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 July 1, 2001 - -------------------------------------------------------------------------------- Commission File Number 0-9286 - -------------------------------------------------------------------------------- COCA-COLA BOTTLING CO. CONSOLIDATED -------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 56-0950585 - --------------------------------- ------------------------------------ (State or other jurisdiction (I.R.S. Employer Identification No.) of incorporation or organization) 4100 Coca-Cola Plaza, Charlotte, North Carolina 28211 ------------------------------------------------------- (Address of principal executive offices) (Zip Code) (704) 557-4400 ------------------------------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No - Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at August 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 STATEMENTS OF OPERATIONS (UNAUDITED) In Thousands (Except Per Share Data) <TABLE> <CAPTION> Second Quarter First Half -------------------------- --------------------------- 2001 2000 2001 2000 -------------------------- --------------------------- <S> <C> <C> <C> <C> Net sales (includes sales to Piedmont of $19,967, $21,251, $33,954 and $36,942) $ 271,678 $ 270,933 $ 501,735 $ 499,117 Cost of sales, excluding depreciation shown below (includes $14,768, $15,545, $25,689 and $28,127 related to sales to Piedmont) 146,970 143,002 270,560 265,245 --------- --------- --------- --------- Gross margin 124,708 127,931 231,175 233,872 --------- --------- --------- --------- Selling, general and administrative expenses, excluding depreciation shown below 82,747 83,815 159,116 158,057 Depreciation expense 16,595 16,224 32,398 32,314 Amortization of goodwill and intangibles 3,720 3,666 7,440 7,330 --------- --------- --------- --------- Income from operations 21,646 24,226 32,221 36,171 Interest expense 11,329 13,618 23,481 27,554 Other income (expense), net (2,037) (786) (3,406) (1,805) --------- --------- --------- --------- Income before income taxes 8,280 9,822 5,334 6,812 Federal and state income taxes 3,271 3,505 2,107 2,452 --------- --------- --------- --------- Net income $ 5,009 $ 6,317 $ 3,227 $ 4,360 ========= ========= ========= ========= Basic net income per share $ .57 $ .72 $ .37 $ .50 Diluted net income per share $ .57 $ .71 $ .37 $ .50 Weighted average number of common shares outstanding 8,753 8,733 8,753 8,733 Weighted average number of common shares outstanding-assuming dilution 8,825 8,837 8,824 8,785 Cash dividends per share Common Stock $ .25 $ .25 $ .50 $ .50 Class B Common Stock $ .25 $ .25 $ .50 $ .50 </TABLE> See Accompanying Notes to Consolidated Financial Statements
Coca-Cola Bottling Co. Consolidated CONSOLIDATED BALANCE SHEETS (UNAUDITED) In Thousands (Except Share Data) <TABLE> <CAPTION> July 1, Dec. 31, July 2, 2001 2000 2000 ---------- ---------- ---------- ASSETS - ------ Current Assets: - --------------- <S> <C> <C> <C> Cash $ 6,833 $ 8,425 $ 6,724 Accounts receivable, trade, less allowance for doubtful accounts of $904, $918 and $884 68,149 62,661 66,291 Accounts receivable from The Coca-Cola Company 4,784 5,380 6,110 Accounts receivable, other 6,187 8,247 5,966 Inventories 36,014 40,502 40,864 Prepaid expenses and other current assets 15,201 14,026 18,380 ---------- ---------- ---------- Total current assets 137,168 139,241 144,335 ---------- ---------- ---------- Property, plant and equipment, net 479,956 437,926 470,712 Investment in Piedmont Coca-Cola Bottling Partnership 59,858 62,730 62,212 Other assets 60,280 60,846 61,595 Identifiable intangible assets, net 278,811 284,842 298,993 Excess of cost over fair value of net assets of businesses acquired, less accumulated amortization of $36,995, $35,585 and $34,286 75,102 76,512 56,982 ---------- ---------- ---------- Total $1,091,175 $1,062,097 $1,094,829 ========== ========== ========== </TABLE> See Accompanying Notes to Consolidated Financial Statements
Coca-Cola Bottling Co. Consolidated CONSOLIDATED BALANCE SHEETS (UNAUDITED) In Thousands (Except Share Data) <TABLE> <CAPTION> July 1, Dec. 31, July 2, 2001 2000 2000 ---------- ---------- ---------- LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------ Current Liabilities: - ------------------- <S> <C> <C> <C> Portion of long-term debt payable within one year $ 57,132 $ 9,904 $ 3,243 Accounts payable and accrued liabilities 96,981 84,324 96,006 Accounts payable to The Coca-Cola Company 5,794 3,802 4,759 Due to Piedmont Coca-Cola Bottling Partnership 23,121 16,436 8,593 Accrued interest payable 13,413 10,483 11,231 ---------- ---------- ---------- Total current liabilities 196,441 124,949 123,832 Deferred income taxes 149,240 148,655 126,624 Other liabilities 77,540 77,835 78,501 Long-term debt 641,456 682,246 735,029 ---------- ---------- ---------- Total liabilities 1,064,677 1,033,685 1,063,986 ---------- ----------- ---------- Commitments and Contingencies (Note 12) Stockholders' Equity: - -------------------- Convertible Preferred Stock, $100 par value: Authorized-50,000 shares; Issued-None Nonconvertible Preferred Stock, $100 par value: Authorized-50,000 shares; Issued-None Preferred Stock, $.01 par value: Authorized-20,000,000 shares; Issued-None Common Stock, $1 par value: Authorized - 30,000,000 shares; Issued - 9,454,651, 9,454,651 and 9,454,626 shares 9,454 9,454 9,454 Class B Common Stock, $1 par value: Authorized - 10,000,000 shares; Issued - 2,989,166, 2,969,166 and 2,969,191 shares 2,989 2,969 2,969 Class C Common Stock, $1 par value: Authorized-20,000,000 shares; Issued-None Capital in excess of par value 95,380 99,020 103,386 Accumulated deficit (18,550) (21,777) (23,712) Accumulated other comprehensive loss (1,521) ---------- ---------- ---------- 87,752 89,666 92,097 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 26,498 28,412 30,843 ---------- ---------- ---------- Total $1,091,175 $1,062,097 $1,094,829 ========== ========== ========== </TABLE> See Accompanying Notes to Consolidated Financial Statements
Coca-Cola Bottling Co. Consolidated CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED) In Thousands <TABLE> <CAPTION> Capital Accumulated Class B in Other Common Common Excess of Accum. Comprehensive Treasury Stock Stock Par Value Deficit Loss Stock Total -------- -------- -------- -------- -------- -------- -------- <S> <C> <C> <C> <C> <C> <C> <C> Balance on January 2, 2000 $ 9,454 $ 2,969 $107,753 $(28,072) $ - $(61,254) $ 30,850 Net income 4,360 4,360 Cash dividends paid (4,367) (4,367) -------- -------- -------- -------- -------- -------- -------- Balance on July 2, 2000 $ 9,454 $ 2,969 $103,386 $(23,712) $ - $(61,254) $ 30,843 ========= ======== ======== ======== ======== ======== ======== 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 No. 133 (924) (924) Change in proportionate share of Piedmont's accum. other com- prehensive loss (597) (597) -------- Total comprehensive income 1,706 Cash dividends paid (4,377) (4,377) Issuance of Class B Common Stock 20 737 757 -------- -------- -------- -------- -------- -------- -------- Balance on July 1, 2001 $ 9,454 $ 2,989 $ 95,380 $(18,550) $ (1,521) $(61,254) $ 26,498 ======== ======== ======== ======== ======== ======== ======== </TABLE> See Accompanying Notes to Consolidated Financial Statements
Coca-Cola Bottling Co. Consolidated CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) In Thousands <TABLE> <CAPTION> First Half ------------------------- 2001 2000 Cash Flows from Operating Activities - ------------------------------------ <S> <C> <C> Net income $ 3,227 $ 4,360 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation expense 32,398 32,314 Amortization of goodwill and intangibles 7,440 7,330 Deferred income taxes 2,107 2,452 Losses on sale of property, plant and equipment 1,447 618 Amortization of debt costs 420 486 Amortization of deferred gain related to terminated interest rate swaps (517) (282) Undistributed losses (earnings) of Piedmont Coca-Cola Bottling Partnership 357 (1,996) (Increase) decrease in current assets less current liabilities 25,503 (4,418) (Increase) decrease in other noncurrent assets 180 (585) Increase in other noncurrent liabilities 1,944 3,112 Other 52 470 ------- ------- Total adjustments 71,331 39,501 ------- ------- Net cash provided by operating activities 74,558 43,861 ------- ------- Cash Flows from Financing Activities - ------------------------------------ Repayment of current portion of long-term debt (1,961) (25,527) Proceeds from lines of credit, net 8,400 11,200 Cash dividends paid (4,377) (4,367) Payments on capital lease obligations (1,644) (2,487) Other (448) (395) ------- ------- Net cash used in financing activities (30) (21,576) ------- ------- Cash Flows from Investing Activities - ------------------------------------ Additions to property, plant and equipment (78,063) (26,660) Proceeds from the sale of property, plant and equipment 1,943 2,183 Acquisitions of companies, net of cash acquired (134) ------- ------- Net cash used in investing activities (76,120) (24,611) ------- ------- Net decrease in cash (1,592) (2,326) Cash at beginning of period 8,425 9,050 ------- ------- Cash at end of period $ 6,833 $ 6,724 ======= ======= 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 </TABLE> 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 second quarter 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 half 2001 related to Piedmont is summarized as follows: In Thousands ----------------------------------------------------------------------- Impact of adoption, net of tax $ 924 Change in fair market value of cash flow hedges during first half 2001, net of tax 597 ---------- Company's proportionate share of Piedmont's accumulated other comprehensive loss $ 1,521 ===========
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 is as follows: Second Quarter First Half ---------------- ------------ In Thousands 2001 2000 2001 2000 - ---------------------------------------------------------------------------- Net sales $78,512 $78,766 $144,591 $144,218 Gross margin 37,520 38,291 69,116 69,547 Income from operations 4,475 7,579 5,785 10,780 Net income (loss) 1,158 4,148 (714) 3,992 4. Inventories Inventories were summarized as follows: July 1, Dec. 31, July 2, In Thousands 2001 2000 2000 - ------------------------------------------------------------------------------ Finished products $24,448 $22,907 $25,550 Manufacturing materials 7,834 13,330 11,105 Plastic pallets and other 3,732 4,265 4,209 ------- ------- ------- Total inventories $36,014 $40,502 $40,864 ======= ======= =======
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: <TABLE> <CAPTION> July 1, Dec. 31, July 2, Estimated In Thousands 2001 2000 2000 Useful Lives - -------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> Land $ 11,208 $ 11,311 $ 12,389 Buildings 96,755 97,012 95,440 10-50 years Machinery and equipment 93,190 94,652 91,664 5-20 years Transportation equipment 146,135 133,886 138,646 4-10 years Furniture and fixtures 36,822 36,519 37,515 4-10 years Vending equipment 336,995 285,714 292,442 6-13 years Leasehold and land improvements 39,320 39,597 42,025 5-20 years Software for internal use 19,130 17,207 14,273 3-7 years Construction in progress 3,288 1,162 9,970 - -------------------------------------------------------------------------------------------------------------------------- Total property, plant and equipment, at cost 782,843 717,060 734,364 Less: Accumulated depreciation and amortization 302,887 279,134 263,652 - -------------------------------------------------------------------------------------------------------------------------- Property, plant and equipment, net $479,956 $437,926 $470,712 - -------------------------------------------------------------------------------------------------------------------------- </TABLE> 6. Identifiable Intangible Assets The principal categories and estimated useful lives of identifiable intangible assets were as follows: <TABLE> <CAPTION> July 1, Dec. 31, July 2, Estimated In Thousands 2001 2000 2000 Useful Lives - -------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> Franchise rights $353,036 $353,036 $361,105 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 424,568 424,568 432,637 Less: Accumulated amortization 145,757 139,726 133,644 - -------------------------------------------------------------------------------------------------------------------------- Identifiable intangible assets, net $278,811 $284,842 $298,993 - -------------------------------------------------------------------------------------------------------------------------- </TABLE>
Coca-Cola Bottling Co. Consolidated Notes to Consolidated Financial Statements (Unaudited) 7. Long-Term Debt <TABLE> <CAPTION> Long-term debt was summarized as follows: Interest Interest July 1, Dec. 31, July 2, In Thousands Maturity Rate Paid 2001 2000 2000 - ------------------------------------------------------------------------------------------------------------ <S> <C> <C> <C> <C> <C> <C> Lines of Credit 2002 4.18% - Varies $ 21,300 $ 12,900 $ 57,800 4.40% Term Loan Agreement 2004 5.51% Varies 85,000 85,000 85,000 Term Loan Agreement 2005 5.51% 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- 248,604 250,000 250,000 annually Other notes payable 2001 - 5.75% - Varies 10,288 12,250 13,472 2006 10.00% - ------------------------------------------------------------------------------------------------------------ 697,192 692,150 738,272 Less: Portion of long-term debt payable within one year 57,132 9,904 3,243 - ------------------------------------------------------------------------------------------------------------ 640,060 682,246 735,029 Fair market value of interest rate swaps 1,396 - ------------------------------------------------------------------------------------------------------------ Long-term debt $641,456 $682,246 $735,029 - ------------------------------------------------------------------------------------------------------------ </TABLE>
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 July 1, 2001, the Company had approximately $120 million of credit available under these lines, of which $21.3 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 6.3%, 7.1% and 7.2% as of July 1, 2001, December 31, 2000 and July 2, 2000, respectively. The Company's overall weighted average interest rate on long-term debt decreased from an average of 7.3% during the first half of 2000 to an average of 6.7% during the first half of 2001. After taking into account the effect of all of the interest rate swap activities, approximately 42%, 41% and 38% of the total debt portfolio was subject to changes in short-term interest rates as of July 1, 2001, December 31, 2000 and July 2, 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 half of 2001 by approximately $1.4 million and net income for the first half of 2001 would have decreased by approximately $.9 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: <TABLE> <CAPTION> July 1, 2001 December 31, 2000 July 2, 2000 - --------------------------------------------------------------------------------------------------- Notional Remaining Notional Remaining Notional Remaining In Thousands Amount Term Amount Term Amount Term - --------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> Interest rate swap-floating $ 60,000 3.25 years Interest rate swap-fixed 60,000 3.25 years Interest rate swap-fixed 50,000 4.75 years Interest rate swaps-floating $100,000 7.75 years $100,000 8.25 years 100,000 8.75 years Interest rate cap 35,000 .25 years </TABLE> 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: <TABLE> <CAPTION> July 1, 2001 December 31, 2000 July 2, 2000 - ------------------------------------------------------------------------------------------------------------- Carrying Fair Carrying Fair Carrying Fair In Thousands Amount Value Amount Value Amount Value - ------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> Public debt $495,604 $487,500 $497,000 $480,687 $497,000 $462,304 Non-public variable rate long-term debt 191,300 191,300 182,900 182,900 227,800 227,800 Non-public fixed rate long-term debt 10,288 10,433 12,250 12,433 13,472 13,655 Interest rate swaps 1,396 1,396 1,669 6,772 The fair values of the interest rate swaps at July 1, 2001, December 31, 2000 and July 2, 2000 represent the estimated amounts the Company would have had to pay to terminate these agreements. </TABLE>
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: <TABLE> <CAPTION> First Half ------------------------------- In Thousands 2001 2000 - --------------------------------------------------------------------------------------------------- <S> <C> <C> Accounts receivable, trade, net $ (5,488) $ (5,924) Accounts receivable, The Coca-Cola Company 596 (92) Accounts receivable, other 2,060 7,972 Inventories 4,488 546 Prepaid expenses and other current assets (1,175) (5,105) Accounts payable and accrued liabilities 13,415 (4,486) Accounts payable, The Coca-Cola Company 1,992 2,413 Accrued interest payable 2,930 (5,599) Due to Piedmont Coca-Cola Bottling Partnership 6,685 5,857 ---------- --------- (Increase) decrease in current assets less current liabilities $ 25,503 $ (4,418) ========= ========= </TABLE>
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: <TABLE> <CAPTION> Second Quarter First Half ------------------- -------------------- In Thousands (Except Per Share Data) 2001 2000 2001 2000 - ------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> Numerator: - --------- Numerator for basic net income and diluted net income $5,009 $6,317 $3,227 $4,360 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 72 104 71 52 ------- ------- ------- ------- Denominator for diluted net income per share - adjusted weighted average common shares 8,825 8,837 8,824 8,785 ======= ======= ======= ======= Basic net income per share $ .57 $ .72 $ .37 $ .50 ======= ======= ======= ======= Diluted net income per share $ .57 $ .71 $ .37 $ .50 ======= ======= ======= ======= </TABLE> 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 $38.3 million, $35.7 million and $36.6 million as of July 1, 2001, December 31, 2000 and July 2, 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 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 also is a partner in a partnership with The Coca-Cola Company 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 forward-looking statements at the end of Item 2. Overview: - -------- The following discussion presents management's analysis of the results of operations for the second quarter and first six months of 2001 compared to the second quarter and first six months of 2000 and changes in financial condition from July 2, 2000 and December 31, 2000 to July 1, 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 $5.0 million or $.57 per share for the second quarter of 2001 compared with net income of $6.3 million or $.72 per share for the same period in 2000. For the first half of 2001, net income was $3.2 million or $.37 per share compared to net income of $4.4 million or $.50 per share for the first half of 2000. Operating results for the second quarter and first half of 2001 included constant territory physical case volume growth of 3%. On a constant territory basis, net sales increased by 2% in the second quarter and 2.6% in the first half of 2001. The Company sold most of its bottling territory in Kentucky and Ohio at the end of September 2000. Cash operating profit, which includes net income plus interest, income taxes, depreciation, amortization and other non-operating expenses, declined by 3% for the second quarter and first half 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. Decreases in income from operations in both the second quarter and first half of 2001 were offset somewhat by reduced interest expense. Lower interest rates and reduced debt balances resulted in a decrease in interest expense from the second quarter and first half of 2000 of $2.3 million and $4.1 million, respectively. The Company continues to experience strong free cash flow as evidenced by the change in outstanding debt, which declined to $698.6 million as of July 1, 2001 compared to $738.3 million as of July 2, 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 half of 2001. Results of Operations: - --------------------- The Company's net income for the second quarter of 2001 of $5.0 million or $.57 per share was lower than net income of $6.3 million or $.72 per share in the second quarter of 2000. Net income for the first half of 2001 of $3.2 million or $.37 per share was down from $4.4 million or $.50 per share in 2000. During 2000, the Company increased its net selling price by 6.5% to cover increased costs and improve operating margins. The increases in selling price during 2000 impacted unit sales volume which declined by 5%. Constant territory physical case volume increased by 3% during the second quarter and the first half of 2001 compared to comparable periods in the prior year. The increased sales volume resulted in an increase in constant territory net sales of 2.6% for the first half of the year. Net selling price per case in the first half of 2001 decreased by .8% as compared to the first half of 2000. The Company continues to experience strong growth for its bottled water, Dasani. New packaging, including twelve-ounce bottles and multipacks, contributed to an increase in volume of 60% for Dasani on a constant territory basis compared to the first half of 2000. Noncarbonated beverages, including bottled water, comprise approximately 8% of the Company's total sales volume through the first half of 2001. Volume for the Company's three largest selling brands, Coca-Cola classic, Sprite and diet Coke, increased by approximately 1.5% in the first half of 2001 after volume declines during 2000. Cost of sales on a per unit basis in the second quarter and the first half of 2001 was flat compared to the same periods in 2000 as increases in raw material costs were offset by a package mix shift from bottles to cans. Gross margin as a percentage of net sales was 46.1% in the first half of 2001 compared to 46.9% in the first half of 2000 on a constant territory basis. Selling, general and administrative expenses for the second quarter and first half of 2001 increased .5% and 2.6%, respectively, from the same periods in 2000 on a constant territory basis. The increase in selling, general and administrative expenses was due primarily to higher employee compensation costs and an increase in sales development costs. 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. The Coca-Cola Company's marketing spending in the United States for 2001 is expected to be significantly higher than in 2000. 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 half of 2001 and 2000 was $22.9 million and $24.3 million, respectively. Depreciation expense increased by approximately $.4 million between the second quarter of 2001 and the second quarter of 2000. 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. On a constant territory basis, depreciation expense for the second quarter and the first half of 2001 declined by $.5 million and $.3 million, respectively, from comparable periods in the prior year. The Company expects its capital spending in 2001, excluding the purchase of previously leased equipment discussed above, will be in the range of amounts expended during 2000. Interest expense for the second quarter of 2001 of $11.3 million decreased by $2.3 million or 17% from the second quarter of 2000. Interest expense for the first half of 2001 decreased by $4.1 million or 15% from the same period in the prior year. The decrease in interest is 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 $698.6 million at July 1, 2001 from $738.3 million at July 2, 2000. The long-term debt balance at July 1, 2001 includes borrowings used to finance the $49 million buyout of leased equipment discussed above. The Company's overall weighted average interest rate decreased from an average of 7.3% during the first half of 2000 to an average of 6.7% during the first half of 2001. Other expense, net for the first half of 2001 increased $1.6 million from the same period in 2000. A significant portion of this increase related to additional retirements of property, plant and equipment. The Company's effective income tax rates for the second quarter of 2001 and 2000 were 39.5% and 35.7%, respectively. The Company's effective income tax rates for the first half of 2001 and 2000 were 39.5% and 36.0%, respectively. The effective income tax rate for fiscal year 2000 was 36%. Changes in Financial Condition: - ------------------------------ Working capital decreased $73.6 million from December 31, 2000 to July 1, 2001. The most significant component of the decrease from December 31, 2000 was an increase in the current portion of long-term debt of $47.2 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. Other components of the decrease in working capital include an increase in accounts payable and accrued liabilities of $12.7 million and an increase in amounts due to Piedmont Coca-Cola Bottling Partnership ("Piedmont") of $6.7 million. The increase in amounts due to Piedmont resulted primarily from additional free cash flow at Piedmont. Working capital decreased by $79.8 million from July 2, 2000 to July 1, 2001. Similar to the change from December 31, 2000, the decrease in working capital was primarily due to an increase in the current portion of long-term debt of $53.9 million, an increase in amounts due to Piedmont of $14.5 million and a decline in inventory of $4.9 million. Capital expenditures in the first half of 2001 were $78.1 million compared to $26.7 million in the first half of 2000. Expenditures for the first half of 2001 include the purchase of approximately $49 million
of previously leased equipment completed during the second quarter, which purchase was financed with the Company's lines of credit. Long-term debt decreased by $39.7 million from July 2, 2000 and increased by $6.4 million from December 31, 2000. The Company sold bottling territory in Kentucky and Ohio in the third quarter of 2000 generating approximately $20 million of net cash flow that was used to repay long-term debt. The increase in long-term debt from December 31, 2000 is due to the purchase of equipment previously leased for approximately $49 million during the second quarter as discussed above. Excluding the purchase of the leased equipment, long-term debt would have declined by approximately $43 million from December 31, 2000 to July 1, 2001. As of July 1, 2001, the Company had no amounts outstanding under its revolving credit facility and $21.3 million outstanding under lines of credit. As of July 1, 2001 the debt portfolio had a weighted average interest rate of 6.3% and approximately 42% of the total portfolio of $698.6 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 and non-cash charges such as amortization of intangible assets may be incurred. To the extent these 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 acquisition 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 current capital expenditure and working capital requirements, scheduled debt payments, interest and income tax liabilities and dividends for stockholders; our expectations concerning capital expenditures; our expectations concerning The Coca-Cola Company's marketing spending in 2001 and our belief that the ultimate disposition of the claims and legal proceedings in which we are involved will not have a material adverse effect on our business and operations. 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 4. Submission of Matters to a Vote of Security Holders (a) The Annual Meeting of the Company's stockholders was held on May 9, 2001. (b) The meeting was held to consider and vote upon electing four directors, each for a term of three years or until his successor shall be elected and shall qualify. The votes cast with respect to each director are summarized as follows: Director Name For Withheld Total Votes ------------- --- -------- ----------- J. Frank Harrison, III 52,796,342 368,991 53,165,333 J. Frank Harrison, Jr. 53,042,339 122,995 53,165,334 Ned R. McWherter 52,942,376 222,957 53,165,333 James L. Moore, Jr. 53,042,567 122,766 53,165,333 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. 10.1 Employment Agreement Termination dated as of April 27, 2001, between the Company and James L. Moore, Jr. 10.2 Officer Retention Plan (ORP), as amended and restated as of January 1, 2001, between Eligible Employees of the Company and the Company. (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: August 9, 2001 By: /s/ David V. Singer -------------------------------------------- David V. Singer Principal Financial Officer of the Registrant and Executive Vice President - Chief Financial Officer