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, 1997
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 (I.R.S. Employer Identification Number)
incorporation or organization)
1900 Rexford Road, Charlotte, North Carolina 28211
(Address of principal executive offices) (Zip Code)
(704) 551-4400
(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 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 26, 1997
Common Stock, $1 Par Value 7,044,985
Class B Common Stock, $1 Par Value 1,319,862
PART I - FINANCIAL INFORMATION
Item l. Financial Statements
Coca-Cola Bottling Co. Consolidated
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
In Thousands (Except Share Data)
March 30, Dec. 29, March 31,
1997 1996 1996
ASSETS
Current Assets:
Cash $ 3,557 $ 2,941 $ 2,479
Accounts receivable, trade, less allowance for
doubtful accounts of $416, $410 and $391 47,193 50,918 9,847
Accounts receivable from The Coca-Cola Company 5,565 2,392 8,167
Due from Piedmont Coca-Cola Bottling Partnership 4,613 5,888 5,156
Accounts receivable, other 7,777 8,216 5,292
Inventories 32,770 30,787 30,935
Prepaid expenses and other current assets 9,645 9,453 6,944
Total current assets 111,120 110,595 68,820
Property, plant and equipment, less accumulated
depreciation of $166,615, $161,615 and $157,341 251,980 190,073 190,582
Investment in Piedmont Coca-Cola Bottling Partnership 63,645 64,462 64,700
Other assets 35,464 33,802 33,861
Identifiable intangible assets, less accumulated
amortization of $97,870, $95,403 and $88,002 238,348 238,115 245,516
Excess of cost over fair value of net assets of
businesses acquired, less accumulated
amortization of $26,842, $26,269 and $24,552 64,777 65,349 67,067
Total $765,334 $702,396 $670,546
See Accompanying Notes to Consolidated Financial Statements
Coca-Cola Bottling Co. Consolidated
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
In Thousands (Except Share Data)
March 30, Dec. 29, March 31,
1997 1996 1996
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Portion of long-term debt payable within one year $ 135 $ 105 $ 120
Accounts payable and accrued liabilities 55,858 56,939 57,820
Accounts payable to The Coca-Cola Company 2,215 3,249 4,425
Accrued compensation 3,060 5,275 2,661
Accrued interest payable 7,521 11,112 5,864
Total current liabilities 68,789 76,680 70,890
Deferred income taxes 107,512 108,403 97,856
Deferred credits 12,540 12,096 9,970
Other liabilities 46,464 43,495 31,871
Long-term debt 529,749 439,453 422,374
Total liabilities 765,054 680,127 632,961
Shareholders' Equity:
Convertible Preferred Stock, $100 par value:
Authorized-50,000 shares; Issued-None
Nonconvertible Preferred Stock, $100 par value:
Authorized-50,000 shares; Issued-None
Preferred Stock, $.01 par value:
Authorized-20,000,000 shares; Issued-None
Common Stock, $1 par value:
Authorized-30,000,000 shares;
Issued-10,107,359, 10,107,359 and 10,090,859 shares 10,107 10,107 10,090
Class B Common Stock, $1 par value:
Authorized-10,000,000 shares;
Issued-1,947,976, 1,947,976 and 1,964,476 shares 1,948 1,948 1,965
Class C Common Stock, $1 par value:
Authorized-20,000,000 shares; Issued-None
Capital in excess of par value 109,347 111,439 118,409
Accumulated deficit (59,764) (59,868) (75,095)
Minimum pension liability adjustment (104) (104) (138)
61,534 63,522 55,231
Less-Treasury stock, at cost:
Common-3,062,374, 2,641,490 and 2,132,800 shares 60,845 40,844 17,237
Class B Common-628,114 shares 409 409 409
Total shareholders' equity 280 22,269 37,585
Total $ 765,334 $ 702,396 $ 670,546
See Accompanying Notes to Consolidated Financial Statements
Coca-Cola Bottling Co. Consolidated
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)
In Thousands
Capital Minimum
Class B in Pension
Common Common Excess of Accumulated Liability Treasury
Stock Stock Par Value Deficit Adjustment Stock
Balance on
December 31, 1995 $ 10,090 $ 1,965 $120,733 $(76,032) $ (138) $ 17,646
Net income 937
Cash dividends
paid: Common (2,324)
Balance on
March 31, 1996 $ 10,090 $ 1,965 $118,409 $(75,095) $ (138) $ 17,646
Balance on
December 29, 1996 $ 10,107 $ 1,948 $111,439 $(59,868) $ (104) $ 41,253
Net income 104
Cash dividends
paid: Common (2,092)
Purchase of
Common Stock $ 20,001
Balance on
March 30, 1997 $ 10,107 $ 1,948 $109,347 $(59,764) $ (104) $ 61,254
See Accompanying Notes to Consolidated Financial Statements
Coca-Cola Bottling Co. Consolidated
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
In Thousands (Except Per Share Data)
First Quarter
1997 1996
Net sales (includes sales to Piedmont of $10,591 and
$12,075) $ 178,395 $ 171,996
Cost of sales, excluding depreciation shown below
(includes $8,603 and $10,594 related to sales to Piedmont) 99,450 98,268
Gross margin 78,945 73,728
Selling expenses 44,064 40,726
General and administrative expenses 13,988 12,708
Depreciation expense 8,133 7,007
Amortization of goodwill and intangibles 3,064 3,057
Income from operations 9,696 10,230
Interest expense 9,124 7,693
Other income (expense), net (407) (982)
Income before income taxes 165 1,555
Federal and state income taxes 61 618
Net income $ 104 $ 937
Net income per share $ .01 $ .10
Cash dividends per share:
Common Stock $ .25 $ .25
Class B Common Stock .25 .25
Weighted average number of Common and
Class B Common shares outstanding 8,535 9,294
See Accompanying Notes to Consolidated Financial Statements
Coca-Cola Bottling Co. Consolidated
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
In Thousands
First Quarter
1997 1996
Cash Flows from Operating Activities
Net income $ 104 $ 937
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation expense 8,133 7,007
Amortization of goodwill and intangibles 3,064 3,057
Deferred income taxes 61 618
Losses on sale of property, plant and equipment 298 311
Amortization of debt costs 141 131
Undistributed losses of Piedmont Coca-Cola Bottling
Partnership 817 924
Increase in current assets less current liabilities (7,799) (8,202)
Increase in other noncurrent assets (1,017) (721)
Increase in other noncurrent liabilities 2,810 2,296
Other 2
Total adjustments 6,508 5,423
Net cash provided by operating activities 6,612 6,360
Cash Flows from Financing Activities
Proceeds from the issuance of long-term debt 90,521 2,884
Payments on long-term debt (226) (405)
Purchase of Common Stock (20,001)
Cash dividends paid (2,092) (2,324)
Other (349) (368)
Net cash provided by (used in) financing activities 67,853 (213)
Cash Flows from Investing Activities
Additions to property, plant and equipment (70,339) (6,123)
Proceeds from the sale of property, plant and equipment 1 21
Acquisition of companies, net of cash acquired (3,511)
Net cash used in investing activities (73,849) (6,102)
Net increase in cash 616 45
Cash at beginning of period 2,941 2,434
Cash at end of period $ 3,557 $ 2,479
See Accompanying Notes to Consolidated Financial Statements
Coca-Cola Bottling Co. Consolidated
Notes to Consolidated Financial Statements (Unaudited)
1. Accounting Policies
The consolidated financial statements include the accounts of Coca-Cola Bottling
Co. Consolidated and its majority owned subsidiaries (the "Company"). All
significant intercompany accounts and transactions have been eliminated.
The information contained in the financial statements is unaudited. The
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 accounting policies followed in the presentation of interim financial
results are the same as 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, 1996 filed
with the Securities and Exchange Commission.
Certain prior year amounts have been reclassified to conform to current year
classifications.
Coca-Cola Bottling Co. Consolidated
Notes to Consolidated Financial Statements (Unaudited)
2. Summarized Income Statement Data of 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 soft drink products
primarily in portions of North Carolina and South Carolina. The Company and The
Coca-Cola Company, through their respective subsidiaries, each beneficially own
a 50% interest in Piedmont. The Company provides a portion of the soft drink
products to Piedmont at cost and receives a fee for managing the business of
Piedmont pursuant to a management agreement. Summarized income statement data
for Piedmont is as follows:
First Quarter
In Thousands 1997 1996
Net sales $ 52,831 $ 47,925
Gross margin 23,728 20,409
Income from operations 1,384 728
Net loss (1,634) (1,849)
3. Inventories
Inventories are summarized as follows:
Mar. 30, Dec. 29, Mar. 31,
In Thousands 1997 1996 1996
Finished products $18,068 $18,888 $19,401
Manufacturing materials 8,824 9,894 10,207
Plastic pallets and other 5,878 2,005 1,327
Total inventories $32,770 $30,787 $30,935
Coca-Cola Bottling Co. Consolidated
Notes to Consolidated Financial Statements (Unaudited)
4. Long-Term Debt
Long-term debt is summarized as follows:
Fixed(F) or
Interest Variable Interest Mar. 30, Dec. 29, Mar. 31,
In Thousands Maturity Rate (V) Rate Paid 1997 1996 1996
Lines of Credit 2001 5.78% - V Varies $134,250 $ 19,720 $ 25,490
6.02%
Revolving Credit 24,000
Term Loan Agreement 2002- 6.20% V Varies 170,000 170,000 170,000
2003
Medium-Term Notes 1998 6.18% V Quarterly 10,000 10,000 10,000
Medium-Term Notes 1998 10.05% F Semi- 2,000 2,000 2,000
annually
Medium-Term Notes 1999 7.99% F Semi- 28,585 28,585 28,585
annually
Medium-Term Notes 2000 10.00% F Semi- 25,500 25,500 25,500
annually
Medium-Term Notes 2002 8.56% F Semi- 47,000 47,000 47,000
annually
Debentures 2007 6.85% F Semi- 100,000 100,000 100,000
annually
Other notes payable 2000 - 6.85% - F Varies 12,549 12,753 13,919
2001 10.00%
529,884 439,558 422,494
Less: Portion of long-
term debt payable
within one year 135 105 120
Long-term debt $529,749 $439,453 $422,374
Coca-Cola Bottling Co. Consolidated
Notes to Consolidated Financial Statements (Unaudited)
4. Long-Term Debt (cont.)
It is the Company's intent to renew its lines of credit and borrowings under
the revolving credit facility as they mature. To the extent that these
borrowings do not exceed the amount available under the Company's $170
million revolving credit facility, they are classified as noncurrent
liabilities.
The Company previously had an arrangement under which it had the right to
sell an undivided interest in a designated pool of trade accounts receivable
up to a maximum of $40 million. This arrangement was suspended in the fourth
quarter of 1996. The Company had sold trade accounts receivable of $35
million as of March 31, 1996 under this arrangement.
On October 12, 1994, a $400 million shelf registration for debt and equity
securities filed with the Securities and Exchange Commission became
effective and the securities thereunder became available for issuance. On
November 1, 1995, the Company issued $100 million of 6.85% debentures due
2007 pursuant to such registration. The net proceeds from this issuance were
used principally for refinancing a portion of existing public indebtedness
with the remainder used to repay other bank debt.
On November 20, 1995, the Company entered into a $170 million term loan
agreement with $85 million maturing in November 2002 and $85 million
maturing in November 2003. This loan was used to repay two $60 million loans
previously entered into by the Company and other bank debt.
The Company has guaranteed a portion of the debt for two cooperatives in
which the Company is a member. The amounts guaranteed were $31.8 million,
$32.2 million and $34.6 million as of March 30, 1997, December 29, 1996 and
March 31, 1996, respectively.
Coca-Cola Bottling Co. Consolidated
Notes to Consolidated Financial Statements (Unaudited)
5. Derivative Financial Instruments
The Company uses derivative financial instruments to modify risk from
interest rate fluctuations in its underlying debt. The Company has
historically altered its fixed/floating interest rate mix based upon
anticipated operating cash flows of the Company relative to its debt level
and the Company's ability to absorb increases in interest rates. These
derivative financial instruments are not used for trading purposes.
The Company had weighted average interest rates for its debt portfolio of
approximately 6.9%, 7.2% and 7.0% as of March 30, 1997, December 29, 1996
and March 31, 1996, respectively. The Company's overall weighted average
interest rate on its long-term debt decreased from an average of 7.0% during
the first quarter of 1996 to an average of 6.9% during the first quarter of
1997. After taking into account the effect of all of the interest rate swap
activities, approximately 59%, 51% and 49% of the total debt portfolio was
subject to changes in short-term interest rates as of March 30, 1997,
December 29, 1996 and March 31, 1996, respectively.
A rate increase of 1% on the floating rate component of the Company's debt
would have increased interest expense for the first quarter of 1997 by
approximately $.8 million and net income for the first quarter ended March
30, 1997 would have been reduced by approximately $.5 million.
The Company currently has two interest rate swap agreements. There were no
new derivative financial instruments, nor activity with current financial
instruments, during the first quarter of 1997.
Derivative financial instruments were as follows:
March 30, 1997 December 29, 1996 March 31, 1996
Remaining Remaining Remaining
In Thousands Amount Term Amount Term Amount Term
Interest rate swaps-floating $60,000 6.5 years $60,000 6.75 years $60,000 7.5 years
Interest rate swaps-fixed 60,000 6.5 years 60,000 6.75 years 60,000 7.5 years
Coca-Cola Bottling Co. Consolidated
Notes to Consolidated Financial Statements (Unaudited)
5. Derivative Financial Instruments (cont.)
The carrying amounts and fair values of the Company's balance sheet and
off-balance-sheet instruments were as follows:
March 30, 1997 March 31, 1996
Carrying Fair Carrying Fair
In Thousands Amount Value Amount Value
Balance Sheet Instruments
Public debt $ 213,085 $ 213,908 $ 213,085 $ 215,757
Non-public variable rate long-term
debt 304,250 304,250 195,490 195,490
Non-public fixed rate long-term debt 12,549 13,141 13,919 14,899
Off-Balance-Sheet Instruments
Interest rate swaps (3,879) (4,843)
The fair values of the interest rate swaps represent the estimated amounts the
Company would have had to pay to terminate these agreements.
Coca-Cola Bottling Co. Consolidated
Notes to Consolidated Financial Statements (Unaudited)
6. Supplemental Disclosures of Cash Flow Information
Changes in current assets and current liabilities affecting cash were as
follows:
First Quarter
In Thousands 1997 1996
Accounts receivable, trade, net $ 3,725 $ 2,251
Accounts receivable, The Coca-Cola Company (3,173) (1,443)
Due from Piedmont Coca-Cola Bottling Partnership 1,275 (572)
Accounts receivable, other 439 4,201
Inventories (1,983) (2,946)
Prepaid expenses and other current assets (192) (9)
Portion of long-term debt payable within one year 30
Accounts payable and accrued liabilities (1,081) (6,929)
Accounts payable, The Coca-Cola Company (1,034) 789
Accrued compensation (2,214) (2,388)
Accrued interest payable (3,591) (1,156)
Increase in current assets less current liabilities $(7,799) $(8,202)
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Introduction:
The following discussion presents management's analysis of the results of
operations for the first three months of 1997 compared to the first three months
of 1996 and changes in financial condition from March 31, 1996 and December 29,
1996 to March 30, 1997.
The Company reported net income of $104,000 or $.01 per share for the first
quarter of 1997 compared with net income of $.9 million or $.10 per share for
the same period in 1996. The decrease in earnings from the prior year was
primarily due to increased interest expense related to higher levels of
long-term debt. The higher debt level is due to new borrowings related to Common
Stock repurchases, a purchase of vending assets previously leased and the
suspension of the Company's program to sell its trade accounts receivable.
Interest expense increased by approximately $1.4 million in the first quarter of
1997 over the same period in 1996.
In March 1997, the Financial Accounting Standards Board issued SFAS No. 128,
Earnings per Share. SFAS 128 established standards for computing and presenting
earnings per share and applies to entities with publicly held common stock. This
statement is effective for fiscal years ending after December 15, 1997 and early
adoption is not permitted. The Company will adopt the provisions of SFAS 128 for
its fiscal year ending December 28, 1997. The Company believes that adoption of
the provisions of this statement will not have a material effect on its
financial statements.
The results for interim periods are not necessarily indicative of the results to
be expected for the year due to seasonal factors.
Results of Operations:
The first quarter was highlighted by strong volume growth across the Company's
core brands, which include Coca-Cola classic, diet Coke and Sprite. Franchise
net sales increased approximately 6% over the same period in 1996 due primarily
to a 9% increase in case volume offset by lower net selling prices. Franchise
net selling price per unit for the quarter decreased by 2.9%. The sales volume
increase was broad-based across most of the Company's key channels. In addition,
the Company posted a 20% increase in fountain volume.
Sprite continued to be the volume growth leader with an increase in volume of
26% over the first quarter of 1996. Gross margin on franchise net sales
increased by 7% from 1996. Gross margin was up more than the increase in
franchise net sales due to a reduction in cost of sales per unit as a result of
lower costs for sweetener and certain packaging materials.
Selling expenses for the first quarter of 1997 increased 8.2% over the first
quarter of 1996. Selling expenses increased due to higher sales commission costs
related to the sales volume increase, increased marketing costs and increased
expenses related to sales development programs.
The increase in sales development funds was related primarily to growth in food
store volume. The higher employment costs are attributable to increased sales
commission costs as well as the Company's ongoing efforts to improve employee
retention in certain key market areas of its franchise territory. General and
administrative expenses increased by 10% primarily due to increases in
employment costs and professional fees incurred during the first quarter. The
rate of increase in general and administrative expenses experienced during the
first quarter of 1997 is not expected to continue throughout 1997.
Depreciation expense increased 16% between the first quarter of 1996 and the
first quarter of 1997. This increase was due primarily to depreciation expense
on vending equipment that was previously leased. The Company purchased $66.3
million of vending equipment in January 1997 which was previously leased. As a
result of this transaction, lease expense declined by 11% for the first quarter.
Depreciation expense is recognized on a straight-line basis throughout the year
while the revenue generated by these assets tends to be more seasonal, with the
majority of the revenue coming in the months from April to September.
Interest expense increased 19% from the first quarter of 1996 to the first
quarter of 1997 due to several transactions that increased outstanding long-term
debt by $107.4 million from March 31, 1996 to March 30, 1997. The Company
repurchased approximately 930,000 shares of its Common Stock in three separate
transactions between December 1996 and February 1997 for $43.6 million. The
Company purchased vending equipment, previously leased, for $66.3 million during
January 1997. Additionally, the Company suspended its arrangement to sell its
trade accounts receivable during the fourth quarter of 1996. As of March 31,
1996 the Company had sold $35 million of its trade accounts receivable under
this program. The Company's overall weighted average interest rate decreased
from an average of 7.0% during the first quarter of 1996 to an average of 6.9%
during the first quarter of 1997.
Changes in Financial Condition:
Working capital increased $8.4 million from December 31, 1996 and increased
$44.4 million from March 31, 1996 to March 31, 1997. The increase from
December 31, 1996 resulted principally from decreases in various current
liabilities including a decrease in accrued interest payable of $3.6 million.
The increase from March 31, 1996 was due principally to an increase in trade
accounts receivable of $37.3 million. The Company had sold trade accounts
receivable of $35 million as of March 31, 1996 under an arrangement to sell up
to $40 million of its trade accounts receivable. The trade accounts receivable
sales agreement was suspended during the fourth quarter of 1996 and no trade
accounts receivable had been sold as of December 29, 1996 or March 30, 1997.
Capital expenditures in the first quarter of 1997, excluding the $66.3 million
purchase of previously leased equipment, were $4.0 million as compared to
$6.1 million in the first quarter of 1996.
The Company entered into an agreement in April 1997 that will currently provide
up to $61 million for the leasing of equipment. This agreement has a favorable
cost structure and will be used to obtain the majority of the Company's capital
requirements for fleet and vending assets in 1997.
Long-term debt increased by $107.4 million from March 31, 1996 and increased by
$90.3 million from December 29, 1996. The increase in long-term debt is due to
the repurchase of approximately 930,000 shares of the Company's Common Stock
during December 1996 and the first quarter of 1997 for $43.6 million, the
purchase of $66.3 million of vending equipment previously leased and the
suspension of the arrangement to sell its trade accounts receivable. The Company
used its informal lines of credit for the additional borrowings.
It is the Company's intent to renew any borrowings under its $170 million
revolving credit facility and the informal lines of credit as they mature and,
to the extent that any borrowings under the revolving credit facility and the
informal lines of credit do not exceed the amount available under the Company's
$170 million revolving credit facility, they are classified as noncurrent
liabilities. As of March 30, 1997, the Company had no amounts outstanding under
the revolving credit facility and $134.3 million outstanding under the informal
lines of credit.
As of March 30, 1997 the debt portfolio had a weighted average interest rate of
approximately 6.9% and approximately 59% of the total debt portfolio of $529.8
million was subject to changes in short-term interest rates.
The Company repurchased approximately 930,000 shares of its Common Stock in
three separate transactions during December 1996 and the first quarter of 1997.
The aggregate cost of these share repurchases was $43.6 million. Management of
the Company believes that the repurchase of these shares will further the goal
of enhancing long-term shareholder value.
Management believes that the Company, through the generation of cash flow from
operations and the utilization of unused borrowing capacity, has sufficient
financial resources available to maintain its current operations and provide for
its current capital expenditure requirements. The Company considers the
acquisition of additional franchise territories on an ongoing basis.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Number Description
10.1 Participation Agreement (Coca-Cola Trust No. 97-1) dated as of April 10, 1997 between
the Company (as Lessee), First Security Bank, National Association (solely as Owner
Trustee under Coca-Cola Trust No. 97-1) and the other financial institutions listed
therein.
10.2 Master Equipment Lease Agreement (Coca-Cola Trust No. 97-1) dated as of April 10, 1997
between the Company (as Lessee) and First Security Bank, National Association (solely
as Owner Trustee under Coca-Cola Trust No. 97-1).
27 Financial data schedule for period ended March 30, 1997.
(b) Reports on Form 8-K
Current Report on Form 8-K dated as of January 7, 1997 related to the
repurchase of 145,260 shares of the Company's Common Stock from a
single shareholder.
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 14, 1997 By: /s/ David V. Singer
David V. Singer
Principal Financial Officer of the Registrant
and
Vice President - Chief Financial Officer