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 September 30, 2001
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Commission File Number 0-9286
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COCA-COLA BOTTLING CO. CONSOLIDATED
--------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 56-0950585
- --------------------------------------------- -------------------------------
(State or other jurisdiction of incorporation (I.R.S. Employer Identification
or organization) No.)
4100 Coca-Cola Plaza, Charlotte, North Carolina 28211
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(Address of principal executive offices) (Zip Code)
(704) 557-4400
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(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 November 1, 2001
----- -------------------------------
Common Stock, $1.00 Par Value 6,392,277
Class B Common Stock, $1.00 Par Value 2,361,052
PART I - FINANCIAL INFORMATION
Item l. Financial Statements
Coca-Cola Bottling Co. Consolidated
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
In Thousands (Except Share Data)
Sept. 30, Dec. 31, Oct. 1,
2001 2000 2000
-------- -------- --------
ASSETS
- ------
Current Assets:
- --------------
Cash $ 6,252 $ 8,425 $ 24,971
Accounts receivable, trade, less allowance for
doubtful accounts of $950, $918 and $813 63,762 62,661 61,487
Accounts receivable from The Coca-Cola Company 7,860 5,380 6,764
Accounts receivable, other 4,611 8,247 6,257
Inventories 37,180 40,502 39,430
Prepaid expenses and other current assets 14,688 14,026 16,707
---------- ---------- --------
Total current assets 134,353 139,241 155,616
---------- ---------- --------
Property, plant and equipment, net 471,891 437,926 458,655
Investment in Piedmont Coca-Cola Bottling Partnership 60,229 62,730 63,460
Other assets 60,544 60,846 62,808
Identifiable intangible assets, net 275,795 284,842 287,089
Excess of cost over fair value of net assets of
businesses acquired, less accumulated
amortization of $37,699, $35,585 and $34,858 74,398 76,512 56,409
---------- ---------- --------
Total $1,077,210 $1,062,097 $1,084,037
========== ========== ==========
See Accompanying Notes to Consolidated Financial Statements
Coca-Cola Bottling Co. Consolidated
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
In Thousands (Except Share Data)
Sept. 30, Dec. 31, Oct. 1,
2001 2000 2000
---------- ---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current Liabilities:
- --------------------
Portion of long-term debt payable within one year $ 56,891 $ 9,904 $ 3,213
Accounts payable and accrued liabilities 89,146 84,324 90,110
Accounts payable to The Coca-Cola Company 9,543 3,802 6,790
Due to Piedmont Coca-Cola Bottling Partnership 23,746 16,436 16,472
Accrued interest payable 13,310 10,483 13,840
---------- ---------- ----------
Total current liabilities 192,636 124,949 130,425
Deferred income taxes 149,309 148,655 130,223
Other liabilities 77,376 77,835 78,802
Long-term debt 626,256 682,246 709,529
---------- ---------- ----------
Total liabilities 1,045,577 1,033,685 1,048,979
---------- ---------- ----------
Commitments and Contingencies (Note 12)
Stockholders' Equity:
- ---------------------
Convertible Preferred Stock, $100.00 par value:
Authorized-50,000 shares; Issued-None
Nonconvertible Preferred Stock, $100.00 par value:
Authorized-50,000 shares; Issued-None
Preferred Stock, $.01 par value:
Authorized-20,000,000 shares; Issued-None
Common Stock, $1.00 par value:
Authorized - 30,000,000 shares;
Issued - 9,454,651 shares 9,454 9,454 9,454
Class B Common Stock, $1.00 par value:
Authorized - 10,000,000 shares;
Issued - 2,989,166, 2,969,166 and 2,969,166 shares 2,989 2,969 2,969
Class C Common Stock, $1.00 par value:
Authorized-20,000,000 shares; Issued-None
Capital in excess of par value 93,192 99,020 101,203
Accumulated deficit (10,635) (21,777) (17,314)
Accumulated other comprehensive loss (2,113)
---------- ---------- ----------
92,887 89,666 96,312
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 stockholders' equity 31,633 28,412 35,058
---------- ---------- ----------
Total $1,077,210 $1,062,097 $1,084,037
========== ========== ==========
See Accompanying Notes to Consolidated Financial Statements
Coca-Cola Bottling Co. Consolidated
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
In Thousands (Except Per Share Data)
Third Quarter First Nine Months
------------------------- ------------------------------
2001 2000 2001 2000
--------- ---------- ---------- ----------
Net sales (includes sales to Piedmont of
$20,591, $18,351, $54,545 and $55,293) $ 266,604 $ 258,565 $ 768,339 $ 757,682
Cost of sales, excluding depreciation shown
below (includes $14,535, $13,582, $40,224
and $41,709 related to sales to Piedmont) 145,496 137,559 416,056 402,804
--------- ---------- ---------- ----------
Gross margin 121,108 121,006 352,283 354,878
--------- ---------- ---------- ----------
Selling, general and administrative expenses,
excluding depreciation shown below 80,518 81,772 239,634 239,829
Depreciation expense 16,810 16,271 49,208 48,585
Amortization of goodwill and intangibles 3,721 3,641 11,161 10,971
--------- ---------- ---------- ----------
Income from operations 20,059 19,322 52,280 55,493
Interest expense 10,764 13,570 34,245 41,124
Other income (expense), net (924) 4,245 (4,330) 2,440
--------- ---------- ---------- ----------
Income before income taxes 8,371 9,997 13,705 16,809
Federal and state income taxes 456 3,599 2,563 6,051
--------- ---------- ---------- ----------
Net income $ 7,915 $ 6,398 $ 11,142 $ 10,758
========= ========== ========== ==========
Basic net income per share $ .90 $ .73 $ 1.27 $ 1.23
Diluted net income per share $ .90 $ .73 $ 1.26 $ 1.22
Weighted average number of common
shares outstanding 8,753 8,733 8,753 8,733
Weighted average number of common
shares outstanding-assuming dilution 8,818 8,811 8,822 8,830
Cash dividends per share
Common Stock $ .25 $ .25 $ .75 $ .75
Class B Common Stock $ .25 $ .25 $ .75 $ .75
See Accompanying Notes to Consolidated Financial Statements
Coca-Cola Bottling Co. Consolidated
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
In Thousands
Capital Accumulated
Class B in Other
Common Common Excess of Accum. Comprehensive Treasury
Stock Stock Par Value Deficit Loss Stock Total
------- ------- ---------- ---------- --------------- ---------- ---------
Balance on
January 2, 2000 $ 9,454 $ 2,969 $ 107,753 $ (28,072) $ - $ (61,254) $ 30,850
Net income 10,758 10,758
Cash dividends paid (6,550) (6,550)
------- -------- ---------- ---------- --------------- ---------- --------
Balance on
October 1, 2000 $ 9,454 $ 2,969 $ 101,203 $ (17,314) $ - $ (61,254) $ 35,058
======= ======== ========== ========== =============== ========== ========
Balance on
December 31, 2000 $ 9,454 $ 2,969 $ 99,020 $ (21,777) $ - $ (61,254) $ 28,412
Comprehensive
income:
Net income 11,142 11,142
Proportionate share
of Piedmont's accum.
other comprehensive
loss at adoption of
SFAS No. 133 (924) (924)
Change in proportionate
share of Piedmont's
accum. other com-
prehensive loss (1,189) (1,189)
--------
Total comprehensive
income 9,029
Cash dividends paid (6,565) (6,565)
Issuance of Class B
Common Stock 20 737 757
------- -------- ---------- ---------- --------------- ---------- --------
Balance on
September 30, 2001 $ 9,454 $ 2,989 $ 93,192 $ (10,635) $ (2,113) $ (61,254) $ 31,633
======= ======== ========== ========== =============== ========== ========
See Accompanying Notes to Consolidated Financial Statements
Coca-Cola Bottling Co. Consolidated
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
In Thousands
First Nine Months
----------------------------
2001 2000
-------- --------
Cash Flows from Operating Activities
- ------------------------------------
Net income $ 11,142 $ 10,758
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation expense 49,208 48,585
Amortization of goodwill and intangibles 11,161 10,971
Deferred income taxes 5,413 6,051
Losses on sale of property, plant and equipment 573 1,386
Gain on sale of bottling territory (8,829)
Provision for impairment of property, plant and equipment 3,247
Amortization of debt costs 625 713
Amortization of deferred gain related to terminated
interest rate swaps (775) (464)
Undistributed earnings of Piedmont (993) (3,244)
Decrease in current assets less current liabilities 24,174 9,425
Increase in other noncurrent assets (291) (2,913)
Increase (decrease) in other noncurrent liabilities (123) 4,167
Other 605 (393)
-------- --------
Total adjustments 89,577 68,702
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Net cash provided by operating activities 100,719 79,460
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Cash Flows from Financing Activities
- ------------------------------------
Repayment of current portion of long-term debt (2,203) (25,557)
Repayment of lines of credit, net (6,800) (14,300)
Cash dividends paid (6,565) (6,550)
Payments on capital lease obligations (2,347) (3,513)
Termination of interest rate swap agreements (292)
Other (848) 116
-------- --------
Net cash used in financing activities (18,763) (50,096)
-------- --------
Cash Flows from Investing Activities
- ------------------------------------
Additions to property, plant and equipment (87,735) (38,891)
Proceeds from the sale of property, plant and equipment 3,606 2,623
Acquisitions of companies, net of cash acquired (175)
Proceeds from sale of bottling territory 23,000
-------- --------
Net cash used in investing activities (84,129) (13,443)
-------- --------
Net increase (decrease) in cash (2,173) 15,921
Cash at beginning of period 8,425 9,050
-------- --------
Cash at end of period $ 6,252 $ 24,971
======== ========
Significant non-cash investing and financing activities:
Issuance of Class B Common Stock in connection with stock award 757
Capital lease obligations incurred 1,313
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 preparation of financial statements in conformity with generally accepted
accounting principles 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 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 31, 2000 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. New Accounting Pronouncement
On January 1, 2001, the Company adopted Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities," ("SFAS No. 133") as amended, which requires that all derivative
instruments be recognized in the financial statements.
Currently, the Company uses interest rate swap agreements to manage its exposure
to fluctuations in interest rates and to maintain its targeted fixed/floating
rate mix. These agreements generally involve the exchange of fixed and variable
rate interest payments between two parties, based on a common notional principal
amount and maturity date. The notional amount and interest payments in these
agreements match the cash flows of the related liabilities. The notional
balances of these agreements represent a balance used to calculate the exchange
of cash flows and are not assets or liabilities of the Company. Accordingly, any
market risk or opportunity associated with these agreements is offset by the
opposite market impact on the related debt. The Company's credit risk related to
interest rate swap agreements is considered low because they are entered into
only with strong creditworthy counterparties and are generally settled on a net
basis. The difference paid or received on interest rate swap agreements is
recognized as an adjustment to interest expense.
In accordance with the provisions of SFAS No. 133, the Company has designated
its current interest rate swap agreements as fair value hedges. The Company has
determined that these agreements are highly effective in offsetting the fair
value changes in a portion of the Company's debt portfolio. These derivatives
and the related hedged debt amounts have been recognized in the financial
statements at their fair value.
The adoption of SFAS No. 133 did not have a significant impact on the financial
statements or results of operations during the first nine months of 2001. See
Notes 7, 8 and 9 for additional information regarding long-term debt and current
derivative positions.
The Company's equity investee, Piedmont Coca-Cola Bottling Partnership
("Piedmont"), has a similar risk management approach and has several interest
rate swap agreements that have been designated as cash flow hedges. The effect
of adoption of SFAS No. 133 and the impact during the first nine months of 2001
related to Piedmont were as follows:
In Thousands
---------------------------------------------------------------
Impact of adoption, net of tax $ 924
Change in fair market value of cash flow hedges
during first nine months of 2001, net of tax 1,189
-------
Company's proportionate share of Piedmont's
accumulated other comprehensive loss $ 2,113
=======
Coca-Cola Bottling Co. Consolidated
Notes to Consolidated Financial Statements (Unaudited)
3. Summarized Income Statement Data of Piedmont Coca-Cola Bottling Partnership
On July 2, 1993, the Company and The Coca-Cola Company formed 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 was as
follows:
Third Quarter First Nine Months
------------------ -------------------
In Thousands 2001 2000 2001 2000
- --------------------------------------------------------------------------------
Net sales $80,094 $76,188 $224,685 $220,406
Gross margin 38,808 36,658 107,924 106,205
Income from operations 5,820 6,099 11,605 16,879
Net income 2,700 2,496 1,986 6,488
4. Inventories
Inventories were summarized as follows:
Sept. 30, Dec. 31, Oct. 1,
In Thousands 2001 2000 2000
- --------------------------------------------------------------------------------
Finished products $25,730 $ 22,907 $ 24,362
Manufacturing materials 7,446 13,330 10,510
Plastic pallets and other 4,004 4,265 4,558
------- -------- --------
Total inventories $37,180 $ 40,502 $ 39,430
======= ======== ========
Coca-Cola Bottling Co. Consolidated
Notes to Consolidated Financial Statements (Unaudited)
5. Property, Plant and Equipment
The principal categories and estimated useful lives of property, plant and
equipment were as follows:
Sept. 30, Dec. 31, Oct. 1, Estimated
In Thousands 2001 2000 2000 Useful Lives
- ----------------------------------------------------------------------------------------------------------
Land $ 11,158 $ 11,311 $ 12,584
Buildings 96,943 97,012 96,329 10-50 years
Machinery and equipment 93,949 94,652 92,740 5-20 years
Transportation equipment 143,537 133,886 137,510 4-10 years
Furniture and fixtures 36,881 36,519 34,663 4-10 years
Vending equipment 335,246 285,714 287,826 6-13 years
Leasehold and land improvements 40,307 39,597 41,431 5-20 years
Software for internal use 20,135 17,207 16,050 3-7 years
Construction in progress 3,203 1,162 10,549
- ----------------------------------------------------------------------------------------------------------
Total property, plant and equipment, at cost 781,359 717,060 729,682
Less: Accumulated depreciation and
amortization 309,468 279,134 271,027
- ----------------------------------------------------------------------------------------------------------
Property, plant and equipment, net $471,891 $437,926 $458,655
- ----------------------------------------------------------------------------------------------------------
6. Identifiable Intangible Assets
The principal categories and estimated useful lives of identifiable intangible
assets were as follows:
Sept. 30, Dec. 31, Oct. 1, Estimated
In Thousands 2001 2000 2000 Useful Lives
- ---------------------------------------------------------------------------------------------------
Franchise rights $353,036 $353,036 $352,269 40 years
Customer lists 54,864 54,864 54,864 17-23 years
Other 16,668 16,668 16,668 17-23 years
- ---------------------------------------------------------------------------------------------------
Identifiable intangible assets 424,568 424,568 423,801
Less: Accumulated amortization 148,773 139,726 136,712
- ---------------------------------------------------------------------------------------------------
Identifiable intangible assets, net $275,795 $284,842 $287,089
- ---------------------------------------------------------------------------------------------------
Coca-Cola Bottling Co. Consolidated
Notes to Consolidated Financial Statements (Unaudited)
7. Long-Term Debt
Long-term debt was summarized as follows:
Interest Interest Sept. 30, Dec. 31, Oct. 1,
In Thousands Maturity Rate Paid 2001 2000 2000
- ------------------------------------------------------------------------------------------------------------------------------------
Lines of Credit 2002 3.70% Varies $ 6,100 $ 12,900 $ 32,300
Term Loan Agreement 2004 4.01% Varies 85,000 85,000 85,000
Term Loan Agreement 2005 4.01% Varies 85,000 85,000 85,000
Medium-Term Notes 2002 8.56% Semi- 47,000 47,000 47,000
annually
Debentures 2007 6.85% Semi- 100,000 100,000 100,000
annually
Debentures 2009 7.20% Semi- 100,000 100,000 100,000
annually
Debentures 2009 6.38% Semi- 256,221 250,000 250,000
annually
Other notes payable 2001 - 5.75% - Varies 10,047 12,250 13,442
2006 10.00%
- ------------------------------------------------------------------------------------------------------------------------------------
689,368 692,150 712,742
Less: Portion of long-term debt payable within one year 56,891 9,904 3,213
- ------------------------------------------------------------------------------------------------------------------------------------
632,477 682,246 709,529
Fair market value of interest rate swaps (6,221)
- ------------------------------------------------------------------------------------------------------------------------------------
Long-term debt $626,256 $682,246 $709,529
- ------------------------------------------------------------------------------------------------------------------------------------
Coca-Cola Bottling Co. Consolidated
Notes to Consolidated Financial Statements (Unaudited)
7. Long-Term Debt (cont.)
The Company borrows from time to time under lines of credit from various banks.
On September 30, 2001, the Company had approximately $65 million of credit
available under these lines, of which $6.1 million was outstanding. Loans under
these lines are made at the sole discretion of the banks at rates negotiated at
the time of borrowing. The Company intends to renew such borrowings as they
mature. To the extent that these borrowings and the borrowings under the
revolving credit facility do not exceed the amount available under the Company's
$170 million revolving credit facility, they are classified as noncurrent
liabilities.
The Company had weighted average interest rates for its debt portfolio of 6.0%,
7.1% and 7.1% as of September 30, 2001, December 31, 2000 and October 1, 2000,
respectively. The Company's overall weighted average interest rate on long-term
debt decreased from an average of 7.2% during the first nine months of 2000 to
an average of 6.6% during the first nine months of 2001. After taking into
account the effect of all of the interest rate swap activities, approximately
40%, 41% and 42% of the total debt portfolio was subject to changes in short-
term interest rates as of September 30, 2001, December 31, 2000 and October 1,
2000, respectively.
A rate increase of 1% on the floating rate component of the Company's debt would
have increased interest expense for the first nine months of 2001 by
approximately $2.1 million and net income for the first nine months of 2001
would have decreased by approximately $1.3 million.
Coca-Cola Bottling Co. Consolidated
Notes to Consolidated Financial Statements (Unaudited)
8. Derivative Financial Instruments
The Company uses interest rate hedging products to modify risk from interest
rate fluctuations in its underlying debt. The Company has historically used
derivative financial instruments from time to time to achieve a targeted
fixed/floating rate mix. This target is based upon anticipated cash flows from
operations relative to the Company's debt level and the potential impact of
increases in interest rates on the Company's overall financial condition.
The Company does not use derivative financial instruments for trading or other
speculative purposes nor does it use leveraged financial instruments. All of the
Company's outstanding interest rate swap agreements are LIBOR-based.
Derivative financial instruments were summarized as follows:
September 30, 2001 December 31, 2000 October 1, 2000
-----------------------------------------------------------------------------------
Notional Remaining Notional Remaining Notional Remaining
In Thousands Amount Term Amount Term Amount Term
- ------------------------------------------------------------------------------------------------------------------
Interest rate swaps-floating $100,000 7.50 years $100,000 8.25 years $100,000 8.50 years
The counterparties to these contractual arrangements are major financial
institutions with which the Company also has other financial relationships. The
Company is exposed to credit loss in the event of nonperformance by these
counterparties. However, the Company does not anticipate nonperformance by the
other parties.
Coca-Cola Bottling Co. Consolidated
Notes to Consolidated Financial Statements (Unaudited)
9. Fair Values of Financial Instruments
The following methods and assumptions were used by the Company in estimating the
fair values of its financial instruments:
Public Debt
The fair values of the Company's public debt are based on estimated market
prices.
Non-Public Variable Rate Long-Term Debt
The carrying amounts of the Company's variable rate borrowings approximate their
fair values.
Non-Public Fixed Rate Long-Term Debt
The fair values of the Company's fixed rate long-term borrowings are estimated
using discounted cash flow analyses based on the Company's current incremental
borrowing rates for similar types of borrowing arrangements.
Derivative Financial Instruments
Fair values for the Company's interest rate swaps are based on current
settlement values.
The carrying amounts and fair values of the Company's long-term debt and
derivative financial instruments were as follows:
September 30, 2001 December 31, 2000 October 1, 2000
--------------------------------------------------------------------------------
Carrying Fair Carrying Fair Carrying Fair
In Thousands Amount Value Amount Value Amount Value
- ----------------------------------------------------------------------------------------------------------------
Public debt $503,221 $503,252 $497,000 $480,687 $497,000 $466,689
Non-public variable rate
long-term debt 176,100 176,100 182,900 182,900 202,300 202,300
Non-public fixed rate
long-term debt 10,047 10,326 12,250 12,433 13,442 13,578
Interest rate swaps (6,221) (6,221) 1,669 6,744
The fair values of the interest rate swaps at September 30, 2001 represent the
estimated amounts the Company would have received upon termination of these
agreements. The fair values of the interest rate swaps at December 31, 2000 and
October 1, 2000 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)
10. Supplemental Disclosures of Cash Flow Information
Changes in current assets and current liabilities affecting cash were as
follows:
First Nine Months
--------------------
In Thousands 2001 2000
- ---------------------------------------------------------------------------
Accounts receivable, trade, net $(1,101) $ (1,120)
Accounts receivable, The Coca-Cola Company (2,480) (746)
Accounts receivable, other 3,636 7,681
Inventories 3,322 2,585
Prepaid expenses and other current assets (662) (3,438)
Accounts payable and accrued liabilities 5,581 (10,727)
Accounts payable, The Coca-Cola Company 5,741 4,444
Accrued interest payable 2,827 (2,990)
Due to Piedmont 7,310 13,736
------- --------
Decrease in current assets less current liabilities $24,174 $ 9,425
======= ========
Coca-Cola Bottling Co. Consolidated
Notes to Consolidated Financial Statements (Unaudited)
11. Earnings Per Share
The following table sets forth the computation of basic net income per share and
diluted net income per share:
Third Quarter First Nine Months
------------------- ---------------------
In Thousands (Except Per Share Data) 2001 2000 2001 2000
- --------------------------------------------------------------------------------------------------------------
Numerator:
- ----------
Numerator for basic net income and diluted
net income $7,915 $6,398 $11,142 $10,758
Denominator:
- ------------
Denominator for basic net income per share -
weighted average common shares 8,753 8,733 8,753 8,733
Effect of dilutive securities - stock options 65 78 69 97
------ ------ ------- -------
Denominator for diluted net income per share -
adjusted weighted average common shares 8,818 8,811 8,822 8,830
====== ====== ======= =======
Basic net income per share $ .90 $ .73 $ 1.27 $ 1.23
====== ====== ======= =======
Diluted net income per share $ .90 $ .73 $ 1.26 $ 1.22
====== ====== ======= =======
12. Commitments and Contingencies
The Company has guaranteed a portion of the debt for two cooperatives in which
the Company is a member. The amounts guaranteed were $36.7 million, $35.7
million and $36.0 million as of September 30, 2001, December 31, 2000 and
October 1, 2000, respectively.
The Company is involved in various claims and legal proceedings which have
arisen in the ordinary course of business. Although it is difficult to predict
the ultimate outcome of these cases, management believes, based on discussions
with legal counsel, that the ultimate disposition of these claims will not have
a material adverse effect on the financial condition, cash flows or results of
operations of the Company.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Introduction:
- ------------
Coca-Cola Bottling Co. Consolidated (the "Company") is engaged in the
production, marketing and distribution of products of The Coca-Cola Company,
which include some of the most recognized and popular beverage brands in the
world. The Company is currently the second largest bottler of products of The
Coca-Cola Company in the United States, operating in eleven states, primarily in
the southeast. The Company also distributes several other beverage brands. The
Company's product offerings include carbonated soft drinks, teas, juices,
isotonics and bottled water. The Company is also a partner with The Coca-Cola
Company in a partnership that operates additional bottling territory.
Management's discussion and analysis should be read in conjunction with the
Company's consolidated financial statements and the accompanying footnotes along
with the cautionary statements at the end of this section.
Overview:
- --------
The following discussion presents management's analysis of the results of
operations for the third quarter and first nine months of 2001 compared to the
third quarter and first nine months of 2000 and changes in financial condition
from October 1, 2000 and December 31, 2000 to September 30, 2001. The results
for interim periods are not necessarily indicative of the results to be expected
for the year due to seasonal factors.
The Company reported net income of $7.9 million or $.90 per share for the third
quarter of 2001 compared with net income of $6.4 million or $.73 per share for
the same period in 2000. For the first nine months of 2001, net income was
$11.1 million or $1.27 per share compared to net income of $10.8 million or
$1.23 per share for the first nine months of 2000. Net income for the third
quarter and first nine months of 2001 was favorably impacted by an income tax
benefit of approximately $2.9 million, which resulted from the settlement of
certain income tax matters with the Internal Revenue Service during the quarter.
Operating results for the third quarter of 2000 included nonrecurring items that
increased net income for the quarter by approximately $3.6 million. The
nonrecurring income items in the third quarter of 2000 were primarily related to
an $8.8 million pre-tax gain on the sale of bottling territories in Kentucky and
Ohio at the end of September 2000 offset partially by a $3.2 million pre-tax
provision for impairment of certain fixed assets. Operating results for the
third quarter of 2001 included constant territory physical case volume growth of
approximately 5% and a reduction in net selling price per unit of approximately
1.6%. Constant territory physical case volume increased 3.5% for the first nine
months of 2001. Net selling price per case declined approximately 1% for the
first nine months of 2001 on a constant territory basis.
In March 2000, at the end of a collective bargaining agreement in Huntington,
West Virginia, the Company and Teamsters Local Union 505 were unable to reach
agreement on wages and benefits. The union elected to strike and other
Teamster-represented sales centers in West Virginia joined in a
sympathy strike. As of August 7, 2000, the Company and the respective local
unions settled all outstanding issues.
Cash operating profit, which includes net income plus interest, income taxes,
depreciation, amortization and other non-operating expenses increased by 5.4%
for the third quarter of 2001 and was unchanged for the first nine months of
2001 on a constant territory basis. Cash operating profit is used as an
indicator of operating performance and is not a replacement of other
measurements of performance, such as cash flow from operations and operating
income as defined and required by generally accepted accounting principles, and
may differ from similarly titled measures used by other companies.
The Company has continued to benefit from lower interest rates and reduced debt
balances. Interest expense for the third quarter and first nine months of 2001
declined by $2.8 million and $6.9 million, respectively. The Company continued
to experience strong free cash flow as evidenced by reductions in outstanding
debt which declined to $683.1 million as of September 30, 2001 compared to
$712.7 million as of October 1, 2000. During the second quarter of 2001, the
Company purchased certain vending equipment for approximately $49 million that
was previously leased.
On January 1, 2001, the Company adopted Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities," ("SFAS No. 133") as amended, which requires that all derivative
instruments be recognized in the financial statements. The adoption of SFAS No.
133 did not have a significant impact on the financial statements or results of
operations during the first nine months of 2001.
In June 2001, the Financial Standards Board (FASB) issued SFAS No. 141 "Business
Combinations" and SFAS No. 142 "Goodwill and Other Intangible Assets." These
standards require that all business combinations be accounted for using the
purchase method and that goodwill and intangible assets with indefinite useful
lives not be amortized but instead be tested for impairment at least annually.
These standards provide guidelines for new disclosure requirements and outline
the criteria for initial recognition and measurement of intangibles, assignment
of assets and liabilities including goodwill to reporting units and goodwill
impairment testing. The provisions of SFAS Nos. 141 and 142 apply to all
business combinations consummated after June 30, 2001. The provisions of SFAS
No. 142 for existing goodwill and other intangible assets are required to be
implemented effective the first day of fiscal year 2002. The Company is
currently evaluating the impact of SFAS No. 142 on the consolidated financial
statements.
Results of Operations:
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During 2000, the Company increased its net selling price by approximately 6.5%
to cover increased costs and improve operating margins. The increases in
selling price during 2000 impacted unit sales volume which declined by
approximately 5%. During the third quarter and first nine months of 2001, the
Company has continued to balance volume and price changes. Constant territory
physical case volume increased by approximately 5% during the third quarter and
3.5% for the first nine months of 2001. Net selling price per case during the
third quarter of 2001 was approximately 1.6% lower than the third quarter of
2000 and declined by approximately 1% from the first nine months of 2000.
The growth in the Company's constant territory physical case volume was
attributable to several different items. The Company continued to experience
strong growth in its bottled water, Dasani. New packaging, including twelve-
ounce bottles and multi-packs, contributed to an increase in volume of 55% for
Dasani on a constant territory basis over the first nine months of 2000. During
the third quarter of 2001, the Company introduced new packaging for its twelve-
pack cans called Fridge Pack(TM). Fridge Pack(TM) has been very popular with
both retailers and consumers. New packages for POWERaDE, including twelve-ounce
bottles, have helped increase volume by 27.7% over the first nine months of
2001. Noncarbonated beverages comprised 8.0% of the Company's total sales volume
through the first nine months of 2001 compared to 6.6% for the first nine months
of 2000. On a constant territory basis, volume for the Company's three largest
selling brands, Coca-Cola classic, Sprite and diet Coke increased during the
first nine months of 2001 after volume declines during 2000.
Cost of sales on a per unit basis increased 0.9% in the third quarter and 0.2%
for the first nine months of 2001 compared to the same periods in 2000.
Increases in raw material costs were essentially offset by a package mix shift
from bottles to cans. Gross margin as a percentage of net sales on a constant
territory basis was 45.8% in the first nine months of 2001 compared to 46.9% in
the first nine months of 2000. The decrease in gross margin percentage resulted
primarily from lower net selling prices.
Selling, general and administrative expenses for the third quarter of 2001 were
approximately the same as the prior year on a constant territory basis.
Selling, general and administrative expenses for first nine months of 2001
increased 1.7% from the same period in 2000 on a constant territory basis. The
increase in selling, general and administrative expenses for the first nine
months of 2001 was due primarily to higher employee compensation costs and an
increase in sales development costs offset by a reduction in lease expense
resulting from the Company's purchase of certain assets during the second
quarter of 2001 that were previously leased.
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 concentrate, syrups and finished products to the Company make
substantial 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 of the 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 provide marketing
funding support in 2001, it is not obligated to do so under the Company's master
bottle contract. Total marketing funding support from The Coca-Cola Company and
other beverage companies in the first nine months of 2001 and 2000 was $35.5
million and $36.9 million, respectively.
On a constant territory basis, depreciation expense for the third quarter and
first nine months of 2001 increased by $.7 million and $1.0 million,
respectively, from comparable periods in the prior year. The increase was due
primarily to the purchase during the second quarter of 2001 of approximately
$49 million of cold drink equipment that was previously leased. This purchase
was financed with the Company's lines of credit. The Company expects its
capital spending in 2001, excluding the purchase of previously leased equipment
discussed above, will approximate amounts expended during 2000.
Interest expense for the third quarter of 2001 of $10.8 million decreased by
$2.8 million or 21% from the third quarter of 2000. Interest expense for the
first nine months of 2001 decreased by $6.9 million
or 17% from the same period in the prior year. The decrease in interest expense
was attributable to lower average interest rates on the Company's outstanding
debt and lower debt balances. The Company's outstanding long-term debt declined
to $683.1 million at September 30, 2001 from $712.7 million at October 1, 2000.
The long-term debt balance at September 30, 2001 included borrowings used to
finance the purchase of approximately $49 million of leased equipment discussed
above. The Company's overall weighted average interest rate decreased from an
average of 7.2 % during the first nine months of 2000 to an average of 6.6%
during the first nine months of 2001.
Other expense for the third quarter of 2001 included a gain of $1.1 million on
the sale of certain corporate transportation equipment offset by a loss
provision of $.9 million related to the Company's loan to an equity investee
which sells and markets computerized data management products and services.
The Company's income tax rate for the third quarter and first nine months of
2001 was favorably impacted by the settlement of certain Federal income tax
issues with the Internal Revenue Service during the third quarter. As a result
of the settlement, an adjustment was made to the income tax provision during the
third quarter of $2.9 million, significantly reducing the effective income tax
rate for both the third quarter and first nine months of 2001. Excluding the
effect of the adjustment, the effective income tax rate for the third quarter
and first nine months of 2001 would have been approximately 39.5%. The
effective income tax rate for fiscal year 2000 was 36%. The Company's effective
tax rate for interim periods reflects expected fiscal year 2001 earnings. The
Company's effective income tax rate for the remainder of 2001 is dependent upon
operating results and may change if the results for the year are different from
current expectations.
Changes in Financial Condition:
- ------------------------------
Working capital decreased $72.6 million from December 31, 2000 to September 30,
2001. The most significant component of the decrease from December 31, 2000 was
an increase in the current portion of long-term debt of $47.0 million. The
increase in the current portion of long-term debt includes $47 million of
Medium-Term Notes that mature during the first quarter of 2002, which the
Company expects will be repaid with available lines of credit. Other components
of the decrease in working capital include an increase in accounts payable and
accrued liabilities of $4.8 million, an increase in amounts payable to The Coca-
Cola Company of $5.7 million and an increase in amounts due to Piedmont Coca-
Cola Bottling Partnership ("Piedmont") of $7.3 million. The increase in amounts
due to Piedmont resulted primarily from additional free cash flow at Piedmont.
Working capital decreased by $83.5 million from October 1, 2000 to September 30,
2001. Similar to the change from December 31, 2000, the decrease in working
capital was due to an increase in the current portion of long-term debt of $53.7
million and an increase in amounts due to Piedmont of $7.3 million.
Additionally, the decrease in working capital was due to a reduction in cash of
$18.7 million. Cash at the end of September 2000 was higher than in the previous
periods due to the timing of the sale of bottling territory in Kentucky and
Ohio. Net proceeds from the sale of this territory of approximately $20 million
were used to repay debt in the fourth quarter of 2000.
Capital expenditures in the first nine months of 2001 were $87.7 million
compared to $38.9 million in the first nine months of 2000. Expenditures for the
first nine months of 2001 include the purchase of approximately $49 million of
previously leased equipment.
Long-term debt decreased by $29.6 million from October 1, 2000 and $9.0 million
from December 31, 2000, respectively. The Company sold bottling territory in
Kentucky and Ohio in the third quarter of 2000 generating approximately $20
million of net proceeds that were used to repay long-term debt. During the
second quarter of 2001, the Company purchased approximately $49 million of
vending assets that had previously been leased. The Company used its lines of
credit to finance this purchase.
As of September 30, 2001, the Company had no amounts outstanding under its $170
million revolving credit facility and $6.1 million outstanding under its lines
of credit. As of September 30, 2001, the debt portfolio had a weighted average
interest rate of approximately 6.0% and approximately 40% of the total portfolio
of $683.1 million was subject to changes in short-term interest rates.
It is the Company's intent to continue to grow through acquisitions of other
Coca-Cola bottlers. Acquisition related costs including interest expense may be
incurred. To the extent incremental expenses are incurred and are not offset by
cost savings or increased sales, the Company's acquisition strategy may depress
short-term earnings. The Company believes that the continued growth through
acquisitions will enhance long-term stockholder value.
Sources of capital for the Company include operating cash flows, bank
borrowings, issuance of public or private debt and the issuance of equity
securities. Management believes that the Company, through these sources, has
sufficient financial resources available to maintain its current operations and
provide for its current capital expenditure and working capital requirements,
scheduled debt payments, interest and income tax liabilities and dividends for
stockholders.
FORWARD-LOOKING STATEMENTS
- --------------------------
This Quarterly Report on Form 10-Q, as well as information included in, or
incorporated by reference from, future filings by the Company with the
Securities and Exchange Commission and information contained in written
material, press 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: our growth strategy
increasing long-term stockholder value; the sufficiency of our financial
resources to fund our operations and capital expenditure requirements and our
expectations concerning capital expenditures. These statements and expectations
are based on the current available competitive, financial and economic data
along with the Company's operating plans, and are subject to future events and
uncertainties. Events or uncertainties that could adversely affect future
periods include, without limitation: lower than expected net pricing resulting
from increased marketplace competition, an inability to meet performance
requirements for expected levels of marketing support payments from The
Coca-Cola Company, an inability to meet requirements under bottling contracts,
the inability of our aluminum can or PET bottle suppliers to meet our demand,
material changes from expectations in the cost of raw materials, higher than
expected fuel prices, an inability to meet projections for performance in newly
acquired bottling territories and unfavorable interest rate fluctuations.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) 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 subsidiaries for which
consolidated financial statements are required to be filed, and
which authorizes a total amount of securities not in excess of 10
percent of total assets of the Registrant and its subsidiaries on
a consolidated basis.
(b) Reports on Form 8-K
None.
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: November 9, 2001 By: /s/ David V. Singer
-------------------------------
David V. Singer
Principal Financial Officer of the Registrant
and
Executive Vice President - Chief Financial Officer