UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
X EXCHANGE ACT OF 1934
For the quarterly period ended July 2, 2000
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Commission File Number 0-9286
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COCA-COLA BOTTLING CO. CONSOLIDATED
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(Exact name of registrant as specified in its charter)
Delaware 56-0950585
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
4100 Coca-Cola Plaza, Charlotte, North Carolina 28211
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(Address of principal executive offices) (Zip Code)
(704) 551-4400
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at August 1, 2000
----- -----------------------------
Common Stock, $1.00 Par Value 6,392,252
Class B Common Stock, $1.00 Par Value 2,341,077
PART I - FINANCIAL INFORMATION
Item l. Financial Statements
Coca-Cola Bottling Co. Consolidated
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
In Thousands (Except Per Share Data)
Second Quarter First Half
--------------------------- ----------------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
Net sales (includes sales to Piedmont of
$21,251, $20,129, $36,942 and $35,310) $ 270,933 $ 261,037 $ 499,117 $ 481,300
Cost of sales, excluding depreciation shown
below (includes $15,545, $16,131, $28,127
and $29,736 related to sales to Piedmont) 143,002 145,391 265,245 273,502
---------- ---------- ---------- ----------
Gross margin 127,931 115,646 233,872 207,798
---------- ---------- ----------- ----------
Selling, general and administrative expenses,
excluding depreciation shown below 83,815 74,859 158,057 143,083
Depreciation expense 16,224 14,266 32,314 28,914
Amortization of goodwill and intangibles 3,666 3,346 7,330 6,608
------------ ------------ ------------ ------------
Income from operations 24,226 23,175 36,171 29,193
Interest expense 13,618 12,450 27,554 24,145
Other income (expense), net (786) (1,239) (1,805) (2,454)
------------- ----------- ------------ -----------
Income before income taxes 9,822 9,486 6,812 2,594
Federal and state income taxes 3,505 3,320 2,452 908
------------- ------------ ------------- -------------
Net income $ 6,317 $ 6,166 $ 4,360 $ 1,686
============ =========== ============ ===========
Basic net income per share $ .72 $ .72 $ .50 $ .20
Diluted net income per share $ .71 $ .71 $ .50 $ .20
Weighted average number of common
shares outstanding 8,733 8,519 8,733 8,442
Weighted average number of common
shares outstanding-assuming dilution 8,837 8,638 8,785 8,563
Cash dividends per share
Common Stock $ .25 $ .25 $ .50 $ .50
Class B Common Stock $ .25 $ .25 $ .50 $ .50
See Accompanying Notes to Consolidated Financial Statements
Coca-Cola Bottling Co. Consolidated
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
In Thousands (Except Share Data)
July 2, Jan. 2, July 4,
2000 2000 1999
------------- ------------- -------------
ASSETS
Current Assets:
Cash $ 6,724 $ 9,050 $ 8,209
Accounts receivable, trade, less allowance for
doubtful accounts of $884, $850 and $649 66,291 60,367 73,186
Accounts receivable from The Coca-Cola Company 6,110 6,018 9,793
Due from Piedmont Coca-Cola Bottling Partnership 6,187
Accounts receivable, other 5,966 13,938 5,542
Inventories 43,390 44,736 48,772
Prepaid expenses and other current assets 18,380 13,275 18,030
------------- ------------- -------------
Total current assets 146,861 147,384 169,719
------------- ------------- -------------
Property, plant and equipment, net 448,606 458,799 446,286
Leased property under capital leases, net 9,875 10,785 12,368
Investment in Piedmont Coca-Cola Bottling Partnership 62,212 60,216 61,302
Other assets 73,826 69,824 62,627
Identifiable intangible assets, less accumulated
amortization of $133,644, $127,459 and $121,478 298,993 305,432 285,119
Excess of cost over fair value of net assets of
businesses acquired, less accumulated
amortization of $34,286, $33,141 and $31,995 56,982 58,478 59,623
------------- ------------- -------------
Total $1,097,355 $1,110,918 $1,097,044
============= ============= =============
See Accompanying Notes to Consolidated Financial Statements
Coca-Cola Bottling Co. Consolidated
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
In Thousands (Except Share Data)
July 2, Jan. 2, July 4,
2000 2000 1999
------------- ------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Portion of long-term debt payable within one year $ 3,243 $ 28,635 $ 25,530
Current portion of obligations under capital leases 3,878 4,483 5,081
Accounts payable and accrued liabilities 82,405 88,848 76,942
Accounts payable to The Coca-Cola Company 4,759 2,346 5,052
Due to Piedmont Coca-Cola Bottling Partnership 8,593 2,736
Accrued compensation 9,723 7,160 6,964
Accrued interest payable 11,231 16,830 12,981
------------- ------------- -------------
Total current liabilities 123,832 151,038 132,550
Deferred income taxes 127,561 125,109 116,748
Deferred credits 3,721 4,135 3,754
Other liabilities 71,334 69,765 63,136
Obligations under capital leases 3,446 4,468 6,087
Long-term debt 735,029 723,964 739,518
------------ ------------ ------------
Total liabilities 1,064,923 1,078,479 1,061,793
------------- ------------- -------------
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 - 9,454,626 shares 9,454 9,454 9,454
Class B Common Stock, $1 par value:
Authorized - 10,000,000 shares;
Issued - 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 103,386 107,753 112,120
Accumulated deficit (22,123) (26,483) (28,038)
------------ ------------ ------------
93,686 93,693 96,505
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 32,432 32,439 35,251
------------ ------------ ------------
Total $1,097,355 $1,110,918 $1,097,044
============ ============ ============
See Accompanying Notes to Consolidated Financial Statements
Coca-Cola Bottling Co. Consolidated
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
In Thousands
Capital
Class B in
Common Common Excess of Accumulated Treasury
Stock Stock Par Value Deficit Stock
--------- -------- -------- --------- --------
Balance on
January 3, 1999 $ 9,086 $ 2,969 $ 94,709 $ (29,724) $ 61,254
Net income 1,686
Cash dividends paid (4,182)
Issuance of Common Stock 368 21,593
--------- -------- -------- --------- --------
Balance on
July 4, 1999 $ 9,454 $ 2,969 $112,120 $ (28,038) $ 61,254
========= ======== ======== ========= ========
Balance on
January 2, 2000 $ 9,454 $ 2,969 $107,753 $ (26,483) $ 61,254
Net income 4,360
Cash dividends paid (4,367)
--------- -------- -------- --------- --------
Balance on
July 2, 2000 $ 9,454 $ 2,969 $103,386 $ (22,123) $ 61,254
========= ========= ======== ========= ========
See Accompanying Notes to Consolidated Financial Statements
Coca-Cola Bottling Co. Consolidated
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
In Thousands
First Half
----------------------------------
2000 1999
------------ -------------
Cash Flows from Operating Activities
Net income $ 4,360 $ 1,686
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation expense 32,314 28,914
Amortization of goodwill and intangibles 7,330 6,608
Deferred income taxes 2,452 908
Losses on sale of property, plant and equipment 618 1,425
Amortization of debt costs 486 378
Amortization of deferred gain related to terminated
interest rate swaps (282) (282)
Undistributed losses (earnings) of Piedmont Coca-Cola
Bottling Partnership (1,996) 1,545
Increase in current assets less current liabilities (3,012) (30,748)
Increase in other noncurrent assets (5,135) (7,222)
Increase (decrease) in other noncurrent liabilities 2,506 (3,397)
Other 470 10
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Total adjustments 35,751 (1,861)
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Net cash provided by (used in) operating activities 40,111 (175)
---------- ------------
Cash Flows from Financing Activities
Proceeds from issuance of long-term debt 250,183
Repayment of current portion of long-term debt (25,527) (30,085)
Proceeds from lines of credit, net 11,200 23,600
Cash dividends paid (4,367) (4,182)
Payments on capital lease obligations (2,487) (2,409)
Debt fees paid (3,221)
Other (395) (204)
---------- -----------
Net cash provided by (used in) financing activities (21,576) 233,682
---------- ---------
Cash Flows from Investing Activities
Additions to property, plant and equipment (22,910) (213,663)
Proceeds from the sale of property, plant and equipment 2,183 60
Acquisitions of companies, net of cash acquired (134) (18,386)
---------- -----------
Net cash used in investing activities (20,861) (231,989)
---------- ---------
Net increase (decrease) in cash (2,326) 1,518
Cash at beginning of period 9,050 6,691
----------- -----------
Cash at end of period $ 6,724 $ 8,209
========== ==========
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
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 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 2000 1999 2000 1999
- -----------------------------------------------------------------------------------------------------------------------
Net sales $78,766 $74,645 $144,218 $137,971
Gross margin 38,291 34,089 69,547 61,740
Income from operations 7,579 3,629 10,780 3,381
Net income (loss) 4,148 432 3,992 (3,090)
3. Inventories
Inventories are summarized as follows:
July 2, Jan. 2, July 4,
In Thousands 2000 2000 1999
- ----------------------------------------------------------------------------------------------------------
Finished products $27,311 $28,618 $30,251
Manufacturing materials 11,870 11,424 13,313
Plastic pallets and other 4,209 4,694 5,208
------- ------- -------
Total inventories $43,390 $44,736 $48,772
======= ======= =======
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 July 2, 2000, January 2, 2000 and July 4, 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:
July 2, Jan. 2, July 4, Estimated
In Thousands 2000 2000 1999 Useful Lives
- ---------------------------------------------------------------------------------------------------------------------------
Land $ 12,389 $ 12,251 $ 11,856
Buildings 95,440 96,072 82,945 10-50 years
Machinery and equipment 91,664 89,068 90,587 5-20 years
Transportation equipment 124,689 126,562 116,761 4-10 years
Furniture and fixtures 37,515 37,002 29,533 7-10 years
Vending equipment 292,500 291,844 279,872 6-13 years
Leasehold and land improvements 42,025 41,379 34,538 5-20 years
Construction in progress 9,970 3,389 21,502
- ---------------------------------------------------------------------------------------------------------------------------
Total property, plant and equipment, at cost 706,192 697,567 667,594
Less: Accumulated depreciation 257,586 238,768 221,308
- ---------------------------------------------------------------------------------------------------------------------------
Property, plant and equipment, net $448,606 $458,799 $446,286
- ---------------------------------------------------------------------------------------------------------------------------
5. Leased Property Under Capital Leases
The category and terms of the capital leases were as follows:
July 2, Jan. 2, July 4,
In Thousands 2000 2000 1999 Terms
- --------------------------------------------------------------------------------------------------------------------------
Transportation and other equipment $ 13,899 $ 13,434 $ 13,576 1-5 years
Less: Accumulated amortization 4,024 2,649 1,208
- --------------------------------------------------------------------------------------------------------------------------
Leased property under capital leases, net $ 9,875 $ 10,785 $ 12,368
- --------------------------------------------------------------------------------------------------------------------------
Coca-Cola Bottling Co. Consolidated
Notes to Consolidated Financial Statements (Unaudited)
6. Long-Term Debt
Long-term debt is summarized as follows:
Fixed(F) or
Interest Variable Interest July 2, Jan. 2, July 4,
In Thousands Maturity Rate (V) Rate Paid 2000 2000 1999
- -----------------------------------------------------------------------------------------------------------------------------------
Lines of Credit 2002 7.38% - V Varies $57,800 $46,600 $60,000
7.46%
Term Loan Agreement 2004 7.14% V Varies 85,000 85,000 85,000
Term Loan Agreement 2005 7.14% V Varies 85,000 85,000 85,000
Medium-Term Notes 2000 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 6.38% F Semi- 250,000 250,000 250,000
annually
Other notes payable 2000 5.75% - F Varies 13,472 13,499 12,548
2001 10.00% -------- --------- --------
738,272 752,599 765,048
Less: Portion of long-term debt payable within one year 3,243 28,635 25,530
- -------------------------------------------------------------------------------------------------------------------------------
Long-term debt $735,029 $723,964 $739,518
- -------------------------------------------------------------------------------------------------------------------------------
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.
On April 26, 1999, the Company issued $250 million of 10-year debentures at
a fixed interest rate of 6.375% under the Company's $800 million shelf
registration filed in January 1999. The net proceeds from this issuance were
used principally for refinancing of short-term debt related to the purchase
of leased assets with the remainder used to repay other debt.
The Company had weighted average interest rates for its debt portfolio of
7.2%, 7.0% and 6.7% as of July 2, 2000, January 2, 2000 and July 4, 1999,
respectively. The Company's overall weighted average interest rate on
long-term debt increased from an average of 6.3% during the second quarter
of 1999 to an average of 7.3% during the second quarter of 2000. After
taking into account the effect of all of the interest rate swap activities,
approximately 38%, 35% and 32% of the total debt portfolio was subject to
changes in short-term interest rates as of July 2, 2000, January 2, 2000 and
July 4, 1999, respectively.
A rate increase of 1% on the floating rate component of the Company's debt
would have increased interest expense for the second quarter of 2000 by
approximately $1.4 million and the net income for the second quarter ended
July 2, 2000 would have been decreased by approximately $0.9 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 acquisition, were as follows:
First Half
-------------------------------
In Thousands 2000 1999
- ---------------------------------------------------------------------------------------------------------------
Accounts receivable, trade, net $ (5,924) $ (14,601)
Accounts receivable, The Coca-Cola Company (92) 298
Accounts receivable, other 7,972 2,564
Inventories 1,346 (6,891)
Prepaid expenses and other current assets (5,105) (2,562)
Accounts payable and accrued liabilities (6,443) 2,826
Accounts payable, The Coca-Cola Company 2,413 (142)
Accrued compensation 2,563 (3,274)
Accrued interest payable (5,599) (2,344)
Due to (from) Piedmont Coca-Cola Bottling Partnership 5,857 (6,622)
--------- -----------
Increase in current assets less current liabilities $ (3,012) $ (30,748)
========= =========
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 charge liability during the first half of 2000
were as follows:
Accrued Liability Amts. Paid in Accrued Liability
In Thousands at Jan. 2, 2000 First Half 2000 at July 2, 2000
- --------------------------------------------------------------------------------------------------------------------------
Employee termination benefit costs $ 284 $ 278 $ 6
Facility lease costs and related expenses 330 66 264
------- -------- -------
$ 614 $ 344 $ 270
====== ====== ======
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:
Second Quarter First Half
-------------------- ---------------------
In Thousands (Except Per Share Data) 2000 1999 2000 1999
- ------------------------------------------------------------------------------------------------------------------
Numerator:
Numerator for basic net income and diluted
net income $6,317 $6,166 $4,360 $1,686
Denominator:
Denominator for basic net income per share -
weighted average common shares 8,733 8,519 8,733 8,442
Effect of dilutive securities - stock options 104 119 52 121
-------- -------- --------- --------
Denominator for diluted net income per share -
adjusted weighted average common shares 8,837 8,638 8,785 8,563
======= ======= ======= =======
Basic net income per share $ .72 $ .72 $ .50 $ .20
======== ======== ======== ========
Diluted net income per share $ .71 $ .71 $ .50 $ .20
======== ======== ======== ========
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 $36.6 million, $35.3
million and $30.3 million as of July 2, 2000, January 2, 2000 and July 4, 1999,
respectively.
The Company is involved in various 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.
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 second quarter and first six months of 2000 compared to the
second quarter and first six months of 1999 and changes in financial condition
from July 4, 1999 and January 2, 2000 to July 2, 2000. 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 $6.3 million or $.72 per share for the second
quarter of 2000 compared with net income of $6.2 million or $.72 per share for
the same period in 1999. For the first half of 2000, net income was $4.4 million
or $.50 per share compared to net income of $1.7 million or $.20 per share for
the first half of 1999. The increase in earnings during the second quarter of
2000 compared with the same period in 1999 was driven primarily by higher net
selling prices per unit of 8% in the second quarter of 2000, offset somewhat by
additional costs related to enhancements to employee compensation programs and
lower levels of marketing funding from The Coca-Cola Company.
During July 2000, the Company agreed to sell certain bottling territory in
Kentucky and Ohio to another Coca-Cola bottler. The territory to be sold
represents approximately 3% of the Company's annual sales volume. The
transaction is subject to completion of a definitive purchase agreement and
regulatory approval.
Results of Operations:
Net selling price per case increased by approximately 8.5% and 9% for the second
quarter and first half of 2000, respectively, 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, its selling
prices did not keep pace with cost increases. As a result, operating margins
narrowed and net income declined in 1999. In 2000, the Company has increased
selling prices to cover increasing raw material costs, lower marketing funding
and higher fuel costs, and to improve operating margins.
Increases in net selling prices impacted unit sales volume in the second quarter
and first half of 2000. Unit sales volume declined 4.9% for the second quarter
and 4.8% for the first half of 2000. Excluding volume from territories acquired
during 1999, unit volume declined by approximately 6.8% in the second quarter
and 7% in the first half of the year. The declines in unit volume for the second
quarter and first half of 2000 were consistent with the Company's expectations.
As a result of the increase in selling prices and the decline in unit volume,
net sales in the second quarter of 2000 increased approximately 4% over the
second quarter of 1999. Excluding the effect of territories acquired in 1999,
net sales in the second quarter of 2000 increased by 2% from the same period in
1999.
Noncarbonated beverages unit volume grew during the first half of 2000 despite
significantly higher selling prices. Noncarbonated beverages which include
Dasani water, Fruitopia,
POWERaDE and Cool from Nestea, accounted for 7% of the Company's product mix
during the first half of 2000, up from approximately 6% in the first half of
1999.
Cost of sales on a per unit basis increased approximately 2% in both the second
quarter and first half of 2000 over the same periods in 1999. The increase in
cost of sales is primarily due to raw material cost increases. The Company
anticipates that the cost of plastic bottles will increase during the third
quarter of 2000 as a result of recent increases in resin prices.
Gross margin increased by approximately 11% for the second quarter and 12.5% for
the first half of 2000, primarily as a result of the increases in net selling
prices as previously discussed. Excluding territories acquired in 1999, gross
margin increased by 9% in the second quarter and 10% in the first half of 2000.
Gross margin as a percentage of net sales in the second quarter of 2000
increased to 47.2% from 44.3% in the second quarter of 1999. Gross margin as a
percentage of sales for the first half of 2000 increased to 46.9% from 43.2% in
the prior year.
Selling, general and administrative expenses for the second quarter of 2000
increased approximately 12% over the second quarter of 1999 and increased
approximately 10% for the first half of 2000 over the first half 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 so that funding is more closely
tied to changes in unit volume. As a result, marketing funding was negatively
impacted by the decline in unit volume for the second quarter and first half of
2000. Total marketing funding from The Coca-Cola Company was reduced by 32% and
25% for the second quarter and first half of 2000, respectively, from the same
periods of 1999.
The Company recorded $0.9 million as compensation expense for the first half of
2000 related to a restricted stock award for the Company's Chairman and Chief
Executive Officer. The restricted stock award, which provides for 20,000 shares
of the Company's Class B Common Stock to be awarded annually if certain
performance requirements are met, was approved by the Company's stockholders in
May 1999. The performance requirements related to this stock award were not met
in 1999 and as a result, the award did not vest and no compensation expense was
recorded in 1999. Additional compensation expense of $2.2 million was also
recorded during the second quarter primarily for enhancements to certain
employee compensation programs to ensure the Company remained competitive for
talent in tight labor markets. Fuel costs increased by 27% in the second quarter
and 37% for the first half of 2000 compared to the same periods in 1999. The
increased fuel costs amounted to $0.4 million for the second quarter and $1.0
million for the first half of 2000.
Excluding the effect of territories acquired in 1999, the impact of reduced
marketing funding, enhancements to compensation programs, higher fuel prices and
the restricted stock award accrual, selling, general and administrative expenses
increased by approximately 1% for the second quarter of 2000 compared to the
second 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 half of 2000 and 1999 was $24.1 million and $31.3 million,
respectively.
Depreciation expense increased by approximately $2 million and $3.4 million
between the second quarter and first half of 2000, respectively, from the
comparable periods in 1999. The increase was due to significant capital
investments 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.
Interest expense for the second quarter of 2000 of $13.6 million increased by
$1.2 million or 9% from the second quarter of 1999. Interest expense for the
first half of 2000 increased by $3.4 million or 14% over the same period in the
prior year. The increases are due to additional borrowings related to the
acquisition of three Coca-Cola bottlers during 1999 and higher average interest
rates on the Company's floating rate debt. The Company's overall weighted
average interest rate increased from an average of 6.3% during the first half of
1999 to an average of 7.3% during the first half of 2000.
Amortization of goodwill and intangibles expense of $7.3 million increased by
$0.7 million in the first half of 2000 as compared to the same period in 1999
due to the acquisition of three Coca-Cola bottlers during 1999.
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 an
agreement on wages and benefits. The union elected to strike and other
Teamster-represented sales centers in West Virginia joined in a sympathy strike.
The Company used management and supervisory personnel to distribute products to
the Company's customers in the areas affected by the strike. The impacted
branches represent approximately 7% of the Company's annual sales volume. The
work stoppage initiated by Teamsters Local Union 505 ended in July when the
Company and the respective Teamster Locals entered into an "effects" labor
agreement. On August 7, 2000, all Teamster-represented employees returned to
work and to operations consistent with these agreements.
Changes in Financial Condition:
Working capital increased $26.7 million from January 2, 2000 and decreased $14.1
million from July 4, 1999 to July 2, 2000. The increase from January 2, 2000 is
primarily attributable to a reduction in the current portion of long-term debt
of $25.4 million. The decrease in the current portion of long-term debt reflects
the repayment of $25.5 million of the Company's Medium-Term Notes that matured
in March 2000. Other changes in the components of working capital that largely
offset one another included an increase in accounts receivable, trade of $5.9
million, a decrease in accounts receivable, other of $8.0 million, a decrease in
accounts payable and accrued liabilities of $6.4 million and an increase in
amounts due to Piedmont Coca-Cola Bottling Partnership ("Piedmont") of $5.9
million.
Working capital decreased by $14.1 million from July 4, 1999 due to a change in
amounts due to (from) Piedmont of $14.8 million. Other changes in working
capital were generally offsetting. Significant changes in other components of
working capital included a decrease in the current portion of long-term debt of
$22.3 million, decreases in accounts receivable, trade of $6.9 million and
accounts receivable from The Coca-Cola Company of $3.7 million, a decrease in
inventories of $5.4 million and an increase in accounts payable and accrued
liabilities of $5.5 million. The decrease in the current portion of long-term
debt reflects the repayment of $25.5 million of the Company's Medium-Term Notes
that matured in March 2000.
Capital expenditures in the first half of 2000 were $22.9 million compared to
$213.7 million in the first half of 1999. Expenditures for the first half of
1999 include the purchase of approximately $155 million of previously leased
equipment completed during January 1999.
Long-term debt decreased by $26.8 million from July 4, 1999 and $14.3 million
from January 2, 2000. The decreases from the prior year and 1999 year-end are
due to increased cash flow. The Company has significantly reduced its capital
spending from higher 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 long-term debt has partially offset the impact
of higher interest rates and dampened increases in interest expense during 2000.
As of July 2, 2000, the Company had no amounts outstanding under its revolving
credit facility and $57.8 million outstanding under lines of credit.
In April 1999 the Company issued $250 million of 10-year debentures at a fixed
rate of 6.375% under a shelf registration statement filed in January 1999. The
Company subsequently entered into interest rate swap agreements totaling $100
million related to these debentures. The proceeds from the issuance of
debentures were used to refinance borrowings related to the buyout of operating
leases discussed above and other corporate borrowings.
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.
As of July 2, 2000 the debt portfolio had a weighted average interest rate of
approximately 7.2% and approximately 38% of the total portfolio of $738 million
was subject to changes in short-term interest rates.
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 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 shareholder value; the sufficiency of our financial
resources to fund our operations and capital expenditure requirements; our
expectations concerning capital expenditures and our expectations that Year 2000
issues will not have a significant impact on our ongoing business 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, 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 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 attorney 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 provided its suppliers with notice that it will seek
indemnification from them 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 4. Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting of the Company's stockholders was held on May 10,
2000.
(b) The meeting was held to consider and vote upon (i) electing three
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
------------- --- -------- -----------
H. W. McKay Belk 51,991,146 135,281 52,126,427
H. Reid Jones 51,996,834 129,594 52,126,428
John W. Murrey, III 51,976,605 149,822 52,126,427
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.
27 Financial data schedule for period ended July 2,
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: August 15, 2000 By: /s/ David V. Singer
----------------------------------------
David V. Singer
Principal Financial Officer of the Registrant
and
Vice President - Chief Financial Officer
5
0000317540
Coca-Cola Bottling Co. Consolidated
1,000
U.S. Dollars
6-MOS
DEC-31-2000
JAN-03-2000
JUL-02-2000
1
6,724
0
67,175
884
43,390
146,861
706,192
257,586
1,097,355
123,832
735,029
12,423
0
0
20,009
1,097,355
499,117
499,117
265,245
265,245
197,701
0
27,554
6,812
2,452
4,360
0
0
0
4,360
0.50
0.50
