Ashford University Accounting Paper

Description

Your paper should consist of the following sections: Cash flow Statement, Manufacturing Costs, Cost-Volume-Profit-Analysis, Horizontal and Vertical Analysis, and Ratios. Use two scholarly/peer-reviewed and/or credible sources in addition to the course text to support your analyses.

Here is a breakdown of the sections within the body of the assignment: 
Cash Flow Statement
From the data in the file complete a Cash Flow Statement. Use the column that corresponds to your course. For example, if your course stated May 22, you would use the data from the May–June column.
Manufacturing Costs
From the data in this file complete a Schedule of Cost of Goods Manufactured and a Manufacturing Company Income statement. Use the Cost of Goods Manufactured that was developed in the Schedule of Cost of Goods Statement in the income statement. (See pages 974 through 975 in the text) Use the column that corresponds to your course. For example, if your course stated May 22, you would use the data from the May–June column.
Cost-Volume-Profit Analysis
Last week you should have prepared a break-even chart for submission with this final paper. If you still need to complete it, here are the instructions.
First, watch the video tutorial, Final Paper Break-Even Chart video that walks you through the steps.
Next, download the Excel file that includes the data you will use to complete the break-even chart. Submit the break-even chart as part of your final assignment.
Horizontal and Vertical Analysis
Using the data from the Coca-Cola 2017 Annual Report (Links to an external site.) financial statements, starting on page 60, prepare a horizontal analysis for the balance sheet for a 2-year period and a vertical analysis for the income statement for a 2-year period. Submit the company financial statements with your analysis. The analysis must show all formula calculations to support your results.
Ratio Analysis
Using the data from the Coca-Cola 2017 Annual Report (Links to an external site.) financial statements, starting on page 60, calculate the following ratios:
Common Stockholders Equity Ratio
Profit Margin Ratio
Cash Ratio
Debt to Equity Ratio
Debt Ratio
Explain how the ratio is calculated and discuss and interpret the ratios that you calculated. Submit a screenshot of the company financial statements as an appendix. The analysis must show all formula calculations to support your results.

Use the column based upon this course start date
Cost of Goods Manufactured Data
Direct labor
Depreciation
Purchases of direct material
Beginning work-in-process
Ending direct materials
Indirect materials
Plant utilities, insurance and Property taxes
Ending work-in-process
Beginning direct materials
Indirect labor
Jan-Feb
170000
20200
350300
80175
65200
17750
18575
27100
70025
29500
Mar-Apr
171000
20400
350600
80350
65400
18500
19150
27200
70050
31000
May-Jun
172000
20600
350900
80525
65600
19250
19725
27300
70075
32500
Manufacturing Income Statement Data
Net sales revenue
Income taxes
Beginning finished goods
Supplies expense
Ending finished goods inventory
Cost of goods manufactured
Wage expense
Depreciation expense
Rent expense
Insurance expense
1001000
53500
250
5300
60425
660375
120125
6750
100025
10075
1002000
54000
500
5600
60850
660750
120250
7500
100050
10150
1003000
54500
750
5900
61275
661125
120375
8250
100075
10225
Jul-Aug
173000
20800
351200
80700
65800
20000
20300
27400
70100
34000
Sept-Oct
174000
21000
351500
80875
66000
20750
20875
27500
70125
35500
Nov-Dec
175000
21200
351800
81050
66200
21500
21450
27600
70150
37000
1004000
55000
1000
6200
61700
661500
120500
9000
100100
10300
1005000
55500
1250
6500
62125
661875
120625
9750
100125
10375
1006000
56000
1500
6800
62550
662250
120750
10500
100150
10450
Use the column based upon this course start date
Breakeven Chart
Sale Price
Variable costs
Fixed Costs
Jan-Feb
$12.00
$2.00
$12,000.00
Mar-Apr
$14.00
$4.00
$14,000.00
May-Jun
$16.00
$6.00
$16,000.00
Jul-Aug
$18.00
$8.00
$18,000.00
Sept-Oct
$20.00
$10.00
$20,000.00
Nov-Dec
$22.00
$12.00
$22,000.00
Use the column based upon this course start date
Use the following information and prepare a Statement of Cash Flows in good form
Jan-Feb
Net Income
57000
Depreciation
20000
Purchased fixed assets paying cash
310000
Received $90,000 cash for issuance of notes payable
90000
Received $120,000 cash for issuance of common stock
120000
Paid $20,000 for purchase of treasury stock
20000
Ending cash balance
50000
Class Start Date
Assets
Current assets:
Cash
Accounts receivable
Inventory
Long-term assets
Plant assets
Accumulated depreciation
Total Assets
Jan-Feb
2017
2016
50000
75000
100000
20000
85000
80000
430000
12000
667000
120000
9000
314000
Liabilities
Current liabilities
Accounts payable
Accrued liabilities
Long-term liabilities
Notes payable
Total liabilities
32000
86000
20000
15000
90000
208000
0
35000
Stockholders equity
Common stock
Retained earnings
Treasury stock
Total stockholders equity
Total stockholders equity and liabilities
220000
219000
20000
459000
667000
100000
179000
0
279000
314000
ws in good form
Mar-Apr
May-Jun
Jul-Aug
Sept-Oct
Nov-Dec
67000
25000
310000
90000
120000
20000
65000
77000
30000
310000
90000
120000
20000
80000
87000
35000
310000
90000
120000
20000
95000
97000
40000
310000
90000
120000
20000
110000
Mar-Apr
2017
2016
May-Jun
2017
2016
Jul-Aug
2017
2016
Sept-Oct
2017
2016
Nov-Dec
2017
65000
75000
100000
20000
85000
80000
80000
75000
100000
20000
85000
80000
95000
75000
100000
20000
85000
80000
110000
75000
100000
20000
85000
80000
125000
75000
100000
430000
12000
682000
120000
9000
314000
430000
12000
697000
120000
9000
314000
430000
12000
712000
120000
9000
314000
430000
12000
727000
120000
9000
314000
430000
12000
742000
32000
86000
20000
15000
32000
86000
20000
15000
32000
86000
20000
15000
32000
86000
20000
15000
32000
86000
90000
208000
0
35000
90000
208000
0
35000
90000
208000
0
35000
90000
208000
0
35000
90000
208000
220000
219000
20000
459000
667000
100000
179000
0
279000
314000
220000
219000
20000
459000
667000
100000
179000
0
279000
314000
220000
219000
20000
459000
667000
100000
179000
0
279000
314000
220000
219000
20000
459000
667000
100000
179000
0
279000
314000
220000
219000
20000
459000
667000
Nov-Dec
107000
45000
310000
90000
120000
20000
125000
Nov-Dec
2016
20000
85000
80000
120000
9000
314000
20000
15000
0
35000
100000
179000
0
279000
314000
2017 ANNUAL REPORT
CokeConsolidated.com
STREET ADDRESS
4100 Coca-Cola Plaza, Charlotte, NC 28211
(704) 557-4400
FAC E B O O K
MAILING ADDRESS
PO Box 31487, Charlotte, NC 28231
TWITTER
/CocaColaConsolidated
@CokeCCBCC
I N S TAG R A M
@CocaColaConsolidated
C O C A- C O L A B OT T L I N G C O. C O N S O L I DAT E D
Coca-Cola Bottling Co. Consolidated
2017 ANNUAL REPORT
BOARD OF DIRECTORS
J. Frank Harrison, III
Jennifer K. Mann
CHAIRMAN OF THE BOARD OF DIRECTORS
SENIOR VICE PRESIDENT,
AND CHIEF EXECUTIVE OFFICER,
CHIEF PEOPLE OFFICER AND
COCA-COLA BOTTLING CO. CONSOLIDATED
CHIEF OF STAFF FOR THE PRESIDENT
Sharon A. Decker
CHIEF OPERATING OFFICER,
TRYON EQUESTRIAN PARTNERS,
CAROLINA OPERATIONS
Morgan H. Everett
AND CHIEF EXECUTIVE OFFICER,
THE COCA-COLA COMPANY
James H. Morgan
CHAIRMAN,
COVENANT CAPITAL, LLC
VICE PRESIDENT,
John W. Murrey, III
COCA-COLA BOTTLING CO. CONSOLIDATED
ASSISTANT PROFESSOR (RETIRED),
Henry W. Flint
PRESIDENT AND CHIEF OPERATING OFFICER,
COCA-COLA BOTTLING CO. CONSOLIDATED
James R. Helvey, III
APPALACHIAN SCHOOL OF LAW
Dr. Sue Anne H. Wells
EDUCATOR AND FOUNDER,
CHATTANOOGA GIRLS LEADERSHIP ACADEMY
MANAGING PARTNER,
Dennis A. Wicker
CASSIA CAPITAL PARTNERS, LLC
PARTNER, NELSON, MULLINS,
Dr. William H. Jones
FORMER LIEUTENANT GOVERNOR,
CHANCELLOR,
COLUMBIA INTERNATIONAL UNIVERSITY
Umesh M. Kasbekar
RILEY & SCARBOROUGH, LLP
STATE OF NORTH CAROLINA
Richard T. Williams
VICE PRESIDENT OF CORPORATE
VICE CHAIRMAN
COMMUNITY AFFAIRS,
OF THE BOARD OF DIRECTORS,
DUKE ENERGY CORPORATION
COCA-COLA BOTTLING CO. CONSOLIDATED
PRESIDENT, THE DUKE ENERGY FOUNDATION
(RETIRED)
EXECUTIVE OFFICERS
J. Frank Harrison, III
E. Beauregarde Fisher, III
CHAIRMAN OF THE BOARD OF DIRECTORS
EXECUTIVE VICE PRESIDENT,
AND CHIEF EXECUTIVE OFFICER
GENERAL COUNSEL AND SECRETARY
Henry W. Flint
James E. Harris
PRESIDENT AND CHIEF OPERATING OFFICER
EXECUTIVE VICE PRESIDENT,
Umesh M. Kasbekar
VICE CHAIRMAN
OF THE BOARD OF DIRECTORS
William J. Billiard
SENIOR VICE PRESIDENT AND
CHIEF ACCOUNTING OFFICER
Robert G. Chambless
EXECUTIVE VICE PRESIDENT,
FRANCHISE BEVERAGE OPERATIONS
Morgan H. Everett
VICE PRESIDENT
BUSINESS TRANSFORMATION
AND BUSINESS SERVICES
David M. Katz
EXECUTIVE VICE PRESIDENT
AND CHIEF FINANCIAL OFFICER
Kimberly A. Kuo
SENIOR VICE PRESIDENT,
PUBLIC AFFAIRS, COMMUNICATIONS
AND COMMUNITIES
James L. Matte
SENIOR VICE PRESIDENT,
HUMAN RESOURCES
1
TO OUR SHAREHOLDERS
O U R P U R P O S E —to Honor God in All We Do, to Serve
Others, to Pursue Excellence and to Grow Profitably—
is the fixed compass point guiding Coca-Cola Consolidated.
In April 2017, we were honored and humbled to celebrate
115 years as a Company. And what a momentous year it was.
We completed the acquisition phase of a six-year System
Transformation, which included some of our largest and
most complicated transactions. Through it all, our people
have collaborated with passion, purpose and persistence, as
One Team Coke Consolidated.
When our Company first engaged in the System Transformation
effort in 2013, we had approximately 6,500 teammates in 11
states, serving 21 million consumers. By the end of 2017, we had
over 16,000 teammates in 14 states and the District of Columbia,
serving over 65 million consumers. We have grown our net sales
over the last few years from $1.5 billion to over $4.3 billion. It
has been a journey of hard work, commitment, and tremendous
teamwork – and there is much work still to be done. But, it is
that teamwork and passion that will help us work through all
the challenges of rapid growth, and ultimately strengthen our
business over the long-term.
As we embrace the many opportunities and challenges facing
our Company, we remain focused on pursuing excellence and driving operational improvements by making significant investments
in our business—expanding and refining our commercial and
brand marketing opportunities across our territory, introducing
new sales and operating processes, and building and improving
our facilities. We continued to implement a new IT platform
(CONA), which remains a significant undertaking. Integrating
J. FRANK HARRISON, III
new people, new technology platforms, new facilities and new
processes is a work in progress—but work we are committed
to doing well. We are also focused on continuous improvement
across our business, and are investing strategically to ensure
that our infrastructure, processes and portfolio are as robust
and efficient as possible. Our solid net sales growth of 37% on
an actual basis, and 3.1% on a comparable basis, are positive
results of our efforts.
2017 was again a year of portfolio diversification. While producing and distributing over 300 of the world’s best brands and
flavors, we added bold new and enhanced flavors like Sprite
Cherry and Coke Zero Sugar. Our Monster distribution increased
across our territory. We continue to innovate and expand our
still beverage portfolio, with Gold Peak tea and coffee, Fairlife
milk, Minute Maid Refreshment, Dunkin’ Donuts coffee and
more. In the face of challenging headwinds in our industry, we
produced strong revenue and volume growth, including our
sparkling portfolio. We also expanded our adjacency businesses
and our services to fellow bottlers.
We thank our teammates for the hard work and servant leadership they have exemplified throughout this ongoing season of
transition. We are grateful for the many opportunities we have
to serve our communities, and we do so with passion. We are
positioning our business for long-term growth, as we continue
what has been a rewarding journey.
As Coca-Cola Consolidated remains firmly dedicated to Our
Purpose, we know that by doing things the right way, we can
continue to provide meaningful value to our shareholders, teammates, customers, and communities. We appreciate your support.
HENRY W. FLINT
CHAIRMAN OF THE BOARD AND
PRESIDENT AND
CHIEF EXECUTIVE OFFICER
CHIEF OPERATING OFFICER
3
PEOPLE
O U R P E O P L E P O U R T H E I R H E A R T S I N TO T H E I R
WO R K B E C A U S E W E B E L I E V E I N W H AT W E D O
AND THOSE WE SERVE.
S O M E S AY YO U C A N ’ T B OT T L E T H I S K I N D O F PA S S I O N .
B U T W E D O I T, E V E R Y DAY. F O R YO U .
W E ’ R E TO G E T H E R , O N P U R P O S E .
HIGHLIGHTS
• This year, we welcomed
more than 3,000 new
teammates across our
franchise territory.
• In 2017, we opened our
new state-of-the-art
Learning Center in
Charlotte, NC. We plan to
open additional Learning
Centers to provide even
more opportunities for
our new teammates to
grow and develop in their
Purpose-driven careers.
W E A R E T H A N K F U L for the immense time, talent, and
treasure that our teammates have invested in becoming one
Coke Consolidated, always striving to live out our Values,
to grow our core business, and to serve others.
We’re honored to be a Company that produces and delivers
locally. For more than 115 years, we have been deeply rooted
in our communities, serving our customers, and providing
delicious choices to our consumers.
With every dawn, our people are working hard to drive
innovation and operational efficiencies. Teamwork is at the
heart of all we do. We are genuinely invested in each other,
passionate about our Company and our brands, and committed to serving others.
5
PURPOSE
Coca-Cola Consolidated partnered with
Through our Message in a Bottle campaign, we
Teammates served local families
Charlotte Rescue Mission to provide
delivered thousands of handwritten messages
by providing school supplies and
500 Thanksgiving meals to local
of support to our service members, veterans,
backpacks to students.
families in need.
and their families.
B E H I N D E V E RY B OT T L E , E V E R Y M I N I C A N ,
E V E R Y N E W F L AVO R A N D T I M E L E S S C L A S S I C ,
I S S O M E T H I N G M U C H G R E AT E R .
T H E R E ’ S A S T R O N G P U R P O S E T H AT J O I N S U S
TO G E T H E R , S T R E N G T H E N I N G O U R C O N V I C T I O N
A N D O U R C O M M I T M E N T TO S E R V E O U R C U S TO M E R S ,
OUR CONSUMERS, AND OUR COMMUNITIES.
WE’RE HERE, ON PURPOSE.
HIGHLIGHTS
• We now have chaplaincy
services available at
every location.
• Our teammates

Our teammates partnered with
Appalachia Service Project to build
several new homes for families in need.
contributed over 10,000
volunteer hours to
support veterans, develop
youth, fight homelessness
and hunger, and provide
disaster relief.
E V E RY DAY, more than 16,000 aspiring servant leaders
drive our business forward and impact communities across
our territory.
Our passion fuels us and Our Purpose connects us. We
strive to Honor God in All We Do, in meaningful ways, every
day. As we grow and welcome new teammates across new
states, we remain united as one team, working together to
inspire and serve others.
Through the expansion of our business, we’ve searched
for ways to live Our Purpose every day, caring for people
and supporting our teammates and our communities. Our
chaplaincy program now serves teammates in all of our
facilities. We have worked together to fight hunger and
homelessness and to support families in need. And we’ve
donated funds and delivered products and supplies to those
affected by the year’s tragic natural disasters.
The energy and expertise of new teammates has only
strengthened our commitment to Serve Others, Pursue
Excellence and Grow Profitably. We are inspired to see
teammates of just a few months join others who have served
the Company for decades. Our connection helps us continually grow together.
7
PORTFOLIO
WE ARE H O NO RE D TO PRO DU CE
Commemorative
bottles celebrated
NCAA Champions in
AND DE LIVE R T H E WO RLD’S FAVOR ITE
our communities.
B RANDS — MO RNING , NO O N AND NIG H T.
WE H AVE INVE ST E D IN O U R FAC ILITIES,
PRO CE SS E S , AND SYST E MS TO SUP P OR T
T H E DIVE RS IT Y O F FLAVO RS AN D SIZ ES
WE O FFE R O U R MILLIO NS O F CO NSUMER S.
W E I N N OVAT E , O N P U R P O S E .

Sprite Cherry and Sprite Cherry
Zero became the first national
flavors inspired by consumer
feedback from Coca-Cola
Freestyle Machines.
Minute Maid Refreshment
and Minute Maid Juices To Go
fueled growth in our juice
category.
1 1 5 Y E A R S A G O we began producing and delivering
a single, iconic brand in Greensboro, NC. Through hard
work, innovation, and teamwork, we now serve more than
300 of the world’s best brands and flavors across 14 states
and the District of Columbia.
As we increase our territory, we have more opportunities
to offer more choices to more people. Both our still and
sparkling categories grew in comparable volume. With a
variety of new package sizes, flavors, low- and no-calorie
options and recipes, we offer consumers refreshing options
for every occasion.
Looking forward, we’ll continue to innovate, to be responsive and nimble – inspired by those we serve every day. Each
new twist on an old favorite, such as Sprite Cherry, and every
new way to enjoy a beverage, like our 10-pack mini-cans,
creates new opportunities for our business. We are united
in our dedication to our customers, to our consumers and
to each other.
A compact 253ml bottle is
now in stores, offering
Coca-Cola, Sprite, Diet Coke,
Coke Zero Sugar and
Dr. Pepper.
9
115
N OW S E R V I N G
MORE THAN
OV E R
YEARS OF
BUSINESS
T E A M M AT E S
14 STATES
O P E R AT I O N S I N
300
16,000
O F T H E WO R L D ’ S
BEST BRANDS
A N D F L AVO R S
AND DISTRICT OF COLUMBIA
PA
OH
IL
MD
DE
IN
MO
WV
VA
KY
We built a Sales
& Distribution Center
in Greensboro, NC
and invested in
Coke
facilities across our
Consolidated
NC
TN
territory including
territory
Bishopville, SC,
*
AR
Production
SC
**
Baltimore, MD,
and Alexandria, VA.
Centers
MS
AL
GA
* Coke Consolidated
utilizes a portion of the
production capacity
LA
at SAC, a cooperative
located in Bishopville,
SC, that owns a
261,000 square foot
production facility.
12
FL
PRODUCTION
CENTERS
80
SALES AND
FO U N D E D I N
1902
DISTRIBUTION CENTERS
CO N S U M E R
BASE:
O U R T E A M M AT E S
C O N T R I B U T E D OV E R
10,000
VO L U N T E E R H O U R S
65 MILLION
13 PRODUCTION CENTERS
plus 80 distribution &
sales centers
COKE CONSOLIDATED territory
* Bishopville, SC facility is a cooperative manage
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
⌧
!
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2017
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934
For the transition period from
to
Commission file number 0-9286
COCA-COLA BOTTLING CO. CONSOLIDATED
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
56-0950585
(I.R.S. Employer
Identification No.)
4100 Coca-Cola Plaza, Charlotte, North Carolina 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
Common Stock, $1.00 Par Value
Name of Each Exchange on Which Registered
The NASDAQ Global Select Market
Securities Registered Pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ⌧ No !
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes !
No ⌧
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90
days. Yes ⌧ No !
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and
post such files). Yes ⌧ No !
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of
registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ⌧
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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
Non-accelerated filer
Accelerated filer
Smaller reporting company
Emerging growth company
⌧
! (Do not check if a smaller reporting 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 Act). Yes !
No ⌧
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity
was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter.
Common Stock, $l.00 Par Value
Class B Common Stock, $l.00 Par Value
Market Value as of June 30, 2017
$1,066,187,233
*
*No market exists for the Class B Common Stock, which is neither registered under Section 12 of the Act nor subject to Section 15(d) of the Act. The Class B Common
Stock is convertible into Common Stock on a share-for-share basis at the option of the holder.
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.
Class
Common Stock, $1.00 Par Value
Class B Common Stock, $1.00 Par Value
Outstanding as of February 16, 2018
7,141,447
2,192,722
Documents Incorporated by Reference
Portions of the registrant’s definitive Proxy Statement to be filed pursuant to Section 14 of the Act with respect to the registrant’s 2018 Annual Meeting of Stockholders
are incorporated by reference in Part III, Items 10-14.
Table of Contents
Page
Part I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Business ………………………………………………………………………………………………………………………………………………………….
Risk Factors …………………………………………………………………………………………………………………………………………………….
Unresolved Staff Comments………………………………………………………………………………………………………………………………
Properties ………………………………………………………………………………………………………………………………………………………..
Legal Proceedings…………………………………………………………………………………………………………………………………………….
Mine Safety Disclosures ……………………………………………………………………………………………………………………………………
Executive Officers of the Registrant……………………………………………………………………………………………………………………
3
14
21
21
23
23
24
Part II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities ………….. 26
Selected Financial Data ……………………………………………………………………………………………………………………………………. 28
Management’s Discussion and Analysis of Financial Condition and Results of Operations………………………………………. 29
Quantitative and Qualitative Disclosures About Market Risk ……………………………………………………………………………….. 59
Financial Statements and Supplementary Data ……………………………………………………………………………………………………. 60
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure …………………………………….. 118
Controls and Procedures …………………………………………………………………………………………………………………………………… 118
Other Information ……………………………………………………………………………………………………………………………………………. 118
Part III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Directors, Executive Officers and Corporate Governance ……………………………………………………………………………………..
Executive Compensation …………………………………………………………………………………………………………………………………..
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters ………………………
Certain Relationships and Related Transactions, and Director Independence …………………………………………………………..
Principal Accountant Fees and Services………………………………………………………………………………………………………………
119
119
119
119
119
Part IV
Item 15. Exhibits and Financial Statement Schedules ……………………………………………………………………………………………………….. 120
Item 16. Form 10-K Summary……………………………………………………………………………………………………………………………………….. 127
Signatures ………………………………………………………………………………………………………………………………………………………. 129
2
PART I
Item 1.
Business
Introduction
Coca-Cola Bottling Co. Consolidated, a Delaware corporation (together with its majority-owned subsidiaries, the “Company,”
“CCBCC,” “we,” “our” or “us”), distributes, markets and manufactures 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 independent Coca-Cola bottler in the United States.
Approximately 93% 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
brands including Dr Pepper, Sundrop and 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.”
Ownership
As of December 31, 2017, The Coca-Cola Company owned approximately 35% of the Company’s total outstanding Common Stock,
representing approximately 5% of the total voting power of the Company’s Common Stock and Class B Common Stock voting
together. As long as The Coca-Cola Company holds the number of shares of Common Stock it currently owns, it has the right to have
a designee proposed by the Company for nomination to the Company’s Board of Directors. J. Frank Harrison, III, the Chairman of the
Board of Directors 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 Common Stock and Class B Common Stock voting
together, in favor of such designee. The Coca-Cola Company does not own any shares of the Company’s Class B Common Stock.
Beverage Products
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 and “post-mix” products. Postmix 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 sales represented approximately 84%, 84% and 82% of total net sales for fiscal 2017 (“2017”), fiscal 2016 (“2016”) and
fiscal 2015 (“2015”), respectively. The sparkling beverage category represented approximately 63%, 66% and 70% of total bottle/can
sales during 2017, 2016 and 2015, respectively.
The following table sets forth some of our principal products, including products of The Coca-Cola Company and products licensed to
us by other beverage companies.
The Coca-Cola Company Products
Sparkling Beverages
Still Beverages
Barqs Root Beer
Fanta Zero
Core Power(1)
Peace Tea
Cherry Coke
Fresca
Dasani
POWERade
Cherry Coke Zero
Mello Yello
Dasani Flavors
POWERade Zero
Coca-Cola
Mello Yello Zero
Dunkin’ Donuts Iced Coffee(1)
Tum-E Yummies
Coca-Cola Life
Minute Maid Sparkling
FUZE
Yup Milk(1)
Coca-Cola Vanilla
Pibb Xtra
glacéau smartwater
ZICO
Coca-Cola Zero Sugar
Seagrams Ginger Ale
glacéau vitaminwater
Dasani Sparkling
Sprite
Gold Peak Tea
Diet Barqs Root Beer
Sprite Zero
Hi-C
Diet Coke
Surge
Honest Tea
Diet Coke Splenda®
TAB
Minute Maid Adult Refreshments
Fanta Flavors
Minute Maid Juices To Go
3
Beverage Products Licensed
by Other Beverage Companies
Diet Dr Pepper
Dr Pepper
Full Throttle
Monster Energy products
NOS®
Sundrop
(1) Indicates brands for which The Coca-Cola Company has a license, joint venture or strategic partnership.
System Transformation
We recently concluded a series of transactions with The Coca-Cola Company and Coca-Cola Refreshments USA, Inc. (“CCR”), a
wholly-owned subsidiary of The Coca-Cola Company, which were initiated in April 2013 as part of The Coca-Cola Company’s multiyear refranchising of its North American bottling territories (the “System Transformation”). Through several asset purchase and asset
exchange transactions with The Coca-Cola Company, CCR and Coca-Cola Bottling Company United, Inc. (“United”), an independent
bottler that is unrelated to the Company, we significantly expanded our distribution and manufacturing operations through the
acquisition and exchange of distribution territories and regional manufacturing facilities.
Following the completion of the System Transformation, we are party to several key agreements that (i) provide us with rights to
distribute, market and manufacture beverage products and (ii) coordinate our role in the North American Coca-Cola system. The
following sections summarize certain of these key agreements.
Beverage Distribution and Manufacturing Agreements
We have rights to distribute, promote, market and sell certain nonalcoholic beverages of The Coca-Cola Company pursuant to a
comprehensive beverage agreement with The Coca-Cola Company and CCR. We also have rights to manufacture, produce and
package certain beverages bearing trademarks of The Coca-Cola Company pursuant to a regional manufacturing agreement with
The Coca-Cola Company. These agreements, which are the principal agreements we have with The Coca-Cola Company and its
affiliates following completion of the System Transformation, are described below under the headings “Distribution Agreement with
The Coca-Cola Company and CCR” and “Manufacturing Agreement with The Coca-Cola Company.”
In addition to our agreements with The Coca-Cola Company and CCR, we also have rights to distribute certain beverage brands
owned by other beverage companies, including Dr Pepper and Monster Energy, pursuant to agreements with such other beverage
companies. These agreements are described below under the heading “Distribution Agreements with Other Beverage Companies.”
Distribution Agreement with The Coca-Cola Company and CCR
We have exclusive rights to distribute, promote, market and sell certain beverages and beverage products of The Coca-Cola Company
in certain territories pursuant to a comprehensive beverage agreement with The Coca-Cola Company and CCR entered into on
March 31, 2017 (as amended, the “CBA”), in exchange for which we are required to make quarterly sub-bottling payments to CCR.
The amount of these payments is based on gross profit derived from our sales of beverages and beverage products of
The Coca-Cola Company as well as certain cross-licensed beverage brands not owned or licensed by The Coca-Cola Company. These
sub-bottling payments to CCR are for the territories we acquired in the System Transformation, and are not applicable to those
territories we served prior to the System Transformation or to those territories we acquired in an exchange transaction. Since
March 31, 2017, we entered into a series of amendments to the CBA with The Coca-Cola Company and CCR to add or remove, as
applicable, all territories we acquired or exchanged after that date in the System Transformation.
As of December 31, 2017, the estimated fair value of the contingent consideration related to future sub-bottling payments was
$381.3 million. Each quarter, we adjust the liability to fair value to reflect the estimated fair value of the contingent consideration
related to future sub-bottling payments. See Note 15 to the consolidated financial statements for additional information.
The CBA contains provisions that apply in the event of a potential sale of our company or our aggregate businesses related to the
distribution, promotion, marketing and sale of beverages and beverage products of The Coca-Cola Company. Pursuant to the CBA, we
may only sell our distribution business to either The Coca-Cola Company or third-party buyers approved by The Coca-Cola Company.
We may obtain a list of approved third-party buyers from The Coca-Cola Company on an annual basis or can seek
The Coca-Cola Company’s approval of a potential buyer upon receipt of a third-party offer to purchase our distribution business. If we
wish to sell our distribution business to The Coca-Cola Company and are unable to agree with The Coca-Cola Company on the terms
of a binding purchase and sale agreement, including the purchase price for our distribution business, the CBA provides that we may
either withdraw from negotiations or initiate a third-party valuation process to determine the purchase price and, upon this
determination, opt to continue with our potential sale to The Coca-Cola Company. If we elect to continue with our potential sale,
The Coca-Cola Company will then have the option to (i) purchase our distribution business at the purchase price determined by the
third-party valuation process and pursuant to the sale terms set forth in the CBA (including, to the extent not otherwise agreed to by us
and The Coca-Cola Company, default non-price terms and conditions of the acquisition agreement), or (ii) elect not to purchase our
distribution business, in which case the CBA will be automatically amended to, among other things, permit us to sell our distribution
business to any third party without obtaining The Coca-Cola Company’s prior approval.
4
The CBA further provides:
•
•
•
the right of The Coca-Cola Company to terminate the CBA in the event of an uncured default by us, in which case
The Coca-Cola Company (or its designee) is required to acquire our distribution business;
the requirement that we maintain an annual equivalent case volume per capita change rate that is not less than one standard
deviation below the median of the rates for all U.S. Coca-Cola bottlers for the same period; and
the requirement that we make minimum, ongoing capital expenditures in our distribution business at a specified level.
The CBA prohibits us from producing, manufacturing, preparing, packaging, distributing, selling, dealing in or otherwise using or
handling any beverages, beverage components or other beverage products (i) other than the beverages and beverage products of
The Coca-Cola Company and expressly permitted cross-licensed brands, and (ii) unless otherwise consented to by
The Coca-Cola Company. The CBA has a term of ten years and is renewable by us indefinitely for successive additional terms of ten
years, unless earlier terminated as provided therein.
As part of the System Transformation, on March 31, 2017, each of our then-existing bottling agreements for The Coca-Cola Company
beverage brands was automatically amended, restated and converted into the CBA (the “Bottling Agreement Conversion”), pursuant
to a territory conversion agreement we entered into with The Coca-Cola Company and CCR on September 23, 2015 (as amended, the
“Territory Conversion Agreement”). The Bottling Agreement Conversion included, subject to certain limited exceptions, all of our
then-existing comprehensive beverage agreements, master bottle contracts, allied bottle contracts and other bottling agreements with
The Coca-Cola Company or CCR that authorized us to produce and/or distribute beverages and beverage products of
The Coca-Cola Company in all territories where we (or one of our affiliates) had rights to market, promote, distribute and sell
beverage products owned or licensed by The Coca-Cola Company.
In connection with the Bottling Agreement Conversion, each then-existing bottling agreement for The Coca-Cola Company beverage
brands between The Coca-Cola Company and certain of our subsidiaries, including Piedmont Coca-Cola Bottling Partnership, a
partnership formed by us and The Coca-Cola Company (“Piedmont”), was also amended, restated and converted into a comprehensive
beverage agreement with The Coca-Cola Company, pursuant to which the subsidiary was granted certain exclusive rights to distribute,
promote, market and sell certain beverages and beverage products of The Coca-Cola Company in certain territories. These
comprehensive beverage agreements are substantially similar to the CBA and, as with the treatment of the territories served by the
Company prior to the System Transformation under the CBA, do not require our subsidiaries to make quarterly sub-bottling payments
to CCR.
Manufacturing Agreement with The Coca-Cola Company
We have rights to manufacture, produce and package certain beverages and beverage products of The Coca-Cola Company at our
manufacturing facilities pursuant to a regional manufacturing agreement with The Coca-Cola Company entered into on March 31,
2017 (as amended, the “RMA”). These beverages may be distributed by us for our own account in accordance with the CBA, or may
be sold by us to certain other U.S. Coca-Cola bottlers and to the Coca-Cola North America division of The Coca-Cola Company
(“CCNA”) in accordance with the RMA. Pursuant to the RMA, the prices, or certain elements of the formulas used to determine the
prices, that the Company charges for these sales to CCNA or other U.S. Coca-Cola bottlers are unilaterally established by CCNA from
time to time. Since March 31, 2017, we entered into a series of amendments to the RMA with The Coca-Cola Company to add or
remove, as applicable, all regional manufacturing facilities we acquired or exchanged after that date in the System Transformation.
Under the RMA, our aggregate business primarily related to the manufacture of certain beverages and beverage products of
The Coca-Cola Company and permitted third-party beverage products are subject to the same agreed upon sale process provisions in
the CBA, including the obligation to obtain The Coca-Cola Company’s prior approval of a potential purchaser of our manufacturing
business and provisions for the sale of such business to The Coca-Cola Company. The RMA requires that we make minimum,
ongoing capital expenditures in our manufacturing business at a specified level. The Coca-Cola Company has the right to terminate
the RMA in the event of an uncured default by us under the CBA or in the event of an uncured breach of our material obligations
under the RMA or the NPSG Governance Agreement (as defined below).
The RMA prohibits us from manufacturing any beverages, beverage components or other beverage products (i) other than the
beverages and beverage products of The Coca-Cola Company and certain expressly permitted cross-licensed brands, and (ii) unless
otherwise consented to by The Coca-Cola Company. Subject to The Coca-Cola Company’s termination rights, the RMA has a term
that continues for the duration of the term of the CBA.
As part of the System Transformation and concurrent with the Bottling Agreement Conversion, on March 31, 2017, each of our thenexisting manufacturing agreements with The Coca-Cola Company were amended, restated and converted into the RMA.
5
Finished Goods Supply Arrangements
We have finished goods supply arrangements with other U.S. Coca-Cola bottlers to buy and sell finished products produced under
trademarks owned by The Coca-Cola Company in accordance with the RMA, pursuant to which the prices, or certain elements of the
formulas used to determine the prices, for such finished products are unilaterally established by CCNA from time to time. In most
instances, the Company’s ability to negotiate the prices at which it purchases finished goods bearing trademarks owned by
The Coca-Cola Company from, and the prices at which it sells such finished goods to, other U.S. Coca-Cola bottlers is limited
pursuant to these pricing provisions, which could have an adverse impact on the Company’s profitability.
Distribution Agreements with Other Beverage Companies
In addition to our distribution and manufacturing agreements with The Coca-Cola Company, we also have distribution agreements
with other beverage companies, including Dr Pepper Snapple Group, Inc. (“Dr Pepper Snapple”) and Monster Energy Corporation
(“Monster Energy”).
Our distribution agreements with Dr Pepper Snapple permit us to distribute Dr Pepper and/or Sundrop beverage brands, as well as
certain post-mix products of Dr Pepper Snapple, and our distribution agreement with Monster Energy grants us the rights to distribute
energy drink products offered, packaged and/or marketed by Monster Energy under the primary brand name “Monster.”
Under our distribution agreements with other beverage companies, the price for syrup or concentrate is set by the beverage company
from time to time. Similar to the CBA, these beverage agreements contain restrictions on the use of trademarks, approved bottles, cans
and labels and sale of imitations or substitutes, as well as termination for cause provisions. The territories covered by beverage
agreements with other beverage companies are not always aligned with the territories covered by the CBA, but are generally within
those territory boundaries.
Sales of beverages under these agreements with other beverage companies represented approximately 7%, 10% and 13% of our
bottle/can sales volume to retail customers for each of 2017, 2016 and 2015, respectively.
Other Agreements related to the Coca-Cola System
As part of the System Transformation process, we entered into agreements with The Coca-Cola Company, CCR and other Coca-Cola
bottlers regarding product supply, information technology services and other aspects of the North American Coca-Cola system, as
described below. Many of these agreements involve new system governance structures providing for greater participation and
involvement by bottlers which require increased demands on Company’s management and more collaboration and alignment by the
participating bottlers in order to successfully implement Coca-Cola system plans and strategies. We believe these system governance
initiatives will benefit the Company and the Coca-Cola system, but the failure of these mechanisms to function efficiently could
impair our ability to realize their intended benefits.
Incidence-Based Pricing Agreement with The Coca-Cola Company
The Company has an incidence-based pricing agreement with The Coca-Cola Company, which establishes the prices charged by
The Coca-Cola Company to the Company for (i) concentrates of sparkling and certain still beverages produced by the Company and
(ii) certain purchased still beverages. Under the incidence-based pricing agreement with The Coca-Cola Company, the prices charged
by The Coca-Cola Company are impacted by a number of factors, including the incidence rate in effect, our pricing and sales of
finished products, the channels in which the finished products are sold and package mix. The Coca-Cola Company has no rights under
the incidence-based pricing agreement to establish the resale prices at which we sell its products, but does have rights to establish
pricing under other agreements, including the RMA.
National Product Supply Governance Agreement
We are a member of a national product supply group (the “NPSG”), comprised of The Coca-Cola Company and other Coca-Cola
bottlers who are regional producing bottlers (“RPBs”) in The Coca-Cola Company’s national product supply system, pursuant to a
national product supply governance agreement executed in October 2015 with The Coca-Cola Company and other RPBs (the “NPSG
Governance Agreement”). The stated objectives of the NPSG include, among others, (i) Coca-Cola system strategic infrastructure
investment and divestment planning; (ii) network optimization of all plant to distribution center sourcing; and (iii) new
product/packaging infrastructure planning.
6
Under the NPSG Governance Agreement, the NPSG members established certain governance mechanisms, including a governing
board (the “NPSG Board”) comprised of a representative of (i) the Company, (ii) The Coca-Cola Company and (iii) each other RPB.
As of December 31, 2017, the NPSG Board consisted of The Coca-Cola Company, the Company and seven other RPBs. The NPSG
Board makes and/or oversees and directs certain key decisions regarding the NPSG, including decisions regarding the management
and staffing of the NPSG and the funding for its ongoing operations. Pursuant to the decisions of the NPSG Board made from time to
time and subject to the terms and conditions of the NPSG Governance Agreement, each RPB is required to make investments in its
respective manufacturing assets and implement Coca-Cola system strategic investment opportunities consistent with the NPSG
Governance Agreement. We are also obligated to pay a certain portion of the costs of operating the NPSG.
CONA Services LLC
We are a member of CONA Services LLC (“CONA”), an entity formed with The Coca-Cola Company and certain other Coca-Cola
bottlers pursuant to a limited liability company agreement executed in January 2016 (as amended, the “CONA LLC Agreement”) to
provide business process and information technology services to its members.
Under the CONA LLC Agreement, the business and affairs of CONA are managed by a board of directors comprised of
representatives of its members (the “CONA Board”). All directors are entitled to one vote, regardless of the percentage interest in
CONA held by each member. We currently have the right to designate one of the members of the CONA Board and have a percentage
interest in CONA of approximately 20%. Most matters to be decided by the CONA Board require approval by a majority of a quorum
of the directors, provided that the approval of 80% of the directors is required to, among other things, require members to make
additional capital contributions, approve CONA’s annual operating and capital budgets, and approve capital expenditures in excess of
certain agreed upon amounts.
Each CONA member is required to make capital contributions to CONA if and when approved by the CONA Board. No CONA
member may transfer its membership interest (or any portion thereof) except to a purchaser of the member’s bottling business (or any
portion thereof) and as permitted under the member’s comprehensive beverage agreement with The Coca-Cola Company.
The CONA LLC Agreement further provides that, if CCR grants any major North American Coca-Cola bottler other than a CONA
member rights to (i) manufacture, produce and package or (ii) market, promote, distribute and sell Coca-Cola products, CCR will
require the bottler to become a CONA member, to implement the CONA System in the bottler’s operations and to enter into a master
services agreement with CONA.
We also are party to an amended and restated master services agreement with CONA (the “CONA MSA”), pursuant to which CONA
agreed to make available, and we became authorized to use, the Coke One North America system (the “CONA System”), a uniform
information technology system developed to promote operational efficiency and uniformity among North American Coca-Cola
bottlers. As part of making the CONA System available to us, CONA provides us with certain business process and information
technology services, including the planning, development, management and operation of the CONA System in connection with our
direct store delivery and manufacture of products (collectively, the “CONA Services”). We are also authorized under the CONA MSA
to use the CONA System in connection with our distribution, promotion, marketing, sale and manufacture of beverages we are
authorized to distribute or manufacture under the CBA, the RMA or any other agreement with The Coca-Cola Company, subject to the
provisions of the CONA LLC Agreement and any licenses or other agreements relating to products or services provided by third
parties and used in connection with the CONA System.
In exchange for our rights to use the CONA System and receive the CONA Services under the CONA MSA, we are charged service
fees by CONA based on the number of physical cases of beverages we distributed or manufactured during the applicable period in the
portion of our territories where the CONA Services have then been implemented. Upon the earlier of (i) all members of CONA
beginning to use the CONA System in all territories in which they distribute and manufacture Coca-Cola products (excluding certain
territories of CCR that are expected to be sold to bottlers that are neither members of CONA nor users of the CONA System), or
(ii) December 31, 2018, the service fees will be changed to be an amount per physical case of beverages distributed or manufactured
in any portion of our territories equal to the aggregate costs incurred by CONA to maintain and operate the CONA System and
provide the CONA Services divided by the total number of cases distributed or manufactured by all of the members of CONA, subject
to certain exceptions and provided that the aggregate costs related to CONA’s manufacturing functionality will be borne solely
amongst the CONA members who have rights to manufacture beverages of The Coca-Cola Company. We are obligated to pay the
service fees under the CONA MSA even if we are not using the CONA System for all or any portion of our distribution and
manufacturing operations.
7
Amended and Restated Ancillary Business Letter
As part of the System Transformation, we entered into an amended and restated ancillary business letter with
The Coca-Cola Company on March 31, 2017 (the “Ancillary Business Letter”), pursuant to which we were granted advance waivers
to acquire or develop certain lines of business involving the preparation, distribution, sale, dealing in or otherwise using or handling of
certain beverage products that would otherwise be prohibited under the CBA or any similar agreement.
Under the Ancillary Business Letter, subject to certain limited exceptions, we are prohibited from acquiring or developing any line of
business inside or outside of our territories governed by the CBA or any similar agreement prior to January 1, 2020 without the
consent of The Coca-Cola Company, which consent may not be unreasonably withheld. After January 1, 2020,
The Coca-Cola Company would be required to consent (which consent may not be unreasonably withheld) to our acquisition or
development of (i) any grocery, quick service restaurant, or convenience and petroleum store business engaged in the sale of
beverages, beverage components and other beverage products not otherwise authorized or permitted by the CBA, or (ii) any other line
of business for which beverage activities otherwise prohibited under the CBA represent more than a certain threshold of net sales
(subject to certain limited exceptions).
Distribution Territories and Regional Manufacturing Facilities
We are the largest independent Coca-Cola bottler in the United States, distributing, marketing and manufacturing beverage products in
territories spanning 14 states and the District of Columbia. In addition to the distribution territories and manufacturing facilities we
continue to serve and operate in our historic operational footprint, which includes markets in North Carolina, South Carolina, central
Tennessee, western Virginia and West Virginia, we now service and operate the following additional territories and manufacturing
facilities acquired from CCR and United in the System Transformation:
Distribution Territories Acquired in System Transformation
Johnson City and Morristown, Tennessee
Knoxville, Tennessee
Cleveland and Cookeville, Tennessee
Louisville, Kentucky and Evansville, Indiana
Paducah and Pikeville, Kentucky
Lexington, Kentucky
Norfolk, Fredericksburg and Staunton, Virginia and Elizabeth City, North Carolina
Annapolis, Maryland Make-Ready Center
Easton and Salisbury, Maryland and Richmond and Yorktown, Virginia
Alexandria, Virginia and Capitol Heights and La Plata, Maryland
Baltimore, Hagerstown and Cumberland, Maryland
Cincinnati, Dayton, Lima and Portsmouth, Ohio and Louisa, Kentucky
Anderson, Fort Wayne, Lafayette, South Bend and Terre Haute, Indiana
Indianapolis and Bloomington, Indiana and Columbus and Mansfield, Ohio
Akron, Elyria, Toledo, Willoughby and Youngstown, Ohio
Memphis, Tennessee
Little Rock and West Memphis, Arkansas
Bluffton and Spartanburg, South Carolina(1)
Acquired
From
CCR
CCR
CCR
CCR
CCR
CCR
CCR
CCR
CCR
CCR
CCR
CCR
CCR
CCR
CCR
CCR
CCR
United
Acquisition
Date
May 23, 2014
October 24, 2014
January 30, 2015
February 27, 2015
May 1, 2015
May 1, 2015
October 30, 2015
October 30, 2015
January 29, 2016
April 1, 2016
April 29, 2016
October 28, 2016
January 27, 2017
March 31, 2017
April 28, 2017
October 2, 2017
October 2, 2017
October 2, 2017
Acquired
From
CCR
CCR
CCR
CCR
CCR
CCR
Acquisition
Date
January 29, 2016
April 29, 2016
October 28, 2016
March 31, 2017
April 28, 2017
October 2, 2017
(1) A portion of the Bluffton, South Carolina territory was acquired by Piedmont.
Regional Manufacturing Facilities Acquired in System Transformation
Sandston, Virginia
Silver Spring and Baltimore, Maryland
Cincinnati, Ohio
Indianapolis and Portland, Indiana
Twinsburg, Ohio
Memphis, Tennessee and West Memphis, Arkansas
8
As part of the System Transformation, the Company also divested certain of its distribution territories and one regional manufacturing
facility in asset exchange transactions with CCR and United, summarized as follows:
Distribution Territories and Regional Manufacturing Facilities Exchanged in System
Transformation
Jackson, Tennessee
Leroy, Mobile and Robertsdale, Alabama, Panama City, Florida, Bainbridge, Columbus and
Sylvester, Georgia, Ocean Springs, Mississippi and Mobile Alabama Regional Manufacturing
Facility (the “Deep South”) and Somerset, Kentucky
Florence, Alabama and Laurel, Mississippi
Northeastern Georgia(1)
(1) Territory exchanged by Piedmont.
9
Acquired
By
CCR
CCR
Exchange
Date
May 1, 2015
October 2, 2017
United
United
October 2, 2017
October 2, 2017
Markets Served and Production and Distribution Facilities
As of December 31, 2017, we served approximately 65.0 million consumers within our territories, which comprised 9 principal
markets. Certain information regarding each of these markets follows:
Market
Arkansas /
Northwestern
Mississippi
Indiana /
Southeastern
Illinois
Kentucky / West
Virginia
Maryland /
Delaware / District
of Columbia /
South-Central
Pennsylvania
North Carolina
Ohio
South Carolina
Tennessee
Virginia
Total
Description
A significant portion of central and southern
Arkansas and a portion of western Tennessee,
including Little Rock and West Memphis, Arkansas,
Memphis, Tennessee and a portion of northwestern
Mississippi and surrounding areas.
A significant portion of Indiana and a portion of
southeastern Illinois, including Anderson,
Bloomington, Evansville, Fort Wayne, Indianapolis,
Lafayette, South Bend and Terre Haute, Indiana and
surrounding areas.
A significant portion of northeastern Kentucky, the
majority of West Virginia, a portion of southeastern
Indiana, a majority of southern Ohio and a portion of
southwestern Pennsylvania, including Lexington,
Louisville and Pikeville, Kentucky, Clarksburg,
Elkins, Parkersburg, Craigsville and Charleston, West
Virginia and Cincinnati and Portsmouth, Ohio and
surrounding areas.
The entire state of Maryland, a majority of the state of
Delaware, the District of Columbia, and a portion of
south-central Pennsylvania, including Easton,
Salisbury, Capitol Heights, La Plata, Baltimore,
Hagerstown and Cumberland, Maryland and
surrounding areas.
The majority of North Carolina and a portion of
southern Virginia, including Boone, Hickory, Mount
Airy, Asheville, Charlotte, Greensboro, Fayetteville,
Raleigh, Greenville, New Bern and Wilmington,
North Carolina and surrounding areas.
The majority of Ohio, including Akron, Columbus,
Dayton, Elyria, Lima, Mansfield, Toledo, Willoughby
and Youngstown and surrounding areas.
The majority of South Carolina and a portion of
eastern Tennessee, including Beaufort, Conway,
Marion, Bluffton, Charleston, Columbia, Greenville,
Myrtle Beach and Spartanburg, South Carolina and
surrounding areas and surrounding areas.
A significant portion of central and eastern Tennessee
and a portion of western Kentucky, including
Nashville, Johnson City, Morristown, Knoxville,
Cleveland and Cookeville, Tennessee and Paducah,
Kentucky and surrounding areas.
The majority of Virginia and a portion of southern
West Virginia, including Roanoke, Norfolk, Staunton,
Alexandria, Richmond, Yorktown and
Fredericksburg, Virginia and Beckley, West Virginia
and surrounding areas.
10
Number of
Distribution
Facilities
3
Approximate
Population
3.5 million
Production
Facilities
West Memphis, AR
Memphis, TN
5.6 million
Indianapolis, IN
Portland, IN
8
7.4 million
Cincinnati, OH
12
13.3 million
Baltimore, MD
Silver Spring, MD
7
9.0 million
Charlotte, NC
11
7.0 million
Twinsburg, OH
11
5.0 million
None
9
4.2 million
Nashville, TN
7
10.0 million
Roanoke, VA
Sandston, VA
12
65.0 million
12
80
The Company is also a shareholder in South Atlantic Canners, Inc. (“SAC”), a manufacturing cooperative managed by the Company.
The Company is obligated to purchase 17.5 million cases of finished product from SAC on an annual basis through June 2024. SAC is
located in Bishopville, South Carolina, and the Company utilizes a portion of the production capacity from the Bishopville production
facility.
Raw Materials
In addition to concentrates purchased from The Coca-Cola Company and other beverage companies for use in our beverage
manufacturing, we also purchase sweetener, carbon dioxide, plastic bottles, cans, closures and other packaging materials, as well as
equipment for the distribution, marketing and production of nonalcoholic beverages.
We purchase all of our plastic bottles from Southeastern Container and Western Container, two manufacturing cooperatives we coown with several other Coca-Cola bottlers, and all of our aluminum cans from two domestic suppliers.
Along with all other U.S. Coca-Cola bottlers, we are a member of Coca-Cola Bottlers’ Sales and Services Company, LLC (“CCBSS”),
which was formed in 2003 to facilitate various procurement functions and the distribution of beverage products of
The Coca-Cola Company with the intent of enhancing the efficiency and competitiveness of the Coca-Cola bottling system in the
United States. CCBSS negotiates the procurement for the majority of our raw materials, excluding concentrate.
We are exposed to price risk on commodities such as aluminum, corn, PET resin (a petroleum- or plant-based product), and fuel,
which affects the cost of raw materials used in the production of our finished products. Examples of the raw materials affected include
aluminum cans and plastic bottles used for packaging and high fructose corn syrup used as a product ingredient. Further, we are
exposed to commodity price risk on oil, which impacts our cost of fuel used in the movement and delivery of our products. We
participate in commodity hedging and risk mitigation programs administered both by CCBSS and by the Company. In addition, there
are no limits on the prices The Coca-Cola Company and other beverage companies can charge for concentrate.
Customers and Marketing
The Company’s products are sold and distributed through various channels, including direct sales to retail stores and other outlets such
as food markets, institutional accounts and vending machine outlets. During 2017, approximately 65% of the Company’s bottle/can
sales volume to retail customers was sold for future consumption, while the remaining bottle/can sales volume to retail customers was
sold for immediate consumption. All of the Company’s beverage sales during 2017 were to customers in the United States.
The following table summarizes the percentage of our total bottle/can sales volume to our largest customers as well as the percentage
of our total net sales that such volume represents:
Approximate percent of the Company’s total bottle/can sales volume
Wal-Mart Stores, Inc.
The Kroger Company
Food Lion, LLC
Total approximate percent of the Company’s total bottle/can sales volume
Approximate percent of the Company’s total net sales
Wal-Mart Stores, Inc.
The Kroger Company
Food Lion, LLC
Total approximate percent of the Company’s total net sales
Fiscal Year
2016
2017
2015
19%
10%
6%
35%
20%
6%
8%
34%
22%
6%
7%
35%
13%
7%
4%
24%
14%
5%
5%
24%
15%
5%
5%
25%
The loss of Wal-Mart Stores, Inc., The Kroger Company or Food Lion, LLC as a customer could have a material adverse effect on the
operating and financial results of the Company.
New product introductions, packaging changes and sales promotions are the primary sales and marketing practices in the nonalcoholic
beverage industry and have required, and are expected to continue to require, substantial expenditures. Recent product introductions in
our business include new flavor varieties within certain brands such as Sprite Cherry, POWERade Citrus Passionfruit, Monster Ultra
Violet, Monster Juice Mango Loco, Peace Tea Georgia Peach, Peace Tea Razzleberry, Minute Maid 5% Berry Punch, Dunkin’ Donuts
11
Mocha Iced Coffee, Dunkin’ Donuts French Vanilla Iced Coffee and Coke Zero Sugar. Recent packaging introductions include the
13.7-ounce bottle for Dunkin’ Donuts Iced Coffees, 0.5-liter energy drink cans and eight-packs of 16-ounce energy drinks.
We sell our products primarily in non-refillable bottles and cans, in varying package configurations from market to market. For
example, there may be as many as 28 different packages for Diet Coke within a single geographic area. Bottle/can sales volume to
retail customers during 2017 was approximately 62% bottles and 38% cans.
We rely extensively on advertising in various media outlets, primarily online, television and radio, for the marketing of our products.
The Coca-Cola Company, Monster Energy and Dr Pepper Snapple (collectively, the “Beverage Companies”) make substantial
expenditures on advertising programs in our territories from which we benefit. Although the Beverage Companies have provided us
with marketing funding support in the past, our beverage agreements generally do not obligate the Beverages Companies to do so.
We also expend substantial funds on our own behalf for extensive local sales promotions of our products. Historically, these expenses
have been partially offset by marketing funding support provided to us by the Beverage Companies in support of a variety of
marketing programs, such as point-of-sale displays and merchandising programs. We consider the funds we expend for marketing and
merchandising programs necessary to maintain or increase revenue.
In addition to our marketing and merchandising programs, we believe a sustained and planned charitable giving program to support
communities is an essential component to the success of our brand and, by extension, our sales. In 2017, the Company made cash
donations of approximately $5.8 million to various charities and donor-advised funds in light of the Company’s financial performance,
expanded distribution territory footprint and future business prospects. The Company intends to continue its charitable contributions in
future years, subject to the Company’s financial performance and other business factors.
Seasonality
Business seasonality results primarily from higher unit sales of the Company’s products in the second and third quarters of the fiscal
year. We believe that we and other manufacturers from whom we purchase finished goods have adequate production capacity to meet
sales demand for sparkling and still beverages during these peak periods. See “Item 2. Properties” for information relating to
utilization of our production facilities. Sales volume can also be impacted by weather conditions. Fixed costs, such as depreciation
expense, are not significantly impacted by business seasonality.
Competition
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 Pepsi-Cola and, in some regions, local bottlers of Dr Pepper, Royal
Crown and/or 7-Up products.
The principal methods of competition in the nonalcoholic beverage industry are point-of-sale merchandising, new product
introductions, new vending and dispensing equipment, packaging changes, pricing, price promotions, product quality, retail space
management, customer service, frequency of distribution and advertising. We believe we are competitive in our territories with respect
to these methods of competition.
Government Regulation
Our businesses are subject to various laws and regulations administered by federal, state and local governmental agencies of the
United States, including laws and regulations governing the production, storage, distribution, sale, display, advertising, marketing,
packaging, labeling, content, quality and safety of our products, our occupational health and safety practices, and the transportation
and use of many of our products.
We are required to comply with a variety of U.S. laws and regulations, including but not limited to: the Federal Food, Drug and
Cosmetic Act and various state laws governing food safety; the Food Safety Modernization Act; the Occupational Safety and Health
Act; the Clean Air Act; the Clean Water Act; the Resource Conservation and Recovery Act; the Comprehensive Environmental
Response, Compensation and Liability Act; the Federal Motor Carrier Safety Act; the Lanham Act; various federal and state laws and
regulations governing competition and trade practices; various federal and state laws and regulations governing our employment
practices, including those related to equal employment opportunity, such as the Equal Employment Opportunity Act and the National
Labor Relations Act; and laws regulating the sale of certain of our products in schools.
12
As a manufacturer, distributor and seller of beverage products of the Beverage Companies in exclusive territories, we are subject to
antitrust laws of general applicability. However, pursuant to the United States Soft Drink Interbrand Competition Act, soft drink
bottlers, such as us, are permitted to have exclusive rights to manufacture, distribute and sell a soft drink product in a defined
geographic territory if that soft drink product is in substantial and effective competition with other products of the same general class
in the market. We believe such competition exists in each of the exclusive geographic territories in the United States in which we
operate.
In response to the growing health, nutrition and obesity concerns of today’s youth, a number of states have regulations restricting the
sale of soft drinks and other foods in schools, particularly elementary, middle and high schools. Many of these restrictions have
existed for several years in connection with subsidized meal programs in schools. Restrictive legislation, if widely enacted, could have
an adverse impact on our products, image and reputation.
Most beverage products sold by the Company are classified as food or food products and are therefore eligible for purchase using
supplemental nutrition assistance (“SNAP”) benefits by consumers purchasing them for home consumption. Energy drinks with a
nutrition facts label are also classified as food and are eligible for purchase for home consumption using SNAP benefits, whereas
energy drinks classified as a supplement by the United States Food and Drug Administration (the “FDA”) are not. Regulators may
restrict the use of benefit programs, including SNAP, to purchase certain beverages and foods.
Certain jurisdictions in which our products are sold have imposed, or are considering imposing, taxes, labeling requirements or other
limitations on, or regulations pertaining to, the sale of certain of our products, ingredients or substances contained in, or attributes of,
our products or commodities used in the manufacture of our products, including certain of our products that contain added sugars or
sodium, exceed a specified caloric content, or include specified ingredients such as caffeine.
Legislation has been proposed in Congress and by certain state and local governments which would prohibit the sale of soft drink
products in non-refillable bottles and cans or require a mandatory deposit as a means of encouraging the return of such containers,
each in an attempt to reduce solid waste and litter. We are currently not impacted by this type of proposed legislation, but it is possible
that similar or more restrictive legal requirements may be proposed or enacted within our territories in the future.
We are also subject to federal and local environmental laws, including laws related to water consumption and treatment, wastewater
discharge and air emissions. Our facilities must comply with the Clean Air Act, the Clean Water Act, the Comprehensive
Environmental Response, Compensation and Liability Act, the Resource Conservation and Recovery Act and other federal and state
laws regarding handling, storage, release and disposal of wastes generated on-site and sent to third-party owned and operated off-site
licensed facilities.
Environmental Remediation
We do not currently have any material capital expenditure commitments for environmental compliance or environmental remediation
for any of our properties. We do not believe compliance with enacted or adopted federal, state and local provisions pertaining to the
discharge of materials into the environment or otherwise relating to the protection of the environment will have a material impact on
our consolidated financial statements or our competitive position.
Employees
As of December 31, 2017, we had approximately 16,500 employees, of which approximately 14,500 were full-time and 2,000 were
part-time. Approximately 14% of our labor force is covered by collective bargaining agreements.
Exchange Act Reports
We make available free of charge through our website, www.cokeconsolidated.com, our Annual Report on Form 10-K, Quarterly
Reports on Form 10-Q, Current Reports on Form 8-K, proxy statement and all amendments to these reports. These reports are
available on our website as soon as reasonably practicable after such materials are electronically filed with, or furnished to, the
Securities and Exchange Commission (the “SEC”). The information provided on our website is not part of this report and is not
incorporated herein by reference.
The SEC also maintains a website, www.sec.gov, which contains reports, proxy and information statements and other information filed
electronically with the SEC. Any materials that we file with the SEC may also be read and copied at the SEC’s Public Reference
Room, 100 F Street, N.E., Room 1580, Washington, DC 20549. Information on the operations of the Public Reference Room is
available by calling the SEC at 1-800-SEC-0330.
13
Item 1A.
Risk Factors
In addition to other information in this Form 10-K, the following risk factors should be considered carefully in evaluating the
Company’s business. The Company’s business, financial condition or results of operations could be materially and adversely affected
by any of these risks.
The inability of the Company to successfully integrate the operations and employees acquired in the System Transformation into
existing operations could adversely affect the Company’s business, culture or results of operations.
During the fourth quarter of 2017, the Company completed its System Transformation transactions, through which it acquired
additional distribution territories and manufacturing facilities from CCR and United. Through these acquisitions and the additional
resources needed to support the Company’s growth, the Company has grown from 6,700 employees serving 20.6 million customers in
fiscal 2013 to 16,500 employees serving 65 million customers in 2017.
Although the System Transformation acquisitions are now complete, the Company continues to face risk in its ability to continue to
integrate the Company’s culture, information technology systems, production, distribution, sales and administrative support activities,
internal controls over financial reporting, environmental compliance and health and safety compliance, procedures and policies across
all its territories.
The completed System Transformation acquisitions involve certain other financial and business risks. The Company may not realize a
satisfactory return, including economic benefit and productivity levels, on the Company’s investments. In addition, the Company’s
assumptions for potential growth, synergies or cost savings at the time of the distribution territory and manufacturing facilities
acquisitions may prove to be incorrect. The occurrence of these events could adversely affect the Company’s financial condition or
results of operations.
Changes in public and consumer perception and preferences or government regulations related to nonalcoholic beverages,
including concerns or regulations related to obesity, public health, artificial ingredients and product safety, could reduce demand
for the Company’s products and reduce profitability.
The Company’s business depends substantially on consumer tastes and preferences that change in often unpredictable ways. As the
Company distributes, markets and manufactures beverage brands owned by others, the success of the Company’s business depends in
large measure on working with the Beverage Companies. The Company is reliant upon the ability of The Coca-Cola Company and
other Beverage Companies to develop and introduce product innovations to meet the changing preferences of the broad consumer
market, and failure to satisfy these consumer preferences could adversely affect the profitability of the Company’s business.
Health and wellness trends over the past several years have resulted in a shift in consumer preferences from sugar sweetened sparkling
beverages to diet sparkling beverages, tea, sports drinks, enhanced water and bottled water. Consumers, public health officials, public
health advocates and government officials are becoming increasingly concerned about the public health consequences associated with
obesity, particularly among young people. The production and marketing of beverages are subject to the rules and regulations of the
FDA and other federal, state and local health agencies, and extensive changes in these rules and regulations could increase the
Company’s costs or adversely impact its sales. The Company cannot predict whether any such rules or regulations will be enacted or,
if enacted, the impact that such rules or regulations could have on its business.
In addition, regulatory actions, activities by nongovernmental organizations and public debate and concerns about perceived negative
safety and quality consequences of certain ingredients in the Company’s products, such as non-nutritive sweeteners, may erode
consumers’ confidence in the safety and quality of the Company’s products, whether or not justified. These actions could result in
additional governmental regulations concerning the production, marketing, labeling or availability of the Company’s products or the
ingredients in such products, possible new taxes or negative publicity resulting from actual or threatened legal actions against the
Company or other companies in the same industry, any of which could damage the reputation of the Company or reduce demand for
the Company’s products, which could adversely affect the Company’s profitability.
The Company’s success also depends on its ability to maintain consumer confidence in the safety and quality of all its products. The
Company has rigorous product safety and quality standards. However, if beverage products taken to market are or become
contaminated or adulterated, the Company may be required to conduct costly product recalls and may become subject to product
liability claims and negative publicity, which could cause its business and reputation to suffer.
14
The Company’s business and results of operations may be adversely affected by increased costs, disruption of supply or shortages
of raw materials, fuel and other supplies.
Raw material costs, including the costs for plastic bottles, aluminum cans, resin and high fructose corn syrup, have historically been
subject to significant price volatility and may continue to be in the future. International or domestic geopolitical or other events,
including the imposition of any tariffs and/or quotas by the U.S. government on any of these raw materials, could adversely impact the
supply and cost of these raw materials to us. In addition, there is no limit on the prices The Coca-Cola Company and other Beverage
Companies can charge for concentrate. If the Company cannot offset higher raw material costs with higher selling prices, effective
commodity price hedging, increased sales volume or reductions in other costs, the Company’s profitability could be adversely
affected.
In recent years, there has been consolidation among suppliers of certain of the Company’s raw materials, which could have an adverse
effect on the Company’s ability to negotiate the lowest costs and, in light of the Company’s relatively low in-plant raw material
inventory levels, has the potential for causing interruptions in the Company’s supply of raw materials and in its manufacture of
finished goods.
The Company purchases all of its plastic bottles from Southeastern Container and Western Container, two manufacturing cooperatives
the Company co-owns with several other Coca-Cola bottlers, and all of its aluminum cans from two domestic suppliers. The inability
of these plastic bottle or aluminum can suppliers to meet the Company’s requirements for containers could result in the Company not
being able to fulfill customer orders and production demand until alternative sources of supply are located. The Company attempts to
mitigate these risks by working closely with key suppliers and by purchasing business interruption insurance where appropriate.
Failure of the aluminum can or plastic bottle suppliers to meet the Company’s purchase requirements could negatively impact
inventory levels, customer confidence and results of operations, including sales levels and profitability.
The Company uses a combination of internal and external freight shipping and transportation services to transport and deliver
products. The Company’s freight cost and the timely delivery of our products may be adversely impacted by a number of factors
which could reduce the profitability of the Company’s operations, including driver shortages, reduced availability of independent
contractor drivers, higher fuel costs, weather conditions, traffic congestion, increased government regulation and other matters.
In addition, the Company uses significant amounts of fuel for its delivery fleet and other vehicles used in the distribution of its
products. International or domestic geopolitical or other events could impact the supply and cost of fuel and could impact the timely
delivery of the Company’s products to its customers. Although the Company strives to reduce fuel consumption and uses commodity
hedges to manage the Company’s fuel costs, there can be no assurance the Company will succeed in limiting the impact of fuel price
volatility on the Company’s business or future cost increases, which could reduce the profitability of the Company’s operations.
Technology failures or cyberattacks on the Company’s technology systems could disrupt the Company’s operations and negatively
impact the Company’s reputation, business or results of operations.
The Company depends heavily upon the efficient operation of technological resources and a failure in these technology systems or
controls could negatively impact the Company’s operations, business or results of operations. In addition, the Company continuously
upgrades and updates current technology or installs new technology. The inability to implement upgrades, updates or installations in a
timely manner, to train employees effectively in the use of new or updated technology, or to obtain the anticipated benefits of the
Company’s technology could adversely impact results of operations or profitability.
The Company increasingly relies on information technology systems to process, transmit and store electronic information. For
example, the Company’s production and distribution facilities, inventory management and driver handheld devices all utilize
information technology to maximize efficiencies and minimize costs. Furthermore, a significant portion of the communication
between personnel, customers and suppliers depends on information technology.
Like most companies, the Company’s information technology systems may be vulnerable to interruption due to a variety of events
beyond the Company’s control, including, but not limited to, power outages, computer and telecommunications failures, computer
viruses, other malicious computer programs and cyberattacks, denial-of-service attacks, security breaches, catastrophic events such as
fires, tornadoes, earthquakes and hurricanes, usage errors by employees and other security issues.
The Company has technology security initiatives and disaster recovery plans in place to mitigate its risk to these vulnerabilities,
however these measures may not be adequate or implemented properly to ensure that the Company’s operations are not disrupted. If
the Company’s technology systems are damaged, breached, or cease to function properly, it may incur significant costs to repair or
replace them, and the Company may suffer interruptions in operations, resulting in lost revenues, and delays in reporting its financial
results.
15
Further, misuse, leakage or falsification of the Company’s information could result in violations of data privacy laws and regulations
and damage the reputation and credibility of the Company. The Company may suffer financial and reputational damage because of
lost or misappropriated confidential information belonging to the Company, current or former employees, bottling partners, other
customers, suppliers or consumers, and may become subject to legal action and increased regulatory oversight. The Company could
also be required to spend significant financial and other resources to remedy the damage caused by a security breach or to repair or
replace networks and information technology systems, including liability for stolen information, increased cybersecurity protection
costs, litigation expense and increased insurance premiums.
Any failure or delay of the Company to transition to, and receive anticipated benefits from, the CONA System or the decisions
made by the CONA Board could negatively impact the Company’s results of operations.
The Company is a member of CONA and party to the CONA MSA, pursuant to which the Company is an authorized user of the
CONA System, a uniform information technology system developed to promote operational efficiency and uniformity among all
North American Coca-Cola bottlers. The Company is continuing the process of transitioning its legacy technology system platform to
the CONA System for its manufacturing facilities, distribution facilities and corporate headquarters. The Company anticipates
completing the transition of all locations to the CONA System by the end of fiscal 2018.
Although the Company believes it has taken the necessary steps to mitigate risk associated with a phased cut-over to the CONA
System, including a comprehensive review of internal controls, extensive employee training, and additional verifications and testing to
ensure data integrity, any service interruptions or delays in the Company’s transition to the CONA System could result in increased
costs or adversely impact the Company’s results of operations. In addition, because other Coca-Cola bottlers are also transitioning to
the CONA System and would likely experience similar service interruptions or delays, the Company may not be able to have another
bottler process orders on its behalf during any such event.
The Company currently has the right to designate one of the members of the CONA Board and has a percentage interest in CONA of
approximately 20% but cannot unilaterally control the actions of CONA or the CONA Board. The Company faces the risk that a
software solution beneficial to the Company is not approved by the CONA Board, requiring the Company to invest additional time
and financial resources in developing a solution outside the CONA System to meet its requirements, or that the CONA Board makes
decisions regarding CONA or the CONA System which may be different than decisions the Company would have made on its own
behalf. Further, the Company remains obligated to pay service fees under the CONA MSA even if it is not using the CONA System
for all or any portion of its distribution and manufacturing operations.
There is additional risk involved with the CONA System as the Company relies on CONA to make necessary upgrades and resolve
ongoing or disaster-related technology issues with the CONA System and is limited in its authority and ability to timely resolve errors
or make changes to the CONA software.
Miscalculation of the Company’s need for infrastructure investment could impact the Company’s financial results.
Significant changes from the Company’s expected returns on cold drink equipment, fleet, technology and supply chain infrastructure
investments could adversely affect the Company’s consolidated financial results. Projected requirements for infrastructure investments
may differ from actual levels if the Company does not achieve the sales volume growth it anticipates. The Company’s infrastructure
investments are generally long-term in nature; therefore, it is possible the investments made today may not generate the returns
expected by the Company as a result of future changes in the marketplace. In addition, the Company faces risk in determining the
level of infrastructure investment needed in territories and facilities recently acquired in the System Transformation. Any failure of the
Company to adequately forecast these infrastructure investment requirements could reduce the profitability of the Company’s
operations.
Significant additional labeling or warning requirements may increase costs and inhibit sales of affected products.
The FDA occasionally proposes major changes to the nutrition labels required on all packaged foods and beverages, including those
for most of the Company’s products. Any pervasive nutrition label changes could increase the Company’s costs and could inhibit sales
of one or more of the Company’s major products.
Certain nutrition label changes announced by the FDA in 2016, which were originally to become effective in July 2018, have been
delayed until 2020 or later. These proposed changes will require the Company and its competitors to revise nutrition labels to include
updated serving sizes, information about total calories in a beverage product container and information about any added sugars or
nutrients.
16
The Company’s financial condition can be impacted by the stability of the general economy.
Unfavorable changes in general economic conditions in the geographic markets in which the Company does business may have the
temporary effect of reducing the demand for certain of the Company’s products. For example, economic forces may cause consumers
to shift away from purchasing higher-margin products and packages sold through immediate consumption and other highly profitable
channels. Adverse economic conditions could also increase the likelihood of customer delinquencies and bankruptcies, which would
increase the risk of uncollectibility of certain accounts. Each of these factors could adversely affect the Company’s overall financial
condition and operating results.
The Company’s capital structure, including its cash positions and debt borrowing capacity with banks or other financial institutions,
exposes it to the risk of default by or failure of counterparty financial institutions. The risk of counterparty default or failure may be
heightened during economic downturns and periods of uncertainty in the financial markets. If one of the Company’s counterparties
were to become insolvent or file for bankruptcy, the Company’s ability to recover losses incurred as a result of default or to retrieve
assets that are deposited or held in accounts with such counterparty may be limited by the counterparty’s liquidity or the applicable
laws governing the insolvency or bankruptcy proceedings and the Company’s access to capital may be diminished. Any such event of
default or failure could negatively impact the Company’s results of operations and financial condition.
Changes in the Company’s top customer relationships and marketing strategies could impact sales volume and revenues.
The Company faces concentration risks related to a few customers comprising a large portion of the Company’s annual sales volume
and net revenue. The Company’s results of operations could be adversely affected if revenue from one or more of these significant
customers is materially reduced or if the cost of complying with the customers’ demands is significant. Additionally, if receivables
from one or more of these significant customers become uncollectible, the Company’s results of operations may be adversely
impacted.
The Company’s largest customers, Wal-Mart Stores, Inc., The Kroger Company and Food Lion, LLC, accounted for approximately
35% of the Company’s 2017 bottle/can sales volume to retail customers and approximately 24% of the Company’s 2017 total net
sales. These customers typically make purchase decisions based on a combination of price, product quality, consumer demand and
customer service performance and generally do not enter into long-term contracts. The Company faces risks related to maintaining the
volume demanded on a short-term basis from these customers, which can also divert resources away from other customers. The loss of
Wal-Mart Stores, Inc., The Kroger Company or Food Lion, LLC as a customer could have a material adverse effect on the operating
and financial results of the Company.
Further, the Company’s revenue is affected by promotion of the Company’s products by significant customers, such as in-store
displays created by customers or the promotion of the Company’s products in customers’ periodic advertising. If the Company’s
significant customers change the manner in which they market or promote the Company’s products, or if the marketing efforts by
significant customers become ineffective, the Company’s sales volume and revenue could be adversely impacted.
The Company may not be able to respond successfully to changes in the marketplace.
The Company operates in the highly competitive nonalcoholic beverage industry and faces strong competition from other general and
specialty beverage companies. The Company’s response to continued and increased customer and competitor consolidations and
marketplace competition may result in lower than expected net pricing of the Company’s products. The Company’s ability to gain or
maintain the Company’s share of sales or gross margins may be limited by the actions of the Company’s competitors, which may have
advantages in setting prices due to lower raw material costs.
Competitive pressures in the markets in which the Company operates may cause channel and product mix to shift away from more
profitable channels and packages. If the Company is unable to maintain or increase volume in higher-margin products and in packages
sold through higher-margin channels such as immediate consumption, pricing and gross margins could be adversely affected. Any
related efforts by the Company to improve pricing may result in lower than expected sales volume.
In addition, the Company’s sales of finished goods to CCNA and other U.S. Coca-Cola bottlers are governed by the RMA, pursuant to
which the prices, or certain elements of the formulas used to determine the prices, for such finished goods are unilaterally established
by CCNA from time to time, which could have an adverse impact on the Company’s profitability.
The reliance on purchased finished goods from external sources could have an adverse impact on the Company’s profitability.
The Company does not, and does not plan to, manufacture all products it distributes and, therefore, remains reliant on purchased
finished goods from external sources to meet customer demand. As a result, the Company is subject to incremental risk including, but
17
not limited to, product quality and availability, price variability and production capacity shortfalls for externally purchased finished
goods, which could have an impact on the Company’s profitability and customer relationships. In most instances, the Company’s
ability to negotiate the prices at which it purchases finished goods from other U.S. Coca-Cola bottlers is limited pursuant to CCNA’s
right to unilaterally establish the prices, or certain elements of the formulas used to determine the prices, for such finished goods under
the RMA, which could have an adverse impact on the Company’s profitability.
The decisions made by the NPSG regarding product sourcing, product and packaging infrastructure and strategic investment and
divestment may be different than decisions that would have been made by the Company individually. Any failure of the NPSG to
function efficiently could adversely affect our business and results of operations.
The Company is a member of the NPSG, which consists of The Coca-Cola Company, the Company and other RPBs in
The Coca-Cola Company’s national product supply system, each of which has a representative on the NPSG Board. Pursuant to the
NPSG Governance Agreement, the Company has agreed to abide by decisions made by the NPSG Board, which include decisions
regarding strategic investment and divestment, optimal national product supply sourcing and new product or packaging infrastructure
planning. Although the Company has a representative on the NPSG Board, the Company cannot exercise sole decision-making
authority relating to the decisions of the NPSG Board, and the interests of other members of the NPSG Board may diverge from those
of the Company. For example, the NPSG Board may require the Company to make investments in its manufacturing assets, subject to
certain limitations and consistent with the NPSG Governance Agreement, which the Company would not have chosen to make on its
own.
Decreases from historic levels of marketing funding provided to the Company from The Coca-Cola Company and other Beverage
Companies could reduce the Company’s profitability.
The Coca-Cola Company and other Beverage Companies have historically provided financial support to the Company through
marketing funding. In 2017, the Company received $120.1 million in marketing funding. While the Company does not believe there
will be significant changes to the amount of marketing funding support by the Beverage Companies, there can be no assurance the
historic levels will continue. Decreases in the level of marketing funding provided, material changes in the marketing funding
programs’ performance requirements or the Company’s inability to meet the performance requirements for marketing funding could
adversely affect the Company’s profitability.
Changes in The Coca-Cola Company’s and other Beverage Companies’ levels of external advertising, marketing spending and
product innovation could reduce the Company’s sales volume.
The Coca-Cola Company and other Beverage Companies have their own external advertising campaigns, marketing spending and
product innovation programs, which directly impact the Company’s operations. Decreases in marketing, advertising and product
innovation spending by the Beverage Companies, or advertising campaigns that are negatively perceived by the public, could
adversely impact the sales volume growth and profitability of the Company. While the Company does not believe there will be
significant changes in the level of external advertising and marketing spending by the Beverage Companies, there can be no assurance
historic levels will continue in the future. The Company’s volume growth is also dependent on product innovation by the Beverage
Companies, especially The Coca-Cola Company, and their ability to develop and introduce products that meet consumer preferences.
The Company’s inability to meet requirements under its beverage agreements could result in the loss of distribution and
manufacture rights.
Approximately 93% of the Company’s bottle/can sales volume to retail customers in 2017 consisted of products of
The Coca-Cola Company, which is the sole supplier of these products or the concentrates and syrups required to manufacture these
products. Under the CBA and the RMA, which authorize the Company to distribute and/or manufacture products of
The Coca-Cola Company, and pursuant to the Company’s distribution agreements with other Beverage Companies, the Company
must satisfy various requirements, such as making minimum capital expenditures or maintaining certain performance rates. Failure to
satisfy these requirements could result in the loss of distribution and manufacture rights for the respective products under one or more
of these beverage agreements. The occurrence of other events defined in these agreements could also result in the termination of one
or more beverage agreements.
The RMA also requires the Company to provide and sell covered beverages to other U.S. Coca-Cola bottlers at prices established
pursuant to the RMA. As the timing and quantity of such requests by other U.S. Coca-Cola bottlers can be unpredictable, any failure
by the Company to adequately plan for such demand could also constrain the Company’s supply chain network.
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Changes in the Company’s level of debt, borrowing costs and credit ratings could impact access to capital and credit markets,
restrict the Company’s operating flexibility and limit the Company’s ability to obtain additional f…
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