If you’ve listened to a quarterly earnings conference call from a major consumer goods company like Coca-Cola, you’ve likely heard an executive note that the company’s financial results were impacted by “fewer days in the quarter” or “additional days in the quarter.”
“What?”, you ask. Aren’t there three months in every quarter?
For many consumer goods companies, the answer for financial reporting purposes is no. What’s known as the 4-4-5 calendar in budgeting and accounting divides the year into four 13-week quarters.
Most manufacturing and retail companies follow the 4-4-5 calendar to forecast and plan sales in standard weekly buckets of data. A consistent 13-week, 91-day quarter means companies can measure quarter-over-quarter financial and operating results.
Yet, a disadvantage of the 4-4-5 calendar is that it computes to 364 days – 52 seven-day weeks. This means a 53-week year comes around approximately every 5.6 years – which makes year-over-year comparisons challenging.
That’s why Coca-Cola follows a modified version of the 4-4-5 calendar.
We spoke to Mark Randazza, VP and assistant controller at Coca-Cola, to learn more about the company’s financial reporting cycles and their impact on quarterly results.
How is Coke’s reporting calendar different from a true 4-4-5 calendar?
With a true 4-4-5 calendar, there are 91 days in every quarter – which means you have “clean” years of 364 days (52 seven-day weeks) until you have a “catch-up” year of 53 weeks approximately every 5.6 years. Companies that follow a true 4-4-5 calendar are not concerned with what day the calendar year ends.
Coke’s year, however, always starts on January 1, and our fourth quarter and fiscal year always end on December 31, regardless of the day of the week it falls. That’s why we end up having differences in the number of days in the first and fourth quarters.
Why not just follow a standard 4-4-5 process?
It comes down to consistency. All our reporting routines are cadenced and consistent. Our first, second and third- quarter reporting periods close on the Friday closest to the last day of the applicable quarterly calendar period. This means that all our manufacturing and sales cutoffs happen that day, and everyone submits financial statements and rolling estimates on the same day.
We want to be able to compare our financial results from year to year on a consistent basis in terms of the number of days. Thanks to our modified 4-4-5 reporting calendar, the results we report in our 10-K and annual report are always based on 365 days, with the exception of leap years.
Just to bring an example to life, you've said that the first quarter of 2017 had two fewer days than last year. Why is that?
December 31, 2016 fell on a Saturday, which meant the first day of Q1 2017 was a Sunday and the first week of Q1 only had six days (given that Coke’s reporting cycles end on a Friday). In contrast, the first week of Q1 2016 contained seven days (Saturday through Friday). And when you consider 2016 was a leap year – with an extra day in February – that equals two fewer days in the first quarter of 2017. In the fourth quarter of 2017, however, we will have one additional day compared to the fourth quarter of 2016.
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