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Coca-Cola Consolidated, Inc. - Quarter Report: 2019 June (Form 10-Q)

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

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

For the quarterly period ended   

June 30, 2019

or

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

For the transition period from                         to                        

Commission File Number: 0-9286

 

COCA‑COLA CONSOLIDATED, INC.

(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, NC

 

 

28211

(Address of principal executive offices)

 

(Zip Code)

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

 

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

Trading Symbol(s)

Name of Each Exchange on Which Registered

Common Stock, $1.00 Par Value

COKE

The NASDAQ Global Select Market

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 every Interactive Data File required to be submitted 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 such files). Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

Accelerated filer  

Non-accelerated filer

 

Smaller reporting company

 

 

 

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

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

As of July 28, 2019, there were 7,141,447 shares of the registrant’s Common Stock, $1.00 par value, and 2,232,242 shares of the registrant’s Class B Common Stock, $1.00 par value, outstanding.

 

 


COCA‑COLA CONSOLIDATED, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2019

INDEX

 

 

 

 

Page

 

 

 

 

 

 

PART I – FINANCIAL INFORMATION

 

 

 

 

 

Item 1.

 

Financial Statements (Unaudited)

 

 

 

 

 

 

 

Condensed Consolidated Statements of Operations

2

 

 

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income

3

 

 

 

 

 

 

Condensed Consolidated Balance Sheets

4

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows

5

 

 

 

 

 

 

Condensed Consolidated Statements of Changes in Equity

6

 

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements

7

 

 

 

 

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

28

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

45

 

 

 

 

Item 4.

 

Controls and Procedures

46

 

 

 

 

 

 

PART II – OTHER INFORMATION

 

 

 

 

 

Item 1.

 

Legal Proceedings

47

 

 

 

 

Item 1A.

 

Risk Factors

47

 

 

 

Item 6.

 

Exhibits

47

 

 

 

 

 

 

Signatures

48

 

 

 

 


 

PART I - FINANCIAL INFORMATION

Item 1.

Financial Statements.

COCA‑COLA CONSOLIDATED, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

 

 

Second Quarter

 

 

First Half

 

(in thousands, except per share data)

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Net sales

 

$

1,273,659

 

 

$

1,220,003

 

 

$

2,376,571

 

 

$

2,284,760

 

Cost of sales

 

 

837,880

 

 

 

815,295

 

 

 

1,551,484

 

 

 

1,522,411

 

Gross profit

 

 

435,779

 

 

 

404,708

 

 

 

825,087

 

 

 

762,349

 

Selling, delivery and administrative expenses

 

 

368,565

 

 

 

385,029

 

 

 

737,719

 

 

 

761,667

 

Income from operations

 

 

67,214

 

 

 

19,679

 

 

 

87,368

 

 

 

682

 

Interest expense, net

 

 

11,995

 

 

 

12,744

 

 

 

24,881

 

 

 

24,790

 

Other expense, net

 

 

31,181

 

 

 

9,818

 

 

 

47,032

 

 

 

5,308

 

Income (loss) before income taxes

 

 

24,038

 

 

 

(2,883

)

 

 

15,455

 

 

 

(29,416

)

Income tax expense (benefit)

 

 

7,182

 

 

 

(135

)

 

 

4,177

 

 

 

(13,106

)

Net income (loss)

 

 

16,856

 

 

 

(2,748

)

 

 

11,278

 

 

 

(16,310

)

Less: Net income attributable to noncontrolling interest

 

 

1,486

 

 

 

1,185

 

 

 

2,739

 

 

 

1,808

 

Net income (loss) attributable to Coca-Cola Consolidated, Inc.

 

$

15,370

 

 

$

(3,933

)

 

$

8,539

 

 

$

(18,118

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic net income (loss) per share based on net loss attributable to Coca-Cola Consolidated, Inc.:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

$

1.64

 

 

$

(0.42

)

 

$

0.91

 

 

$

(1.94

)

Weighted average number of Common Stock shares outstanding

 

 

7,141

 

 

 

7,141

 

 

 

7,141

 

 

 

7,141

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Class B Common Stock

 

$

1.64

 

 

$

(0.42

)

 

$

0.91

 

 

$

(1.94

)

Weighted average number of Class B Common Stock shares outstanding

 

 

2,232

 

 

 

2,213

 

 

 

2,225

 

 

 

2,206

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted net income (loss) per share based on net loss attributable to Coca-Cola Consolidated, Inc.:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

$

1.64

 

 

$

(0.42

)

 

$

0.91

 

 

$

(1.94

)

Weighted average number of Common Stock shares outstanding – assuming dilution

 

 

9,421

 

 

 

9,354

 

 

 

9,415

 

 

 

9,347

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Class B Common Stock

 

$

1.63

 

 

$

(0.42

)

 

$

0.90

 

 

$

(1.94

)

Weighted average number of Class B Common Stock shares outstanding – assuming dilution

 

 

2,280

 

 

 

2,213

 

 

 

2,274

 

 

 

2,206

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash dividends per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

$

0.25

 

 

$

0.25

 

 

$

0.50

 

 

$

0.50

 

Class B Common Stock

 

$

0.25

 

 

$

0.25

 

 

$

0.50

 

 

$

0.50

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to condensed consolidated financial statements.

 

2


 

COCA‑COLA CONSOLIDATED, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

 

 

 

Second Quarter

 

 

First Half

 

(in thousands)

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Net income (loss)

 

$

16,856

 

 

$

(2,748

)

 

$

11,278

 

 

$

(16,310

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income, net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Defined benefit plans reclassification including pension costs:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Actuarial gains

 

 

679

 

 

 

703

 

 

 

1,358

 

 

 

1,406

 

Prior service benefits

 

 

5

 

 

 

5

 

 

 

9

 

 

 

9

 

Postretirement benefits reclassification included in benefits costs:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Actuarial gains

 

 

147

 

 

 

375

 

 

 

295

 

 

 

752

 

Prior service costs

 

 

(243

)

 

 

(348

)

 

 

(487

)

 

 

(696

)

Foreign currency translation adjustment

 

 

5

 

 

 

(9

)

 

 

(4

)

 

 

(6

)

Other comprehensive income, net of tax

 

 

593

 

 

 

726

 

 

 

1,171

 

 

 

1,465

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income (loss)

 

 

17,449

 

 

 

(2,022

)

 

 

12,449

 

 

 

(14,845

)

Less: Comprehensive income attributable to noncontrolling interest

 

 

1,486

 

 

 

1,185

 

 

 

2,739

 

 

 

1,808

 

Comprehensive income (loss) attributable to Coca-Cola Consolidated, Inc.

 

$

15,963

 

 

$

(3,207

)

 

$

9,710

 

 

$

(16,653

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to condensed consolidated financial statements.

 

3


 

COCA‑COLA CONSOLIDATED, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

(in thousands, except share data)

 

June 30, 2019

 

 

December 30, 2018

 

ASSETS

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

5,692

 

 

$

13,548

 

Accounts receivable, trade

 

 

460,911

 

 

 

436,890

 

Allowance for doubtful accounts

 

 

(12,788

)

 

 

(9,141

)

Accounts receivable from The Coca-Cola Company

 

 

68,188

 

 

 

44,915

 

Accounts receivable, other

 

 

38,692

 

 

 

30,493

 

Inventories

 

 

230,898

 

 

 

210,033

 

Prepaid expenses and other current assets

 

 

72,327

 

 

 

70,680

 

Total current assets

 

 

863,920

 

 

 

797,418

 

Property, plant and equipment, net

 

 

962,402

 

 

 

990,532

 

Right of use assets - operating leases

 

 

102,151

 

 

 

-

 

Leased property under financing or capital leases, net

 

 

20,944

 

 

 

23,720

 

Other assets

 

 

113,033

 

 

 

115,490

 

Goodwill

 

 

165,903

 

 

 

165,903

 

Distribution agreements, net

 

 

888,238

 

 

 

900,383

 

Customer lists and other identifiable intangible assets, net

 

 

15,562

 

 

 

16,482

 

Total assets

 

$

3,132,153

 

 

$

3,009,928

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

Current portion of obligations under operating leases

 

$

14,771

 

 

$

-

 

Current portion of obligations under financing or capital leases

 

 

9,019

 

 

 

8,617

 

Accounts payable, trade

 

 

181,418

 

 

 

152,040

 

Accounts payable to The Coca-Cola Company

 

 

135,998

 

 

 

112,425

 

Other accrued liabilities

 

 

197,101

 

 

 

250,246

 

Accrued compensation

 

 

59,329

 

 

 

72,316

 

Accrued interest payable

 

 

4,316

 

 

 

6,093

 

Total current liabilities

 

 

601,952

 

 

 

601,737

 

Deferred income taxes

 

 

131,498

 

 

 

127,174

 

Pension and postretirement benefit obligations

 

 

87,300

 

 

 

85,682

 

Other liabilities

 

 

641,556

 

 

 

609,135

 

Noncurrent portion of obligations under operating leases

 

 

87,804

 

 

 

-

 

Noncurrent portion of obligations under financing or capital leases

 

 

22,182

 

 

 

26,631

 

Long-term debt

 

 

1,092,152

 

 

 

1,104,403

 

Total liabilities

 

 

2,664,444

 

 

 

2,554,762

 

Commitments and Contingencies

 

 

 

 

 

 

 

 

Equity:

 

 

 

 

 

 

 

 

Common Stock, $1.00 par value: 30,000,000 shares authorized; 10,203,821 shares issued

 

 

10,204

 

 

 

10,204

 

Class B Common Stock, $1.00 par value: 10,000,000 shares authorized; 2,860,356 and 2,841,132 shares issued, respectively

 

 

2,860

 

 

 

2,839

 

Capital in excess of par value

 

 

128,983

 

 

 

124,228

 

Retained earnings

 

 

383,012

 

 

 

359,435

 

Accumulated other comprehensive loss

 

 

(95,814

)

 

 

(77,265

)

Treasury stock, at cost:  Common Stock – 3,062,374 shares

 

 

(60,845

)

 

 

(60,845

)

Treasury stock, at cost:  Class B Common Stock – 628,114 shares

 

 

(409

)

 

 

(409

)

Total equity of Coca-Cola Consolidated, Inc.

 

 

367,991

 

 

 

358,187

 

Noncontrolling interest

 

 

99,718

 

 

 

96,979

 

Total equity

 

 

467,709

 

 

 

455,166

 

Total liabilities and equity

 

$

3,132,153

 

 

$

3,009,928

 

 

See accompanying notes to condensed consolidated financial statements.

 

4


 

COCA‑COLA CONSOLIDATED, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

 

First Half

 

(in thousands)

 

2019

 

 

2018

 

Cash Flows from Operating Activities:

 

 

 

 

 

 

 

 

Net income (loss)

 

$

11,278

 

 

$

(16,310

)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation expense from property, plant and equipment and financing or capital leases

 

 

79,316

 

 

 

82,658

 

Fair value adjustment of acquisition related contingent consideration

 

 

43,268

 

 

 

3,957

 

Amortization of intangible assets and deferred proceeds, net

 

 

11,512

 

 

 

11,249

 

Deferred income taxes

 

 

4,324

 

 

 

(16,286

)

Loss on sale of property, plant and equipment

 

 

4,017

 

 

 

4,295

 

Stock compensation expense

 

 

2,045

 

 

 

1,728

 

Impairment of property, plant and equipment

 

 

1,155

 

 

 

-

 

Amortization of debt costs

 

 

752

 

 

 

730

 

Change in current assets less current liabilities

 

 

(78,842

)

 

 

(16,127

)

Change in other noncurrent assets

 

 

5,228

 

 

 

3,830

 

Change in other noncurrent liabilities

 

 

4,071

 

 

 

(2,493

)

Other

 

 

462

 

 

 

11

 

Total adjustments

 

 

77,308

 

 

 

73,552

 

Net cash provided by operating activities

 

$

88,586

 

 

$

57,242

 

 

 

 

 

 

 

 

 

 

Cash Flows from Investing Activities:

 

 

 

 

 

 

 

 

Additions to property, plant and equipment (exclusive of acquisitions)

 

$

(57,581

)

 

$

(85,279

)

Other distribution agreements

 

 

(4,654

)

 

 

-

 

Proceeds from the sale of property, plant and equipment

 

 

823

 

 

 

3,047

 

Investment in CONA Services LLC

 

 

(486

)

 

 

(2,020

)

Acquisition of distribution territories and regional manufacturing facilities, net of cash acquired and purchase price settlements

 

 

-

 

 

 

4,706

 

Proceeds from cold drink equipment

 

 

-

 

 

 

3,789

 

Net cash used in investing activities

 

$

(61,898

)

 

$

(75,757

)

 

 

 

 

 

 

 

 

 

Cash Flows from Financing Activities:

 

 

 

 

 

 

 

 

Borrowings under revolving credit facility

 

$

206,339

 

 

$

190,000

 

Payments on revolving credit facility

 

 

(186,339

)

 

 

(297,000

)

Proceeds from issuance of senior notes

 

 

100,000

 

 

 

150,000

 

Payments on term loan facility and senior notes

 

 

(132,500

)

 

 

-

 

Payments of acquisition related contingent consideration

 

 

(12,836

)

 

 

(11,263

)

Cash dividends paid

 

 

(4,682

)

 

 

(4,671

)

Payments on financing or capital lease obligations

 

 

(4,261

)

 

 

(4,194

)

Debt issuance fees

 

 

(265

)

 

 

(1,535

)

Net cash provided by (used in) financing activities

 

$

(34,544

)

 

$

21,337

 

 

 

 

 

 

 

 

 

 

Net increase (decrease) in cash

 

$

(7,856

)

 

$

2,822

 

Cash at beginning of period

 

 

13,548

 

 

 

16,902

 

Cash at end of period

 

$

5,692

 

 

$

19,724

 

 

 

 

 

 

 

 

 

 

Significant noncash investing and financing activities:

 

 

 

 

 

 

 

 

Right of use assets obtained in exchange for lease obligations

 

$

21,220

 

 

$

-

 

Additions to property, plant and equipment accrued and recorded in accounts payable, trade

 

 

10,292

 

 

 

4,178

 

Issuance of Class B Common Stock in connection with stock award

 

 

4,776

 

 

 

3,831

 

 

See accompanying notes to condensed consolidated financial statements.

 

5


 

COCA‑COLA CONSOLIDATED, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Unaudited)

 

(in thousands, except share data)

 

Common

Stock

 

 

Class B

Common

Stock

 

 

Capital

in

Excess of

Par Value

 

 

Retained

Earnings

 

 

Accumulated

Other

Comprehensive

Loss

 

 

Treasury

Stock - Common Stock

 

 

Treasury

Stock - Class B

Common

Stock

 

 

Total

Equity

of Coca-Cola Consolidated, Inc.

 

 

Non-

controlling

Interest

 

 

Total

Equity

 

Balance on December 31, 2017

 

$

10,204

 

 

$

2,819

 

 

$

120,417

 

 

$

388,718

 

 

$

(94,202

)

 

$

(60,845

)

 

$

(409

)

 

$

366,702

 

 

$

92,205

 

 

$

458,907

 

Net income (loss)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(18,118

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(18,118

)

 

 

1,808

 

 

 

(16,310

)

Other comprehensive income, net of tax

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,465

 

 

 

-

 

 

 

-

 

 

 

1,465

 

 

 

-

 

 

 

1,465

 

Cash dividends paid:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock ($0.50 per share)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(3,570

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(3,570

)

 

 

-

 

 

 

(3,570

)

Class B Common Stock ($0.50 per share)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,101

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,101

)

 

 

-

 

 

 

(1,101

)

Issuance of 20,296 shares of Class B Common Stock

 

 

-

 

 

 

20

 

 

 

3,811

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

3,831

 

 

 

-

 

 

 

3,831

 

Balance on July 1, 2018

 

$

10,204

 

 

$

2,839

 

 

$

124,228

 

 

$

365,929

 

 

$

(92,737

)

 

$

(60,845

)

 

$

(409

)

 

$

349,209

 

 

$

94,013

 

 

$

443,222

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance on December 30, 2018

 

$

10,204

 

 

$

2,839

 

 

$

124,228

 

 

$

359,435

 

 

$

(77,265

)

 

$

(60,845

)

 

$

(409

)

 

$

358,187

 

 

$

96,979

 

 

$

455,166

 

Net income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

8,539

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

8,539

 

 

 

2,739

 

 

 

11,278

 

Other comprehensive income, net of tax

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,171

 

 

 

-

 

 

 

-

 

 

 

1,171

 

 

 

-

 

 

 

1,171

 

Cash dividends paid:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock ($0.50 per share)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(3,570

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(3,570

)

 

 

-

 

 

 

(3,570

)

Class B Common Stock ($0.50 per share)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,112

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,112

)

 

 

-

 

 

 

(1,112

)

Issuance of 19,224 shares of Class B Common Stock

 

 

-

 

 

 

21

 

 

 

4,755

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

4,776

 

 

 

-

 

 

 

4,776

 

Reclassification of stranded tax effects

 

 

-

 

 

 

-

 

 

 

-

 

 

 

19,720

 

 

 

(19,720

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Balance on June 30, 2019

 

$

10,204

 

 

$

2,860

 

 

$

128,983

 

 

$

383,012

 

 

$

(95,814

)

 

$

(60,845

)

 

$

(409

)

 

$

367,991

 

 

$

99,718

 

 

$

467,709

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to condensed consolidated financial statements.

 

6


 

COCA‑COLA CONSOLIDATED, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

1.Significant Accounting Policies and New Accounting Pronouncements

 

The condensed consolidated financial statements include the accounts of Coca‑Cola Consolidated, Inc. and its majority-owned subsidiaries (the “Company”). All significant intercompany accounts and transactions have been eliminated. The condensed consolidated financial statements reflect all adjustments, including normal, recurring accruals, which, in the opinion of management, are necessary for a fair statement of the results for the interim periods presented:

 

 

The financial position as of June 30, 2019 and December 30, 2018.

 

The results of operations and comprehensive income for the 13 week periods ended June 30, 2019 (the “second quarter” of fiscal 2019 (“2019”)) and July 1, 2018 (the “second quarter” of fiscal 2018 (“2018”)), and the 26 week periods ended June 30, 2019 (the “first half” of 2019) and July 1, 2018 (the “first half” of 2018).

 

The changes in cash flows and equity for the first half of 2019 and the first half of 2018.

 

The condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial reporting and the instructions to Form 10-Q and Article 10 of Regulation S-X. The accounting policies followed in the presentation of interim financial results are consistent with those followed on an annual basis. These policies are presented in Note 1 to the consolidated financial statements included in the Company’s Annual Report on Form 10‑K for 2018 filed with the Securities and Exchange Commission.

 

The preparation of condensed consolidated financial statements, in conformity with 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.

 

Significant Accounting Policies

 

In the ordinary course of business, the Company has made a number of estimates and assumptions relating to the reporting of results of operations and financial position in the preparation of its condensed consolidated financial statements in conformity with GAAP. Actual results could differ significantly from those estimates under different assumptions and conditions. The Company included in its Annual Report on Form 10‑K for 2018 under the caption “Discussion of Critical Accounting Policies, Estimates and New Accounting Pronouncements” in Part II, “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” a discussion of the Company’s most critical accounting policies, which are those the Company believes to be the most important to the portrayal of its financial condition and results of operations and require management’s most difficult, subjective and complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Any changes in critical accounting policies and estimates are discussed with the Audit Committee of the Board of Directors of the Company during the quarter in which a change is contemplated and prior to making such change.

 

Recently Adopted Accounting Pronouncements

 

In February 2018, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2018‑02, “Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income,” which provides the option to reclassify stranded tax effects resulting from the Tax Cuts and Jobs Act (the “Tax Act”) from accumulated other comprehensive income to retained earnings. This standard is required to be applied either in the period of adoption or retrospectively to each period in which the changes in the U.S. federal corporate income tax rate pursuant to the Tax Act are recognized. The new guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, and can be early adopted. The Company adopted ASU 2018‑02 in the first quarter of 2019 and recognized a cumulative effect adjustment to the opening balance of retained earnings in 2019. The cumulative effect adjustment increased retained earnings by $19.7 million.

 

In February 2016, the FASB issued ASU 2016-02, “Leases,” (the “lease standard”). The lease standard requires lessees to recognize a right-to-use asset and a lease liability for virtually all leases (other than leases meeting the definition of a short-term lease). The new guidance is effective for fiscal years beginning after December 15, 2018 and interim periods beginning the following fiscal year. The Company adopted the new accounting standard during the first quarter of 2019 using the optional transition method. See Note 9 to the condensed consolidated financial statements for additional information on the Company’s adoption of the lease standard.

 

 

 

7


 

2.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 formulas under which the primary components of its soft drink products, either concentrate or syrup, are manufactured.

 

As of June 30, 2019, The Coca‑Cola Company owned approximately 27% of the Company’s total outstanding Common Stock and Class B Common Stock on a consolidated basis, representing approximately 5% of the total voting power of the Company’s Common Stock and Class B Common Stock voting together. As long as The Coca‑Cola Company holds the number of shares of Common Stock it currently owns, it has the right to have its 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 Chief Executive Officer of the Company, and trustees of certain trusts established for the benefit of certain relatives of J. Frank Harrison, Jr. have agreed to vote the shares of the Company’s Class B Common Stock which they control, representing approximately 86% of the total voting power of the Company’s combined Common Stock and Class B Common Stock, in favor of such designee. The Coca‑Cola Company does not own any shares of the Company’s Class B Common Stock.

 

The following table summarizes the significant transactions between the Company and The Coca‑Cola Company:

 

 

 

Second Quarter

 

 

First Half

 

(in thousands)

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Payments made by the Company to The Coca-Cola Company for:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Concentrate, syrup, sweetener and other purchases

 

$

344,841

 

 

$

328,689

 

 

$

611,484

 

 

$

571,157

 

Customer marketing programs

 

 

39,221

 

 

 

41,475

 

 

 

72,513

 

 

 

76,057

 

Cold drink equipment parts

 

 

7,067

 

 

 

8,089

 

 

 

14,049

 

 

 

14,230

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Payments made by The Coca-Cola Company to the Company for:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Marketing funding support payments

 

$

26,311

 

 

$

22,656

 

 

$

49,023

 

 

$

42,693

 

Fountain delivery and equipment repair fees

 

 

9,885

 

 

 

10,353

 

 

 

20,634

 

 

 

19,700

 

Presence marketing funding support on the Company’s behalf

 

 

4,502

 

 

 

4,614

 

 

 

4,937

 

 

 

5,095

 

Facilitating the distribution of certain brands and packages to other Coca-Cola bottlers

 

 

1,351

 

 

 

4,256

 

 

 

2,350

 

 

 

8,124

 

Cold drink equipment

 

 

-

 

 

 

3,789

 

 

 

-

 

 

 

3,789

 

 

As part of The Coca‑Cola Company’s plans to refranchise its North American bottling territories, the Company completed a series of transactions from April 2013 to October 2017 with The Coca‑Cola Company, Coca‑Cola Refreshments USA, Inc. (“CCR”), a wholly-owned subsidiary of The Coca‑Cola Company, and Coca‑Cola Bottling Company United, Inc. (“United”), an independent bottler that is unrelated to us, to significantly expand our distribution and manufacturing operations (the “System Transformation”). The System Transformation included the acquisition and exchange of rights to serve distribution territories and related distribution assets, as well as the acquisition and exchange of regional manufacturing facilities and related manufacturing assets.

 

In 2017, The Coca‑Cola Company agreed to provide the Company a fee to compensate the Company for the net economic impact of changes made by The Coca‑Cola Company to the authorized pricing on sales of covered beverages produced at certain manufacturing facilities owned by Company (the “Legacy Facilities Credit”). The Company immediately recognized the portion of the Legacy Facilities Credit applicable to a regional manufacturing facility divested in 2017 and the remaining balance of the Legacy Facilities Credit will be amortized as a reduction to cost of sales over a period of 40 years. The portion of the deferred liability that is expected to be amortized in the next twelve months is classified as current.

 

Coca‑Cola Refreshments USA, Inc.

 

The Company, The Coca-Cola Company and CCR entered into a comprehensive beverage agreement on March 31, 2017 (as amended, the “CBA”). Pursuant to the CBA, the Company is required to make quarterly sub-bottling payments 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 distribution territories the Company acquired from CCR as part of the System Transformation, excluding territories the Company acquired in an exchange transaction. These sub-bottling payments are based on gross profit derived from sales of certain beverages and beverage products that are sold under the same trademarks that identify a covered beverage, beverage product or certain cross-licensed brands.

 

8


 

 

Sub-bottling payments to CCR were $12.8 million during the first half of 2019 and $11.3 million during the first half of 2018. The following table summarizes the liability recorded by the Company to reflect the estimated fair value of contingent consideration related to future sub‑bottling payments to CCR:

 

(in thousands)

 

June 30, 2019

 

 

December 30, 2018

 

Current portion of acquisition related contingent consideration

 

$

32,131

 

 

$

32,993

 

Noncurrent portion of acquisition related contingent consideration

 

 

380,319

 

 

 

349,905

 

Total acquisition related contingent consideration

 

$

412,450

 

 

$

382,898

 

 

Upon the conversion of the Company’s then-existing bottling agreements in 2017 pursuant to the CBA, the Company received a fee from CCR (the “Territory Conversion Fee”). The Territory Conversion Fee was recorded as a deferred liability and will be amortized as a reduction to cost of sales over a period of 40 years. The portion of the deferred liability that is expected to be amortized in the next twelve months is classified as current.

 

Southeastern Container (“Southeastern”)

 

The Company is a shareholder of Southeastern, a plastic bottle manufacturing cooperative. The Company accounts for Southeastern as an equity method investment. The Company’s investment in Southeastern, which was classified as other assets in the condensed consolidated balance sheets, was $23.5 million as of June 30, 2019 and $23.6 million as of December 30, 2018.

 

South Atlantic Canners, Inc. (“SAC”)

 

The Company is a shareholder of SAC, a manufacturing cooperative in Bishopville, South Carolina. All of SAC’s shareholders are Coca‑Cola bottlers and each has equal voting rights. The Company accounts for SAC as an equity method investment. The Company’s investment in SAC, which was classified as other assets in the condensed consolidated balance sheets, was $8.2 million as of both June 30, 2019 and December 30, 2018.

 

The Company receives a fee for managing the day-to-day operations of SAC pursuant to a management agreement. Proceeds from management fees received from SAC were $4.5 million in the first half of 2019 and $4.6 million in the first half of 2018.

 

Coca‑Cola Bottlers’ Sales and Services Company, LLC (“CCBSS”)

 

Along with other Coca‑Cola bottlers in the United States and Canada, the Company is a member of CCBSS, a company formed to provide certain procurement and other services with the intention of enhancing the efficiency and competitiveness of the Coca‑Cola bottling system. The Company accounts for CCBSS as an equity method investment and its investment in CCBSS is not material.

 

CCBSS negotiates the procurement for the majority of the Company’s raw materials, excluding concentrate, and the Company receives a rebate from CCBSS for the purchase of these raw materials. The Company had rebates due from CCBSS of $7.3 million on June 30, 2019 and $10.4 million on December 30, 2018, which were classified as accounts receivable, other in the condensed consolidated balance sheets.

 

In addition, the Company pays an administrative fee to CCBSS for its services. The Company incurred administrative fees to CCBSS of $1.0 million in the first half of 2019 and $1.5 million in the first half of 2018, which were classified as selling, delivery and administrative (“SD&A”) expenses in the condensed consolidated statements of operations.

 

CONA Services LLC (“CONA”)

 

The Company is a member of CONA, an entity formed with The Coca‑Cola Company and certain other Coca‑Cola bottlers to provide business process and information technology services to its members. The Company accounts for CONA as an equity method investment. The Company’s investment in CONA, which was classified as other assets in the condensed consolidated balance sheets, was $8.5 million as of June 30, 2019 and $8.0 million as of December 30, 2018.

 

Pursuant to an amended and restated master services agreement with CONA, the Company is 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. In exchange for the Company’s rights to use the CONA System and receive CONA-related services, it is charged service fees by CONA. The Company incurred CONA service fees of $11.5 million in the first half of 2019 and $10.2 million in the first half of 2018.

 

9


 

 

Related Party Leases

 

The Company leases its headquarters office facility and an adjacent office facility in Charlotte, North Carolina from Beacon Investment Corporation, of which J. Frank Harrison, III, Chairman of the Board of Directors and Chief Executive Officer of the Company, is the majority stockholder and Morgan H. Everett, Senior Vice President and a director of the Company, is a minority stockholder. The annual base rent the Company is obligated to pay under this lease agreement is subject to adjustment for increases in the Consumer Price Index and the lease expires on December 31, 2021. The principal balance outstanding under this lease was $8.4 million on June 30, 2019 and $9.9 million on December 30, 2018.

 

The Company leases the Snyder Production Center and an adjacent sales facility in Charlotte, North Carolina from Harrison Limited Partnership One, which is directly and indirectly owned by trusts of which J. Frank Harrison, III, and Sue Anne H. Wells, a director of the Company, are trustees and beneficiaries and of which Morgan H. Everett is a permissible, discretionary beneficiary. The annual base rent the Company is obligated to pay under this lease agreement is subject to an adjustment for an inflation factor and the lease expires on December 31, 2020. The principal balance outstanding under this lease was $6.3 million on June 30, 2019 and $8.1 million on December 30, 2018.

 

A summary of rental payments related to these leases is as follows:

 

 

 

Second Quarter

 

 

First Half

 

(in thousands)

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Company headquarters

 

$

1,151

 

 

$

1,110

 

 

$

2,261

 

 

$

2,236

 

Snyder Production Center

 

 

1,081

 

 

 

1,049

 

 

 

2,161

 

 

 

2,098

 

 

3.Revenue Recognition

 

The Company offers a range of nonalcoholic beverage products and flavors designed to meet the demands of its consumers, including both sparkling and still beverages. Sparkling beverages are carbonated beverages and the Company’s principal sparkling beverage is Coca‑Cola. Still beverages include energy products and noncarbonated beverages such as bottled water, tea, ready to drink coffee, enhanced water, juices and sports drinks.

 

The Company’s products are sold and distributed in the United States through various channels, which include selling directly to retail stores and other outlets such as food markets, institutional accounts and vending machine outlets. The Company typically collects payment from customers within 30 days from the date of sale.

 

The Company’s sales are divided into two main categories: (i) bottle/can sales and (ii) other sales. Bottle/can sales include products packaged primarily in plastic bottles and aluminum cans. Bottle/can net pricing is based on the invoice price charged to customers reduced by any promotional allowances. Bottle/can net pricing per unit is impacted by the price charged per package, the sales volume generated for each package and the channels in which those packages are sold. Other sales include sales to other Coca‑Cola bottlers, “post‑mix” products, transportation revenue and equipment maintenance revenue. Post-mix products are dispensed through equipment that mixes fountain syrups with carbonated or still water, enabling fountain retailers to sell finished products to consumers in cups or glasses.

 

The Company’s contracts are derived from customer orders, including customer sales incentives, generated through an order processing and replenishment model. Revenues do not include sales or other taxes collected from customers. The Company has defined its performance obligations for its contracts as either at a point in time or over time. Bottle/can sales, sales to other Coca‑Cola bottlers and post-mix sales are recognized when control transfers to a customer, which is generally upon delivery and is considered a single point in time (“point in time”). Point in time sales accounted for approximately 96% of the Company’s net sales in the first half of 2019 and 97% of the Company’s net sales in the first half of 2018. Substantially all the Company’s revenue is recognized at a point in time and is included in the Nonalcoholic Beverages segment.

 

Other sales, which include revenue for service fees related to the repair of cold drink equipment and delivery fees for freight hauling and brokerage services, are recognized over time (“over time”). Revenues related to cold drink equipment repair are recognized as the respective services are completed using a cost-to-cost input method. Repair services are generally completed in less than one day but can extend up to one month. Revenues related to freight hauling and brokerage services are recognized as the delivery occurs using a miles driven output method. Generally, delivery occurs and freight charges are recognized in the same day. Over time sales orders open at the end of a financial period are not material to the Company’s condensed consolidated financial statements.

 

 

10


 

The following table represents a disaggregation of revenue from contracts with customers:

 

 

 

Second Quarter

 

 

First Half

 

(in thousands)

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Point in time net sales:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nonalcoholic - point in time

 

$

1,227,977

 

 

$

1,183,083

 

 

$

2,288,248

 

 

$

2,214,891

 

Total point in time net sales

 

$

1,227,977

 

 

$

1,183,083

 

 

$

2,288,248

 

 

$

2,214,891

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Over time net sales:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nonalcoholic - over time

 

$

10,908

 

 

$

9,199

 

 

$

22,864

 

 

$

17,813

 

Other - over time

 

 

34,774

 

 

 

27,721

 

 

 

65,459

 

 

 

52,056

 

Total over time net sales

 

$

45,682

 

 

$

36,920

 

 

$

88,323

 

 

$

69,869

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total net sales

 

$

1,273,659

 

 

$

1,220,003

 

 

$

2,376,571

 

 

$

2,284,760

 

 

The Company participates in various sales programs with The Coca‑Cola Company, other beverage companies and customers to increase the sale of its products. Programs negotiated with customers include arrangements under which allowances can be earned for attaining agreed-upon sales levels. The cost of these various sales incentives are not considered a separate performance obligation and are included as deductions to net sales.

 

Allowance payments made to customers can be conditional on the achievement of volume targets and/or marketing commitments. Payments made in advance are recorded as prepayments and amortized in the condensed consolidated statements of operations over the relevant period for which the customer commitment is made. In the event there is no separate identifiable benefit or the fair value of such benefit cannot be established, the amortization of the prepayment is included as a reduction to net sales.

 

The Company historically presented consideration paid to customers under certain contractual arrangements for exclusive distribution rights and sponsorship privileges as a marketing expense within SD&A expenses. The Company has now determined such amounts should be presented as a reduction to net sales and has revised the presentation of previously issued financial statements to correct for this error. Management believes the effect on previously reported financial statements is not material. In addition, management believes the revised presentation provides consistency with other companies that operate in the beverage industry. Net sales and SD&A expenses were revised by $7.3 million in the second quarter of 2018 and $14.6 million in the first half of 2018. The revision had no impact to net loss or net loss per share.

 

The majority of the Company’s contracts include multiple performance obligations related to the delivery of specifically identifiable products, which generally have a duration of less than one year. For sales contracts with multiple performance obligations, the Company allocates the contract’s transaction price to each performance obligation using stated contractual price, which represents the standalone selling price of each distinct good sold under the contract. Generally, the Company’s service contracts have a single performance obligation.

 

The Company sells its products and extends credit, generally without requiring collateral, based on an ongoing evaluation of the customer’s business prospects and financial condition. The Company evaluates the collectibility of its trade accounts receivable based on a number of factors, including the Company’s historic collections pattern and changes to a specific customer’s ability to meet its financial obligations. The Company has established an allowance for doubtful accounts to adjust the recorded receivable to the estimated amount the Company believes will ultimately be collected.

 

The nature of the Company’s contracts gives rise to several types of variable consideration, including prospective and retrospective rebates. The Company accounts for its prospective and retrospective rebates using the expected value method, which estimates the net price to the customer based on the customer’s expected annual sales volume projections.

 

The Company experiences customer returns primarily as a result of damaged or out-of-date product. At any given time, the Company estimates less than 1% of bottle/can sales and post-mix sales could be at risk for return by customers. The Company’s reserve for customer returns, which was classified as allowance for doubtful accounts in the condensed consolidated balance sheets, was $3.6 million as of June 30, 2019 and $2.3 million as of December 30, 2018. Returned product is recognized as a reduction of net sales.

 

 

11


 

4.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. Asset information is not provided to the CODM. The Company believes four operating segments exist. Nonalcoholic Beverages represents the vast majority of the Company’s consolidated revenues and income from operations. The additional three operating segments do not meet the quantitative thresholds for separate reporting, either individually or in the aggregate, and therefore have been combined into “All Other.”

 

The Company’s segment results are as follows:

 

 

 

Second Quarter

 

 

First Half

 

(in thousands)

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Net sales:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nonalcoholic Beverages(1)

 

$

1,238,885

 

 

$

1,192,282

 

 

$

2,311,112

 

 

$

2,232,704

 

All Other

 

 

94,942

 

 

 

93,398

 

 

 

182,857

 

 

 

179,997

 

Eliminations(2)

 

 

(60,168

)

 

 

(65,677

)

 

 

(117,398

)

 

 

(127,941

)

Consolidated net sales

 

$

1,273,659

 

 

$

1,220,003

 

 

$

2,376,571

 

 

$

2,284,760

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nonalcoholic Beverages

 

$

57,724

 

 

$

16,089

 

 

$

72,365

 

 

$

(6,656

)

All Other

 

 

9,490

 

 

 

3,590

 

 

 

15,003

 

 

 

7,338

 

Consolidated income from operations

 

$

67,214

 

 

$

19,679

 

 

$

87,368

 

 

$

682

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nonalcoholic Beverages

 

$

42,568

 

 

$

44,220

 

 

$

85,919

 

 

$

89,045

 

All Other

 

 

2,488

 

 

 

2,467

 

 

 

4,909

 

 

 

4,862

 

Consolidated depreciation and amortization

 

$

45,056

 

 

$

46,687

 

 

$

90,828

 

 

$

93,907

 

 

(1)

The Company historically presented consideration paid to customers under certain contractual arrangements for exclusive distribution rights and sponsorship privileges as a marketing expense within SD&A expenses. The Company has now determined such amounts should be presented as a reduction to net sales and has revised the presentation of previously issued financial statements to correct for this error. Net sales and SD&A expenses were revised by $7.3 million in the second quarter of 2018 and $14.6 million in the first half of 2018. See Note 3 to the condensed consolidated financial statements for additional information.

(2)

The entire net sales elimination for each period presented represents net sales from All Other to the Nonalcoholic Beverages segment. Sales between these segments are recognized at either fair market value or cost depending on the nature of the transaction.

 

5.Net Income (Loss) Per Share

 

The following table sets forth the computation of basic net income (loss) per share and diluted net income (loss) per share under the two-class method:

 

 

 

Second Quarter

 

 

First Half

 

(in thousands, except per share data)

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Numerator for basic and diluted net income (loss) per Common Stock and Class B Common Stock share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) attributable to Coca-Cola Consolidated, Inc.

 

$

15,370

 

 

$

(3,933

)

 

$

8,539

 

 

$

(18,118

)

Less dividends:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

1,785

 

 

 

1,785

 

 

 

3,570

 

 

 

3,570

 

Class B Common Stock

 

 

558

 

 

 

553

 

 

 

1,112

 

 

 

1,101

 

Total undistributed earnings (losses)

 

$

13,027

 

 

$

(6,271

)

 

$

3,857

 

 

$

(22,789

)

 

 

12


 

 

 

Second Quarter

 

 

First Half

 

(in thousands, except per share data)

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Common Stock undistributed earnings (losses) – basic

 

$

9,925

 

 

$

(4,787

)

 

$

2,941

 

 

$

(17,411

)

Class B Common Stock undistributed earnings (losses) – basic

 

 

3,102

 

 

 

(1,484

)

 

 

916

 

 

 

(5,378

)

Total undistributed earnings (losses) – basic

 

$

13,027

 

 

$

(6,271

)

 

$

3,857

 

 

$

(22,789

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock undistributed earnings (losses) – diluted

 

$

9,874

 

 

$

(4,787

)

 

$

2,925

 

 

$

(17,411

)

Class B Common Stock undistributed earnings (losses) – diluted

 

 

3,153

 

 

 

(1,484

)

 

 

932

 

 

 

(5,378

)

Total undistributed earnings (losses) – diluted

 

$

13,027

 

 

$

(6,271

)

 

$

3,857

 

 

$

(22,789

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Numerator for basic net income (loss) per Common Stock share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends on Common Stock

 

$

1,785

 

 

$

1,785

 

 

$

3,570

 

 

$

3,570

 

Common Stock undistributed earnings (losses) – basic

 

 

9,925

 

 

 

(4,787

)

 

 

2,941

 

 

 

(17,411

)

Numerator for basic net income (loss) per Common Stock share

 

$

11,710

 

 

$

(3,002

)

 

$

6,511

 

 

$

(13,841

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Numerator for basic net income (loss) per Class B Common Stock share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends on Class B Common Stock

 

$

558

 

 

$

553

 

 

$

1,112

 

 

$

1,101

 

Class B Common Stock undistributed earnings (losses) – basic

 

 

3,102

 

 

 

(1,484

)

 

 

916

 

 

 

(5,378

)

Numerator for basic net income (loss) per Class B Common Stock share

 

$

3,660

 

 

$

(931

)

 

$

2,028

 

 

$

(4,277

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Numerator for diluted net income (loss) per Common Stock share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends on Common Stock

 

$

1,785

 

 

$

1,785

 

 

$

3,570

 

 

$

3,570

 

Dividends on Class B Common Stock assumed converted to Common Stock

 

 

558

 

 

 

553

 

 

 

1,112

 

 

 

1,101

 

Common Stock undistributed earnings (losses) – diluted

 

 

13,027

 

 

 

(6,271

)

 

 

3,857

 

 

 

(22,789

)

Numerator for diluted net income (loss) per Common Stock share

 

$

15,370

 

 

$

(3,933

)

 

$

8,539

 

 

$

(18,118

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Numerator for diluted net income (loss) per Class B Common Stock share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends on Class B Common Stock

 

$

558

 

 

$

553

 

 

$

1,112

 

 

$

1,101

 

Class B Common Stock undistributed earnings (losses) – diluted

 

 

3,153

 

 

 

(1,484

)

 

 

932

 

 

 

(5,378

)

Numerator for diluted net income (loss) per Class B Common Stock share

 

$

3,711

 

 

$

(931

)

 

$

2,044

 

 

$

(4,277

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Denominator for basic net income (loss) per Common Stock and Class B Common Stock share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock weighted average shares outstanding – basic

 

 

7,141

 

 

 

7,141

 

 

 

7,141

 

 

 

7,141

 

Class B Common Stock weighted average shares outstanding – basic

 

 

2,232

 

 

 

2,213

 

 

 

2,225

 

 

 

2,206

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Denominator for diluted net income (loss) per Common Stock and Class B Common Stock share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock weighted average shares outstanding – diluted (assumes conversion of Class B Common Stock to Common Stock)

 

 

9,421

 

 

 

9,354

 

 

 

9,415

 

 

 

9,347

 

Class B Common Stock weighted average shares outstanding – diluted

 

 

2,280

 

 

 

2,213

 

 

 

2,274

 

 

 

2,206

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic net income (loss) per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

$

1.64

 

 

$

(0.42

)

 

$

0.91

 

 

$

(1.94

)

Class B Common Stock

 

$

1.64

 

 

$

(0.42

)

 

$

0.91

 

 

$

(1.94

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted net income (loss) per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

$

1.64

 

 

$

(0.42

)

 

$

0.91

 

 

$

(1.94

)

Class B Common Stock

 

$

1.63

 

 

$

(0.42

)

 

$

0.90

 

 

$

(1.94

)

 

 

13


 

NOTES TO TABLE

 

(1)

For purposes of the diluted net income (loss) per share computation for Common Stock, all shares of Class B Common Stock are assumed to be converted; therefore, 100% of undistributed losses is allocated to Common Stock.

(2)

For purposes of the diluted net income (loss) 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)

For periods presented during which the Company has net income, the denominator for diluted net income per share for Common Stock and Class B Common Stock included the dilutive effect of shares relative to the Long-Term Performance Equity Plan and the Performance Unit Award Agreement. For periods presented during which the Company has net loss, the unvested performance units granted pursuant to the Long-Term Performance Equity Plan and the Performance Unit Award Agreement are excluded from the calculation of diluted net loss per share, as the effect of these awards would be anti-dilutive. See Note 21 to the condensed consolidated financial statements for additional information on the Long-Term Performance Equity Plan and the Performance Unit Award Agreement.

(4)

The Company does not have anti-dilutive shares.

 

6.Inventories

 

Inventories consisted of the following:

 

(in thousands)

 

June 30, 2019

 

 

December 30, 2018

 

Finished products

 

$

154,669

 

 

$

135,561

 

Manufacturing materials

 

 

38,033

 

 

 

39,840

 

Plastic shells, plastic pallets and other inventories

 

 

38,196

 

 

 

34,632

 

Total inventories

 

$

230,898

 

 

$

210,033

 

 

7.Prepaid Expenses and Other Current Assets

 

Prepaid expenses and other current assets consisted of the following:

 

(in thousands)

 

June 30, 2019

 

 

December 30, 2018

 

Repair parts

 

$

27,821

 

 

$

26,846

 

Prepaid marketing

 

 

7,755

 

 

 

6,097

 

Prepaid software

 

 

6,858

 

 

 

6,553

 

Current portion of income taxes

 

 

6,517

 

 

 

6,637

 

Prepayments for sponsorship contracts

 

 

5,516

 

 

 

7,557

 

Other prepaid expenses and other current assets

 

 

17,860

 

 

 

16,990

 

Total prepaid expenses and other current assets

 

$

72,327

 

 

$

70,680

 

 

8.Property, Plant and Equipment, Net

 

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

 

(in thousands)

 

June 30, 2019

 

 

December 30, 2018

 

 

Estimated Useful Lives

Land

 

$

77,949

 

 

$

78,242

 

 

 

Buildings

 

 

220,608

 

 

 

218,846

 

 

8-50 years

Machinery and equipment

 

 

333,795

 

 

 

328,034

 

 

5-20 years

Transportation equipment

 

 

384,642

 

 

 

372,895

 

 

4-20 years

Furniture and fixtures

 

 

90,812

 

 

 

89,439

 

 

3-10 years

Cold drink dispensing equipment

 

 

495,458

 

 

 

491,161

 

 

5-17 years

Leasehold and land improvements

 

 

134,435

 

 

 

132,837

 

 

5-20 years

Software for internal use

 

 

122,882

 

 

 

122,604

 

 

3-10 years

Construction in progress

 

 

17,929

 

 

 

15,142

 

 

 

Total property, plant and equipment, at cost

 

 

1,878,510

 

 

 

1,849,200

 

 

 

Less:  Accumulated depreciation and amortization

 

 

916,108

 

 

 

858,668

 

 

 

Property, plant and equipment, net

 

$

962,402

 

 

$

990,532

 

 

 

 

 

14


 

9.Leases

 

The Company leases office and warehouse space, machinery and other equipment under noncancelable operating lease agreements and also leases certain warehouse space under financing lease agreements. The Company adopted the lease standard using the optional transition method on December 31, 2018, the transition date, and elected to adopt the following practical expedients as accounting policy upon initial adoption of the lease standard:

 

Short-term lease exception: Allows the Company to not recognize leases with a contractual term of less than 12 months on the balance sheet.

Election to not separate non-lease components: Allows the Company to not separate lease and non-lease components and to account for both components as a single component, recognized on the balance sheet.

Package of practical expedients for transition: Allows the Company to not reassess (i) whether any expired or existing contracts are or contain leases, (ii) the lease classification for any expired or existing leases, and (iii) any initial direct costs for any existing leases as of the transition date.

Additional transition method/relief: Allows the Company to apply the transition requirements in the lease standard as of the transition date, with any impact of initially applying the lease standard recognized as a cumulative effect adjustment to retained earnings in the period of adoption. This also requires the Company to maintain previous disclosure requirements for comparative periods.

 

Upon adoption of the lease standard on December 31, 2018, the Company recorded right of use assets for operating leases of $88.0 million and associated lease liabilities of $88.2 million. The adoption of the lease standard did not change previously reported condensed consolidated statements of operations, did not result in a cumulative effect adjustment to retained earnings in the period of adoption and did not impact cash flows.

 

The Company used the following policies and assumptions to evaluate its population of leases:

 

Determining a lease: The Company assesses contracts at inception to determine whether an arrangement is or includes a lease, which conveys the Company’s right to control the use of an identified asset for a period of time in exchange for consideration. Operating lease right of use assets and associated liabilities are recognized at the commencement date and initially measured based on the present value of lease payments over the defined lease term.

Allocating lease and non-lease components: The Company has elected the practical expedient to not separate lease and non-lease components for certain classes of underlying assets. The Company has equipment and vehicle lease agreements, which generally have the lease and associated non-lease components accounted for as a single lease component. The Company has real estate lease agreements with lease and non-lease components, which are generally accounted for separately where applicable.

Discount rate: The Company calculates the discount rate based on the discount rate implicit in the lease, or if the implicit rate is not readily determinable from the lease, then the Company calculates an incremental borrowing rate using a portfolio approach. The incremental borrowing rate is calculated using the contractual lease term and the Company’s borrowing rate.

Lease term: The Company does not recognize leases with a contractual term of less than 12 months on the balance sheet. Lease expense for these short-term leases is expensed on a straight-line basis over the lease term.

Rent increases or escalation clauses: Certain leases contain scheduled rent increases or escalation clauses, which can be based on the Consumer Price Index or other rates. The Company assesses each contract individually and applies the appropriate variable payments based on the terms of the agreement.

Renewal options and/or purchase options: Certain leases include renewal options to extend the lease term and/or purchase options to purchase the leased asset. The Company assesses these options using a threshold of reasonably certain, which is a high threshold and, therefore, the majority of the Company’s leases do not include renewal periods or purchase options for the measurement of the right of use asset and the associated lease liability. For leases the Company is reasonably certain to renew or purchase, those options are included within the lease term and, therefore, included in the measurement of the right of use asset and the associated lease liability.

Option to terminate: Certain leases include the option to terminate the lease prior to its scheduled expiration. This allows a contractually bound party to terminate its obligation under the lease contract, typically in return for an agreed upon financial consideration. The terms and conditions of the termination options vary by contract.

Residual value guarantees, restrictions or covenants: The Company’s lease agreements do not contain residual value guarantees, restrictions or covenants.

 

 

15


 

Following is a summary of the weighted average remaining lease term and weighted average discount rate for the Company’s population of leases as of June 30, 2019:

 

 

 

Operating Leases

 

Financing Leases

 

Weighted average remaining lease term

 

8.8 years

 

5.0 years

 

Weighted average discount rate

 

 

4.0

%

 

5.8

%

 

As of June 30, 2019, the Company had real estate and equipment operating lease commitments that had not yet commenced. The commitments are expected to commence in the remainder of 2019 and have lease terms of 5 to 10 years. The additional lease liability associated with these lease commitments is expected to be $16.0 million.

 

Following is a summary of balances related to the Company’s lease portfolio within the Company’s condensed consolidated statement of operations for the second quarter and first half of 2019:

 

(in thousands)

 

Second Quarter 2019

 

 

First Half 2019

 

Cost of sales impact:

 

 

 

 

 

 

 

 

Operating leases costs

 

$

1,342

 

 

$

2,683

 

Short-term and variable leases

 

 

2,317

 

 

 

4,579

 

Depreciation expense from financing leases(1)

 

 

354

 

 

 

707

 

Total cost of sales impact

 

$

4,013

 

 

$

7,969

 

 

 

 

 

 

 

 

 

 

Selling, delivery and administrative expenses impact:

 

 

 

 

 

 

 

 

Operating leases costs

 

$

3,026

 

 

$

5,922

 

Short-term and variable leases

 

 

779

 

 

 

1,838

 

Depreciation expense from financing leases(1)

 

 

1,137

 

 

 

2,276

 

Total selling, delivery and administrative expenses impact

 

$

4,942

 

 

$

10,036

 

 

 

 

 

 

 

 

 

 

Interest expense, net impact:

 

 

 

 

 

 

 

 

Interest payments on financing lease obligations(2)

 

$

715

 

 

$

1,417

 

Total interest expense, net impact

 

$

715

 

 

$

1,417

 

 

 

 

 

 

 

 

 

 

Total lease cost

 

$

9,670

 

 

$

19,422

 

 

(1)

During the second quarter of 2018, the Company had depreciation expense from capital leases of $0.3 million and $1.2 million in cost of sales and SD&A expenses, respectively. During the first half of 2018, the Company had depreciation expense from capital leases of $0.7 million and $2.3 million in cost of sales and SD&A expenses, respectively.

(2)

The Company had interest payments on capital lease obligations of $0.9 million during the second quarter of 2018 and $1.8 million during the first half of 2018.

 

The future minimum lease payments related to the Company’s lease portfolio include renewal options the Company has determined to be reasonably assured and exclude payments to landlords for real estate taxes and common area maintenance. Following is a summary of future minimum lease payments for all noncancelable operating leases and financing leases as of June 30, 2019:

 

(in thousands)

 

Operating Leases

 

 

Financing Leases

 

 

Total

 

Remainder of 2019

 

$

8,751

 

 

$

5,222

 

 

$

13,973

 

2020

 

 

18,652

 

 

 

10,611

 

 

 

29,263

 

2021

 

 

16,658

 

 

 

6,215

 

 

 

22,873

 

2022

 

 

13,551

 

 

 

2,694

 

 

 

16,245

 

2023

 

 

11,698

 

 

 

2,750

 

 

 

14,448

 

Thereafter

 

 

54,384

 

 

 

8,214

 

 

 

62,598

 

Total minimum lease payments including interest

 

$

123,694

 

 

$

35,706

 

 

$

159,400

 

Less:  Amounts representing interest

 

 

21,119

 

 

 

4,505

 

 

 

25,624

 

Present value of minimum lease principal payments

 

 

102,575

 

 

 

31,201

 

 

 

133,776

 

Less:  Current portion of lease liabilities - operating and financing leases

 

 

14,771

 

 

 

9,019

 

 

 

23,790

 

Noncurrent portion of lease liabilities - operating and financing leases

 

$

87,804

 

 

$

22,182

 

 

$

109,986

 

 

 

16


 

Following is a summary of future minimum lease payments for all noncancelable operating leases and capital leases as of December 30, 2018:

 

(in thousands)

 

Operating Leases

 

 

Capital Leases

 

 

Total

 

2019

 

$

14,146

 

 

$

10,434

 

 

$

24,580

 

2020

 

 

13,526

 

 

 

10,613

 

 

 

24,139

 

2021

 

 

12,568

 

 

 

6,218

 

 

 

18,786

 

2022

 

 

11,161

 

 

 

2,697

 

 

 

13,858

 

2023

 

 

10,055

 

 

 

2,753

 

 

 

12,808

 

Thereafter

 

 

33,805

 

 

 

8,106

 

 

 

41,911

 

Total minimum lease payments including interest

 

$

95,261

 

 

$

40,821

 

 

$

136,082

 

Less:  Amounts representing interest

 

 

 

 

 

 

5,573

 

 

 

 

 

Present value of minimum lease principal payments

 

 

 

 

 

 

35,248

 

 

 

 

 

Less:  Current portion of lease liabilities - capital leases

 

 

 

 

 

 

8,617

 

 

 

 

 

Noncurrent portion of lease liabilities - capital leases

 

 

 

 

 

$

26,631

 

 

 

 

 

 

Following is a summary of balances related to the Company’s lease portfolio within the Company’s condensed consolidated statements of cash flows for the first half of 2019:

 

(in thousands)

 

First Half 2019

 

Cash flows from operating activities impact:

 

 

 

 

Operating leases

 

$

8,515

 

Interest payments on financing lease obligations(1)

 

 

1,417

 

Total cash flows from operating activities impact

 

$

9,932

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

Principal payments on financing lease obligations(1)

 

$

4,261

 

Total cash flows from financing activities impact

 

$

4,261

 

 

(1)

During the first half of 2018, the Company had principal payments on capital lease obligations of $4.0 million and interest payments on capital lease obligations of $1.8 million.

 

10.Goodwill

 

A reconciliation of the activity for goodwill for the first half of 2019 and the first half of 2018 is as follows:

 

 

 

First Half

 

(in thousands)

 

2019

 

 

2018

 

Beginning balance - goodwill

 

$

165,903

 

 

$

169,316

 

Measurement period adjustments(1)

 

 

-

 

 

 

1,583

 

Ending balance - goodwill

 

$

165,903

 

 

$

170,899

 

 

(1)

Measurement period adjustments relate to post-closing adjustments made in accordance with the terms and conditions of the applicable asset purchase agreement or asset exchange agreement for distribution territories acquired or exchanged by the Company in April 2017 and October 2017 as part of the System Transformation. All final post-closing adjustments for these transactions were completed during 2018.

 

The Company’s goodwill resides entirely within the Nonalcoholic Beverages segment. The Company performs its annual impairment test of goodwill as of the first day of the fourth quarter of each fiscal year. During the first half of 2019, the Company did not experience any triggering events or changes in circumstances indicating the carrying amounts of the Company’s goodwill exceeded fair values.

 

 

17


 

11.Distribution Agreements, Net

 

Distribution agreements, net, which are amortized on a straight-line basis and have an estimated useful life of 10 to 40 years, consisted of the following:

 

(in thousands)

 

June 30, 2019

 

 

December 30, 2018

 

Distribution agreements at cost

 

$

950,549

 

 

$

950,559

 

Less: Accumulated amortization

 

 

(62,311

)

 

 

(50,176

)

Distribution agreements, net

 

$

888,238

 

 

$

900,383

 

 

A reconciliation of the activity for distribution agreements, net for the first half of 2019 and the first half of 2018 is as follows:

 

 

 

First Half

 

(in thousands)

 

2019

 

 

2018

 

Beginning balance - distribution agreements, net

 

$

900,383

 

 

$

913,352

 

Other distribution agreements

 

 

(10

)

 

 

-

 

Measurement period adjustment(1)

 

 

-

 

 

 

5,100

 

Additional accumulated amortization

 

 

(12,135

)

 

 

(11,856

)

Ending balance - distribution agreements, net

 

$

888,238

 

 

$

906,596

 

 

(1)

Measurement period adjustment relates to post-closing adjustments made in accordance with the terms and conditions of the applicable asset purchase agreement for distribution territories acquired by the Company in October 2017 as part of the System Transformation. All final post-closing adjustments for this transaction were completed during 2018.

 

12.Customer Lists and Other Identifiable Intangible Assets, Net

 

Customer lists and other identifiable intangible assets, net, which are amortized on a straight-line basis and have an estimated useful life of 5 to 12 years, consisted of the following:

 

(in thousands)

 

June 30, 2019

 

 

December 30, 2018

 

Customer lists and other identifiable intangible assets at cost

 

$

25,288

 

 

$

25,288

 

Less: Accumulated amortization

 

 

(9,726

)

 

 

(8,806

)

Customer lists and other identifiable intangible assets, net

 

$

15,562

 

 

$

16,482

 

 

13.Other Accrued Liabilities

 

Other accrued liabilities consisted of the following:

 

(in thousands)

 

June 30, 2019

 

 

December 30, 2018

 

Accrued insurance costs

 

$

42,806

 

 

$

37,916

 

Current portion of acquisition related contingent consideration

 

 

32,131

 

 

 

32,993

 

Employee and retiree benefit plan accruals

 

 

29,821

 

 

 

29,300

 

Accrued marketing costs

 

 

26,712

 

 

 

31,475

 

Checks and transfers yet to be presented for payment from zero balance cash accounts

 

 

13,356

 

 

 

72,701

 

Accrued taxes (other than income taxes)

 

 

9,457

 

 

 

4,577

 

Commodity hedges at fair market value

 

 

7,522

 

 

 

10,305

 

Current deferred proceeds from Territory Conversion Fee

 

 

2,286

 

 

 

2,286

 

All other accrued expenses

 

 

33,010

 

 

 

28,693

 

Total other accrued liabilities

 

$

197,101

 

 

$

250,246

 

 

14.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 condensed consolidated balance sheets. These derivative instruments are not designated

 

18


 

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 condensed 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 would be exposed to credit loss in the event of nonperformance by these counterparties, the Company does not anticipate nonperformance by these parties.

 

The following table summarizes pre-tax changes in the fair value of the Company’s commodity derivative financial instruments and the classification of such changes in the condensed consolidated statements of operations.

 

 

 

 

 

Second Quarter

 

 

First Half

 

(in thousands)

 

Classification of Gain (Loss)

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Commodity hedges

 

Cost of sales

 

$

(4,874

)

 

$

249

 

 

$

(969

)

 

$

(2,516

)

Commodity hedges

 

Selling, delivery and administrative expenses

 

 

(66

)

 

 

48

 

 

 

2,649

 

 

 

(154

)

Total gain (loss)

 

 

 

$

(4,940

)

 

$

297

 

 

$

1,680

 

 

$

(2,670

)

 

The following table summarizes the fair values and classification in the condensed consolidated balance sheets of derivative instruments held by the Company:

 

(in thousands)

 

Balance Sheet Classification

 

June 30, 2019

 

 

December 30, 2018

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

Commodity hedges at fair market value

 

Other accrued liabilities

 

$

7,522

 

 

$

10,305

 

Commodity hedges at fair market value

 

Other liabilities

 

 

1,103

 

 

 

-

 

Total liabilities

 

 

 

$

8,625

 

 

$

10,305

 

 

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 condensed consolidated balance sheets and the net amounts of derivative liabilities are recognized in other accrued liabilities or other liabilities in the condensed consolidated balance sheets.

 

The following table summarizes the Company’s gross derivative assets and gross derivative liabilities in the condensed consolidated balance sheets:

 

(in thousands)

 

June 30, 2019

 

 

December 30, 2018

 

Gross derivative assets

 

$

17,328

 

 

$

28,305

 

Gross derivative liabilities

 

 

25,953

 

 

 

38,610

 

 

The following table summarizes the Company’s outstanding commodity derivative agreements:

 

(in thousands)

 

June 30, 2019

 

 

December 30, 2018

 

Notional amount of outstanding commodity derivative agreements

 

$

167,630

 

 

$

168,388

 

Latest maturity date of outstanding commodity derivative agreements

 

December 2020

 

 

December 2019

 

 

15.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.

 

 

19


 

The following methods and assumptions were used by the Company in estimating the fair values of its financial instruments. There were no transfers of assets or liabilities between levels in any period presented.

 

Financial Instrument

 

Fair Value

Level

 

Method and Assumptions

Deferred compensation plan assets and liabilities

 

Level 1

 

The fair value of the Company’s non-qualified deferred compensation plan for certain executives and other highly compensated employees is based on the fair values of associated assets and liabilities, which are held in mutual funds and are based on the quoted market value of the securities held within the mutual funds.

Commodity hedging agreements

 

Level 2

 

The fair values of the Company’s commodity hedging agreements are based on current settlement values at each balance sheet date. The fair values of the commodity hedging agreements at each balance sheet date represent the estimated amounts the Company would have received or paid upon termination of these agreements. The Company’s credit risk related to the derivative financial instruments is managed by requiring high standards for its counterparties and periodic settlements. The Company considers nonperformance risk in determining the fair value of derivative financial instruments.

Nonpublic variable rate debt

 

Level 2

 

The carrying amounts of the Company’s nonpublic variable rate debt approximate their fair values due to variable interest rates with short reset periods.

Nonpublic fixed rate debt

 

Level 2

 

The fair values of the Company’s nonpublic fixed rate debt are based on estimated current market prices.

Public debt securities

 

Level 2

 

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

Acquisition related contingent consideration

 

Level 3

 

The fair values of acquisition related contingent consideration are based on internal forecasts and the weighted average cost of capital (“WACC”) derived from market data.

 

The following tables summarize, by assets and liabilities, the carrying amounts and fair values by level of the Company’s deferred compensation plan, commodity hedging agreements, debt and acquisition related contingent consideration:

 

 

 

June 30, 2019

 

 

 

Carrying

 

 

Total

 

 

Fair Value

 

 

Fair Value

 

 

Fair Value

 

(in thousands)

 

Amount

 

 

Fair Value

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deferred compensation plan assets

 

$

39,012

 

 

$

39,012

 

 

$

39,012

 

 

$

-

 

 

$

-

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deferred compensation plan liabilities

 

 

39,012

 

 

 

39,012

 

 

 

39,012

 

 

 

-

 

 

 

-

 

Commodity hedging agreements

 

 

8,625

 

 

 

8,625

 

 

 

-

 

 

 

8,625

 

 

 

-

 

Nonpublic variable rate debt

 

 

369,662

 

 

 

370,000

 

 

 

-

 

 

 

370,000

 

 

 

-

 

Nonpublic fixed rate debt

 

 

374,696

 

 

 

380,900

 

 

 

-

 

 

 

380,900

 

 

 

-

 

Public debt securities

 

 

347,794

 

 

 

363,800

 

 

 

-

 

 

 

363,800

 

 

 

-

 

Acquisition related contingent consideration

 

 

412,450

 

 

 

412,450

 

 

 

-

 

 

 

-

 

 

 

412,450

 

 

 

 

December 30, 2018

 

 

 

Carrying

 

 

Total

 

 

Fair Value

 

 

Fair Value

 

 

Fair Value

 

(in thousands)

 

Amount

 

 

Fair Value

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deferred compensation plan assets

 

$

33,160

 

 

$

33,160

 

 

$

33,160

 

 

$

-

 

 

$

-

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deferred compensation plan liabilities

 

 

33,160

 

 

 

33,160

 

 

 

33,160

 

 

 

-

 

 

 

-

 

Commodity hedging agreements

 

 

10,305

 

 

 

10,305

 

 

 

-

 

 

 

10,305

 

 

 

-

 

Nonpublic variable rate debt

 

 

372,074

 

 

 

372,500

 

 

 

-

 

 

 

372,500

 

 

 

-

 

Nonpublic fixed rate debt

 

 

274,717

 

 

 

261,200

 

 

 

-

 

 

 

261,200

 

 

 

-

 

Public debt securities

 

 

457,612

 

 

 

455,400

 

 

 

-

 

 

 

455,400

 

 

 

-

 

Acquisition related contingent consideration

 

 

382,898

 

 

 

382,898

 

 

 

-

 

 

 

-

 

 

 

382,898

 

 

The 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

 

20


 

its acquisition related contingent consideration liability related to the distribution territories to fair value by discounting future expected sub-bottling payments required under the CBA using the Company’s estimated WACC.

 

The future expected sub-bottling payments extend through the life of the applicable distribution assets acquired in each System Transformation transaction, 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 CBA, and current sub-bottling payments (all Level 3 inputs). Changes in any of these Level 3 inputs, particularly the underlying risk-free interest rate used to estimate the Company’s WACC, could result in material changes to the fair value of the acquisition related contingent consideration and could materially impact the amount of noncash income or expense recorded each reporting period.

 

The acquisition related contingent consideration is the Company’s only Level 3 asset or liability. A reconciliation of the Level 3 activity is as follows:

 

 

 

Second Quarter

 

 

First Half

 

(in thousands)

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Beginning balance - Level 3 liability

 

$

393,007

 

 

$

368,804

 

 

$

382,898

 

 

$

381,291

 

Measurement period adjustments(1)

 

 

-

 

 

 

3,151

 

 

 

-

 

 

 

2,092

 

Payments of acquisition related contingent consideration

 

 

(6,599

)

 

 

(5,381

)

 

 

(12,836

)

 

 

(11,263

)

Reclassification to current payables

 

 

(3,180

)

 

 

(1,180

)

 

 

(880

)

 

 

(1,540

)

Increase in fair value

 

 

29,222

 

 

 

9,143

 

 

 

43,268

 

 

 

3,957

 

Ending balance - Level 3 liability

 

$

412,450

 

 

$

374,537

 

 

$

412,450

 

 

$

374,537

 

 

(1)

Measurement period adjustments relate to post-closing adjustments made in accordance with the terms and conditions of the applicable asset purchase agreement for distribution territories acquired by the Company in April 2017 and October 2017 as part of the System Transformation. All final post-closing adjustments for these transactions were completed during 2018.

 

The increase in the fair value of the acquisition related contingent consideration liability during the first half of 2019 was primarily driven by a decrease in the discount rate and changes in future cash flow projections of the distribution territories subject to sub-bottling fees. The increase in the fair value of the acquisition related contingent consideration liability during the first half of 2018 was primarily driven by cash payments, post-closing adjustments related to System Transformation transactions and changes in future cash flow projections of the distribution territories subject to sub-bottling fees, partially offset by an increase in the discount rate. These fair value adjustments were recorded in other expense, net in the condensed consolidated statements of operations.

 

The anticipated amount the Company could pay annually under acquisition related contingent consideration arrangements is expected to be in the range of $25 million to $49 million.

 

16.Income Taxes

 

The Company’s effective income tax rate, calculated by dividing income tax expense (benefit) by income (loss) before income taxes, was 27.0% for the first half of 2019 and 44.6% for the first half of 2018. The decrease in the effective tax rate was primarily driven by improved financial results.

 

The Company’s effective income tax rate, calculated by dividing income tax expense (benefit) by income (loss) before income taxes minus net income attributable to noncontrolling interest, was 32.8% for the first half of 2019 and 42.0% for the first half of 2018.

 

The Company had uncertain tax positions, including accrued interest, of $3.2 million on June 30, 2019 and $3.1 million on December 30, 2018, 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 condensed consolidated financial statements.

 

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.

 

 

21


 

17.Pension and Postretirement Benefit Obligations

 

Pension Plans

 

There are two Company-sponsored pension plans. The primary Company-sponsored pension 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 Bargaining Plan are determined in accordance with negotiated formulas for the respective participants. Contributions to the plans are based on actuarially determined amounts and are limited to the amounts currently deductible for income tax purposes.

 

The components of net periodic pension cost were as follows:

 

 

 

Second Quarter

 

 

First Half

 

(in thousands)

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Service cost

 

$

1,206

 

 

$

1,413

 

 

$

2,413

 

 

$

2,825

 

Interest cost

 

 

3,062

 

 

 

2,856

 

 

 

6,125

 

 

 

5,712

 

Expected return on plan assets

 

 

(2,574

)

 

 

(3,852

)

 

 

(5,148

)

 

 

(7,704

)

Recognized net actuarial loss

 

 

900

 

 

 

933

 

 

 

1,801

 

 

 

1,866

 

Amortization of prior service cost

 

 

7

 

 

 

6

 

 

 

12

 

 

 

12

 

Net periodic pension cost

 

$

2,601

 

 

$

1,356

 

 

$

5,203

 

 

$

2,711

 

 

The Company did not make any contributions to the two Company sponsored pension plans during the first half of 2019. Contributions to the two Company-sponsored pension plans are expected to be in the range of $1 million to $2 million for the remainder of 2019.

 

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 covered employees’ periods of active service. The Company does not pre-fund these benefits and has the right to modify or terminate certain of these benefits in the future.

 

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

 

 

 

Second Quarter

 

 

First Half

 

(in thousands)

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Service cost

 

$

389

 

 

$

503

 

 

$

778

 

 

$

1,005

 

Interest cost

 

 

693

 

 

 

696

 

 

 

1,386

 

 

 

1,392

 

Recognized net actuarial loss

 

 

195

 

 

 

499

 

 

 

391

 

 

 

998

 

Amortization of prior service cost

 

 

(322

)

 

 

(462

)

 

 

(646

)

 

 

(924

)

Net periodic postretirement benefit cost

 

$

955

 

 

$

1,236

 

 

$

1,909

 

 

$

2,471

 

 

18.Other Liabilities

 

Other liabilities consisted of the following:

 

(in thousands)

 

June 30, 2019

 

 

December 30, 2018

 

Noncurrent portion of acquisition related contingent consideration

 

$

380,319

 

 

$

349,905

 

Accruals for executive benefit plans

 

 

134,753

 

 

 

126,103

 

Noncurrent deferred proceeds from Territory Conversion Fee

 

 

84,020

 

 

 

85,163

 

Noncurrent deferred proceeds from Legacy Facilities Credit

 

 

29,969

 

 

 

30,369

 

Other

 

 

12,495

 

 

 

17,595

 

Total other liabilities

 

$

641,556

 

 

$

609,135

 

 

 

22


 

19.Debt

 

Following is a summary of the Company’s debt:

 

 

(in thousands)

 

Maturity

Date

 

Interest

Rate

 

 

Interest

Paid

 

Public or

Nonpublic

 

June 30,

2019

 

 

December 30,

2018

 

Senior notes(1)

 

4/15/2019

 

7.00%

 

 

Semi-annually

 

Public

 

$

-

 

 

$

110,000

 

Term loan facility(1)

 

6/7/2021

 

Variable

 

 

Varies

 

Nonpublic

 

 

270,000

 

 

 

292,500

 

Senior notes

 

2/27/2023

 

3.28%

 

 

Semi-annually

 

Nonpublic

 

 

125,000

 

 

 

125,000

 

Revolving credit facility(2)

 

6/8/2023

 

Variable

 

 

Varies

 

Nonpublic

 

 

100,000

 

 

 

80,000

 

Senior notes

 

11/25/2025

 

3.80%

 

 

Semi-annually

 

Public

 

 

350,000

 

 

 

350,000

 

Senior notes

 

10/10/2026

 

3.93%

 

 

Quarterly

 

Nonpublic

 

 

100,000

 

 

 

-

 

Senior notes

 

3/21/2030

 

3.96%

 

 

Quarterly

 

Nonpublic

 

 

150,000

 

 

 

150,000

 

Unamortized discount on senior notes(3)

 

4/15/2019

 

 

 

 

 

 

 

 

 

 

-

 

 

 

(78

)

Unamortized discount on senior notes(3)

 

11/25/2025

 

 

 

 

 

 

 

 

 

 

(56

)

 

 

(61

)

Debt issuance costs

 

 

 

 

 

 

 

 

 

 

 

 

(2,792

)

 

 

(2,958

)

Long-term debt

 

 

 

 

 

 

 

 

 

 

 

$

1,092,152

 

 

$

1,104,403

 

 

(1)

The senior notes due in 2019 were refinanced on April 10, 2019 using proceeds from the issuance of the senior notes due in 2026 (as discussed below). The Company intends to refinance principal payments due in the next twelve months under the term loan facility, and has the capacity to do so under its revolving credit facility, which is classified as long-term debt. As such, any amounts due in the next twelve months were classified as noncurrent.

(2)

The Company’s revolving credit facility has an aggregate maximum borrowing capacity of $500 million, which may be increased at the Company’s option to $750 million, subject to obtaining commitments from the lenders and satisfying other conditions specified in the credit agreement. The Company currently believes all banks participating in the revolving credit facility have the ability to and will meet any funding requests from the Company.

(3)

The senior notes due in 2019 were issued at 98.238% of par and the senior notes due in 2025 were issued at 99.975% of par.

 

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.

 

On April 10, 2019, the Company sold $100 million aggregate principal amount of senior unsecured notes due in 2026 to MetLife Investment Advisors, LLC (“MetLife”) and certain of its affiliates pursuant to a Note Purchase and Private Shelf Agreement dated January 23, 2019 between the Company, MetLife and the other parties thereto. These notes bear interest at 3.93%, payable quarterly in arrears on each January 10, April 10, July 10 and October 10, commencing on July 10, 2019, and will mature on October 10, 2026, unless earlier redeemed by the Company. The Company used the proceeds to refinance the senior notes due on April 15, 2019. The Company may request that MetLife consider the purchase of additional senior unsecured notes of the Company under the agreement in an aggregate principal amount of up to $200 million.

 

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. The agreements under which the Company’s nonpublic debt were issued 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 June 30, 2019. 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.

 

20.Commitments and Contingencies

 

Manufacturing Cooperatives

 

The Company is obligated to purchase at least 80% of its requirements of plastic bottles for certain designated territories from Southeastern. The Company is also obligated to purchase 17.5 million cases of finished product from SAC on an annual basis through June 2024. The Company purchased 14.3 million cases and 15.0 million cases of finished product from SAC in the first half of 2019 and the first half of 2018, respectively.

 

 

23


 

The following table summarizes the Company’s purchases from these manufacturing cooperatives:

 

 

 

Second Quarter

 

 

First Half

 

(in thousands)

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Purchases from Southeastern

 

$

36,614

 

 

$

34,797

 

 

$

70,940

 

 

$

63,966

 

Purchases from SAC

 

 

39,993

 

 

 

41,084

 

 

 

77,439

 

 

 

79,160

 

Total purchases from manufacturing cooperatives

 

$

76,607

 

 

$

75,881

 

 

$

148,379

 

 

$

143,126

 

 

The Company guarantees a portion of SAC’s debt, which expires at various dates through 2021. The amounts guaranteed were $23.9 million on both June 30, 2019 and December 30, 2018. In the event SAC fails to fulfill its commitments under the related debt, the Company would be responsible for payments to the lenders up to the level of the guarantee. The Company does not anticipate SAC will fail to fulfill its commitment related to the debt. The Company further believes SAC 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 guarantee.

 

The Company holds no assets as collateral against the SAC guarantee, the fair value of which is immaterial to the Company’s condensed consolidated financial statements. The Company monitors its investments in SAC 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 was identified as of June 30, 2019, and there was no impairment identified in 2018.

 

Other Commitments and Contingencies

 

The Company has standby letters of credit, primarily related to its property and casualty insurance programs. These letters of credit totaled $35.6 million on both June 30, 2019 and December 30, 2018.

 

The Company participates in long-term marketing contractual arrangements with certain prestige properties, athletic venues and other locations. As of June 30, 2019, the future payments related to these contractual arrangements, which expire at various dates through 2033, amounted to $198.0 million.

 

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.

 

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 condensed consolidated financial statements.

 

21.Capital Transactions

 

During the first quarter of each year presented, J. Frank Harrison, III received shares of the Company’s Class B Common Stock in connection with his services as Chairman of the Board of Directors and Chief Executive Officer of the Company during the prior year, pursuant to a ten-year performance unit award agreement approved in 2008 (the “Performance Unit Award Agreement”). The Performance Unit Award Agreement expired at the end of 2018, with the final award issued in the first quarter of 2019. 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 issued in 2019 and 2018 is as follows:

 

 

 

Fiscal Year

 

 

 

2019

 

 

2018

 

Date of approval for award

 

March 5, 2019

 

 

March 6, 2018

 

Fiscal year of service covered by award

 

2018

 

 

2017

 

Shares settled in cash to satisfy tax withholding obligations

 

 

15,476

 

 

 

16,504

 

Increase in Class B Common Stock shares outstanding

 

 

19,224

 

 

 

20,296

 

Total Class B Common Stock awarded

 

 

34,700

 

 

 

36,800

 

 

 

24


 

Compensation expense for the awards issued pursuant to the Performance Unit Award Agreement, recognized on the closing share price of the last trading day prior to the end of each fiscal period, was $2.0 million in the first half of 2019 and $1.7 million in the first half of 2018.

 

In 2018, the Compensation Committee of the Company’s Board of Directors (the “Committee”) and the Company’s stockholders approved a long-term performance equity plan (the “Long-Term Performance Equity Plan”), which compensates J. Frank Harrison, III based on the Company’s performance. The Long-Term Performance Equity Plan succeeded the Performance Unit Award Agreement upon its expiration. Awards granted under the Long-Term Performance Equity Plan are earned based on the Company’s attainment during a performance period of certain performance measures, each as specified by the Committee. These awards may be settled in cash and/or shares of Class B Common Stock, based on the average of the closing prices of shares of Common Stock during the last twenty trading days of the performance period. Compensation expense for the Long-Term Performance Equity Plan, which is included in SD&A expenses on the condensed consolidated statements of operations, was $6.7 million in the first half of 2019 and $1.0 million in the first half of 2018.

 

22.Accumulated Other Comprehensive Income (Loss)

 

Accumulated other comprehensive income (loss) (“AOCI(L)”) is comprised of adjustments relative to the Company’s pension and postretirement medical benefit plans and foreign currency translation adjustments required for a subsidiary of the Company that performs data analysis and provides consulting services outside the United States.

 

A summary of AOCI(L) for the second quarter of 2019 and the second quarter of 2018 is as follows:

 

(in thousands)

 

March 31, 2019

 

 

Pre-tax Activity

 

 

Tax Effect

 

 

June 30, 2019

 

Net pension activity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Actuarial loss

 

$

(72,011

)

 

$

900

 

 

$

(221

)

 

$

(71,332

)

Prior service costs

 

 

(20

)

 

 

7

 

 

 

(2

)

 

 

(15

)

Net postretirement benefits activity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Actuarial loss

 

 

(4,754

)

 

 

195

 

 

 

(48

)

 

 

(4,607

)

Prior service costs

 

 

107

 

 

 

(322

)

 

 

79

 

 

 

(136

)

Foreign currency translation adjustment

 

 

(9

)

 

 

7

 

 

 

(2

)

 

 

(4

)

Reclassification of stranded tax effects

 

 

(19,720

)

 

 

-

 

 

 

-

 

 

 

(19,720

)

Total

 

$

(96,407

)

 

$

787

 

 

$

(194

)

 

$

(95,814

)

 

(in thousands)

 

April 1, 2018

 

 

Pre-tax Activity

 

 

Tax Effect

 

 

July 1, 2018

 

Net pension activity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Actuarial loss

 

$

(77,915

)

 

$

933

 

 

$

(230

)

 

$

(77,212

)

Prior service costs

 

 

(39

)

 

 

6

 

 

 

(1

)

 

 

(34

)

Net postretirement benefits activity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Actuarial loss

 

 

(16,922

)

 

 

499

 

 

 

(124

)

 

 

(16,547

)

Prior service costs

 

 

1,396

 

 

 

(462

)

 

 

114

 

 

 

1,048

 

Foreign currency translation adjustment

 

 

17

 

 

 

(12

)

 

 

3

 

 

 

8

 

Total

 

$

(93,463

)

 

$

964

 

 

$

(238

)

 

$

(92,737

)

 

A summary of AOCI(L) for the first half of 2019 and the first half of 2018 is as follows:

 

(in thousands)

 

December 30, 2018

 

 

Pre-tax Activity

 

 

Tax Effect

 

 

June 30, 2019

 

Net pension activity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Actuarial loss

 

$

(72,690

)

 

$

1,801

 

 

$

(443

)

 

$

(71,332

)

Prior service costs

 

 

(24

)

 

 

12

 

 

 

(3

)

 

 

(15

)

Net postretirement benefits activity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Actuarial loss

 

 

(4,902

)

 

 

391

 

 

 

(96

)

 

 

(4,607

)

Prior service costs

 

 

351

 

 

 

(646

)

 

 

159

 

 

 

(136

)

Foreign currency translation adjustment

 

 

-

 

 

 

(3

)

 

 

(1

)

 

 

(4

)

Reclassification of stranded tax effects

 

 

-

 

 

 

-

 

 

 

(19,720

)

 

 

(19,720

)

Total

 

$

(77,265

)

 

$

1,555

 

 

$

(20,104

)

 

$

(95,814

)

 

 

25


 

(in thousands)

 

December 31, 2017

 

 

Pre-tax Activity

 

 

Tax Effect

 

 

July 1, 2018

 

Net pension activity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Actuarial loss

 

$

(78,618

)

 

$

1,866

 

 

$

(460

)

 

$

(77,212

)

Prior service costs

 

 

(43

)

 

 

12

 

 

 

(3

)

 

 

(34

)

Net postretirement benefits activity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Actuarial loss

 

 

(17,299

)

 

 

998

 

 

 

(246

)

 

 

(16,547

)

Prior service costs

 

 

1,744

 

 

 

(924

)

 

 

228

 

 

 

1,048

 

Foreign currency translation adjustment

 

 

14

 

 

 

(8

)

 

 

2

 

 

 

8

 

Total

 

$

(94,202

)

 

$

1,944

 

 

$

(479

)

 

$

(92,737

)

 

A summary of the impact of AOCI(L) on certain statements of operations line items is as follows:

 

 

 

Second Quarter 2019

 

(in thousands)

 

Net Pension

Activity

 

 

Net Postretirement

Benefits Activity

 

 

Foreign Currency

Translation Adjustment

 

 

Total

 

Cost of sales

 

$

266

 

 

$

(66

)

 

$

-

 

 

$

200

 

Selling, delivery and administrative expenses

 

 

641

 

 

 

(61

)

 

 

7

 

 

 

587

 

Subtotal pre-tax

 

 

907

 

 

 

(127

)

 

 

7

 

 

 

787

 

Income tax expense

 

 

223

 

 

 

(31

)

 

 

2

 

 

 

194

 

Total after tax effect

 

$

684

 

 

$

(96

)

 

$

5

 

 

$

593

 

 

 

 

Second Quarter 2018

 

(in thousands)

 

Net Pension

Activity

 

 

Net Postretirement

Benefits Activity

 

 

Foreign Currency

Translation Adjustment

 

 

Total

 

Cost of sales

 

$

215

 

 

$

7

 

 

$

-

 

 

$

222

 

Selling, delivery and administrative expenses

 

 

724

 

 

 

30

 

 

 

(12

)

 

 

742

 

Subtotal pre-tax

 

 

939

 

 

 

37

 

 

 

(12

)

 

 

964

 

Income tax expense

 

 

231

 

 

 

10

 

 

 

(3

)

 

 

238

 

Total after tax effect

 

$

708

 

 

$

27

 

 

$

(9

)

 

$

726

 

 

 

 

First Half 2019

 

(in thousands)

 

Net Pension

Activity

 

 

Net Postretirement

Benefits Activity

 

 

Foreign Currency

Translation Adjustment

 

 

Total

 

Cost of sales

 

$

529

 

 

$

(133

)

 

$

-

 

 

$

396

 

Selling, delivery and administrative expenses

 

 

1,284

 

 

 

(122

)

 

 

(3

)

 

 

1,159

 

Subtotal pre-tax

 

 

1,813

 

 

 

(255

)

 

 

(3

)

 

 

1,555

 

Income tax expense

 

 

446

 

 

 

(63

)

 

 

1

 

 

 

384

 

Total after tax effect

 

$

1,367

 

 

$

(192

)

 

$

(4

)

 

$

1,171

 

 

 

 

First Half 2018

 

(in thousands)

 

Net Pension

Activity

 

 

Net Postretirement

Benefits Activity

 

 

Foreign Currency

Translation Adjustment

 

 

Total

 

Cost of sales

 

$

431

 

 

$

13

 

 

$

-

 

 

$

444

 

Selling, delivery and administrative expenses

 

 

1,447

 

 

 

61

 

 

 

(8

)

 

 

1,500

 

Subtotal pre-tax

 

 

1,878

 

 

 

74

 

 

 

(8

)

 

 

1,944

 

Income tax expense

 

 

463

 

 

 

18

 

 

 

(2

)

 

 

479

 

Total after tax effect

 

$

1,415

 

 

$

56

 

 

$

(6

)

 

$

1,465

 

 

 

26


 

23.Supplemental Disclosures of Cash Flow Information

 

Changes in current assets and current liabilities affecting cash flows were as follows:

 

 

 

First Half

 

(in thousands)

 

2019

 

 

2018

 

Accounts receivable, trade, net

 

$

(20,374

)

 

$

(60,592

)

Accounts receivable from The Coca-Cola Company

 

 

(23,273

)

 

 

(7,586

)

Accounts receivable, other

 

 

(8,199

)

 

 

9,923

 

Inventories

 

 

(20,865

)

 

 

(38,455

)

Prepaid expenses and other current assets

 

 

(2,408

)

 

 

11,565

 

Accounts payable, trade

 

 

32,761

 

 

 

12,767

 

Accounts payable to The Coca-Cola Company

 

 

28,237

 

 

 

60,857

 

Other accrued liabilities

 

 

(52,688

)

 

 

13,609

 

Accrued compensation

 

 

(10,256

)

 

 

(18,160

)

Accrued interest payable

 

 

(1,777

)

 

 

(55

)

Change in current assets less current liabilities (exclusive of acquisitions)

 

$

(78,842

)

 

$

(16,127

)

 

 

27


 

Item 2.

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 of Coca‑Cola Consolidated, Inc., a Delaware corporation (together with its majority-owned subsidiaries, the “Company,” “we” or “our”), should be read in conjunction with the condensed consolidated financial statements of the Company and the accompanying notes to the condensed consolidated financial statements.

 

The Company’s fiscal year generally ends on the Sunday closest to December 31 of each year. The condensed consolidated financial statements presented are:

 

 

The financial position as of June 30, 2019 and December 30, 2018.

 

The results of operations and comprehensive income for the 13 week periods ended June 30, 2019 (the “second quarter” of fiscal 2019 (“2019”)) and July 1, 2018 (the “second quarter” of fiscal 2018 (“2018”)), and the 26 week periods ended June 30, 2019 (the “first half” of 2019) and July 1, 2018 (the “first half” of 2018).

 

The changes in cash flows and equity for the first half of 2019 and the first half of 2018.

 

The condensed consolidated financial statements include the consolidated operations of the Company and its majority-owned subsidiaries including Piedmont Coca‑Cola Bottling Partnership (“Piedmont”), the Company’s only subsidiary with a significant noncontrolling interest. This noncontrolling interest consists of The Coca‑Cola Company’s interest in Piedmont, which was 22.7% for all periods presented.

 

Our Business and the Nonalcoholic Beverage Industry

 

We distribute, market and manufacture nonalcoholic beverages in territories spanning 14 states and the District of Columbia. The Company was incorporated in 1980 and, together with its predecessors, has been in the nonalcoholic beverage manufacturing and distribution business since 1902. We are the largest Coca‑Cola bottler in the United States. Approximately 85% of our total bottle/can sales volume to retail customers consists of products of The Coca‑Cola Company, which include some of the most recognized and popular beverage brands in the world. We also distribute products for several other beverage companies, including BA Sports Nutrition, LLC (“BodyArmor”), Keurig Dr Pepper Inc. (“Dr Pepper”) and Monster Energy Company (“Monster Energy”). Our purpose is to honor God, to serve others, to pursue excellence and to grow profitably. Our stock is traded on the NASDAQ Global Select Market under the symbol “COKE.”

 

We offer a range of nonalcoholic beverage products and flavors designed to meet the demands of our consumers, including both sparkling and still beverages. Sparkling beverages are carbonated beverages and the Company’s principal sparkling beverage is Coca‑Cola. Still beverages include energy products and noncarbonated beverages such as bottled water, tea, ready to drink coffee, enhanced water, juices and sports drinks.

 

Our sales are divided into two main categories: (i) bottle/can sales and (ii) other sales. Bottle/can sales include products packaged primarily in plastic bottles and aluminum cans. Other sales include sales to other Coca‑Cola bottlers, “post-mix” products, transportation revenue and equipment maintenance revenue. Post-mix products are dispensed through equipment that mixes fountain syrups with carbonated or still water, enabling fountain retailers to sell finished products to consumers in cups or glasses.

 

Bottle/can net pricing is based on the invoice price charged to customers reduced by any promotional allowances. Bottle/can net pricing per unit is impacted by the price charged per package, the sales volume generated for each package and the channels in which those packages are sold. 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.

 

The nonalcoholic beverage market is highly competitive for both sparkling and still beverages. Our competitors include bottlers and distributors of nationally and regionally advertised and marketed products, as well as bottlers and distributors of private label beverages. Our principal competitors include local bottlers of PepsiCo, Inc. products and, in some regions, local bottlers of Dr Pepper products.

 

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

 

Business seasonality results primarily from higher unit sales of the Company’s products in the second and third quarters of the fiscal year. We believe that we and other manufacturers from whom we purchase finished products have adequate production capacity to

 

28


 

meet sales demand for sparkling and still beverages during these peak periods. Sales volume can also be impacted by weather conditions. Fixed costs, such as depreciation expense, are not significantly impacted by business seasonality.

 

Executive Summary

 

Revenue grew 4.4% in the second quarter of 2019 and 4.0% in the first half of 2019, driven primarily by increased pricing and changes in our product mix. Revenue on our bottle/can Sparkling beverages increased 5.4% in the second quarter as our Sparkling brands continued to perform well at higher price points throughout our territories. Revenue on our Still beverages grew 7.2% in the second quarter, driven primarily by growth in our Sports Drinks and Energy categories. We began distribution of Reign, a fitness-focused energy beverage, in the second quarter, which drove growth in our Energy drinks compared to the second quarter of 2018. In addition, 2019 is our first full year of distributing BodyArmor products, which also helped generate overall higher net sales in our Still beverage category.

 

Gross margin increased 100 basis points in the second quarter of 2019 to 34.2%. On an adjusted basis, as defined in the “Adjusted Non-GAAP Results” section below, gross margin increased 150 basis points over second quarter 2018. Gross margin for the first half of 2019 increased 130 basis points on both an actual and an adjusted basis. This improvement is primarily the result of pricing actions that started in the second half of 2018 to overcome significantly higher input costs. Reduced transportation costs also contributed to higher second quarter 2019 margins as we continue to optimize our supply chain.

 

Selling, delivery and administrative (“SD&A”) expenses in second quarter 2019 decreased $16.5 million, or 4.3%, versus second quarter 2018, largely driven by a decrease in costs from our system transformation initiative. System transformation expenses related to our information technology system conversion were $2.2 million in the second quarter of 2019, versus $9.8 million in the second quarter of 2018. On an adjusted basis, our second quarter 2019 SD&A expenses decreased $6.0 million, or 1.6%, versus the same prior year period. Our adjusted SD&A as a percent of sales improved 180 basis points in the second quarter of 2019 versus the second quarter of 2018 (28.6% versus 30.4%, respectively). Our second quarter 2019 expenses also reflect the benefit of the operating structure changes we completed in 2018.

 

Income from operations in the second quarter of 2019 and the first half of 2019 was $67.2 million and $87.4 million, respectively. Adjusted income from operations was $77.5 million in the second quarter of 2019, an increase of $43.5 million from the second quarter of 2018. Adjusted income from operations was $98.3 million in the first half of 2019, an increase of $67.8 million from the first half of 2018.

 

Net income in the second quarter of 2019 was $15.4 million compared to a net loss of $3.9 million in the second quarter of 2018, an improvement of $19.3 million. For the first half of 2019, net income increased $26.7 million compared to the first half of 2018. Net income for the second quarter and the first half of 2019 was adversely impacted by other expense of $31.2 million and $47.0 million, respectively. Other expense for these periods was primarily comprised of fair value adjustments to the acquisition related contingent consideration liability, driven by changes in the discount rate and future cash flow projections.

 

Capital spending for the first half of 2019 was $57.6 million. We continue to anticipate capital spending in fiscal 2019 will be in the range of $150 million to $180 million as we remain focused on making prudent, long-term investments to support the growth of the Company. Cash flows provided by operations for the first half of 2019 were $88.6 million, compared to $57.2 million in the first half of 2018. Improved cash generation is a key management focus area for 2019 as we strive to improve our profitability, reduce our financial leverage and further strengthen our balance sheet.

 

Areas of Emphasis

 

Key priorities for the Company include acquisition synergies and cost optimization, revenue management, free cash flow generation and debt repayment, distribution network optimization and cost management.

 

Acquisition Synergies and Cost Optimization: In October 2017, the Company completed a series of distribution territory and regional manufacturing facility acquisitions and exchanges with The Coca‑Cola Company, Coca‑Cola Refreshments USA, Inc., a wholly-owned subsidiary of The Coca‑Cola Company, and Coca‑Cola Bottling Company United, Inc., an independent bottler that is unrelated to the Company, to significantly expand the Company’s distribution and manufacturing operations (the “System Transformation”). As the Company continues to integrate these acquired territories and facilities into its operations, the Company remains focused on synergy and cost optimization opportunities across its business, including opportunities across its manufacturing network, distribution network and back office functions. The Company anticipates identifying, investing against and executing these synergy and cost optimization opportunities will be a key driver of its results of operations.

 

 

29


 

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. Pricing decisions are made considering a variety of factors, including brand strength, competitive environment, input costs and other market conditions. Revenue management has been and continues to be a key driver which has a significant impact on the Company’s results of operations.

 

Free Cash Flow Generation and Debt Repayment:  Upon completion of the System Transformation transactions in October 2017, the Company’s debt balance exceeded $1.1 billion. Generating free cash flow and reducing its debt balance will continue to be a key focus for the Company. The Company has several initiatives in place to optimize free cash flow, improve profitability and prudently manage its capital expenditures in order to generate strong free cash flow and reduce its financial leverage.

 

Distribution Network Optimization and Cost Management:  Distribution costs represent the costs of transporting finished goods from Company locations to customer outlets. Total distribution costs, including warehouse costs, were $304.7 million in the first half of 2019 and $301.2 million in the first half of 2018. Management of these costs will continue to be a key area of emphasis for the Company. The Company believes that optimizing its expanded distribution footprint will be a key area of focus in the short-term in order to manage this significant cost to its business.

 

Results of Operations

 

Second Quarter Results

 

Our results of operations for the second quarter of 2019 and the second quarter of 2018 are highlighted in the table below and discussed in the following paragraphs:

 

 

 

Second Quarter

 

 

 

 

 

(in thousands)

 

2019

 

 

2018

 

 

Change

 

Net sales

 

$

1,273,659

 

 

$

1,220,003

 

 

$

53,656

 

Cost of sales

 

 

837,880

 

 

 

815,295

 

 

 

22,585

 

Gross profit

 

 

435,779

 

 

 

404,708

 

 

 

31,071

 

Selling, delivery and administrative expenses

 

 

368,565

 

 

 

385,029

 

 

 

(16,464

)

Income from operations

 

 

67,214

 

 

 

19,679

 

 

 

47,535

 

Interest expense, net

 

 

11,995

 

 

 

12,744

 

 

 

(749

)

Other expense, net

 

 

31,181

 

 

 

9,818

 

 

 

21,363

 

Income (loss) before income taxes

 

 

24,038

 

 

 

(2,883

)

 

 

26,921

 

Income tax expense (benefit)

 

 

7,182

 

 

 

(135

)

 

 

7,317

 

Net income (loss)

 

 

16,856

 

 

 

(2,748

)

 

 

19,604

 

Less: Net income attributable to noncontrolling interest

 

 

1,486

 

 

 

1,185

 

 

 

301

 

Net income (loss) attributable to Coca-Cola Consolidated, Inc.

 

$

15,370

 

 

$

(3,933

)

 

$

19,303

 

Other comprehensive income, net of tax

 

 

593

 

 

 

726

 

 

 

(133

)

Comprehensive income (loss) attributable to Coca-Cola Consolidated, Inc.

 

$

15,963

 

 

$

(3,207

)

 

$

19,170

 

 

Items Impacting Operations and Financial Condition

 

Second Quarter 2019

 

 

$29.3 million recorded in other expense, net as a result of an increase in the fair value of the Company’s contingent consideration liability; and

 

$4.9 million pre-tax unfavorable mark-to-market adjustments related to the Company’s commodity hedging program.

 

Second Quarter 2018

 

 

$9.8 million of expenses related to the System Transformation transactions, the majority of which were information technology related costs;

 

$9.2 million recorded in other expense, net as a result of an increase in the fair value of the Company’s contingent consideration liability; and

 

$4.8 million recorded in SD&A expenses related to severance and outplacement expenses incurred to optimize labor expense in the Nonalcoholic Beverages segment.

 

30


 

 

Net Sales

 

Net sales increased $53.7 million, or 4.4%, to $1.27 billion in the second quarter of 2019, as compared to $1.22 billion in the second quarter of 2018. The increase in net sales was primarily attributable to the following (in millions):

 

Second Quarter 2019

 

 

Attributable to:

$

56.6

 

 

Increase in net sales primarily related to an increase in average bottle/can sales price per unit to retail customers and the shift in product mix to higher revenue still products in order to meet consumer preferences

 

(17.7

)

 

Decrease in sales volume to other Coca-Cola bottlers

 

7.8

 

 

Increase in net sales related to increased volume

 

7.0

 

 

Other

$

53.7

 

 

Total increase in net sales

 

Net sales by product category were as follows:

 

 

 

Second Quarter

 

 

 

(in thousands)

 

2019

 

 

2018

 

 

% Change

Bottle/can sales:

 

 

 

 

 

 

 

 

 

 

Sparkling beverages (carbonated)

 

$

671,624

 

 

$

637,215

 

 

5.4%

Still beverages (noncarbonated, including energy products)

 

 

421,450

 

 

 

393,015

 

 

7.2%

Total bottle/can sales

 

 

1,093,074

 

 

 

1,030,230

 

 

6.1%

 

 

 

 

 

 

 

 

 

 

 

Other sales:

 

 

 

 

 

 

 

 

 

 

Sales to other Coca-Cola bottlers

 

 

89,278

 

 

 

106,946

 

 

(16.5)%

Post-mix and other

 

 

91,307

 

 

 

82,827

 

 

10.2%

Total other sales

 

 

180,585

 

 

 

189,773

 

 

(4.8)%

 

 

 

 

 

 

 

 

 

 

 

Total net sales

 

$

1,273,659

 

 

$

1,220,003

 

 

4.4%

 

Product category sales volume of physical cases in the second quarter of 2019 and the second quarter of 2018 as a percentage of total bottle/can sales volume and the percentage change by product category were as follows:

 

 

 

Bottle/Can Sales Volume

 

 

 

 

 

Second Quarter

 

 

Bottle/Can Sales

Product Category

 

2019

 

 

2018

 

 

Volume % Change

Sparkling beverages

 

 

69.6

%

 

 

70.3

%

 

(0.6)%

Still beverages (including energy products)

 

 

30.4

%

 

 

29.7

%

 

2.8%

Total bottle/can sales volume

 

 

100.0

%

 

 

100.0

%

 

0.4%

 

As the Company introduces new products, it reassesses the category assigned at the SKU level, therefore categorization could differ from previously presented results to conform with current period categorization. Any differences are not considered material.

 

Cost of Sales

 

Inputs representing a substantial portion of the Company’s cost of sales include: (i) purchases of finished products, (ii) raw material costs, including aluminum cans, plastic bottles and sweetener, (iii) concentrate costs, and (iv) manufacturing costs, including labor, overhead and warehouse costs. In addition, cost of sales includes shipping and handling costs related to the movement of finished goods from manufacturing plants to distribution centers, amortization expense of distribution rights, distribution fees of certain products and marketing credits from brand companies. Raw material costs represent approximately 20% of total cost of sales on an annual basis.

 

 

31


 

Cost of sales increased $22.6 million, or 2.8%, to $837.9 million in the second quarter of 2019, as compared to $815.3 million in the second quarter of 2018. The increase in cost of sales was primarily attributable to the following (in millions):

 

Second Quarter 2019

 

 

Attributable to:

$

29.6

 

 

Increase in cost of sales primarily related to, in order of magnitude, the change in product mix to meet consumer preferences, an increase in concentrate costs and an increase in commodity costs, partially offset by reduced transportation costs

 

(19.6

)

 

Decrease in sales volume to other Coca-Cola bottlers

 

5.6

 

 

Increase in cost of sales related to increased sales volume

 

7.0

 

 

Other

$

22.6

 

 

Total increase in cost of sales

 

The Company relies extensively on advertising and sales promotion in the marketing of its products. The Coca‑Cola Company and other beverage companies that supply concentrates, syrups and finished products to the Company make substantial marketing and advertising expenditures to promote sales in the Company’s territories. Certain of the marketing expenditures by The Coca‑Cola Company and other beverage companies are made pursuant to annual arrangements. The Company also benefits from national advertising programs conducted by The Coca‑Cola Company and other beverage companies. Total marketing funding support from The Coca‑Cola Company and other beverage companies, which includes both direct payments to the Company and payments to customers for marketing programs, was $34.7 million in the second quarter of 2019, as compared to $33.4 million in the second quarter of 2018.

 

The Company’s cost of sales may not be comparable to other peer companies, as some peer companies include all costs related to their distribution network in cost of sales. The Company includes a portion of these costs in SD&A expenses, as described below.

 

Selling, Delivery and Administrative Expenses

 

SD&A expenses include the following: sales management labor costs, distribution costs resulting from transporting finished products from distribution centers to customer locations, distribution center overhead including depreciation expense, distribution center warehousing costs, 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.

 

SD&A expenses decreased by $16.4 million, or 4.3%, to $368.6 million in the second quarter of 2019, as compared to $385.0 million in the second quarter of 2018. SD&A expenses as a percentage of net sales decreased to 28.9% in the second quarter of 2019 from 31.6% in the second quarter of 2018. The decrease in SD&A expenses was primarily attributable to the following (in millions):

 

Second Quarter 2019

 

 

Attributable to:

$

(9.3

)

 

Decrease in employee benefit costs including employee salaries primarily as a result of workforce optimization completed in the second and fourth quarters of 2018, partially offset by an increase in bonuses and incentives primarily related to improved financial results

 

(7.7

)

 

Decrease in System Transformation transactions expenses

 

0.6

 

 

Other

$

(16.4

)

 

Total decrease in SD&A expenses

 

The Company has three primary delivery systems: (i) bulk delivery for large supermarkets, mass merchandisers and club stores, (ii) advanced sale delivery for convenience stores, drug stores, small supermarkets and on-premise accounts and (iii) full-service delivery for its full-service vending customers. Shipping and handling costs related to the movement of finished goods from manufacturing locations to distribution centers are included in cost of sales. Shipping and handling costs related to the movement of finished goods from distribution centers to customer locations, including distribution center warehousing costs, are included in SD&A expenses and totaled $155.8 million in the second quarter of 2019 and $154.2 million in the second quarter of 2018.

 

Interest Expense, Net

 

Interest expense, net, decreased $0.7 million to $12.0 million in the second quarter of 2019, as compared to $12.7 million in the second quarter of 2018. The decrease was primarily a result of lower average debt balances and lower average interest rates.

 

 

32


 

Other Expense, Net

 

A summary of other expense, net is as follows:

 

 

 

Second Quarter

 

(in thousands)

 

2019

 

 

2018

 

Increase in the fair value of the acquisition related contingent consideration liability

 

$

29,222

 

 

$

9,143

 

Non-service cost component of net periodic benefit cost

 

 

1,959

 

 

 

675

 

Total other expense, net

 

$

31,181

 

 

$

9,818

 

 

Each reporting period, the Company adjusts its contingent consideration liability related to the distribution territories subject to sub-bottling fees to fair value. The fair value is determined by discounting future expected sub-bottling payments required under the Company’s comprehensive beverage agreement, which extend through the life of the applicable distribution assets, using the Company’s estimated weighted average cost of capital (“WACC”), which is impacted by many factors, including long-term interest rates and future cash flow projections. The life of these distribution asset is generally 40 years. The Company is required to pay the current portion of the sub-bottling fee on a quarterly basis.

 

The increase in the fair value of the acquisition related contingent consideration liability during the second quarter of 2019 was primarily driven by a decrease in the discount rate and changes in future cash flow projections of the distribution territories subject to sub-bottling fees. The increase in the fair value of the acquisition related contingent consideration liability during the second quarter of 2018 was primarily driven by cash payments, post-closing adjustments related to System Transformation transactions and changes in future cash flow projections of the distribution territories subject to sub-bottling fees.

 

Income Tax Expense (Benefit)

 

The Company’s effective income tax rate, calculated by dividing income tax expense (benefit) by income (loss) before income taxes, was 29.9% for the second quarter of 2019 and 4.7% for the second quarter of 2018. The increase in the effective tax rate was primarily driven by improved financial results. The Company’s effective tax rate, calculated by dividing income tax expense (benefit) by income (loss) before income taxes minus net income attributable to noncontrolling interest, was 31.8% for the second quarter of 2019 and 3.3% for the second quarter of 2018.

 

Noncontrolling Interest

 

The Company recorded net income attributable to noncontrolling interest of $1.5 million in the second quarter of 2019 and $1.2 million in the second quarter of 2018, each 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 $0.6 million in the second quarter of 2019 and $0.7 million in the second quarter of 2018.

 

 

33


 

First Half Results

 

Our results of operations for the first half of 2019 and the first half of 2018 are highlighted in the table below and discussed in the following paragraphs:

 

 

 

First Half

 

 

 

 

 

(in thousands)

 

2019

 

 

2018

 

 

Change

 

Net sales

 

$

2,376,571

 

 

$

2,284,760

 

 

$

91,811

 

Cost of sales

 

 

1,551,484

 

 

 

1,522,411

 

 

 

29,073

 

Gross profit

 

 

825,087

 

 

 

762,349

 

 

 

62,738

 

Selling, delivery and administrative expenses

 

 

737,719

 

 

 

761,667

 

 

 

(23,948

)

Income from operations

 

 

87,368

 

 

 

682

 

 

 

86,686

 

Interest expense, net

 

 

24,881

 

 

 

24,790

 

 

 

91

 

Other expense, net

 

 

47,032

 

 

 

5,308

 

 

 

41,724

 

Income (loss) before income taxes

 

 

15,455

 

 

 

(29,416

)

 

 

44,871

 

Income tax expense (benefit)

 

 

4,177

 

 

 

(13,106

)

 

 

17,283

 

Net income (loss)

 

 

11,278

 

 

 

(16,310

)

 

 

27,588

 

Less: Net income attributable to noncontrolling interest

 

 

2,739

 

 

 

1,808

 

 

 

931

 

Net income (loss) attributable to Coca-Cola Consolidated, Inc.

 

$

8,539

 

 

$

(18,118

)

 

$

26,657

 

Other comprehensive income, net of tax

 

 

1,171

 

 

 

1,465

 

 

 

(294

)

Comprehensive income (loss) attributable to Coca-Cola Consolidated, Inc.

 

$

9,710

 

 

$

(16,653

)

 

$

26,363

 

 

Items Impacting Operations and Financial Condition

 

First Half 2019

 

 

$43.3 million recorded in other expense, net as a result of an increase in the fair value of the Company’s contingent consideration liability;

 

$6.9 million of expenses related to the System Transformation transactions, the majority of which were information technology related costs; and

 

$4.4 million adjustment to reflect the prospective change of increasing the capitalization thresholds on certain low-cost, short-lived assets. This change is not expected to be material to the condensed consolidated financial statements.

 

First Half 2018

 

 

$22.3 million of expenses related to the System Transformation transactions, the majority of which were information technology related costs;

 

$4.8 million recorded in SD&A expenses related to severance and outplacement expenses incurred to optimize labor expense in the Nonalcoholic Beverages segment; and

 

$4.0 million recorded in other expense, net as a result of an increase in the fair value of the Company’s contingent consideration liability.

 

Net Sales

 

Net sales increased $91.8 million, or 4.0%, to $2.38 billion in the first half of 2019, as compared to $2.28 billion in the first half of 2018. The increase in net sales was primarily attributable to the following (in millions):

 

First Half 2019

 

 

Attributable to:

$

102.6

 

 

Increase in net sales primarily related to an increase in average bottle/can sales price per unit to retail customers and the shift in product mix to higher revenue still products in order to meet consumer preferences

 

(37.7

)

 

Decrease in sales volume to other Coca-Cola bottlers

 

13.6

 

 

Increase in net sales related to increased volume

 

13.3

 

 

Other

$

91.8

 

 

Total increase in net sales

 

 

34


 

Net sales by product category were as follows:

 

 

 

First Half

 

 

 

(in thousands)

 

2019

 

 

2018

 

 

% Change

Bottle/can sales:

 

 

 

 

 

 

 

 

 

 

Sparkling beverages (carbonated)

 

$

1,272,181

 

 

$

1,213,913

 

 

4.8%

Still beverages (noncarbonated, including energy products)

 

 

763,691

 

 

 

706,721

 

 

8.1%

Total bottle/can sales

 

 

2,035,872

 

 

 

1,920,634

 

 

6.0%

 

 

 

 

 

 

 

 

 

 

 

Other sales:

 

 

 

 

 

 

 

 

 

 

Sales to other Coca-Cola bottlers

 

 

170,950

 

 

 

208,680

 

 

(18.1)%

Post-mix and other

 

 

169,749

 

 

 

155,446

 

 

9.2%

Total other sales

 

 

340,699

 

 

 

364,126

 

 

(6.4)%

 

 

 

 

 

 

 

 

 

 

 

Total net sales

 

$

2,376,571

 

 

$

2,284,760

 

 

4.0%

 

Product category sales volume of physical cases in the first half of 2019 and the first half of 2018 as a percentage of total bottle/can sales volume and the percentage change by product category were as follows:

 

 

 

Bottle/Can Sales Volume

 

 

 

 

 

First Half

 

 

Bottle/Can Sales

Product Category

 

2019

 

 

2018

 

 

Volume % Change

Sparkling beverages

 

 

70.8

%

 

 

71.8

%

 

(1.1)%

Still beverages (including energy products)

 

 

29.2

%

 

 

28.2

%

 

3.9%

Total bottle/can sales volume

 

 

100.0

%

 

 

100.0

%

 

0.3%

 

As the Company introduces new products, it reassesses the category assigned at the SKU level, therefore categorization could differ from previously presented results to conform with current period categorization. Any differences are not considered material.

 

The following table summarizes the percentage of the Company’s total bottle/can sales volume to its largest customers, as well as the percentage of the Company’s total net sales that such volume represents:

 

 

 

First Half

 

 

 

2019

 

 

2018

 

Approximate percent of the Company’s total bottle/can sales volume:

 

 

 

 

 

 

 

 

Wal-Mart Stores, Inc.

 

 

19

%

 

 

19

%

The Kroger Company

 

 

12

%

 

 

12

%

Total approximate percent of the Company’s total bottle/can sales volume

 

 

31

%

 

 

31

%

 

 

 

 

 

 

 

 

 

Approximate percent of the Company’s total net sales:

 

 

 

 

 

 

 

 

Wal-Mart Stores, Inc.

 

 

14

%

 

 

13

%

The Kroger Company

 

 

8

%

 

 

8

%

Total approximate percent of the Company’s total net sales

 

 

22

%

 

 

21

%

 

 

35


 

Cost of Sales

 

Cost of sales increased $29.1 million, or 1.9%, to $1.55 billion in the first half of 2019, as compared to $1.52 billion in the first half of 2018. The increase in cost of sales was primarily attributable to the following (in millions):

 

First Half 2019

 

 

Attributable to:

$

57.5

 

 

Increase in cost of sales primarily related to, in order of magnitude, the change in product mix to meet consumer preferences, an increase in commodity costs and an increase in concentrate costs, partially offset by reduced transportation costs

 

(40.3

)

 

Decrease in sales volume to other Coca-Cola bottlers

 

8.5

 

 

Increase in cost of sales related to increased sales volume

 

3.4

 

 

Other

$

29.1

 

 

Total increase in cost of sales

 

Total marketing funding support from The Coca‑Cola Company and other beverage companies was $66.0 million in the first half of 2019, as compared to $63.8 million in the first half of 2018.

 

Selling, Delivery and Administrative Expenses

 

SD&A expenses decreased by $24.0 million, or 3.2%, to $737.7 million in the first half of 2019, as compared to $761.7 million in the first half of 2018. SD&A expenses as a percentage of net sales decreased to 31.0% in the first half of 2019 from 33.3% in the first half of 2018. The decrease in SD&A expenses was primarily attributable to the following (in millions):

 

First Half 2019

 

 

Attributable to:

$

(15.2

)

 

Decrease in System Transformation transactions expenses

 

(7.5

)

 

Decrease in employee benefit costs including employee salaries primarily as a result of workforce optimization completed in the second and fourth quarters of 2018, partially offset by an increase in bonuses and incentives primarily related to improved financial results

 

(1.3

)

 

Other

$

(24.0

)

 

Total decrease in SD&A expenses

 

Shipping and handling costs related to the movement of finished goods from distribution centers to customer locations, including distribution center warehousing costs, are included in SD&A expenses and totaled $304.7 million in the first half of 2019 and $301.2 million in the first half of 2018.

 

Interest Expense, Net

 

Interest expense, net was $24.9 million in the first half of 2019 and $24.8 million in the first half of 2018.

 

Other Expense, Net

 

A summary of other expense, net is as follows:

 

 

 

First Half

 

(in thousands)

 

2019

 

 

2018

 

Increase in the fair value of the acquisition related contingent consideration liability

 

$

43,268

 

 

$

3,957

 

Non-service cost component of net periodic benefit cost

 

 

3,920

 

 

 

1,351

 

Other

 

 

(156

)

 

 

-

 

Total other expense, net

 

$

47,032

 

 

$

5,308

 

 

The increase in the fair value of the acquisition related contingent consideration liability during the first half of 2019 was primarily driven by a decrease in the discount rate and changes in future cash flow projections of the distribution territories subject to sub-bottling fees. The increase in the fair value of the acquisition related contingent consideration liability during the first half of 2018 was primarily driven by cash payments, post-closing adjustments related to System Transformation transactions and changes in future cash flow projections of the distribution territories subject to sub-bottling fees, partially offset by an increase in the discount rate.

 

 

36


 

Income Tax Expense (Benefit)

 

The Company’s effective income tax rate, calculated by dividing income tax expense (benefit) by income (loss) before income taxes, was 27.0% for the first half of 2019 and 44.6% for the first half of 2018. The decrease in the effective tax rate was primarily driven by improved financial results. The Company’s effective tax rate, calculated by dividing income tax expense (benefit) by income (loss) before income taxes minus net income attributable to noncontrolling interest, was 32.8% for the first half of 2019 and 42.0% for the first half of 2018. The Company anticipates the annualized effective tax rate for 2019 will be in the low 30% range.

 

Noncontrolling Interest

 

The Company recorded net income attributable to noncontrolling interest of $2.7 million in the first half of 2019 and $1.8 million in the first half of 2018, each 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 $1.2 million in the first half of 2019 and $1.5 million in the first half of 2018. The decrease was primarily a result of a decrease in actuarial gains on the Company’s postretirement benefit plans.

 

Segment Operating Results

 

The Company evaluates segment reporting in accordance with the Financial Accounting Standards Board 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. Asset information is not provided to the CODM. The Company believes four operating segments exist. Nonalcoholic Beverages represents the vast majority of the Company’s consolidated revenues and income from operations. The additional three operating segments do not meet the quantitative thresholds for separate reporting, either individually or in the aggregate, and therefore have been combined into “All Other.”

 

The Company’s segment results are as follows:

 

 

 

Second Quarter

 

 

First Half

 

(in thousands)

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Net sales:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nonalcoholic Beverages(1)

 

$

1,238,885

 

 

$

1,192,282

 

 

$

2,311,112

 

 

$

2,232,704

 

All Other

 

 

94,942

 

 

 

93,398

 

 

 

182,857

 

 

 

179,997

 

Eliminations(2)

 

 

(60,168

)

 

 

(65,677

)

 

 

(117,398

)

 

 

(127,941

)

Consolidated net sales

 

$

1,273,659

 

 

$

1,220,003

 

 

$

2,376,571

 

 

$

2,284,760

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nonalcoholic Beverages

 

$

57,724

 

 

$

16,089

 

 

$

72,365

 

 

$

(6,656

)

All Other

 

 

9,490

 

 

 

3,590

 

 

 

15,003

 

 

 

7,338

 

Consolidated income from operations

 

$

67,214

 

 

$

19,679

 

 

$

87,368

 

 

$

682

 

 

(1)

The Company historically presented consideration paid to customers under certain contractual arrangements for exclusive distribution rights and sponsorship privileges as a marketing expense within SD&A expenses. The Company has now determined such amounts should be presented as a reduction to net sales and has revised the presentation of previously issued financial statements to correct for this error. Net sales and SD&A expenses were revised by $7.3 million in the second quarter of 2018 and $14.6 million in the first half of 2018. See Note 3 to the condensed consolidated financial statements for additional information.

(2)

The entire net sales elimination for each period presented represents net sales from All Other to the Nonalcoholic Beverages segment. Sales between these segments are recognized at either fair market value or cost depending on the nature of the transaction.

 

Adjusted Non-GAAP Results

 

The Company reports its financial results in accordance with U.S. generally accepted accounting principles (“GAAP”). However, management believes that certain non-GAAP financial measures provide users with additional meaningful financial information that should be considered when assessing the Company’s ongoing performance. Further, with the conversion of its information technology systems, the Company believes these non-GAAP financial measures allow users to better appreciate the impact of this conversion on the Company’s performance.

 

37


 

 

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 adjusted results (non-GAAP):

 

 

 

Second Quarter 2019

 

(in thousands, except per share data)

 

Gross profit

 

 

SD&A expenses

 

 

Income from

operations

 

 

Income before

income taxes

 

 

Net income

 

 

Basic net income per share

 

Reported results (GAAP)

 

$

435,779

 

 

$

368,565

 

 

$

67,214

 

 

$

24,038

 

 

$

15,370

 

 

$

1.64

 

System Transformation transactions expenses(1)

 

 

-

 

 

 

(2,185

)

 

 

2,185

 

 

 

2,185

 

 

 

1,643

 

 

 

0.18

 

Fair value adjustment of acquisition related contingent consideration(2)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

29,222

 

 

 

21,975

 

 

 

2.34

 

Fair value adjustments for commodity hedges(3)

 

 

4,874

 

 

 

(66

)

 

 

4,940

 

 

 

4,940

 

 

 

3,715

 

 

 

0.40

 

Capitalization threshold change for certain assets(4)

 

 

-

 

 

 

(1,903

)

 

 

1,903

 

 

 

1,903

 

 

 

1,431

 

 

 

0.15

 

Memphis-area manufacturing plants consolidation(5)

 

 

1,294

 

 

 

-

 

 

 

1,294

 

 

 

1,294

 

 

 

973

 

 

 

0.10

 

Other tax adjustments(6)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(2,815

)

 

 

(0.30

)

Total reconciling items

 

 

6,168

 

 

 

(4,154

)

 

 

10,322

 

 

 

39,544

 

 

 

26,922

 

 

 

2.87

 

Adjusted results (non-GAAP)

 

$

441,947

 

 

$

364,411

 

 

$

77,536

 

 

$

63,582

 

 

$

42,292

 

 

$

4.51

 

 

 

 

Second Quarter 2018

 

(in thousands, except per share data)

 

Gross profit

 

 

SD&A expenses

 

 

Income from

operations

 

 

Income (loss) before

income taxes

 

 

Net income (loss)

 

 

Basic net income (loss) per share

 

Reported results (GAAP)

 

$

404,708

 

 

$

385,029

 

 

$

19,679

 

 

$

(2,883

)

 

$

(3,933

)

 

$

(0.42

)

System Transformation transactions expenses(1)

 

 

28

 

 

 

(9,843

)

 

 

9,871

 

 

 

9,871

 

 

 

7,423

 

 

 

0.79

 

Workforce optimization expenses(7)

 

 

-

 

 

 

(4,810

)

 

 

4,810

 

 

 

4,810

 

 

 

3,617

 

 

 

0.39

 

Fair value adjustment of acquisition related contingent consideration(2)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

9,143

 

 

 

6,876

 

 

 

0.74

 

Fair value adjustments for commodity hedges(3)

 

 

(249

)

 

 

48

 

 

 

(297

)

 

 

(297

)

 

 

(223

)

 

 

(0.03

)

Other tax adjustments(6)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(3,455

)

 

 

(0.36

)

Total reconciling items

 

 

(221

)

 

 

(14,605

)

 

 

14,384

 

 

 

23,527

 

 

 

14,238

 

 

 

1.53

 

Adjusted results (non-GAAP)

 

$

404,487

 

 

$

370,424

 

 

$

34,063

 

 

$

20,644

 

 

$

10,305

 

 

$

1.11

 

 

 

 

First Half 2019

 

(in thousands, except per share data)

 

Gross profit

 

 

SD&A expenses

 

 

Income from

operations

 

 

Income before

income taxes

 

 

Net income

 

 

Basic net income per share

 

Reported results (GAAP)

 

$

825,087

 

 

$

737,719

 

 

$

87,368

 

 

$

15,455

 

 

$

8,539

 

 

$

0.91

 

System Transformation transactions expenses(1)

 

 

-

 

 

 

(6,915

)

 

 

6,915

 

 

 

6,915

 

 

 

5,200

 

 

 

0.56

 

Fair value adjustment of acquisition related contingent consideration(2)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

43,268

 

 

 

32,538

 

 

 

3.47

 

Fair value adjustments for commodity hedges(3)

 

 

969

 

 

 

2,649

 

 

 

(1,680

)

 

 

(1,680

)

 

 

(1,263

)

 

 

(0.13

)

Capitalization threshold change for certain assets(4)

 

 

-

 

 

 

(4,379

)

 

 

4,379

 

 

 

4,379

 

 

 

3,293

 

 

 

0.35

 

Memphis-area manufacturing plants consolidation(5)

 

 

1,294

 

 

 

-

 

 

 

1,294

 

 

 

1,294

 

 

 

973

 

 

 

0.10

 

Other tax adjustments(6)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(3,660

)

 

 

(0.39

)

Total reconciling items

 

 

2,263

 

 

 

(8,645

)

 

 

10,908

 

 

 

54,176

 

 

 

37,081

 

 

 

3.96

 

Adjusted results (non-GAAP)

 

$

827,350

 

 

$

729,074

 

 

$

98,276

 

 

$

69,631

 

 

$

45,620

 

 

$

4.87

 

 

 

38


 

 

 

First Half 2018

 

(in thousands, except per share data)

 

Gross profit

 

 

SD&A expenses

 

 

Income from

operations

 

 

Income (loss) before

income taxes

 

 

Net income (loss)

 

 

Basic net income (loss) per share

 

Reported results (GAAP)

 

$

762,349

 

 

$

761,667

 

 

$

682

 

 

$

(29,416

)

 

$

(18,118

)

 

$

(1.94

)

System Transformation transactions expenses(1)

 

 

227

 

 

 

(22,094

)

 

 

22,321

 

 

 

22,321

 

 

 

16,785

 

 

 

1.79

 

Workforce optimization expenses(7)

 

 

-

 

 

 

(4,810

)

 

 

4,810

 

 

 

4,810

 

 

 

3,617

 

 

 

0.39

 

Fair value adjustment of acquisition related contingent consideration(2)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

3,957

 

 

 

2,976

 

 

 

0.32

 

Fair value adjustments for commodity hedges(3)

 

 

2,516

 

 

 

(154

)

 

 

2,670

 

 

 

2,670

 

 

 

2,008

 

 

 

0.21

 

Other tax adjustments(6)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(5,798

)

 

 

(0.61

)

Total reconciling items

 

 

2,743

 

 

 

(27,058

)

 

 

29,801

 

 

 

33,758

 

 

 

19,588

 

 

 

2.10

 

Adjusted results (non-GAAP)

 

$

765,092

 

 

$

734,609

 

 

$

30,483

 

 

$

4,342

 

 

$

1,470

 

 

$

0.16

 

 

Following is an explanation of non-GAAP adjustments:

 

(1)

Adjustment reflects expenses related to the System Transformation transactions, which primarily includes information technology systems conversions.

 

(2)

This non-cash, fair value adjustment of acquisition related contingent consideration fluctuates based on factors such as long-term interest rates and future cash flow projections of distribution territories acquired in the System Transformation.

 

(3)

The Company enters into derivative instruments from time to time to hedge some or all of its projected purchases of aluminum, PET resin, diesel fuel and unleaded gasoline in order to mitigate commodity risk. The Company accounts for commodity hedges on a mark-to-market basis.

 

(4)

Adjustment reflects the prospective change of increasing the capitalization thresholds on certain low-cost, short-lived assets. This change is not expected to be material to the condensed consolidated financial statements.

 

(5)

The Company plans to expand its West Memphis, Arkansas manufacturing plant by the end of fiscal 2020, and expects to close its Memphis, Tennessee manufacturing plant upon completion of the West Memphis plant expansion. Adjustment reflects expenses within the Nonalcoholic Beverages segment related to the impairment and accelerated depreciation of property, plant and equipment at the Memphis, Tennessee manufacturing plant. The remaining costs associated with the closure of the Memphis, Tennessee manufacturing plant are not expected to be material to the condensed consolidated financial statements.

 

(6)

Includes items impacting the Company’s effective tax rate.

 

(7)

Adjustment reflects severance and outplacement expenses relating to the Company’s optimization of its labor expense in the Nonalcoholic Beverages segment.

 

Financial Condition

 

Total assets were $3.13 billion on June 30, 2019, which was an increase of $122.2 million from December 30, 2018. Net working capital, defined as current assets less current liabilities, was $262.0 million on June 30, 2019, which was an increase of $66.3 million from December 30, 2018.

 

Significant changes in net working capital on June 30, 2019 from December 30, 2018 were as follows:

 

 

An increase in accounts receivable, trade of $24.0 million and an increase in accounts receivable from The Coca‑Cola Company of $23.3 million primarily as a result of the timing of cash receipts.

 

An increase in inventories of $20.9 million primarily as a result of seasonal builds of inventory and product launches.

 

The addition of the current portion of obligations under operating leases of $14.8 million as a result of the Company recording balances for operating leases on its condensed consolidated balance sheets.

 

An increase in accounts payable, trade of $29.4 million and an increase in accounts payable to The Coca‑Cola Company of $23.6 million primarily as a result of seasonal builds of inventory.

 

A decrease in other accrued liabilities of $53.1 million primarily as a result of the timing of cash payments.

 

A decrease in accrued compensation of $13.0 million primarily as a result of the timing of bonus and incentive payments in the first quarter of the fiscal year.

 

39


 

 

Liquidity and 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 from public markets, private placements and bank facilities. Management believes the Company has sufficient sources of capital available to refinance its maturing debt, finance its business plan, meet its working capital requirements and maintain an appropriate level of capital spending for at least the next 12 months from the issuance of these condensed consolidated financial statements. The amount and frequency of future dividends will be determined by the Company’s Board of Directors in light of the earnings and financial condition of the Company at such time, and no assurance can be given that dividends will be declared or paid in the future.

 

The Company’s total debt as of June 30, 2019 and December 30, 2018 was as follows:

 

(in thousands)

 

Maturity Date

 

June 30, 2019

 

 

December 30, 2018

 

Senior notes and unamortized discount on senior notes(1)(2)

 

4/15/2019

 

$

-

 

 

$

109,922

 

Term loan facility(1)

 

6/7/2021

 

 

270,000

 

 

 

292,500

 

Senior notes

 

2/27/2023

 

 

125,000

 

 

 

125,000

 

Revolving credit facility

 

6/8/2023

 

 

100,000

 

 

 

80,000

 

Senior notes and unamortized discount on senior notes(2)

 

11/25/2025

 

 

349,944

 

 

 

349,939

 

Senior notes

 

10/10/2026

 

 

100,000

 

 

 

-

 

Senior notes

 

3/21/2030

 

 

150,000

 

 

 

150,000

 

Debt issuance costs

 

 

 

 

(2,792

)

 

 

(2,958

)

Total debt

 

 

 

$

1,092,152

 

 

$

1,104,403

 

 

(1)

The senior notes due in 2019 were refinanced on April 10, 2019 using proceeds from the issuance of the senior notes due in 2026 (as discussed below). The Company intends to refinance principal payments due in the next twelve months under the term loan facility, and has the capacity to do so under its revolving credit facility, which is classified as long-term debt. As such, any amounts due in the next twelve months were classified as noncurrent.

(2)

The senior notes due in 2019 were issued at 98.238% of par and the senior notes due in 2025 were issued at 99.975% of par.

 

The Company’s term loan facility matures on June 7, 2021. The original aggregate principal amount borrowed by the Company under the facility was $300 million and repayment of amounts outstanding began in 2018. The Company may request additional term loans under the term loan facility, provided the Company’s aggregate borrowings under the facility do not exceed $500 million.

 

The original aggregate principal amount borrowed by the Company on its senior notes due in 2023 was $125 million. Through June 10, 2019, the Company had the ability to request the lender consider the purchase of additional senior unsecured notes of the Company in an aggregate principal amount of up to $175 million.

 

As discussed below, on April 10, 2019, the Company sold $100 million aggregate principal amount of senior unsecured notes due in 2026 to MetLife Investment Advisors, LLC (“MetLife”) and certain of its affiliates. The Company may request that MetLife consider the purchase of additional senior unsecured notes of the Company under the agreement in an aggregate principal amount of up to $200 million.

 

The Company’s revolving credit facility matures on June 8, 2023 and has an aggregate maximum borrowing capacity of $500 million, which may be increased at the Company’s option to $750 million, subject to obtaining commitments from the lenders and satisfying other conditions specified in the credit agreement. The Company currently believes all banks participating in the revolving credit facility have the ability to and will meet any funding requests from the Company. As of June 30, 2019, the Company had borrowed $100 million under the revolving credit facility, and therefore had $400 million borrowing capacity remaining.

 

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. The Company’s nonpublic debt facilities 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 June 30, 2019. 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.

 

40


 

 

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. Standard & Poor’s rating outlook for the Company is negative and Moody’s rating outlook for the Company is stable. As of June 30, 2019, the Company’s credit ratings were as follows:

 

 

 

Long-Term Debt

Standard & Poor’s

 

BBB

Moody’s

 

Baa2

 

The Company is subject to interest rate risk on its variable rate debt, including the revolving credit facility and the term loan facility. Assuming no changes in the Company’s financial structure, if market interest rates average 1% more over the next twelve months than the interest rates as of June 30, 2019, interest expense for the next twelve months would increase by approximately $3.7 million.

 

The Company’s only Level 3 asset or liability is the acquisition related contingent consideration liability. 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:

 

 

 

Second Quarter

 

 

First Half

 

(in thousands)

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Beginning balance - Level 3 liability

 

$

393,007

 

 

$

368,804

 

 

$

382,898

 

 

$

381,291

 

Measurement period adjustments(1)

 

 

-

 

 

 

3,151

 

 

 

-

 

 

 

2,092

 

Payments of acquisition related contingent consideration

 

 

(6,599

)

 

 

(5,381

)

 

 

(12,836

)

 

 

(11,263

)

Reclassification to current payables

 

 

(3,180

)

 

 

(1,180

)

 

 

(880

)

 

 

(1,540

)

Increase in fair value

 

 

29,222

 

 

 

9,143

 

 

 

43,268

 

 

 

3,957

 

Ending balance - Level 3 liability

 

$

412,450

 

 

$

374,537

 

 

$

412,450

 

 

$

374,537

 

 

(1)

Measurement period adjustments relate to post-closing adjustments made in accordance with the terms and conditions of the applicable asset purchase agreement for distribution territories acquired by the Company in April 2017 and October 2017 as part of the System Transformation. All final post-closing adjustments for these transactions were completed during 2018.

 

 

41


 

Cash Sources and Uses

 

A summary of cash-based activity is as follows:

 

 

 

First Half

 

(in thousands)

 

2019

 

 

2018

 

Cash Sources:

 

 

 

 

 

 

 

 

Borrowings under revolving credit facility

 

$

206,339

 

 

$

190,000

 

Proceeds from issuance of senior notes

 

 

100,000

 

 

 

150,000

 

Net cash provided by operating activities(1)

 

 

88,586

 

 

 

57,242

 

Acquisitions, net of cash acquired and purchase price settlements

 

 

-

 

 

 

4,706

 

Proceeds from cold drink equipment

 

 

-

 

 

 

3,789

 

Proceeds from the sale of property, plant and equipment

 

 

823

 

 

 

3,047

 

Total cash sources

 

$

395,748

 

 

$

408,784

 

 

 

 

 

 

 

 

 

 

Cash Uses:

 

 

 

 

 

 

 

 

Payments on revolving credit facility

 

$

186,339

 

 

$

297,000

 

Payments on term loan facility and senior notes

 

 

132,500

 

 

 

-

 

Additions to property, plant and equipment

 

 

57,581

 

 

 

85,279

 

Payments of acquisition related contingent consideration

 

 

12,836

 

 

 

11,263

 

Cash dividends paid

 

 

4,682

 

 

 

4,671

 

Other distribution agreements

 

 

4,654

 

 

 

-

 

Principal payments on financing or capital lease obligations

 

 

4,261

 

 

 

4,194

 

Investment in CONA Services LLC

 

 

486

 

 

 

2,020

 

Debt issuance fees

 

 

265

 

 

 

1,535

 

Total cash uses

 

$

403,604

 

 

$

405,962

 

Net increase (decrease) in cash

 

$

(7,856

)

 

$

2,822

 

 

(1)

Net cash provided by operating activities in the first half of 2018 included a net refund of income tax payments of $20.0 million.

 

Cash Flows From Operating Activities

 

During the first half of 2019, cash provided by operating activities was $88.6 million, which was an increase of $31.4 million as compared to the first half of 2018. The increase was primarily a result of improved financial results and continued focus on working capital needs in order to optimize free cash flow.

 

Cash Flows From Investing Activities

 

During the first half of 2019, cash used in investing activities was $61.9 million, which was a decrease of $13.9 million as compared to the first half of 2018. The decrease was driven primarily by a reduction in additions to property, plant and equipment, as we remain focused on making prudent long-term investments to support the growth of the Company.

 

Additions to property, plant and equipment were $57.6 million during the first half of 2019. As of June 30, 2019, $10.3 million of additions to property, plant and equipment were accrued in accounts payable, trade. The Company anticipates additions to property, plant and equipment for the remainder of 2019 will be in the range of $90 million to $125 million.

 

Additions to property, plant and equipment during the first half of 2018 were $85.3 million. As of July 1, 2018, $4.2 million of additions to property, plant and equipment were accrued in accounts payable, trade.

 

Cash Flows From Financing Activities

 

During the first half of 2019, cash used in financing activities was $34.5 million and during the first half of 2018, cash provided by financing activities was $21.3 million. The change was primarily driven by net repayments on borrowings in the first half of 2019, stemming from improved financial results.

 

The Company had cash payments for acquisition related contingent consideration of $12.8 million during the first half of 2019 and $11.3 million during the first half of 2018. The Company anticipates that the amount it could pay annually under the acquisition

 

42


 

related contingent consideration arrangements for the distribution territories subject to sub-bottling fees will be in the range of $25 million to $49 million.

 

On April 10, 2019, the Company sold $100 million aggregate principal amount of senior unsecured notes due in 2026 to MetLife and certain of its affiliates pursuant to a Note Purchase and Private Shelf Agreement dated January 23, 2019 between the Company, MetLife and the other parties thereto. These notes bear interest at 3.93%, payable quarterly in arrears, commencing on July 10, 2019, and will mature on October 10, 2026, unless earlier redeemed by the Company. The Company used the proceeds to refinance the senior notes due on April 15, 2019. The Company may request that MetLife consider the purchase of additional senior unsecured notes of the Company under the agreement in an aggregate principal amount of up to $200 million.

 

In 2018, the Company sold $150 million aggregate principal amount of senior unsecured notes due 2030 to NYL Investors LLC (“NYL”) and certain of its affiliates pursuant to the Note Purchase and Private Shelf Agreement dated March 6, 2018 between the Company, NYL and the other parties thereto. These notes bear interest at 3.96%, payable quarterly in arrears, and will mature on March 21, 2030, unless earlier redeemed by the Company. The Company used the proceeds for general corporate purposes.

 

Significant Accounting Policies

 

See Note 1, Note 3 and Note 9 to the condensed consolidated financial statements for information on the Company’s significant accounting policies.

 

Off-Balance Sheet Arrangements

 

The Company is a member of, and has equity ownership in, South Atlantic Canners, Inc. (“SAC”), a manufacturing cooperative comprised of Coca‑Cola bottlers, and has guaranteed $23.9 million of SAC’s debt as of June 30, 2019. In the event SAC fails to fulfill its commitments under the related debt, the Company would be responsible for payment to the lenders up to the level of the guarantee. The Company does not anticipate SAC will fail to fulfill its commitments related to the debt. The Company further believes SAC 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 guarantee. See Note 20 to the condensed consolidated financial statements for additional information.

 

Hedging Activities

 

The Company uses derivative financial instruments to manage its exposure to movements in certain commodity prices. Fees paid by the Company for derivative instruments are amortized over the corresponding period of the instrument. The Company accounts for its commodity hedges on a mark-to-market basis with any expense or income reflected as an adjustment to cost of sales or SD&A expenses.

 

The Company uses several different financial institutions for commodity derivative instruments to minimize the concentration of credit risk. The Company has master agreements with the counterparties to its derivative financial agreements that provide for net settlement of derivative transactions. The net impact of the commodity hedges on the condensed consolidated statements of operations was as follows:

 

 

 

Second Quarter

 

 

First Half

 

(in thousands)

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Cost of sales - increase/(decrease)

 

$

7,784

 

 

$

(459

)

 

$

5,795

 

 

$

2,203

 

SD&A expenses - increase/(decrease)

 

 

388

 

 

 

(363

)

 

 

(1,985

)

 

 

(355

)

Net impact

 

$

8,172

 

 

$

(822

)

 

$

3,810

 

 

$

1,848

 

 

Cautionary Information Regarding Forward-Looking Statements

 

Certain statements contained in this Quarterly Report, or in other public filings, press releases, or other written or oral communications made by Coca‑Cola Consolidated, Inc. 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, SD&A expenses, gross profit, income tax rates, net income per diluted share, dividends, pension plan

 

43


 

contributions, estimated acquisition related contingent consideration payments; or statements regarding the outcome or impact of certain new accounting pronouncements and pending or threatened litigation. These statements include:

 

 

the Company’s beliefs and estimates regarding the impact of the adoption of certain new accounting pronouncements;

 

the Company’s belief that, at any given time, less than 1% of bottle/can sales and post-mix sales could be at risk for return by customers;

 

the Company’s belief that SAC, whose debt the Company guarantees, has sufficient assets and the ability to adjust selling prices of its products to adequately mitigate the risk of material loss from the Company’s guarantee and that the cooperative will perform its obligations under its debt commitments;

 

the Company’s belief that it has, and that other manufacturers from whom the Company purchases finished goods have, adequate production capacity to meet sales demand for sparkling and still beverages during peak periods;

 

the Company’s expectation that certain real estate and equipment operating lease commitments will commence in the remainder of 2019, have lease terms of 5 to 10 years and that the additional lease liability associated with these future lease commitments is expected to be $16.0 million;

 

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 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;

 

the Company’s belief that it has sufficient sources of capital available to refinance its maturing debt, finance its business plan, meet its working capital requirements and maintain an appropriate level of capital spending for at least the next 12 months;

 

the Company’s belief that all the banks participating in the revolving credit facility have the ability to and will meet any funding requests from the Company;

 

the Company’s intention to refinance amounts due in the next twelve months under the term loan facility using the capacity under the revolving credit facility;

 

the Company’s estimate of the useful lives of certain acquired intangible assets and property, plant and equipment;

 

the Company’s estimate that a 10% increase in the market price of certain commodities included as part of its raw materials over the current market prices would cumulatively increase costs during the next 12 months by approximately $57.9 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 that such changes will not have a significant impact on the condensed consolidated financial statements;

 

the Company’s belief that optimizing its expanded distribution footprint will be a key area of focus in the short-term in order to manage this significant cost to its business;

 

the Company’s estimates of certain inputs used in its calculations, including estimated rates of return, estimates of bad debts and amounts that will ultimately be collected, and estimates of inputs used in the calculation and adjustment of the fair value of its acquisition related contingent consideration liability related to the distribution territories subject to sub-bottling fees, such as the amounts that will be paid by the Company in the future under the Company’s comprehensive beverage agreement and the Company’s WACC;

 

the Company’s belief that the range of undiscounted amounts it could pay annually under the acquisition related contingent consideration arrangements is expected to be between $25 million to $49 million;

 

the Company’s belief that the covenants in its nonpublic debt 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 contributions to the two Company-sponsored pension plans is expected to be in the range of $1 million to $2 million for the remainder of 2019;

 

the Company’s belief that additions to property, plant and equipment for the remainder of 2019 are expected to be in the range of $90 million to $125 million and that total additions to property, plant and equipment in fiscal 2019 are expected to be in the range of $150 million to $180 million;

 

the Company’s belief that it has adequately provided for any assessments likely to result from audits by tax authorities in the jurisdictions in which the Company conducts business;

 

the Company’s belief that key priorities include acquisition synergies and cost optimization, revenue management, free cash flow generation and debt repayment, distribution network optimization and cost management;

 

the Company’s belief that the annualized effective tax rate for 2019 will be in the low 30% range;

 

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the Company’s expectation that it will expand its West Memphis, Arkansas manufacturing plant by the end of fiscal 2020 and close its Memphis, Tennessee manufacturing plant upon completion of the West Memphis plant expansion and the Company’s expectation that the remaining costs associated with the closure of the Memphis, Tennessee manufacturing plant will not be material to the condensed consolidated financial statements; 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 June 30, 2019, interest expense for the next twelve months would increase by approximately $3.7 million, assuming no changes in the Company’s financial structure.

 

These forward-looking statements may be identified by the use of the words “believe,” “plan,” “estimate,” “expect,” “anticipate,” “probably,” “should,” “project,” “intend,” “continue,” and other similar terms and expressions. Various risks, uncertainties and other factors may cause the Company’s actual results to differ materially from those expressed or implied in any forward-looking statements. Factors, uncertainties and risks that may result in actual results differing from such forward-looking information include, but are not limited to, those listed in Part I, “Item 1A. Risk Factors” of our Annual Report on Form 10-K for 2018, as well as other factors discussed throughout this Quarterly Report, including, without limitation, the factors described under “Significant Accounting Policies” in our condensed consolidated financial statements, or in other filings or statements made by the Company. All the forward-looking statements in this Quarterly 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 Quarterly 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 3.Quantitative and Qualitative Disclosures About Market Risk.

 

The Company is exposed to certain market risks that arise in the ordinary course of business. The Company may enter into derivative financial instrument transactions to manage or reduce market risk. The Company does not enter into derivative financial instrument transactions for trading or speculative purposes. A discussion of the Company’s primary market risk exposure and interest rate risk is presented below.

 

Debt and Derivative Financial Instruments

 

The Company is subject to interest rate risk on its variable rate debt, including its revolving credit facility and 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 June 30, 2019, interest expense for the next twelve months would increase by approximately $3.7 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 variable rate 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 Company’s comprehensive beverage agreement. As a result, any changes in the underlying risk-free interest rates will impact the fair value of the acquisition related contingent consideration and could materially impact the amount of noncash expense (or income) recorded each reporting period.

 

Raw Material and Commodity Price Risk

 

The Company is also subject to commodity price risk arising from price movements for certain commodities included as part of its raw materials. The Company manages this commodity price risk in some cases by entering into contracts with adjustable prices to hedge commodity purchases. The Company periodically uses derivative commodity instruments in the management of this risk. The Company estimates a 10% increase in the market prices of commodities included as part of its raw materials over the current market prices would cumulatively increase costs during the next 12 months by approximately $57.9 million assuming no change in volume.

 

Fees paid by the Company for agreements to hedge commodity purchases are amortized over the corresponding period of the instruments. The Company accounts for commodity hedges on a mark-to-market basis with any expense or income being reflected as an adjustment to cost of sales or SD&A expenses.

 

 

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Effects of Changing Prices

 

The annual rate of inflation in the United States, as measured by year-over-year changes in the Consumer Price Index (the “CPI”), was 2.4% in 2018 and 2.1% in 2017. Inflation in the prices of those commodities important to the Company’s business is reflected in changes in the CPI, but commodity prices are volatile and in recent years have moved at a faster rate of change than the CPI.

 

The principal effect of inflation in both commodity and consumer prices on the Company’s operating results is to increase costs, both of goods sold and SD&A expenses. Although the Company can offset these cost increases by increasing selling prices for its products, consumers may not have the buying power to cover these increased costs and may reduce their volume of purchases of those products. In that event, selling price increases may not be sufficient to offset completely the Company’s cost increases.

 

Item 4.Controls and Procedures.

 

As of the end of the period covered by this Quarterly Report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s “disclosure controls and procedures” (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), pursuant to Rule 13a-15(b) of the Exchange Act. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of June 30, 2019.

 

There has been no change in the Company’s internal control over financial reporting during the quarter ended June 30, 2019 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

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PART II - OTHER INFORMATION

 

Item 1.

 

The Company is from time to time a party to various lawsuits, claims and other legal proceedings that arise in the ordinary course of business. With respect to all such lawsuits, claims and proceedings, the Company records reserves when it is probable a liability has been incurred and the amount of loss can be reasonably estimated. The Company does not believe that any of these proceedings, individually or in the aggregate, would be expected to have a material adverse effect on its results of operations, financial position or cash flows. The Company maintains liability insurance for certain risks that is subject to certain self-insurance limits.

 

Item 1A.

Risk Factors.

 

There have been no material changes in the Company’s risk factors from those disclosed in Part I, “Item 1A. Risk Factors” in the Company’s Annual Report on Form 10‑K for 2018.

 

Item 6.

Exhibits.

 

Number

 

Description

 

Incorporated by Reference

or Filed Herewith

3.1

 

Restated Certificate of Incorporation of the Company.

 

Exhibit 3.1 to the Company’s Quarterly Report on Form 10‑Q for the quarter ended July 2, 2017 (File No. 0-9286).

3.2

 

Certificate of Amendment to the Restated Certificate of Incorporation of the Company.

 

Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on January 2, 2019 (File No. 0-9286).

3.3

 

Amended and Restated By-laws of the Company.

 

Exhibit 3.2 to the Company’s Current Report on Form 8-K filed on January 2, 2019 (File No. 0-9286).

31.1

 

Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

Filed herewith.

31.2

 

Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

Filed herewith.

32

 

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.

 

Furnished (and not filed) herewith pursuant to Item 601(b)(32)(ii) of Regulation S-K.

101.INS

 

Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

 

Filed herewith.

101.SCH

 

Inline XBRL Taxonomy Extension Schema Document.

 

Filed herewith.

101.CAL

 

Inline XBRL Taxonomy Extension Calculation Linkbase Document.

 

Filed herewith.

101.DEF

 

Inline XBRL Taxonomy Extension Definition Linkbase Document.

 

Filed herewith.

101.LAB

 

Inline XBRL Taxonomy Extension Label Linkbase Document.

 

Filed herewith.

101.PRE

 

Inline XBRL Taxonomy Extension Presentation Linkbase Document.

 

Filed herewith.

104

 

Cover Page Interactive Data File – the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

 

Filed herewith.

 

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

COCA‑COLA CONSOLIDATED, INC.

 

(REGISTRANT)

 

 

 

Date:  August 6, 2019

By:

/s/  F. Scott Anthony

 

 

F. Scott Anthony

 

 

Executive Vice President and Chief Financial Officer

 

 

(Principal Financial Officer of the Registrant)

 

 

 

 

 

 

 

 

 

 

 

 

Date:  August 6, 2019

By:            

/s/  William J. Billiard

 

 

William J. Billiard

 

 

Senior Vice President and Chief Accounting Officer

 

 

(Principal Accounting Officer of the Registrant)

 

 

 

 

 

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