COKE 10-Q Quarterly Report March 30, 2014

COKE 10-Q Quarter ended March 30, 2014

COCA-COLA CONSOLIDATED, INC.

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10-Q 1 d703515d10q.htm 10-Q 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 30, 2014

Commission File Number 0-9286

COCA-COLA BOTTLING CO. CONSOLIDATED

(Exact name of registrant as specified in its charter)

Delaware

56-0950585

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

4100 Coca-Cola Plaza, Charlotte, North Carolina 28211

(Address of principal executive offices) (Zip Code)

(704) 557-4400

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x 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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

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

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

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


Class		Outstanding at April 30, 2014
Common Stock, $1.00 Par Value		7,141,447
Class B Common Stock, $1.00 Par Value		2,129,862

COCA-COLA BOTTLING CO. CONSOLIDATED

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED MARCH 30, 2014

INDEX


		Page
PART I – FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)

	Consolidated Statements of Operations		2

	Consolidated Statements of Comprehensive Income		3

	Consolidated Balance Sheets		4

	Consolidated Statements of Changes in Equity		6

	Consolidated Statements of Cash Flows		7

	Notes to Consolidated Financial Statements		8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		33

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		53

Item 4.	Controls and Procedures		54

PART II – OTHER INFORMATION

Item 1A.	Risk Factors		55

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		55

Item 6.	Exhibits		56

	Signatures		57

PART I - FINANCIAL INFORMATION

Item 1.

Financial Statements.

Coca-Cola Bottling Co. Consolidated

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

In Thousands (Except Per Share Data)


	First Quarter
	2014		2013
Net sales	$	388,582	$	383,551
Cost of sales		232,249		229,852

Gross margin		156,333		153,699
Selling, delivery and administrative expenses		144,217		138,211

Income from operations		12,116		15,488
Interest expense, net		7,223		7,379

Income before income taxes		4,893		8,109
Income tax expense		1,792		2,440

Net income		3,101		5,669
Less: Net income attributable to noncontrolling interest		652		807

Net income attributable to Coca-Cola Bottling Co. Consolidated	$	2,449	$	4,862


Basic net income per share based on net income attributable to Coca-Cola Bottling Co. Consolidated:
Common Stock	$	.26	$	.53

Weighted average number of Common Stock shares outstanding		7,141		7,141

Class B Common Stock	$	.26	$	.53

Weighted average number of Class B Common Stock shares outstanding		2,115		2,095

Diluted net income per share based on net income attributable to Coca-Cola Bottling Co. Consolidated:
Common Stock	$	.26	$	.52

Weighted average number of Common Stock shares outstanding – assuming dilution		9,296		9,276

Class B Common Stock	$	.26	$	.52

Weighted average number of Class B Common Stock shares outstanding – assuming dilution		2,155		2,135

Cash dividends per share :
Common Stock	$	.25	$	.25
Class B Common Stock	$	.25	$	.25

See Accompanying Notes to Consolidated Financial Statements.

Coca-Cola Bottling Co. Consolidated

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

In Thousands


	First Quarter
	2014			2013
Net income	$	3,101		$	5,669

Other comprehensive income, net of tax:
Foreign currency translation adjustment		0			1
Defined benefit plans reclassification included in pension costs:
Actuarial loss		259			510
Prior service costs		5			2
Postretirement benefits reclassification included in benefits costs:
Actuarial loss		346			425
Prior service costs		(232	)		(230	)

Other comprehensive income, net of tax		378			708


Comprehensive income		3,479			6,377
Less: Comprehensive income attributable to noncontrolling interest		652			807

Comprehensive income attributable to Coca-Cola Bottling Co. Consolidated	$	2,827		$	5,570

See Accompanying Notes to Consolidated Financial Statements.

Coca-Cola Bottling Co. Consolidated

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

In Thousands (Except Share Data)


	Mar. 30,		Dec. 29,		Mar. 31,
	2014		2013		2013
ASSETS

Current Assets:
Cash and cash equivalents	$	18,774	$	11,761	$	11,890
Accounts receivable, trade, less allowance for doubtful accounts of $1,461, $1,401 and $1,514, respectively		118,205		105,610		111,423
Accounts receivable from The Coca-Cola Company		25,816		17,849		20,804
Accounts receivable, other		11,969		15,136		11,620
Inventories		76,113		61,987		74,098
Prepaid expenses and other current assets		29,563		26,872		32,088

Total current assets		280,440		239,215		261,923

Property, plant and equipment, net		306,073		302,998		300,230
Leased property under capital leases, net		47,474		48,981		52,693
Other assets		59,959		58,560		56,736
Franchise rights		520,672		520,672		520,672
Goodwill		102,049		102,049		102,049
Other identifiable intangible assets, net		3,597		3,681		3,939

Total assets	$	1,320,264	$	1,276,156	$	1,298,242

See Accompanying Notes to Consolidated Financial Statements.

Coca-Cola Bottling Co. Consolidated

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

In Thousands (Except Share Data)


	Mar. 30,			Dec. 29,			Mar. 31,
	2014			2013			2013
LIABILITIES AND EQUITY

Current Liabilities :
Current portion of debt	$	20,000		$	20,000		$	20,000
Current portion of obligations under capital leases		6,062			5,939			5,352
Accounts payable, trade		52,309			43,579			50,081
Accounts payable to The Coca-Cola Company		39,049			25,869			39,989
Other accrued liabilities		78,106			77,622			60,268
Accrued compensation		17,422			31,753			11,462
Accrued interest payable		9,389			4,054			9,299

Total current liabilities		222,337			208,816			196,451

Deferred income taxes		146,181			153,408			134,904
Pension and postretirement benefit obligations		89,825			90,599			139,926
Other liabilities		127,975			125,791			120,771
Obligations under capital leases		57,477			59,050			62,954
Long-term debt		413,613			378,566			438,430

Total liabilities		1,057,408			1,016,230			1,093,436


Commitments and Contingencies (Note 14)

Equity :
Common Stock, $1.00 par value:
Authorized – 30,000,000 shares;
Issued – 10,203,821 shares		10,204			10,204			10,204
Class B Common Stock, $1.00 par value:
Authorized – 10,000,000 shares;
Issued – 2,757,976, 2,737,076 and 2,737,076 shares, respectively		2,756			2,735			2,735
Capital in excess of par value		110,684			108,942			108,959
Retained earnings		189,006			188,869			172,994
Accumulated other comprehensive loss		(57,798	)		(58,176	)		(93,818	)

		254,852			252,574			201,074

Less-Treasury stock, at cost:
Common – 3,062,374 shares		60,845			60,845			60,845
Class B Common – 628,114 shares		409			409			409

Total equity of Coca-Cola Bottling Co. Consolidated		193,598			191,320			139,820
Noncontrolling interest		69,258			68,606			64,986

Total equity		262,856			259,926			204,806

Total liabilities and equity	$	1,320,264		$	1,276,156		$	1,298,242

See Accompanying Notes to Consolidated Financial Statements.

Coca-Cola Bottling Co. Consolidated

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (UNAUDITED)

In Thousands (Except Share Data)


					Capital					Accumulated
			Class B		in					Other						Total
	Common		Common		Excess of		Retained			Comprehensive			Treasury			Equity			Noncontrolling		Total
	Stock		Stock		Par Value		Earnings			Loss			Stock			of CCBCC			Interest		Equity
Balance on Dec. 30, 2012	$	10,204	$	2,715	$	107,681	$	170,439		$	(94,526	)	$	(61,254	)	$	135,259		$	64,179	$	199,438
Net income								4,862									4,862			807		5,669
Other comprehensive income, net of tax											708						708					708
Cash dividends paid Common ($.25 per share)								(1,785	)								(1,785	)				(1,785	)
Class B Common ($.25 per share)								(522	)								(522	)				(522	)
Issuance of 20,120 shares of Class B Common Stock				20		1,278											1,298					1,298

Balance on Mar. 31, 2013	$	10,204	$	2,735	$	108,959	$	172,994		$	(93,818	)	$	(61,254	)	$	139,820		$	64,986	$	204,806


Balance on Dec. 29, 2013	$	10,204	$	2,735	$	108,942	$	188,869		$	(58,176	)	$	(61,254	)	$	191,320		$	68,606	$	259,926
Net income								2,449									2,449			652		3,101
Other comprehensive income, net of tax											378						378					378
Cash dividends paid
Common ($.25 per share)								(1,785	)								(1,785	)				(1,785	)
Class B Common ($.25 per share)								(527	)								(527	)				(527	)
Issuance of 20,900 shares of Class B Common Stock				21		1,742											1,763					1,763

Balance on Mar. 30, 2014	$	10,204	$	2,756	$	110,684	$	189,006		$	(57,798	)	$	(61,254	)	$	193,598		$	69,258	$	262,856

See Accompanying Notes to Consolidated Financial Statements.

Coca-Cola Bottling Co. Consolidated

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

In Thousands


	First Quarter
	2014			2013
Cash Flows from Operating Activities
Net income	$	3,101		$	5,669
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation expense		14,486			14,556
Amortization of intangibles		83			84
Deferred income taxes		222			146
Gain on sale of property, plant and equipment		(179	)		(990	)
Amortization of debt costs		478			487
Amortization of deferred gain related to terminated interest rate agreements		(139	)		(136	)
Stock compensation expense		853			603
Increase in current assets less current liabilities		(18,909	)		(27,193	)
Increase in other noncurrent assets		(1,819	)		(3,330	)
Decrease in other noncurrent liabilities		(5,485	)		(3,687	)
Other		0			5

Total adjustments		(10,409	)		(19,455	)

Net cash used in operating activities		(7,308	)		(13,786	)


Cash Flows from Investing Activities
Additions to property, plant and equipment		(17,814	)		(20,383	)
Proceeds from the sale of property, plant and equipment		958			4,302

Net cash used in investing activities		(16,856	)		(16,081	)


Cash Flows from Financing Activities
Borrowings under revolving credit facility		35,000			45,000
Payment on revolving credit facility		0			(10,000	)
Cash dividends paid		(2,312	)		(2,307	)
Principal payments on capital lease obligations		(1,449	)		(1,275	)
Other		(62	)		(60	)

Net cash provided by financing activities		31,177			31,358


Net increase in cash		7,013			1,491
Cash at beginning of period		11,761			10,399

Cash at end of period	$	18,774		$	11,890


Significant non-cash investing and financing activities :
Issuance of Class B Common Stock in connection with stock award	$	1,763		$	1,298
Additions to property, plant and equipment accrued and recorded in accounts payable, trade		6,194			3,230

See Accompanying Notes to Consolidated Financial Statements.

Coca-Cola Bottling Co. Consolidated

Notes to Consolidated Financial Statements (Unaudited)

1. Significant Accounting Policies

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

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

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

The accounting policies followed in the presentation of interim financial results are consistent with those followed on an annual basis. These policies are presented in Note 1 to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 29, 2013 filed with the United States Securities and Exchange Commission.

2. Seasonality of Business

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

3. Piedmont Coca-Cola Bottling Partnership

On July 2, 1993, the Company and The Coca-Cola Company formed Piedmont Coca-Cola Bottling Partnership (“Piedmont”) to distribute and market nonalcoholic beverages primarily in portions of North Carolina and South Carolina. The Company provides a portion of the nonalcoholic beverage products to Piedmont at cost and receives a fee for managing the operations of Piedmont pursuant to a management agreement. These intercompany transactions are eliminated in the consolidated financial statements.

Noncontrolling interest as of March 30, 2014, December 29, 2013 and March 31, 2013 represents the portion of Piedmont owned by The Coca-Cola Company. The Coca-Cola Company’s interest in Piedmont was 22.7% for all periods presented.

Coca-Cola Bottling Co. Consolidated

Notes to Consolidated Financial Statements (Unaudited)

4. Inventories

Inventories were summarized as follows:


	Mar. 30,		Dec. 29,		Mar. 31,
In Thousands	2014		2013		2013
Finished products	$	47,864	$	35,360	$	44,041
Manufacturing materials		10,572		9,127		10,718
Plastic shells, plastic pallets and other inventories		17,677		17,500		19,339

Total inventories	$	76,113	$	61,987	$	74,098

5. Property, Plant and Equipment

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


	Mar. 30,		Dec. 29,		Mar. 31,		Estimated
In Thousands	2014		2013		2013		Useful Lives
Land	$	13,484	$	12,307	$	12,394
Buildings		112,460		113,864		114,630		8-50 years
Machinery and equipment		149,406		144,662		141,839		5-20 years
Transportation equipment		165,469		164,403		162,201		4-20 years
Furniture and fixtures		44,166		42,605		45,472		3-10 years
Cold drink dispensing equipment		320,807		317,143		315,376		5-17 years
Leasehold and land improvements		73,655		73,742		71,246		5-20 years
Software for internal use		82,455		81,718		75,684		3-10 years
Construction in progress		6,801		7,204		6,796

Total property, plant and equipment, at cost		968,703		957,648		945,638
Less: Accumulated depreciation and amortization		662,630		654,650		645,408

Property, plant and equipment, net	$	306,073	$	302,998	$	300,230

Depreciation and amortization expense was $14.5 million and $14.6 million in the first quarter of 2014 (“Q1 2014”) and in the first quarter of 2013 (“Q1 2013”), respectively. These amounts included amortization expense for leased property under capital leases.

Coca-Cola Bottling Co. Consolidated

Notes to Consolidated Financial Statements (Unaudited)

6. Leased Property Under Capital Leases

Leased property under capital leases was summarized as follows:


	Mar. 30,		Dec. 29,		Mar. 31,		Estimated
In Thousands	2014		2013		2013		Useful Lives
Leased property under capital leases	$	94,889	$	94,889	$	94,174		3-20 years
Less: Accumulated amortization		47,415		45,908		41,481

Leased property under capital leases, net	$	47,474	$	48,981	$	52,693

As of March 30, 2014, real estate represented $46.8 million of the leased property under capital leases, net and $31.2 million of this real estate is leased from related parties as described in Note 19 to the consolidated financial statements.

The Company’s outstanding obligations for capital leases were $63.5 million, $65.0 million and $68.3 million as of March 30, 2014, December 29, 2013 and March 31, 2013, respectively.

7. Franchise Rights and Goodwill

There were no changes in the carrying amounts of franchise rights and goodwill in the periods presented. The Company performs its annual impairment test of franchise rights and goodwill as of the first day of the fourth quarter. During Q1 2014, the Company did not experience any triggering events or changes in circumstances that indicated the carrying amounts of the Company’s franchise rights or goodwill exceeded fair values. As such, the Company has not recognized any impairments of franchise rights or goodwill.

8. Other Identifiable Intangible Assets

Other identifiable intangible assets were summarized as follows:


	Mar. 30,		Dec. 29,		Mar. 31,		Estimated
In Thousands	2014		2013		2013		Useful Lives
Other identifiable intangible assets	$	8,547	$	8,547	$	8,557		20 years
Less: Accumulated amortization		4,950		4,866		4,618

Other identifiable intangible assets, net	$	3,597	$	3,681	$	3,939

Other identifiable intangible assets primarily represent customer relationships and distribution rights and are amortized on a straight line basis.

Coca-Cola Bottling Co. Consolidated

Notes to Consolidated Financial Statements (Unaudited)

9. Other Accrued Liabilities

Other accrued liabilities were summarized as follows:


	Mar. 30,		Dec. 29,		Mar. 31,
In Thousands	2014		2013		2013
Accrued marketing costs	$	11,098	$	13,613	$	8,730
Accrued insurance costs		21,937		21,132		20,605
Accrued taxes (other than income taxes)		2,415		1,207		2,111
Accrued income taxes		8,270		2,515		4,811
Employee benefit plan accruals		10,369		17,643		12,154
Checks and transfers yet to be presented for payment from zero balance cash accounts		13,370		11,237		2,959
All other accrued liabilities		10,647		10,275		8,898

Total other accrued liabilities	$	78,106	$	77,622	$	60,268

10. Debt

Debt was summarized as follows:


			Interest			Interest		Mar. 30,			Dec. 29,			Mar. 31,
In Thousands	Maturity		Rate			Paid		2014			2013			2013
Revolving credit facility		2016		Variable			Varies	$	40,000		$	5,000		$	65,000
Line of credit		2014		Variable			Varies		20,000			20,000			20,000
Senior Notes		2015		5.30	%		Semi-annually		100,000			100,000			100,000
Senior Notes		2016		5.00	%		Semi-annually		164,757			164,757			164,757
Senior Notes		2019		7.00	%		Semi-annually		110,000			110,000			110,000
Unamortized discount on Senior Notes		2019							(1,144	)		(1,191	)		(1,327	)

									433,613			398,566			458,430
Less: Current portion of debt									20,000			20,000			20,000

Long-term debt								$	413,613		$	378,566		$	438,430

Coca-Cola Bottling Co. Consolidated

Notes to Consolidated Financial Statements (Unaudited)

10. Debt

The Company has a $200 million five-year unsecured revolving credit agreement (“$200 million facility”). The $200 million facility has a scheduled maturity date of September 21, 2016 and up to $25 million is available for the issuance of letters of credit. Borrowings under the agreement bear interest at a floating base rate or a floating Eurodollar rate plus an interest rate spread, dependent on the Company’s credit rating at the time of borrowing. The Company must pay an annual facility fee of .175% of the lenders’ aggregate commitments under the facility. The $200 million facility contains two financial covenants: a cash flow/fixed charges ratio (“fixed charges coverage ratio”) and a funded indebtedness/cash flow ratio (“operating cash flow ratio”), each as defined in the credit agreement. The fixed charges coverage ratio requires the Company to maintain a consolidated cash flow to fixed charges ratio of 1.5 to 1.0 or higher. The operating cash flow ratio requires the Company to maintain a debt to operating cash flow ratio of 6.0 to 1.0 or lower. The Company is currently in compliance with these covenants. These covenants do not currently, and the Company does not anticipate they will, restrict its liquidity or capital resources.

The Company has $100 million of senior notes which mature in April 2015. The Company currently expects to use a combination of available cash on hand and borrowings under the $200 million facility to repay the notes when due.

On March 30, 2014, the Company had $40.0 million of outstanding borrowings on the $200 million facility and had $160.0 million available to meet its cash requirements. On December 29, 2013, the Company had $5.0 million of outstanding borrowings on the $200 million facility. On March 31, 2013, the Company had $65.0 million of outstanding borrowings on the $200 million facility.

The Company has an agreement for an uncommitted line of credit under which the Company may borrow up to a total of $20 million for periods of 7 days, 30 days, 60 days or 90 days at the discretion of the participating bank. On March 30, 2014, December 29, 2013 and March 31, 2013, the Company had $20.0 million outstanding under the uncommitted line of credit at a weighted average interest rate of 0.91%, 0.88% and 0.93%, respectively.

As of March 30, 2014, December 29, 2013 and March 31, 2013, the Company had a weighted average interest rate of 5.8%, 6.2% and 5.6%, respectively, for its outstanding debt and capital lease obligations. The Company’s overall weighted average interest rate on its debt and capital lease obligations was 5.9% and 5.7% for Q1 2014 and Q1 2013, respectively. As of March 30, 2014, $60.0 million of the Company’s debt and capital lease obligations of $497.2 million were subject to changes in short-term interest rates.

The indentures under which the Company’s public debt was issued do not include financial covenants but do limit the incurrence of certain liens and encumbrances as well as the incurrence of indebtedness by the Company’s subsidiaries in excess of certain amounts.

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

Coca-Cola Bottling Co. Consolidated

Notes to Consolidated Financial Statements (Unaudited)

11. Derivative Financial Instruments

Interest

The Company uses derivatives from time to time to partially manage the Company’s exposure to changes in interest rates on outstanding debt instruments.

The Company had no interest rate derivative contracts outstanding at March 30, 2014, December 29, 2013 and March 31, 2013.

Commodities

The Company is subject to the risk of increased costs arising from adverse changes in certain commodity prices. In the normal course of business, the Company manages these risks through a variety of strategies, including the use of derivative instruments. The Company does not use derivative instruments for trading or speculative purposes. All derivative instruments are recorded at fair value as either assets or liabilities in the Company’s consolidated balance sheets. These derivative instruments are not designated as hedging instruments under GAAP and are used as “economic hedges” to manage commodity price risk. Derivative instruments are marked to market on a monthly basis and recognized in earnings consistent with the expense classification of the underlying hedged item. Settlements of derivative agreements are included in cash flows from operating activities on the Company’s consolidated statements of cash flows.

The Company uses several different financial institutions for commodity derivative instruments to minimize the concentration of credit risk. While the Company is exposed to credit loss in the event of nonperformance by these counterparties, the Company does not anticipate nonperformance by these parties.

The Company has master agreements with the counterparties to its derivative financial agreements that provide for net settlement of derivative transactions. The Company did not have any offsetting derivative transactions with its counterparties on March 30, 2014 and March 31, 2013. Accordingly, the gross amounts of derivative assets are recognized in prepaid expenses and other current assets in the consolidated balance sheets at March 30, 2014 and March 31, 2013. The Company did not have any outstanding derivative transactions at December 29, 2013.

The Company periodically uses derivative instruments to hedge part or all of its requirements for diesel fuel and aluminum. In Q1 2014, the Company entered into agreements to hedge a portion of the Company’s 2014 commodity purchases. In the third quarter of 2012, the Company entered into agreements to hedge a portion of the Company’s 2013 commodity purchases.

Coca-Cola Bottling Co. Consolidated

Notes to Consolidated Financial Statements (Unaudited)

11. Derivative Financial Instruments

The following summarizes Q1 2014 and Q1 2013 pre-tax changes in the fair value of the Company’s commodity derivative financial instruments and the classification, either as cost of sales or selling, delivery and administrative (“S,D&A”) expenses, of such changes in the consolidated statements of operations.


		First Quarter
In Thousands	Classification of Gain (Loss)	2014		2013
Commodity hedges	Cost of sales	$	781	$	(490	)

Total		$	781	$	(490	)

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


		Mar. 30,		Dec. 29,		Mar. 31,
In Thousands	Balance Sheet Classification	2014		2013		2013
Commodity hedges at fair market value	Prepaid expenses and other current assets	$	781	$	0	$	10
Unamortized cost of commodity hedging agreements	Prepaid expenses and other current assets		858		0		325

Total		$	1,639	$	0	$	335

The following table summarizes the Company’s outstanding commodity derivative agreements as of March 30, 2014:


	Notional		Latest
In Millions	Amount		Maturity
Commodity hedging agreements	$	31.6		Dec. 2014

Coca-Cola Bottling Co. Consolidated

Notes to Consolidated Financial Statements (Unaudited)

12. Fair Value of Financial Instruments

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

Cash and Cash Equivalents, Accounts Receivable and Accounts Payable

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

Public Debt Securities

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

Non-Public Variable Rate Debt

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

Deferred Compensation Plan Assets/Liabilities

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

Derivative Financial Instruments

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

Coca-Cola Bottling Co. Consolidated

Notes to Consolidated Financial Statements (Unaudited)

12. Fair Value of Financial Instruments

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


	Mar. 30, 2014						Dec. 29, 2013						Mar. 31, 2013
	Carrying			Fair			Carrying			Fair			Carrying			Fair
In Thousands	Amount			Value			Amount			Value			Amount			Value
Public debt securities	$	(373,613	)	$	(411,564	)	$	(373,566	)	$	(409,434	)	$	(373,430	)	$	(421,466	)
Deferred compensation plan assets		17,453			17,453			17,098			17,098			14,216			14,216
Deferred compensation plan liabilities		(17,453	)		(17,453	)		(17,098	)		(17,098	)		(14,216	)		(14,216	)
Commodity hedging agreements		781			781			0			0			10			10
Non-public variable rate debt		(60,000	)		(60,000	)		(25,000	)		(25,000	)		(85,000	)		(85,000	)

GAAP requires that assets and liabilities carried at fair value be classified and disclosed in one of the following categories:

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

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

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

The fair value estimates of the Company’s debt are classified as Level 2. Public debt securities are valued using quoted market prices of the debt or debt with similar characteristics.

The following table summarizes, by assets and liabilities, the valuation of the Company’s deferred compensation plan and commodity hedging agreements:


	Mar. 30, 2014				Dec. 29, 2013				Mar. 31, 2013
In Thousands	Level 1		Level 2		Level 1		Level 2		Level 1		Level 2
Assets
Deferred compensation plan assets	$	17,453			$	17,098			$	14,216
Commodity hedging agreements			$	781			$	0			$	10
Liabilities
Deferred compensation plan liabilities		17,453				17,098				14,216

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

Coca-Cola Bottling Co. Consolidated

Notes to Consolidated Financial Statements (Unaudited)

12. Fair Value of Financial Instruments

The fair values of the Company’s commodity hedging agreements are based upon rates from public commodity exchanges that are observable and quoted periodically over the full term of the agreement and are considered Level 2 items.

The Company does not have Level 3 assets or liabilities. Also, there were no transfers of assets or liabilities between Level 1 and Level 2 for Q1 2014 and Q1 2013.

13. Other Liabilities

Other liabilities were summarized as follows:


	Mar. 30,		Dec. 29,		Mar. 31,
In Thousands	2014		2013		2013
Accruals for executive benefit plans	$	111,863	$	109,386	$	103,855
Other		16,112		16,405		16,916

Total other liabilities	$	127,975	$	125,791	$	120,771

14. Commitments and Contingencies

The Company is a member of South Atlantic Canners, Inc. (“SAC”), a manufacturing cooperative from which it is obligated to purchase 17.5 million cases of finished product on an annual basis through June 2024 based on a new agreement signed during Q1 2014. The Company is also a member of Southeastern Container (“Southeastern”), a plastic bottle manufacturing cooperative from which it is obligated to purchase at least 80% of its requirements of plastic bottles for certain designated territories. See Note 19 to the consolidated financial statements for additional information concerning SAC and Southeastern.

The Company guarantees a portion of SAC’s and Southeastern’s debt. The amounts guaranteed were $31.2 million, $29.3 million and $38.3 million as of March 30, 2014, December 29, 2013 and March 31, 2013, respectively. The Company holds no assets as collateral against these guarantees, the fair value of which is immaterial. The guarantees relate to the debt of SAC and Southeastern, which resulted primarily from the purchase of production equipment and facilities. These guarantees expire at various dates through 2023. The members of both cooperatives consist solely of Coca-Cola bottlers. The Company does not anticipate either of these cooperatives will fail to fulfill its commitments. The Company further believes each of these cooperatives has sufficient assets, including production equipment, facilities and working capital, and the ability to adjust selling prices of its products to adequately mitigate the risk of material loss from the Company’s guarantees. In the event either of these cooperatives fails to fulfill its commitments under the related debt, the Company would be responsible for payments to the lenders up to the level of the guarantees. If these cooperatives had borrowed up to their aggregate borrowing capacity, the Company’s maximum exposure under these guarantees on March 30, 2014 would have been $23.9 million for SAC and $25.3 million for Southeastern and the Company’s maximum total exposure, including its equity investment, would have been $28.0 million for SAC and $43.6 million for Southeastern.

Coca-Cola Bottling Co. Consolidated

Notes to Consolidated Financial Statements (Unaudited)

14. Commitments and Contingencies

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

The Company has an equity ownership in each of the entities in addition to the guarantees of certain indebtedness and records its investment in each under the equity method. As of March 30, 2014, SAC had total assets of approximately $43 million and total debt of approximately $20 million. SAC had total revenues for Q1 2014 of approximately $42 million. As of March 30, 2014, Southeastern had total assets of approximately $311 million and total debt of approximately $134 million. Southeastern had total revenue for Q1 2014 of approximately $152 million.

The Company has standby letters of credit, primarily related to its property and casualty insurance programs. On March 30, 2014, these letters of credit totaled $22.9 million.

The Company participates in long-term marketing contractual arrangements with certain prestige properties, athletic venues and other locations. The future payments related to these contractual arrangements as of March 30, 2014 amounted to $37.7 million and expire at various dates through 2022.

The Company is involved in various claims and legal proceedings which have arisen in the ordinary course of its business. Although it is difficult to predict the ultimate outcome of these claims and legal proceedings, management believes the ultimate disposition of these matters will not have a material adverse effect on the financial condition, cash flows or results of operations of the Company. No material amount of loss in excess of recorded amounts is believed to be reasonably possible as a result of these claims and legal proceedings.

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

Coca-Cola Bottling Co. Consolidated

Notes to Consolidated Financial Statements (Unaudited)

15. Income Taxes

The following table provides a reconciliation of income tax expense at the statutory federal rate to actual income tax expense.


	First Quarter
In Thousands	2014			2013
Statutory expense	$	1,712		$	2,835
State income taxes, net of federal benefit		187			333
Valuation allowance change		142			93
Noncontrolling interest – Piedmont		(270	)		(321	)
Manufacturing deduction benefit		(235	)		(224	)
Meals and entertainment		111			180
Adjustment for uncertain tax positions		84			151
Other, net		61			(607	)

Income tax expense	$	1,792		$	2,440

As of March 30, 2014, the Company had $2.9 million of uncertain tax positions, including accrued interest, all of which would affect the Company’s effective tax rate if recognized. As of December 29, 2013, the Company had $2.8 million of uncertain tax positions, including accrued interest, all of which would affect the Company’s effective tax rate if recognized. As of March 31, 2013, the Company had $5.6 million of uncertain tax positions, including accrued interest, of which $3.2 million would affect the Company’s effective tax rate if recognized. Total accrued interest related to uncertain tax positions is immaterial in all periods presented. While it is expected that the amount of uncertain tax positions may change in the next 12 months, the Company does not expect any change to have a material impact on the consolidated financial statements.

The American Taxpayer Relief Act (“Act”) was signed into law on January 2, 2013. The Act approved a retroactive extension of certain favorable business and energy tax provisions that had expired at the end of 2011 which are applicable to the Company. The Company recorded a reduction to income tax expense totaling $0.4 million related to the Act in Q1 2013, which is included in the other, net line of the reconciliation of income tax expense table.

During 2013, state tax legislation was enacted that reduces the corporate tax rate in that state from 6.9% to 6.0% effective January 1, 2014. This state corporate tax rate will be further reduced from 6.0% to 5.0% effective January 1, 2015. This reduction in the corporate tax rate decreased the Company’s income tax expense by approximately $2.3 million due to the impact on the Company’s net deferred tax liabilities. The total impact of this legislation was recorded in the third quarter of 2013.

Coca-Cola Bottling Co. Consolidated

Notes to Consolidated Financial Statements (Unaudited)

15. Income Taxes

Prior tax years beginning in year 2010 remain open to examination by the Internal Revenue Service, and various tax years beginning in year 1995 remain open to examination by certain state tax jurisdictions due to loss carryforwards.

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

16. Accumulated Other Comprehensive Loss

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

A summary of accumulated other comprehensive loss for Q1 2014 and Q1 2013 is as follows:


	Dec. 29,			Pre-tax			Tax			Mar. 30,
In Thousands	2013			Activity			Effect			2014
Net pension activity:
Actuarial loss	$	(43,028	)	$	422		$	(163	)	$	(42,769	)
Prior service costs		(121	)		9			(4	)		(116	)
Net postretirement benefits activity:
Actuarial loss		(18,441	)		563			(217	)		(18,095	)
Prior service costs		3,410			(378	)		146			3,178
Foreign currency translation adjustment		4			0			0			4

Total	$	(58,176	)	$	616		$	(238	)	$	(57,798	)


	Dec. 30,			Pre-tax			Tax			Mar. 31,
In Thousands	2012			Activity			Effect			2013
Net pension activity:
Actuarial loss	$	(76,407	)	$	838		$	(328	)	$	(75,897	)
Prior service costs		(33	)		4			(2	)		(31	)
Net postretirement benefits activity:
Actuarial loss		(22,425	)		700			(275	)		(22,000	)
Prior service costs		4,334			(378	)		148			4,104
Foreign currency translation adjustment		5			1			0			6

Total	$	(94,526	)	$	1,165		$	(457	)	$	(93,818	)

Coca-Cola Bottling Co. Consolidated

Notes to Consolidated Financial Statements (Unaudited)

16. Accumulated Other Comprehensive Loss

A summary of the impact on the income statement line items is as follows:


	Net Pension		Net Postretirement
In Thousands	Activity		Benefits Activity		Total
Q1 2014
Cost of sales	$	78	$	24	$	102
S,D&A expenses		353		161		514

Subtotal pre-tax		431		185		616
Income tax expense		167		71		238

Total after tax effect	$	264	$	114	$	378


Q1 2013
Cost of sales	$	76	$	39	$	115
S,D&A expenses		766		283		1,049

Subtotal pre-tax		842		322		1,164
Income tax expense		330		127		457

Total after tax effect	$	512	$	195	$	707

17. Capital Transactions

The Company has two classes of common stock outstanding, Common Stock and Class B Common Stock. The Common Stock is traded on the NASDAQ Global Select Market ^sm under the symbol COKE. There is no established public trading market for the Class B Common Stock. Shares of the Class B Common Stock are convertible on a share-for-share basis into shares of Common Stock at any time at the option of the holders of Class B Common Stock.

No cash dividend or dividend of property or stock other than stock of the Company, as specifically described in the Company’s certificate of incorporation, may be declared and paid on the Class B Common Stock unless an equal or greater dividend is declared and paid on the Common Stock. During Q1 2014 and Q1 2013, dividends of $.25 per share were declared and paid on both the Common Stock and Class B Common Stock.

Each share of Common Stock is entitled to one vote per share and each share of Class B Common Stock is entitled to 20 votes per share at all meetings of stockholders. Except as otherwise required by law, holders of the Common Stock and Class B Common Stock vote together as a single class on all matters brought before the Company’s stockholders. In the event of liquidation, there is no preference between the two classes of common stock.

Coca-Cola Bottling Co. Consolidated

Notes to Consolidated Financial Statements (Unaudited)

17. Capital Transactions

On April 29, 2008, the stockholders of the Company approved a Performance Unit Award Agreement for J. Frank Harrison, III, the Company’s Chairman of the Board of Directors and Chief Executive Officer, consisting of 400,000 performance units (“Units”). Each Unit represents the right to receive one share of the Company’s Class B Common Stock, subject to certain terms and conditions. The Units are subject to vesting in annual increments over a ten-year period starting in fiscal year 2009. The number of Units that vest each year equals the product of 40,000 multiplied by the overall goal achievement factor (not to exceed 100%) under the Company’s Annual Bonus Plan.

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

Compensation expense for the Performance Unit Award Agreement recognized in Q1 2014 was $0.9 million, which was based upon a common stock share price of $85.25 on March 28, 2014. Compensation expense for the Performance Unit Award Agreement recognized in Q1 2013 was $0.6 million, which was based upon a common stock share price of $60.32 on March 29, 2013.

On March 4, 2014 and March 5, 2013, the Compensation Committee determined that 40,000 shares of the Company’s Class B Common Stock should be issued in each year pursuant to a Performance Unit Award Agreement to J. Frank Harrison, III, in connection with his services in 2013 and 2012, respectively, as Chairman of the Board of Directors and Chief Executive Officer of the Company. As permitted under the terms of the Performance Unit Award Agreement, 19,100 and 19,880 of such shares were settled in cash in 2014 and 2013, respectively, to satisfy tax withholding obligations in connection with the vesting of the performance units.

The increase in the total number of shares outstanding in Q1 2014 and Q1 2013 was due to the issuance of the 20,900 and 20,120 shares, respectively, of Class B Common Stock related to the Performance Unit Award Agreement in each year.

Coca-Cola Bottling Co. Consolidated

Notes to Consolidated Financial Statements (Unaudited)

18. Benefit Plans

Pension Plans

All benefits under the primary Company-sponsored pension plan were frozen as of June 30, 2006 and no benefits have accrued to participants after this date. The Company also sponsors a pension plan for certain employees under collective bargaining agreements. Benefits under the pension plan for collectively bargained employees are determined in accordance with negotiated formulas for the respective participants. Contributions to the plans are based on actuarial determined amounts and are limited to the amounts currently deductible for income tax purposes.

In the third quarter of 2013, the Company announced a limited Lump Sum Window distribution of present valued pension benefits to terminated plan participants meeting certain criteria. The benefit election window was open during the third quarter of 2013 and benefit distributions were be made during the fourth quarter of 2013. Based upon the number of plan participants electing to take a distribution, and the total amount of such distributions, the Company incurred a noncash charge of $12.0 million in 2013 when the distributions were made in accordance with the relevant accounting standards. The reduction in the number of plan participants and the reduction of plan assets will reduce the cost of administering the pension plan in the future.

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


	First Quarter
In Thousands	2014			2013
Service cost	$	29		$	32
Interest cost		2,896			3,086
Expected return on plan assets		(3,457	)		(3,547	)
Amortization of prior service cost		9			4
Recognized net actuarial loss		422			838

Net periodic pension cost (benefit)	$	(101	)	$	413

The Company did not contribute to the Company-sponsored pension plans during Q1 2014. Anticipated contributions for the two Company-sponsored pension plans will be in the range of $4 million to $10 million during the remainder of 2014.

Postretirement Benefits

The Company provides postretirement benefits for a portion of its current employees. The Company recognizes the cost of postretirement benefits, which consist principally of medical benefits, during employees’ periods of active service. The Company does not pre-fund these benefits and has the right to modify or terminate certain of these benefits in the future.

Coca-Cola Bottling Co. Consolidated

Notes to Consolidated Financial Statements (Unaudited)

18. Benefit Plans

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


	First Quarter
In Thousands	2014			2013
Service cost	$	383		$	413
Interest cost		825			715
Recognized net actuarial loss		563			700
Amortization of prior service cost		(378	)		(378	)

Net periodic postretirement benefit cost	$	1,393		$	1,450

401(k) Savings Plan

The Company provides a 401(k) Savings Plan for substantially all of its full-time employees who are not part of collective bargaining agreements.

During 2013, the Company’s 401(k) Savings Plan matching contribution was discretionary with the Company having the option to make matching contributions for eligible participants of up to 5% of eligible participants’ contributions based on the Company’s financial results for 2013 and future years. The 5% matching contribution was accrued during 2013. Based on the Company’s financial results, the Company decided to match 5% of eligible participants’ contributions for the entire year of 2013. The Company made this contribution payment for 2013 in the Q1 2014. During 2014, the Company matched the first 3.5% of participants’ contributions while maintaining the option to increase the matching contributions an additional 1.5% for a total of 5%, for the Company’s employees based on the financial results for 2014. The total expense for this benefit was $2.1 million and $1.9 million in Q1 2014 and Q1 2013, respectively.

Multi-Employer Benefits

The Company currently has a liability to a multi-employer pension plan related to the Company’s exit from the plan in 2008. As of March 30, 2014, the Company had a liability of $9.2 million recorded. The Company is required to make payments of approximately $1 million each year through 2028 to this multi-employer pension plan.

Certain employees of the Company participate in a multi-employer pension plan, the Employers-Teamsters Local Union Nos. 175 and 505 Pension Fund (“the Plan”), to which the Company makes monthly contributions on behalf of such employees. The Plan was certified by the Plan’s actuary as being in “critical” status for the plan year beginning January 1, 2013. As a result, the Plan adopted a “Rehabilitation Plan” effective January 1, 2015. The Company agreed and incorporated in the renewal of the collective bargaining agreement with the union, effective April 28, 2014, to participate in the Plan’s Rehabilitation Plan. The Company will increase its contribution rates effective January 2015 with additional increases occurring annually toward the Plan’s Rehabilitation Plan.

There would likely be a withdrawal liability in the event the Company withdraws from its participation in the Plan. The Company’s withdrawal liability was reported by the Plan’s actuary to be $4.5 million. The Company does not currently have a plan to withdraw from the Plan.

Coca-Cola Bottling Co. Consolidated

Notes to Consolidated Financial Statements (Unaudited)

19. Related Party Transactions

The Company’s business consists primarily of the production, marketing and distribution of nonalcoholic beverages of The Coca-Cola Company, which is the sole owner of the secret formulas under which the primary components (either concentrate or syrup) of its soft drink products are manufactured. As of March, 30, 2014, The Coca-Cola Company had a 34.8% interest in the Company’s total outstanding Common Stock, representing 5.0% of the total voting power of the Company’s Common Stock and Class B Common Stock voting together as a single class. The Coca-Cola Company does not own any shares of Class B Common Stock of the Company.

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


	First Quarter
In Millions	2014			2013
Payments by the Company for concentrate, syrup, sweetener and other purchases	$	98.3		$	97.3
Marketing funding support payments to the Company		(10.5	)		(10.1	)

Payments by the Company net of marketing funding support	$	87.8		$	87.2

Payments by the Company for customer marketing programs	$	14.2		$	14.6
Payments by the Company for cold drink equipment parts		2.2			2.3
Fountain delivery and equipment repair fees paid to the Company		3.2			2.9
Presence marketing funding support provided by The Coca-Cola Company on the Company’s behalf		1.5			1.0
Payments to the Company to facilitate the distribution of certain brands and packages to other Coca-Cola bottlers		0.9			0.6

The Company has a production arrangement with Coca-Cola Refreshments USA Inc. (“CCR”) to buy and sell finished products at cost. CCR is a wholly-owned subsidiary of The Coca-Cola Company. Sales to CCR under this arrangement were $12.7 million and $13.9 million in Q1 2014 and Q1 2013, respectively. Purchases from CCR under this arrangement were $11.9 million and $8.3 million in Q1 2014 and Q1 2013, respectively. In addition, CCR distributes one of the Company’s own brands (Tum-E Yummies). Total sales to CCR for this brand were $5.4 million and $5.7 million in Q1 2014 and Q1 2013, respectively.

Along with all other Coca-Cola bottlers in the United States, the Company is a member in Coca-Cola Bottlers’ Sales and Services Company, LLC (“CCBSS”), which was formed in 2003 for the purposes of facilitating various procurement functions and distributing certain specified beverage products of The Coca-Cola Company with the intention of enhancing the efficiency and competitiveness of the Coca-Cola bottling system in the United States. CCBSS negotiates the procurement for the majority of the Company’s raw materials (excluding concentrate). The Company pays an administrative fee to CCBSS for its services. Administrative fees to CCBSS for its services were $0.1 million in both Q1 2014 and Q1 2013. Amounts due from CCBSS for rebates on raw materials were $3.6 million, $5.1 million and $4.1 million as of March 30, 2014, December 29, 2013 and March 31, 2013, respectively. CCR is also a member of CCBSS.

Coca-Cola Bottling Co. Consolidated

Notes to Consolidated Financial Statements (Unaudited)

19. Related Party Transactions

The Company is a member of SAC, a manufacturing cooperative. SAC sells finished products to the Company and Piedmont at cost. Purchases from SAC by the Company and Piedmont for finished products were $30.8 million and $33.4 million in Q1 2014 and Q1 2013, respectively. The Company also manages the operations of SAC pursuant to a management agreement. Management fees earned from SAC were $0.5 million and $0.4 million in Q1 2014 and Q1 2013, respectively. The Company has also guaranteed a portion of debt for SAC. Such guarantee amounted to $20.0 million as of March 30, 2014. The Company’s equity investment in SAC was $4.1 million as of March 30, 2014, December 29, 2013 and March 31, 2013 and was recorded in other assets on the Company’s consolidated balance sheets.

The Company is a shareholder in two entities from which it purchases a majority of its requirements for plastic bottles. Net purchases from these entities were $18.4 million in Q1 2014 and $18.7 million in Q1 2013. In conjunction with the Company’s participation in one of these entities, Southeastern, the Company has guaranteed a portion of the entity’s debt. Such guarantee amounted to $11.2 million as of March 30, 2014. The Company’s equity investment in Southeastern was $18.3 million, $17.6 million and $20.8 million as of March 30, 2014, December 29, 2013 and March, 31 2013, respectively, and was recorded in other assets on the Company’s consolidated balance sheets.

The Company holds no assets as collateral against SAC or Southeastern guarantees, the fair value of which is immaterial.

The Company monitors its investments in cooperatives and would be required to write down its investment if an impairment is identified and the Company determined it to be other than temporary. No impairment of the Company’s investments in cooperatives has been identified as of March 30, 2014 nor was there any impairment in 2013.

The Company leases from Harrison Limited Partnership One (“HLP”) the Snyder Production Center (“SPC”) and an adjacent sales facility, which are located in Charlotte, North Carolina. HLP is directly and indirectly owned by trusts of which J. Frank Harrison, III, Chairman of the Board of Directors and Chief Executive Officer of the Company, and Deborah H. Everhart, a director of the Company, are trustees and beneficiaries. Morgan H. Everett, a director of the Company, is a permissible, discretionary beneficiary of the trusts that directly or indirectly own HLP. The lease expires on December 31, 2020. The principal balance outstanding under this capital lease as of March 30, 2014, December 29, 2013 and March 31, 2013 was $21.6 million, $22.2 million and $23.6 million, respectively. Rental payments related to this lease were $0.9 million in both Q1 2014 and Q1 2013.

The Company leases from Beacon Investment Corporation (“Beacon”) the Company’s headquarters office facility and an adjacent office facility. The lease expires on December 31, 2021. Beacon’s majority shareholder is J. Frank Harrison, III and Morgan H. Everett is a minority shareholder. The principal balance outstanding under this capital lease as of March 30, 2014, December 29, 2013 and March 31, 2013 was $22.3 million, $22.9 million and $24.5 million, respectively. Rental payments related to this lease were $1.0 million in both Q1 2014 and Q1 2013.

Coca-Cola Bottling Co. Consolidated

Notes to Consolidated Financial Statements (Unaudited)

20. Net Sales by Product Category

Net sales by product category were as follows:


	First Quarter
In Thousands	2014		2013
Bottle/can sales:
Sparkling beverages (including energy products)	$	254,971	$	254,473
Still beverages		57,150		52,623

Total bottle/can sales		312,121		307,096
Other sales:
Sales to other Coca-Cola bottlers		37,121		40,128
Post-mix and other		39,340		36,327

Total other sales		76,461		76,455

Total net sales	$	388,582	$	383,551

Sparkling beverages are carbonated beverages and energy products while still beverages are noncarbonated beverages.

Coca-Cola Bottling Co. Consolidated

Notes to Consolidated Financial Statements (Unaudited)

21. Net Income Per Share

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


	First Quarter
In Thousands (Except Per Share Data)	2014		2013
Numerator for basic and diluted net income per Common Stock and Class B Common Stock share:

Net income attributable to Coca-Cola Bottling Co. Consolidated	$	2,449	$	4,862
Less dividends:
Common Stock		1,785		1,785
Class B Common Stock		527		522

Total undistributed earnings	$	137	$	2,555


Common Stock undistributed earnings – basic	$	106	$	1,975
Class B Common Stock undistributed earnings – basic		31		580

Total undistributed earnings – basic	$	137	$	2,555


Common Stock undistributed earnings – diluted	$	105	$	1,967
Class B Common Stock undistributed earnings – diluted		32		588

Total undistributed earnings – diluted	$	137	$	2,555


Numerator for basic net income per Common Stock share:
Dividends on Common Stock	$	1,785	$	1,785
Common Stock undistributed earnings – basic		106		1,975

Numerator for basic net income per Common Stock share	$	1,891	$	3,760


Numerator for basic net income per Class B Common Stock share:
Dividends on Class B Common Stock	$	527	$	522
Class B Common Stock undistributed earnings – basic		31		580

Numerator for basic net income per Class B Common Stock share	$	558	$	1,102

Coca-Cola Bottling Co. Consolidated

Notes to Consolidated Financial Statements (Unaudited)

21. Net Income Per Share


	First Quarter
In Thousands (Except Per Share Data)	2014		2013
Numerator for diluted net income per Common Stock share:
Dividends on Common Stock	$	1,785	$	1,785
Dividends on Class B Common Stock assumed converted to Common Stock		527		522
Common Stock undistributed earnings – diluted		137		2,555

Numerator for diluted net income per Common Stock share	$	2,449	$	4,862


Numerator for diluted net income per Class B Common Stock share:
Dividends on Class B Common Stock	$	527	$	522
Class B Common Stock undistributed earnings – diluted		32		588

Numerator for diluted net income per Class B Common Stock share	$	559	$	1,110

Coca-Cola Bottling Co. Consolidated

Notes to Consolidated Financial Statements (Unaudited)

21. Net Income Per Share


	First Quarter
In Thousands (Except Per Share Data)	2014		2013
Denominator for basic net income per Common Stock and Class B Common Stock share:
Common Stock weighted average shares outstanding – basic		7,141		7,141
Class B Common Stock weighted average shares outstanding – basic		2,115		2,095

Denominator for diluted net income per Common Stock and Class B Common Stock share:
Common Stock weighted average shares outstanding – diluted (assumes conversion of Class B Common Stock to Common Stock)		9,296		9,276
Class B Common Stock weighted average shares outstanding – diluted		2,155		2,135

Basic net income per share:
Common Stock	$	.26	$	.53

Class B Common Stock	$	.26	$	.53


Diluted net income per share:
Common Stock	$	.26	$	.52

Class B Common Stock	$	.26	$	.52

NOTES TO TABLE

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

(2)	For purposes of the diluted net income per share computation for Class B Common Stock, weighted average shares of Class B Common Stock are assumed to be outstanding for the entire period and not converted.

(3)	Denominator for diluted net income per share for Common Stock and Class B Common Stock includes the dilutive effect of shares relative to the Performance Unit Award.

Coca-Cola Bottling Co. Consolidated

Notes to Consolidated Financial Statements (Unaudited)

22. Risks and Uncertainties

Approximately 88% of the Company’s Q1 2014 bottle/can volume to retail customers are products of The Coca-Cola Company, which is the sole supplier of these products or of the concentrates or syrups required to manufacture these products. The remaining 12% of the Company’s Q1 2014 bottle/can volume to retail customers are products of other beverage companies or those owned by the Company. The Company has beverage agreements under which it has various requirements to meet. Failure to meet the requirements of these beverage agreements could result in the loss of distribution rights for the respective product.

The Company’s products are sold and distributed directly by its employees to retail stores and other outlets. During both Q1 2014 and Q1 2013, approximately 69% of the Company’s bottle/can volume to retail customers was sold for future consumption, while the remaining bottle/can volume to retail customers of approximately 31% was sold for immediate consumption. The Company’s largest customers, Wal-Mart Stores, Inc. and Food Lion, LLC, accounted for approximately 22% and 9%, respectively, of the Company’s total bottle/can volume to retail customers in Q1 2014; and accounted for approximately 20% and 8%, respectively, of the Company’s total bottle/can volume to retail customers in Q1 2013. Wal-Mart Stores, Inc. accounted for approximately 15% and 14% of the Company’s total net sales during Q1 2014 and Q1 2013, respectively. No other customer represented greater than 10% of the Company’s total net sales for Q1 2014 or Q1 2013.

The Company obtains all of its aluminum cans from two domestic suppliers. The Company currently obtains a majority of its plastic bottles from two domestic entities. See Note 14 and Note 19 to the consolidated financial statements for additional information.

The Company is exposed to price risk on such commodities as aluminum, corn and resin which affects the cost of raw materials used in the production of finished products. The Company both produces and procures these finished products. Examples of the raw materials affected are aluminum cans and plastic bottles used for packaging and high fructose corn syrup used as a product ingredient. Further, the Company is exposed to commodity price risk on crude oil which impacts the Company’s cost of fuel used in the movement and delivery of the Company’s products. The Company participates in commodity hedging and risk mitigation programs administered both by CCBSS and by the Company. In addition, there is no limit on the price The Coca-Cola Company and other beverage companies can charge for concentrate.

Certain liabilities of the Company are subject to risk due to changes in both long-term and short-term interest rates. These liabilities include floating rate debt, retirement benefit obligations and the Company’s pension liability.

Approximately 6.5% of the Company’s labor force is covered by collective bargaining agreements. Two collective bargaining agreements covering approximately .7% of the Company’s employees expired during 2013 and the Company entered into new agreements in 2013. Two collective bargaining agreements covering approximately 5% of the Company’s employees will expire in 2014. Subsequent to Q1 2014, one collective bargaining agreement expired and the Company entered into a new collective bargaining agreement.

Coca-Cola Bottling Co. Consolidated

Notes to Consolidated Financial Statements (Unaudited)

23. Supplemental Disclosures of Cash Flow Information

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


	First Quarter
In Thousands	2014			2013
Accounts receivable, trade, net	$	(12,595	)	$	(7,899	)
Accounts receivable from The Coca-Cola Company		(7,967	)		(5,283	)
Accounts receivable, other		3,167			1,256
Inventories		(14,126	)		(8,174	)
Prepaid expenses and other current assets		(2,678	)		992
Accounts payable, trade		9,712			9,633
Accounts payable to The Coca-Cola Company		13,180			12,159
Other accrued liabilities		484			(14,845	)
Accrued compensation		(13,421	)		(20,271	)
Accrued interest payable		5,335			5,239

Increase in current assets less current liabilities	$	(18,909	)	$	(27,193	)

Non-cash activity

Additions to property, plant and equipment of $6.2 million and $3.2 million have been accrued but not paid and are recorded in accounts payable, trade as of March 30, 2014 and March 31, 2013, respectively.

24. New Accounting Pronouncements

Recently Adopted Pronouncements

In July 2013, the Financial Accounting Standards Board (“FASB”) issued new guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. The provisions of the new guidance were effective for fiscal years beginning after December 15, 2013. The requirements of this new guidance did not have a material impact on the Company’s consolidated financial statements.

Recently Issued Pronouncements

In April 2014, the FASB issued new guidance which changes the criteria for determining which disposals can be presented as discontinued operations and modifies related disclosure requirements. The new guidance is effective for annual and interim periods beginning after December 15, 2014. The impact on the Company of adopting the new guidance will depend on the nature, terms and size of business disposals completed after the effective date.

25. Subsequent Event

On May 7, 2014, the Company signed an asset purchase agreement with CCR relating to the territory currently served by CCR through CCR’s facilities and equipment located in Johnson City and Morristown, Tennessee (the “Territory”). The asset purchase agreement and the comprehensive beverage agreement the Company expects to enter into at closing with CCR granting the Company certain exclusive rights in the Territory and obligating the Company to make a quarterly sub-bottling payment to CCR on a continuing basis for the grant of such rights are described in a Current Report on Form 8-K filed by the Company with the Securities and Exchange Commission on May 8, 2014. The aggregate purchase price to be paid by the Company in cash for the transferred assets, after deducting the value of certain retained assets and retained liabilities, is approximately $12.4 million. The Company expects this Territory expansion transaction to close by the end of May 2014 and to account for the transaction as a business combination under FASB Accounting Standards Codification 805.

Item 2.

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

Introduction

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“M,D&A”) of Coca-Cola Bottling Co. Consolidated (the “Company”) should be read in conjunction with the Company’s consolidated financial statements and the accompanying notes to the consolidated financial statements. M,D&A includes the following sections:

•

Our Business and the Nonalcoholic Beverage Industry – a general description of the Company’s business and the nonalcoholic beverage industry.

•

Areas of Emphasis – a summary of the Company’s key priorities.

•

Overview of Operations and Financial Condition – a summary of key information and trends concerning the financial results for the first quarter of 2014 (“Q1 2014”) and changes from the first quarter of 2013 (“Q1 2013”).

•

Discussion of Critical Accounting Policies, Estimates and New Accounting Pronouncements – a discussion of accounting policies that are most important to the portrayal of the Company’s financial condition and results of operations and that require critical judgments and estimates and the expected impact of new accounting pronouncements.

•

Results of Operations – an analysis of the Company’s results of operations for Q1 2014 compared to Q1 2013.

•

Financial Condition – an analysis of the Company’s financial condition as of the end of Q1 2014 compared to year-end 2013 and the end of Q1 2013 as presented in the consolidated financial statements.

•

Liquidity and Capital Resources – an analysis of capital resources, cash sources and uses, operating activities, investing activities, financing activities, off-balance sheet arrangements, aggregate contractual obligations and hedging activities.

•

Cautionary Information Regarding Forward-Looking Statements.

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

Proposed Expansion of Company’s Franchise Territory

In April 2013, the Company announced that it had signed a non-binding letter of intent (the “LOI”) with The Coca-Cola Company to expand the Company’s franchise territory to include distribution rights in parts of Tennessee and Kentucky that are currently served by Coca-Cola Refreshments USA, Inc. (“CCR”), a wholly owned subsidiary of The Coca-Cola Company. The Company announced on May 8, 2014 that it had signed a definitive agreement with CCR for the first phase of this proposed territory expansion, covering the Morristown and Johnson City, Tennessee territories that are currently served by CCR. The Company filed a Current Report on Form 8-K with the Securities and Exchange Commission on May 8, 2014, which includes a summary description of the definitive agreement and certain exhibits to the agreement.

The Company is continuing to work towards a definitive agreement with The Coca-Cola Company for the remainder of the proposed franchise territory expansion described in the LOI. The Company’s proxy statement for its 2014 Annual Meeting of Stockholders filed with the Securities and Exchange Commission on March 31, 2014 (the “Proxy Statement”) includes a description of the LOI and the proposed franchise territory expansion and other transactions contemplated thereby under the heading “Corporate Governance – Related Person Transactions – Proposed Expansion of the Company’s Franchise Territory.” There is no assurance that the Company and The Coca-Cola Company will reach a definitive agreement for the remainder of the proposed franchise territory expansion and the other transactions contemplated by the LOI in the time frame described in the Proxy Statement or at all or that any of the specific territory expansion transactions contemplated by the LOI will occur in the time frame described in the Proxy Statement or at all.

Our Business and the Nonalcoholic Beverage Industry

The Company produces, markets and distributes nonalcoholic beverages, primarily products of The Coca-Cola Company, which include some of the most recognized and popular beverage brands in the world. The Company is the largest independent bottler of products of The Coca-Cola Company in the United States, distributing these products in eleven states primarily in the Southeast. The Company also distributes several other beverage brands. These product offerings include both sparkling and still beverages. Sparkling beverages are carbonated beverages, including energy products. Still beverages are noncarbonated beverages such as bottled water, tea, ready to drink coffee, enhanced water, juices and sports drinks. The Company had full year net sales of $1.6 billion in 2013.

The nonalcoholic beverage market is highly competitive. The Company’s competitors include bottlers and distributors of nationally and regionally advertised and marketed products and private label products. In each region in which the Company operates, between 85% and 95% of sparkling beverage sales in bottles, cans and other containers are accounted for by the Company and its principal competitors, which in each region includes the local bottler of Pepsi-Cola and, in some regions, the local bottler of Dr Pepper, Royal Crown and/or 7-Up products. The sparkling beverage category (including energy products) represents approximately 82% of the Company’s Q1 2014 bottle/can net sales.

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. The Company believes it is competitive in its territories with respect to each of these methods.

The Company performs its annual impairment test of franchise rights and goodwill as of the first day of the fourth quarter. During Q1 2014, the Company did not experience any triggering events or changes in circumstances that indicated the carrying amounts of the Company’s franchise rights or goodwill exceeded fair values. As such, the Company has not recognized any impairments of franchise rights or goodwill.

Net sales by product category were as follows:


	First Quarter
In Thousands	2014		2013
Bottle/can sales:
Sparkling beverages (including energy products)	$	254,971	$	254,473
Still beverages		57,150		52,623

Total bottle/can sales		312,121		307,096
Other sales:
Sales to other Coca-Cola bottlers		37,121		40,128
Post-mix and other		39,340		36,327

Total other sales		76,461		76,455

Total net sales	$	388,582	$	383,551

Areas of Emphasis

Key priorities for the Company include revenue management, product innovation and beverage portfolio expansion, distribution cost management and productivity.

Revenue Management

Revenue management requires a strategy which reflects consideration for pricing of brands and packages within product categories and channels, highly effective working relationships with customers and disciplined fact-based decision-making. Revenue management has been and continues to be a key performance driver which has significant impact on the Company’s results of operations.

Product Innovation and Beverage Portfolio Expansion

Innovation of both new brands and packages has been and is expected to continue to be important to the Company’s overall revenue. New packaging introductions over the last several years include the 1.25-liter bottle and the 7.5-ounce sleek can. In Q1 2014, the Company introduced the 253 ml bottle for certain Coca-Cola products.

The Company has invested in its own brand portfolio with products such as Tum-E Yummies, a vitamin C enhanced flavored drink, and Fuel in a Bottle power shots. These brands enable the Company to participate in strong growth categories and capitalize on distribution channels that may include the Company’s traditional Coca-Cola franchise territory as well as third party distributors outside the Company’s traditional Coca-Cola franchise territory. While the growth prospects of Company-owned or exclusively licensed brands appear promising, the cost of developing, marketing and distributing these brands is anticipated to be significant as well.

Distribution Cost Management

Distribution costs represent the costs of transporting finished goods from Company locations to customer outlets. Total distribution costs amounted to $49.0 million and $48.6 million in Q1 2014 and Q1 2013, respectively. Over the past several years, the Company has focused on converting its distribution system from a conventional routing system to a predictive system. This conversion to a predictive system has allowed the Company to more efficiently handle an increasing number of products. In addition, the Company has focused on reducing fixed warehouse-related costs by consolidating warehouse space throughout the Company’s territory.

The Company has three primary delivery systems for its current business:

•

bulk delivery for large supermarkets, mass merchandisers and club stores;

•

advanced sales delivery for convenience stores, drug stores, small supermarkets and certain on-premise accounts; and

•

full service delivery for its full service vending customers.

Distribution cost management will continue to be a key area of emphasis for the Company.

Productivity

A key driver in the Company’s selling, delivery and administrative (“S,D&A”) expense management relates to ongoing improvements in labor productivity and asset productivity.

Overview of Operations and Financial Condition

The following items affect the comparability of the financial results presented below:

Q1 2014

•

a $0.8 million pre-tax favorable mark-to-market adjustment to cost of sales related to the Company’s 2014 commodity hedging program.

Q1 2013

•

a $0.5 million pre-tax unfavorable mark-to-market adjustment to cost of sales related to the Company’s 2013 commodity hedging program; and

•

a $0.4 million decrease to income tax expense related to the American Taxpayer Relief Act.

The following overview provides a summary of key information concerning the Company’s financial results for Q1 2014 compared to Q1 2013.


	First Quarter							%
In Thousands (Except Per Share Data)	2014		2013		Change			Change
Net sales	$	388,582	$	383,551	$	5,031			1.3
Cost of sales		232,249		229,852		2,397			1.0
Gross margin		156,333		153,699		2,634			1.7
S,D&A expenses		144,217		138,211		6,006			4.3
Income from operations		12,116		15,488		(3,372	)		(21.8	)
Interest expense, net		7,223		7,379		(156	)		(2.1	)
Income before taxes		4,893		8,109		(3,216	)		(39.7	)
Income tax expense		1,792		2,440		(648	)		(26.6	)
Net income		3,101		5,669		(2,568	)		(45.3	)
Net income attributable to the Company		2,449		4,862		(2,413	)		(49.6	)

Basic net income per share:
Common Stock	$	.26	$	.53	$	(.27	)		(50.9	)
Class B Common Stock	$	.26	$	.53	$	(.27	)		(50.9	)

Diluted net income per share:
Common Stock	$	.26	$	.52	$	(.26	)		(50.0	)
Class B Common Stock	$	.26	$	.52	$	(.26	)		(50.0	)

The Company’s net sales increased 1.3% in Q1 2014 compared to Q1 2013. The increase in net sales in Q1 2014 compared to Q1 2013 was primarily due to a 1.7% increase in bottle/can volume to retail customers and a .6% increase in bottle/can sales price per unit to retail customers partially offset by a 8.9% decrease in sales volume to other Coca-Cola bottlers. The increase in bottle/can volume to retail customers was primarily due to an increase in still beverages. Bottle/can sales to retail customers price per unit increase was primarily due to a sales price increase in sparkling beverages. The decrease in sales volume to other Coca-Cola bottlers was a result of a volume decrease in all beverage categories. The Company’s bottle/can volume to retail customers was impacted by cooler and wetter than normal weather in most of the Company’s territories during the first and second quarters of 2013.

Gross margin dollars increased 1.7% in Q1 2014 compared to Q1 2013. The Company’s gross margin percentage was flat at 40.2% in Q1 2014 compared to 40.1% in Q1 2013.

S,D&A expenses increased 4.3% in Q1 2014 from Q1 2013. The increase in S,D&A expenses in Q1 2014 from Q1 2013 was attributable primarily to increased employee salaries and wages, increased professional fees, increased marketing expenses and increased property and casualty insurance expense.

Net interest expense decreased 2.1% in Q1 2014 compared to Q1 2013. The decrease in interest expense was due to lower levels of borrowings on the Company’s $200 million five-year unsecured revolving credit facility (“$200 million facility”). The Company’s overall weighted average interest rate on its debt and capital lease obligations increased to 5.9% during Q1 2014 from 5.7% during Q1 2013.

Income tax expense decreased 26.6% in Q1 2014 as compared to Q1 2013. The decrease to income tax expense was primarily due to lower pre-tax income.

Net debt and capital lease obligations were summarized as follows:


	Mar. 30,		Dec. 29,		Mar. 31,
In Thousands	2014		2013		2013
Debt	$	433,613	$	398,566	$	458,430
Capital lease obligations		63,539		64,989		68,306

Total debt and capital lease obligations		497,152		463,555		526,736
Less: Cash and cash equivalents		18,774		11,761		11,890

Total net debt and capital lease obligations ⁽¹⁾	$	478,378	$	451,794	$	514,846

(1)

The non-GAAP measure “Total net debt and capital lease obligations” is used to provide investors with additional information which management believes is helpful in the evaluation of the Company’s capital structure and financial leverage. This non-GAAP financial information is not presented elsewhere in this report and may not be comparable to the similarly titled measures used by other companies. Additionally, this information should not be considered in isolation or as a substitute for performance measures calculated in accordance with GAAP.

Discussion of Critical Accounting Policies, Estimates and New Accounting Pronouncements

Critical Accounting Policies and Estimates

In the ordinary course of business, the Company has made a number of estimates and assumptions relating to the reporting of results of operations and financial position in the preparation of its consolidated financial statements in conformity with accounting principles generally accepted in the United States of America. Actual results could differ significantly from those estimates under different assumptions and conditions. The Company included in its Annual Report on Form 10-K for the year ended December 29, 2013 a discussion of the Company’s most critical accounting policies, which are those most important to the portrayal of the Company’s financial condition and results of operations and require management’s most difficult, subjective and complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.

The Company did not make changes in any critical accounting policies during Q1 2014. Any changes in critical accounting policies and estimates are discussed with the Audit Committee of the Board of Directors of the Company during the quarter in which a change is made.

New Accounting Pronouncements

Recently Adopted Pronouncements

Recently Issued Pronouncements

Results of Operations

Q1 2014 Compared to Q1 2013

Net Sales

Net sales increased $5.0 million, or 1.3%, to $388.6 million in Q1 2014 compared to $383.6 million in Q1 2013.

The increase in net sales for Q1 2014 compared to Q1 2013 was principally attributable to the following:


Q1 2014			Attributable to:
(In Millions)
$	5.1		1.7% increase in bottle/can volume to retail customers primarily due to a volume increase in still beverages
	(3.6	)	8.9% decrease in sales volume to other Coca-Cola bottlers primarily due to volume decreases in all beverage categories
	2.1		Increase in freight revenue
	1.9		.6% increase in bottle/can sales price per unit to retail customers primarily due to an increase in sparkling beverages
	(1.5	)	Decrease in sales of the Company’s own brand portfolio (primarily Tum-E Yummies)
	0.6		3.1% increase in post-mix sales price per unit
	0.5		1.5% increase in sales price per unit of sales to other Coca-Cola bottlers primarily due to an increase in sales price per unit of sparkling beverages
	(0.4	)	1.9% decrease in post-mix sales volume
	0.3		Other

$	5.0		Total increase in net sales

The Company’s bottle/can volume was impacted by cooler and wetter than normal weather in most of the Company’s territories during Q1 2013.

In Q1 2014, the Company’s bottle/can sales to retail customers accounted for 80% of the Company’s total net sales. Bottle/can net pricing is based on the invoice price charged to customers reduced by promotional allowances. Bottle/can net pricing per unit is impacted by the price charged per package, the volume generated in each package and the channels in which those packages are sold.

Product category sales volume in Q1 2014 and Q1 2013 as a percentage of total bottle/can sales volume and the percentage change by product category was as follows:


	Bottle/Can Sales Volume						Bottle/Can Sales Volume
Product Category	Q1 2014			Q1 2013			% Increase (Decrease)
Sparkling beverages (including energy products)		81.9	%		83.5	%	(0.3)
Still beverages		18.1	%		16.5	%	11.8

Total bottle/can sales volume		100.0	%		100.0	%	1.7

The Company’s products are sold and distributed through various channels. They include selling directly to retail stores and other outlets such as food markets, institutional accounts and vending machine outlets. During both Q1 2014 and Q1 2013, approximately 69% of the Company’s bottle/can volume was sold for future consumption, while the remaining bottle/can volume of approximately 31% was sold for immediate consumption. The Company’s largest customer, Wal-Mart Stores, Inc., accounted for approximately 22% and 20% of the Company’s total bottle/can volume during Q1 2014 and Q1 2013, respectively. The Company’s second largest customer, Food Lion, LLC, accounted for approximately 9% and 8% of the Company’s total bottle/can volume during Q1 2014 and Q1 2013, respectively. All of the Company’s beverage sales are to customers in the United States.

The Company recorded delivery fees in net sales of $1.5 million in both Q1 2014 and Q1 2013. These fees are used to offset a portion of the Company’s delivery and handling costs.

Cost of Sales

Cost of sales includes the following: raw material costs, manufacturing labor, manufacturing overhead including depreciation expense, manufacturing warehousing costs and shipping and handling costs related to the movement of finished goods from manufacturing locations to sales distribution centers.

Cost of sales increased 1.0%, or $2.4 million, to $232.3 million in Q1 2014 compared to $229.9 million in Q1 2013.

The increase in cost of sales for Q1 2014 compared to Q1 2013 was principally attributable to the following:


Q1 2014			Attributable to:
(In Millions)
$	(3.4	)	8.9% decrease in sales volume to other Coca-Cola bottlers primarily due to volume decreases in all beverage categories
	3.0		1.7% increase in bottle/can volume to retail customers primarily due to a volume increase in still beverages
	1.9		Increase in freight cost of sales
	1.7		Increase due to larger percentage of still beverage sales to retail customers and other Coca-Cola bottlers which have a higher cost per unit
	1.6		Increase in raw material costs and increased purchases of finished products
	(1.4	)	Decrease in cost due to the Company’s commodity hedging program
	(0.9	)	Decrease in sales of the Company’s own brand portfolio (primarily Tum-E Yummies)
	(0.5	)	Increase in marketing funding support received primarily from The Coca-Cola Company
	0.4		Increase in manufacturing labor costs
	(0.3	)	1.9% decrease in post-mix sales volume
	0.3		Other

$	2.4		Total increase in cost of sales

The following inputs represent a substantial portion of the Company’s total cost of sales: (1) sweeteners, (2) packaging materials, including plastic bottles and aluminum cans, and (3) finished products purchased from other vendors. The Company anticipates that the costs of some of the underlying commodities related to these inputs will have a smaller increase in 2014 compared to 2013.

Since 2008, the Company has been purchasing concentrate from The Coca-Cola Company for all sparkling beverages for which the Company purchases concentrate from The Coca-Cola Company under an incidence-based pricing arrangement and has not purchased concentrates at standard concentrate prices as was the Company’s practice in prior years. During the two-year term of a new incidence-based pricing agreement that the Company entered into with The Coca-Cola Company in December 2013 that began January 1, 2014 and will end on December 31, 2015, the pricing of such concentrate will continue to be governed by the incidence-based pricing model rather than the other agreements that the Company has with The Coca-Cola Company. Under the incidence-based pricing model, the concentrate price The Coca-Cola Company charges is impacted by a number of factors, including the incidence rate in effect, the Company’s pricing and sales of finished products, the channels in which the finished products are sold and package mix.

The Company relies extensively on advertising and sales promotion in the marketing of its products. The Coca-Cola Company and other beverage companies that supply concentrates, syrups and finished products to the Company make substantial marketing and advertising expenditures to promote sales in the local territories served by the Company. The Company also benefits from national advertising programs conducted by The Coca-Cola Company and other beverage companies. Certain marketing expenditures by The Coca-Cola Company and other beverage companies are made pursuant to annual arrangements. Although The Coca-Cola Company has advised the Company that it intends to continue to provide marketing funding support, it is not obligated to do so under the Company’s Beverage Agreements. Significant decreases in marketing funding support from The Coca-Cola Company or other beverage companies could adversely impact operating results of the Company in the future.

Total marketing funding support from The Coca-Cola Company and other beverage companies, which includes direct payments to the Company and payments to customers for marketing programs, was $12.5 million for Q1 2014 compared to $12.0 million for Q1 2013.

Gross Margin

Gross margin dollars increased 1.7%, or $2.6 million, to $156.3 million in Q1 2014 compared to $153.7 million in Q1 2013. Gross margin as a percentage of net sales increased to 40.2% for Q1 2014 from 40.1% for Q1 2013.

The increase in gross margin dollars for Q1 2014 compared to Q1 2013 was principally attributable to the following:


Q1 2014			Attributable to:
(In Millions)
$	2.1		1.7% increase in bottle/can volume to retail customers primarily due to a volume increase in still beverages
	1.9		.6% increase in bottle/can sales price per unit to retail customers primarily due to an increase in sparkling beverages
	(1.7	)	Decrease due to larger percentage of still beverage sales to retail customers and other Coca-Cola bottlers which have a higher cost per unit
	(1.6	)	Increase in raw material costs and increased purchases of finished products
	1.4		Decrease in cost due to the Company’s commodity hedging program
	(0.6	)	Decrease in sales of the Company’s own brand portfolio (primarily Tum-E Yummies)
	0.6		3.1% increase in post-mix sales price per unit
	0.5		1.5% increase in sales price per unit of sales to other Coca-Cola bottlers primarily due to an increase in sales price per unit of sparkling beverages
	0.5		Increase in marketing funding support received primarily from The Coca-Cola Company
	(0.4	)	Increase in manufacturing labor costs
	(0.2	)	8.9% decrease in sales volume to other Coca-Cola bottlers primarily due to volume decreases in all beverage categories
	0.2		Increase in freight gross margin
	(0.1	)	1.9% decrease in post-mix sales volume

$	2.6		Total increase in gross margin

The Company’s gross margins may not be comparable to other peer companies, since some of them include all costs related to their distribution network in cost of sales. The Company includes a portion of these costs in S,D&A expenses.

S,D&A Expenses

S,D&A expenses include the following: sales management labor costs, distribution costs from sales distribution centers to customer locations, sales distribution center warehouse costs, depreciation expense related to sales centers, delivery vehicles and cold drink equipment, point-of-sale expenses, advertising expenses, cold drink equipment repair costs, amortization of intangibles and administrative support labor and operating costs such as treasury, legal, information services, accounting, internal control services, human resources and executive management costs.

S,D&A expenses increased by $6.0 million, or 4.3%, to $144.2 million in Q1 2014 from $138.2 million in Q1 2013. S,D&A expenses as a percentage of net sales increased to 37.1% in Q1 2014 from 36.0% in Q1 2013.

The increase in S,D&A expenses for Q1 2014 compared to Q1 2013 was principally attributable to the following:


Q1 2014			Attributable to:
(In Millions)
$	1.3		Increase in marketing expense primarily due to increased spending for marketing promotional items and media sponsorships
	1.2		Increase in professional fees primarily related to due diligence for proposed territory expansion
	1.1		Increase in property and casualty insurance expense primarily due to an increase in auto insurance claims
	1.0		Increase in employee salaries excluding bonus and incentives due to normal salary increases
	0.8		Decrease in gain on sales of property, plant and equipment
	(0.7	)	Decrease in bonus expense, incentive expense and other performance pay initiatives due to the Company’s financial performance
	1.3		Other

$	6.0		Total increase in S,D&A expenses

Shipping and handling costs related to the movement of finished goods from manufacturing locations to sales distribution centers are included in cost of sales. Shipping and handling costs related to the movement of finished goods from sales distribution centers to customer locations are included in S,D&A expenses and totaled $49.0 million and $48.6 million in Q1 2014 and Q1 2013, respectively.

The Company’s expense recorded in S,D&A expenses related to the two Company-sponsored pension plans decreased by $0.4 million to $0.1 million income in Q1 2014 from $0.3 million expense in Q1 2013.

The Company provides a 401(k) Savings Plan for substantially all of its full-time employees who are not part of collective bargaining agreements. During 2013, the Company’s 401(k) Savings Plan matching contribution was discretionary with the Company having the option to make matching contributions for eligible participants of up to 5% of eligible participants’ contributions based on the Company’s financial results for 2013. The 5% matching contribution was accrued during 2013. Based on the Company’s financial results, the Company decided to match 5% of eligible participants’ contributions for the entire year of 2013. The Company made this contribution payment for 2013 in Q1 2014. During 2014, the Company will match the first 3.5% of participants’ contributions while maintaining the option to increase the matching contributions an additional 1.5% for a total of 5% for the Company’s employees based on the financial results for 2014. The total expense for this benefit recorded in S,D&A expenses was $1.8 million and $1.7 million in Q1 2014 and Q1 2013, respectively.

Interest Expense

Net interest expense decreased 2.1% in Q1 2014 compared to Q1 2013. The decrease was primarily due to a lower level of borrowing on the Company’s $200 million facility. The Company’s overall weighted average interest rate on its debt and capital lease obligations increased to 5.9% during Q1 2014 from 5.7% during Q1 2013.

Income Taxes

The Company’s effective tax rate, as calculated by dividing income tax expense by income before income taxes, for Q1 2014 and Q1 2013 was 36.6% and 30.1%, respectively. The Company’s effective tax rate, as calculated by dividing income tax expense by income before income taxes minus net income attributable to noncontrolling interest, for Q1 2014 and Q1 2013 was 42.3% and 33.4%, respectively. The increase in the effective tax rate for Q1 2014 resulted primarily from lower pre-tax income in Q1 2014 and certain favorable tax provisions in Q1 2013 associated with the American Taxpayer Relief Act enacted on January 2, 2013.

The Company’s effective tax rate for the remainder of 2014 is dependent upon the results of operations and may change if the results in 2014 are different from current expectations.

Noncontrolling Interest

The Company recorded net income attributable to noncontrolling interest of $0.7 million and $0.8 million in Q1 2014 and Q1 2013, respectively, related to the portion of Piedmont owned by The Coca-Cola Company.

Financial Condition

Total assets increased to $1.32 billion at March 30, 2014, from $1.28 billion at December 29, 2013 primarily due to increases in cash and cash equivalents, accounts receivables, inventories and property, plant and equipment, net.

Net working capital, defined as current assets less current liabilities, increased by $27.7 million to $58.1 million at March 30, 2014 from December 29, 2013 and decreased by $7.4 million at March 30, 2014 from March 31, 2013.

Significant changes in net working capital from December 29, 2013 were as follows:

•

An increase in cash and cash equivalents of $7.0 million primarily due to borrowings from the Company’s $200 million facility.

•

An increase in accounts receivable, trade of $12.6 million primarily due to normal seasonal increase in sales.

•

An increase in accounts receivable from and an increase in accounts payable to The Coca-Cola Company of $8.0 million and $13.2 million, respectively, primarily due to the timing of payments.

•

An increase in inventories of $14.1 million primarily due to normal seasonal increase in sales.

•

A decrease in accrued compensation of $14.3 million primarily due to the payment of bonuses in March 2014.

•

An increase in accounts payable trade of $8.7 million primarily due to timing of payments.

•

An increase in accrued interest payable of $5.3 million primarily due to timing of payments.

Significant changes in net working capital from March 31, 2013 were as follows:

•

An increase in cash and cash equivalents of $6.9 million primarily due to borrowings from the Company’s $200 million facility.

•

An increase in accounts receivable, trade of $6.8 million primarily due to the timing of payments and increased sales.

•

An increase in accounts receivable from The Coca-Cola Company of $5.0 million primarily due to the timing of payments.

•

An increase in other accrued liabilities of $17.8 million primarily due to an increase in checks and transfers yet to be presented for payment from zero balance cash accounts and higher accrual for income taxes.

•

An increase in accrued compensation of $6.0 million primarily due to the payment of certain bonuses on the last day of March, which is the first day of the second quarter of 2014. In 2013, these bonuses were paid in the first quarter.

Debt and capital lease obligations were $497.2 million as of March 30, 2014 compared to $463.6 million as of December 29, 2013 and $526.7 million as of March 31, 2013. Debt and capital lease obligations as of March 30, 2014 included $63.5 million of capital lease obligations related primarily to Company facilities.

Liquidity and Capital Resources

Capital Resources

The Company’s sources of capital include cash flows from operations, available credit facility balances and the issuance of debt and equity securities. Historically, operating results for the first quarter of the fiscal year have not been representative of results for the entire fiscal year. Business seasonality results primarily from higher unit sales of the Company’s products in the second and third quarters versus the first and fourth quarters of the fiscal year. Management believes the Company has sufficient resources available to finance its business plan, meet its working capital requirements and maintain an appropriate level of capital spending for at least the next 12 months. The amount and frequency of future dividends will be determined by the Company’s Board of Directors in light of the earnings and financial condition of the Company at such time, and no assurance can be given that dividends will be declared in the future.

As of March 30, 2014, the Company had $160 million available under the $200 million facility to meet its cash requirements. The $200 million facility has a scheduled maturity date of September 21, 2016 and up to $25 million is available for the issuance of letters of credit. Borrowings under the agreement bear interest at a floating base rate or a floating Eurodollar rate plus an interest rate spread, dependent on the Company’s credit rating at the time of borrowing. The Company must pay an annual facility fee of .175% of the lenders’ aggregate commitments under the facility. The $200 million facility contains two financial covenants: a cash flow/fixed charges ratio (“fixed charges coverage ratio”) and a funded indebtedness/cash flow ratio (“operating cash flow ratio”), each as defined in the credit agreement. The fixed charges coverage ratio requires the Company to maintain a consolidated cash flow to fixed charges ratio of 1.5 to 1.0 or higher. The operating cash flow ratio requires the Company to maintain a debt to operating cash flow ratio of 6.0 to 1.0 or lower. The Company is currently in compliance with these covenants. These covenants do not currently, and the Company does not anticipate they will, restrict its liquidity or capital resources. The Company currently believes that all of the banks participating in the $200 million facility have the ability to and will meet any funding requests from the Company.

The Company has obtained the majority of its long-term financing, other than capital leases, from public markets. As of March 30, 2014, $373.6 million of the Company’s total outstanding balance of debt and capital lease obligations of $497.2 million was financed through publicly offered debt. The Company had capital lease obligations of $63.5 million as of March 30, 2014. As of March 30, 2014, the Company had $40.0 million and $20.0 million outstanding on the $200 million facility and the Company’s uncommitted line of credit, respectively.

Cash Sources and Uses

The primary sources of cash for the Company in Q1 2014 and Q1 2013 have been available credit facilities. The primary uses of cash in Q1 2014 and Q1 2013 were for capital expenditures, the payment of debt and capital lease obligations, dividend payments, income tax payments and funding working capital.

A summary of activity for Q1 2014 and Q1 2013 follows:


	First Quarter
In Millions	2014		2013
Cash Sources
Proceeds from $200 million facility	$	35.0	$	45.0
Proceeds from the sale of property, plant and equipment		.9		4.3

Total cash sources	$	35.9	$	49.3


Cash Uses
Cash used in operating activities (excluding income tax and pension payments)	$	3.9	$	12.9
Capital expenditures		17.8		20.4
Payment on $200 million facility		—		10.0
Payment on capital lease obligations		1.4		1.3
Dividends		2.3		2.3
Income tax payments		3.4		.9
Other		.1		—

Total cash uses	$	28.9	$	47.8

Increase in cash	$	7.0	$	1.5

Based on current projections, which include a number of assumptions such as the Company’s pre-tax earnings, the Company anticipates its cash requirements for income taxes will be between $25 million and $30 million for the remainder of 2014. This projection does not include any anticipated cash income tax requirements due to the proposed expansion of the Company’s franchise territory.

Operating Activities

During Q1 2014, cash flow used in operating activities decreased $6.5 million compared to Q1 2013. The decrease was primarily due to a $15.3 million net decrease to other accrued liabilities ($0.5 million increase for Q1 2014 compared to a $14.8 million decrease for Q1 2013). The decrease was offset by a $5.9 million net increase in inventories ($14.1 million increase for Q1 2014 compared to $8.2 million for Q1 2013) and a $1.7 million net change in accounts receivable from/due to The Coca-Cola Company ($5.2 million net payable increase for Q1 2014 compared to $6.9 million for Q1 2013).

Investing Activities

Additions to property, plant and equipment during Q1 2014 were $16.8 million of which $6.2 million were accrued in accounts payable, trade as unpaid. This compared to $9.2 million in total additions to property, plant and equipment during Q1 2013 of which $3.2 million were accrued in accounts payable, trade as unpaid. Capital expenditures during Q1 2014 were funded with cash flows from operations and available credit facilities. The Company anticipates total additions to property, plant and equipment in fiscal year 2014 will be in the range of $80 million to $90 million. Leasing is used for certain capital additions when considered cost effective relative to other sources of capital. The Company currently leases its corporate headquarters, two production facilities and several sales distribution facilities and administrative facilities.

Financing Activities

As of March 30, 2014, the Company had $160 million available under the $200 million facility to meet its short-term borrowing requirements. The $200 million facility has a scheduled maturity date of September 21, 2016 and up to $25 million is available for the issuance of letters of credit. Borrowings under the agreement bear interest at a floating base rate or a floating Eurodollar rate plus an interest rate spread, dependent on the Company’s credit rating at the time of borrowing. The Company must pay an annual facility fee of .175% of the lenders’ aggregate commitments under the facility. The $200 million facility contains two financial covenants: a cash flow/fixed charges ratio (“fixed charges coverage ratio”) and a funded indebtedness/cash flow ratio (“operating cash flow ratio”), each as defined in the credit agreement. The fixed charges coverage ratio requires the Company to maintain a consolidated cash flow to fixed charges ratio of 1.5 to 1.0 or higher. The operating cash flow ratio requires the Company to maintain a debt to operating cash flow ratio of 6.0 to 1.0 or lower. The Company is currently in compliance with these covenants. These covenants do not currently, and the Company does not anticipate they will, restrict its liquidity or capital resources.

The Company currently believes that all of the banks participating in the Company’s $200 million facility have the ability to and will meet any funding requests from the Company. On March 30, 2014, December 29, 2013 and March 31, 2013, the Company had $40.0 million, $5.0 million and $65.0 million, respectively, of outstanding borrowings on the $200 million facility.

During both Q1 2014 and Q1 2013, the Company’s net borrowings under its $200 million facility increased $35 million to fund seasonal working capital requirements and capital expenditures.

The Company has an agreement for an uncommitted line of credit under which the Company may borrow up to a total of $20 million for periods of 7 days, 30 days, 60 days or 90 days at the discretion of the participating bank. On March 30, 2014, December 29, 2013 and March 31, 2013, the Company had $20 million outstanding under the uncommitted line of credit.

As of March 30, 2014, December 29, 2013 and March 31, 2013, the weighted average interest rate of the Company’s debt and capital lease obligations was 5.8%, 6.2% and 5.6%, respectively, for its outstanding debt and capital lease obligations. The Company’s overall weighted average interest rate on its debt and capital lease obligations increased to 5.9% in Q1 2014 from 5.7% in Q1 2013. As of March 30, 2014, $60.0 million of the Company’s debt and capital lease obligations of $497.2 million were subject to changes in short-term interest rates.

All of the outstanding debt on the Company’s balance sheet has been issued by the Company with none having been issued by any of the Company’s subsidiaries. There are no guarantees of the Company’s debt. The Company or its subsidiaries have entered into nine capital leases.

At March 30, 2014, the Company’s credit ratings were as follows:


		Long-Term Debt
Standard & Poor’s		BBB
Moody’s		Baa2

The Company’s credit ratings, which the Company is disclosing to enhance understanding of the Company’s sources of liquidity and the effect of the Company’s rating on the Company’s cost of funds, are reviewed periodically by the respective rating agencies. Changes in the Company’s operating results or financial position could result in changes in the Company’s credit ratings. Lower credit ratings could result in higher borrowing costs for the Company or reduced access to capital markets, which could have a material impact on the Company’s financial position or results of operations. There were no changes in these credit ratings from the prior year and the credit ratings are currently stable. Changes in the credit ratings of The Coca-Cola Company could adversely affect the Company’s credit ratings as well.

The indentures under which the Company’s public debt was issued do not include financial covenants but do limit the incurrence of certain liens and encumbrances as well as indebtedness by the Company’s subsidiaries in excess of certain amounts.

Off-Balance Sheet Arrangements

The Company is a member of two manufacturing cooperatives and has guaranteed $31.2 million of debt for these entities as of March 30, 2014. In addition, the Company has an equity ownership in each of the entities. The members of both cooperatives consist solely of Coca-Cola bottlers. The Company does not anticipate either of these cooperatives will fail to fulfill their commitments. The Company further believes each of these cooperatives has sufficient assets, including production equipment, facilities and working capital, and the ability to adjust selling prices of their products to adequately mitigate the risk of material loss from the Company’s guarantees. As of March 30, 2014, the Company’s maximum exposure, if the entities borrowed up to their borrowing capacity, would have been $71.6 million including the Company’s equity interests. See Note 14 and Note 19 to the consolidated financial statements for additional information about these entities.

Aggregate Contractual Obligations

The following table summarizes the Company’s contractual obligations and commercial commitments as of March 30, 2014:


	Payments Due by Period
			Apr. 2014-		Apr. 2015-		Apr. 2017-		After
In Thousands	Total		Mar. 2015		Mar. 2017		Mar. 2019		Mar. 2019
Contractual obligations:
Total debt, net of interest	$	433,613	$	20,000	$	304,757	$	—	$	108,856
Capital lease obligations, net of interest		63,539		6,062		13,622		15,481		28,374
Estimated interest on long-term debt and capital lease obligations ⁽¹⁾		82,746		25,993		32,317		20,240		4,196
Purchase obligations ⁽²⁾		966,985		94,340		188,680		188,680		495,285
Other long-term liabilities ⁽³⁾		133,754		10,175		15,538		11,829		96,212
Operating leases		35,945		5,936		8,805		6,178		15,026
Long-term contractual arrangements ⁽⁴⁾		37,728		10,364		14,009		7,624		5,731
Postretirement obligations ⁽⁵⁾		68,826		3,854		6,183		7,739		51,050
Purchase orders ⁽⁶⁾		45,190		45,190		—		—		—

Total contractual obligations	$	1,868,326	$	221,914	$	583,911	$	257,771	$	804,730

(1)	Includes interest payments based on contractual terms.

(2)	Represents an estimate of the Company’s obligation to purchase 17.5 million cases of finished product on an annual basis through June 2024 from South Atlantic Canners, a manufacturing cooperative.

(3)	Includes obligations under executive benefit plans, the liability to exit from a multi-employer pension plan and other long-term liabilities.

(4)	Includes contractual arrangements with certain prestige properties, athletic venues and other locations, and other long-term marketing commitments.

(5)	Includes the liability for postretirement benefit obligations only. The unfunded portion of the Company’s pension plans is excluded as the timing and/or the amount of any cash payment is uncertain.

(6)	Purchase orders include commitments in which a written purchase order has been issued to a vendor, but the goods have not been received or the services have not been performed.

The Company has $2.9 million of uncertain tax positions, including accrued interest, as of March 30, 2014 (excluded from other long-term liabilities in the table above because the Company is uncertain as to if or when such amounts will be recognized) all of which would affect the Company’s effective tax rate if recognized. While it is expected that the amount of uncertain tax positions may change in the next 12 months, the Company does not expect any change to have a material impact on the consolidated financial statements. See Note 15 to the consolidated financial statements for additional information.

The Company is a member of Southeastern Container (“Southeastern”), a plastic bottle manufacturing cooperative, from which the Company is obligated to purchase at least 80% of its requirements of plastic bottles for certain designated territories. This obligation is not included in the Company’s table of contractual obligations and commercial commitments since there are no minimum purchase requirements. See Note 14 and Note 19 to the consolidated financial statements for additional information related to Southeastern.

As of March 30, 2014, the Company has $22.9 million of standby letters of credit, primarily related to its property and casualty insurance programs. See Note 14 to the consolidated financial statements for additional information related to commercial commitments, guarantees, legal and tax matters.

The Company did not contribute to the two Company-sponsored pension plans in Q1 2014. Based on information currently available, the Company estimates it will be required to make contributions for the remainder of 2014 in the range of $4 million to $10 million to those two plans. Postretirement medical care payments are expected to be approximately $3 million in 2014. See Note 18 to the consolidated financial statements for additional information related to pension and postretirement obligations.

Hedging Activities

Interest Rate Hedging

The Company uses derivatives from time to time to partially manage the Company’s exposure to changes in interest rates on outstanding debt instruments. The Company has not had interest rate swap agreements since September 2008.

Commodity Hedging

The Company entered into derivative instruments to hedge certain commodity purchases for 2014 and 2013. Fees paid by the Company for derivative instruments are amortized over the corresponding period of the instrument. The Company accounts for its commodity hedges on a mark-to-market basis with any expense or income reflected as an adjustment of cost of sales or S,D&A expenses.

The Company uses several different financial institutions for commodity derivative instruments to minimize the concentration of credit risk. The Company has master agreements with the counterparties to its derivative financial agreements that provide for net settlement of derivative transactions.

In February 2014, the Company paid $0.9 million for agreements to hedge certain commodity costs for 2014. The notional amount of these agreements was $31.6 million.

The net impact of the commodity hedges was to decrease the cost of sales by $0.8 million in Q1 2014 and to increase the cost of sales by $0.6 million in Q1 2013.

Cautionary Information Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q, as well as information included in future filings by the Company with the Securities and Exchange Commission and information contained in written material, news releases and oral statements issued by or on behalf of the Company, contains, or may contain, forward-looking management comments and other statements that reflect management’s current outlook for future periods. These statements include, among others, statements relating to:

•

the Company’s expectation regarding the time frame for and sequencing of the proposed expansion of the Company’s franchise territory;

•

the Company’s belief that the financial covenants in its $200 million facility will not restrict its liquidity or capital resources;

•

the Company’s belief that other parties to certain contractual arrangements will perform their obligations;

•

the Company’s potential marketing funding support from The Coca-Cola Company and other beverage companies;

•

the Company’s belief that disposition of certain claims and legal proceedings will not have a material adverse effect on its financial condition, cash flows or results of operations and that no material amount of loss in excess of recorded amounts is reasonably possible as a result of these claims and legal proceedings;

•

the Company’s belief that the Company has adequately provided for any ultimate amounts that are likely to result from tax audits;

•

the Company’s belief that the Company has sufficient resources available to finance its business plan, meet its working capital requirements and maintain an appropriate level of capital spending;

•

the Company’s belief that the cooperatives whose debt the Company guarantees have sufficient assets and the ability to adjust selling prices of their products to adequately mitigate the risk of material loss and that the cooperatives will perform their obligations under their debt commitments;

•

the Company’s key priorities which are revenue management, product innovation and beverage portfolio expansion, distribution cost management and productivity;

•

the Company’s belief that cash contributions to the two Company-sponsored pension plans will be in the range of $4 million to $10 million for the remainder of 2014;

•

the Company’s belief that postretirement medical care payments will be approximately $3 million in 2014;

•

the Company’s belief that cash requirements for income taxes will be in the range of $25 million to $30 million for the remainder of 2014;

•

the Company’s expectation that additions to property, plant and equipment in 2014 will be in the range of $80 million to $90 million;

•

the Company’s belief that compliance with environmental laws will not have a material adverse effect on its capital expenditures, earnings or competitive position;

•

the Company’s belief that the majority of its deferred tax assets will be realized;

•

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

•

the Company’s beliefs that the growth prospects of Company-owned or exclusively licensed brands appear promising and the cost of developing, marketing and distributing these brands may be significant;

•

the Company’s belief that all of the banks participating in the Company’s $200 million facility have the ability to and will meet any funding requests from the Company;

•

the Company’s belief that it is competitive in its territories with respect to the principal methods of competition in the nonalcoholic beverage industry;

•

the Company’s estimate that a 10% increase in the market prices of certain commodities over the current market prices would cumulatively increase costs during the next 12 months by approximately $26 million assuming no change in volume;

•

the Company’s belief that innovation of new brands and packages will continue to be important to the Company’s overall revenue;

•

the Company’s expectation that the amount of uncertain tax positions may change over the next 12 months but will not have a material impact on the consolidated financial statements;

•

the Company’s expectation that the costs of some of the underlying commodities to inputs to the Company’s total cost of sales will have a smaller increase for the remainder of 2014 compared to 2013; and

•

the Company’s hypothetical calculation of the impact of a 1% increase in interest rates on outstanding floating rate debt and capital lease obligations for the next twelve months as of March 30, 2014.

These statements and expectations are based on currently available competitive, financial and economic data along with the Company’s operating plans, and are subject to future events and uncertainties that could cause anticipated events not to occur or actual results to differ materially from historical or anticipated results. Factors that could impact those statements and expectations or adversely affect future periods include, but are not limited to, the factors set forth in Part I. Item 1A. Risk Factors of the Company’s Annual Report on Form 10-K for the year ended December 29, 2013.

Caution should be taken not to place undue reliance on the Company’s forward-looking statements, which reflect the expectations of management of the Company only as of the time such statements are made. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Item 3.

Quantitative and Qualitative Disclosures About Market Risk.

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

Debt and Derivative Financial Instruments

The Company is subject to interest rate risk on its fixed and floating rate debt. The Company periodically uses interest rate hedging products to modify risk from interest rate fluctuations. The counterparties to interest rate hedging arrangements have generally been major financial institutions with which the Company also had other financial relationships. The Company did not have any interest rate hedging products as of March 30, 2014. As of March 30, 2014, $60.0 million of the Company’s debt and capital lease obligations of $497.2 million were subject to changes in short-term interest rates.

As it relates to the Company’s variable rate debt, assuming no changes in the Company’s financial structure, if market interest rates average 1% more over the next twelve months than the interest rates as of March 30, 2014, interest expense for the next twelve months would increase by approximately $0.6 million. This amount was determined by calculating the effect of the hypothetical interest rate on the Company’s variable rate debt. This calculated, hypothetical increase in interest expense for the following twelve months may be different from the actual increase in interest expense from a 1% increase in interest rates due to varying interest rate reset dates on the Company’s floating debt.

Raw Material and Commodity Price Risk

The Company is also subject to commodity price risk arising from price movements for certain commodities included as part of its raw materials. The Company manages this commodity price risk in some cases by entering into contracts with adjustable prices. The Company periodically uses derivative commodity instruments in the management of this risk. The Company estimates that a 10% increase in the market prices of these commodities over the current market prices would cumulatively increase costs during the next 12 months by approximately $26 million assuming no change in volume.

In the first quarter of 2014, the Company entered into agreements to hedge a portion of the Company’s 2014 commodity purchases. In the third quarter of 2012, the Company entered into agreements to hedge a portion of the Company’s 2013 commodity purchases. Fees paid by the Company for such instruments are amortized over the corresponding period of the instruments. The Company accounts for commodity hedges on a mark-to-market basis with any expense or income being reflected as an adjustment to cost of sales or S,D&A expenses.

Effects of Changing Prices

The annual rate of inflation in the United States, as measured by year-over-year changes in the consumer price index, was 1.5% in 2013 compared to 1.7% in 2012 and 3.0% in 2011. Inflation in the prices of those commodities important to the Company’s business is reflected in changes in the consumer price index, but commodity prices are volatile and have in recent years increased at a faster rate than the rate of inflation as measured by the consumer price index.

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

Item 4.

Controls and Procedures.

As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s “disclosure controls and procedures” (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”)), pursuant to Rule 13a-15(b) of the Exchange Act. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of March 30, 2014.

There has been no change in the Company’s internal control over financial reporting during the quarter ended March 30, 2014 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1A.

Risk Factors.

There have been no material changes to the factors disclosed in Part I. Item 1A. Risk Factors in the Company’s Annual Report on Form 10-K for the year ended December 29, 2013.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

Purchases of Equity Securities

The following table provides information about repurchases of our common stock during the three-month period ended March 30, 2014:

Total Number

Approximate

of Shares

Dollar Value

Purchased as

of Shares that

Number of

Average

Part of

May Yet Be

Price Paid

Publically

Purchased

Per Share

Announced

Under the

Period

(1)

($)

Program

December 30, 2013 through January 26, 2014

—

January 27, 2014 through February 23, 2014

—

February 24, 2014 through March 30, 2014

19,100

84.34

—

(1)	Represents shares of common stock withheld for income tax purposes in connection with the vesting of 40,000 shares of restricted Class B Common Stock issued pursuant to a Performance Unit Award Agreement to J. Frank Harrison, III, in connection with his services in 2013.

Item 6.

Exhibits.


Exhibit Number		Description

4.1		The registrant, by signing this report, agrees to furnish the Securities and Exchange Commission, upon its request, a copy of any instrument which defines the rights of holders of long-term debt of the registrant and its consolidated subsidiaries which authorizes a total amount of securities not in excess of 10 percent of the total assets of the registrant and its subsidiaries on a consolidated basis.

10.1		Coca-Cola Bottling Co. Consolidated Long Term Retention Plan, adopted effective as of March 5, 2014 (filed herewith).

10.2		Management Agreement, dated as March 12, 2014, by and among CCBCC Operations, LLC, a wholly-owned subsidiary of the Company and South Atlantic Canners, Inc. (filed herewith).

12		Ratio of earnings to fixed charges (filed herewith).

31.1		Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).

31.2		Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).

32		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).

101		Financial statement from the quarterly report on Form 10-Q of Coca-Cola Bottling Co. Consolidated for the quarter ended March 30, 2014, filed on May 9, 2014, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Statements of Operations; (ii) the Consolidated Statements of Comprehensive Income; (iii) the Consolidated Balance Sheets; (iv) the Consolidated Statements of Changes in Equity; (v) the Consolidated Statements of Cash Flows and (vi) the Notes to the Consolidated Financial Statements.

SIGNATURES

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


	COCA-COLA BOTTLING CO. CONSOLIDATED
	(REGISTRANT)

Date: May 9, 2014	By:	/s/ James E. Harris
		James E. Harris Principal Financial Officer of the Registrant and Senior Vice President, Shared Services and Chief Financial Officer

Date: May 9, 2014	By:	/s/ William J. Billiard
		William J. Billiard
		Principal Accounting Officer of the Registrant and Chief Accounting Officer and Corporate Controller

TABLE OF CONTENTS

Part I - Financial Information Item 1. Financial Statements Item 2. Management S Discussion and Analysis Of Financial Condition and Results Of Operations Item 3. Quantitative and Qualitative Disclosures About Market Risk Item 4. Controls and Procedures Part II - Other Information Item 1A. Risk Factors Item 2. Unregistered Sales Of Equity Securities and Use Of Proceeds Part Of Item 6. Exhibits

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