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 October 1, 2000 -------------------------- 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 Number) of incorporation or organization) 4100 Coca-Cola Plaza, Charlotte, North Carolina 28211 ------------------------------------------------------- (Address of principal executive offices) (Zip Code) (704) 551-4400 ------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at November 1, 2000 ----- --------------------------------- Common Stock, $1.00 Par Value 6,392,277 Class B Common Stock, $1.00 Par Value 2,341,052
PART I - FINANCIAL INFORMATION Item l. Financial Statements Coca-Cola Bottling Co. Consolidated CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) In Thousands (Except Share Data) <TABLE> <CAPTION> Third Quarter First Nine Months --------------------------- --------------------------- 2000 1999 2000 1999 --------- --------- --------- --------- <S> <C> <C> <C> <C> Net sales (includes sales to Piedmont of $18,351, $19,953, $55,293 and $55,263) $ 258,565 $ 260,284 $ 757,682 $ 741,584 Cost of sales, excluding depreciation shown below (includes $13,582, $15,592, $41,709, and $45,328 related to sales to Piedmont) 137,559 142,928 402,804 416,430 --------- --------- --------- --------- Gross margin 121,006 117,356 354,878 325,154 --------- --------- --------- --------- Selling, general and administrative expenses, excluding depreciation shown below 81,772 75,299 239,829 218,382 Depreciation expense 16,271 15,521 48,585 44,435 Amortization of goodwill and intangibles 3,641 3,519 10,971 10,127 --------- --------- --------- --------- Income from operations 19,322 23,017 55,493 52,210 Interest expense 13,570 12,971 41,124 37,116 Other income (expense), net 4,245 (1,082) 2,440 (3,536) --------- --------- --------- --------- Income before income taxes 9,997 8,964 16,809 11,558 Federal and state income taxes 3,599 3,137 6,051 4,045 --------- --------- --------- --------- Net income $ 6,398 $ 5,827 $ 10,758 $ 7,513 ========= ========= ========= ========= Basic net income per share $ .73 $ .67 $ 1.23 $ .88 Diluted net income per share $ .73 $ .66 $ 1.22 $ .87 Weighted average number of common shares outstanding 8,733 8,733 8,733 8,539 Weighted average number of common shares outstanding-assuming dilution 8,811 8,860 8,830 8,662 Cash dividends per share Common Stock $ .25 $ .25 $ .75 $ .75 Class B Common Stock $ .25 $ .25 $ .75 $ .75 </TABLE> See Accompanying Notes to Consolidated Financial Statements
Coca-Cola Bottling Co. Consolidated CONSOLIDATED BALANCE SHEETS (UNAUDITED) In Thousands (Except Share Data) <TABLE> <CAPTION> Oct. 1, Jan. 2, Oct.3, 2000 2000 1999 ---------- ---------- ---------- <S> <C> <C> <C> ASSETS Current Assets: Cash $ 24,971 $ 9,050 $ 8,381 Accounts receivable, trade, less allowance for doubtful accounts of $813, $850 and $1,200 61,487 60,367 67,160 Accounts receivable from The Coca-Cola Company 6,764 6,018 10,910 Accounts receivable, other 6,257 13,938 7,823 Inventories 41,956 44,736 47,663 Prepaid expenses and other current assets 16,707 13,275 17,359 ---------- ---------- ---------- Total current assets 158,142 147,384 159,296 ---------- ---------- ---------- Property, plant and equipment, net 437,211 458,799 451,000 Leased property under capital leases, net 8,923 10,785 11,531 Investment in Piedmont Coca-Cola Bottling Partnership 63,460 60,216 61,838 Other assets 75,329 69,824 67,376 Identifiable intangible assets, less accumulated amortization of $136,712, $127,459 and $124,425 287,089 305,432 283,762 Excess of cost over fair value of net assets of businesses acquired, less accumulated amortization of $34,858, $33,141 and $32,568 56,409 58,478 59,051 ---------- ---------- ---------- Total $1,086,563 $1,110,918 $1,093,854 ========== ========== ========== </TABLE> See Accompanying Notes to Consolidated Financial Statements
Coca-Cola Bottling Co. Consolidated CONSOLIDATED BALANCE SHEETS (UNAUDITED) In Thousands (Except Share Data) <TABLE> <CAPTION> Oct. 1, Jan. 2, Oct. 3, 2000 2000 1999 ----------- ----------- ---------- <S> <C> <C> <C> LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Portion of long-term debt payable within one year $ 3,213 $ 28,635 $ 25,530 Current portion of obligations under capital leases 3,494 4,483 4,860 Accounts payable and accrued liabilities 74,572 88,848 74,022 Accounts payable to The Coca-Cola Company 6,790 2,346 5,028 Due to Piedmont Coca-Cola Bottling Partnership 16,472 2,736 207 Accrued compensation 12,044 7,160 7,660 Accrued interest payable 13,840 16,830 16,001 ------------ ----------- ----------- Total current liabilities 130,425 151,038 133,308 Deferred income taxes 131,160 125,109 119,886 Deferred credits 3,084 4,135 3,195 Other liabilities 72,967 69,765 64,216 Obligations under capital leases 2,751 4,468 5,041 Long-term debt 709,529 723,964 729,314 ---------- ---------- ---------- Total liabilities 1,049,916 1,078,479 1,054,960 --------- --------- --------- Commitments and Contingencies (Note 11) 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, 9,454,626 and 9,454,626 shares 9,454 9,454 9,454 Class B Common Stock, $1 par value: Authorized - 10,000,000 shares; Issued- 2,969,166, 2,969,191 and 2,969,191 shares 2,969 2,969 2,969 Class C Common Stock, $1 par value: Authorized-20,000,000 shares; Issued-None Capital in excess of par value 101,203 107,753 109,936 Accumulated deficit (15,725) (26,483) (22,211) ---------- ----------- ----------- 97,901 93,693 100,148 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 36,647 32,439 38,894 ----------- ----------- ------------- Total $1,086,563 $1,110,918 $1,093,854 ========== ========== ========== </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 Class B in Common Common Excess of Accumulated Treasury Stock Stock Par Value Deficit Stock -------- -------- --------- ---------- -------- <S> <C> <C> <C> <C> <C> Balance on January 3, 1999 $ 9,086 $ 2,969 $ 94,709 $(29,724) $ 61,254 Net income 7,513 Cash dividends paid (6,366) Issuance of Common Stock 368 21,593 -------- -------- -------- -------- -------- Balance on October 3, 1999 $ 9,454 $ 2,969 $109,936 $(22,211) $ 61,254 ======== ======== ======== ======== ======== Balance on January 2, 2000 $ 9,454 $ 2,969 $107,753 $(26,483) $ 61,254 Net income 10,758 Cash dividends paid (6,550) -------- -------- -------- -------- -------- Balance on October 1, 2000 $ 9,454 $ 2,969 $101,203 $(15,725) $ 61,254 ======== ======== ======== ======== ======== </TABLE> See Accompanying Notes to Consolidated Financial Statements
Coca-Cola Bottling Co. Consolidated CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) In Thousands <TABLE> <CAPTION> First Nine Months ------------------------------ 2000 1999 -------- ---------- <S> <C> <C> Cash Flows from Operating Activities Net income $10,758 $ 7,513 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation expense 48,585 44,435 Amortization of goodwill and intangibles 10,971 10,127 Deferred income taxes 6,051 4,045 Losses on sale of property, plant and equipment 1,386 2,120 Gain on sale of bottling territory (8,829) Provision for impairment of property, plant and equipment 3,247 Amortization of debt costs 713 606 Amortization of deferred gain related to terminated interest rate swaps (464) (423) Undistributed losses (earnings) of Piedmont Coca-Cola Bottling Partnership (3,244) 1,009 Decrease (increase) in current assets less current liabilities 10,414 (19,177) Increase in other noncurrent assets (8,396) (12,298) Increase (decrease) in other noncurrent liabilities 3,178 (2,042) Other (393) 74 -------- --------- Total adjustments 63,219 28,476 -------- --------- Net cash provided by operating activities 73,977 35,989 -------- --------- Cash Flows from Financing Activities Proceeds from issuance of long-term debt 250,181 Repayment of current portion of long-term debt (25,557) (30,085) Proceeds from (repayment of) lines of credit, net (14,300) 13,400 Cash dividends paid (6,550) (6,366) Payments on capital lease obligations (3,513) (3,675) Termination of interest rate swap agreements (292) Debt fees paid (3,228) Other 116 (897) -------- --------- Net cash provided by (used in) financing activities (50,096) 219,330 -------- --------- Cash Flows from Investing Activities Additions to property, plant and equipment (33,408) (234,743) Proceeds from the sale of property, plant and equipment 2,623 130 Acquisitions of companies, net of cash acquired (175) (19,016) Proceeds from sale of bottling territory 23,000 -------- --------- Net cash used in investing activities (7,960) (253,629) -------- --------- Net increase in cash 15,921 1,690 Cash at beginning of period 9,050 6,691 -------- --------- Cash at end of period $24,971 $ 8,381 ======== ========= Significant non-cash investing and financing activities: Issuance of Common Stock in connection with acquisition $ 21,961 Capital lease obligations incurred $ 1,313 13,576 </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 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 January 2, 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. Summarized Income Statement Data of Piedmont Coca-Cola Bottling Partnership On July 2, 1993, the Company and The Coca-Cola Company formed Piedmont Coca-Cola Bottling Partnership ("Piedmont") to distribute and market soft drink products primarily in portions of North Carolina and South Carolina. The Company and The Coca-Cola Company, through their respective subsidiaries, each beneficially own a 50% interest in Piedmont. The Company provides a portion of the soft drink products to Piedmont at cost and receives a fee from Piedmont for certain services pursuant to a management agreement. Summarized income statement data for Piedmont is as follows: <TABLE> <CAPTION> Third Quarter First Nine Months ------------------------ -------------------------- In Thousands 2000 1999 2000 1999 - -------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> Net sales $76,188 $76,195 $220,406 $214,166 Gross margin 36,658 35,304 106,205 97,044 Income from operations 6,099 4,336 16,879 7,717 Net income (loss) 2,496 1,072 6,488 (2,018) </TABLE> 3. Inventories Inventories are summarized as follows: <TABLE> <CAPTION> Oct. 1, Jan. 2, Oct. 3, In Thousands 2000 2000 1999 - ------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> Finished products $26,128 $28,618 $30,229 Manufacturing materials 11,270 11,424 12,012 Plastic pallets and other 4,558 4,694 5,422 ------- ------- ------- Total inventories $41,956 $44,736 $47,663 ======= ======= ======= </TABLE> The amounts included above for inventories valued by the LIFO method were greater than replacement or current cost by approximately $2.5 million, $3.3 million and $3.2 million on October 1, 2000, January 2, 2000 and October 3, 1999, respectively.
Coca-Cola Bottling Co. Consolidated Notes to Consolidated Financial Statements (Unaudited) 4. Property, Plant and Equipment The principal categories and estimated useful lives of property, plant and equipment were as follows: <TABLE> <CAPTION> Oct. 1, Jan. 2, Oct. 3, Estimated In Thousands 2000 2000 1999 Useful Lives - --------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> Land $ 12,584 $ 12,251 $ 11,845 Buildings 96,329 96,072 83,900 10-50 years Machinery and equipment 92,740 89,068 91,721 5-20 years Transportation equipment 123,980 126,562 123,340 4-10 years Furniture and fixtures 34,663 37,002 32,682 7-10 years Vending equipment 287,826 291,844 283,982 6-13 years Leasehold and land improvements 41,431 41,379 37,565 5-20 years Construction in progress 10,549 3,389 20,450 - -------------------------------------------------------------------------------------------------------------------------- Total property, plant and equipment, at cost 700,102 697,567 685,485 Less: Accumulated depreciation 262,891 238,768 234,485 - -------------------------------------------------------------------------------------------------------------------------- Property, plant and equipment, net $437,211 $458,799 $451,000 - -------------------------------------------------------------------------------------------------------------------------- </TABLE> In the third quarter of 2000, the Company recorded a provision for impairment of certain fixed assets for $3.2 million. 5. Leased Property Under Capital Leases The category and terms of the capital leases were as follows: <TABLE> <CAPTION> Oct. 1, Jan. 2, Oct. 3, In Thousands 2000 2000 1999 Terms - --------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> Transportation and other equipment $ 13,530 $ 13,434 $ 13,576 1-4 years Less: Accumulated amortization 4,607 2,649 2,045 ---------- ---------- ----------- Leased property under capital leases, net $ 8,923 $ 10,785 $ 11,531 ======== ========= =========- </TABLE>
Coca-Cola Bottling Co. Consolidated Notes to Consolidated Financial Statements (Unaudited) 6. Long-Term Debt Long-term debt is summarized as follows: <TABLE> <CAPTION> Fixed(F)or Interest Variable Interest Oct. 1, Jan. 2, Oct. 3, In Thousands Maturity Rate (V) Rate Paid 2000 2000 1999 - ------------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> Lines of Credit 2002 6.95% - V Varies $32,300 $46,600 $49,800 7.12% Term Loan Agreement 2004 7.08% V Varies 85,000 85,000 85,000 Term Loan Agreement 2005 7.08% V Varies 85,000 85,000 85,000 Medium-Term Notes 2000 10.00% F Semi- - 25,500 25,500 annually Medium-Term Notes 2002 8.56% F Semi- 47,000 47,000 47,000 annually Debentures 2007 6.85% F Semi- 100,000 100,000 100,000 annually Debentures 2009 7.20% F Semi- 100,000 100,000 100,000 annually Debentures 2009 6.375% F Semi- 250,000 250,000 250,000 annually Other notes payable 2000- 5.75%- F Varies 13,442 13,499 12,544 2006 10.00% ------------------------------------- 712,742 752,599 754,844 Less: Portion of long-term debt payable within one year 3,213 28,635 25,530 - ------------------------------------------------------------------------------------------------------------------------------- Long-term debt $709,529 $723,964 $729,314 - ------------------------------------------------------------------------------------------------------------------------------- </TABLE>
Coca-Cola Bottling Co. Consolidated Notes to Consolidated Financial Statements (Unaudited) 6. Long-Term Debt (cont.) It is the Company's intent to renew its lines of credit and borrowings under the revolving credit facility as they mature. To the extent that these borrowings do not exceed the amount available under the Company's $170 million revolving credit facility, they are classified as noncurrent liabilities. The Company had weighted average interest rates for its debt portfolio of 7.1%, 7.0% and 6.8% as of October 1, 2000, January 2, 2000 and October 3, 1999, respectively. The Company's overall weighted average interest rate on long-term debt increased from an average of 6.6% during the first nine months of 1999 to an average of 7.2% during the first nine months of 2000. After taking into account the effect of all of the interest rate swap activities, approximately 42%, 35% and 31% of the total debt portfolio was subject to changes in short-term interest rates as of October 1, 2000, January 2, 2000 and October 3, 1999, respectively. A rate increase of 1% on the floating rate component of the Company's debt would have increased interest expense for the first nine months of 2000 by approximately $2.3 million and net income for the first nine months of 2000 would have decreased by approximately $1.5 million.
Coca-Cola Bottling Co. Consolidated Notes to Consolidated Financial Statements (Unaudited) 7. Supplemental Disclosures of Cash Flow Information Changes in current assets and current liabilities affecting cash, net of effect of acquisitions and divestitures, were as follows: <TABLE> <CAPTION> First Nine Months --------------------------------- In Thousands 2000 1999 - --------------------------------------------------------------------------------------------------------------- <S> <C> <C> Accounts receivable, trade, net $ (1,120) $ (8,576) Accounts receivable, The Coca-Cola Company (746) (819) Accounts receivable, other 7,681 282 Inventories 2,585 (5,782) Prepaid expenses and other current assets (3,438) (1,808) Accounts payable and accrued liabilities (14,622) (177) Accounts payable, The Coca-Cola Company 4,444 (166) Accrued compensation 4,884 (2,579) Accrued interest payable (2,990) 676 Due to (from) Piedmont Coca-Cola Bottling Partnership 13,736 (228) -------- -------- Decrease (increase) in current assets less current liabilities $ 10,414 $(19,177) ======== ======== </TABLE> 8. Restructuring In November 1999, the Company announced a plan to restructure its operations by consolidating sales divisions and reducing its workforce. Approximately 300 positions were eliminated as a result of the restructuring. The Company recorded a pre-tax restructuring charge of $2.2 million in the fourth quarter of 1999, which was funded by cash flow from operations. The changes in the restructuring liability during the first nine months of 2000 were as follows: <TABLE> <CAPTION> Accrued Liability Amts. Paid in Accrued Liability In Thousands at Jan. 2, 2000 First 9 Mos. 2000 at Oct. 1, 2000 - --------------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> Employee termination benefit costs $ 284 $ 284 $ 0 Facility lease costs and related expenses 330 121 209 ------- ------ ----- $ 614 $ 405 $ 209 ====== ====== ===== </TABLE>
Coca-Cola Bottling Co. Consolidated Notes to Consolidated Financial Statements (Unaudited) 9. Earnings Per Share The following table sets forth the computation of basic net income per share and diluted net income per share: <TABLE> <CAPTION> Third Quarter First Nine Months ------------- -------------------- In Thousands (Except Per Share Data) 2000 1999 2000 1999 - ------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> Numerator: Numerator for basic net income and diluted net income $6,398 $5,827 $10,758 $7,513 Denominator: Denominator for basic net income per share - weighted average common shares 8,733 8,733 8,733 8,539 Effect of dilutive securities - stock options 78 127 97 123 -------- -------- -------- -------- Denominator for diluted net income per share - adjusted weighted average common shares 8,811 8,860 8,830 8,662 ===== ======= ===== ======= Basic net income per share $ .73 $ .67 $ 1.23 $ .88 ======== ======== ======== ======== Diluted net income per share $ .73 $ .66 $ 1.22 $ .87 ======== ======== ======== ======== </TABLE> 10. Estimates and Assumptions 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.
Coca-Cola Bottling Co. Consolidated Notes to Consolidated Financial Statements (Unaudited) 11. Commitments and Contingencies The Company has guaranteed a portion of the debt for two cooperatives in which the Company is a member. The amounts guaranteed were $36.0 million, $35.3 million and $30.3 million as of October 1, 2000, January 2, 2000 and October 3, 1999, respectively. On August 3, 1999, North American Container, Inc. ("NAC") filed a Complaint For Patent Infringement and Jury Demand (the "Complaint") against the Company and a number of other defendants in the United States District Court for the Northern District of Texas, Dallas Division, alleging that certain unspecified blow-molded plastic containers used, made, sold, offered for sale and/or used by the Company and other defendants infringes certain patents owned by the plaintiff. NAC seeks an unspecified amount of compensatory damages for prior infringement, seeks to have those damages trebled, seeks pre-judgment and post-judgment interest, seeks attorneys fees and seeks an injunction prohibiting future infringement and ordering the destruction of all infringing containers and machinery used in connection with the manufacture of the infringing products. The original Complaint names forty-two other defendants, including Plastipak Packaging, Inc., Constar International, Inc., Constar Plastics, Inc., Continental PET Technologies, Inc., Southeastern Container, Inc., Western Container, Inc., The Quaker Oats Company and others. Additional defendants have been added by amendment. The Complaint covers many channels of trade relevant to the PET bottle industry, including licensors, manufacturers, bottlers, bottled product manufacturers and retail sellers of end product. The Company has obtained partial indemnification from its suppliers for all damages it may incur in connection with this proceeding. The Company has filed an answer to the Complaint, as amended, and has denied the material allegations of NAC and seeks recovery of attorney fees by having the case declared exceptional. The Company has also filed a counterclaim seeking a declaration of invalidity and non-infringement. A claims construction hearing is currently scheduled for December 4, 2000. The Company is involved in various other claims and legal proceedings which have arisen in the ordinary course of business. The Company believes 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. 12. Sale of Bottling Territory On September 29, 2000, the Company sold substantially all of its bottling territory in the states of Kentucky and Ohio to Coca-Cola Enterprises Inc. The Company received cash proceeds of $23 million related to the sale of this territory and certain other operating assets. The Company recorded a pre-tax gain of approximately $8.8 million as a result of this sale. The bottling territory sold represented approximately 3% of the Company's annual sales volume.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Introduction: The following discussion presents management's analysis of the results of operations for the third quarter and first nine months of 2000 compared to the third quarter and first nine months of 1999 and changes in financial condition from October 3, 1999 and January 2, 2000 to October 1, 2000. The Company reported net income of $6.4 million or $.73 per share for the third quarter of 2000 compared with net income of $5.8 million or $.67 per share for the same period in 1999. The third quarter results for 2000 include a pre-tax gain of $8.8 million resulting from the sale of certain bottling territory in Kentucky and Ohio at the end of the quarter. The territory sold represented approximately 3% of the Company's annual sales volume. In addition, the Company recorded a provision for impairment of certain fixed assets for $3.2 million. For the first three quarters of 2000, net income was $10.8 million or $1.23 per share compared with $7.5 million or $.88 per share for the first three quarters of 1999. The Financial Accounting Standards Board ("FASB") has issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities." As subsequently amended by FASB Statement No. 138, Statements Nos. 133 and 138 are effective for all fiscal quarters of all fiscal years beginning after June 15, 2000. Statements Nos. 133 and 138 will require the Company to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of derivatives will either be offset against the change in fair value of the hedged assets, liabilities or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative's change in fair value will be immediately recognized in earnings. The Company intends to adopt the provisions of Statements Nos. 133 and 138 in the first quarter of 2001. The Company does not believe that the adoption of Statements Nos. 133 and 138 will have a material impact on the earnings and financial position of the Company. Results of Operations: Net selling price per case increased by approximately 6% and 8% for the third quarter and first three quarters of 2000 over comparable periods in 1999. During the past three years, the Company's unit sales growth significantly outpaced the soft drink industry average growth rate. However, the Company's selling prices did not keep pace with overall cost increases and as a result, net income declined. In 2000, the Company has increased selling prices to cover increasing raw material costs, higher fuel costs, lower marketing funding and to improve operating margins. Increases in net selling prices impacted unit sales volume in the third quarter and first three quarters of 2000. Unit sales volume declined 7% for the third quarter and 5.5% for the first three quarters of 2000. Excluding volume from territories acquired during 1999, unit volume declined by approximately 9% in the third quarter and 8% in the first three quarters of the year. Noncarbonated beverages accounted for approximately 7% of the Company's volume during the first three quarters of 2000. Dasani water has grown significantly in 2000, up more than 60% in the first three quarters of 2000 versus the same period in 1999. Cost of sales on a per unit basis increased approximately 1% in the third quarter and 1% in the first three quarters of 2000 over the same periods in 1999. The increase in cost of sales per unit is primarily due to raw material cost increases, offset somewhat by reductions in manufacturing labor and overhead costs.
Gross margin as a percentage of net sales for the third quarter increased to 46.8% from 45.1% in the third quarter of 1999 as selling price increases more than offset the impact of lower volume and an increase in cost of sales per unit. Gross margin as a percentage of net sales for the first three quarters of 2000 increased to 46.8% from 43.8% in the prior year. Selling, general and administrative expenses for the third quarter of 2000 increased approximately 9% over the third quarter of 1999 and increased 10% for the first three quarters of 2000 over the first three quarters of 1999. The increase in selling, general and administrative expenses was due primarily to a reduction in marketing funding from The Coca-Cola Company, enhancements to employee compensation programs, higher fuel costs, costs associated with a strike by employees in certain branches of the Company's West Virginia territory (primarily security costs to protect Company personnel and assets) and compensation expense related to a restricted stock award for the Company's Chairman and Chief Executive Officer. A portion of the marketing funding from The Coca-Cola Company has been changed for 2000 and is more closely tied to changes in unit volume. As a result marketing funding has been negatively impacted by the decline in volume for the third quarter and first three quarters of 2000. Total marketing funding from The Coca-Cola Company was reduced by 34% and 32% for the third quarter and first three quarters of 2000, respectively, from levels in the same periods of 1999. Excluding the effect of territories acquired in 1999, the impact of reduced marketing funding from The Coca-Cola Company and expenses associated with the strike in certain branches in the Company's West Virginia territory, selling, general and administrative expenses decreased by approximately 2% for the third quarter of 2000 compared to the third quarter of 1999. 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 2000, it is not obligated to do so under the Company's Master Bottle Contract. Total marketing funding and infrastructure support from The Coca-Cola Company and other beverage companies in the first three quarters of 2000 and 1999 was $36.8 million and $48.6 million, respectively. Depreciation expense increased by approximately $0.8 million and $4.2 million in the third quarter and first three quarters of 2000, respectively, from the comparable periods in 1999. The increase was due primarily to the significant capital investments the Company made during 1999 that totaled $256.6 million. Of the total capital expenditures in 1999, approximately $155 million related to the purchase of vehicles and vending equipment that were previously leased under various operating lease agreements. Amortization expense of $11.0 million increased by $0.8 million in the first three quarters of 2000 due to the acquisition of three Coca-Cola bottlers during 1999. Interest expense for the third quarter of 2000 of $13.6 million increased by $.6 million from the third quarter of 1999. Interest expense for the first three quarters of 2000 increased by $4.0 million over the same period in the prior year. The increase in interest expense for the first three quarters of 2000 is due to
additional borrowings related to the acquisition of three Coca-Cola bottlers during 1999 as well as significant capital expenditures incurred in 1999 and higher average interest rates on the Company's floating rate debt. The increase in interest expense in the third quarter of 2000 was primarily due to higher average interest rates on the Company's floating rate debt. The Company's overall weighted average interest rate increased from an average of 6.6% during the first three quarters of 1999 to an average of 7.2% during the first three quarters of 2000. Other income for the third quarter of 2000 was $4.2 million compared to other expense of $1.1 million in the third quarter of 1999, or a net change of $5.3 million. The change in other income, net resulted from a gain on the sale of bottling territory in Kentucky and Ohio of approximately $8.8 million. In addition, the Company recorded a provision for impairment of certain fixed assets of $3.2 million. The fixed asset impairment related primarily to idle facilities, production equipment and cold drink equipment. In March 2000, at the end of a collective bargaining agreement in Huntington, West Virginia, the Company and Teamsters Local Union 505 were unable to reach agreement on wages and benefits. The union elected to strike and other Teamster-represented sales centers in West Virginia joined in a sympathy strike. As of August 7, 2000, the Company and the respective Teamster local unions settled all outstanding issues. Changes in Financial Condition: Working capital increased $31.4 million from January 2, 2000 to October 1, 2000 and $1.7 million from October 3, 1999 to October 1, 2000. The increase in working capital from January 2, 2000 to October 1, 2000 is primarily attributable to an increase in cash of $15.9 million, a reduction in the current portion of long-term debt of $25.4 million and a reduction in accounts payable and accrued liabilities of $14.3 million, offset by an increase in amounts due to Piedmont Coca-Cola Bottling Partnership ("Piedmont") of $13.7 million. The increase in cash of $15.9 million is due to the proceeds received from the sale of the Company's Kentucky/Ohio bottling territory on the last business day of the third quarter. The decrease in the current portion of long-term debt reflects the repayment of $25.5 million of Medium-Term Notes that matured in March 2000. The increase in amounts due to Piedmont of $13.7 million is due to increased cash flow at Piedmont in 2000, principally due to an improvement in operating margins. Capital expenditures in the first three quarters of 2000 were $33.4 million compared to $234.7 million in the first three quarters of 1999. Expenditures for the first three quarters of 1999 included the purchase of approximately $155 million of previously leased equipment completed during January 1999. Total debt (including the portion of long-term debt payable within one year) decreased by $42.1 million from October 3, 1999 and $39.9 million from January 2, 2000. The decreases from the prior year and 1999 fiscal year-end are due primarily to increased free cash flow. The Company's capital spending is down significantly from high levels in 1998 and 1999. With the reduced levels of capital spending,
excess cash flow generated by operations has been used to repay long-term debt. The reduction in debt has partially offset the impact of higher interest rates and dampened increases in interest expense during 2000. As of October 1, 2000, the Company had no amounts outstanding under its revolving credit facility and $32.3 million outstanding under lines of credit. As of October 1, 2000, the debt portfolio had a weighted average interest rate of approximately 7.1% and approximately 42% of the total portfolio of $713 million was subject to changes in short-term interest rates. In May 1999, the Company issued 368,482 shares of its Common Stock at $59.60 per share in conjunction with the acquisition of Carolina Coca-Cola Bottling Company. The Company intends to continue to evaluate growth 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 operations and capital expenditure requirements; our expectations concerning capital expenditures; our expectations concerning the effect of claims and legal proceedings and our expectations concerning the effect of adoption of FASB Statements Nos. 133 and 138. 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, material changes from expectations in the cost of raw materials and ingredients, higher than expected fuel prices, an inability to meet projections for performance in newly acquired bottling territories, unfavorable litigation outcomes and unfavorable interest rate fluctuations.
PART II - OTHER INFORMATION Item 1. Legal Proceedings On August 3, 1999, North American Container, Inc. ("NAC") filed a Complaint For Patent Infringement and Jury Demand (the "Complaint") against the Company and a number of other defendants in the United States District Court for the Northern District of Texas, Dallas Division, alleging that certain unspecified blow-molded plastic containers used, made, sold, offered for sale and/or used by the Company and other defendants infringes certain patents owned by the plaintiff. NAC seeks an unspecified amount of compensatory damages for prior infringement, seeks to have those damages trebled, seeks pre-judgment and post-judgment interest, seeks attorneys fees and seeks an injunction prohibiting future infringement and ordering the destruction of all infringing containers and machinery used in connection with the manufacture of the infringing products. The original Complaint names forty-two other defendants, including Plastipak Packaging, Inc., Constar International, Inc., Constar Plastics, Inc., Continental PET Technologies, Inc., Southeastern Container, Inc., Western Container, Inc., The Quaker Oats Company and others. Additional defendants have been added by amendment. The Complaint covers many channels of trade relevant to the PET bottle industry, including licensors, manufacturers, bottlers, bottled product manufacturers and retail sellers of end product. The Company has obtained partial indemnification from its suppliers for all damages it may incur in connection with this proceeding. The Company has filed an answer to the Complaint, as amended, and has denied the material allegations of NAC and seeks recovery of attorney fees by having the case declared exceptional. The Company has also filed a counterclaim seeking a declaration of invalidity and non-infringement. A claims construction hearing is currently scheduled for December 4, 2000. 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 Asset Acquisition Agreement, dated as of September 29, 2000, by and among The Coca-Cola Bottling Company of West Virginia, Inc., Coca-Cola Bottling Company of Roanoke, Inc. and Coca-Cola Enterprises Inc. 10.2 Franchise Acquisition Agreement, dated as of September 29, 2000, by and among WVBC, Inc., ROBC, Inc. and Coca-Cola Enterprises Inc. 10.3 Guaranty Agreement, dated as of September 29, 2000, between the Company and Coca-Cola Enterprises Inc. 27 Financial data schedule for period ended October 1, 2000. (b) Reports on Form 8-K None
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. COCA-COLA BOTTLING CO. CONSOLIDATED (REGISTRANT) Date: November 14, 2000 By: /s/ David V. Singer ------------------------------ David V. Singer Principal Financial Officer of the Registrant and Vice President - Chief Financial Officer