Coca-Cola Consolidated, Inc. - Quarter Report: 2009 September (Form 10-Q)

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

COCA-COLA BOTTLING CO. CONSOLIDATED

 

(Exact name of registrant as specified in its charter)

Delaware		56-0950585
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

4100 Coca-Cola Plaza, Charlotte, North Carolina 28211 (Address of principal executive offices) (Zip Code)

(704) 557-4400 (Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  o No o

Indicate by check mark 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 o

Accelerated filer þ

Non-accelerated filer o (Do not check if a smaller reporting company)

Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class		Outstanding at October 30, 2009
Common Stock, $1.00 Par Value		7,141,447
Class B Common Stock, $1.00 Par Value		2,021,882

 

 

COCA-COLA BOTTLING CO. CONSOLIDATED
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 27, 2009

INDEX

				Page
		PART I — FINANCIAL INFORMATION
Item 1.		Financial Statements (Unaudited)
		Consolidated Statements of Operations			3
		Consolidated Balance Sheets			4
		Consolidated Statements of Changes in Equity			6
		Consolidated Statements of Cash Flows			7
		Notes to Consolidated Financial Statements			8
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			38
Item 3.		Quantitative and Qualitative Disclosures About Market Risk			63
Item 4.		Controls and Procedures			64
		PART II — OTHER INFORMATION
Item 1A.		Risk Factors			65
Item 6.		Exhibits			66
		Signatures			67
EX-12
EX-31.1
EX-31.2
EX-32

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

Coca-Cola Bottling Co. Consolidated
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
In Thousands (Except Per Share Data)

		Third Quarter								First Nine Months
		2009				2008				2009				2008
Net sales		$	374,556			$	381,563			$	1,088,566			$	1,115,240
Cost of sales			217,236				225,736				623,990				647,615
Gross margin			157,320				155,827				464,576				467,625
Selling, delivery and administrative expenses			131,024				149,384				386,461				421,300
Income from operations			26,296				6,443				78,115				46,325
Interest expense			8,866				9,406				28,059				29,789
Income (loss) before income taxes			17,430				(2,963	)			50,056				16,536
Income tax provision (benefit)			1,043				(523	)			11,928				7,135
Net income (loss)			16,387				(2,440	)			38,128				9,401
Less: Net income attributable to the noncontrolling interest			959				705				1,982				1,726
Net income (loss) attributable to Coca-Cola Bottling Co. Consolidated		$	15,428			$	(3,145	)		$	36,146			$	7,675
Basic net income (loss) per share based on net income attributable to Coca-Cola Bottling Co. Consolidated:
Common Stock		$	1.68			$	(.34	)		$	3.94			$	.84
Weighted average number of Common Stock shares outstanding			7,141				6,644				7,047				6,644
Class B Common Stock		$	1.68			$	(.34	)		$	3.94			$	.84
Weighted average number of Class B Common Stock shares outstanding			2,022				2,500				2,117				2,500
Diluted net income (loss) per share based on net income attributable to Coca-Cola Bottling Co. Consolidated:
Common Stock		$	1.68			$	(.34	)		$	3.93			$	.84
Weighted average number of Common Stock shares outstanding — assuming dilution			9,203				9,144				9,194				9,159
Class B Common Stock		$	1.67			$	(.34	)		$	3.92			$	.83
Weighted average number of Class B Common Stock shares outstanding — assuming dilution			2,062				2,500				2,147				2,515
Cash dividends per share:
Common Stock		$	.25			$	.25			$	.75			$	.75
Class B Common Stock		$	.25			$	.25			$	.75			$	.75

See Accompanying Notes to Consolidated Financial Statements

Coca-Cola Bottling Co. Consolidated
CONSOLIDATED BALANCE SHEETS
In Thousands (Except Share Data)

		Unaudited								Unaudited
		Sept. 27,				Dec. 28,				Sept. 28,
		2009				2008				2008
ASSETS
Current Assets:
Cash and cash equivalents		$	25,062			$	45,407			$	20,583
Restricted cash			4,512				—				—
Accounts receivable, trade, less allowance for doubtful accounts of $1,971, $1,188 and $1,043, respectively			96,263				99,849				105,580
Accounts receivable from The Coca-Cola Company			17,460				3,454				12,661
Accounts receivable, other			17,015				12,990				11,539
Inventories			67,762				65,497				65,595
Prepaid expenses and other current assets			25,398				21,121				19,334
Total current assets			253,472				248,318				235,292
Property, plant and equipment, net			319,456				338,156				351,575
Leased property under capital leases, net			52,727				66,730				67,763
Other assets			46,001				33,937				36,365
Franchise rights, net			520,672				520,672				520,672
Goodwill, net			102,049				102,049				102,049
Other identifiable intangible assets, net			5,489				5,910				3,973
Total		$	1,299,866			$	1,315,772			$	1,317,689

See Accompanying Notes to Consolidated Financial Statements

Coca-Cola Bottling Co. Consolidated
CONSOLIDATED BALANCE SHEETS
In Thousands (Except Share Data)

		Unaudited								Unaudited
		Sept. 27,				Dec. 28,				Sept. 28,
		2009				2008				2008
LIABILITIES AND EQUITY
Current Liabilities:
Current portion of debt		$	—			$	176,693			$	176,693
Current portion of obligations under capital leases			3,759				2,781				2,735
Accounts payable, trade			32,597				42,383				37,071
Accounts payable to The Coca-Cola Company			43,601				35,311				38,346
Other accrued liabilities			64,208				57,504				61,654
Accrued compensation			23,195				23,285				17,563
Accrued interest payable			12,487				8,139				15,060
Total current liabilities			179,847				346,096				349,122
Deferred income taxes			142,239				139,338				163,403
Pension and postretirement benefit obligations			99,066				107,005				34,560
Other liabilities			103,788				107,037				109,720
Obligations under capital leases			60,247				74,833				75,545
Long-term debt			552,882				414,757				414,757
Total liabilities			1,138,069				1,189,066				1,147,107
Commitments and Contingencies (Note 14)
Equity:
Common Stock, $1.00 par value:
Authorized — 30,000,000 shares;
Issued — 10,203,821, 9,706,051 and 9,706,051 shares, respectively			10,204				9,706				9,706
Class B Common Stock, $1.00 par value:
Authorized — 10,000,000 shares;
Issued — 2,649,996, 3,127,766 and 3,127,766 shares, respectively			2,649				3,127				3,127
Capital in excess of par value			103,562				103,582				102,449
Retained earnings			108,295				79,021				79,891
Accumulated other comprehensive loss			(54,038	)			(57,873	)			(13,068	)
			170,672				137,563				182,105
Less-Treasury stock, at cost:
Common — 3,062,374 shares			60,845				60,845				60,845
Class B Common — 628,114 shares			409				409				409
Total equity of Coca-Cola Bottling Co. Consolidated			109,418				76,309				120,851
Noncontrolling interest			52,379				50,397				49,731
Total equity			161,797				126,706				170,582
Total		$	1,299,866			$	1,315,772			$	1,317,689

See Accompanying Notes to Consolidated Financial Statements

Coca-Cola Bottling Co. Consolidated
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (UNAUDITED)
In Thousands

										Capital								Accumulated
						Class B				in								Other								Total
		Common				Common				Excess of				Retained				Comprehensive				Treasury				Equity				Noncontrolling				Total
		Stock				Stock				Par Value				Earnings				Loss				Stock				of CCBCC				Interest				Equity
Balance on Dec. 30, 2007		$	9,706			$	3,107			$	102,469			$	79,227			$	(12,751	)		$	(61,254	)		$	120,504			$	48,005			$	168,509
Comprehensive income:
Net income															7,675												7,675				1,726				9,401
Foreign currency translation adjustments, net of tax																			(3	)							(3	)							(3	)
Pension and postretirement benefit adjustments, net of tax																			(200	)							(200	)							(200	)
Total comprehensive income																											7,472				1,726				9,198
Adjustment to change measurement date for pension and postretirement remeaurement adjustment, net of tax															(153	)			(114	)							(267	)							(267	)
Cash dividends paid Common ($.75 per share)															(4,983	)											(4,983	)							(4,983	)
Class B Common ($.75 per share)															(1,875	)											(1,875	)							(1,875	)
Issuance of 20,000 shares of Class B Common Stock							20				(20	)															—								—
Balance on Sept. 28, 2008		$	9,706			$	3,127			$	102,449			$	79,891			$	(13,068	)		$	(61,254	)		$	120,851			$	49,731			$	170,582
Balance on Dec. 28, 2008		$	9,706			$	3,127			$	103,582			$	79,021			$	(57,873	)		$	(61,254	)		$	76,309			$	50,397			$	126,706
Comprehensive income:
Net income															36,146												36,146				1,982				38,128
Foreign currency translation adjustments, net of tax																			1								1								1
Pension and postretirement benefit adjustments, net of tax																			3,834								3,834								3,834
Total comprehensive income																											39,981				1,982				41,963
Cash dividends paid Common ($.75 per share)															(5,232	)											(5,232	)							(5,232	)
Class B Common ($.75 per share)															(1,640	)											(1,640	)							(1,640	)
Issuance of 20,000 shares of Class B Common Stock							20				(20	)															—								—
Conversion of Class B Common Stock into Common Stock			498				(498	)																			—								—
Balance on Sept. 27, 2009		$	10,204			$	2,649			$	103,562			$	108,295			$	(54,038	)		$	(61,254	)		$	109,418			$	52,379			$	161,797

See Accompanying Notes to Consolidated Financial Statements

Coca-Cola Bottling Co. Consolidated
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
In Thousands

		First Nine Months
		2009				2008
Cash Flows from Operating Activities
Net income		$	38,128			$	9,401
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation expense			45,526				50,386
Amortization of intangibles			421				329
Deferred income taxes			6,470				1,044
Losses on sale of property, plant and equipment			767				1,117
Amortization of debt costs			1,811				1,834
Amortization of deferred gain related to terminated interest rate agreements			(1,770	)			(1,311	)
Provision for liabilities to exit from multi-employer pension plan			—				13,812
Stock compensation expense			1,464				—
Increase in current assets less current liabilities			(7,605	)			(2,828	)
Increase in other noncurrent assets			(12,606	)			(1,341	)
Decrease in other noncurrent liabilities			(14,271	)			(9,423	)
Other			1				(170	)
Total adjustments			20,208				53,449
Net cash provided by operating activities			58,336				62,850
Cash Flows from Investing Activities
Additions to property, plant and equipment			(29,776	)			(41,175	)
Proceeds from the sale of property, plant and equipment			4,942				1,126
Investment in a plastic bottle manufacturing cooperative			—				(968	)
Investment in restricted cash			(4,512	)			—
Net cash used in investing activities			(29,346	)			(41,017	)
Cash Flows from Financing Activities
Proceeds from the issuance of long-term debt, net			108,062				—
Borrowing under revolving credit facility			30,000				—
Payment of current portion of long-term debt			(176,693	)			—
Payment of lines of credit			—				(7,400	)
Cash dividends paid			(6,872	)			(6,858	)
Principal payments on capital lease obligations			(2,364	)			(1,935	)
Proceeds from the termination of interest rate swap agreements			—				5,142
Payments for the termination of interest rate lock agreements			(340	)			—
Debt issuance costs paid			(1,042	)			—
Other			(86	)			(70	)
Net cash used in financing activities			(49,335	)			(11,121	)
Net increase (decrease) in cash			(20,345	)			10,712
Cash at beginning of period			45,407				9,871
Cash at end of period		$	25,062			$	20,583
Significant non-cash investing and financing activities:
Issuance of Class B Common Stock in connection with stock award		$	1,130			$	1,171
Capital lease obligations incurred			660				—

See Accompanying Notes to Consolidated Financial Statements

Coca-Cola Bottling Co. Consolidated
Notes to Consolidated Financial Statements (Unaudited)

1. Significant Accounting Policies

The consolidated financial statements include the accounts of Coca-Cola Bottling Co. Consolidated and its majority owned subsidiaries (the “Company”). All significant intercompany accounts and transactions have been eliminated.

The consolidated financial statements reflect all adjustments which, in the opinion of management, are necessary for a fair statement of the results for the interim periods presented. All such adjustments are of a normal, recurring nature.

The consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (GAAP) for interim financial reporting and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all information and footnotes required by GAAP. The preparation of consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

The accounting policies followed in the presentation of interim financial results are consistent with those followed on an annual basis. These policies are presented in Note 1 to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 28, 2008 filed with the United States Securities and Exchange Commission.

In December 2007, the Financial Accounting Standards Board (“FASB”) issued new guidance on accounting for the noncontrolling interest in the consolidated financial statements. The Company implemented the new guidance effective December 29, 2008, the beginning of the first quarter of 2009. The new guidance changes the accounting and reporting standards for the noncontrolling interest in a subsidiary (commonly referred to previously as minority interest). Piedmont Coca-Cola Bottling Partnership (“Piedmont”) is the Company’s only subsidiary that has a noncontrolling interest. Noncontrolling interest income of $1.0 million in the third quarter of 2009 (“Q3 2009”), $2.0 million in the first nine months of 2009 (“YTD 2009”), $.7 million in the third quarter of 2008 (“Q3 2008”) and $1.7 million in the first nine months of 2008 (“YTD 2008”) have been reclassified to be included in net income on the Company’s consolidated statements of operations. In addition, the amount of consolidated net income attributable to both the Company and the noncontrolling interest are shown on the Company’s consolidated statements of operations. Noncontrolling interest related to Piedmont totaled $52.4 million, $50.4 million and $49.7 million at September 27, 2009, December 28, 2008 and September 28, 2008, respectively. These amounts have been reclassified as noncontrolling interest in the equity section of the Company’s consolidated balance sheets.

Management evaluated all activity of the Company through November 6, 2009 (the issue date of the Company’s consolidated financial statements) and concluded that no subsequent events have occurred that would require recognition in the consolidated financial statements.

Coca-Cola Bottling Co. Consolidated
Notes to Consolidated Financial Statements (Unaudited)

1. Significant Accounting Policies

During the second quarter of 2009, the Company’s provider of property and casualty insurance requested the Company increase the face amount of the letters of credit the Company is required to provide for the property and casualty insurance programs. Simultaneously with the required increase in the letters of credit, the Company was required to maintain $4.5 million in a separate bank account as collateral for these letters of credit which was recorded as restricted cash.

2. Seasonality of Business

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

3. Piedmont Coca-Cola Bottling Partnership

On July 2, 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.

Noncontrolling interest as of September 27, 2009, December 28, 2008 and September 28, 2008 represents the portion of Piedmont owned by The Coca-Cola Company. The Coca-Cola Company’s interest in Piedmont was 22.7% for all periods presented.

4. Inventories

Inventories were summarized as follows:

		Sept. 27,				Dec. 28,				Sept. 28,
In Thousands		2009				2008				2008
Finished products		$	40,576			$	36,418			$	40,250
Manufacturing materials			7,968				12,620				7,261
Plastic shells, plastic pallets and other inventories			19,218				16,459				18,084
Total inventories		$	67,762			$	65,497			$	65,595

Coca-Cola Bottling Co. Consolidated
Notes to Consolidated Financial Statements (Unaudited)

5. Property, Plant and Equipment

The principal categories and estimated useful lives of property, plant and equipment were as follows:

		Sept. 27,				Dec. 28,				Sept. 28,				Estimated
In Thousands		2009				2008				2008				Useful Lives
Land		$	12,167			$	12,167			$	12,212
Buildings			110,059				109,384				110,708			10-50 years
Machinery and equipment			124,410				118,934				118,154			5-20 years
Transportation equipment			165,867				176,084				179,787			4-17 years
Furniture and fixtures			37,363				38,254				38,877			4-10 years
Cold drink dispensing equipment			309,727				319,188				327,054			6-15 years
Leasehold and land improvements			61,937				60,142				60,979			5-20 years
Software for internal use			65,022				59,786				58,611			3-10 years
Construction in progress			2,426				4,891				4,082
Total property, plant and equipment, at cost			888,978				898,830				910,464
Less: Accumulated depreciation and amortization			569,522				560,674				558,889
Property, plant and equipment, net		$	319,456			$	338,156			$	351,575

Depreciation and amortization expense was $15.1 million and $16.7 million in Q3 2009 and Q3 2008, respectively. Depreciation and amortization expense was $45.5 million and $50.4 million in YTD 2009 and YTD 2008, respectively. These amounts included amortization expense for leased property under capital leases.

The Company changed the useful lives of certain cold drink dispensing equipment from thirteen to fifteen years in the first quarter of 2009 (“Q1 2009”) to better reflect actual useful lives. The change in useful lives reduced depreciation expense in Q3 2009 and YTD 2009 by $.9 million and $2.9 million, respectively.

6. Leased Property Under Capital Leases

Leased property under capital leases was summarized as follows:

		Sept. 27,				Dec. 28,				Sept. 28,				Estimated
In Thousands		2009				2008				2008				Useful Lives
Leased property under capital leases		$	76,877			$	88,619			$	88,619			3-20 years
Less: Accumulated amortization			24,150				21,889				20,856
Leased property under capital leases, net		$	52,727			$	66,730			$	67,763

As of September 27, 2009, real estate represented $52.1 million of the leased property under capital leases and $50.5 million of this real estate is leased from related parties as described in Note 19 to the consolidated financial statements.

The Company modified a related party lease and terminated a second lease in Q1 2009. See Note 19 to the consolidated financial statements for additional information on the lease modification.

Coca-Cola Bottling Co. Consolidated
Notes to Consolidated Financial Statements (Unaudited)

7. Franchise Rights and Goodwill

There was no change in the carrying amounts of franchise rights and goodwill in the periods presented. The Company performs its annual impairment test of franchise rights and goodwill as of the first day of the fourth quarter. During YTD 2009, the Company believes it has not experienced any events or changes in circumstances that indicate the carrying amounts of the Company’s franchise rights or goodwill exceeded fair values. As such, the Company has not performed an interim impairment test during YTD 2009 and has not recognized any impairments of franchise rights or goodwill.

8. Other Identifiable Intangible Assets

Other identifiable intangible assets were summarized as follows:

		Sept. 27,				Dec. 28,				Sept. 28,				Estimated
In Thousands		2009				2008				2008				Useful Lives
Other identifiable intangible assets		$	8,665			$	8,909			$	6,599			1-20 years
Less: Accumulated amortization			3,176				2,999				2,626
Other identifiable intangible assets, net		$	5,489			$	5,910			$	3,973

Other identifiable intangible assets primarily represent customer relationships and distribution rights.

9. Other Accrued Liabilities

Other accrued liabilities were summarized as follows:

		Sept. 27,				Dec. 28,				Sept. 28,
In Thousands		2009				2008				2008
Accrued marketing costs		$	9,987			$	9,001			$	9,121
Accrued insurance costs			17,940				17,132				16,558
Accrued taxes (other than income taxes)			2,480				374				2,517
Accrued income taxes			3,000				—				3,840
Employee benefit plan accruals			12,126				8,626				11,010
Checks and transfers yet to be presented for payment from zero balance cash account			11,950				11,074				10,235
All other accrued liabilities			6,725				11,297				8,373
Total other accrued liabilities		$	64,208			$	57,504			$	61,654

Coca-Cola Bottling Co. Consolidated
Notes to Consolidated Financial Statements (Unaudited)

10. Debt

Debt was summarized as follows:

						Interest				Interest				Sept. 27,				Dec. 28,				Sept. 28,
In Thousands		Maturity				Rate				Paid				2009				2008				2008
Revolving Credit Facility			2012				.66	%		Varies				$	30,000			$	—			$	—
Debentures			2009				7.20	%		Semi-annually					—				57,440				57,440
Debentures			2009				6.375	%		Semi-annually					—				119,253				119,253
Senior Notes			2012				5.00	%		Semi-annually					150,000				150,000				150,000
Senior Notes			2015				5.30	%		Semi-annually					100,000				100,000				100,000
Senior Notes			2016				5.00	%		Semi-annually					164,757				164,757				164,757
Senior Notes			2019				7.00	%		Semi-annually					110,000				—				—
Unamortized discount on Senior Notes			2019												(1,875	)			—				—
															552,882				591,450				591,450
Less: Current portion of debt															—				176,693				176,693
Long-term debt														$	552,882			$	414,757			$	414,757

On March 8, 2007, the Company entered into a $200 million revolving credit facility (“$200 million facility”), replacing its $100 million facility. The $200 million facility matures in March 2012 and includes an option to extend the term for an additional year at the discretion of the participating banks. The $200 million facility bears interest at a floating base rate or a floating rate of LIBOR plus an interest rate spread of .35%, dependent on the length of the term of the borrowing. In addition, the Company must pay an annual facility fee of .10% of the lenders’ aggregate commitments under the facility. Both the interest rate spread and the facility fee are determined from a commonly-used pricing grid based on the Company’s long-term senior unsecured debt rating. The $200 million facility contains two financial covenants: a fixed charges coverage ratio and a debt to operating cash flow ratio, each as defined in the credit agreement. The fixed charges coverage ratio requires the Company to maintain a consolidated cash flow to fixed charges ratio of 1.5 to 1 or higher. The operating cash flow ratio requires the Company to maintain a debt to operating cash flow ratio of 6.0 to 1 or lower. On August 25, 2008, the Company entered into an amendment to the $200 million facility. The amendment clarified that charges incurred by the Company resulting from the Company’s withdrawal from the Central States, Southeast and Southwest Areas Pension Fund (“Central States”) would be excluded from the calculations of the financial covenants to the extent they were incurred on or before March 31, 2009 and did not exceed $15 million. See Note 18 to the consolidated financial statements for additional details on the withdrawal from Central States. The Company is currently in compliance with these covenants as amended by the amendment to the $200 million facility and has been throughout 2009. These covenants do not currently, and the Company does not anticipate they will,

Coca-Cola Bottling Co. Consolidated
Notes to Consolidated Financial Statements (Unaudited)

10. Debt

restrict its liquidity or capital resources. On September 27, 2009, the Company had $30.0 million outstanding under the $200 million facility. On December 28, 2008 and September 28, 2008, the Company had no outstanding borrowings under the $200 million facility.

On July 1, 2009 the Company borrowed $55.0 million under the $200 million facility and used the proceeds, along with $2.4 million of cash on hand, to repay at maturity the Company’s $57.4 million outstanding 7.20% Debentures due 2009. As of September 27, 2009, the Company has repaid $25.0 million of the $55.0 million borrowed on July 1, 2009 under the $200 million facility.

In April 2009, the Company issued $110 million of unsecured 7% Senior Notes due 2019. The proceeds plus cash on hand were used on May 1, 2009 to repay at maturity the $119.3 million outstanding 6.375% Debentures due 2009.

After taking into account all of its interest rate hedging activities, the Company had a weighted average interest rate of 5.5%, 5.9% and 5.9% for its debt and capital lease obligations as of September 27, 2009, December 28, 2008 and September 28, 2008, respectively. The Company’s overall weighted average interest rate on its debt and capital lease obligations was 5.7% for both YTD 2009 and YTD 2008. As of September 27, 2009, approximately 9.6% of the Company’s debt and capital lease obligations of $616.9 million was subject to changes in short-term interest rates.

The Company’s public debt is not subject to financial covenants but does limit the incurrence of certain liens and encumbrances as well as the incurrence of indebtedness by the Company’s subsidiaries in excess of certain amounts.

All of the outstanding long-term debt has been issued by the Company with none being issued by any of the Company’s subsidiaries. There are no guarantees of the Company’s debt.

11. Derivative Financial Instruments

Interest

The Company periodically uses interest rate hedging products to modify risk from interest rate fluctuations. The Company has historically altered its fixed/floating rate mix based upon anticipated cash flows from operations relative to the Company’s debt level and the potential impact of changes in interest rates on the Company’s overall financial condition. Sensitivity analyses are performed to review the impact on the Company’s financial position and coverage of various interest rate movements. The Company does not use derivative financial instruments for trading purposes nor does it use leveraged financial instruments.

On September 18, 2008, the Company terminated six outstanding interest rate swap agreements with a notional amount of $225 million receiving $6.2 million in cash proceeds including $1.1 million for previously accrued

Coca-Cola Bottling Co. Consolidated
Notes to Consolidated Financial Statements (Unaudited)

11. Derivative Financial Instruments

interest receivable. After accounting for previously accrued interest receivable, the Company is amortizing the gain of $5.1 million over the remaining term of the underlying debt. During YTD 2009, $1.0 million of the gain has been amortized. The remaining amount to be amortized is $3.7 million. All of the Company’s interest rate swap agreements were LIBOR-based.

The Company had no interest rate swap agreements at September 27, 2009, December 28, 2008 and September 28, 2008.

The Company uses several different financial institutions for interest rate derivative agreements and commodity derivative instruments, described below, to minimize the concentration of credit risk. While the Company is exposed to credit loss in the event of nonperformance by these counterparties, the Company does not anticipate nonperformance by these parties. The Company has master agreements with the counterparties to its derivative financial agreements that provided for net settlement of the derivative transactions.

Commodities

The Company is subject to the risk of loss arising from adverse changes in commodity prices. In the normal course of business, the Company manages these risks through a variety of strategies, including the use of derivative instruments. The Company does not use derivative instruments for trading or speculative purposes. All derivative instruments are recorded at fair value as either assets or liabilities in the Company’s consolidated balance sheets. These derivative instruments are not designated as hedging instruments under generally accepted accounting principles and are used as “economic hedges” to manage certain commodity risk. Currently the Company has derivative instruments to hedge its projected diesel fuel and aluminum purchase requirements. These derivative instruments are marked to market on a periodic basis and recognized in earnings consistent with the expense classification of the underlying hedged item. Settlements of derivative agreements are included in cash flows from operating activities on the Company’s consolidated statements of cash flows.

The Company is using derivative instruments to hedge all of its projected diesel fuel purchases for 2009 and 2010. These derivative instruments relate to diesel fuel used by the Company’s delivery fleet. At the end of Q1 2009, the Company began using derivative instruments to hedge approximately 75% of the Company’s projected 2010 aluminum purchase requirements. During the second quarter of 2009, the Company entered into derivative agreements to hedge approximately 75% of the Company’s projected 2011 aluminum purchase requirements.

The following summarizes Q3 2009 net gains and Q3 2008 net losses on the Company’s fuel and aluminum derivative financial instruments and the classification of such net gain/loss in the consolidated statements of operations:

						Third Quarter
In Thousands		Classification of Gain (Loss)				2009				2008
Fuel Hedges		Selling, delivery and administrative expenses				$	(635	)		$	(583	)
Aluminum Hedges		Cost of sales					1,440				—
Total Net Gain (Loss)						$	805			$	(583	)

Coca-Cola Bottling Co. Consolidated
Notes to Consolidated Financial Statements (Unaudited)

11. Derivative Financial Instruments

The following summarizes YTD 2009 and YTD 2008 net gains on the Company’s fuel and aluminum derivative financial instruments and the classification of such net gains in the consolidated statements of operations:

				First Nine Months
In Thousands		Classification of Gain		2009				2008
Fuel Hedges		Selling, delivery and administrative expenses		$	1,974			$	1,206
Aluminum Hedges		Cost of sales			5,326				—
Total Net Gains				$	7,300			$	1,206

The following summarizes the fair values and classification in the consolidated balance sheets of derivative instruments held by the Company as of September 27, 2009:

		Classification of		Sept. 27,
In Thousands		Derivative Instruments		2009
Assets
Fuel hedges at fair market value		Prepaid and other assets		$	584
Aluminum hedges at fair market value		Prepaid and other assets			968
Unamortized cost of fuel hedging agreements		Prepaid and other assets			859
Unamortized cost of aluminum hedging agreements		Prepaid and other assets			716
Fuel hedges at fair market value		Other assets			353
Aluminum hedges at fair market value		Other assets			4,358
Unamortized cost of fuel hedging agreements		Other assets			246
Unamortized cost of aluminum hedging agreements		Other assets			2,935

The following table summarizes the Company’s outstanding derivative agreements as of September 27, 2009:

		Notional				Latest
In Thousands		Amount				Maturity
Fuel hedging agreements		$	16,831			December 2010
Aluminum hedging agreements			53,253			December 2011

12. Fair Values of Financial Instruments

The following methods and assumptions were used by the Company in estimating the fair values of its financial instruments:

Cash and Cash Equivalents, Restricted Cash, Accounts Receivable and Accounts Payable

The fair values of cash and cash equivalents, restricted cash, accounts receivable and accounts payable approximate carrying values due to the short maturity of these items.

Public Debt Securities

The fair values of the Company’s public debt securities are based on estimated current market prices.

Coca-Cola Bottling Co. Consolidated
Notes to Consolidated Financial Statements (Unaudited)

12. Fair Values of Financial Instruments

Non-Public Variable Rate Debt

The carrying amounts of the Company’s variable rate borrowings approximate their fair values.

Deferred Compensation Plan Assets/Liabilities

The fair values of deferred compensation plan assets and liabilities, which are held in mutual funds, are based upon the quoted market value of the securities held within the mutual funds.

Derivative Financial Instruments

The fair values for the Company’s interest rate swap, fuel hedging and aluminum hedging agreements are based on current settlement values. Credit risk related to the derivative financial instruments is managed by requiring high standards for its counterparties and periodic settlements. The Company considers nonperformance risk in determining the fair values of derivative financial instruments.

Letters of Credit

The fair values of the Company’s letters of credit obtained from financial institutions are based on the notional amounts of the instruments. These letters of credit primarily relate to the Company’s property and casualty insurance programs.

The carrying amounts and fair values of the Company’s debt, deferred compensation plan, derivative financial instruments and letters of credit were as follows:

		Sept. 27, 2009								Dec. 28, 2008								Sept. 28, 2008
		Carrying				Fair				Carrying				Fair				Carrying				Fair
In Thousands		Amount				Value				Amount				Value				Amount				Value
Public debt securities		$	522,882			$	559,627			$	591,450			$	559,963			$	591,450			$	550,420
Non-public variable rate debt			30,000				30,000				—				—				—				—
Deferred compensation plan assets/liabilities			7,996				7,996				5,446				5,446				6,444				6,444
Fuel hedging agreements			(937	)			(937	)			1,985				1,985				—				—
Aluminum hedging agreements			(5,326	)			(5,326	)			—				—				—				—
Letters of credit			—				25,645				—				19,274				—				19,332

The fair value of the fuel hedging agreements at September 27, 2009 represented the estimated amount the Company would have received upon termination of these agreements. The fair value of the fuel hedging agreements at December 28, 2008 represented the estimated amount the Company would have paid upon termination of these agreements. At September 28, 2008, the Company did not have any fuel hedging agreements outstanding.

The fair value of the aluminum hedging agreements at September 27, 2009 represented the estimated amount the Company would have received upon termination of these agreements.

Coca-Cola Bottling Co. Consolidated
Notes to Consolidated Financial Statements (Unaudited)

12. Fair Values of Financial Instruments

In September 2006, FASB issued new guidance on fair value measurements. The Company adopted the new guidance on fair value measurements as of December 31, 2007, the beginning of the first quarter of 2008, and there was no material impact to the consolidated financial statements. In the first quarter of 2008, FASB issued additional guidance that delayed the effective date of the fair value measurements new guidance for all nonfinancial assets and liabilities until Q1 2009 except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis. There was no material impact on the consolidated financial statements of the new guidance for nonfinancial assets and liabilities in Q1 2009, but such adoption could have a material effect in the future. The new guidance requires disclosure that establishes a framework for measuring fair value in GAAP and expands disclosure about fair value measurements. The new guidance is intended to enable the readers of financial statements to assess the inputs used to develop those measurements by establishing a hierarchy for ranking the quality and reliability of the information used to determine fair values. The new guidance requires that assets and liabilities carried at fair value be classified and disclosed in one of the following categories:

Level 1: Quoted market prices in active markets for identical assets or liabilities.

Level 2: Observable market based inputs or unobservable inputs that are corroborated by market data.

Level 3: Unobservable inputs that are not corroborated by market data.

The following table summarizes, by assets and liabilities, the valuation of the Company’s deferred compensation plan, aluminum hedging agreements and fuel hedging agreements for the categories above:

		Sept. 27, 2009								Dec. 28, 2008								Sept. 28, 2008
In Thousands		Level 1				Level 2				Level 1				Level 2				Level 1			Level 2
Assets
Deferred compensation plan assets		$	7,996							$	5,446							$	6,444
Aluminum hedging agreements						$	5,326
Fuel hedging agreements							937
Liabilities
Deferred compensation plan liabilities			7,996								5,446								6,444
Fuel hedging agreements														$	1,985

The Company maintains a non-qualified deferred compensation plan for certain executives and other highly compensated employees. The investment assets are held in mutual funds. The fair value of the mutual funds is based on the quoted market value of the securities held within the funds (Level 1). The related deferred compensation liability represents the fair value of the investment assets.

The Company’s fuel hedging agreements are based upon NYMEX rates that are observable and quoted periodically over the full term of the agreements and are considered Level 2 items.

The Company’s aluminum hedging agreements are based upon LME rates that are observable and quoted periodically over the full term of the agreements and are considered Level 2 items.

Coca-Cola Bottling Co. Consolidated
Notes to Consolidated Financial Statements (Unaudited)

12. Fair Values of Financial Instruments

The Company does not have Level 3 assets or liabilities.

13. Other Liabilities

Other liabilities were summarized as follows:

		Sept. 27,				Dec. 28,				Sept. 28,
In Thousands		2009				2008				2008
Accruals for executive benefit plans		$	83,825			$	77,299			$	77,601
Other			19,963				29,738				32,119
Total other liabilities		$	103,788			$	107,037			$	109,720

14. Commitments and Contingencies

The Company is a member of South Atlantic Canners, Inc. (“SAC”), a manufacturing cooperative from which it is obligated to purchase 17.5 million cases of finished product on an annual basis through May 2014. The Company is also a member of Southeastern Container (“Southeastern”), a plastic bottle manufacturing cooperative from which it is obligated to purchase at least 80% of its requirements of plastic bottles for certain designated territories. See Note 19 to the consolidated financial statements for additional information concerning SAC and Southeastern.

The Company guarantees a portion of SAC’s and Southeastern’s debt and lease obligations. The amounts guaranteed were $38.4 million, $39.9 million and $42.1 million as of September 27, 2009, December 28, 2008 and September 28, 2008, respectively. The Company has not recorded any liability associated with these guarantees and holds no assets as collateral against these guarantees. The guarantees relate to the debt and lease obligations of SAC and Southeastern, which resulted primarily from the purchase of production equipment and facilities. These guarantees expire at various dates through 2021. The members of both cooperatives consist solely of Coca-Cola bottlers. The Company does not anticipate either of these cooperatives will fail to fulfill their commitments. 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 which adequately mitigate the risk of material loss from the Company’s guarantees.

In the event either of these cooperatives fails to fulfill its commitments under the related debt and lease obligations, the Company would be responsible for payments to the lenders up to the level of the guarantees. If these cooperatives had borrowed up to their borrowing capacity, the Company’s maximum exposure under these guarantees on September 27, 2009 would have been $25.2 million for both SAC and Southeastern and the Company’s maximum total exposure, including its equity investments, would have been $30.8 million for SAC and $38.5 million for Southeastern.

The Company has been purchasing plastic bottles from Southeastern and finished products from SAC for more than ten years and has never had to pay against these guarantees.

Coca-Cola Bottling Co. Consolidated
Notes to Consolidated Financial Statements (Unaudited)

14. Commitments and Contingencies

The Company has an equity ownership interest in each of the entities in addition to the guarantees of certain indebtedness and records its investment in each under the equity method. As of September 27, 2009, SAC had total assets of approximately $41 million and total debt of approximately $20 million. SAC had total revenues for YTD 2009 of approximately $128 million. As of September 27, 2009, Southeastern had total assets of approximately $397 million and total debt of approximately $224 million. Southeastern had total revenue for YTD 2009 of approximately $434 million.

The Company has standby letters of credit, primarily related to its property and casualty insurance programs. On September 27, 2009, these letters of credit totaled $25.6 million. The Company was required to maintain $4.5 million of restricted cash for letters of credit beginning in the second quarter of 2009.

The Company participates in long-term marketing contractual arrangements with certain prestige properties, athletic venues and other locations. The future payments related to these contractual arrangements as of September 27, 2009 amounted to $22.5 million and expire at various dates through 2017.

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 audit by tax authorities in jurisdictions where it conducts business. These audits may result in assessments that are subsequently resolved with the tax authorities or potentially through the courts. Management believes the Company has adequately provided for any assessments that are likely to result from these audits; however, final assessments, if any, could be different than the amounts recorded in the consolidated financial statements.

15. Income Taxes

The Company’s effective income tax rate for YTD 2009 and YTD 2008 was 24.8% and 48.2%, respectively. The following table provides a reconciliation of the income tax expense at the statutory federal rate to actual income tax expense.

		First Nine Months
In Thousands		2009				2008
Statutory expense		$	16,826			$	5,184
State income taxes, net of federal effect			2,094				645
Manufacturing deduction benefit			(1,197	)			(487	)
Meals and entertainment			754				507
Adjustment for uncertain tax positions			(7,070	)			1,277
Other, net			521				9
Income tax expense		$	11,928			$	7,135

Coca-Cola Bottling Co. Consolidated
Notes to Consolidated Financial Statements (Unaudited)

15. Income Taxes

The Company had $10.5 million of unrecognized tax benefits, including accrued interest as of December 28, 2008, of which $9.4 million would affect the Company’s effective tax rate if recognized. As of September 27, 2009, the Company had $3.0 million of unrecognized tax benefits, including accrued interest, of which all would affect the Company’s effective rate if recognized. It is expected that the amount of unrecognized tax benefits may change in the next 12 months; however, the Company does not expect the change to have a significant impact on the consolidated financial statements.

The Company recognizes potential interest and penalties related to uncertain tax positions in income tax expense. As of December 28, 2008, the Company had approximately $2.5 million of accrued interest related to uncertain tax positions. As of September 27, 2009, the Company had approximately $.8 million of accrued interest related to uncertain tax positions. Income tax expense included an interest credit of approximately $1.7 million in YTD 2009 and interest expense of approximately $.4 million in YTD 2008.

In Q1 2009, the Company reached an agreement with a taxing authority to settle prior tax positions for which the Company had previously provided reserves due to uncertainty of resolution. As a result, the Company reduced the liability for uncertain tax positions by $1.7 million. The net effect of the adjustment was a decrease to income tax expense of approximately $1.7 million.

In Q3 2009, the Company reduced its liability for uncertain tax positions by $5.4 million. The net effect of the adjustment was a decrease to income tax expense of approximately $5.4 million. The reduction of the liability for uncertain tax positions was due mainly to the lapse of applicable statutes of limitations.

Various tax years from 1991 remain open to examination by taxing jurisdictions to which the Company is subject due to loss carryforwards.

The Company’s income tax assets and liabilities are subject to adjustment in future periods based on the Company’s ongoing evaluations of such assets and liabilities and new information that becomes available to the Company.

16. Accumulated Other Comprehensive 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.

Coca-Cola Bottling Co. Consolidated
Notes to Consolidated Financial Statements (Unaudited)

16. Accumulated Other Comprehensive Loss

A summary of accumulated other comprehensive loss for Q3 2009 and Q3 2008 follows:

		June 28,				Pre-tax				Tax				Sept. 27,
In Thousands		2009				Activity				Effect				2009
Net pension activity:
Actuarial loss		$	(53,880	)		$	2,339			$	(921	)		$	(52,462	)
Prior service costs			(40	)			4				(2	)			(38	)
Net postretirement benefits activity:
Actuarial loss			(9,361	)			218				(86	)			(9,229	)
Prior service costs			7,917				(446	)			176				7,647
Transition asset			33				(6	)			2				29
Foreign currency translation adjustment			12				4				(1	)			15
Total		$	(55,319	)		$	2,113			$	(832	)		$	(54,038	)

		June 29,				Pre-tax				Tax				Sept. 28,
In Thousands		2008				Activity				Effect				2008
Net pension activity:
Actuarial loss		$	(12,525	)		$	111			$	(42	)		$	(12,456	)
Prior service costs			(49	)			4				(2	)			(47	)
Net postretirement benefits activity:
Actuarial loss			(9,505	)			229				(88	)			(9,364	)
Prior service costs			9,009				(446	)			171				8,734
Transition asset			49				(6	)			2				45
Foreign currency translation adjustment			30				(17	)			7				20
Total		$	(12,991	)		$	(125	)		$	48			$	(13,068	)

A summary of accumulated other comprehensive loss for YTD 2009 and YTD 2008 follows:

		Dec. 28,				Pre-tax				Tax				Sept. 27,
In Thousands		2008				Activity				Effect				2009
Net pension activity:
Actuarial loss		$	(56,717	)		$	7,017			$	(2,762	)		$	(52,462	)
Prior service costs			(45	)			12				(5	)			(38	)
Net postretirement benefits activity:
Actuarial loss			(9,625	)			653				(257	)			(9,229	)
Prior service costs			8,459				(1,339	)			527				7,647
Transition asset			41				(19	)			7				29
Foreign currency translation adjustment			14				1				—				15
Total		$	(57,873	)		$	6,325			$	(2,490	)		$	(54,038	)

Coca-Cola Bottling Co. Consolidated
Notes to Consolidated Financial Statements (Unaudited)

16. Accumulated Other Comprehensive Loss

						Remeasurement
						Adjustment
		Dec. 30,				After				Pre-tax				Tax				Sept. 28,
In Thousands		2007				tax(1)				Activity				Effect				2008
Net pension activity:
Actuarial loss		$	(12,684	)		$	23			$	333			$	(128	)		$	(12,456	)
Prior service costs			(55	)			1				12				(5	)			(47	)
Net postretirement benefits activity:
Actuarial loss			(9,928	)			141				687				(264	)			(9,364	)
Prior service costs			9,833				(275	)			(1,338	)			514				8,734
Transition asset			60				(4	)			(18	)			7				45
Foreign currency translation adjustment			23				—				(5	)			2				20
Total		$	(12,751	)		$	(114	)		$	(329	)		$	126			$	(13,068	)

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 Market^sm 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 YTD 2009 and YTD 2008, dividends of $.75 per share were declared and paid on both Common Stock and Class B Common Stock.

Each share of Common Stock is entitled to one vote per share and each share of Class B Common Stock is entitled to 20 votes per share at all meetings of stockholders. 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.

On May 12, 1999, the stockholders of the Company approved a restricted stock award for J. Frank Harrison, III, the Company’s Chairman of the Board of Directors and Chief Executive Officer, consisting of 200,000 shares of the Company’s Class B Common Stock. Under the award, shares of restricted stock were granted at a rate of 20,000 shares per year over a ten-year period. The vesting of each annual installment was contingent upon the Company achieving at least 80% of the overall goal achievement factor in the Company’s Annual Bonus Plan. The restricted stock award did not entitle Mr. Harrison, III to participate in dividend or voting rights until each installment had vested and the shares were issued. The restricted stock award expired at the end of fiscal year 2008. Each annual 20,000 share tranche had an independent performance requirement as it

Coca-Cola Bottling Co. Consolidated
Notes to Consolidated Financial Statements (Unaudited)

17. Capital Transactions

was not established until the Company’s Annual Bonus Plan targets were approved each year by the Company’s Board of Directors. As a result, each 20,000 share tranche was considered to have its own service inception date, grant-date fair value and requisite service period. The Company’s Annual Bonus Plan targets, which established the performance requirement for the restricted stock awards, were approved by the Compensation Committee of the Board of Directors in the first quarter of each year. The Company reimbursed Mr. Harrison, III for income taxes to be paid on the shares if the performance requirement was met and the shares were issued. The Company accrued the estimated cost of the income tax reimbursement over the one-year service period.

A summary of the restricted stock award for 2008 was as follows:

Potential

Annual

First Nine Months

Shares

Grant-Date

Compensation

Compensation

Year

Awarded

Price

Expense

Expense

2008

20,000

$

56.50

$

1,130,000

—

As of the end of Q3 2008, the Company estimated it would not achieve at least 80% of the overall goal achievement factor in the Company’s 2008 Annual Bonus Plan required for the restricted stock award to vest. Accordingly, no compensation expense was recorded in Q3 2008 or YTD 2008, based upon the Company’s estimate. On March 4, 2009, the Compensation Committee determined 20,000 shares of restricted Class B Common Stock vested and should be issued to Mr. Harrison, III for the fiscal year ended December 28, 2008.

On April 29, 2008, the stockholders of the Company approved a Performance Unit Award Agreement for Mr. Harrison, III consisting of 400,000 performance units (“Units”). Each Unit represents the right to receive one share of the Company’s Class B Common Stock, subject to certain terms and conditions. The Units will vest in annual increments over a ten-year period starting in fiscal year 2009. The number of Units that vest each year will equal the product of 40,000 multiplied by the overall goal achievement factor (not to exceed 100%) under the Company’s Annual Bonus Plan. The Performance Unit Award Agreement replaced the restricted stock award previously discussed.

Each annual 40,000 unit tranche has an independent performance requirement as it is not established until the Company’s Annual Bonus Plan targets are approved each year by the Company’s Board of Directors. As a result, each 40,000 unit tranche is considered to have its own service inception date and requisite service period. The Company’s Annual Bonus Plan targets, which establish the performance requirements for the Performance Unit Award Agreement, are approved by the Compensation Committee of the Board of Directors in the first quarter of each year. The Performance Unit Award Agreement does not entitle Mr. Harrison, III to participate in dividends or voting rights until each installment has vested and the shares are issued. Mr. Harrison, III may satisfy tax withholding requirements in whole or in part by requiring the Company to settle in cash such number of Units otherwise payable in Class B Common Stock to meet the maximum statutory tax withholding requirements.

Compensation expense for the Performance Unit Award Agreement recognized in Q3 2009 and YTD 2009 was $.3 million and $1.5 million, respectively, which was based upon a share price of $48.80 on September 25, 2009.

Coca-Cola Bottling Co. Consolidated
Notes to Consolidated Financial Statements (Unaudited)

17. Capital Transactions

On February 19, 2009, The Coca-Cola Company converted all of its 497,670 shares of the Company’s Class B Common Stock into an equivalent number of shares of the Company’s Common Stock.

The increase in the total number of shares outstanding in YTD 2009 was due to the issuance of 20,000 shares of Class B Common Stock related to the restricted stock award. The increase in the number of shares of Common Stock outstanding in YTD 2009 was due to the conversion by The Coca-Cola Company of 497,670 shares of Class B Common Stock into 497,670 shares of Common Stock plus the conversion of another 100 shares of Class B Common Stock into 100 shares of Common Stock. The decrease in the number of shares of Class B Common Stock outstanding in YTD 2009 was due to the conversion by The Coca-Cola Company of 497,670 shares of Class B Common Stock into 497,670 shares of Common Stock plus the conversion of another 100 shares of Class B Common Stock into 100 shares of Common Stock, offset by the issuance of 20,000 shares of Class B Common Stock related to the restricted stock award.

The increase in the total number of shares outstanding in YTD 2008 was due to the issuance of 20,000 shares of Class B Common Stock related to the restricted stock award.

18. Benefit Plans

Recently Adopted Pronouncement

In September 2006, the FASB issued new guidance on employers’ accounting for defined pension and other postretirement plans, which was effective for the year ending December 31, 2006 except for the requirement that the benefit plan assets and obligations be measured as of the date of the employer’s statement of financial position, which was effective for the year ending December 28, 2008. The Company adopted the measurement date provisions of this new guidance on the first day of the first quarter of 2008 and used the “one measurement” approach. The incremental effect of applying the measurement date provisions on the balance sheet in the first quarter of 2008 was as follows:

Coca-Cola Bottling Co. Consolidated
Notes to Consolidated Financial Statements (Unaudited)

18. Benefit Plans

		Before								After
		Remeasurement								Remeasurement
In Thousands		Adjustment				Adjustment				Adjustment
Pension and postretirement benefit obligations		$	32,758			$	434			$	33,192
Deferred income taxes			168,540				(167	)			168,373
Total liabilities			1,123,290				267				1,123,557
Retained earnings			79,227				(153	)			79,074
Accumulated other comprehensive loss			(12,751	)			(114	)			(12,865	)
Total equity			168,509				(267	)			168,242

Pension Plans

Retirement benefits under the two Company-sponsored pension plans are based on the employee’s length of service, average compensation over the five consecutive years that give the highest average compensation and average Social Security taxable wage base during the 35-year period before reaching Social Security retirement age. Contributions to the plans are based on the projected unit credit actuarial funding method and are limited to the amounts currently deductible for income tax purposes. On February 22, 2006, the Board of Directors of the Company approved an amendment to the principal Company-sponsored pension plan to cease further benefit accruals under the plan effective June 30, 2006.

The components of net periodic pension cost (income) were as follows:

		Third Quarter								First Nine Months
In Thousands		2009					2008				2009			2008
Service cost		$	23			$	20			$	68			$	61
Interest cost			2,788				2,701				8,365				8,104
Expected return on plan assets			(2,270	)			(3,410	)			(6,810	)			(10,231	)
Amortization of prior service cost			4				4				12				12
Recognized net actuarial loss			2,339				111				7,017				333
Net periodic pension cost (income)		$	2,884			$	(574	)		$	8,652			$	(1,721	)

The Company has contributed $10.1 million and $0.2 million to its Company-sponsored pension plans during YTD 2009 and YTD 2008, respectively, and does not anticipate making any additional contributions for the remainder of 2009.

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.

Coca-Cola Bottling Co. Consolidated
Notes to Consolidated Financial Statements (Unaudited)

18. Benefit Plans

The components of net periodic postretirement benefit cost were as follows:

		Third Quarter								First Nine Months
In Thousands		2009				2008				2009				2008
Service cost		$	158			$	128			$	473			$	384
Interest cost			557				536				1,672				1,608
Amortization of unrecognized transitional assets			(6	)			(6	)			(19	)			(18	)
Recognized net actuarial loss			218				229				653				687
Amortization of prior service cost			(446	)			(446	)			(1,339	)			(1,338	)
Net periodic postretirement benefit cost		$	481			$	441			$	1,440			$	1,323