Coca-Cola Bottling Co. Consolidated — FY 2012 Form 10-K
Business context and period. The filing covers the 52-week fiscal year ended December 30, 2012, with comparisons to fiscal 2011. The company, now known as Coca-Cola Consolidated, was the largest independent Coca-Cola bottler in the United States, operating primarily in the Southeast. Coca-Cola products represented approximately 88% of bottle/can volume to retail customers.
Financial performance and position
| Metric | FY 2012 | FY 2011 |
|---|---|---|
| Net sales | $1,614.4 million | $1,561.2 million |
| Gross margin | $654.3 million; 40.5% of sales | $629.2 million; 40.3% of sales |
| Operating income | $88.7 million | $87.5 million |
| Net income attributable to company | $27.2 million | $28.6 million |
| Diluted EPS, Common Stock | $2.94 | $3.09 |
| Cash from operating activities | $83.2 million | $109.7 million |
Sales increased 3.4%, mainly from higher bottle/can pricing and modest volume growth. Still-beverage bottle/can volume rose 9.1%, while sparkling-beverage volume fell 0.5%. Gross margin dollars improved, but net income attributable to the company declined 4.9%; higher selling, delivery and administrative costs and tax expense offset operating gains. The effective tax rate was 41.0%, up from 37.9%.
Cash and cash equivalents were $10.4 million at year-end, down from $90.8 million. Debt and capital lease obligations totaled $493.0 million, versus $597.3 million a year earlier; net debt and lease obligations were $482.6 million. The company repaid $150 million of Senior Notes at maturity, partly using $30 million drawn on its $200 million revolving facility and $20 million on an uncommitted line. It reported $170 million available on the revolving facility and compliance with its covenants. Net working capital was $25.0 million. Capital expenditures were $53.3 million; dividends paid were $9.2 million, equivalent to $1.00 per share for the year.
Fourth-quarter context: Net sales were $386.7 million versus $372.9 million in Q4 2011. Net income attributable to the company was $1.8 million in each quarter.
Material changes, outlook and notable items
- Compared with 2011, 2012 gross margin percentage edged up, but cash from operations fell by $26.5 million, reflecting working-capital timing and higher pension contributions. Pension contributions were $25.0 million, versus $9.5 million in 2011.
- Management expected commodity costs, particularly corn-related costs, to pressure gross margins throughout 2013; margins could be lower than 2012 unless price increases offset the costs. A hypothetical 10% increase in relevant commodity prices was estimated to raise costs by approximately $23 million over the next 12 months, assuming unchanged volume.
- Management forecast 2013 capital expenditures of $75–$85 million, income-tax cash payments of $18–$25 million, pension contributions of $1–$5 million, and postretirement benefit payments of approximately $3 million. The filing provides no clear revenue or earnings forecast.
- In Q4, the company corrected an immaterial prior-period error involving deferred taxes: prior balance sheets understated deferred tax liabilities and overstated retained earnings/equity. The correction did not affect prior statements of operations or cash flows. A 2012 increase in the deferred-tax valuation allowance and commodity-hedge mark-to-market items also affected reported results.
- The company identified key risks including raw-material and fuel cost volatility, dependence on Coca-Cola brands and franchise agreements, customer concentration (Walmart and Food Lion together accounted for about 21% of net sales), changing consumer preferences, and reliance on a limited number of packaging suppliers. The Harrison family controlled approximately 85% of voting power. Related-party leases with entities connected to the CEO were disclosed.
- Management reported that ordinary-course legal matters were not expected to have a material adverse effect and that no material excess loss was reasonably possible. The company guaranteed $35.9 million of cooperative debt; stated maximum exposure including equity interests was $72.8 million. The auditor gave an unqualified opinion and concluded internal control over financial reporting was effective.
Important facts for investors to verify
- Whether price increases can offset forecast commodity-cost pressure without weakening volume or customer relationships.
- Whether operating cash flow recovers after the 2012 decline and supports planned capital spending, pension needs and debt service.
- How the company manages its dependence on Coca-Cola, major retail customers, concentrated packaging suppliers and cooperative guarantees.
- Whether deferred-tax valuation allowances, uncertain tax positions or pension assumptions lead to further expense or balance-sheet changes.
- Whether related-party lease terms, family voting control and other governance arrangements remain acceptable to investors.