Coca-Cola Bottling Co. Consolidated — 2013 Form 10-K
Reporting period: Fiscal year ended December 29, 2013 (52 weeks); comparative period is fiscal 2012, ended December 30, 2012. The filing identifies the registrant as Coca-Cola Bottling Co. Consolidated. The company produces, markets, and distributes nonalcoholic beverages, primarily Coca-Cola products, across its southeastern U.S. territory. Figures below are U.S. dollars; financial-statement amounts are in millions unless stated otherwise.
Financial performance
| Metric | 2013 | 2012 | Change |
|---|---|---|---|
| Net sales | $1,641.3 | $1,614.4 | +1.7% |
| Gross margin | $658.6 | $654.3 | +0.7% |
| Gross margin as % of sales | 40.1% | 40.5% | -0.4 percentage points |
| Selling, delivery and administrative expenses | $585.0 | $565.6 | +3.4% |
| Income from operations | $73.6 | $88.7 | -17.0% |
| Interest expense, net | $29.4 | $35.3 | -16.8% |
| Income before taxes | $44.2 | $53.3 | -17.1% |
| Net income attributable to the company | $27.7 | $27.2 | +1.7% |
| Diluted EPS, Common Stock | $2.98 | $2.94 | +1.4% |
| Cash provided by operating activities | $96.4 | $83.2 | +$13.2 |
Revenue growth was supported by a 10.0% increase in sales volume to other Coca-Cola bottlers and a 1.0% increase in retail bottle/can price per unit. Retail bottle/can volume fell 0.9%, with management citing cooler, wetter weather in the first half of 2013. Still-beverage bottle/can volume rose 8.0%, while sparkling-beverage volume declined 2.8%. Sales to other bottlers generally carry lower margins than retail bottle/can sales.
Operating margin was approximately 4.5% of sales, down from 5.5% in 2012; net margin attributable to the company was approximately 1.7% in both years. Lower interest expense and a substantially lower effective tax rate helped keep attributable net income slightly higher despite lower operating income. The effective tax rate was 27.4%, versus 41.0% in 2012.
Financial position and liquidity
- Total assets were $1,276.2 at year-end, versus $1,283.5 a year earlier. Net working capital was $30.4, up from $25.0.
- Debt and capital lease obligations totaled $463.6, compared with $493.0 in 2012. Cash was $11.8; management’s non-GAAP net debt and capital lease measure was $451.8, down from $482.6.
- Cash provided by operating activities was $96.4; capital expenditures were $61.4, and investing activities used $55.3. Financing activities used $39.7, including $9.2 of dividends. Cash ended the year at $11.8.
- The $200 million revolving facility had $5.0 drawn and $195.0 available; a separate $20 million uncommitted line was fully drawn. The company reported compliance with credit-facility covenants. Its next stated long-term debt maturity was $100 million of notes due April 2015.
- The quarterly dividend was $0.25 per share, or $1.00 per share for the year. The board determines future dividends and no future payment is assured.
Material changes, outlook, and unusual items
- Fourth-quarter 2013 net sales were $394.3 and gross margin was $158.5. The company reported a $4.6 net loss attributable to the company for the quarter, including a $12.0 million noncash pension settlement charge ($7.3 million after tax, or $0.79 per basic share). Full-year attributable net income nevertheless increased 1.7%.
- Other 2013 comparability items included a $3.1 million favorable refund of prior-year cooperative marketing funds, a $0.5 million unfavorable commodity-hedging mark-to-market adjustment, and tax benefits from state legislation, the American Taxpayer Relief Act, and reductions in uncertain tax positions. Certain vending-equipment useful-life changes reduced depreciation by $1.7 million.
- Management expected 2014 capital expenditures of $80–$90 million, cash income-tax requirements of $23–$30 million, and pension contributions of $4–$10 million. It estimated 2014 postretirement benefit payments of about $2.7 million and pension income of about $0.4 million. These are estimates, not earnings guidance.
- Management expected some underlying commodity input costs to increase less in 2014 than in 2013. Separately, it estimated that a 10% increase in relevant commodity prices could raise costs by approximately $27 million over the next 12 months, assuming unchanged volume. It purchased 2014 commodity hedges with a $31.6 million notional amount in February 2014.
- A proposed expansion into parts of Tennessee and Kentucky, including Knoxville, Lexington, and Louisville, remained subject to definitive agreements; management cautioned that completion was not assured. The proposal contemplated acquiring distribution rights, selected assets and working capital, but no production assets, with staged closings expected by late 2014 or early 2015 if finalized.
- The company depended on Coca-Cola products for approximately 88% of retail bottle/can volume. Wal-Mart represented about 15% of net sales and Food Lion about 6%; loss of either could materially harm results. The Harrison family controlled approximately 86% of voting power, limiting other shareholders’ influence.
- Other risks include customer and supplier concentration, concentrate and commodity cost increases, shifts in consumer preferences, weather and seasonality, marketing-support changes, regulation and health-related concerns, labor agreements, pension and benefit costs, and reliance on beverage franchise agreements. The company guaranteed $29.3 million of cooperative debt; its stated maximum exposure including equity interests was $70.9 million if both cooperatives borrowed to capacity. Management said ordinary-course legal matters were not expected to have a material adverse effect.
Key facts for investors to verify
- Whether pricing and mix can offset retail volume weakness, input-cost pressure, and lower-margin sales to other bottlers.
- How recurring operating performance compares with results affected by the pension settlement, marketing-fund refund, tax credits, and depreciation estimate change.
- Progress on the proposed territory expansion, including final terms, funding needs, timing, and expected economics.
- Debt repayment and refinancing capacity, especially the 2015 note maturity, use of the fully drawn uncommitted line, and compliance with revolving-facility covenants.
- Future cash generation and capital spending, alongside pension funding needs and the status of the company’s pension and postretirement obligations.
- Exposure to major customers, Coca-Cola franchise terms and pricing, marketing support, commodity suppliers, and cooperative guarantees.
The independent auditor issued an unqualified opinion on the consolidated financial statements and reported effective internal control over financial reporting as of December 29, 2013.