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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
[X] EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002
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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 (I.R.S. Employer
incorporation or organization) Identification 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 August 1, 2002
----- ------------------------------
Common Stock, $1.00 Par Value 6,456,397
Class B Common Stock, $1.00 Par Value 2,380,852
PART I - FINANCIAL INFORMATION
Item l. Financial Statements
Coca-Cola Bottling Co. Consolidated
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
In Thousands (Except Per Share Data)
Second Quarter First Half
--------------------------- --------------------------
2002 2001 2002 2001
--------------------------- --------------------------
Net sales (includes sales to Piedmont of $ 341,119 $ 262,338 $ 624,317 $ 486,038
$19,967 and $33,954 in 2001)
Cost of sales, excluding depreciation shown
below (includes $14,768 and $25,689
related to sales to Piedmont in 2001) 181,448 144,407 330,064 265,208
---------- --------- --------- ---------
Gross margin 159,671 117,931 294,253 220,830
Selling, general and administrative expenses,
excluding depreciation shown below 106,984 76,733 203,504 150,324
Depreciation expense 18,857 16,595 36,842 32,398
Amortization of goodwill and intangibles 686 3,720 1,373 7,440
---------- --------- --------- ---------
Income from operations 33,144 20,883 52,534 30,668
Interest expense 11,877 11,329 24,017 23,481
Other income (expense), net (650) (1,274) (1,549) (1,853)
Minority interest 2,764 3,523
---------- --------- --------- ---------
Income before income taxes 17,853 8,280 23,445 5,334
Federal and state income taxes 7,070 3,271 9,284 2,107
---------- --------- --------- ---------
Net income $ 10,783 $ 5,009 $ 14,161 $ 3,227
========== ========= ========= =========
Basic net income per share $ 1.23 $ .57 $ 1.61 $ .37
Diluted net income per share $ 1.21 $ .57 $ 1.60 $ .37
Weighted average number of common
shares outstanding 8,784 8,753 8,779 8,753
Weighted average number of common
shares outstanding-assuming dilution 8,880 8,825 8,869 8,824
Cash dividends per share
Common Stock $ .25 $ .25 $ .50 $ .50
Class B Common Stock $ .25 $ .25 $ .50 $ .50
See Accompanying Notes to Consolidated Financial Statements
Coca-Cola Bottling Co. Consolidated
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
In Thousands (Except Share Data)
June 30, Dec. 30, July 1,
2002 2001 2001
---------- ---------- ----------
ASSETS
- ------
Current Assets:
- ---------------
Cash $ 8,667 $ 16,912 $ 6,833
Accounts receivable, trade, less allowance for
doubtful accounts of $1,951, $1,863 and $904 93,548 63,974 68,149
Accounts receivable from The Coca-Cola Company 15,729 3,935 4,784
Accounts receivable, other 5,610 5,253 6,187
Inventories 42,020 39,916 36,014
Prepaid expenses and other current assets 17,715 13,379 15,201
---------- ---------- ----------
Total current assets 183,289 143,369 137,168
---------- ---------- ----------
Property, plant and equipment, net 472,790 457,306 473,666
Leased property under capital leases, net 48,532 5,383 6,290
Investment in Piedmont Coca-Cola Bottling Partnership 60,203 59,858
Other assets 63,065 52,140 60,280
Franchise rights and goodwill, net 607,007 335,662 341,435
Other identifiable intangible assets, net 7,340 10,396 12,478
---------- ---------- ----------
Total $1,382,023 $1,064,459 $1,091,175
========== ========== ==========
See Accompanying Notes to Consolidated Financial Statements
Coca-Cola Bottling Co. Consolidated
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
In Thousands (Except Share Data)
June 30, Dec. 30, July 1,
2002 2001 2001
----------- ----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current Liabilities:
- --------------------
Portion of long-term debt payable within one year $ 215,631 $ 56,708 $ 57,132
Current portion of obligations under capital leases 4,777 1,489 1,967
Accounts payable, trade 42,257 28,370 29,624
Accounts payable to The Coca-Cola Company 6,646 7,925 5,794
Due to Piedmont Coca-Cola Bottling Partnership 24,682 23,121
Accrued compensation 11,570 17,350 10,041
Other accrued liabilities 82,261 49,169 55,349
Accrued interest payable 11,140 11,878 13,413
----------- ----------- -----------
Total current liabilities 374,282 197,571 196,441
Deferred income taxes 164,485 133,743 149,240
Pension and retiree benefit obligations 30,893 37,203 24,950
Other liabilities 61,133 57,770 51,299
Obligations under capital leases 42,123 935 1,291
Long-term debt 620,125 620,156 641,456
----------- ----------- -----------
Total liabilities 1,293,041 1,047,378 1,064,677
----------- ----------- -----------
Commitments and Contingencies (Note 13)
Minority interest in Piedmont Coca-Cola
Bottling Partnership 59,356
Stockholders' Equity:
- ---------------------
Common Stock, $1.00 par value:
Authorized - 30,000,000 shares;
Issued - 9,497,916, 9,454,651 and 9,454,651 shares 9,498 9,454 9,454
Class B Common Stock, $1.00 par value:
Authorized - 10,000,000 shares;
Issued - 3,008,966, 2,989,166 and 2,989,166 shares 3,009 2,989 2,989
Capital in excess of par value 88,843 91,004 95,380
Retained earnings (accumulated deficit) 1,854 (12,307) (18,550)
Accumulated other comprehensive loss (12,324) (12,805) (1,521)
----------- ----------- -----------
90,880 78,335 87,752
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 29,626 17,081 26,498
----------- ----------- -----------
Total $ 1,382,023 $ 1,064,459 $ 1,091,175
=========== =========== ===========
See Accompanying Notes to Consolidated Financial Statements
Coca-Cola Bottling Co. Consolidated
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
In Thousands
Capital Retained Accumulated
Class B in Earnings Other
Common Common Excess of (Accum. Comprehensive Treasury
Stock Stock Par Value Deficit) Loss Stock Total
----- ----- --------- -------- ---- ----- -----
Balance on
December 31, 2000 $ 9,454 $ 2,969 $ 99,020 $ (21,777) $ $(61,254) $ 28,412
Comprehensive income:
Net income 3,227 3,227
Proportionate share
of Piedmont's accum.
other comprehensive
loss at adoption of
SFAS 133, net of tax (924) (924)
Change in proportionate
share of Piedmont's
accum. other compre-
hensive loss, net of tax (597) (597)
---------
Total comprehensive
income 1,706
Cash dividends paid (4,377) (4,377)
Class B Common Stock
issued related to
stock award 20 737 757
--------- -------- --------- --------- -------- --------- ---------
Balance on
July 1, 2001 $ 9,454 $ 2,989 $ 95,380 $ (18,550) $ (1,521) $ (61,254) $ 26,498
========= ======== ========= ========= ======== ========= =========
Balance on
December 30, 2001 $ 9,454 $ 2,989 $ 91,004 $ (12,307) $(12,805) $ (61,254) $ 17,081
Comprehensive income:
Net income 14,161 14,161
Change in fair market
value of cash flow
hedges, net of tax (48) (48)
Change in proportionate
share of Piedmont's
accum. other compre-
hensive loss, net of tax 529 529
---------
Total comprehensive
income 14,642
Cash dividends paid (4,388) (4,388)
Class B Common Stock
issued related to
stock award 20 748 768
Exercise of stock
options 44 1,191 1,235
Deferred tax adjustments
related to exercise
of stock options 288 288
--------- -------- --------- --------- -------- --------- ---------
Balance on
June 30, 2002 $ 9,498 $ 3,009 $ 88,843 $ 1,854 $(12,324) $ (61,254) $ 29,626
========= ======== ========= ========= ======== ========= =========
See Accompanying Notes to Consolidated Financial Statements
Coca-Cola Bottling Co. Consolidated
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
In Thousands
First Half
---------------------------
2002 2001
--------- ---------
Cash Flows from Operating Activities
- ------------------------------------
Net income $ 14,161 $ 3,227
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation expense 36,842 32,398
Amortization of goodwill and intangibles 1,373 7,440
Deferred income taxes 9,284 2,107
Losses on sale of property, plant and equipment 1,685 1,447
Amortization of debt costs 354 420
Amortization of deferred gains related to terminated
interest rate swaps (964) (517)
Undistributed losses of Piedmont Coca-Cola Bottling Partnership 357
Minority interest 3,523
Decrease in current assets less current liabilities 6,002 26,860
(Increase) decrease in other noncurrent assets (5,663) 180
Increase (decrease) in other noncurrent liabilities (7,058) 587
Other (394) 52
--------- ---------
Total adjustments 44,984 71,331
--------- ---------
Net cash provided by operating activities 59,145 74,558
--------- ---------
Cash Flows from Financing Activities
- ------------------------------------
Repayment of current portion of long-term debt (154,208) (1,961)
Proceeds from lines of credit and revolving credit facility, net 118,100 8,400
Cash dividends paid (4,388) (4,377)
Payments on capital lease obligations (996) (1,644)
Proceeds from exercise of stock options 1,235
Other 133 (448)
--------- ---------
Net cash used in financing activities (40,124) (30)
--------- ---------
Cash Flows from Investing Activities
- ------------------------------------
Additions to property, plant and equipment (21,482) (78,063)
Proceeds from the sale of property, plant and equipment 2,895 1,943
Acquisition of additional interest in Piedmont Coca-Cola
Bottling Partnership, net (8,679)
--------- ---------
Net cash used in investing activities (27,266) (76,120)
--------- ---------
Net decrease in cash (8,245) (1,592)
Cash at beginning of period 16,912 8,425
--------- ---------
Cash at end of period $ 8,667 $ 6,833
========= =========
Significant non-cash investing and financing activities:
Issuance of Class B Common Stock related to stock award $ 768 $ 757
Capital lease obligations incurred 41,620
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 30, 2001 filed
with the Securities and Exchange Commission. See Note 14 for new accounting
pronouncements.
Certain prior year amounts have been reclassified to conform to current year
classifications.
2. 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 carbonated and
noncarbonated beverages primarily in portions of North Carolina and South
Carolina. Prior to January 2, 2002, the Company and The Coca-Cola Company,
through their respective subsidiaries, each beneficially owned 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.
On January 2, 2002, the Company purchased an additional 4.651% interest in
Piedmont from The Coca-Cola Company for $10.0 million, increasing the Company's
ownership in Piedmont to 54.651%. Due to the increase in ownership, the results
of operations, financial position and cash flows of Piedmont have been
consolidated with those of the Company beginning in the first quarter of 2002.
The excess of the purchase price over the net book value of the interest of
Piedmont acquired was $4.4 million and has been recorded principally as an
addition to franchise rights. The Company's investment in Piedmont has been
accounted for using the equity method in 2001 and prior years.
The following financial information includes the 2002 unaudited consolidated
financial position and results of operations of the Company and includes the
2001 unaudited pro forma financial position and results of operations. The 2001
unaudited pro forma financial information reflects the consolidation of
Piedmont's financial position and results of operations with those of the
Company as if the additional purchase had occurred at the beginning of 2001.
Coca-Cola Bottling Co. Consolidated
Notes to Consolidated Financial Statements (Unaudited)
Note 2 continued
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
In Thousands (Except Per Share Data) Second Quarter First Half
- --------------------------------------------------------------------------------------------------------------------------
Pro forma Pro forma
2002 2001 2002 2001
------------ ------------ ------------ ------------
Net sales $ 341,119 $ 314,362 $ 624,317 $ 584,689
Cost of sales, excluding depreciation
shown below 181,448 169,696 330,064 313,103
------------ ------------ ------------ ------------
Gross margin 159,671 144,666 294,253 271,586
Selling, general and administrative expenses,
excluding depreciation shown below 106,984 96,080 203,504 187,939
Depreciation expense 18,857 17,985 36,842 35,192
Amortization of goodwill and intangibles 686 5,848 1,373 11,697
------------ ------------ ------------ ------------
Income from operations 33,144 24,753 52,534 36,758
Interest expense 11,877 14,844 24,017 30,608
Other income (expense), net (650) (1,238) (1,549) (1,550)
Minority interest 2,764 525 3,523 (323)
------------ ------------ ------------ ------------
Income before income taxes 17,853 8,146 23,445 4,923
Federal and state income taxes 7,070 3,221 9,284 1,942
------------ ------------ ------------ ------------
Net income $ 10,783 $ 4,925 $ 14,161 $ 2,981
============ ============ ============ ============
Basic net income per share $ 1.23 $ .56 $ 1.61 $ .34
============ ============ ============ ============
Diluted net income per share $ 1.21 $ .56 $ 1.60 $ .34
============ ============ ============ ============
Weighted average number of common
shares outstanding 8,784 8,753 8,779 8,753
Weighted average number of common
shares outstanding - assuming dilution 8,880 8,825 8,869 8,824
Coca-Cola Bottling Co. Consolidated
Notes to Consolidated Financial Statements (Unaudited)
Note 2 continued
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
Pro forma Pro forma
June 30, Dec. 30, July 1,
In Thousands 2002 2001 2001
- --------------------------------------------------------------------------------------------------------------------
ASSETS
Current Assets:
Cash $ 8,667 $ 18,210 $ 7,919
Accounts receivable, trade, net 93,548 84,384 89,156
Accounts receivable from The Coca-Cola Company 15,729 5,004 5,886
Accounts receivable, other 5,610 7,603 7,015
Inventories 42,020 45,812 42,399
Prepaid expenses and other current assets 17,715 13,522 15,654
------------ ------------ -------------
Total current assets 183,289 174,535 168,029
------------ ------------ -------------
Property, plant and equipment 827,979 822,095 829,336
Less-Accumulated depreciation and amortization 355,189 332,942 323,611
------------ ------------ -------------
Property, plant and equipment, net 472,790 489,153 505,725
------------ ------------ -------------
Leased property under capital leases 56,892 20,424 20,337
Less-Accumulated amortization 8,360 10,109 8,586
------------ ------------ -------------
Leased property under capital leases, net 48,532 10,315 11,751
------------ ------------ -------------
Other assets 63,065 57,756 65,663
Franchise rights and goodwill, less
accumulated amortization of $210,535,
$210,535 and $200,300 607,007 604,651 614,680
Other identifiable intangible assets, net 7,340 10,396 12,478
------------ ------------ -------------
Total $ 1,382,023 $ 1,346,806 $ 1,378,326
============ ============ =============
Coca-Cola Bottling Co. Consolidated
Notes to Consolidated Financial Statements (Unaudited)
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
Pro forma Pro forma
June 30, Dec. 30, July 1,
In Thousands 2002 2001 2001
- ---------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Portion of long-term debt payable within one year $ 215,631 $ 154,208 $ 154,632
Current portion of obligations under capital leases 4,777 2,466 3,242
Accounts payable, trade 42,257 34,214 36,281
Accounts payable to The Coca-Cola Company 6,646 8,193 6,139
Accrued compensation 11,570 17,350 10,322
Other accrued liabilities 82,261 57,593 65,794
Accrued interest payable 11,140 13,647 15,149
------------ ------------ ------------
Total current liabilities 374,282 287,671 291,559
------------ ------------ ------------
Deferred income taxes 164,485 157,739 173,560
Pension and retiree benefit obligations 30,893 37,203 24,950
Other liabilities 61,133 61,425 54,386
Obligations under capital leases 42,123 4,033 4,606
Long-term debt 620,125 727,657 748,956
------------ ------------ ------------
Total liabilities 1,293,041 1,275,728 1,298,017
------------ ------------ ------------
Minority interest in Piedmont 59,356 54,603 54,057
Stockholders' Equity:
Common Stock 9,498 9,454 9,454
Class B Common Stock 3,009 2,989 2,989
Capital in excess of par value 88,843 91,004 95,380
Retained earnings (accumulated deficit) 1,854 (12,743) (18,796)
Accumulated other comprehensive loss (12,324) (12,975) (1,521)
------------ ------------ ------------
90,880 77,729 87,506
Less-Treasury stock, at cost:
Common 60,845 60,845 60,845
Class B Common 409 409 409
------------ ------------ ------------
Total stockholders' equity 29,626 16,475 26,252
------------ ------------ ------------
Total $ 1,382,023 $ 1,346,806 $ 1,378,326
============ ============ ============
Coca-Cola Bottling Co. Consolidated
Notes to Consolidated Financial Statements (Unaudited)
3. Inventories
Inventories were summarized as follows:
June 30, Dec. 30, July 1,
In Thousands 2002 2001 2001
- --------------------------------------------------------------------------------
Finished products $29,948 $23,637 $24,448
Manufacturing materials 7,103 11,893 7,834
Plastic pallets and other 4,969 4,386 3,732
- --------------------------------------------------------------------------------
Total inventories $42,020 $39,916 $36,014
- --------------------------------------------------------------------------------
4. Property, Plant and Equipment
The principal categories and estimated useful lives of property, plant and
equipment were as follows:
June 30, Dec. 30, July 1, Estimated
In Thousands 2002 2001 2001 Useful Lives
- --------------------------------------------------------------------------------
Land $ 12,947 $ 11,158 $ 11,208
Buildings 114,213 95,338 96,755 10-50 years
Machinery and equipment 93,840 93,658 93,190 5-20 years
Transportation equipment 138,885 130,016 135,302 4-13 years
Furniture and fixtures 38,720 36,350 35,509 4-10 years
Vending equipment 355,443 334,975 336,995 6-13 years
Leasehold and land improvements 47,277 40,969 39,320 5-20 years
Software for internal use 22,790 21,850 19,130 3-7 years
Construction in progress 3,864 1,908 3,288
- --------------------------------------------------------------------------------
Total property, plant and equipment,
at cost 827,979 766,222 770,697
Less: Accumulated depreciation and
amortization 355,189 308,916 297,031
- --------------------------------------------------------------------------------
Property, plant and equipment, net $472,790 $457,306 $473,666
- --------------------------------------------------------------------------------
Coca-Cola Bottling Co. Consolidated
Notes to Consolidated Financial Statements (Unaudited)
5. Leased Property Under Capital Leases
June 30, Dec. 30, July 1, Estimated
In Thousands 2002 2001 2001 Useful Lives
- ---------------------------------------------------------------------------------------------------
Leased property under capital leases $56,892 $12,265 $12,146 1-29 years
Less: Accumulated amortization 8,360 6,882 5,856
- ---------------------------------------------------------------------------------------------------
Leased property under capital leases, net $48,532 $ 5,383 $ 6,290
- ---------------------------------------------------------------------------------------------------
The Company recorded a capital lease of $41.6 million at the end of the first
quarter of 2002 related to its production/distribution center located in
Charlotte, North Carolina. As disclosed in the Company's 2001 Annual Report on
Form 10-K, this facility is leased from a related party. The lease obligation
was capitalized as a result of the Company's decision in the first quarter to
enter into renewal options that extend the expected term of this lease.
6. Franchise Rights and Goodwill
June 30, Dec. 30, July 1,
In Thousands 2002 2001 2001
- ----------------------------------------------------------------------------------------
Franchise rights $662,350 $353,388 $353,388
Goodwill 155,192 112,097 112,097
- ----------------------------------------------------------------------------------------
Franchise rights and goodwill 817,542 465,485 465,485
Less: Accumulated amortization 210,535 129,823 124,050
- ----------------------------------------------------------------------------------------
Franchise rights and goodwill, net $607,007 $335,662 $341,435
- ----------------------------------------------------------------------------------------
The significant increase in franchise rights and goodwill in 2002 resulted
primarily from the consolidation of Piedmont.
7. Other Identifiable Intangible Assets
The principal categories and estimated useful lives of identifiable intangible
assets were as follows:
June 30, Dec. 30, July 1, Estimated
In Thousands 2002 2001 2001 Useful Lives
- ------------------------------------------------------------------------------------------------------------------------
Customer lists $ 54,864 $54,864 $54,864 20 years
Other 16,316 16,316
- ------------------------------------------------------------------------------------------------------------------------
Other identifiable intangible assets 54,864 71,180 71,180
Less: Accumulated amortization 47,524 60,784 58,702
- ------------------------------------------------------------------------------------------------------------------------
Other identifiable intangible assets, net $ 7,340 $10,396 $12,478
- ------------------------------------------------------------------------------------------------------------------------
Coca-Cola Bottling Co. Consolidated
Notes to Consolidated Financial Statements (Unaudited)
8. Long-Term Debt
Long-term debt was summarized as follows:
Interest Interest June 30, Dec. 30, July 1,
In Thousands Maturity Rate Paid 2002 2001 2001
- --------------------------------------------------------------------------------
Lines of Credit 2002 2.45% Varies $ 18,100 $ 21,300
Revolving Credit 2002 2.12% Varies 100,000
Term Loan Agreement 2004 2.58% Varies 85,000 $ 85,000 85,000
Term Loan Agreement 2005 2.58% Varies 85,000 85,000 85,000
Term Loan Agreement 2003 2.44% Varies 97,500
Medium-Term Notes 2002 47,000 47,000
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- 250,000 250,000 248,604
annually
Other notes payable 2002 - 5.75% Varies 156 9,864 10,288
2006
- --------------------------------------------------------------------------------
835,756 676,864 697,192
Less: Portion of
long-term debt pay-
able within one year 215,631 56,708 57,132
- --------------------------------------------------------------------------------
620,125 620,156 640,060
Fair market value of
interest rate swaps 1,396
- --------------------------------------------------------------------------------
Long-term debt $620,125 $620,156 $641,456
- --------------------------------------------------------------------------------
Coca-Cola Bottling Co. Consolidated
Notes to Consolidated Financial Statements (Unaudited)
Note 8 continued
The Company borrows periodically under its available lines of credit. These
lines of credit, in the aggregate amount of $65 million at June 30, 2002, are
made available at the discretion of the two participating banks and may be
withdrawn at any time by such banks. On June 30, 2002, $18.1 million was
outstanding under these lines of credit.
The Company has a revolving credit facility for borrowings of up to $170 million
that matures in December 2002. The Company intends to negotiate a new revolving
credit facility to replace the current facility prior to its expiration. The
agreement contains covenants which establish ratio requirements related to debt,
interest expense and cash flow. A facility fee of 1/8% per year on the banks'
commitment is payable quarterly. On June 30, 2002, $100.0 million was
outstanding under this facility.
After taking into account all of the interest rate hedging activities, the
Company had a weighted average interest rate of 5.0%, 5.7% and 6.3% for the debt
and capital lease portfolio as of June 30, 2002, December 30, 2001 and July 1,
2001, respectively. The Company's overall weighted average borrowing rate on its
debt and capital lease portfolio was 5.6% for the first half of 2002 compared to
6.7% for the first half of 2001.
After considering the impact of interest rate hedging activities, approximately
48% of the debt and capital lease portfolio was subject to changes in short-term
interest rates as of June 30, 2002.
If average interest rates for the floating rate component of the Company's debt
and capital lease portfolio increased by 1%, annual interest expense for the
first half of 2002 would have increased by approximately $1.8 million and net
income would have been reduced by approximately $1.1 million.
With regards to the Company's $170 million term loan agreement, the Company must
maintain its public debt ratings at investment grade as determined by both
Moody's and Standard & Poor's. If the Company's public debt ratings fall below
investment grade within 90 days after the public announcement of certain
designated events and such ratings stay below investment grade for an additional
40 days, a trigger event resulting in a default occurs. The Company does not
anticipate a trigger event will occur.
Piedmont obtained a term loan with a group of banks on May 28, 1996 for $195
million with interest payable at a floating rate of LIBOR plus 0.50%. One half
or $97.5 million of the loan matured on May 28, 2002 and the remaining half
matures on May 28, 2003. The interest rate on Piedmont's outstanding $97.5
million term loan is subject to increase in the event Piedmont's debt rating, as
established by Standard & Poor's, declines. The loan is also subject to
acceleration if Piedmont's debt rating falls below investment grade for more
than 40 days. The loan agreement contains certain restrictions which include
limitations on additional borrowings, new liens and dispositions of assets.
The Company refinanced the $97.5 million of debt that matured at Piedmont in May
2002 through its available credit facilities. The Company loaned $97.5 million
to Piedmont to repay the maturing debt. Piedmont pays the Company interest on
the Company's average cost of funds plus 0.50%. The Company
Coca-Cola Bottling Co. Consolidated
Notes to Consolidated Financial Statements (Unaudited)
Note 8 continued
intends to provide Piedmont with additional loans in the future, including
amounts necessary to refinance Piedmont's $97.5 million of debt that matures in
May 2003.
In January 1999, the Company filed a registration statement with the Securities
and Exchange Commission pursuant to which it can issue up to $800 million of
debt and equity securities. The Company used this shelf registration to issue
$250 million of long-term debentures in 1999. The Company currently has $550
million available for use under this shelf registration.
9. 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:
June 30, 2002 December 30, 2001 July 1, 2001
----------------------------------------------------------
Notional Remaining Notional Remaining Notional Remaining
In Thousands Amount Term Amount Term Amount Term
- --------------------------------------------------------------------------------
Interest rate
swaps - floating $100,000 7.75 years
Interest rate
swap - fixed $27,000 .48 years $27,000 .95 years
Interest rate
swap - fixed 19,000 .48 years 19,000 .95 years
Interest rate
swap - fixed 90,000 .92 years
Coca-Cola Bottling Co. Consolidated
Notes to Consolidated Financial Statements (Unaudited)
10. Fair Values of Financial Instruments
The following methods and assumptions were used by the Company in estimating the
fair values of its financial instruments:
Cash, Accounts Receivable and Accounts Payable
The fair values of cash, accounts receivable and accounts payable approximate
carrying values due to the short maturity of these 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:
June 30, 2002 December 30, 2001 July 1, 2001
-----------------------------------------------------
Carrying Fair Carrying Fair Carrying Fair
In Thousands Amount Value Amount Value Amount Value
- --------------------------------------------------------------------------------
Public debt $450,000 $464,315 $497,000 $493,993 $495,604 $487,500
Non-public variable rate
long-term debt 385,600 385,600 170,000 170,000 191,300 191,300
Non-public fixed rate
long-term debt 156 156 9,864 9,868 10,288 10,433
Interest rate swaps 3,852 3,852 (7) (7) 1,396 1,396
The fair values of the interest rate swaps at June 30, 2002 and July 1, 2001
represent the estimated amounts the Company would have paid upon termination of
these agreements. The fair values of the interest rate swaps at December 30,
2001 represent the estimated amounts the Company would have received upon
termination of these agreements.
Coca-Cola Bottling Co. Consolidated
Notes to Consolidated Financial Statements (Unaudited)
11. Supplemental Disclosures of Cash Flow Information
Changes in current assets and current liabilities affecting cash, net of effect
of consolidating Piedmont in 2002, were as follows:
First Half
--------------------------
In Thousands 2002 2001
- --------------------------------------------------------------------------------------------
Accounts receivable, trade, net $ (9,164) $ (5,488)
Accounts receivable, The Coca-Cola Company (10,725) 596
Accounts receivable, other 1,993 2,060
Inventories 3,792 4,488
Prepaid expenses and other current assets (4,193) (1,175)
Accounts payable, trade 8,043 8,147
Accounts payable, The Coca-Cola Company (1,547) 1,992
Other accrued liabilities 24,668 10,028
Accrued compensation (5,012) (3,403)
Accrued interest payable (1,853) 2,930
Due to Piedmont 6,685
- --------------------------------------------------------------------------------------------
Decrease in current assets less current liabilities $ 6,002 $ 26,860
- --------------------------------------------------------------------------------------------
Coca-Cola Bottling Co. Consolidated
Notes to Consolidated Financial Statements (Unaudited)
12. Earnings Per Share
The following table sets forth the computation of basic net income per share and
diluted net income per share:
Second Quarter First Half
----------------------- ----------------------
In Thousands (Except Per Share Data) 2002 2001 2002 2001
- ------------------------------------------------------------------------------------------------------------------------
Numerator:
- ---------
Numerator for basic net income per share and
diluted net income per share $ 10,783 $ 5,009 $ 14,161 $ 3,227
Denominator:
- -----------
Denominator for basic net income per share -
weighted average common shares 8,784 8,753 8,779 8,753
Effect of dilutive securities - stock options 96 72 90 71
-------- --------- -------- ---------
Denominator for diluted net income per share -
adjusted weighted average common shares 8,880 8,825 8,869 8,824
======== ========= ======== =========
Basic net income per share $ 1.23 $ .57 $ 1.61 $ .37
======== ========= ======== =========
Diluted net income per share $ 1.21 $ .57 $ 1.60 $ .37
======== ========= ======== =========
13. 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 $35.1 million, $37.4
million and $38.3 million as of June 30, 2002, December 30, 2001 and July 1,
2001, 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.
Coca-Cola Bottling Co. Consolidated
Notes to Consolidated Financial Statements (Unaudited)
14. New Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 141, "Business Combinations," ("SFAS No.
141") and Statement of Financial Accounting Standards No. 142, "Goodwill and
Other Intangible Assets," ("SFAS No. 142"). 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 No. 141 and SFAS No. 142 apply to all business combinations
consummated after June 30, 2001. The provisions of SFAS No. 142 for existing
goodwill and other intangible assets have been implemented effective the first
day of fiscal year 2002. Net income for the second quarter and first half of
2002 was favorably impacted by the adoption of SFAS No. 142, which resulted in a
reduction of amortization expense of $3.1 million and $6.2 million, net of tax
effect, for the second quarter and first half of 2002, respectively. The Company
has performed its analysis of its goodwill and intangible assets with indefinite
useful lives and concluded that there is no impairment at this time.
In October 2001, the FASB issued Statement of Financial Accounting Standards No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets," ("SFAS
No. 144"). SFAS No. 144 supersedes Statement of Financial Accounting Standards
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of," but it retains many of the fundamental provisions of
that Statement. SFAS No. 144 also extends the reporting requirements to report
separately as discontinued operations components of an entity that have either
been disposed of or classified as held for sale. The provisions of SFAS No. 144
have been adopted as of the beginning of fiscal year 2002. The adoption of SFAS
No. 144 did not have a material effect on the Company's operating results.
Emerging Issues Task Force No. 01-09 "Accounting for Consideration Given by a
Vendor to a Customer or Reseller of the Vendor's Products" was effective for the
Company beginning January 1, 2002, requiring certain expenses previously
classified as selling, general and administrative expenses to be reclassified as
deductions from net sales. Prior year results have been adjusted to reclassify
these expenses as a deduction to net sales for comparability with current year
presentation. These expenses relate to payments to customers for certain
marketing programs. The Company reclassified $9.4 million for the second quarter
of 2001 and $14.6 million for the first six months of 2001 related to these
expenses.
Coca-Cola Bottling Co. Consolidated
Notes to Consolidated Financial Statements (Unaudited)
15. Capital Transactions
On May 13, 2002, the Company announced that two of its directors, J. Frank
Harrison, Jr., Chairman Emeritus, and J. Frank Harrison, III, Chairman and Chief
Executive Officer, had entered into plans providing for sales of up to an
aggregate total of 250,000 shares of the Company's Common Stock in accordance
with Securities and Exchange Commission Rule 10b5-1. Shares to be sold under the
plans are issuable to Mr. Harrison, Jr. and Mr. Harrison, III under stock option
agreements that were granted in 1989 as long-term incentives. These stock
options are scheduled to expire on March 7, 2004 for Mr. Harrison, Jr. and
August 8, 2004 for Mr. Harrison, III. Sales will be subject to certain price
restrictions and other contingencies established under the plans. Under the
plans, Mr. Harrison, Jr. may sell up to 100,000 shares of Common Stock over a
period expiring March 7, 2004 and Mr. Harrison, III may sell up to 150,000
shares of Common Stock over a period expiring August 8, 2004. During the second
quarter of 2002, 43,065 shares of Common Stock had been sold under the plans and
the Company had received proceeds of approximately $1.2 million.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Introduction
Coca-Cola Bottling Co. Consolidated (the "Company") produces, markets and
distributes carbonated and noncarbonated 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 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, bottled water, teas, juices, isotonics and energy drinks. The Company is
also a partner with The Coca-Cola Company in Piedmont Coca-Cola Bottling
Partnership ("Piedmont"), a partnership that operates additional bottling
territory in portions of North Carolina and South Carolina.
On January 2, 2002, the Company purchased an additional 4.651% interest in
Piedmont for $10.0 million from The Coca-Cola Company, increasing the Company's
ownership in Piedmont to 54.651%. Due to the increase in ownership, the results
of operations, financial position and cash flows of Piedmont have been
consolidated with those of the Company beginning in the first quarter of 2002.
The Company's investment in Piedmont has been accounted for using the equity
method for 2001 and prior years.
Management's discussion and analysis should be read in conjunction with the
Company's consolidated unaudited financial statements and the accompanying
footnotes along with the cautionary statements at the end of this section.
Basis of Presentation
The statement of operations and statement of cash flows for the second quarter
and six months ending June 30, 2002 and the consolidated balance sheet as of
June 30, 2002 include the combined operations of the Company and Piedmont,
reflecting the acquisition of an additional interest in Piedmont as discussed
above. Generally accepted accounting principles require that results for the
other periods presented, including results of operations and cash flows for the
second quarter and six months ended July 1, 2001 and the consolidated balance
sheets as of December 30, 2001 and July 1, 2001, be presented on a historical
basis with Piedmont accounted for as an equity investment. The following
management's discussion and analysis for the second quarter and first half of
2002 is based on the unaudited results for the respective periods compared to
the pro forma consolidated results for the Company and Piedmont for the same
period in the prior year. The 2001 pro forma consolidated results for the
Company and Piedmont are included in Note 2 to the financial statements.
New Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 141, "Business Combinations," ("SFAS No.
141") and Statement of Financial Accounting Standards No. 142, "Goodwill and
Other Intangible Assets," ("SFAS No. 142").
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 have been
implemented effective the beginning of fiscal year 2002. Net income for the
second quarter and first half of 2002 was favorably impacted by the adoption of
SFAS No. 142, which resulted in a reduction of amortization expense of $3.1
million and $6.2 million, net of tax effect, for the second quarter and first
half of 2002, respectively. The Company has performed its analysis of its
goodwill and intangible assets with indefinite useful lives and concluded that
there is no impairment at this time.
In October 2001, the FASB issued Statement of Financial Accounting Standards No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets," ("SFAS
No. 144"). SFAS No. 144 supersedes Statement of Financial Accounting Standards
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of," but it retains many of the fundamental provisions of
that Statement. SFAS No. 144 also extends the reporting requirements to report
separately as discontinued operations components of an entity that have either
been disposed of or classified as held for sale. The provisions of SFAS No. 144
have been adopted as of the beginning of fiscal year 2002. The adoption of SFAS
No. 144 did not have a material effect on the Company's operating results.
Emerging Issues Task Force No. 01-09 "Accounting for Consideration Given by a
Vendor to a Customer or Reseller of the Vendor's Products" was effective for the
Company beginning January 1, 2002, requiring certain expenses previously
classified as selling, general and administrative expenses to be reclassified as
deductions from net sales. Prior year results have been adjusted to reclassify
these expenses as a deduction to net sales for comparability with current year
presentation. These expenses relate to payments to customers for certain
marketing programs. The Company reclassified $9.4 million for the second quarter
of 2001 and $14.6 million for the first six months of 2001 related to these
expenses.
Discussion of Critical Accounting Policies and Critical Accounting 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 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 has included in its Annual Report on
Form 10-K for the year ended December 30, 2001 a discussion of the Company's
most critical accounting policies, which are those that are 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. Except for the Company's adoption of SFAS No. 142 and SFAS
No. 144, the Company has not made any changes in any of these critical
accounting policies during the first half of 2002, nor has it made any material
changes in any of the critical accounting estimates underlying these accounting
policies during the first half of 2002.
Overview
The following discussion presents management's analysis of the results of
operations for the second quarter and first half of 2002 compared to the pro
forma consolidated results for the same periods of 2001 and changes in financial
condition from July 1, 2001 and December 30, 2001 (on a pro forma consolidated
basis) to June 30, 2002. 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 $10.8 million or $1.23 per share for the
second quarter of 2002 compared with net income of $4.9 million or $.56 per
share for the same period in 2001. For the first half of 2002, net income was
$14.2 million or $1.61 per share compared to net income of $3.0 million or $.34
per share for the first half of 2001. Operating results for the second quarter
of 2002 included physical case volume growth of 5.4% as compared to the same
period in the prior year. Operating results for the first six months of 2002
included physical case volume growth of approximately 4.2% and approximately 1%
higher net revenue per case. Net income for the second quarter and first half of
2002 was favorably impacted by the adoption of SFAS No. 142 which resulted in a
reduction of amortization expense of $3.1 million and $6.2 million, net of tax
effect, or approximately $.35 and $.71 per share for the second quarter and
first six months of 2002, respectively. Lower interest rates and reduced debt
balances resulted in a decrease in interest expense from the second quarter and
first half of 2001 of $3.0 million and $6.6 million, respectively. The Company
continues to experience strong free cash flow as evidenced by outstanding debt
which declined to $835.8 million as of June 30, 2002 compared to $903.6 million
as of July 1, 2001.
Results of Operations
During the first half of 2002, the Company experienced solid volume growth with
physical case sales increasing by 5.4% for the second quarter and 4.2% for the
first six months compared to the corresponding periods in 2001. Net selling
price per unit increased by approximately 1% for the first half of 2002 over the
first half of 2001. The increased sales volume in conjunction with higher sales
to other Coca-Cola bottlers led to an increase in net sales of 8.5% for the
second quarter and 6.8% for the first half of the year over respective periods
in the prior year.
Sales of carbonated beverages increased by 1% for the first half of 2002 over
2001. The Company continues to experience strong growth for its bottled water,
Dasani. New packaging, including the Dasani Fridgepack(TM), and increased
availability in retail outlets contributed to an increase in volume of 41% for
Dasani over the first half of 2001. The Company introduced Vanilla Coke during
the second quarter of 2002. While Vanilla Coke has been available in the
marketplace for less than ninety days, initial sales results have been very
positive. The Company's introduction of Fanta flavors and Minute Maid Lemonade
in 2002 has also favorably impacted volume growth. POWERade continues to show
strong growth with volume increasing by 26% over the first half of 2001.
Noncarbonated beverages, which include bottled water, comprise approximately
10.5% of the Company's total sales volume through the first half of 2002 as
compared to 8.2% in the first half of 2001.
Cost of sales on a per unit basis was relatively unchanged in the first half of
2002 compared to the same period in 2001. Packaging costs have been relatively
flat compared to the prior year helping to hold down increases in cost of sales
on a per unit basis. Increases in other raw material costs have been
primarily offset by a reduction in manufacturing labor and overhead costs. Cost
of sales on a per unit basis in the second quarter of 2002 was approximately 4%
lower than the same period in 2001 due to package mix changes. Gross margin
increased by approximately 8.3% for the first half of 2002. Gross margin as a
percentage of net sales was 47.1% in the first half of 2002 compared to 46.4% in
the first half of 2001. The improvement in gross margin as a percentage of net
sales primarily reflects slightly higher pricing and a favorable shift in
channel mix.
Selling, general and administrative expenses for the second quarter and first
half of 2002 increased 11% and 8%, respectively, from the same periods in 2001.
The increase was primarily attributable to increases in employee compensation,
cost of employee benefit plans (including costs related to the Company's pension
plans), increased insurance costs, increased marketing expenses and certain
expenses related to the closing of sales distribution facilities during the
quarter. Based on the performance of the Company's pension plan investments
prior to 2002 and lower interest rates, pension expense will increase from
approximately $2 million in 2001 to approximately $6 million in 2002. The
Company closed six sales distribution centers during the first half of 2002. The
Company believes that these distribution center closings will reduce overall
costs and improve asset productivity in the future. The Company will continue to
evaluate its distribution system in an effort to optimize the process of
distributing products to customers.
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 2002, it is not obligated to do so under the Company's master
bottle contract. Marketing funding support from The Coca-Cola Company and other
beverage companies, which include direct payments to the Company as well as
payments to customers for marketing programs or for advertising on our behalf,
was $37.7 million and $35.2 million in the first half of 2002 and 2001,
respectively.
Depreciation expense increased by approximately $.9 million between the second
quarter of 2002 and the second quarter of 2001. The increase in depreciation in
the second quarter was primarily related to amortization of a capital lease for
the Company's Charlotte, North Carolina production/distribution center. Prior to
the second quarter of 2002, the lease was accounted for as an operating lease.
The lease obligation was capitalized as a result of the Company's decision in
the first quarter of 2002 to enter into renewal options that extend the expected
term of the lease. Depreciation expense in the first half of 2002 increased by
$1.7 million from the comparable period in the prior year. The increase in
depreciation in the first half of 2002 was related to the amortization of the
capital lease described above and the purchase in May 2001 of approximately $49
million of previously leased equipment.
Interest expense for the second quarter of 2002 of $11.9 million decreased by
$3.0 million or 20% from the second quarter of 2001. Interest expense for the
first half of 2002 decreased by $6.6 million or 22% from the same period in the
prior year. The decrease in interest expense is primarily 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 $835.8 million at June 30, 2002 from $903.6 million
at July 1, 2001. The Company's overall weighted average interest rate decreased
from an average of 6.7% during the first half of 2001 to an average of 5.6%
during the first half of 2002.
The Company's effective income tax rates for the first half of 2002 and 2001
were 39.6% and 39.5%, respectively. The Company's effective tax rate for interim
periods reflects expected fiscal year 2002 earnings. The Company's effective
income tax rate for the remainder of 2002 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 $77.9 million from December 30, 2001 and $67.5 million
from July 1, 2001 to June 30, 2002. A working capital deficit at June 30, 2002
of $191.0 million was partly due to the reclassification as a current liability
of $215.6 million of the Company's debt which matures in the next twelve months.
The decrease in working capital from December 30, 2001 is attributable primarily
to the reclassification of $97.5 million of the Company's long-term debt during
the second quarter to a current liability. Working capital decreased $67.5
million from July 1, 2001 to June 30, 2002 due primarily to an increase in the
current portion of long-term debt of $61.4 million, as previously discussed. The
increase in accounts receivable from The Coca-Cola Company from July 1, 2001 and
December 30, 2001 to June 30, 2002 resulted from differences in the timing of
marketing funding settlements.
The Company recorded a capital lease of $41.6 million at the end of the first
quarter of 2002 related to its production/distribution center located in
Charlotte, North Carolina. As disclosed in the Company's 2001 Annual Report on
Form 10-K, this facility is leased from a related party. The lease obligation
was capitalized as a result of the Company's decision in the first quarter to
enter into renewal options that extend the expected term of this lease.
Capital expenditures in the first half of 2002 were $21.5 million compared to
$78.1 million in the first half of 2001. Expenditures in the first half of 2001
include the purchase of approximately $49 million of previously leased
equipment, which purchase was completed during the second quarter of 2001. The
Company's current plans for additions to property, plant and equipment in 2002
are in the range of $50 million to $60 million and that such additions will be
financed primarily through cash flow from operations.
The Company's income from operations for the first half of 2002 was more than
two times interest expense. This interest coverage coupled with the stability of
the Company's operating cash flows are two of the key reasons the Company has
been rated investment grade by both Moody's and Standard & Poor's. It is the
Company's intent to operate in a manner that will allow it to maintain its
investment grade ratings.
Total debt, as of June 30, 2002, decreased by $67.8 million from July 1, 2001
and $46.1 million from December 30, 2001. As of June 30, 2002, the Company had
$100.0 million outstanding under its $170 million revolving credit facility and
$18.1 million outstanding under its lines of credit. As of June 30, 2002, the
Company's debt and capital lease portfolio had a weighted average interest rate
of approximately 5.0% and approximately 48% of the total portfolio of $882.7
million was subject to changes in short-term interest rates.
If average interest rates for the floating rate component of the Company's debt
and capital lease portfolio increased by 1%, annual interest expense for the
first half of 2002 would have increased by approximately $1.8 million and net
income would have been reduced by approximately $1.1 million.
With regard to the Company's $170 million term loan agreement, the Company must
maintain its public debt ratings at investment grade as determined by both
Moody's and Standard & Poor's. If the Company's public debt ratings fall below
investment grade within 90 days after the public announcement of certain
designated events and such ratings stay below investment grade for an additional
40 days, a trigger event resulting in a default occurs. The Company does not
anticipate a trigger event will occur.
Piedmont obtained a term loan with a group of banks on May 28, 1996 for $195
million with interest payable at a floating rate of LIBOR plus 0.50%. One half
or $97.5 million of the loan matured on May 28, 2002 and the remaining half
matures on May 28, 2003. The interest rate on Piedmont's outstanding $97.5
million term loan is subject to increase in the event Piedmont's debt rating, as
established by Standard & Poor's, declines. The loan is also subject to
acceleration if Piedmont's debt rating falls below investment grade for more
than 40 days. The loan agreement contains certain restrictions which include
limitations on additional borrowings, new liens and dispositions of assets.
The Company refinanced $97.5 million of debt that matured at Piedmont in May
2002 through its available credit facilities. The Company loaned $97.5 million
to Piedmont to repay the maturing debt. Piedmont pays the Company interest on
the Company's average cost of funds plus 0.50%. The Company intends to provide
Piedmont with additional loans in the future including amounts necessary to
refinance Piedmont's $97.5 million of debt that matures in May 2003.
In January 1999, the Company filed a registration statement with the Securities
and Exchange Commission pursuant to which it can issue up to $800 million of
debt and equity securities. The Company used this shelf registration to issue
$250 million of long-term debentures in 1999. The Company currently has $550
million available for use under this shelf registration. The Company intends to
refinance its short-term debt maturities with currently available lines of
credit and with availability under its shelf registration. The Company also
intends to negotiate a new revolving credit facility to replace the current
facility that matures in December 2002.
On May 13, 2002, the Company announced that two of its directors, J. Frank
Harrison, Jr., Chairman Emeritus, and J. Frank Harrison, III, Chairman and Chief
Executive Officer, had entered into plans providing for sales of up to an
aggregate total of 250,000 shares of the Company's Common Stock in accordance
with Securities and Exchange Commission Rule 10b5-1. Shares to be sold under the
plans are issuable to Mr. Harrison, Jr. and Mr. Harrison, III under stock option
agreements that were granted in 1989 as long-term incentives. These stock
options are scheduled to expire on March 7, 2004 for Mr. Harrison, Jr. and
August 8, 2004 for Mr. Harrison, III. Sales will be subject to certain price
restrictions and other contingencies established under the plans. Under the
plans, Mr. Harrison, Jr. may sell up to 100,000 shares of Common Stock over a
period expiring March 7, 2004 and Mr. Harrison, III may sell up to 150,000
shares of Common Stock over a period expiring August 8, 2004. During the second
quarter of 2002, 43,065 shares of Common Stock had been sold under the plans and
the Company had received proceeds of approximately $1.2 million.
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. 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.
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, press releases and oral statements
issued by or on behalf of the Company, contains, or may contain, several
forward-looking management comments and other statements that reflect
management's current outlook for future periods. These statements include, among
others, statements relating to: cost savings and asset productivity improvements
in the future related to sales distribution facility closings, the effects of
the adoption of SFAS No. 142 and SFAS No. 144, anticipated increases in pension
expense, potential marketing support from The Coca-Cola Company, the Company's
effective tax rate for the remaining of 2002, sufficiency of financial
resources, additions to property, plant and equipment of $50 million to $60
million in 2002, the Company's intent to operate in a manner that will allow it
to maintain its investment grade ratings, the amount and frequency of future
dividends, refinancing of short-term debt maturities, negotiation of a new
revolving credit facility, refinancing of $97.5 million of debt at Piedmont in
May 2003 and management's belief that a trigger event will not occur under the
Company's $170 million term loan agreement. 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. Among the events or uncertainties which could adversely affect
future periods are: lower than expected net pricing resulting from increased
marketplace competition, changes in how significant customers market our
products, an inability to meet performance requirements for expected levels of
marketing support payments from The Coca-Cola Company, reduced marketing and
advertising spending by The Coca-Cola Company or other beverage companies, 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,
unfavorable interest rate fluctuations and changes in financial markets which
could impact the Company's ability to refinance its short-term debt maturities.
Item 3. Quantitative and Qualitative Disclosure About Market Risk.
Not applicable.
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting of the Company's stockholders was held on May 8,
2002.
(b) The meeting was held to consider and vote upon electing three
directors, each for a term of three years or until his/her successor
shall be elected and shall qualify.
The votes cast with respect to each director are summarized as follows:
Director Name For Withheld Abstentions Total Votes
------------- --- -------- ----------- -----------
Sharon A. Decker 52,952,812 162,547 894,158 54,009,517
Reid M. Henson 52,987,514 127,845 894,158 54,009,517
Carl Ware 52,954,221 161,138 894,158 54,009,517
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Number Description
4.1 Subordination Agreement, dated as of May 23, 2002, by and
among the Company, Piedmont Coca-Cola Bottling Partnership
and General Electric Capital Corporation.
4.2 Subordinated Promissory Note, dated as of May 23, 2002,
between the Company and Piedmont Coca-Cola Bottling
Partnership.
4.3 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.
99.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K
On May 3, 2002, the Company filed a Current Report on Form 8-K relating
to the announcement of the Company's financial results for the period
ended March 31, 2002.
On May 14, 2002, the Company filed a Current Report on Form 8-K
relating to the announcement that two of its directors had entered into
plans providing for sales of specified amounts of Common Stock in
accordance with Securities and Exchange Commission Rule 10b5-1.
On July 26, 2002, the Company filed a Current Report on Form 8-K
relating to the announcement of the Company's financial results for the
period ended June 30, 2002.
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: August 13, 2002 By: /s/ David V. Singer
-----------------------------------
David V. Singer
Principal Financial Officer of the
Registrant and
Executive Vice President and Chief
Financial Officer