
any time at the option of the holders of Class B Common Stock.
No cash dividend or dividend of property or stock other than stock of the Company, as specifically described in the Company’s
certificate of incorporation, may be declared and paid on the Class B Common Stock unless an equal or greater dividend is declared
and paid on the Common Stock. During 2016, 2015 and 2014, dividends of $1.00 per share were declared and paid on both Common
Stock and Class B Common Stock. Total cash dividends paid were $9.3 million per year in 2016, 2015 and 2014.
Each share of Common Stock is entitled to one vote per share and each share of Class B Common Stock is entitled to 20 votes per
share at all meetings of shareholders. Except as otherwise required by law, holders of the Common Stock and Class B Common Stock
vote together as a single class on all matters brought before the Company’s stockholders. In the event of liquidation, there is no
preference between the two classes of common stock.
Compensation expense for the Performance Unit Award Agreement, recognized on the share price of the last trading day prior to the
end of the fiscal year, was as follows:
(in thousands, except per share data)
7,154
Total compensation expense .................................................... $
178.85
Share price for compensation expense ..................................... $
Share price date for compensation expense ............................. December 30, 2016
2016
Fiscal Year
2015
2014
3,542
$
88.55
$
December 31, 2015 December 26, 2014
7,300 $
182.51 $
Each year, the Compensation Committee determined whether any shares of the Company’s Class B Common Stock should be issued
as a Performance Unit Award Agreement to J. Frank Harrison, III, in connection with his services for the prior year as Chairman of
96
the Board of Directors and Chief Executive Officer of the Company. As permitted under the terms of the Performance Unit Award
Agreement, a number of shares were settled in cash each year 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 each year is as follows:
Date of approval for award ...................................................... March 8, 2016
Fiscal year of service covered by award ..................................
Shares settled in cash ...............................................................
Increase in Class B Common Stock shares outstanding ...........
Total Class B Common Stock awarded ....................................
19,080
20,920
40,000
2015
2016
Fiscal Year
2015
2014
March 3, 2015
March 4, 2014
2014
2013
19,080
20,920
40,000
19,100
20,900
40,000
18. Benefit Plans
Executive Benefit Plans
The Company has four executive benefit plans: the Supplemental Savings Incentive Plan (“Supplemental Savings Plan”), the Long-
Term Retention Plan (“LTRP”), the Officer Retention Plan (“Retention Plan”) and the Long-Term Performance Plan (“Performance
Plan”).
Pursuant to the Supplemental Savings Plan, as amended, eligible participants may elect to defer a portion of their annual salary and
bonus. Participants are immediately vested in all deferred contributions they make and become fully vested in Company contributions
upon completion of five years of service, termination of employment due to death, retirement or a change in control. Participant
deferrals and Company contributions made in years prior to 2006 are invested in either a fixed benefit option or certain investment
funds specified by the Company. Beginning in 2010, the Company may elect at its discretion to match up to 50% of the first 6% of
salary, excluding bonuses, deferred by the participant. During 2016, 2015 and 2014, the Company matched up to 50% of the first 6%
of salary, excluding bonus, deferred by the participant. The Company may also make discretionary contributions to participants’
accounts. The liability under this plan was as follows:
(in thousands)
Current liabilities .................................................................................................................. $
Noncurrent liabilities.............................................................................................................
$
Total liability - Supplemental Savings Plan ......................................................................
January 1, 2017 January 3, 2016
6,425
69,941
76,366
7,339 $
70,709
78,048 $
Under the LTRP, the Company accrues a defined amount each year for an eligible participant based upon an award schedule. Amounts
awarded may earn an investment return based on certain investment funds specified by the Company. Benefits under the LTRP are
50% vested until age 50. After age 50, the vesting percentage increases by 5% each year until the benefits are fully vested at age 60.
Participants receive payments from the plan upon retirement or in certain instances upon termination of employment. Payments are
made in the form of a monthly annuity over a period of ten, fifteen or twenty years. The liability under this plan was as follows:
(in thousands)
Current liabilities .................................................................................................................. $
Noncurrent liabilities.............................................................................................................
$
Total liability - LTRP .........................................................................................................
January 1, 2017 January 3, 2016
1
2 $
535
1,256
536
1,258 $
Under the Retention Plan, as amended effective January 1, 2007, eligible participants may elect to receive an annuity payable in equal
monthly installments over a 10, 15 or 20-year period commencing at retirement or, in certain instances, upon termination of
employment. The benefits under the Retention Plan increase with each year of participation as set forth in an agreement between the
participant and the Company. Benefits under the Retention Plan are 50% vested until age 50. After age 50, the vesting percentage
increases by an additional 5% each year until the benefits are fully vested at age 60. The liability under this plan was as follows:
(in thousands)
Current liabilities .................................................................................................................. $
Noncurrent liabilities.............................................................................................................
$
Total liability - Retention Plan ...........................................................................................
January 1, 2017 January 3, 2016
2,395
45,111
47,506
3,359 $
44,480
47,839 $
97
Under the Performance Plan, adopted as of January 1, 2007, the Compensation Committee of the Company’s Board of Directors
establishes dollar amounts to which a participant shall be entitled upon attainment of the applicable performance measures. Bonus
awards under the Performance Plan are made based on the relative achievement of performance measures in terms of the Company-
sponsored objectives or objectives related to the performance of the individual participants or of the subsidiary, division, department,
region or function in which the participant is employed. The liability under this plan was as follows:
(in thousands)
Current liabilities .................................................................................................................. $
Noncurrent liabilities.............................................................................................................
$
Total liability - Performance Plan .....................................................................................
January 1, 2017 January 3, 2016
5,025
5,571
10,596
5,282 $
5,651
10,933 $
Pension Plans
There are two Company-sponsored pension plans. The primary Company-sponsored pension plan (the “Primary Plan”) was frozen as
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 pension plan for collectively bargained
employees are determined in accordance with negotiated formulas for the respective participants. Contributions to the plans are based
on actuarial determined amounts and are limited to the amounts currently deductible for income tax purposes.
Each year, the Company updates its mortality assumptions used in the calculation of its pension liability using The Society of
Actuaries’ latest mortality tables. In 2014, the mortality table reflected increased longevity in the United States, whereas in 2015 and
2016, the mortality table reflected a lower increase in longevity.
The following tables set forth pertinent information for the two Company-sponsored pension plans:
Changes in Projected Benefit Obligation
(in thousands)
Projected benefit obligation at beginning of year ................................................................. $
Service cost ...........................................................................................................................
Interest cost ...........................................................................................................................
Actuarial (gain)/loss ..............................................................................................................
Benefits paid .........................................................................................................................
$
Projected benefit obligation at end of year .......................................................................
Fiscal Year
2016
2015
261,469 $
461
12,182
8,268
(9,232 )
273,148 $
279,669
116
11,875
(21,883)
(8,308)
261,469
The discount rate for the Primary Plan and the Bargaining Plan decreased to 4.44% and 4.49%, respectively, in 2016 from 4.72% for
both Company-sponsored pension plans in 2015, which was the primary driver of the actuarial loss in 2016. The discount rate
increased to 4.72% for both Company-sponsored pension plans in 2015 from 4.32% and 4.31% for the Primary Plan and the
Bargaining Plan, respectively, in 2014, which was the primary driver in the actuarial gain in 2015. The actuarial gain and losses, net of
tax, were recorded in other comprehensive loss.
The projected benefit obligations and accumulated benefit obligations for both the Company’s pension plans were in excess of plan
assets at January 1, 2017 and January 3, 2016. The accumulated benefit obligation was $273.1 million as of January 1, 2017 and
$261.5 million as of January 3, 2016.
Change in Plan Assets
(in thousands)
Fair value of plan assets at beginning of year ....................................................................... $
Actual return on plan assets ..................................................................................................
Employer contributions .........................................................................................................
Benefits paid .........................................................................................................................
$
Fair value of plan assets at end of year .............................................................................
Fiscal Year
2016
2015
214,055 $
12,313
11,120
(9,232 )
228,256 $
212,692
(829)
10,500
(8,308)
214,055
98
Funded Status
(in thousands)
Projected benefit obligation .................................................................................................. $
Plan assets at fair value .........................................................................................................
$
Net funded status .................................................................................................................
January 1, 2017 January 3, 2016
(261,469)
214,055
(47,414)
(273,148 ) $
228,256
(44,892 ) $
Amounts Recognized in the Consolidated Balance Sheets
(in thousands)
Current liabilities .................................................................................................................. $
Noncurrent liabilities.............................................................................................................
$
Total liability - pension plans .............................................................................................
January 1, 2017 January 3, 2016
-
- $
(47,414)
(44,892 )
(47,414)
(44,892 ) $
Net Periodic Pension Cost (Benefit)
(in thousands)
Service cost ....................................................................................................... $
Interest cost .......................................................................................................
Expected return on plan assets ..........................................................................
Amortization of prior service cost .....................................................................
Recognized net actuarial loss ............................................................................
$
Net periodic pension cost (benefit) .................................................................
Significant Assumptions
Projected benefit obligation at the measurement date:
Discount rate - Primary Plan........................................................................
Discount rate - Bargaining Plan ...................................................................
Weighted average rate of compensation increase ........................................
Net periodic pension cost for the fiscal year:
Discount rate ................................................................................................
Weighted average expected long-term rate of return on plan assets ............
Weighted average rate of compensation increase ........................................
Cash Flows
2016
Fiscal Year
2015
$
461
12,182
(13,822)
28
3,031
1,880
$
$
116
11,875
(13,541)
35
3,230
1,715
$
2014
109
11,603
(13,775)
36
1,743
(284)
2016
Fiscal Year
2015
2014
4.44%
4.49%
N/A
4.72%
6.50%
N/A
4.72 %
4.72 %
N/A
4.32 %
6.50 %
N/A
4.32%
4.31%
N/A
5.21%
7.00%
N/A
(in thousands)
2017 ........................................................................................................................ $
2018 ........................................................................................................................
2019 ........................................................................................................................
2020 ........................................................................................................................
2021 ........................................................................................................................
2022 – 2026.............................................................................................................
Anticipated Future Pension Benefit
Payments for the Fiscal Years
9,950
10,605
11,304
11,980
12,619
72,390
Anticipated contributions for the two Company-sponsored pension plans will be in the range of $10 million to $12 million in 2017.
99
Plan Assets
The Company’s pension plans target asset allocation for 2017, actual asset allocation at January 1, 2017 and January 3, 2016, and the
expected weighted average long-term rate of return by asset category were as follows:
Target
Allocation
2017
Percentage of Plan
Assets at Fiscal Year-End
2016
2015
Weighted Average Expected
Long-Term Rate of Return
2016
U.S. large capitalization equity securities .......
U.S. small/mid-capitalization equity securities ...
International equity securities .........................
Debt securities .................................................
Total ...............................................................
40%
5%
15%
40%
100%
41%
5%
15%
39%
100%
40%
5%
15%
40%
100%
3.3%
0.4%
1.3%
1.5%
6.5%
All assets in the Company’s pension plans are invested in institutional investment funds managed by professional investment advisors
which hold U.S. equities, international equities and debt securities. The objective of the Company’s investment philosophy is to earn
the plans’ targeted rate of return over longer periods without assuming excess investment risk. The general guidelines for plan
investments include 30% - 45% in large capitalization equity securities, 0% - 20% in U.S. small and mid-capitalization equity
securities, 0% - 10% in international equity securities and 10% - 50% in debt securities. The Company currently has 61% of its plan
investments in equity securities and 39% in debt securities.
U.S. large capitalization equity securities include domestic based companies that are generally included in common market indices
such as the S&P 500™ and the Russell 1000™. U.S. small and mid-capitalization equity securities include small domestic equities as
represented by the Russell 2000™ index. International equity securities include companies from developed markets outside the United
States. Debt securities as of January 1, 2017 are comprised of investments in two institutional bond funds with a weighted average
duration of approximately three years.
A weighted average expected long-term rate of return of plan assets of 6.5% was used to determine net periodic pension cost in both
2016 and 2015. The rate reflects an estimate of long-term future returns for the pension plan assets net of expenses. The estimate is
primarily a function of the asset classes, equities versus fixed income, in which the pension plan assets are invested and the analysis of
past performance of these asset classes over a long period of time. The analysis includes expected long-term inflation and the risk
premiums associated with equity investments and fixed income investments.
The following table summarizes the Company’s common/collective trust fund pension plan assets. The underlying investments held in
common/collective trust funds are actively managed equity securities and fixed income investment vehicles that are valued at the net
asset value per share multiplied by the number of shares held as of the measurement date.
(in thousands)
Common/collective trust funds - equity securities ............................
Common/collective trust funds - fixed income .................................
Total common/collective trust funds .............................................
$
$
January 1, 2017
January 3, 2016
139,735
87,814
227,549
$
$
128,220
85,158
213,378
In addition, the Company had $0.7 million of other level 1 pension plan assets related to its equity securities in both 2016 and 2015.
The level 1 assets had quoted market prices in active markets for identical assets available for fair value measurement.
The Company does not have any unobservable inputs (Level 3) pension plan assets.
401(k) Savings Plan
The Company provides a 401(k) Savings Plan for substantially all its employees who are not part of collective bargaining agreements.
The Company’s matching contribution is discretionary, with the option to match contributions for eligible participants up to 5% based
on the Company’s financial results for future years. During 2016, 2015, and 2014, the Company matched the maximum 5% of
participants’ contributions, for a total expense of $14.9 million, $10.7 million and $8.8 million, respectively.
100
Postretirement Benefits
The Company provides postretirement benefits for a portion of its current employees. The Company recognizes the cost of
postretirement benefits, which consist principally of medical benefits, during employees’ periods of active service. The Company does
not pre-fund these benefits and has the right to modify or terminate certain of these benefits in the future.
The following tables set forth pertinent information for the Company’s postretirement benefit plan:
Reconciliation of Activity
(in thousands)
Benefit obligation at beginning of year ................................................................................. $
Service cost ...........................................................................................................................
Interest cost ...........................................................................................................................
Acquisition of benefits ..........................................................................................................
Plan participants’ contributions .............................................................................................
Actuarial (gain)/loss ..............................................................................................................
Benefits paid .........................................................................................................................
Medicare Part D subsidy reimbursement ..............................................................................
$
Benefit obligation at end of year ........................................................................................
Reconciliation of Plan Assets Fair Value
(in thousands)
Fair value of plan assets at beginning of year ....................................................................... $
Employer contributions .........................................................................................................
Plan participants’ contributions .............................................................................................
Benefits paid .........................................................................................................................
Medicare Part D subsidy reimbursement ..............................................................................
$
Fair value of plan assets at end of year .............................................................................
Funded Status
Fiscal Year
2016
2015
70,361 $
1,567
3,094
3,458
662
9,152
(3,135 )
96
85,255 $
70,121
1,118
2,878
-
594
(1,600)
(2,886)
136
70,361
Fiscal Year
2016
2015
- $
2,377
662
(3,135 )
96
- $
-
2,156
594
(2,886)
136
-
(in thousands)
Current liabilities .................................................................................................................. $
Noncurrent liabilities.............................................................................................................
$
Total liability - postretirement benefits .............................................................................
January 1, 2017 January 3, 2016
3,401
66,960
70,361
3,468 $
81,787
85,255 $
Net Periodic Postretirement Benefit Cost
(in thousands)
Service cost ....................................................................................................... $
Interest cost .......................................................................................................
Recognized net actuarial loss ............................................................................
Amortization of prior service cost .....................................................................
$
Net periodic postretirement benefit cost .......................................................
2016
Fiscal Year
2015
2014
$
1,567
3,094
2,186
(3,360)
$
3,487
$
1,118
2,878
3,164
(3,360)
$
3,800
1,445
3,255
2,293
(1,513)
5,480
101
Significant Assumptions
2016
Fiscal Year
2015
2014
Benefit obligation discount rate at measurement date .......................................
Net periodic postretirement benefit cost discount rate for fiscal year ...............
4.36%
4.53%
4.53 %
4.13 %
Postretirement benefit expense - Pre-Medicare:
Weighted average health care cost trend rate ..............................................
Trend rate graded down to ultimate rate ......................................................
Ultimate rate year ........................................................................................
6.2%
4.5%
7.5 %
5.0 %
2024
2021
2021
4.13%
4.96%
8.0%
5.0%
Postretirement benefit expense - Post-Medicare:
Weighted average health care cost trend rate ..............................................
Trend rate graded down to ultimate rate ......................................................
Ultimate rate year ........................................................................................
7.5%
4.5%
7.0 %
5.0 %
7.5%
5.0%
2024
2021
2021
A 1% increase or decrease in the annual health care cost trend would have impacted the postretirement benefit obligation and service
cost and interest cost of the Company’s postretirement benefit plan as follows:
(in thousands)
Postretirement benefit obligation at January 1, 2017 ............................................................ $
Service cost and interest cost in 2016 ...................................................................................
1% Increase
1% Decrease
10,441 $
550
(9,976)
(521)
Cash Flows
(in thousands)
2017 ........................................................................................................................ $
2018 ........................................................................................................................
2019 ........................................................................................................................
2020 ........................................................................................................................
2021 ........................................................................................................................
2022 – 2026.............................................................................................................
Anticipated Future Postretirement Benefit
Payments Reflecting Expected Future Service
3,468
3,878
4,252
4,495
4,708
26,507
Anticipated future postretirement benefit payments are shown net of Medicare Part D subsidy reimbursements, which are not material.
A reconciliation of the amounts in accumulated other comprehensive loss not yet recognized as components of net periodic benefit
cost is as follows:
(in thousands)
Pension Plans:
January 3,
2016
Actuarial
Gain (Loss)
Reclassification
Adjustments
January 1,
2017
Actuarial (loss) ............................................................................ $
Prior service (cost) credit .............................................................
(112,898) $
(128)
(9,777 ) $
-
3,031 $
27
(119,644)
(101)
Postretirement Medical:
Actuarial (loss) ............................................................................
Prior service (cost) credit .............................................................
Total within accumulated other comprehensive loss ................... $
(33,536)
9,483
(137,079) $
(9,152 )
-
(18,929 ) $
2,186
(3,361)
1,883 $
(40,502)
6,122
(154,125)
102
The amounts in accumulated other comprehensive loss expected to be recognized as components of net periodic cost during 2017 are
as follows:
(in thousands)
Actuarial loss .................................................................................................... $
Prior service cost (credit) ..................................................................................
Total expected to be recognized during 2017 ................................................ $
Pension
Plans
Postretirement
Medical
3,228 $
28
3,256 $
2,591 $
(2,982)
(391) $
Total
5,819
(2,954)
2,865
Multi-Employer Pension Plans
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 collective
bargaining agreements covering the Teamsters Plan will expire on April 29, 2017 and July 26, 2018.
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 the contribution rates to the Teamsters Plan, with additional increases occurring annually, as part of a
rehabilitation plan. This is a result of the Teamsters Plan being certified by its actuary as being in “critical” status for the plan year
beginning January 1, 2013, 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.
The Company’s participation in the Teamsters Plan is outlined in the table below. A red zone represents less than 80% funding and
requires a financial improvement plan (“FIP”) or rehabilitation plan (“RP”).
(in thousands)
Pension Protection Act Zone Status ..............................................
FIP or RP pending or implemented ...............................................
Surcharge imposed ........................................................................
Contribution .................................................................................. $
2016
Red
Yes
Yes
Fiscal Year
2015
Red
Yes
Yes
2014
Red
Yes
Yes
728 $
692 $
655
According to the Teamsters Plan’s Forms 5500, the Company was not listed as providing more than 5% of the total contributions for
the plan years ending December 31, 2015 or December 31, 2014. At the date these financial statements were issued, Forms 5500 were
not available for the plan year ending December 31, 2016.
The Company has a liability recorded for exiting a multi-employer pension plan in 2008 and is required to make payments of
approximately $1 million to this multi-employer pension plan each year through 2028. As of January 1, 2017, the Company has
$8.1 million remaining on this liability.
19. 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, either concentrate or
syrup, of its soft drink products are manufactured.
As of January 1, 2017, The Coca-Cola Company owned approximately 35% of the Company’s total outstanding Common Stock,
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
103
of J. Frank Harrison, Jr. have agreed to vote the shares of the Company’s Class B Common Stock which they control in favor of such
designee. The Coca-Cola Company does not own any shares of Class B Common Stock of the Company.
The following table and the subsequent descriptions summarize the significant transactions between the Company and
The Coca-Cola Company:
(in thousands)
Payments made by the Company to The Coca-Cola Company for:
2016
Fiscal Year
2015
2014
Concentrate, syrup, sweetener and other purchases ..................................... $
Customer marketing programs ....................................................................
Cold drink equipment parts .........................................................................
669,783 $
116,537
21,558
482,673 $
70,754
16,260
423,983
61,106
7,654
Payments made by The Coca-Cola Company to the Company for:
Marketing funding support payments .......................................................... $
Fountain delivery and equipment repair fees ...............................................
Presence marketing funding support on the Company’s behalf...................
Facilitating the distribution of certain brands and packages to other Coca-
Cola bottlers .................................................................................................
73,513 $
27,624
2,064
56,284 $
17,400
2,415
46,492
13,530
5,848
7,193
4,670
3,904
Coca-Cola Refreshments USA, Inc. (“CCR”), a wholly-owned subsidiary of The Coca-Cola Company
The Company has a production arrangement with CCR to buy and sell finished products at cost. In addition, the Company transports
product for CCR to the Company’s and other Coca-Cola bottlers’ locations. The following table summarizes purchases and sales
under these arrangements between the Company and CCR:
(in thousands)
Purchases from CCR ......................................................................................... $
Sales to CCR .....................................................................................................
Sales to CCR for transporting CCR's product ...................................................
2016
Fiscal Year
2015
269,575 $
72,568
21,940
229,954 $
30,500
16,523
2014
68,819
53,543
2,917
Prior to the sale of BYB to The Coca-Cola Company, CCR distributed one of the Company’s brands, Tum-E Yummies. During the
third quarter of 2015, the Company sold BYB, the subsidiary that owned and distributed Tum-E Yummies to
The Coca-Cola Company and recorded a gain of $22.7 million on the sale. The Company continues to distribute Tum-E Yummies
following the sale. Total sales to CCR for Tum-E Yummies were $14.8 million in 2015 and $22.0 million in 2014.
104
As discussed above in Note 3 to the consolidated financial statements, the Company and CCR have entered into, and closed the
following asset purchase agreements relating to certain territories previously served by CCR’s facilities and equipment located in
these territories:
Expansion Territories
Johnson City and Morristown, Tennessee ...................................................................
Knoxville, Tennessee ..................................................................................................
Cleveland and Cookeville, Tennessee .........................................................................
Louisville, Kentucky and Evansville, Indiana.............................................................
Paducah and Pikeville, Kentucky ................................................................................
Norfolk, Fredericksburg and Staunton, Virginia and Elizabeth City, North Carolina ........
Easton and Salisbury, Maryland and Richmond and Yorktown, Virginia ..................
Alexandria, Virginia and Capitol Heights and La Plata, Maryland .............................
Baltimore, Hagerstown and Cumberland, Maryland ...................................................
Cincinnati, Dayton, Lima and Portsmouth, Ohio and Louisa, Kentucky ....................
Regional Manufacturing Facilities
Sandston, Virginia .......................................................................................................
Silver Spring and Baltimore, Maryland ......................................................................
Cincinnati, Ohio ..........................................................................................................
Definitive
Agreement Date
May 7, 2014
August 28, 2014
December 5, 2014
December 17, 2014
February 13, 2015
September 23, 2015
September 23, 2015
September 23, 2015
September 23, 2015
September 1, 2016
Acquisition /
Exchange Date
May 23, 2014
October 24, 2014
January 30, 2015
February 27, 2015
May 1, 2015
October 30, 2015
January 29, 2016
April 1, 2016
April 29, 2016
October 28, 2016
Definitive
Agreement Date
October 30, 2015
October 30, 2015
September 1, 2016
Acquisition Date
January 29, 2016
April 29, 2016
October 28, 2016
As part of the distribution territory closings under these asset purchase agreements, the Company signed CBAs which have terms of
ten years and are renewable by the Company indefinitely for successive additional terms of ten years each unless earlier terminated as
provided therein. Under the CBAs, the Company makes a quarterly sub-bottling payment 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 quarterly sub-bottling payment will be based on 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. The liability
recorded by the Company to reflect the estimated fair value of contingent consideration related to future sub-bottling payments was
$253.4 million as of January 1, 2017, and $136.6 million as of January 3, 2016. Payments to CCR under the CBAs were $13.5 million,
$4.0 million and $0.2 million during 2016, 2015 and 2014, respectively.
On October 17, 2014, the Company entered into an asset exchange agreement with CCR, pursuant to which the Company exchanged
its facilities and equipment located in Jackson, Tennessee for territory previously served by CCR’s facilities and equipment located in
Lexington, Kentucky. This transaction closed on May 1, 2015.
As part of the Expansion Transactions, on October 30, 2015, the Company acquired from CCR a “make-ready center” in Annapolis,
Maryland for $5.4 million, which includes all post-closing adjustments. The Company recorded a bargain purchase gain of
$2.0 million on this transaction after applying a deferred tax liability of approximately $1.3 million. The Company uses the make-
ready center to deploy and refurbish vending and other sales equipment for use in the marketplace.
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. CCBSS was
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. As of January 1, 2017 and January 3, 2016, the Company had
rebates due from CCBSS of $7.4 million and $5.9 million, respectively.
In addition, the Company pays an administrative fee to CCBSS for its services. In 2016, 2015 and 2014, the Company incurred
$1.3 million, $0.7 million, and $0.5 million in administrative fees to CCBSS, respectively.
105
National Product Supply Group (“NPSG”)
In October 2015, the Company, The Coca-Cola Company and three other Coca-Cola bottlers, including CCR, who are considered
“Regional Producing Bottlers” (“RPBs”) in The Coca-Cola Company’s national product supply system, entered into the NPSG
Governance Agreement. Pursuant to the NPSG Governance Agreement, The Coca-Cola Company and the RPBs have formed a
national product supply group (the “NPSG”) and agreed to 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 January 2017, the NPSG Board consisted of The Coca-Cola-Company, the Company and five
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.
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. 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 Regional Producing Bottler will make investments in
their respective manufacturing assets and will implement Coca-Cola system strategic investment opportunities consistent with the
NPSG Governance Agreement.
CONA Services LLC (“CONA”)
The Company is a member of CONA, an entity formed with The Coca-Cola Company and certain Coca-Cola bottlers to provide
business process and information technology services to its members. Under the CONA limited liability agreement executed
January 27, 2016 (as amended or restated from time to time, the “CONA LLC Agreement”), the Company and other members of
CONA are required to make capital contributions to CONA if and when approved by CONA’s board of directors, which is comprised
of representatives of the members. The Company currently has the right to designate one of the members of CONA’s board of
directors and has a percentage interest in CONA of approximately 19%. During 2016, the Company made $7.9 million of capital
contributions to CONA.
The Company is a party to a Master Services Agreement (the “Master Services Agreement”) 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. Pursuant to the Master Services Agreement, CONA agreed to make available, and authorized the Company to use,
the CONA System in connection with the distribution, sale, marketing and promotion of non-alcoholic beverages the Company is
authorized to distribute under its comprehensive beverage agreements 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.
As part of making the CONA System available to the Company, CONA will provide 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 of products (collectively, the “CONA Services”). In exchange for the Company’s
right to use the CONA System and right to receive the CONA Services under the Master Services Agreement, the Company will be
charged quarterly service fees by CONA based on the number of physical cases of Beverages distributed by the Company during the
applicable period in the Territories where the CONA Services have been implemented (the “Service Fees”). Upon the earlier of (i) all
members of CONA beginning to use the CONA System in all territories in which they distribute products of The Coca-Cola Company
(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 Fees will be changed to be an amount per physical case of Beverages
distributed in any portion of the 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 by all of the members of CONA, subject to certain
exceptions. The Company is obligated to pay the Service Fees under the Master Services Agreement even if it is not using the CONA
System for all or any portion of its operations in the Territories. During 2016, the Company incurred CONA Service Fees of
$7.5 million.
Snyder Production Center (“SPC”)
The Company leases the SPC and an adjacent sales facility, which are located in Charlotte, North Carolina, from Harrison Limited
Partnership One (“HLP”). HLP is directly and indirectly owned by trusts of which J. Frank Harrison, III, Chairman of the Board of
Directors and Chief Executive Officer of the Company, Sue Anne H. Wells, a director of the Company, and Deborah H. Everhart, a
106
former director of the Company, are trustees and beneficiaries. Morgan H. Everett, 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 as of January 1, 2017 was $14.7 million and as of January 3, 2016 was $17.5 million. The
annual base rent the Company is obligated to pay under the lease is subject to an adjustment for an inflation factor. Rental payments
related to this lease were $4.0 million, $3.8 million and $3.7 million in 2016, 2015 and 2014, respectively.
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. The principal balance outstanding under this capital lease as of January 1, 2017 was $15.5 million and as of January 3,
2016 was $18.1 million. The annual base rent the Company is obligated to pay under the lease is subject to adjustment for increases in
the Consumer Price Index.
The minimum rentals and contingent rental payments related to this lease were as follows:
(in thousands)
Minimum rentals ............................................................................................... $
Contingent rentals .............................................................................................
Total rental payments ..................................................................................... $
2016
Fiscal Year
2015
3,526 $
767
4,293 $
3,540 $
682
4,222 $
2014
3,539
618
4,157
The contingent rentals in 2016, 2015 and 2014 are a result of changes in the Consumer Price Index. Increases or decreases in lease
payments that result from changes in the Consumer Price Index were recorded as adjustments to interest expense.
107
20. Net Income Per Share
The following table sets forth the computation of basic net income per share and diluted net income per share under the two-class
method. See Note 1 to the consolidated financial statements for additional information related to net income per share.
(in thousands, except per share data)
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 .............................. $
Less dividends:
Common Stock ......................................................................................................
Class B Common Stock .........................................................................................
$
Total undistributed earnings ....................................................................................
Common Stock undistributed earnings – basic ........................................................... $
Class B Common Stock undistributed earnings – basic ..............................................
$
Total undistributed earnings ....................................................................................
Common Stock undistributed earnings – diluted ........................................................ $
Class B Common Stock undistributed earnings – diluted ...........................................
$
Total undistributed earnings – diluted ....................................................................
2016
Fiscal Year
2015
2014
50,146 $
59,002
$
31,354
7,141
2,166
40,839 $
31,328 $
9,511
40,839 $
31,194 $
9,645
40,839 $
7,141
2,146
49,715
38,223
11,492
49,715
38,059
11,656
49,715
$
$
$
$
$
7,141
2,125
22,088
17,021
5,067
22,088
16,948
5,140
22,088
Numerator for basic net income per Common Stock share:
Dividends on Common Stock ..................................................................................... $
Common Stock undistributed earnings – basic ...........................................................
$
Numerator for basic net income per Common Stock share ..................................
7,141 $
31,328
38,469 $
7,141
38,223
45,364
$
$
7,141
17,021
24,162
Numerator for basic net income per Class B Common Stock share:
Dividends on Class B Common Stock ........................................................................ $
Class B Common Stock undistributed earnings – basic ..............................................
$
Numerator for basic net income per Class B Common Stock share.....................
2,166 $
9,511
11,677 $
2,146
11,492
13,638
$
$
2,125
5,067
7,192
Numerator for diluted net income per Common Stock share:
Dividends on Common Stock ..................................................................................... $
Dividends on Class B Common Stock assumed converted to Common Stock ...........
Common Stock undistributed earnings – diluted ........................................................
$
Numerator for diluted net income per Common Stock share ...............................
7,141 $
2,166
40,839
50,146 $
7,141
2,146
49,715
59,002
$
$
7,141
2,125
22,088
31,354
Numerator for diluted net income per Class B Common Stock share:
Dividends on Class B Common Stock ........................................................................ $
Class B Common Stock undistributed earnings – diluted ...........................................
$
Numerator for diluted net income per Class B Common Stock share .................
2,166 $
9,645
11,811 $
2,146
11,656
13,802
$
$
2,125
5,140
7,265
108
(in thousands, except per share data)
Denominator for basic net income per Common Stock and Class B Common
Stock share:
Common Stock weighted average shares outstanding – basic ....................................
Class B Common Stock weighted average shares outstanding – basic .......................
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) ...........................................................
Class B Common Stock weighted average shares outstanding – diluted ....................
2016
Fiscal Year
2015
2014
7,141
2,168
7,141
2,147
7,141
2,126
9,349
2,208
9,328
2,187
9,307
2,166
Basic net income per share:
Common Stock ............................................................................................................ $
Class B Common Stock .............................................................................................. $
5.39 $
5.39 $
6.35
6.35
$
$
Diluted net income per share:
Common Stock ............................................................................................................ $
Class B Common Stock .............................................................................................. $
5.36 $
5.35 $
6.33
6.31
$
$
3.38
3.38
3.37
3.35
NOTES TO TABLE
(1) For purposes of the diluted net income per share computation for Common Stock, shares of Class B Common Stock are assumed
to be converted; therefore, 100% of undistributed earnings is allocated to Common Stock.
(2) For purposes of the diluted net income per share computation for Class B Common Stock, weighted average shares of Class B
Common Stock are assumed to be outstanding for the entire period and not converted.
(3) Denominator for diluted net income per share for Common Stock and Class B Common Stock includes the diluted effect of shares
relative to the Performance Unit Award.
21. Risks and Uncertainties
Approximately 90% of the Company’s 2016 bottle/can volume to retail customers consists of products of The Coca-Cola Company,
which is the sole supplier of these products or of the concentrates or syrups required to manufacture these products. The remaining
10% of the Company’s 2016 bottle/can volume to retail customers consists of products of other beverage companies or those owned
by the Company. The Company has beverage agreements with The Coca-Cola Company and other beverage companies under which it
has various requirements. Failure to meet the requirements of these beverage agreements could result in the loss of distribution rights
for the respective products.
109
The Company’s products are sold and distributed through various channels in the United States, including selling directly to retail
stores and other outlets such as food markets, institutional accounts and vending machine outlets. During 2016, approximately 66% of
the Company’s bottle/can volume to retail customers was sold for future consumption, while the remainder was sold for immediate
consumption. The following table summarizes the percentage of the Company’s total bottle/can volume and the percentage of the
Company’s total net sales, which are all included in the Nonalcoholic Beverages operating segment, attributable to its largest
customers. No other customer represented greater than 10% of the Company’s total net sales for any years presented.
Customer
Wal-Mart Stores, Inc.
2016
Fiscal Year
2015
2014
Approximate percent of the Company's total Bottle/can volume ...................
Approximate percent of the Company's total Net sales ..................................
20%
14%
22 %
15 %
Food Lion, LLC
Approximate percent of the Company's total Bottle/can volume ...................
Approximate percent of the Company's total Net sales ..................................
The Kroger Company
Approximate percent of the Company's total Bottle/can volume ...................
Approximate percent of the Company's total Net sales ..................................
8%
5%
6%
5%
7 %
5 %
6 %
5 %
22%
15%
9%
6%
5%
4%
The NPSG was executed in October 2015 by The Coca-Cola Company, the Company and other RPBs in The Coca-Cola Company’s
national product supply system. The Coca-Cola Company and each member RPB has a representative on the governing board (the
“NPSG Board”). As of January 2017, the NPSG Board consisted of The Coca-Cola-Company, the Company and five other RPBs,
including CCR. Pursuant to the NPSG Governance Agreement, the Company has agreed to abide by decisions made by the NPSG
Board, which include decisions regarding strategic investment and divestment, optimal national product supply sourcing and new
product or packaging infrastructure planning. Even though the Company has a representative on the NPSG Board, the Company will
not exercise sole decision-making authority relating to the decisions of the NPSG Board, and the interests of other members of the
NPSG Board may diverge from those of the Company.
The Company obtains all its aluminum cans from two domestic suppliers. The Company currently obtains all its plastic bottles from
two domestic entities. See Note 14 and Note 19 of the consolidated financial statements for additional information.
The Company is exposed to price risk on commodities such as aluminum, corn and resin which affects the cost of raw materials used
in the production of finished products. The Company both produces and procures these finished products. Examples of the raw
materials affected are aluminum cans and plastic bottles used for packaging and high fructose corn syrup used as a product ingredient.
Further, the Company is exposed to commodity price risk on crude oil which impacts the Company’s cost of fuel used in the
movement and delivery of the Company’s products. The Company participates in commodity hedging and risk mitigation programs
administered both by CCBSS and by the Company. In addition, there is no limit on the price The Coca-Cola Company and other
beverage companies can charge for concentrate.
Certain liabilities of the Company, including floating rate debt, retirement benefit obligations and the Company’s pension liability, are
subject to risk of changes in both long-term and short-term interest rates.
The Company’s contingent consideration liability resulting from the acquisition of the Expansion Territories is subject to risk as a
result of changes in the Company’s probability weighted discounted cash flow model, which is based on internal forecasts, and
changes in the Company’s WACC, which is derived from market data.
Approximately 9% of the Company’s labor force is covered by collective bargaining agreements. The Company’s collective
bargaining agreements expire at various dates through 2020. Terms and conditions of the new labor union agreements could result in
delays of closings for new Expansion Territories and also increases the Company’s exposure to work interruptions or stoppages, as an
increased percentage of its workforce is covered by collective bargaining agreements.
110
22. Supplemental Disclosures of Cash Flow Information
Changes in current assets and current liabilities affecting cash were as follows:
(in thousands)
Accounts receivable, trade, net ......................................................................... $
Accounts receivable from The Coca-Cola Company ........................................
Accounts receivable, other ................................................................................
Inventories.........................................................................................................
Prepaid expenses and other current assets .........................................................
Accounts payable, trade ....................................................................................
Accounts payable to The Coca-Cola Company ................................................
Other accrued liabilities ....................................................................................
Accrued compensation ......................................................................................
Accrued interest payable ...................................................................................
Change in current assets less current liabilities (exclusive of acquisition) .... $
2016
Fiscal Year
2015
2014
(83,204) $
(31,231)
(5,723)
(8,301)
2,277
32,186
39,842
6,474
7,613
158
(39,909) $
(62,542) $
(5,258)
(9,543)
(13,849)
(6,264)
21,728
26,769
24,784
6,087
(174)
(18,262) $
(20,116)
(4,892)
605
(5,287)
(15,155)
13,051
25,116
(14,399)
5,145
(399)
(16,331)
The Company had the following cash payments (refunds) during the period for interest and income taxes:
(in thousands)
Interest ...................................................................................................................................... $
Income Taxes ...........................................................................................................................
2016
Fiscal Year
2015
2014
34,764 $
(7,111 )
27,391
31,782
$
28,021
31,009
23. Segments
The Company evaluates segment reporting in accordance with the FASB Accounting 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.
The Company believes four operating segments exist. Following the sale of BYB during the third quarter of fiscal 2015, two operating
segments, Franchised Nonalcoholic Beverages and Internally-Developed Nonalcoholic Beverages (made up entirely of BYB), were
aggregated due to their similar economic characteristics as well as the similarity of products, production processes, types of customers,
methods of distribution, and nature of the regulatory environment. This combined segment, Nonalcoholic Beverages, represents the
vast majority of the Company’s consolidated revenues, operating income, and assets. The remaining three operating segments do not
meet the quantitative thresholds for separate reporting, either individually or in the aggregate. As a result, these three operating
segments have been combined into an “All Other” reportable segment.
111
The Company’s results for its two reportable segments are as follows:
(in thousands)
Net Sales:
Nonalcoholic Beverages ................................................................................... $
All Other ...........................................................................................................
Eliminations* ....................................................................................................
$
Consolidated net sales .....................................................................................
2016
Fiscal Year
2015
$
3,060,937
234,732
(139,241)
$
3,156,428
$
2,245,836
160,191
(99,569)
$
2,306,458
Operating Income:
Nonalcoholic Beverages ................................................................................... $
All Other ...........................................................................................................
$
Consolidated operating income ......................................................................
123,230
4,629
127,859
$
$
92,921
5,223
98,144
$
$
Depreciation and Amortization:
Nonalcoholic Beverages ................................................................................... $
All Other ...........................................................................................................
$
Consolidated depreciation and amortization ................................................
109,716
6,907
116,623
$
$
76,127
4,769
80,896
$
$
Capital Expenditures:
Nonalcoholic Beverages ................................................................................... $
All Other ...........................................................................................................
$
Consolidated capital expenditures .................................................................
144,462
29,822
174,284
$
$
141,080
27,627
168,707
$
$
2014
1,710,040
123,194
(86,865)
1,746,369
82,297
3,670
85,967
58,103
3,027
61,130
69,635
16,739
86,374
(in thousands)
Total Assets:
Nonalcoholic Beverages ....................................................................................................... $
All Other ...............................................................................................................................
Eliminations* ........................................................................................................................
$
Consolidated total assets .....................................................................................................
January 1, 2017 January 3, 2016
2,349,284 $
105,785
(5,585 )
2,449,484 $
1,804,084
75,842
(33,361)
1,846,565
* NOTE: The entire net sales elimination for each year presented represents net sales from the All Other segment to the
Nonalcoholic Beverages segment. Sales between these segments are either recognized at fair market value or cost depending on
the nature of the transaction. Asset eliminations relate to eliminations of intercompany receivables and payables between the
Nonalcoholic Beverages and All Other segments.
The Company is a shareholder of SAC and Southeastern. See Note 14 to the consolidated financial statements for additional
information on the revenues and assets of these entities, which are included in the Nonalcoholic beverages segment results.
112
Net sales by product category were as follows:
(in thousands)
Bottle/can sales*:
Sparkling beverages (carbonated) ..................................................................... $
Still beverages (noncarbonated, including energy products).............................
Total bottle/can sales .......................................................................................
2016
Fiscal Year
2015
2014
1,764,558 $
892,125
2,656,683
1,323,712 $
577,872
1,901,584
1,064,036
339,904
1,403,940
Other sales:
Sales to other Coca-Cola bottlers ......................................................................
Post-mix and other ............................................................................................
Total other sales ..............................................................................................
238,182
261,563
499,745
178,777
226,097
404,874
162,346
180,083
342,429
Total net sales .................................................................................................. $
3,156,428 $
2,306,458 $
1,746,369
* NOTE: During the second quarter of 2016, energy products were moved from the category of sparkling beverages to still
beverages, which has been reflected in all periods presented. Total bottle/can sales remain unchanged in prior periods.
24. Quarterly Financial Data (Unaudited)
The unaudited quarterly financial data for the fiscal years ended January 1, 2017 and January 3, 2016 is included in the tables shown
below. Excluding the impact of Expansion Transactions completed during the fiscal year, sales volume has historically been the
highest in the second and third quarter of each fiscal year. Additional meaningful financial information is included in the table
following each presented period.
Quarter Ended
(in thousands, except per share data)
Net sales ...................................................................................................... $
Gross profit .................................................................................................
Net income (loss) attributable to Coca-Cola Bottling Co. Consolidated ....
Basic net income (loss) per share based on net income attributable to
Coca-Cola Bottling Co. Consolidated:
April 3,
2016
625,456
243,898
(10,041)
$
October 2,
2016
July 3,
2016
840,384 $ 849,028 $
319,707
15,652
327,190
23,142
January 1,
2017
841,560
324,927
21,393
Common Stock ...................................................................................... $
Class B Common Stock ......................................................................... $
(1.08) $
(1.08) $
1.68 $
1.68 $
2.48 $
2.48 $
Diluted net income (loss) per share based on net income attributable to
Coca-Cola Bottling Co. Consolidated:
Common Stock ...................................................................................... $
Class B Common Stock ......................................................................... $
(1.08) $
(1.08) $
1.67 $
1.67 $
2.47 $
2.47 $
2.31
2.31
2.30
2.29
113
Additional Information:
(in thousands, except per share data)
Mark-to-market income/(expense) related to commodity hedging
program:
Quarter Ended
April 3,
2016
July 3,
2016
October 2,
2016
January 1,
2017
Pre-tax total income/(expense) ............................................................... $
Income/(expense) net of tax....................................................................
Income/(expense) per basic common share ............................................ $
1,039 $
641
0.06 $
2,770 $
1,701
0.18 $
388 $
239
0.03 $
531
327
0.04
2016 Expansion Transactions, 2015 Expansion Territories and 2015
Asset Exchange impact:
Net sales impact ...................................................................................... $
Pre-tax income impact ............................................................................
Net income impact ..................................................................................
Per basic common share impact ............................................................. $
142,467 $
1,287
808
0.09 $
Expenses related to Expansion Transactions:
Pre-tax total expense ............................................................................... $
Expense net of tax...................................................................................
Expense per basic common share ........................................................... $
Expense related to special charitable contribution:
Pre-tax total expense ............................................................................... $
Expense net of tax...................................................................................
Expense per basic common share ........................................................... $
Reduction of gain related to exchange of franchise territories:
Pre-tax total adjustment .......................................................................... $
Adjustment net of tax .............................................................................
Adjustment per basic common share ...................................................... $
Fair value income/(expense) for acquisition related contingent
consideration:
6,423 $
3,957
0.43 $
4,000 $
2,460
0.26 $
- $
-
- $
- $
-
- $
692 $
426
0.05 $
287,092 $ 298,313 $
15,974
9,808
1.05 $
2,432
1,495
0.16 $
333,897
4,587
2,821
0.30
7,005 $
4,301
0.46 $
9,780 $
6,015
0.64 $
9,066
5,576
0.60
- $
-
- $
- $
-
- $
-
-
-
-
-
-
Pre-tax total income/(expense) ............................................................... $
Income/(expense) net of tax....................................................................
Income/(expense) per basic common share ............................................ $
(17,151) $
(10,565)
(1.13) $
(16,274 ) $
(9,992 )
(1.07 ) $
7,365 $
4,530
0.48 $
27,970
17,202
1.85
(in thousands, except per share data)
Net sales ............................................................................... $
Gross profit ..........................................................................
Net income attributable to Coca-Cola Bottling Co.
Consolidated ........................................................................
Basic net income per share based on net income
attributable to Coca-Cola Bottling Co. Consolidated:
Common Stock ..................................................................... $
Class B Common Stock ....................................................... $
Diluted net income per share based on net income
attributable to Coca-Cola Bottling Co. Consolidated:
Common Stock ..................................................................... $
Class B Common Stock ....................................................... $
Quarter Ended
March 29,
2015
June 28,
2015
September 27,
2015
January 3,
2016
453,253
184,373
2,224
0.24
0.24
0.24
0.23
$
$
$
$
$
614,683 $
237,317
26,934
618,806
238,536
25,553
2.90 $
2.90 $
2.89 $
2.88 $
2.75
2.75
2.74
2.73
$
$
$
$
$
619,716
240,806
4,291
0.46
0.46
0.46
0.46
114
Additional Information:
(in thousands, except per share data)
Mark-to-market income/(expense) related to commodity hedging
program:
Quarter Ended
March 29,
2015
June 28,
2015
September 27,
2015
January 3,
2016
Pre-tax total income/(expense) ................................................. $
Income/(expense) net of tax......................................................
Income/(expense) per basic common share .............................. $
2015 Expansion Territories and 2015 Asset Exchange impact:
Net sales impact ........................................................................ $
Pre-tax income/(loss) impact ....................................................
Net income/(loss) impact ..........................................................
Per basic common share impact ............................................... $
Expenses related to Expansion Transactions:
Pre-tax total expense ................................................................. $
Expense net of tax.....................................................................
Expense per basic common share ............................................. $
Gain related to the Asset Exchange Transaction:
Pre-tax gain ............................................................................... $
Gain net of tax ..........................................................................
Gain per basic common share ................................................... $
Gain related to the sale of BYB:
Pre-tax gain ............................................................................... $
Gain net of tax ..........................................................................
Gain per basic common share ................................................... $
Results of 53rd week in fiscal year:
Net sales impact ........................................................................ $
Pre-tax income impact ..............................................................
Net income impact ....................................................................
Per basic common share impact ............................................... $
Bargain purchase gain related to the purchase of Annapolis MRC:
Pre-tax bargain purchase gain ................................................... $
Bargain purchase gain net of tax ..............................................
Bargain purchase gain per basic common share ....................... $
Fair value income/(expense) for acquisition related contingent
consideration:
643 $
395
0.05 $
31,622 $
2,899
1,780
0.18 $
2,994 $
1,839
0.20 $
- $
-
- $
- $
-
- $
- $
-
-
- $
- $
-
- $
(749) $
(460)
(0.05) $
85,232 $
5,067
3,112
0.34 $
4,252 $
2,611
0.28 $
8,807 $
5,407
0.58 $
- $
-
- $
- $
-
-
- $
- $
-
- $
(2,130) $
(1,308)
(0.14) $
89,762 $
1,020
626
0.07 $
6,947 $
4,265
0.46 $
- $
-
- $
22,651 $
13,908
1.49 $
(1,203)
(739)
(0.08)
103,371
(2,399)
(1,473)
(0.16)
5,789
3,554
0.38
-
-
-
-
-
-
- $
-
-
- $
- $
-
- $
38,587
4,022
2,416
0.26
3,276
2,011
0.22
Pre-tax total income/(expense) ................................................. $
Income/(expense) net of tax......................................................
Income/(expense) per basic common share .............................. $
(5,089) $
(3,125)
(0.34) $
6,078 $
3,732
0.40 $
(3,992) $
(2,451)
(0.26) $
(573)
(352)
(0.04)
Favorable pre-tax correction related to the calculation of certain
state gross receipts taxes: ..............................................................
$
-
$
-
$
-
$
2,400
25. Subsequent Events
On January 27, 2017, the Company completed the second territory expansion transaction contemplated by the September 2016
Distribution APA, through which the Company acquired from CCR distribution assets and working capital related to the distribution
territories located in Indiana and Illinois served by distribution facilities located in Anderson, Fort Wayne, Lafayette, South Bend and
Terre Haute, Indiana. At closing, the Company paid a cash purchase price of $31.6 million, which will remain subject to adjustment in
accordance with the terms of the September 2016 Distribution APA, and executed an Initial CBA providing the Company with
exclusive rights for the distribution, promotion, marketing and sale of products owned and licensed by The Coca-Cola Company in
such territories.
The Company has not completed the preliminary allocation of the purchase price to the individual acquired assets and assumed
liabilities for the transaction described above. The transaction will be accounted for as a business combination under FASB ASC
Accounting Standards Codification 805.
115
On 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, PGIM, Inc. and the other parties thereto. 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 expects to use the proceeds for general corporate purposes. As of the date of this filing, the Company may request that
Prudential consider the purchase of additional senior unsecured notes of the Company under the facility in an aggregate principal
amount of up to $175 million.
116
Management’s Report on Internal Control over Financial Reporting
Management of Coca-Cola Bottling Co. Consolidated (the “Company”) is responsible for establishing and maintaining adequate
internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. The Company’s internal
control over financial reporting is a process designed under the supervision of the Company’s chief executive and chief financial
officers to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s
consolidated financial statements for external purposes in accordance with the U.S. generally accepted accounting principles. The
Company’s internal control over financial reporting includes policies and procedures that:
(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets
of the Company;
(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with U.S. generally accepted accounting principles, and that receipts and expenditures are being made only in
accordance with authorizations of management and the directors of the Company; and
(iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the
Company’s assets that could have a material effect on the Company’s financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect all misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate due to
changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
As of January 1, 2017, management assessed the effectiveness of the Company’s internal control over financial reporting based on the
framework established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of
the Treadway Commission (COSO). Based on this assessment, management determined that the Company’s internal control over
financial reporting as of January 1, 2017 was effective.
The effectiveness of the Company’s internal control over financial reporting as of January 1, 2017, has been audited by
PricewaterhouseCoopers LLP, an independent registered public accounting firm, which is included in Item 8 of this report.
March 14, 2017
117
To Board of Directors and Stockholders of Coca-Cola Bottling Co. Consolidated
Report of Independent Registered Public Accounting Firm
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, comprehensive
income, cash flows, and stockholders’ equity present fairly, in all material respects, the financial position of Coca-Cola Bottling Co.
Consolidated and its subsidiaries at January 1, 2017 and January 3, 2016, and the results of their operations and their cash flows for
each of the three years in the period ended January 1, 2017 in conformity with accounting principles generally accepted in the United
States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 15(a)(2)
presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated
financial statements. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial
reporting as of January 1, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for these
financial statements and financial statement schedule, for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on
Internal Control over Financial Reporting. Our responsibility is to express opinions on these financial statements, on the financial
statement schedule and on the Company's internal control over financial reporting based on our integrated audits. We conducted our
audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require
that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material
misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the
financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement
presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness
of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary
in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in
accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect
on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Charlotte, North Carolina
March 14, 2017
118
The financial statement schedule required by Regulation S-X is set forth in response to Item 15 below.
The supplementary data required by Item 302 of Regulation S-K is set forth in Note 24 to the consolidated financial statements.
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.
Item 9A.
Controls and Procedures
As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the
participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of the Company’s “disclosure controls and procedures” (as defined in Rule 13a-15(e) of the
Securities Exchange Act of 1934 (the “Exchange Act”)) pursuant to Rule 13a-15(b) of the Exchange Act. Based upon that evaluation,
the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were
effective as of January 1, 2017.
Management’s report on internal control over financial reporting required by Section 404 of the Sarbanes-Oxley Act of 2002 and the
report of PricewaterhouseCoopers LLP, an independent registered public accounting firm, on the financial statements, and its opinion
on the effectiveness of the Company’s internal control over financial reporting as of January 1, 2017 are included in Item 8 of this
report.
There has been no change in the Company’s internal control over financial reporting during the quarter ended January 1, 2017 that has
materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
Item 9B.
Other Information
Not applicable.
119
Item 10.
Directors, Executive Officers and Corporate Governance
PART III
For information with respect to the executive officers of the Company, see “Executive Officers of the Company” included as a
separate item at the end of Part I of this Report. For information with respect to the Directors of the Company, see the “Proposal 1:
Election of Directors” section of the Proxy Statement for the 2017 Annual Meeting of Stockholders (the “2017 Proxy Statement”),
which is incorporated herein by reference. For information with respect to Section 16 reports, see the “Section 16(a) Beneficial
Ownership Reporting Compliance” section of the 2017 Proxy Statement, which is incorporated herein by reference. For information
with respect to the Audit Committee of the Board of Directors, see the “Corporate Governance – Board Committees” section of the
2017 Proxy Statement, which is incorporated herein by reference.
The Company has adopted a Code of Ethics for Senior Financial Officers, which is intended to qualify as a “code of ethics” within the
meaning of Item 406 of Regulation S-K of the Exchange Act (the “Code of Ethics”). The Code of Ethics applies to the Company’s
Chief Executive Officer; Chief Operating Officer; Chief Financial Officer; Chief Accounting Officer; Vice President and Treasurer
and any other person performing similar functions. The Code of Ethics is available on the Company’s website at
www.cokeconsolidated.com. The Company intends to disclose any substantive amendments to, or waivers from, its Code of Ethics on
its website or in a Current Report on Form 8-K.
Item 11.
Executive Compensation
For information with respect to executive and director compensation, see the “Executive Compensation Tables,” “Compensation
Committee Interlocks and Insider Participation,” “Compensation Committee Report,” “Director Compensation” and “Corporate
Governance – The Board’s Role in Risk Oversight” sections of the 2017 Proxy Statement, which are incorporated herein by reference.
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
For information with respect to security ownership of certain beneficial owners and management, see the “Principal Stockholders” and
“Security Ownership of Directors and Executive Officers” sections of the 2017 Proxy Statement, which are incorporated herein by
reference. For information with respect to securities authorized for issuance under equity compensation plans, see the “Equity
Compensation Plan Information” section of the 2017 Proxy Statement, which is incorporated herein by reference.
Item 13.
Certain Relationships and Related Transactions, and Director Independence
For information with respect to certain relationships and related transactions, see the “Related Person Transactions” section of the
2017 Proxy Statement, which is incorporated herein by reference. For certain information with respect to director independence, see
the disclosures in the “Corporate Governance” section of the 2017 Proxy Statement regarding director independence, which are
incorporated herein by reference.
Item 14.
Principal Accountant Fees and Services
For information with respect to principal accountant fees and services, see “Proposal 2: Ratification of the Appointment of
Independent Registered Public Accounting Firm” of the 2017 Proxy Statement, which is incorporated herein by reference.
120
PART IV
Item 15.
Exhibits and Financial Statement Schedules
(a) List of documents filed as part of this report.
1.
Financial Statements
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Income
Consolidated Balance Sheets
Consolidated Statements of Cash Flows
Consolidated Statements of Changes in Stockholders' Equity
Notes to Consolidated Financial Statements
Management’s Report on Internal Control over Financial Reporting
Report of Independent Registered Public Accounting Firm
2.
Financial Statement Schedule
Schedule II - Valuation and Qualifying Accounts and Reserves
All other financial statements and schedules not listed have been omitted because the required information is included in
the consolidated financial statements or the notes thereto, or is not applicable or required.
3.
Listing of Exhibits
The agreements included in the following exhibits to this report are included to provide information regarding their terms
and are not intended to provide any other factual or disclosure information about the Company or the other parties to the
agreements. Some of the agreements contain representations and warranties by each of the parties to the applicable
agreements. These representations and warranties have been made solely for the benefit of the other parties to the
applicable agreements and:
should not in all instances be treated as categorical statements of fact, but rather as a way of allocating the risk
to one of the parties if those statements prove to be inaccurate;
may have been qualified by disclosures that were made to the other party in connection with the negotiation of
the applicable agreement, which disclosures are not necessarily reflected in the agreement;
may apply standards of materiality in a way that is different from what may be viewed as material to you or
other investors; and
were made only as of the date of the applicable agreement or such other date or dates as may be specified in the
agreement and are subject to more recent developments.
Accordingly, these representations and warranties may not describe the actual state of affairs as of the date they were
made or at any other time.
121
EXHIBIT INDEX
Description
Exhibits incorporated by reference:
Number
2.1+
Asset Exchange Agreement for Lexington, Kentucky Territory Expansion,
dated October 17, 2014, by and between Coca-Cola Refreshments USA, Inc.,
the Company and certain of the Company’s wholly-owned subsidiaries
identified on the signature pages thereto.
Incorporation Reference
Exhibit 2.1 to the Company's Current
Report on Form 8-K filed on October 20,
2014 (File No. 0-9286).
2.2+
Asset Purchase Agreement for Paducah and Pikeville Kentucky Territory
Exhibit 2.1 to the Company's Current
Expansion, dated February 13, 2015, by and between Coca-Cola
Refreshments USA, Inc. and the Company.
2.3+
Asset Purchase Agreement for Next Phase Territory Expansion, dated
September 23, 2015, by and between the Company and Coca-Cola
Refreshments USA, Inc.
2.4+
Asset Purchase Agreement for Manufacturing Facility Acquisitions, dated
Report on Form 8-K filed on February 18,
2015 (File No. 0-9286).
Exhibit 2.1 to the Company’s Current
Report on Form 8-K filed on
September 28, 2015 (File No. 0-9286).
Exhibit 2.1 to the Company’s Current
October 30, 2015, by and between the Company and Coca-Cola Refreshments
USA, Inc.
2.5+
Stock Purchase Agreement, dated July 22, 2015, by and among the Company,
BYB Brands, Inc. and The Coca-Cola Company.
2.6+
Asset Purchase Agreement for Distribution Territory Expansion, dated
September 1, 2016, by and between the Company and Coca-Cola
Refreshments USA, Inc.
2.7+
Asset Purchase Agreement for Manufacturing Facility Acquisitions, dated
September 1, 2016, by and between the Company and Coca-Cola
Refreshments USA, Inc.
3.1
Restated Certificate of Incorporation of the Company.
3.2
Amended and Restated Bylaws of the Company.
4.1
Specimen of Common Stock Certificate.
4.2
Supplemental Indenture, dated as of March 3, 1995, between the Company
and The Bank of New York Mellon Trust Company, N.A., as successor
trustee.
Report on Form 8-K filed on
November 2, 2015 (File No. 0-9286).
Exhibit 2.1 to the Company’s Current
Report on Form 8-K filed on
July 23, 2015 (File No. 0-9286).
Exhibit 2.1 to the Company’s Current
Report on Form 8-K filed on
September 6, 2016 (File No. 0-9286).
Exhibit 2.2 to the Company’s Current
Report on Form 8-K filed on
September 6, 2016 (File No. 0-9286).
Exhibit 3.1 to the Company's Quarterly
Report on Form 10-Q for the quarter
ended June 29, 2003 (File No. 0-9286).
Exhibit 3.1 to the Company’s Current
Report on Form 8-K filed on August 25,
2016 (File No. 0-9286).
Exhibit 4.1 to the Company's Registration
Statement on Form S-1 as filed on
May 31, 1985 (File No. 2-97822).
Exhibit 4.2 to the Company’s Annual
Report on Form 10-K for the fiscal year
ended December 29, 2002 (File No. 0-
9286).
4.3
Second Supplemental Indenture, dated as of November 25, 2015, between the
Exhibit 4.1 to the Company’s Current
Company and The Bank of New York Mellon Trust Company, N.A., as
trustee.
4.4
Officers’ Certificate pursuant to Sections 102 and 301 of the Indenture, dated
as of July 20, 1994, as supplemented and restated by the Supplemental
Indenture, dated as of March 3, 1995, between the Company and The Bank of
New York Mellon Trust Company, N.A., as successor trustee, relating to the
establishment of the Company’s $110,000,000 aggregate principal amount of
7.00% Senior Notes due 2019.
Resolutions adopted by Executive Committee and the Pricing Committee of
the Board of Directors of the Company related to the establishment of the
Company’s $110,000,000 aggregate principal amount of 7.00% Senior Notes
due 2019.
4.5
4.6
Form of the Company’s 5.30% Senior Notes due 2015.
Report on Form 8-K filed on
November 25, 2015 (File No. 0-9286).
Exhibit 4.2 to the Company’s Quarterly
Report on Form 10-Q for the quarter
ended July 4, 2010 (File No. 0-9286).
Exhibit 4.3 to the Company’s Quarterly
Report on Form 10-Q for the quarter
ended July 4, 2010 (File No. 0-9286).
Exhibit 4.1 to the Company’s Current
Report on Form 8-K filed on
March 27, 2003 (File No. 0-9286).
122
Number
4.7
Form of the Company’s 5.00% Senior Notes due 2016.
Description
4.8
Form of the Company’s 7.00% Senior Notes due 2019.
Incorporation Reference
Exhibit 4.1 to the Company’s Quarterly
Report on Form 10-Q for the quarter
ended October 2, 2005 (File No. 0-9286).
Exhibit 4.1 to the Company’s Current
Report on Form 8-K filed on
April 7, 2009 (File No. 0-9286).
4.9
Form of the Company’s 3.80% Senior Notes due 2025 (included in Exhibit
Exhibit 4.1 to the Company’s Current
4.10
10.1
10.2
4.3 above).
Fourth Amended and Restated Promissory Note, dated as of December 11,
2015, by and between the Company and Piedmont Coca-Cola Bottling
Partnership.
Amended and Restated Credit Agreement, dated October 16, 2014, by and
among the Company, the lenders named therein, JP Morgan Chase Bank,
N.A., as issuing lender and administrative agent, Citibank, N.A. and Wells
Fargo Bank, National Association, as co-syndication agents, and Branch
Banking and Trust Company, as documentation agent.
Report on Form 8-K filed on
November 25, 2015 (File No. 0-9286).
Exhibit 4.10 to the Company’s Annual
Report on Form 10-K for the fiscal year
ended January 3, 2016 (File No. 0-9286).
Exhibit 10.1 to the Company’s Current
Report on Form 8-K filed on October 22,
2014 (File No. 0-9286).
Joinder and Commitment Increase Agreement, dated April 27, 2015, by and
among the Company, the lenders named therein and JPMorgan Chase Bank,
N.A., as administrative agent.
Exhibit 10.1 to the Company’s Current
Report on Form 8-K filed on April 29,
2015 (File No. 0-9286).
10.3
Amended and Restated Guaranty Agreement, effective as of July 15, 1993,
made by the Company and each of the other guarantor parties thereto in favor
of Trust Company Bank and Teachers Insurance and Annuity Association of
America.
10.4
Amended and Restated Guaranty Agreement, dated as of May 18, 2000, made
by the Company in favor of Wachovia Bank, N.A.
Exhibit 10.10 to the Company’s Annual
Report on Form 10-K for the fiscal year
ended December 29, 2002 (File No. 0-
9286).
Exhibit 10.17 to the Company’s Annual
Report on Form 10-K for the fiscal year
ended December 30, 2001 (File No. 0-
9286).
10.5
Guaranty Agreement, dated as of December 1, 2001, made by the Company in
favor of Wachovia, Bank, N.A.
Exhibit 10.18 to the Company’s Annual
Report on Form 10-K for the fiscal year
ended December 30, 2001 (File No. 0-
9286).
10.6
Amended and Restated Stock Rights and Restrictions Agreement, dated
Exhibit 10.1 to the Company’s Current
10.7
February 19, 2009, by and among the Company, The Coca-Cola Company,
Carolina Coca-Cola Bottling Investments, Inc. and J. Frank Harrison, III.
Termination of Irrevocable Proxy and Voting Agreement, dated February 19,
2009, by and between The Coca-Cola Company and J. Frank Harrison, III.
Report on Form 8-K filed on February 19,
2009 (File No. 0-9286).
Exhibit 10.2 to the Company’s Current
Report on Form 8-K filed on February 19,
2009 (File No. 0-9286).
10.8
Form of Master Bottle Contract (“Cola Beverage Agreement”), made and
entered into, effective January 27, 1989, between The Coca-Cola Company
and the Company, together with Form of Home Market Amendment to Master
Bottle Contract, effective as of October 29, 1999.
Exhibit 10.1 to the Company’s Quarterly
Report on Form 10-Q for the quarter
ended October 3, 2010 (File No. 0-9286).
10.9
Form of Allied Bottle Contract (“Allied Beverage Agreement”), made and
entered into, effective January 11, 1990, between The Coca-Cola Company
and the Company (as successor to Coca-Cola Bottling Company of Anderson,
S.C.).
10.10
Letter Agreement, dated January 27, 1989, between The Coca-Cola Company
and the Company, modifying the Cola Beverage Agreements and Allied
Beverage Agreements.
10.11
Form of Marketing and Distribution Agreement (“Still Beverage
Agreement”), made and entered into effective October 1, 2000, between
The Coca-Cola Company and the Company (as successor to Metrolina
Bottling Company), with respect to Dasani.
Exhibit 10.2 to the Company’s Quarterly
Report on Form 10-Q for the quarter
ended October 3, 2010 (File No. 0-9286).
Exhibit 10.3 to the Company’s Quarterly
Report on Form 10-Q for the quarter
ended October 3, 2010 (File No. 0-9286).
Exhibit 10.4 to the Company’s Quarterly
Report on Form 10-Q for the quarter
ended October 3, 2010 (File No. 0-9286).
10.12
Form of Letter Agreement, dated December 10, 2001, between The Coca-
Cola Company and the Company, together with Letter Agreement, dated
December 14, 1994, modifying the Still Beverage Agreements.
Exhibit 10.5 to the Company’s Quarterly
Report on Form 10-Q for the quarter
ended October 3, 2010 (File No. 0-9286).
123
Number
10.13
2014 Incidence Pricing Letter Agreement, dated December 20, 2013, between
the Company and The Coca-Cola Company, by and through its Coca-Cola
North America division.
10.14**
Letter Agreement, dated as of March 10, 2008, by and between the Company
and The Coca-Cola Company.
Description
10.15
Lease, dated as of January 1, 1999, by and between the Company and Ragland
Corporation.
Incorporation Reference
Exhibit 10.1 to the Company’s Current
Report on Form 8-K filed on
December 26, 2013 (File No. 0-9286).
Exhibit 10.1 to the Company’s Quarterly
Report on Form 10-Q for the quarter
ended March 30, 2008 (File No. 0-9286).
Exhibit 10.5 to the Company’s Annual
Report on Form 10-K for the fiscal year
ended December 31, 2000 (File No. 0-
9286).
10.16
First Amendment to Lease and First Amendment to Memorandum of Lease,
dated as of August 30, 2002, between the Company and Ragland Corporation.
Exhibit 10.33 to the Company’s Annual
Report on Form 10-K for the fiscal year
ended December 29, 2002 (File No. 0-
9286).
10.17
Lease Agreement, dated as of March 23, 2009, between the Company and
Exhibit 10.1 to the Company’s Current
Harrison Limited Partnership One.
10.18
Lease Agreement, dated as of December 18, 2006, between CCBCC
Operations, LLC, a wholly-owned subsidiary of the Company, and Beacon
Investment Corporation.
10.19
Limited Liability Company Operating Agreement of Coca-Cola Bottlers’
Sales & Services Company LLC, made as of January 1, 2003, by
and between Coca-Cola Bottlers’ Sales & Services Company LLC and
Consolidated Beverage Co., a wholly-owned subsidiary of the Company.
Report on Form 8-K filed on
March 26, 2009 (File No. 0-9286).
Exhibit 10.1 to the Company’s Current
Report on Form 8-K filed on
December 21, 2006 (File No. 0-9286).
Exhibit 10.35 to the Company’s Annual
Report on Form 10-K for the fiscal year
ended December 29, 2002 (File No. 0-
9286).
10.20
10.21
Partnership Agreement of Piedmont Coca-Cola Bottling Partnership (formerly
known as Carolina Coca-Cola Bottling Partnership), dated as of July 2, 1993,
by and among Carolina Coca-Cola Bottling Investments, Inc., Coca-Cola
Ventures, Inc., Coca-Cola Bottling Co. Affiliated, Inc., Fayetteville Coca-
Cola Bottling Company and Palmetto Bottling Company.
Exhibit 10.7 to the Company’s Annual
Report on Form 10-K for the fiscal year
ended December 29, 2002 (File No. 0-
9286).
Master Amendment to Partnership Agreement, Management Agreement and
Definition and Adjustment Agreement, dated as of January 2, 2002, by and
among Piedmont Coca-Cola Bottling Partnership, CCBC of Wilmington, Inc.,
The Coca-Cola Company, Piedmont Partnership Holding Company, Coca-
Cola Ventures, Inc. and the Company.
Exhibit 10.1 to the Company’s Current
Report on Form 8-K filed on January 14,
2002 (File No. 0-9286).
10.22
Fourth Amendment to Partnership Agreement, dated as of March 28, 2003, by
and among Piedmont Coca-Cola Bottling Partnership, Piedmont Partnership
Holding Company and Coca-Cola Ventures, Inc.
Exhibit 4.2 to the Company’s Quarterly
Report on Form 10-Q for the quarter
ended March 30, 2003 (File No. 0-9286).
10.23
Management Agreement, dated as of July 2, 1993, by and among the
Company, Piedmont Coca-Cola Bottling Partnership (formerly known
as Carolina Coca-Cola Bottling Partnership), CCBC of Wilmington, Inc.,
Carolina Coca-Cola Bottling Investments, Inc., Coca-Cola Ventures, Inc. and
Palmetto Bottling Company.
10.24
First Amendment to Management Agreement (relating to the Management
Agreement designated as Exhibit 10.22 of this Exhibit Index) effective as of
January 1, 2001.
10.25
Management Agreement, dated as of March 12, 2014, by and among CCBCC
Operations, LLC, a wholly-owned subsidiary of the Company, and South
Atlantic Canners, Inc.
10.26
Agreement, dated as of March 1, 1994, between the Company and South
Atlantic Canners, Inc.
Exhibit 10.8 to the Company’s Annual
Report on Form 10-K for the fiscal year
ended December 29, 2002 (File No. 0-
9286).
Exhibit 10.14 to the Company’s Annual
Report on Form 10-K for the fiscal year
ended December 31, 2000 (File No. 0-
9286).
Exhibit 10.2 to the Company’s Quarterly
Report on Form 10-Q for the quarter
ended March 30, 2014 (File No. 0-9286).
Exhibit 10.12 to the Company’s Annual
Report on Form 10-K for the fiscal year
ended December 29, 2002 (File No. 0-
9286).
10.27*
Coca-Cola Bottling Co. Consolidated Amended and Restated Annual Bonus
Appendix C to the Company’s Proxy
Plan, effective January 1, 2012.
Statement for the 2012 Annual Meeting
of Stockholders (File No. 0-9286).
124
Description
Number
10.28*
Coca-Cola Bottling Co. Consolidated Amended and Restated Long-Term
Performance Plan, effective January 1, 2012.
10.29*
Form of Long-Term Performance Plan Bonus Award Agreement.
10.30*
Performance Unit Award Agreement, dated February 27, 2008.
10.31*
Coca-Cola Bottling Co. Consolidated Supplemental Savings Incentive Plan,
as amended and restated effective November 1, 2011.
10.32*
Coca-Cola Bottling Co. Consolidated Director Deferral Plan, effective
January 1, 2005.
10.33*
Coca-Cola Bottling Co. Consolidated Officer Retention Plan, as amended and
restated effective January 1, 2007.
10.34*
Amendment No. 1 to Coca-Cola Bottling Co. Consolidated Officer Retention
Plan, as amended and restated effective January 1, 2009.
10.35*
Life Insurance Benefit Agreement, effective as of December 28, 2003, by and
between the Company and Jan M. Harrison, Trustee under the J. Frank
Harrison, III 2003 Irrevocable Trust, John R. Morgan, Trustee under the
Harrison Family 2003 Irrevocable Trust, and J. Frank Harrison, III.
10.36*
Form of Amended and Restated Split-Dollar and Deferred Compensation
10.37*
Replacement Benefit Agreement, effective as of November 1, 2005, between
the Company and eligible employees of the Company.
Form of Split-Dollar and Deferred Compensation Replacement Benefit
Agreement Election Form and Agreement Amendment, effective as of
June 20, 2005, between the Company and certain executive officers of the
Company.
10.38
Coca-Cola Bottling Co. Consolidated Long Term Retention Plan, adopted
effective as of March 5, 2014.
10.39**
Comprehensive Beverage Agreement for the Johnson City/Morristown
territory, dated as of May 23, 2014, by and among the Company, The Coca-
Cola Company and Coca-Cola Refreshments, USA, Inc.
10.40**
10.41**
Amendment to the Comprehensive Beverage Agreement for the Johnson
City/Morristown territory, dated as of June 1, 2015, by and between the
Company, The Coca-Cola Company and Coca-Cola Refreshments, USA, Inc.
Finished Goods Supply Agreement for the Johnson City/Morristown territory,
dated as of May 23, 2014, by and among the Company, The Coca-
Cola Company and Coca-Cola Refreshments, USA, Inc.
10.42
Amended and Restated Ancillary Business Letter, dated October 30, 2015, by
and between the Company and The Coca-Cola Company.
10.43**
Monster Energy Corporation Products Consent Agreement dated
December 17, 2014, by The Coca-Cola Company, acting by and through its
Coca-Cola North America Division, and the Company.
10.44
Amendment to the Monster Energy Corporation Products Consent
Incorporation Reference
Appendix D to the Company’s Proxy
Statement for the 2012 Annual Meeting
of Stockholders (File No. 0-9286).
Exhibit 10.2 to the Company’s Quarterly
Report on Form 10-Q for the quarter
ended July 4, 2010 (File No. 0-9286).
Appendix A to the Company’s Proxy
Statement for the 2008 Annual Meeting
of Stockholders (File No. 0-9286).
Exhibit 10.31 to the Company’s Annual
Report on Form 10-K for the fiscal year
ended January 1, 2012 (File No. 0-9286).
Exhibit 10.17 to the Company’s Annual
Report on Form 10-K for the fiscal year
ended January 1, 2006 (File No. 0-9286).
Exhibit 10.4 to the Company’s Quarterly
Report on Form 10-Q for the quarter
ended April 1, 2007 (File No. 0-9286).
Exhibit 10.32 to the Company’s Annual
Report on Form 10-K for the fiscal year
ended December 28, 2008 (File No. 0-
9286).
Exhibit 10.37 to the Company’s Annual
Report on Form 10-K for the fiscal year
ended December 28, 2003 (File No. 0-
9286).
Exhibit 10.24 to the Company’s Annual
Report on Form 10-K for the fiscal year
ended January 1, 2006 (File No. 0-9286).
Exhibit 10.1 to the Company’s Current
Report on Form 8-K filed on
June 24, 2005 (File No. 0-9286).
Exhibit 10.1 to the Company’s Quarterly
Report on Form 10-Q for the quarter
ended March 30, 2014 (File No. 0-9286).
Exhibit 10.1 to the Company’s Quarterly
Report on Form 10-Q for the quarter
ended June 29, 2014 (File No. 0-9286).
Exhibit 10.1 to the Company’s Quarterly
Report on Form 10-Q for the quarter
ended June 28, 2015 (File No. 0-9286).
Exhibit 10.2 to the Company’s Quarterly
Report on Form 10-Q for the quarter
ended June 29, 2014 (File No. 0-9286).
Exhibit 10.2 to the Company’s Current
Report on Form 8-K filed on
November 2, 2015 (File No. 0-9286).
Exhibit 10.41 to the Company’s Annual
Report on Form 10-K for the fiscal year
ended December 28, 2014 (File No. 0-
9286).
Exhibit 10.1 to the Company’s Current
Agreement, dated April 1, 2015, by The Coca-Cola Company, acting by and
through its Coca-Cola North America Division, and the Company.
Report on Form 8-K filed on
April 1, 2015 (File No. 0-9286).
125
Description
Number
10.45
Distribution Agreement, dated March 26, 2015, between CCBCC Operations,
LLC, a wholly-owned subsidiary of the Company, and Monster Energy
Company.
10.46**
Territory Conversion Agreement, dated September 23, 2015, by and between
the Company, The Coca-Cola Company and Coca-Cola Refreshments USA,
Inc.
10.47
First Amendment to the Territory Conversion Agreement, dated February 8,
2016, by and between the Company, The Coca-Cola Company and Coca-Cola
Refreshments USA, Inc.
Incorporation Reference
Exhibit 10.1 to the Company’s Quarterly
Report on Form 10-Q/A for the quarter
ended March 29, 2015 (File No. 0-9286).
Exhibit 10.1 to the Company’s Current
Report on Form 8-K filed on
September 28, 2015 (File No. 0-9286).
Exhibit 10.47 to the Company’s Annual
Report on Form 10-K for the fiscal year
ended January 3, 2016 (File No. 0-9286).
10.48
10.49**
Expanding Participating Bottler Revenue Incidence Agreement, dated
September 23, 2015, by and between the Company and The Coca-
Cola Company.
National Product Supply Governance Agreement, dated October 30, 2015, by
and between the Company, The Coca-Cola Company, Coca-Cola Bottling
Company United, Inc., Coca-Cola Refreshments USA, Inc. and Swire Pacific
Holdings Inc. d/b/a Swire Coca-Cola USA.
Exhibit 10.2 to the Company’s Current
Report on Form 8-K filed on
September 28, 2015 (File No. 0-9286).
Exhibit 10.1 to the Company’s Current
Report on Form 8-K filed on
November 2, 2015 (File No. 0-9286).
10.50
2016 Incidence Pricing Letter Agreement, dated April 6, 2016, between the
Exhibit 10.1 to the Company's to the
Company and The Coca-Cola Company, by and through its Coca-Cola North
America division.
10.51**
Initial Regional Manufacturing Agreement, dated January 29, 2016, between
the Company and The Coca-Cola Company.
10.52**
Initial Regional Manufacturing Agreement, dated April 29, 2016, between the
Company and The Coca-Cola Company.
Company’s Current Report on Form 8-K
filed on April 8, 2016 (File No. 0-9286).
Exhibit 10.1 to the Company’s Quarterly
Report on Form 10-Q for the quarter
ended April 3, 2016 (File No. 0-9286).
Exhibit 10.1 to the Company’s Current
Report on Form 8-K filed on May 5, 2016
(File No. 0-9286).
10.53**
CCNA Exchange Letter Agreement, dated April 29, 2016, between the
Exhibit 10.2 to the Company’s Current
10.54
Company and The Coca-Cola Company, by and through its Coca-Cola North
America division.
Term Loan Agreement, dated June 7, 2016, by and among the Company, the
lenders named therein, JPMorgan Chase Bank, N.A., as administrative agent,
and PNC Bank, National Association and Branch Banking and Trust
Company as co-syndication agents.
Report on Form 8-K filed on May 5, 2016
(File No. 0-9286).
Exhibit 10.1 to the Company’s Quarterly
Report on Form 10-Q for the quarter
ended July 3, 2016 (File No. 0-9286).
10.55**
CONA Services LLC Limited Liability Company Agreement, dated
January 27, 2016, by and among the Company, The Coca-Cola Company,
Coca-Cola Refreshments USA, Inc. and the other bottlers named therein.
Amendment No. 1 to the CONA Services LLC Limited Liability Company
10.56**
Agreement, dated as of April 6, 2016 and effective as of April 2, 2016, by and
among the Company, The Coca-Cola Company, Coca-Cola Refreshments
USA, Inc. and the other bottlers name therein.
Exhibit 10.2 to the Company’s Quarterly
Report on Form 10-Q/A for the quarter
ended July 3, 2016 (File No. 0-9286).
Exhibit 10.3 to the Company’s Quarterly
Report on Form 10-Q/A for the quarter
ended July 3, 2016 (File No. 0-9286).
10.57**
Master Services Agreement, dated as of April 6, 2016 and effective as of
April 2, 2016, between the Company and CONA Services LLC.
10.58
Glacéau Agreement, dated June 29, 2016, by and between The Coca-
Exhibit 10.4 to the Company’s Quarterly
Report on Form 10-Q/A for the quarter
ended July 3, 2016 (File No. 0-9286).
Exhibit 10.1 to the Company’s Current
Cola Company, Coca-Cola Refreshments USA, Inc. and Coca-Cola Bottling
Co. Consolidated.
Report on Form 8-K filed on July 5, 2016
(File No. 0-9286).
10.59
Note Purchase and Private Shelf Agreement, dated June 10, 2016, by and
Exhibit 10.1 to the Company’s Current
among the Company, PGIM, Inc. and the other parties thereto.
10.60
Amendment to Distribution Agreement, dated September 3, 2015, between
CCBCC Operations, LLC, a wholly-owned subsidiary of the Company, and
Monster Energy Company.
10.61
Amendment to Distribution Agreement, effective as of September 19, 2016,
between CCBCC Operations, LLC, a wholly-owned subsidiary of the
Company, and Monster Energy Company.
Report on Form 8-K filed on January 20,
2017 (File No. 0-9286).
Exhibit 10.1 to the Company’s Quarterly
Report on Form 10-Q for the quarter
ended October 2, 2016 (File No. 0-9286).
Exhibit 10.2 to the Company’s Quarterly
Report on Form 10-Q for the quarter
ended October 2, 2016 (File No. 0-9286).
126
Exhibits filed herewith:
Number
Description
4.11
The registrant, by signing this report, agrees to furnish the Securities and Exchange Commission, upon its request, a
copy of any instrument which defines the rights of holders of long-term debt of the registrant and its consolidated
subsidiaries which authorizes a total amount of securities not in excess of 10 percent of the total assets of the
registrant and its subsidiaries on a consolidated basis.
10.62
First Amendment to Limited Liability Company Operating Agreement of Coca-Cola Bottlers’ Sales & Services
10.63
10.64
12
21
23
31.1
31.2
32
101
Company LLC dated as of November 5, 2007, by and between Coca-Cola Bottlers’ Sales & Services Company LLC
and Consolidated Beverage Co., a wholly-owned subsidiary of the Company.
Second Amendment to Limited Liability Company Operating Agreement of Coca-Cola Bottlers’ Sales & Services
Company LLC dated as of September 15, 2010, by and between Coca-Cola Bottlers’ Sales & Services Company
LLC and Consolidated Beverage Co., a wholly-owned subsidiary of the Company.
Third Amendment to Limited Liability Company Operating Agreement of Coca-Cola Bottlers’ Sales & Services
Company LLC, dated as of December 16, 2016, by and between Coca-Cola Bottlers’ Sales & Services Company
LLC and Consolidated Beverage Co., a wholly-owned subsidiary of the Company.
Ratio of Earnings to Fixed Charges.
List of Subsidiaries.
Consent of Independent Registered Public Accounting Firm.
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Financial statement from the Annual Report on Form 10-K of Coca-Cola Bottling Co. Consolidated for the fiscal
year ended January 1, 2017, filed on March 14, 2017, formatted in XBRL (Extensible Business Reporting
Language): (i) the Consolidated Statements of Operations; (ii) the Consolidated Statements of Comprehensive
Income; (iii) the Consolidated Balance Sheets; (iv) the Consolidated Statements of Cash Flows; (v) the Consolidated
Statements of Changes in Stockholders’ Equity and (vi) the Notes to Consolidated Financial Statements.
Indicates a management contract or compensatory plan or arrangement.
*
** Certain portions of this exhibit have been omitted pursuant to a request for confidential treatment filed with the Securities and
+
Exchange Commission.
Certain schedules and similar supporting attachments to this agreement have been omitted, and the Company agrees to furnish
supplemental copies of any such schedules and similar supporting attachments to the Securities and Exchange Commission upon
request.
(b) Exhibits.
See Item 15(a)(3) above.
(c) Financial Statement Schedules.
See Item 15(a)(2) above.
Item 16.
Form 10-K Summary
Not applicable.
127
Schedule II
COCA-COLA BOTTLING CO. CONSOLIDATED
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
Allowance for Doubtful Accounts
(in thousands)
Balance at beginning of year ............................................................................. $
Additions charged to costs and expenses ..........................................................
Deductions ........................................................................................................
$
Balance at end of year .....................................................................................
2016
Fiscal Year
2015
2014
2,117
2,534
203
4,448
$
$
1,330
1,234
447
2,117
$
$
1,401
550
621
1,330
Deferred Income Tax Valuation Allowance
(in thousands)
Balance at beginning of year ............................................................................. $
Additions charged to costs and expenses ..........................................................
Additions charged to other(1) .............................................................................
Deductions credited to expense .........................................................................
Deductions not credited to expense ...................................................................
$
Balance at end of year .....................................................................................
2016
Fiscal Year
2015
2014
2,307
-
-
689
-
1,618
$
$
3,640
28
-
1,361
-
2,307
$
$
3,553
1,203
7
-
1,123
3,640
(1) Valuation allowance adjustment for Fast Forward Energy, Inc., which was liquidated during 2014.
128
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Date: March 14, 2017
COCA-COLA BOTTLING CO. CONSOLIDATED
(REGISTRANT)
By:
/s/ J. Frank Harrison, III
J. Frank Harrison, III
Chairman of the Board of Directors
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
By:
By:
By:
By:
By:
By:
By:
By:
By:
By:
By:
By:
By:
By:
/s/ J. Frank Harrison, III
J. Frank Harrison, III
/s/ Clifford M. Deal, III
Clifford M. Deal, III
/s/ William J. Billiard
William J. Billiard
/s/ Alexander B. Cummings, Jr.
Alexander B. Cummings, Jr.
/s/ Sharon A. Decker
Sharon A. Decker
/s/ Morgan H. Everett
Morgan H. Everett
/s/ Henry W. Flint
Henry W. Flint
/s/ James R. Helvey, III
James R. Helvey, III
/s/ William H. Jones
William H. Jones
/s/ Umesh M. Kasbekar
Umesh M. Kasbekar
/s/ James H. Morgan
James H. Morgan
/s/ John W. Murrey, III
John W. Murrey, III
/s/ Sue Anne H. Wells
Sue Anne H. Wells
/s/ Dennis A. Wicker
Dennis A. Wicker
Chairman of the Board of Directors,
Chief Executive Officer and Director
(Principal Executive Officer)
Senior Vice President, Chief Financial Officer
(Principal Financial Officer)
Vice President, Chief Accounting Officer
(Principal Accounting Officer)
Director
Director
Date
March 14, 2017
March 14, 2017
March 14, 2017
March 14, 2017
March 14, 2017
Vice President and Director
March 14, 2017
President, Chief Operating Officer
and Director
Director
Director
Vice Chairman of the Board of Directors
and Secretary
Director
Director
Director
Director
129
March 14, 2017
March 14, 2017
March 14, 2017
March 14, 2017
March 14, 2017
March 14, 2017
March 14, 2017
March 14, 2017
CORPORATE INFORMATION
Transfer Agent and Dividend Disbursing Agent
The Company’s transfer agent is responsible for stockholder records, issuance of stock certificates
and distribution of dividend payments and IRS Form 1099s. The transfer agent also administers plans
for dividend reinvestment and direct deposit. Stockholder requests and inquiries concerning these
matters are most efficiently answered by corresponding directly with American Stock Transfer & Trust
Company, LLC, 6201 15th Avenue, Brooklyn, New York 11219. Communication may also be made by
telephone Toll-Free (866) 627-2648, via the internet at www.amstock.com, or by email at
info@amstock.com.
Stock Listing
The NASDAQ Global Select Market
NASDAQ Symbol – COKE
Company Website
www.cokeconsolidated.com
The Company makes available free of charge through its website its Annual Report on Form 10-K,
Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those reports
as soon as reasonably practicable after such material is electronically filed with or furnished to the
Securities and Exchange Commission.
Corporate Office
The corporate office is located at 4100 Coca-Cola Plaza, Charlotte, North Carolina 28211. The
mailing address is Coca-Cola Bottling Co. Consolidated, P. O. Box 31487, Charlotte, NC 28231.
Annual Meeting
The Annual Meeting of Stockholders of Coca-Cola Bottling Co. Consolidated will be held at the
Company’s Corporate Center, 4100 Coca-Cola Plaza, Charlotte, NC 28211 on Tuesday, May 9, 2017,
at 9:00 a.m., local time.
Form 10-K and Code of Ethics for Senior Financial Officers
A copy of the Company’s Annual Report to the Securities and Exchange Commission (Form 10-K)
and its Code of Ethics for Senior Financial Officers is available to stockholders without charge
upon written request to the Company’s Chief Financial Officer at Coca-Cola Bottling Co.
Consolidated, P. O. Box 31487, Charlotte, North Carolina 28231. This information may also be
obtained from the Company’s website listed above.
B O A R D O F D I R E C T O R S
J. Frank Harrison, III
Dr. William H. Jones
CHAIRMAN OF THE BOARD OF DIRECTORS
PRESIDENT,
AND CHIEF EXECUTIVE OFFICER,
COLUMBIA INTERNATIONAL
COCA-COLA BOTTLING CO. CONSOLIDATED
UNIVERSITY
Alexander B. Cummings, Jr.
Umesh M. Kasbekar
(RETIRED) EXECUTIVE VICE PRESIDENT
VICE CHAIRMAN OF THE BOARD OF
AND CHIEF ADMINISTRATIVE OFFICER,
DIRECTORS AND SECRETARY,
THE COCA-COLA COMPANY
COCA-COLA BOTTLING CO. CONSOLIDATED
Sharon A. Decker
CHIEF OPERATING OFFICER,
TRYON EQUESTRIAN PARTNERS,
CAROLINA OPERATIONS
Morgan H. Everett
VICE PRESIDENT,
COCA-COLA BOTTLING CO. CONSOLIDATED
Henry W. Flint
PRESIDENT AND CHIEF OPERATING OFFICER,
COCA-COLA BOTTLING CO. CONSOLIDATED
James R. Helvey, III
James H. Morgan
CHAIRMAN, COVENANT CAPITAL, LLC
John W. Murrey, III
(RETIRED) ASSISTANT PROFESSOR,
APPALACHIAN SCHOOL OF LAW
Dr. Sue Anne H. Wells
EDUCATOR AND FOUNDER,
CHATTANOOGA GIRLS LEADERSHIP ACADEMY
Dennis A. Wicker
PARTNER, NELSON, MULLINS, RILEY &
SCARBOROUGH, LLP,
MANAGING PARTNER,
FORMER LIEUTENANT GOVERNOR,
CASSIA CAPITAL PARTNERS, LLC
STATE OF NORTH CAROLINA
E X E C U T I V E O F F I C E R S
J. Frank Harrison, III
CHAIRMAN OF THE BOARD OF DIRECTORS
AND CHIEF EXECUTIVE OFFICER
Henry W. Flint
PRESIDENT AND
CHIEF OPERATING OFFICER
Umesh M. Kasbekar
VICE CHAIRMAN OF THE BOARD OF
DIRECTORS AND SECRETARY
William J. Billiard
VICE PRESIDENT AND
CHIEF ACCOUNTING OFFICER
Robert G. Chambless
Morgan H. Everett
VICE PRESIDENT
E. Beauregarde Fisher, III
EXECUTIVE VICE PRESIDENT,
GENERAL COUNSEL
James E. Harris
EXECUTIVE VICE PRESIDENT,
BUSINESS TRANSFORMATION
David M. Katz
EXECUTIVE VICE PRESIDENT,
EXECUTIVE VICE PRESIDENT,
HUMAN RESOURCES, PRODUCT SUPPLY
FRANCHISE STRATEGY
AND OPERATIONS
Clifford M. Deal, III
SENIOR VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
AND CULTURE AND STEWARDSHIP
Kimberly A. Kuo
SENIOR VICE PRESIDENT,
PUBLIC AFFAIRS, COMMUNICATIONS
AND COMMUNITIES
Coca-Cola Bottling Co. Consolidated
S T R E E T A D D R E S S
4100 Coca-Cola Plaza, Charlotte, NC 28211
CokeConsolidated.com
M A I L I N G A D D R E S S
PO Box 31487, Charlotte, NC 28231
(704) 557-4400
F A C E B O O K /CocaColaConsolidated
T W I T T E R @CokeCCBCC
I N S T A G R A M @CocaColaConsolidated