COCA COLA BOTTLING CO CONSOLIDATED /DE/ Item 1A Risk Factors In addition to other information in this Form 10-K, the following risk factors should be considered carefully in evaluating the Company’s business |
The Company’s business, financial condition or results of operations could be materially and adversely affected by any of these risks |
Additional risks and uncertainties, including 9 ______________________________________________________________________ [34]Table of Contents risks and uncertainties not presently known to the Company, or that the Company currently deems immaterial, may also impair its business and results of operations |
Lower than expected selling prices resulting from increased marketplace competition could adversely affect the Company’s profitability |
The carbonated soft drink market and the noncarbonated beverage market are highly competitive |
The Company’s competitors in these markets include bottlers and distributors of nationally advertised and marketed products, regionally advertised and marketed products and private label soft drinks |
Although the Company has placed an emphasis on revenue management, which includes striking the appropriate balance between generating growth in volume, gross margin and market share, there can be no assurance that increased competition will not reduce the Company’s profitability |
Changes in how significant customers market or promote the Company’s products could reduce sales volume |
The Company’s sales volume is impacted by how significant customers market or promote the Company’s products |
Sales volume has been negatively impacted by less aggressive price promotion by some retailers in the future consumption channels in the past several years |
If the Company’s significant customers change the way they market or promote the Company’s products, the Company’s sales volume, revenue and profitability could be adversely impacted |
Changes in public and consumer preferences related to nonalcoholic beverages could reduce demand for the Company’s products and reduce profitability |
The Company’s business depends substantially on consumer tastes and preferences that change in often unpredictable ways |
The success of the Company’s business depends on working with the beverage companies to meet the changing preferences of the broad consumer market |
The Company has seen a shift from sugar carbonated beverages to diet carbonated beverages, isotonics, bottled water and energy products over the past several years |
Failure to satisfy changing consumer preferences could adversely affect the profitability of the Company’s business |
The Company’s inability to meet requirements under its bottling contracts could result in the loss of distribution rights |
Approximately 90prca of the Company’s bottle/can sales volume with retail customers consists of products of The Coca-Cola Company, which is the sole supplier of the concentrates or syrups required to manufacture these products |
The remaining 10prca of the Company’s bottle/can sales volume with retail customers consists of products of other beverage companies |
The Company has bottling contracts under which it has various requirements to meet |
Failure to meet the requirements of these bottling contracts could result in the loss of distribution rights for the respective product |
Material changes in, or the Company’s inability to meet, the performance requirements for marketing funding support, or decreases from historic levels of marketing funding support, would reduce the Company’s profitability |
Material changes in the performance requirements, or decreases in the levels of marketing funding support historically provided, under marketing programs with The Coca-Cola Company and other beverage companies, or the Company’s inability to meet the performance requirements for the anticipated levels of such marketing funding support payments, would adversely affect the Company’s profitability |
The Coca-Cola Company and other beverage companies are under no obligation to continue marketing funding support at historic levels |
10 ______________________________________________________________________ [35]Table of Contents Changes in The Coca-Cola Company’s and other beverage companies’ levels of advertising, marketing spending and brand innovation could reduce the Company’s sales volume |
The Coca-Cola Company’s and other beverage companies’ levels of advertising, marketing spending and brand innovation directly impact the Company’s operations |
While the Company does not believe that there will be significant changes in the levels of marketing and advertising by the beverage companies, there can be no assurance that historic levels will continue |
In addition, if the sales volume of sugar carbonated beverages continues to decline, the Company’s sales volume growth will continue to be dependent on brand innovation by the beverage companies, especially The Coca-Cola Company |
Decreases in beverage company marketing, advertising and product brand innovation could adversely impact the profitability of the Company |
The inability of the Company’s aluminum can or plastic bottle suppliers to meet the Company’s purchase requirements may reduce the Company’s profitability |
The Company currently obtains all of its aluminum cans from one domestic supplier and all of its plastic bottles from two domestic cooperatives |
The inability of these aluminum can or plastic bottle suppliers to meet the Company’s requirements for containers could result in short-term shortages until alternative sources of supply can be located |
The Company attempts to mitigate these risks by working closely with key suppliers and by purchasing business interruption insurance where appropriate |
Failure of the aluminum can or plastic bottle suppliers to meet the Company’s purchase requirements could reduce the Company’s profitability |
The inability of the Company to offset higher raw material costs with higher selling prices, increased bottle/can sales volume or reduced expenses could have an adverse impact on the Company’s profitability |
Packaging costs, primarily plastic bottle costs and aluminum can costs increased significantly in 2005 and could continue to increase in the future |
If the Company cannot offset higher raw material costs with higher selling prices, increased sales volume or reductions in other costs, the Company’s profitability could be adversely affected |
Sustained increases in fuel costs or the inability of the Company to secure adequate supplies of fuel could have an adverse impact on the Company’s profitability |
The Company has experienced significant increases in fuel costs as a result primarily of macro-economic factors beyond the Company’s control |
In addition, the Company uses significant amounts of fuel in the distribution of its products |
Events such as natural disasters could impact the supply of fuel and could impact the timely delivery of the Company’s products to its customers |
While the Company is working to reduce fuel consumption, there can be no assurance that the Company will succeed in limiting future cost increases |
Continued upward pressure in these costs could reduce the profitability of the Company’s operations |
Sustained increases in workers’ compensation, employment practices and vehicle accident costs may reduce the Company’s profitability |
The Company is generally self-insured for the costs of workers’ compensation, employment practices and vehicle accident claims |
Losses are accrued using assumptions and procedures followed in the insurance industry, adjusted for company-specific history and expectations |
Although the Company has actively sought to control increases in these costs, there can be no assurance that the Company will succeed in limiting future cost increases |
Continued upward pressure in these costs could reduce the profitability of the Company’s operations |
Sustained increases in the cost of employee benefits may reduce the Company’s profitability |
With approximately 6cmam000 employees, the Company’s profitability is substantially affected by the cost of pension retirement benefits, post-retirement medical benefits and current employees’ medical benefits |
In recent 11 ______________________________________________________________________ [36]Table of Contents years, the Company has experienced significant increases in these costs as a result of macro-economic factors beyond the Company’s control, including increases in health care costs, declines in investment returns on pension assets and changes in discount rates used to calculate pension and related liabilities |
Although the Company has actively sought to control increases in these costs, there can be no assurance the Company will succeed in limiting future cost increases, and continued upward pressure in these costs could reduce the profitability of the Company’s operations |
Changes in interest rates could adversely affect the profitability of the Company |
Approximately 43prca of the Company’s debt and capital lease obligations of dlra777dtta2 million as of January 1, 2006 was subject to changes in short-term interest rates |
Rising interest rates have increased the Company’s interest expense over the past two years |
If interest rates increased by 1prca, the Company’s interest expense would increase by approximately dlra3 million over the next twelve months |
This amount is determined by calculating the effect of a hypothetical interest rate increase of 1prca on outstanding floating rate debt and capital lease obligations as of January 1, 2006, including the effects of the Company’s derivative financial instruments |
This calculated, hypothetical increase in interest expense for the following twelve months may be different from the actual increase in interest expense from a 1prca increase in interest rates due to varying interest rate reset dates on the Company’s floating rate debt and derivative financial instruments |
In addition, the Company’s pension and postretirement medical benefits costs are subject to changes in interest rates |
There can be no assurance that future increases in interest rates will not reduce the Company’s profitability |
The Company’s debt rating could be impacted by The Coca-Cola Company |
The Company’s debt rating could be significantly impacted by capital management activities of The Coca-Cola Company and/or changes in the debt rating of The Coca-Cola Company |
A lower debt rating could significantly increase the Company’s interest cost |
Changes in legal contingencies could impact the Company’s future profitability |
Changes from expectations for the resolution of outstanding legal claims and assessments could have a material adverse impact on the Company’s profitability and financial condition |
In addition, the Company’s failure to abide by laws, orders or other legal commitments could subject the Company to fines, penalties or other damages |
Additional taxes resulting from tax audits could impact the Company’s future profitability |
An assessment of additional taxes resulting from audits of the Company’s tax filings could have a material impact on the Company’s profitability, cash flows and financial condition |
Natural disasters and unfavorable weather could impact the Company’s future profitability |
Natural disasters or unfavorable weather conditions in the geographic regions in which the Company does business could have a material impact on the Company’s revenue and profitability |
Issues surrounding labor relations could impact the Company’s future profitability and/or its operating efficiency |
Approximately 7prca of the Company’s employees are covered by collective bargaining agreements |
The inability to renegotiate subsequent agreements on satisfactory terms and conditions could result in work interruptions or stoppages, which could have a material impact on the profitability of the Company |
Also, the terms and conditions of existing or renegotiated agreements could increase costs, or otherwise affect the Company’s ability to fully implement operational changes to improve overall efficiency |
12 ______________________________________________________________________ [37]Table of Contents Recent bottler litigation could limit the Company’s ability to change distribution methods and business practices |
Litigation recently filed by some United States bottlers of Coca-Cola products reflects disagreements in the Coca-Cola bottler system concerning distribution methods and business practices |
These disagreements among various Coca-Cola bottlers could adversely affect the Company’s ability to fully implement its business plans |
Management’s use of estimates and assumptions may have a material effect on reported results |
The Company’s consolidated financial statements and accompanying notes to the consolidated financial statements include estimates and assumptions by management that impact reported amounts |
Actual results could differ from those estimates |