UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 30, 1997 Commission File Number 0-9286 COCA-COLA BOTTLING CO. CONSOLIDATED (Exact name of registrant as specified in its charter) Delaware 56-0950585 (State or other jurisdiction of (I.R.S. Employer Identification Number) incorporation or organization) 1900 Rexford Road, Charlotte, North Carolina 28211 (Address of principal executive offices) (Zip Code) (704) 551-4400 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at April 26, 1997 Common Stock, $1 Par Value 7,044,985 Class B Common Stock, $1 Par Value 1,319,862
PART I - FINANCIAL INFORMATION Item l. Financial Statements Coca-Cola Bottling Co. Consolidated CONSOLIDATED BALANCE SHEETS (UNAUDITED) In Thousands (Except Share Data) <TABLE> <CAPTION> March 30, Dec. 29, March 31, 1997 1996 1996 <S> <C> <C> <C> ASSETS Current Assets: Cash $ 3,557 $ 2,941 $ 2,479 Accounts receivable, trade, less allowance for doubtful accounts of $416, $410 and $391 47,193 50,918 9,847 Accounts receivable from The Coca-Cola Company 5,565 2,392 8,167 Due from Piedmont Coca-Cola Bottling Partnership 4,613 5,888 5,156 Accounts receivable, other 7,777 8,216 5,292 Inventories 32,770 30,787 30,935 Prepaid expenses and other current assets 9,645 9,453 6,944 Total current assets 111,120 110,595 68,820 Property, plant and equipment, less accumulated depreciation of $166,615, $161,615 and $157,341 251,980 190,073 190,582 Investment in Piedmont Coca-Cola Bottling Partnership 63,645 64,462 64,700 Other assets 35,464 33,802 33,861 Identifiable intangible assets, less accumulated amortization of $97,870, $95,403 and $88,002 238,348 238,115 245,516 Excess of cost over fair value of net assets of businesses acquired, less accumulated amortization of $26,842, $26,269 and $24,552 64,777 65,349 67,067 Total $765,334 $702,396 $670,546 </TABLE> See Accompanying Notes to Consolidated Financial Statements
Coca-Cola Bottling Co. Consolidated CONSOLIDATED BALANCE SHEETS (UNAUDITED) In Thousands (Except Share Data) <TABLE> <CAPTION> March 30, Dec. 29, March 31, 1997 1996 1996 <S> <C> <C> <C> LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Portion of long-term debt payable within one year $ 135 $ 105 $ 120 Accounts payable and accrued liabilities 55,858 56,939 57,820 Accounts payable to The Coca-Cola Company 2,215 3,249 4,425 Accrued compensation 3,060 5,275 2,661 Accrued interest payable 7,521 11,112 5,864 Total current liabilities 68,789 76,680 70,890 Deferred income taxes 107,512 108,403 97,856 Deferred credits 12,540 12,096 9,970 Other liabilities 46,464 43,495 31,871 Long-term debt 529,749 439,453 422,374 Total liabilities 765,054 680,127 632,961 Shareholders' Equity: Convertible Preferred Stock, $100 par value: Authorized-50,000 shares; Issued-None Nonconvertible Preferred Stock, $100 par value: Authorized-50,000 shares; Issued-None Preferred Stock, $.01 par value: Authorized-20,000,000 shares; Issued-None Common Stock, $1 par value: Authorized-30,000,000 shares; Issued-10,107,359, 10,107,359 and 10,090,859 shares 10,107 10,107 10,090 Class B Common Stock, $1 par value: Authorized-10,000,000 shares; Issued-1,947,976, 1,947,976 and 1,964,476 shares 1,948 1,948 1,965 Class C Common Stock, $1 par value: Authorized-20,000,000 shares; Issued-None Capital in excess of par value 109,347 111,439 118,409 Accumulated deficit (59,764) (59,868) (75,095) Minimum pension liability adjustment (104) (104) (138) 61,534 63,522 55,231 Less-Treasury stock, at cost: Common-3,062,374, 2,641,490 and 2,132,800 shares 60,845 40,844 17,237 Class B Common-628,114 shares 409 409 409 Total shareholders' equity 280 22,269 37,585 Total $ 765,334 $ 702,396 $ 670,546 </TABLE> See Accompanying Notes to Consolidated Financial Statements
Coca-Cola Bottling Co. Consolidated CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED) In Thousands <TABLE> <CAPTION> Capital Minimum Class B in Pension Common Common Excess of Accumulated Liability Treasury Stock Stock Par Value Deficit Adjustment Stock <S> <C> <C> <C> <C> <C> <C> Balance on December 31, 1995 $ 10,090 $ 1,965 $120,733 $(76,032) $ (138) $ 17,646 Net income 937 Cash dividends paid: Common (2,324) Balance on March 31, 1996 $ 10,090 $ 1,965 $118,409 $(75,095) $ (138) $ 17,646 Balance on December 29, 1996 $ 10,107 $ 1,948 $111,439 $(59,868) $ (104) $ 41,253 Net income 104 Cash dividends paid: Common (2,092) Purchase of Common Stock $ 20,001 Balance on March 30, 1997 $ 10,107 $ 1,948 $109,347 $(59,764) $ (104) $ 61,254 </TABLE> See Accompanying Notes to Consolidated Financial Statements
Coca-Cola Bottling Co. Consolidated CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) In Thousands (Except Per Share Data) <TABLE> <CAPTION> First Quarter 1997 1996 <S> <C> <C> Net sales (includes sales to Piedmont of $10,591 and $12,075) $ 178,395 $ 171,996 Cost of sales, excluding depreciation shown below (includes $8,603 and $10,594 related to sales to Piedmont) 99,450 98,268 Gross margin 78,945 73,728 Selling expenses 44,064 40,726 General and administrative expenses 13,988 12,708 Depreciation expense 8,133 7,007 Amortization of goodwill and intangibles 3,064 3,057 Income from operations 9,696 10,230 Interest expense 9,124 7,693 Other income (expense), net (407) (982) Income before income taxes 165 1,555 Federal and state income taxes 61 618 Net income $ 104 $ 937 Net income per share $ .01 $ .10 Cash dividends per share: Common Stock $ .25 $ .25 Class B Common Stock .25 .25 Weighted average number of Common and Class B Common shares outstanding 8,535 9,294 </TABLE> See Accompanying Notes to Consolidated Financial Statements
Coca-Cola Bottling Co. Consolidated CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) In Thousands <TABLE> <CAPTION> First Quarter 1997 1996 <S> <C> <C> Cash Flows from Operating Activities Net income $ 104 $ 937 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation expense 8,133 7,007 Amortization of goodwill and intangibles 3,064 3,057 Deferred income taxes 61 618 Losses on sale of property, plant and equipment 298 311 Amortization of debt costs 141 131 Undistributed losses of Piedmont Coca-Cola Bottling Partnership 817 924 Increase in current assets less current liabilities (7,799) (8,202) Increase in other noncurrent assets (1,017) (721) Increase in other noncurrent liabilities 2,810 2,296 Other 2 Total adjustments 6,508 5,423 Net cash provided by operating activities 6,612 6,360 Cash Flows from Financing Activities Proceeds from the issuance of long-term debt 90,521 2,884 Payments on long-term debt (226) (405) Purchase of Common Stock (20,001) Cash dividends paid (2,092) (2,324) Other (349) (368) Net cash provided by (used in) financing activities 67,853 (213) Cash Flows from Investing Activities Additions to property, plant and equipment (70,339) (6,123) Proceeds from the sale of property, plant and equipment 1 21 Acquisition of companies, net of cash acquired (3,511) Net cash used in investing activities (73,849) (6,102) Net increase in cash 616 45 Cash at beginning of period 2,941 2,434 Cash at end of period $ 3,557 $ 2,479 </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 December 29, 1996 filed with the Securities and Exchange Commission. Certain prior year amounts have been reclassified to conform to current year classifications.
Coca-Cola Bottling Co. Consolidated Notes to Consolidated Financial Statements (Unaudited) 2. Summarized Income Statement Data of Piedmont Coca-Cola Bottling Partnership On July 2, 1993, the Company and The Coca-Cola Company formed Piedmont Coca-Cola Bottling Partnership ("Piedmont") to distribute and market soft drink products primarily in portions of North Carolina and South Carolina. The Company and The Coca-Cola Company, through their respective subsidiaries, each beneficially own a 50% interest in Piedmont. The Company provides a portion of the soft drink products to Piedmont at cost and receives a fee for managing the business of Piedmont pursuant to a management agreement. Summarized income statement data for Piedmont is as follows: First Quarter In Thousands 1997 1996 Net sales $ 52,831 $ 47,925 Gross margin 23,728 20,409 Income from operations 1,384 728 Net loss (1,634) (1,849) 3. Inventories Inventories are summarized as follows: Mar. 30, Dec. 29, Mar. 31, In Thousands 1997 1996 1996 Finished products $18,068 $18,888 $19,401 Manufacturing materials 8,824 9,894 10,207 Plastic pallets and other 5,878 2,005 1,327 Total inventories $32,770 $30,787 $30,935
Coca-Cola Bottling Co. Consolidated Notes to Consolidated Financial Statements (Unaudited) 4. Long-Term Debt Long-term debt is summarized as follows: <TABLE> <CAPTION> Fixed(F) or Interest Variable Interest Mar. 30, Dec. 29, Mar. 31, In Thousands Maturity Rate (V) Rate Paid 1997 1996 1996 <S> <C> <C> <C> <C> <C> <C> <C> Lines of Credit 2001 5.78% - V Varies $134,250 $ 19,720 $ 25,490 6.02% Revolving Credit 24,000 Term Loan Agreement 2002- 6.20% V Varies 170,000 170,000 170,000 2003 Medium-Term Notes 1998 6.18% V Quarterly 10,000 10,000 10,000 Medium-Term Notes 1998 10.05% F Semi- 2,000 2,000 2,000 annually Medium-Term Notes 1999 7.99% F Semi- 28,585 28,585 28,585 annually Medium-Term Notes 2000 10.00% F Semi- 25,500 25,500 25,500 annually Medium-Term Notes 2002 8.56% F Semi- 47,000 47,000 47,000 annually Debentures 2007 6.85% F Semi- 100,000 100,000 100,000 annually Other notes payable 2000 - 6.85% - F Varies 12,549 12,753 13,919 2001 10.00% 529,884 439,558 422,494 Less: Portion of long- term debt payable within one year 135 105 120 Long-term debt $529,749 $439,453 $422,374 </TABLE>
Coca-Cola Bottling Co. Consolidated Notes to Consolidated Financial Statements (Unaudited) 4. Long-Term Debt (cont.) It is the Company's intent to renew its lines of credit and borrowings under the revolving credit facility as they mature. To the extent that these borrowings do not exceed the amount available under the Company's $170 million revolving credit facility, they are classified as noncurrent liabilities. The Company previously had an arrangement under which it had the right to sell an undivided interest in a designated pool of trade accounts receivable up to a maximum of $40 million. This arrangement was suspended in the fourth quarter of 1996. The Company had sold trade accounts receivable of $35 million as of March 31, 1996 under this arrangement. On October 12, 1994, a $400 million shelf registration for debt and equity securities filed with the Securities and Exchange Commission became effective and the securities thereunder became available for issuance. On November 1, 1995, the Company issued $100 million of 6.85% debentures due 2007 pursuant to such registration. The net proceeds from this issuance were used principally for refinancing a portion of existing public indebtedness with the remainder used to repay other bank debt. On November 20, 1995, the Company entered into a $170 million term loan agreement with $85 million maturing in November 2002 and $85 million maturing in November 2003. This loan was used to repay two $60 million loans previously entered into by the Company and other bank debt. The Company has guaranteed a portion of the debt for two cooperatives in which the Company is a member. The amounts guaranteed were $31.8 million, $32.2 million and $34.6 million as of March 30, 1997, December 29, 1996 and March 31, 1996, respectively.
Coca-Cola Bottling Co. Consolidated Notes to Consolidated Financial Statements (Unaudited) 5. Derivative Financial Instruments The Company uses derivative financial instruments to modify risk from interest rate fluctuations in its underlying debt. The Company has historically altered its fixed/floating interest rate mix based upon anticipated operating cash flows of the Company relative to its debt level and the Company's ability to absorb increases in interest rates. These derivative financial instruments are not used for trading purposes. The Company had weighted average interest rates for its debt portfolio of approximately 6.9%, 7.2% and 7.0% as of March 30, 1997, December 29, 1996 and March 31, 1996, respectively. The Company's overall weighted average interest rate on its long-term debt decreased from an average of 7.0% during the first quarter of 1996 to an average of 6.9% during the first quarter of 1997. After taking into account the effect of all of the interest rate swap activities, approximately 59%, 51% and 49% of the total debt portfolio was subject to changes in short-term interest rates as of March 30, 1997, December 29, 1996 and March 31, 1996, respectively. A rate increase of 1% on the floating rate component of the Company's debt would have increased interest expense for the first quarter of 1997 by approximately $.8 million and net income for the first quarter ended March 30, 1997 would have been reduced by approximately $.5 million. The Company currently has two interest rate swap agreements. There were no new derivative financial instruments, nor activity with current financial instruments, during the first quarter of 1997. Derivative financial instruments were as follows: <TABLE> <CAPTION> March 30, 1997 December 29, 1996 March 31, 1996 Remaining Remaining Remaining In Thousands Amount Term Amount Term Amount Term <S> <C> <C> <C> <C> <C> <C> Interest rate swaps-floating $60,000 6.5 years $60,000 6.75 years $60,000 7.5 years Interest rate swaps-fixed 60,000 6.5 years 60,000 6.75 years 60,000 7.5 years </TABLE>
Coca-Cola Bottling Co. Consolidated Notes to Consolidated Financial Statements (Unaudited) 5. Derivative Financial Instruments (cont.) The carrying amounts and fair values of the Company's balance sheet and off-balance-sheet instruments were as follows: <TABLE> <CAPTION> March 30, 1997 March 31, 1996 Carrying Fair Carrying Fair In Thousands Amount Value Amount Value <S> <C> <C> <C> <C> Balance Sheet Instruments Public debt $ 213,085 $ 213,908 $ 213,085 $ 215,757 Non-public variable rate long-term debt 304,250 304,250 195,490 195,490 Non-public fixed rate long-term debt 12,549 13,141 13,919 14,899 Off-Balance-Sheet Instruments Interest rate swaps (3,879) (4,843) </TABLE> The fair values of the interest rate swaps represent the estimated amounts the Company would have had to pay to terminate these agreements.
Coca-Cola Bottling Co. Consolidated Notes to Consolidated Financial Statements (Unaudited) 6. Supplemental Disclosures of Cash Flow Information Changes in current assets and current liabilities affecting cash were as follows: <TABLE> <CAPTION> First Quarter In Thousands 1997 1996 <S> <C> <C> Accounts receivable, trade, net $ 3,725 $ 2,251 Accounts receivable, The Coca-Cola Company (3,173) (1,443) Due from Piedmont Coca-Cola Bottling Partnership 1,275 (572) Accounts receivable, other 439 4,201 Inventories (1,983) (2,946) Prepaid expenses and other current assets (192) (9) Portion of long-term debt payable within one year 30 Accounts payable and accrued liabilities (1,081) (6,929) Accounts payable, The Coca-Cola Company (1,034) 789 Accrued compensation (2,214) (2,388) Accrued interest payable (3,591) (1,156) Increase in current assets less current liabilities $(7,799) $(8,202) </TABLE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Introduction: The following discussion presents management's analysis of the results of operations for the first three months of 1997 compared to the first three months of 1996 and changes in financial condition from March 31, 1996 and December 29, 1996 to March 30, 1997. The Company reported net income of $104,000 or $.01 per share for the first quarter of 1997 compared with net income of $.9 million or $.10 per share for the same period in 1996. The decrease in earnings from the prior year was primarily due to increased interest expense related to higher levels of long-term debt. The higher debt level is due to new borrowings related to Common Stock repurchases, a purchase of vending assets previously leased and the suspension of the Company's program to sell its trade accounts receivable. Interest expense increased by approximately $1.4 million in the first quarter of 1997 over the same period in 1996. In March 1997, the Financial Accounting Standards Board issued SFAS No. 128, Earnings per Share. SFAS 128 established standards for computing and presenting earnings per share and applies to entities with publicly held common stock. This statement is effective for fiscal years ending after December 15, 1997 and early adoption is not permitted. The Company will adopt the provisions of SFAS 128 for its fiscal year ending December 28, 1997. The Company believes that adoption of the provisions of this statement will not have a material effect on its financial statements. The results for interim periods are not necessarily indicative of the results to be expected for the year due to seasonal factors. Results of Operations: The first quarter was highlighted by strong volume growth across the Company's core brands, which include Coca-Cola classic, diet Coke and Sprite. Franchise net sales increased approximately 6% over the same period in 1996 due primarily to a 9% increase in case volume offset by lower net selling prices. Franchise net selling price per unit for the quarter decreased by 2.9%. The sales volume increase was broad-based across most of the Company's key channels. In addition, the Company posted a 20% increase in fountain volume. Sprite continued to be the volume growth leader with an increase in volume of 26% over the first quarter of 1996. Gross margin on franchise net sales increased by 7% from 1996. Gross margin was up more than the increase in franchise net sales due to a reduction in cost of sales per unit as a result of lower costs for sweetener and certain packaging materials. Selling expenses for the first quarter of 1997 increased 8.2% over the first quarter of 1996. Selling expenses increased due to higher sales commission costs related to the sales volume increase, increased marketing costs and increased expenses related to sales development programs.
The increase in sales development funds was related primarily to growth in food store volume. The higher employment costs are attributable to increased sales commission costs as well as the Company's ongoing efforts to improve employee retention in certain key market areas of its franchise territory. General and administrative expenses increased by 10% primarily due to increases in employment costs and professional fees incurred during the first quarter. The rate of increase in general and administrative expenses experienced during the first quarter of 1997 is not expected to continue throughout 1997. Depreciation expense increased 16% between the first quarter of 1996 and the first quarter of 1997. This increase was due primarily to depreciation expense on vending equipment that was previously leased. The Company purchased $66.3 million of vending equipment in January 1997 which was previously leased. As a result of this transaction, lease expense declined by 11% for the first quarter. Depreciation expense is recognized on a straight-line basis throughout the year while the revenue generated by these assets tends to be more seasonal, with the majority of the revenue coming in the months from April to September. Interest expense increased 19% from the first quarter of 1996 to the first quarter of 1997 due to several transactions that increased outstanding long-term debt by $107.4 million from March 31, 1996 to March 30, 1997. The Company repurchased approximately 930,000 shares of its Common Stock in three separate transactions between December 1996 and February 1997 for $43.6 million. The Company purchased vending equipment, previously leased, for $66.3 million during January 1997. Additionally, the Company suspended its arrangement to sell its trade accounts receivable during the fourth quarter of 1996. As of March 31, 1996 the Company had sold $35 million of its trade accounts receivable under this program. The Company's overall weighted average interest rate decreased from an average of 7.0% during the first quarter of 1996 to an average of 6.9% during the first quarter of 1997. Changes in Financial Condition: Working capital increased $8.4 million from December 31, 1996 and increased $44.4 million from March 31, 1996 to March 31, 1997. The increase from December 31, 1996 resulted principally from decreases in various current liabilities including a decrease in accrued interest payable of $3.6 million. The increase from March 31, 1996 was due principally to an increase in trade accounts receivable of $37.3 million. The Company had sold trade accounts receivable of $35 million as of March 31, 1996 under an arrangement to sell up to $40 million of its trade accounts receivable. The trade accounts receivable sales agreement was suspended during the fourth quarter of 1996 and no trade accounts receivable had been sold as of December 29, 1996 or March 30, 1997. Capital expenditures in the first quarter of 1997, excluding the $66.3 million purchase of previously leased equipment, were $4.0 million as compared to $6.1 million in the first quarter of 1996. The Company entered into an agreement in April 1997 that will currently provide up to $61 million for the leasing of equipment. This agreement has a favorable cost structure and will be used to obtain the majority of the Company's capital requirements for fleet and vending assets in 1997.
Long-term debt increased by $107.4 million from March 31, 1996 and increased by $90.3 million from December 29, 1996. The increase in long-term debt is due to the repurchase of approximately 930,000 shares of the Company's Common Stock during December 1996 and the first quarter of 1997 for $43.6 million, the purchase of $66.3 million of vending equipment previously leased and the suspension of the arrangement to sell its trade accounts receivable. The Company used its informal lines of credit for the additional borrowings. It is the Company's intent to renew any borrowings under its $170 million revolving credit facility and the informal lines of credit as they mature and, to the extent that any borrowings under the revolving credit facility and the informal lines of credit do not exceed the amount available under the Company's $170 million revolving credit facility, they are classified as noncurrent liabilities. As of March 30, 1997, the Company had no amounts outstanding under the revolving credit facility and $134.3 million outstanding under the informal lines of credit. As of March 30, 1997 the debt portfolio had a weighted average interest rate of approximately 6.9% and approximately 59% of the total debt portfolio of $529.8 million was subject to changes in short-term interest rates. The Company repurchased approximately 930,000 shares of its Common Stock in three separate transactions during December 1996 and the first quarter of 1997. The aggregate cost of these share repurchases was $43.6 million. Management of the Company believes that the repurchase of these shares will further the goal of enhancing long-term shareholder value. Management believes that the Company, through the generation of cash flow from operations and the utilization of unused borrowing capacity, has sufficient financial resources available to maintain its current operations and provide for its current capital expenditure requirements. The Company considers the acquisition of additional franchise territories on an ongoing basis.
PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits <TABLE> <CAPTION> Exhibit Number Description <S> <C> 10.1 Participation Agreement (Coca-Cola Trust No. 97-1) dated as of April 10, 1997 between the Company (as Lessee), First Security Bank, National Association (solely as Owner Trustee under Coca-Cola Trust No. 97-1) and the other financial institutions listed therein. 10.2 Master Equipment Lease Agreement (Coca-Cola Trust No. 97-1) dated as of April 10, 1997 between the Company (as Lessee) and First Security Bank, National Association (solely as Owner Trustee under Coca-Cola Trust No. 97-1). 27 Financial data schedule for period ended March 30, 1997. </TABLE> (b) Reports on Form 8-K Current Report on Form 8-K dated as of January 7, 1997 related to the repurchase of 145,260 shares of the Company's Common Stock from a single shareholder.
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. COCA-COLA BOTTLING CO. CONSOLIDATED (REGISTRANT) Date: May 14, 1997 By: /s/ David V. Singer David V. Singer Principal Financial Officer of the Registrant and Vice President - Chief Financial Officer