Back to GetFilings.com
================================================================================
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended January 2, 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 of (I.R.S. Employer Identification Number)
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)
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, $l.00 par value
-----------------------------
(Title of Class)
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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. X
---
State the aggregate market value of voting stock held by non-affiliates of
the Registrant.
MARKET VALUE AS OF MARCH 1, 2000
---------------------------------
Common Stock, $l.00 par value $217,422,646
Class B Common Stock, $l.00 par value *
*No market exists for the shares of Class B Common Stock, which is neither
registered under Section 12 of the Act nor subject to Section 15(d) of the Act.
The Class B Common Stock is convertible into Common Stock on a share for share
basis at the option of the holder.
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock, as of the latest practicable date.
CLASS OUTSTANDING AS OF MARCH 1, 2000
- ------------------------------------------ --------------------------------
Common Stock, $1.00 Par Value 6,392,252
Class B Common Stock, $1.00 Par Value 2,341,077
DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------
Portions of Proxy Statement to be filed pursuant to Section 14
of the Exchange Act with respect to the 2000 Annual Meeting of
Stockholders ..............................................Part III,Items 10-13
================================================================================
PART I
ITEM 1 -- BUSINESS
INTRODUCTION AND RECENT DEVELOPMENTS
Coca-Cola Bottling Co. Consolidated, a Delaware corporation ("Company"), is
engaged in the production, marketing and distribution of carbonated and
noncarbonated beverages, primarily products of The Coca-Cola Company, Atlanta,
Georgia ("The Coca-Cola Company"). The Company was incorporated in 1980 and its
predecessors have been in the soft drink manufacturing and distribution business
since 1902.
The Company has grown significantly since 1984. In 1984, net sales were
approximately $130 million. In 1999, net sales were approximately $973 million.
The Company's bottling territory was concentrated in North Carolina prior to
1984. A series of acquisitions since 1984 have significantly expanded the
Company's bottling territory. The most significant transactions were as follows:
o February 8, 1985 -- Acquisition of various subsidiaries of Wometco
Coca-Cola Bottling Company which included territories in parts of Alabama,
Tennessee and Virginia. Other noncontiguous territories acquired in this
acquisition were subsequently sold.
o January 27, 1989 -- Acquisition of all of the outstanding stock of The
Coca-Cola Bottling Company of West Virginia, Inc. which included territory
covering most of the state of West Virginia.
o December 20, 1991 -- Acquisition of all of the outstanding capital stock of
Sunbelt Coca-Cola Bottling Company, Inc. ("Sunbelt") which included
territory covering parts of North Carolina and South Carolina.
o July 2, 1993 -- Formation of Piedmont Coca-Cola Bottling Partnership
("Piedmont"). Piedmont is a joint venture owned equally by the Company and
The Coca-Cola Company through their respective subsidiaries. Piedmont
distributes and markets soft drink products, primarily in parts of North
Carolina and South Carolina. The Company sold and contributed certain
territories to Piedmont upon formation. The Company currently provides part
of the finished product requirements for Piedmont and receives a fee for
managing the operations of Piedmont pursuant to a management agreement.
o June 1, 1994 -- The Company executed a management agreement with South
Atlantic Canners, Inc. ("SAC"), a manufacturing cooperative located in
Bishopville, South Carolina. The Company is a member of the cooperative and
receives a fee for managing the day-to-day operations of SAC pursuant to a
10-year management agreement. SAC significantly expanded its operations by
adding two PET bottling lines in 1994. These bottling lines supply a portion
of the Company's and Piedmont's volume requirements for finished product in
PET containers.
o May 28, 1999 -- Acquisition of all the outstanding capital stock of
Carolina Coca-Cola Bottling Company, Inc. which included territory covering
central South Carolina.
These transactions, along with several smaller acquisitions of additional
bottling territories, have resulted in the Company becoming the second largest
Coca-Cola bottler in the United States.
The Coca-Cola Company currently owns an economic interest of approximately
30% and a voting interest of approximately 23% in the Company. The Coca-Cola
Company's economic interest was achieved through a series of transactions as
follows:
o June 1987 -- The Company sold 1,355,033 shares of newly issued Common Stock
and 269,158 shares of Class B Common Stock to The Coca-Cola Company for
$62.5 million.
o January 1989 -- The Company issued 1.1 million shares of Common Stock to
The Coca-Cola Company in exchange for all of the outstanding stock of The
Coca-Cola Bottling Company of West Virginia, Inc.
o June 1993 -- The Company sold 33,464 shares of Common Stock to The
Coca-Cola Company for $0.7 million pursuant to an agreement to maintain The
Coca-Cola Company's voting and equity interest within a prescribed range.
o February 1997 -- The Company purchased 275,490 shares of its Common Stock
for $13.1 million from The Coca-Cola Company pursuant to an agreement to
maintain The Coca-Cola Company's voting and equity interest within a
prescribed range.
1
In addition, effective November 23, 1998, The Coca-Cola Company exchanged
228,512 shares of the Company's Common Stock which it held for 228,512 shares of
the Company's Class B Common Stock, pursuant to an agreement to maintain The
Coca-Cola Company's voting and equity interest within a prescribed range.
The Company considers acquisition opportunities for additional territories
on an ongoing basis. To achieve its goals, further purchases and sales of
bottling rights and entities possessing such rights and other related
transactions designed to facilitate such purchases and sales may occur.
GENERAL
In its soft drink operations, the Company holds Bottle Contracts and Allied
Bottle Contracts under which it produces and markets, in certain regions,
carbonated soft drink products of The Coca-Cola Company, including Coca-Cola
classic, caffeine free Coca-Cola classic, diet Coke, caffeine free diet Coke,
Cherry Coke, diet Cherry Coke, TAB, Sprite, diet Sprite, Surge, Citra, Mello
Yello, diet Mello Yello, Mr. PiBB, Barq's Root Beer, diet Barq's Root Beer,
Fresca, Minute Maid orange and diet Minute Maid orange sodas.
The Company also distributes and markets under Marketing and Distribution
Agreements POWERaDE, Cool from Nestea, Fruitopia and Minute Maid Juices To Go in
certain of its markets. In April 1999, the Company began producing and
distributing Dasani bottled water, another product from The Coca-Cola Company.
The Company produces and markets Dr Pepper in most of its regions. Various other
products, including Seagrams' products and Sundrop, are produced and marketed in
one or more of the Company's regions under agreements with the companies that
manufacture the concentrate for those beverages. In addition, the Company also
produces soft drinks for other Coca-Cola bottlers.
The Company's principal soft drink is Coca-Cola classic. During the last
three fiscal years, sales of products under the Coca-Cola trademark have
accounted for more than half of the Company's soft drink sales. In total, the
products of The Coca-Cola Company accounted for approximately 90% of the
Company's soft drink sales during fiscal year 1999.
BEVERAGE AGREEMENTS
The Company holds contracts with The Coca-Cola Company which entitle the
Company to produce and market The Coca-Cola Company's soft drinks in bottles,
cans and five gallon, pressurized, pre-mix containers. The Company is one of
many companies holding such contracts. The Coca-Cola Company is the sole owner
of the secret formulas pursuant to which the primary components (either
concentrates or syrups) of Coca-Cola trademark beverages are manufactured. The
concentrates, when mixed with water and sweetener, produce syrup which, when
mixed with carbonated water, produces the soft drink known as "Coca-Cola
classic" and other soft drinks of The Coca-Cola Company which are manufactured
and marketed by the Company. The Company also purchases natural sweeteners from
The Coca-Cola Company. No royalty or other compensation is paid under the
contracts with The Coca-Cola Company for the Company's right to use in its
territories the tradenames and trademarks, such as "Coca-Cola classic" and their
associated patents, copyrights, designs and labels, all of which are owned by
The Coca-Cola Company. The Company has similar arrangements with Dr Pepper
Company and other beverage companies.
BOTTLE CONTRACTS. The Company is party to standard bottle contracts with
The Coca-Cola Company for each of its bottling territories (the "Bottle
Contracts") which provide that the Company will purchase its entire requirement
of concentrates and syrups for Coca-Cola, Coca-Cola classic, caffeine free
Coca-Cola classic, diet Coke, caffeine free diet Coke, Cherry Coke and diet
Cherry Coke (together, the "Coca-Cola Trademark Beverages") from The Coca-Cola
Company. The Company has the exclusive right to distribute Coca-Cola Trademark
Beverages for sale in its territories in authorized containers of the nature
currently used by the Company, which include cans and refillable and
non-refillable bottles. The Coca-Cola Company may determine from time to time
what containers of this type to authorize for use by the Company.
The price The Coca-Cola Company charges for syrup or concentrate under the
Bottle Contracts is set by The Coca-Cola Company from time to time. Except as
provided in the Supplementary Agreement described below, there are no
limitations on prices for concentrate or syrup. Consequently, the prices at
which the Company purchases concentrates and syrup under the Bottle Contracts
may vary materially from the prices it has paid during the periods covered by
the financial information included in this report.
Under the Bottle Contracts, the Company is obligated to maintain such
plant, equipment, staff and distribution facilities as are required for the
manufacture, packaging and distribution of the Coca-Cola Trademark Beverages in
authorized containers, and in sufficient quantities to satisfy fully the demand
for these beverages in its territories; to undertake adequate quality control
measures and maintain sanitation standards prescribed by The Coca-Cola Company;
to develop, stimulate and satisfy fully the demand for Coca-Cola Trademark
Beverages and to use all approved means, and to spend such funds on
2
advertising and other forms of marketing, as may be reasonably required to meet
that objective; and to maintain such sound financial capacity as may be
reasonably necessary to assure performance by the Company and its affiliates of
their obligations to The Coca-Cola Company.
The Bottle Contracts require the Company to submit to The Coca-Cola Company
each year its plans for marketing, management and advertising with respect to
the Coca-Cola Trademark Beverages for the ensuing year. Such plans must
demonstrate that the Company has the financial capacity to perform its duties
and obligations to The Coca-Cola Company under the Bottle Contracts. The Company
must obtain The Coca-Cola Company's approval of those plans, which approval may
not be unreasonably withheld, and if the Company carries out its plans in all
material respects, it will have satisfied its contractual obligations. Failure
to carry out such plans in all material respects would constitute an event of
default that, if not cured within 120 days of notice of such failure, would give
The Coca-Cola Company the right to terminate the Bottle Contracts. If the
Company at any time fails to carry out a plan in all material respects with
respect to any geographic segment (as defined by The Coca-Cola Company) of its
territory, and if that failure is not cured within six months of notice of such
failure, The Coca-Cola Company may reduce the territory covered by the
applicable Bottle Contract by eliminating the portion of the territory with
respect to which the failure has occurred.
The Coca-Cola Company has no obligation under the Bottle Contracts to
participate with the Company in expenditures for advertising and marketing. As
it has in the past, The Coca-Cola Company may contribute to such expenditures
and undertake independent advertising and marketing activities, as well as
cooperative advertising and sales promotion programs which require mutual
cooperation and financial support of the Company. The future levels of marketing
support and promotional funds provided by The Coca-Cola Company may vary
materially from the levels provided during the periods covered by the financial
information included in this report.
The Coca-Cola Company has the right to reformulate any of the Coca-Cola
Trademark Beverages and to discontinue any of the Coca-Cola Trademark Beverages,
subject to certain limitations, so long as all Coca-Cola Trademark Beverages are
not discontinued. The Coca-Cola Company may also introduce new beverages under
the trademarks "Coca-Cola" or "Coke" or any modification thereof, and in that
event the Company would be obligated to manufacture, package, distribute and
sell the new beverages with the same duties as exist under the Bottle Contracts
with respect to Coca-Cola Trademark Beverages.
If the Company acquires the right to manufacture and sell Coca-Cola
Trademark Beverages in any additional territory, the Company has agreed that
such new territory will be covered by a standard contract in the same form as
the Bottle Contracts and that any existing agreement with respect to the
acquired territory automatically shall be amended to conform to the terms of the
Bottle Contracts. In addition, if the Company acquires control, directly or
indirectly, of any bottler of Coca-Cola Trademark Beverages, or any party
controlling a bottler of Coca-Cola Trademark Beverages, the Company must cause
the acquired bottler to amend its franchises for the Coca-Cola Trademark
Beverages to conform to the terms of the Bottle Contracts.
The Bottle Contracts are perpetual, subject to termination by The Coca-Cola
Company in the event of default by the Company. Events of default by the Company
include (1) the Company's insolvency, bankruptcy, dissolution, receivership or
similar conditions; (2) the Company's disposition of any interest in the
securities of any bottling subsidiary without the consent of The Coca-Cola
Company; (3) termination of any agreement regarding the manufacture, packaging,
distribution or sale of Coca-Cola Trademark Beverages between The Coca-Cola
Company and any person that controls the Company; (4) any material breach of any
obligation occurring under the Bottle Contracts (including, without limitation,
failure to make timely payment for any syrup or concentrate or of any other debt
owing to The Coca-Cola Company, failure to meet sanitary or quality control
standards, failure to comply strictly with manufacturing standards and
instructions, failure to carry out an approved plan as described above, and
failure to cure a violation of the terms regarding imitation products), that
remains uncured for 120 days after notice by The Coca-Cola Company; or (5)
producing, manufacturing, selling or dealing in any "Cola Product," as defined,
or any concentrate or syrup which might be confused with those of The Coca-Cola
Company; or (6) selling any product under any trade dress, trademark or
tradename or in any container that is an imitation of a trade dress or container
in which The Coca-Cola Company claims a proprietary interest; or (7) owning any
equity interest in or controlling any entity which performs any of the
activities described in (5) or (6) above. In addition, upon termination of the
Bottle Contracts for any reason, The Coca-Cola Company, at its discretion, may
also terminate any other agreements with the Company regarding the manufacture,
packaging, distribution, sale or promotion of soft drinks, including the Allied
Bottle Contracts described elsewhere herein.
The Company is prohibited from assigning, transferring or pledging its
Bottle Contracts, or any interest therein, whether voluntarily or by operation
of law, without the prior consent of The Coca-Cola Company. Moreover, the
Company may not
3
enter into any contract or other arrangement to manage or participate in the
management of any other Coca-Cola bottler without the prior consent of The
Coca-Cola Company.
The Coca-Cola Company may automatically amend the Bottle Contracts if 80%
of the domestic bottlers who are parties to agreements with The Coca-Cola
Company containing substantially the same terms as the Bottle Contracts, which
bottlers purchased for their own account 80% of the syrup and equivalent gallons
of concentrate for Coca-Cola Trademark Beverages purchased for the account of
all such bottlers, agree that their bottle contracts shall be likewise amended.
SUPPLEMENTARY AGREEMENT. The Company and The Coca-Cola Company are also
parties to a Supplementary Agreement (the "Supplementary Agreement") that
modifies some of the provisions of the Bottle Contracts. The Supplementary
Agreement provides that The Coca-Cola Company will exercise good faith and fair
dealing in its relationship with the Company under the Bottle Contracts; offer
marketing support and exercise its rights under the Bottle Contracts in a manner
consistent with its dealings with comparable bottlers; offer to the Company any
written amendment to the Bottle Contracts (except amendments dealing with
transfer of ownership) which it offers to any other bottler in the United
States; and, subject to certain limited exceptions, sell syrups and concentrates
to the Company at prices no greater than those charged to other bottlers which
are parties to contracts substantially similar to the Bottle Contracts. The
Supplementary Agreement permits transfers of the Company's capital stock that
would otherwise be limited by the Bottle Contracts.
ALLIED BOTTLE CONTRACTS. Other contracts with The Coca-Cola Company (the
"Allied Bottle Contracts") grant similar exclusive rights to the Company with
respect to the distribution of Sprite, Mr. PiBB, Surge, Citra, Mello Yello, diet
Mello Yello, Fanta, TAB, diet Sprite, sugar free Mr. PiBB, Fresca, POWERaDE,
Minute Maid orange and diet Minute Maid orange sodas (the "Allied Beverages")
for sale in authorized containers in its territories. These contracts contain
provisions that are similar to those of the Bottle Contracts with respect to
pricing, authorized containers, planning, quality control, trademark and
transfer restrictions and related matters. Each Allied Bottle Contract has a
term of 10 years and is renewable by the Company for an additional 10 years at
the end of each 10 year period, but is subject to termination in the event of
(1) the Company's insolvency, bankruptcy, dissolution, receivership or similar
condition; (2) termination of the Company's Bottle Contract covering the same
territory by either party for any reason; and (3) any material breach of any
obligation of the Company under the Allied Bottle Contract that remains uncured
for 120 days after notice by The Coca-Cola Company.
The Coca-Cola Company purchased all rights of Barq's, Inc. under its
Bottler's Agreements with the Company. These contracts cover both Barq's Root
Beer and diet Barq's Root Beer and remain in effect unless terminated by The
Coca-Cola Company for breach by the Company of their terms, insolvency of the
Company or the failure of the Company to manufacture, bottle and sell the
products for 15 consecutive days or to purchase extract for a period of 120
consecutive days.
POST-MIX RIGHTS. The Company also has the non-exclusive right to sell
Coca-Cola classic and other fountain syrups ("post-mix syrup") of The Coca-Cola
Company.
OTHER BOTTLING AGREEMENTS. The bottling agreements from most other soft
drink franchisers are similar to those described above in that they are
renewable at the option of the Company and the franchisers. The price the
franchisers may charge for syrup or concentrate is set by the franchisers from
time to time. They also contain similar restrictions on the use of trademarks,
approved bottles, cans and labels and sale of imitations or substitutes as well
as termination for cause provisions. Sales of beverages by the Company under
these agreements represented approximately 10% of the Company's sales for fiscal
year 1999.
The territories covered by the Allied Bottle Contracts and by bottling
agreements for products of franchisers other than The Coca-Cola Company in most
cases correspond with the territories covered by the Bottle Contracts. The
variations do not have a material effect on the Company's business.
MARKETS AND PRODUCTION AND DISTRIBUTION FACILITIES
As of March 1, 2000, the Company held bottling rights from The Coca-Cola
Company covering the majority of central, northern and western North Carolina,
and portions of Alabama, Mississippi, Tennessee, Kentucky, Virginia, West
Virginia, Ohio, Pennsylvania, South Carolina, Georgia and Florida. The total
population within the Company's bottling territory is approximately 13.5
million.
4
As of March 1, 2000, the Company operated in six principal geographical
regions. Certain information regarding each of these markets follows:
1. NORTH CAROLINA/SOUTH CAROLINA. This region includes the majority of
central and western North Carolina, including Raleigh, Greensboro,
Winston-Salem, High Point, Hickory, Asheville, Fayetteville and Charlotte and
the surrounding areas and a portion of central South Carolina, including Sumter.
The region has an estimated population of 5.9 million. Production/ distribution
facilities are located in Charlotte and 18 other distribution facilities are
located in the region.
2. SOUTH ALABAMA. This region includes a portion of southwestern Alabama,
including Mobile and surrounding areas, and a portion of southeastern
Mississippi. The region has an estimated population of 900,000. A
production/distribution facility is located in Mobile and five other
distribution facilities are located in the region.
3. SOUTH GEORGIA. This region includes a small portion of eastern Alabama,
a portion of southwestern Georgia including Columbus, Georgia and surrounding
areas, and a portion of the Florida Panhandle. A distribution facility is
located in Columbus, Georgia and four other distribution facilities are located
in the region. This region has an estimated population of 1.0 million.
4. MIDDLE TENNESSEE. This region includes a portion of central Tennessee,
including Nashville and surrounding areas, a small portion of southern Kentucky
and a small portion of northwest Alabama. The region has an estimated population
of 1.9 million. A production/distribution facility is located in Nashville and
eight other distribution facilities are located in the region.
5. WESTERN VIRGINIA. This region includes most of southwestern Virginia,
including Roanoke and surrounding areas, a portion of the southern piedmont of
Virginia, a portion of northeastern Tennessee and a portion of southeastern West
Virginia. The region has an estimated population of 1.8 million. A
production/distribution facility is located in Roanoke and nine other
distribution facilities are located in the region.
6. WEST VIRGINIA. This region includes most of the state of West Virginia,
a portion of eastern Kentucky, a portion of eastern Ohio and a portion of
southwestern Pennsylvania. The region has an estimated population of 2.0
million. There are 11 distribution facilities located in the region.
The Company owns 100% of the operations in each of the regions previously
listed.
In July 1993, the Company sold the majority of the South Carolina bottling
territory that it then owned to Piedmont. Pursuant to a management agreement,
the Company produces a portion of the soft drink products for Piedmont. The
Company currently owns a 50% interest in Piedmont. Piedmont's bottling territory
covers parts of eastern North Carolina and most of South Carolina (other than
portions of central South Carolina). This region has an estimated population of
4.1 million.
On June 1, 1994, the Company executed a management agreement with SAC, a
manufacturing cooperative located in Bishopville, South Carolina. The Company is
a member of the cooperative and receives a fee for managing the day-to-day
operations of SAC pursuant to a 10-year management agreement. Management fees
from SAC were $1.3 million, $1.2 million and $1.2 million in 1999, 1998 and
1997, respectively. SAC has significantly expanded its operations by adding two
PET bottling lines in 1994. The bottling lines supply a portion of the Company's
and Piedmont's volume requirements for finished products in PET containers. In
1994, the Company executed member purchase agreements with SAC that require
minimum annual purchases of canned product, 20 ounce PET product, 2 liter PET
product and 3 liter PET product by the Company of approximately $40 million.
In addition to producing bottled and canned soft drinks for the Company's
bottling territories, each production facility also produces some products for
sale by other Coca-Cola bottlers. With the exception of the Company's production
of soft drink products for Piedmont, this contract production is currently not a
material portion of the Company's total production volume.
RAW MATERIALS
In addition to concentrates obtained by the Company from The Coca-Cola
Company and other concentrate companies for use in its soft drink manufacturing,
the Company also purchases sweeteners, carbon dioxide, plastic bottles, cans,
closures, pre-mix containers and other packaging materials as well as equipment
for the production, distribution and marketing of soft drinks. Except for
sweetener, cans and plastic bottles, the Company purchases its raw materials
from multiple suppliers.
5
The Company has supply agreements with its aluminum can suppliers which
require the Company to purchase the majority of its aluminum can requirements.
These agreements, which extend through the end of 2003, also reduce the
variability of the cost of cans.
The Company purchases substantially all of its plastic bottles (20 ounce, 1
liter, 2 liter and 3 liter sizes) from manufacturing plants which are owned and
operated by two cooperatives of Coca-Cola bottlers, including the Company.
None of the materials or supplies used by the Company is in short supply,
although the supply of specific materials could be adversely affected by
strikes, weather conditions, governmental controls or national emergency
conditions.
MARKETING
The Company's soft drink products are sold and distributed directly by its
employees to retail stores and other outlets, including food markets,
institutional accounts and vending machine outlets. During 1999, approximately
76% of the Company's physical case volume was in the take-home channel through
supermarkets, convenience stores, drug stores and other retail outlets. The
remaining volume was in the cold drink channel, primarily through dispensing
machines, owned either by the Company, retail outlets or third party vending
companies.
New product introductions, packaging changes and sales promotions have been
the major competitive techniques in the soft drink industry in recent years and
have required and are expected to continue to require substantial expenditures.
Product introductions in recent years include: caffeine free Coca-Cola classic;
caffeine free diet Coke; Cherry Coke; Surge; Citra; Minute Maid orange; diet
Minute Maid orange; Cool from Nestea; Fruitopia; POWERaDE; Minute Maid Juices To
Go and Dasani. New product introductions have resulted in increased operating
costs for the Company due to special marketing efforts, obsolescence of replaced
items and, in some cases, higher raw materials costs.
After several new package introductions in recent years, the Company now
sells its soft drink products primarily in non-refillable bottles and cans, in
varying proportions from market to market. There may be as many as fifteen
different packages for Coca-Cola classic within a single geographical area.
Physical unit sales of soft drinks during fiscal year 1999 were approximately
52% cans, 46% non-refillable bottles and 2% pre-mix.
Advertising in various media, primarily television and radio, is relied
upon extensively in the marketing of the Company's soft drinks. The Coca-Cola
Company and Dr Pepper Company each have joined the Company in making substantial
expenditures in cooperative advertising in the Company's marketing areas. The
Company also benefits from national advertising programs conducted by The
Coca-Cola Company and Dr Pepper Company, respectively. In addition, the Company
expends substantial funds on its own behalf for extensive local sales promotions
of the Company's soft drink products. These expenses are partially offset by
marketing funds which the franchisers provide to the Company in support of a
variety of marketing programs, such as point-of-sale displays and merchandising
programs.
The substantial outlays which the Company makes for advertising are
generally regarded as necessary to maintain or increase sales volume, and any
curtailment of the marketing funding provided by The Coca-Cola Company for
advertising or marketing programs which benefit the Company could have a
material effect on the business and financial results of the Company.
SEASONALITY
Sales are somewhat seasonal, with the highest sales volume occurring in
May, June, July and August. The Company has adequate production capacity to meet
sales demands during these peak periods.
COMPETITION
The soft drink industry is highly competitive. The Company's competitors
include several large soft drink manufacturers engaged in the distribution of
nationally advertised products, as well as similar companies which market
lesser-known soft drinks in limited geographical areas and manufacturers of
private brand soft drinks. In each region in which the Company operates, between
75% and 90% of carbonated soft drink sales in bottles, cans and pre-mix
containers are accounted for by the Company and its principal competition, which
in each region includes the local bottler of Pepsi-Cola and, in some regions,
also includes the local bottler of Royal Crown products. The Company's
carbonated beverage products also compete with, among others, noncarbonated
beverages and citrus and noncitrus fruit drinks.
The principal methods of competition in the soft drink industry are
point-of-sale merchandising, new product introductions, packaging changes, price
promotions, product quality, frequency of distribution and advertising.
6
GOVERNMENT REGULATION
The production and marketing of beverages are subject to the rules and
regulations of the United States Food and Drug Administration ("FDA") and other
federal, state and local health agencies. The FDA also regulates the labeling of
containers.
From time to time, legislation has been proposed in Congress and by certain
state and local governments which would prohibit the sale of soft drink products
in non-refillable bottles and cans or require a mandatory deposit as a means of
encouraging the return of such containers in an attempt to reduce solid waste
and litter. The Company is currently not impacted by this type of proposed
legislation.
Soft drink and similar-type taxes have been in place in South Carolina,
West Virginia and Tennessee for several years. North Carolina's soft drink tax
was reduced beginning in 1996 and eliminated in July 1999. The South Carolina
soft drink tax has been repealed and is being phased out ratably over a six-year
period beginning July 1, 1996.
ENVIRONMENTAL REMEDIATION
The Company does not currently have any material capital expenditure
commitments for environmental remediation for any of its properties.
EMPLOYEES
As of March 1, 2000, the Company had approximately 6,050 full-time
employees, of whom approximately 520 were union members. The total number of
employees is approximately 7,000. Management of the Company believes that the
Company's relations with its employees are generally good.
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.
The Company is using management personnel to continue service to customers in
the areas affected by the strike. The Company is unable to estimate whether the
strike will have a material effect on the earnings and financial position of the
Company.
ITEM 2 -- PROPERTIES
The principal properties of the Company include its corporate headquarters,
its four production/distribution facilities and its 56 distribution centers. The
Company owns two production/distribution facilities and 47 distribution centers,
and leases its corporate headquarters, two production/distribution facilities
and nine distribution centers.
The Company leases its 110,000 square foot corporate headquarters and a
65,000 square foot adjacent office building from an affiliate for a ten-year
term expiring January 2009. Total rent expense for these facilities was $3.1
million in 1999.
The Company leases its 542,000 square foot Snyder Production Center in
Charlotte, North Carolina from an affiliate for a term expiring in December
2002. Rent expense under this lease totaled $2.6 million in 1999.
The Company also leases its 297,500 square foot production/distribution
facility in Nashville, Tennessee. The lease requires monthly payments through
2002. The Company's other real estate leases are not material.
The Company owns and operates a 316,000 square foot
production/distribution facility in Roanoke, Virginia and a 271,000 square foot
production/distribution facility in Mobile, Alabama. The current percentage
utilization of the Company's production centers as of March 1, 2000 is
approximately as indicated below:
PRODUCTION FACILITIES
---------------------
LOCATION PERCENTAGE UTILIZATION*
- ---------------------------------- ------------------------
Charlotte, North Carolina ...... 69%
Mobile, Alabama ................ 63%
Nashville, Tennessee ........... 61%
Roanoke, Virginia .............. 88%
- ---------
* Estimated 2000 production divided by capacity (based on operations of 6 days
per week and 16 hours per day).
The Company currently has sufficient production capacity to meet its
operational requirements. In addition to the production facilities noted above,
the Company also has access to production capacity from SAC, a manufacturing
cooperative located in Bishopville, South Carolina.
7
Bottled and canned soft drinks are transported to distribution centers for
storage pending sale. The number of distribution centers by market area as of
March 1, 2000 is as follows:
DISTRIBUTION CENTERS
--------------------
REGION NUMBER OF CENTERS
- -------------------------------- ------------------
North Carolina/South Carolina 19
South Alabama ................ 6
South Georgia ................ 5
Middle Tennessee ............. 9
Western Virginia ............. 10
West Virginia ................ 11
The Company's distribution facilities are all in good condition and are
adequate for the Company's operations as presently conducted.
The Company also operates approximately 3,300 vehicles in the sale and
distribution of its soft drink products, of which approximately 1,550 are route
delivery trucks. In addition, the Company owns or leases approximately 190,000
soft drink dispensing and vending machines for the sale of its soft drink
products in its bottling territories.
ITEM 3 -- LEGAL PROCEEDINGS
The Company is involved in various claims and legal proceedings which have
arisen in the ordinary course of its 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 4 -- SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
fourth quarter of the fiscal year ended January 2, 2000.
EXECUTIVE OFFICERS OF THE REGISTRANT
Pursuant to General Instruction G(3) of Form 10-K, the following list is
included as an unnumbered item in Part I of this Report.
The following is a list of names and ages of all the executive officers of
the Registrant as of March 1, 2000, indicating all positions and offices with
the Registrant held by each such person. All officers have served in their
present capacities for the past five years except as otherwise stated.
J. FRANK HARRISON, III, age 45, is Chairman of the Board of Directors and
Chief Executive Officer of the Company. Mr. Harrison was appointed Chairman of
the Board of Directors in December 1996. Mr. Harrison served in the capacity of
Vice Chairman from November 1987 through December 1996 and was appointed as the
Company's Chief Executive Officer in May 1994. He was first employed by the
Company in 1977, and has served as a Division Sales Manager and as a Vice
President of the Company. Mr. Harrison, III is a Director of Wachovia Bank &
Trust Co., N.A., Southern Region Board. He is Vice Chairman of the Executive
Committee, Vice Chairman of the Finance Committee and a member of the Audit
Committee.
REID M. HENSON, age 60, has served as a Vice Chairman of the Board of
Directors of the Company since 1983. Prior to that time, Mr. Henson served as a
consultant for JTL Corporation, a management company, and later as President of
JTL Corporation. He has been a Director of the Company since 1979, is Chairman
of the Audit Committee, Vice Chairman of the Retirement Benefits Committee and a
member of the Executive Committee and the Finance Committee.
JAMES L. MOORE, JR., age 57, is President and Chief Operating Officer of
the Company. Mr. Moore has been President and a Director of the Company since
March 1987. He is a member of the Executive Committee and is Chairman of the
Retirement Benefits Committee.
ROBERT D. PETTUS, JR., age 55, is Executive Vice President and Assistant
to the Chairman, a position to which he was appointed in January 1997. Mr.
Pettus was previously Vice President, Human Resources, a position he held since
September 1984.
8
DAVID V. SINGER, age 44, is Vice President and Chief Financial Officer, a
position to which he was appointed in October 1987.
M. CRAIG AKINS, age 49, is Vice President, Field Sales, a position he has
held since December 1999. Prior to that, he was Regional Vice President, Sales,
a position he had held since June 1996. He was previously Vice President, Cold
Drink Market, a position he was appointed to in October 1993.
CLIFFORD M. DEAL, III, age 38, is Vice President and Treasurer, a position
he has held since June 1999. Previously, he was Director of Compensation and
Benefits from October 1997 to May 1999. He was Corporate Benefits Manager from
December 1995 to September 1997. From November 1993 to November 1995 he was
Manager of Tax Accounting.
WILLIAM B. ELMORE, age 44, is Vice President, Value Chain, a position he
has held since July 1999. Previously, he was Vice President, Business Systems
from August 1998 to June 1999. He was Vice President, Treasurer from June 1996
to July 1998. He was Vice President, Regional Manager for the Virginia Division,
West Virginia Division and Tennessee Division from August 1991 to May 1996.
NORMAN C. GEORGE, age 44, is Vice President, Marketing and National Sales,
a position he was appointed to in December 1999. Prior to that he was Vice
President, Corporate Sales, a position he had held since August 1998.
Previously, he was Vice President, Sales for the Carolinas South Region, a
position he held beginning in November 1991.
UMESH M. KASBEKAR, age 42, is Vice President, Planning and Administration,
a position he has held since January 1995.
R. PHILIP KENNY, age 54, is Vice President, Human Resources, a position he
has held since June 1997. Prior to joining the Company in 1997, he was employed
by BancOne Corporation, where he served as Director, Human Resources, Southwest
Region from 1995 through 1997 and also served as Manager, Change Management and
Employee Relations during the first half of 1997.
C. RAY MAYHALL, JR., age 52, is Vice President, Distribution and Technical
Services, a position he was appointed to in December 1999. Prior to that he was
Regional Vice President, Sales, a position he had held since November 1992.
LAUREN C. STEELE, age 45, is Vice President, Corporate Affairs, a position
he has held since May 1989. He is responsible for governmental, media and
community relations for the Company.
STEVEN D. WESTPHAL, age 45, is Vice President and Controller of the
Company, a position he has held since November 1987.
JOLANTA T. ZWIREK, age 44, is Vice President and Chief Information Officer,
a position she has held since June 1999. Prior to joining the Company, she was a
Senior Director in the Information Services organization at McDonald's
Corporation, where she was an employee since 1984.
9
PART II
ITEM 5 -- MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company has two classes of common stock outstanding, Common Stock and
Class B Common Stock. The Common Stock is traded on the Nasdaq National Market
tier of the Nasdaq Stock Market(R) under the symbol COKE. The table below sets
forth for the periods indicated the high and low reported sales prices per share
of Common Stock. There is no established public trading market for the Class B
Common Stock. Shares of Class B Common Stock are convertible on a share for
share basis into shares of Common Stock.
FISCAL YEAR
-----------------------------------------------
1999 1998
----------------------- -----------------------
HIGH LOW HIGH LOW
----------- ----------- ----------- -----------
First quarter .......... $ 59.50 $ 54.50 $ 69.75 $ 56.00
Second quarter ......... 57.63 52.88 68.75 57.00
Third quarter .......... 60.00 55.75 75.75 58.50
Fourth quarter ......... 56.94 45.00 62.25 57.00
The quarterly dividend rate of $.25 per share on both Common Stock and
Class B Common Stock shares was maintained throughout 1998 and 1999.
Pursuant to the Company's Certificate of Incorporation, no cash dividend or
dividend of property or stock other than stock of the Company may be declared
and paid, per share, on the Class B Common Stock unless a dividend of an amount
greater than or equal to such cash or property or stock has been declared and
paid on the Common Stock.
The amount and frequency of future dividends will be determined by the
Company's Board of Directors in light of the earnings and financial condition of
the Company at such time, and no assurance can be given that dividends will be
declared in the future.
The number of stockholders of record of the Common Stock and Class B Common
Stock, as of March 1, 2000, was 3,217 and 13, respectively.
ITEM 6 -- SELECTED FINANCIAL DATA
The following table sets forth certain selected financial data concerning
the Company for the five years ended January 2, 2000. The data for the five
years ended January 2, 2000 is derived from audited financial statements of the
Company. This information should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" set
forth in Item 7 hereof and is qualified in its entirety by reference to the more
detailed financial statements and notes contained in Item 8 hereof. This
information should also be read in conjunction with the "Introduction and Recent
Developments" section in Item 1 hereof which details the Company's significant
acquisitions and divestitures since 1984.
10
SELECTED FINANCIAL DATA*
FISCAL YEAR
------------------------------------------------------------------
1999 1998 1997 1996 1995
-------------- ----------- ----------- ----------- -----------
IN THOUSANDS (EXCEPT PER SHARE DATA)
SUMMARY OF OPERATIONS
Net sales ...................................... $ 972,551 $928,502 $802,141 $773,763 $761,876
---------- -------- -------- -------- --------
Cost of sales .................................. 543,113 534,919 452,893 435,959 447,636
Selling expenses ............................... 219,360 207,244 183,125 177,734 158,831
General and administrative expenses ............ 72,547 69,001 56,776 58,793 54,720
Depreciation expense ........................... 60,567 37,076 33,783 28,608 26,818
Amortization of goodwill and intangibles ....... 13,734 12,972 12,221 12,158 12,158
Restructuring expense .......................... 2,232
---------- -------- -------- -------- --------
Total costs and expenses ....................... 911,553 861,212 738,798 713,252 700,163
---------- -------- -------- -------- --------
Income from operations ......................... 60,998 67,290 63,343 60,511 61,713
Interest expense ............................... 50,581 39,947 37,479 30,379 33,091
Other income (expense), net .................... (5,431) (4,098) (1,594) (4,433) (3,401)
---------- -------- -------- -------- --------
Income before income taxes and extraordinary
charge ........................................ 4,986 23,245 24,270 25,699 25,221
Income taxes ................................... 1,745 8,367 9,004 9,535 9,685
---------- -------- -------- -------- --------
Income before extraordinary charge ............. 3,241 14,878 15,266 16,164 15,536
Extraordinary charge ........................... (5,016)
---------- -------- -------- -------- --------
Net income ..................................... 3,241 14,878 15,266 16,164 10,520
---------- -------- -------- -------- --------
Basic net income per share:
Income before extraordinary charge ............ $ .38 $ 1.78 $ 1.82 $ 1.74 $ 1.67
Extraordinary charge .......................... (.54)
---------- -------- -------- -------- --------
Net income .................................... $ .38 $ 1.78 $ 1.82 $ 1.74 $ 1.13
---------- -------- -------- -------- --------
Diluted net income per share:
Income before extraordinary charge ............ $ .37 $ 1.75 $ 1.79 $ 1.73 $ 1.67
Extraordinary charge .......................... (.54)
---------- -------- -------- -------- --------
Net income .................................... $ .37 $ 1.75 $ 1.79 $ 1.73 $ 1.13
---------- -------- -------- -------- --------
Cash dividends per share:
Common ........................................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Class B Common ................................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
OTHER INFORMATION ..............................
Weighted average number of common shares
outstanding ................................... 8,588 8,365 8,407 9,280 9,294
Weighted average number of common shares
outstanding -- assuming dilution .............. 8,649 8,495 8,509 9,330 9,316
YEAR-END FINANCIAL POSITION ....................
Total assets ................................... $1,110,918 $825,228 $778,033 $702,396 $676,571
---------- -------- -------- -------- --------
Long-term debt ................................. 723,964 491,234 493,789 439,453 419,896
---------- -------- -------- -------- --------
Stockholders' equity ........................... 32,439 15,786 9,273 22,269 38,972
---------- -------- -------- -------- --------
* All years presented are 52-week years except 1998 which is a 53-week year. See
Note 3 and Note 15 to the consolidated financial statements for additional
information about Piedmont Coca-Cola Bottling Partnership. In 1995, the
Company recorded an extraordinary charge related to the repurchase at a
premium of a portion of the Company's long-term debt.
11
ITEM 7 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
INTRODUCTION
THE COMPANY
Coca-Cola Bottling Co. Consolidated ("Company") is engaged in the
production, marketing and distribution of products of The Coca-Cola Company,
which include the most recognized and popular beverage brands in the world. The
Company also distributes several other beverage brands. The Company's product
offerings include carbonated soft drinks, teas, juices, isotonics and bottled
water. Since 1984, the Company has expanded its bottling territory throughout
the Southeast, primarily through acquisitions, increasing its sales from $130
million in 1984 to $973 million in 1999. The Company is currently the second
largest bottler of products of The Coca-Cola Company in the United States.
1999 ACQUISITIONS
The Company plans to continue to grow both internally and through selected
acquisitions. The Company expanded its bottling territory during the year by
acquiring three Coca-Cola bottlers. The Company acquired Carolina Coca-Cola
Bottling Company, Inc. ("Carolina") a Coca-Cola bottler with operations in
central South Carolina in May 1999. The Company also purchased in May 1999 the
bottling rights and operating assets of a small Coca-Cola bottler in north
central North Carolina. In October 1999, the Company acquired substantially all
of the outstanding capital stock of Lynchburg Coca-Cola Bottling Co., Inc., a
Coca-Cola bottler with operations in central Virginia. On November 5, 1999, the
Company signed a letter of intent to acquire The Coca-Cola Company's 50%
interest in Piedmont Coca-Cola Bottling Partnership ("Piedmont"), a joint
venture by the Company and The Coca-Cola Company with selling territories in
North Carolina and South Carolina. Subsequently, the Company and The Coca-Cola
Company agreed to discontinue negotiations related to the purchase until some
future date. 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 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 acquisitions will enhance long-term
shareholder value.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities." In June 1999, the FASB issued Statement No. 137 which deferred the
implementation of FASB Statement No. 133. As amended, Statement No. 133 is
effective for all fiscal quarters of all fiscal years beginning after June 15,
2000. Statement No. 133 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 has not yet determined what effect the adoption of Statement No. 133
will have on the earnings and financial position of the Company.
THE YEAR IN REVIEW
1999 was a disappointing year for the Company with sales volume growth
falling significantly short of expectations and net income declining from $14.9
million in 1998 to $3.2 million in 1999. During 1999, the Company built
infrastructure to support sustained volume growth on the levels experienced in
1998 and 1997 of 11% and 8%, respectively. During 1999, however, soft drink
industry growth slowed significantly from prior year levels. While the Company's
1999 volume growth of 2% outpaced the industry, it was far short of recent
trends and expectations. The volume shortfall began in the second quarter and
continued throughout the remainder of the year. The Company responded to the
lower than expected volume growth by increasing selling prices in the fourth
quarter and by reducing its workforce, which resulted in a fourth quarter
pre-tax restructuring charge of $2.2 million.
Net sales increased by approximately 5% in 1999 to $973 million. Net
selling price for the year increased 3% and was up 6.5% in the fourth quarter.
Income from operations plus depreciation and amortization increased from $117
million in 1998 to $135 million in 1999. After adjusting for the impact of
acquisitions and the restructuring charge, income from operations before lease
expense plus depreciation and amortization increased 3% in 1999.
Net income for 1999 declined to $3.2 million from $14.9 million in 1998.
The decline in net income reflects lower than expected sales volume growth
combined with higher costs related to infrastructure investments made in
anticipation of
12
higher volume growth. The Company's infrastructure investments included
additional sales personnel, vehicles, cold drink equipment and additional
support personnel to service cold drink equipment.
The Company continued its strong commitment to expanding its business with
capital expenditures totaling $256.6 million in 1999. A significant portion of
the capital expenditures in 1999 resulted from the purchase in January of
approximately $155 million of equipment that was previously leased.
The Company continues to focus on its key long-term objectives including
increasing each of per capita consumption, operating cash flow and shareholder
value. Our long-term success in achieving these objectives is supported by many
factors including superior products, a strong relationship with our strategic
partner, The Coca-Cola Company, strategic acquisitions, an experienced
management team and a work force of approximately 6,000 talented individuals
working together as a team. We are committed to working with The Coca-Cola
Company to ensure that we fully utilize our joint resources to maximize the full
potential with our consumers and customers.
Our partnership with The Coca-Cola Company continues to provide our
customers and consumers with innovative products and packaging. In 1999, the
Company introduced Dasani, the new bottled water from The Coca-Cola Company. The
Company was the first Coca-Cola bottler in the world to produce and distribute
Dasani. Continued development of new and exciting packaging offers our customers
more options. The combination of new products and packaging along with our core
brands provide the Company with a line-up of beverage offerings unsurpassed in
the industry.
SIGNIFICANT EVENTS OF PRIOR YEARS
The Company repurchased approximately 930,000 shares of its Common Stock in
three separate transactions between December 1996 and February 1997.
On June 1, 1994, the Company executed a management agreement with South
Atlantic Canners, Inc. ("SAC"), a manufacturing cooperative located in
Bishopville, South Carolina. The Company is a member of the cooperative and
receives a fee for managing the day-to-day operations of SAC pursuant to this
10-year management agreement. SAC significantly expanded its operations by
adding two PET bottling lines in 1994. These new bottling lines supply a portion
of the Company's volume requirements for PET product.
On July 2, 1993, the Company and The Coca-Cola Company formed Piedmont to
distribute and market soft drink products of The Coca-Cola Company and other
third party licensors, primarily in certain portions of North Carolina and South
Carolina. The Company provides a portion of the soft drink products to Piedmont
and receives a fee for managing the business of Piedmont pursuant to a
management agreement. The Company and The Coca-Cola Company, through their
respective subsidiaries, each beneficially own a 50% interest in Piedmont. The
Company is accounting for its investment in Piedmont using the equity method of
accounting.
RESULTS OF OPERATIONS
1999 COMPARED TO 1998
NET INCOME
The Company reported net income of $3.2 million or basic net income per
share of $.38 for fiscal year 1999 compared to $14.9 million or $1.78 basic net
income per share for fiscal year 1998. Diluted net income per share for 1999 was
$.37 compared to $1.75 in 1998. The decline in net income was primarily
attributable to lower than anticipated volume growth and higher expenses related
to the Company's investment in the infrastructure considered necessary to
support accelerated long-term growth. Investments in additional personnel,
vehicles and cold drink equipment resulted in cost increases that the Company
anticipated would be offset by higher sales volume. With the soft drink industry
growth levels slowing significantly during the year, the higher cost structure
negatively impacted 1999 earnings. The Company reduced its workforce by
approximately 5% in the fourth quarter to reduce staffing costs. In addition,
the Company increased its selling price by approximately 6.5% in the fourth
quarter of 1999.
NET SALES
Net sales for 1999 grew by approximately 5% to $973 million compared to
$929 million in 1998. The increase was due to volume growth of 2%, an increase
in net selling price of 3% and acquisitions of additional bottling territories
in South Carolina, North Carolina and Virginia. Net sales in 1999 from the newly
acquired bottling territories were approximately $16 million. The Company's 1998
fiscal year included a 53rd week. Sales growth in noncarbonated beverages,
including POWERaDE, Fruitopia and Dasani bottled water remained strong in 1999.
Noncarbonated products now account for almost
13
7% of the Company's bottle and can volume. Sales to other bottlers decreased by
11% during 1999 over 1998 levels, primarily due to lower sales to Piedmont. The
Company sells finished products to Piedmont at cost.
COST OF SALES AND OPERATING EXPENSES
Cost of sales on a per case basis increased by approximately 1% in 1999.
This increase was due to higher raw material costs, including concentrate and
packaging costs, as well as increases in manufacturing labor and overhead
resulting from wage rate increases and an increase in the number of stockkeeping
units.
Selling expenses increased by approximately $12 million or 6% in 1999 over
1998 levels. Lease expense declined significantly in 1999 compared to 1998 as a
result of the purchase of approximately $155 million of equipment in January
1999 that had previously been leased. Excluding lease expense, selling expenses
increased by $26 million or 14% in 1999. Increased selling costs resulted from
higher employment costs for additional sales personnel, additional marketing
expenses and higher costs for sales development programs. The increase in
selling expenses was partially offset by increased marketing funding and
infrastructure support from The Coca-Cola Company. The Company made a
significant investment in its sales force, technical services and infrastructure
in 1999 in anticipation of a continuation of the growth levels experienced in
1997 and 1998. With the reduction in staffing levels in the fourth quarter of
1999, the Company anticipates that selling expenses will increase in 2000 at a
slower rate than in 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 concentrates, syrups and finished products to the Company make
substantial marketing and 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 such other beverage
companies. Certain of the marketing expenditures by The Coca-Cola Company and
these 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. Also, The Coca-Cola Company has agreed to
provide additional marketing funding under a multi-year program to support the
Company's cold drink infrastructure. Total marketing funding and infrastructure
support from The Coca-Cola Company and other beverage companies in 1999 and 1998
was $63 million and $61 million, respectively. A portion of the marketing
funding and infrastructure support from The Coca-Cola Company is subject to
annual performance requirements. The Company is in compliance with all such
performance requirements, as amended. Significant decreases in the historical
levels of marketing support from The Coca-Cola Company or other beverage
companies would adversely impact operating results of the Company.
General and administrative expenses increased by $4 million or
approximately 4% per case from 1998. The increase in general and administrative
expenses was due to hiring of additional personnel to support anticipated volume
growth and higher employment costs in certain of the Company's labor markets,
offset by lower incentive accruals. In addition, general and administrative
expenses increased in 1999 due to remediation and testing of Year 2000 issues of
approximately $1 million.
Depreciation expense in 1999 increased $23 million or 63%. The increase is
due to significant capital expenditures over the past several years, including
$256.6 million in 1999, of which $155 million related to the purchase of
equipment that was previously leased.
The pre-tax restructuring charge of $2.2 million in the fourth quarter of
1999 consists of employee termination benefit costs of $1.8 million and facility
lease costs and other related expenses of $0.4 million. The restructuring charge
will be funded by cash flow from operations. The objectives of the restructuring
were to consolidate and streamline sales divisions and reduce the overall
operating expense base. Approximately 300 positions were eliminated as a result
of the restructuring. The Company expects to begin realizing the effects of
these actions in the first quarter of 2000.
INVESTMENT IN PARTNERSHIP
The Company's share of Piedmont's net loss of $2.6 million increased from a
loss of $.5 million in 1998. The increase in the loss reflects the impact of
lower than expected volume growth in 1999 and higher infrastructure costs at
Piedmont.
INTEREST EXPENSE
Interest expense increased by $10.6 million or 27% in 1999. The increase is
due to additional debt related to the purchase of $155 million of equipment that
was previously leased and additional borrowings to fund acquisitions and capital
expenditures. The Company's overall weighted average borrowing rate for 1999 was
6.8% compared to 7.1% in 1998.
14
OTHER INCOME/EXPENSE
Other expense increased from $4.1 million in 1998 to $5.4 million in 1999.
Approximately half of the increase related to net losses of Data Ventures LLC,
in which the Company holds a 31.25% equity interest. Data Ventures LLC provides
to the Company certain computerized data management products and services
related to inventory control and marketing program support.
INCOME TAXES
The effective tax rate for federal and state income taxes was approximately
35% in 1999 compared to approximately 36% in 1998. The difference between the
effective rate and the statutory rate was due primarily to amortization of
nondeductible goodwill, state income taxes, nondeductible premiums on officers'
life insurance and other nondeductible expenses.
1998 COMPARED TO 1997
NET INCOME
The Company reported net income of $14.9 million or basic net income per
share of $1.78 for fiscal year 1998 compared to $15.3 million or $1.82 basic net
income per share for fiscal year 1997. Diluted net income per share for 1998 was
$1.75 compared to $1.79 in 1997. The small decline in net income was
attributable to expenses related to the Company's investment in the
infrastructure necessary to support accelerated long-term growth, partially
offset by additional marketing funding support from The Coca-Cola Company.
Investments in additional personnel, information systems and cold drink
equipment resulted in cost increases.
NET SALES
Net sales for 1998 grew by 16% to $929 million, compared to $802 million in
1997. The increase was due to broad-based volume growth across key sales
channels, an increase in net selling price of 0.6%, acquisitions of additional
bottling territory in Alabama and Virginia and a 53rd week in the Company's 1998
fiscal year. The Company continued to experience strong growth from its
carbonated soft drinks with growth of approximately 9% in 1998. Newer products
such as SURGE, an expanded line-up of Minute Maid products as well as double
digit growth for Sprite helped drive the growth in carbonated beverages. Sales
growth in noncarbonated beverages, including POWERaDE, Fruitopia, tea and
bottled water exceeded 70% in 1998. Sales to other bottlers increased by 25%
during 1998 over 1997 levels, primarily due to additional sales to Piedmont,
which experienced significant sales volume growth in 1998.
COST OF SALES AND OPERATING EXPENSES
Cost of sales on a per case basis increased by approximately 2% in 1998.
The increase was primarily due to increases in concentrate prices offset
somewhat by lower packaging costs.
Selling expenses increased by approximately $24 million or 13% in 1998 over
1997 levels. Increased selling costs resulted from higher sales volume,
employment costs for additional sales personnel, a new incentive program for
certain employees, additional marketing expenses, higher costs for sales
development programs and increased lease expense for cold drink equipment and
vehicles. The increase in selling expenses was partially offset by increased
marketing funding and infrastructure support from The Coca-Cola Company. Selling
expenses on a per case basis for 1998 were relatively unchanged from 1997.
General and administrative expenses increased by $12 million from 1997. The
increase in general and administrative expenses was due primarily to hiring of
additional support personnel and higher employment costs in certain of the
Company's labor markets.
Depreciation expense increased $3 million or 10%. The increase was due to
significant capital expenditures over the past several years including $46.8
million in 1998.
INVESTMENT IN PARTNERSHIP
The Company's share of Piedmont's net loss of $.5 million was down from a
loss of $1.1 million in 1997. The reduction in the loss reflects improved
operating results from Piedmont.
15
INTEREST EXPENSE
Interest expense increased by $2.5 million or 7% in 1998. The increase was
due to additional borrowings used to fund acquisitions and capital expenditures.
The Company's overall weighted average borrowing rate for 1998 was 7.1% compared
to 7.0% in 1997.
OTHER INCOME/EXPENSE
Other expense increased by $2.5 million in 1998. The increase was due
primarily to losses on the disposal of cold drink equipment.
INCOME TAXES
The effective tax rate for federal and state income taxes was approximately
36% in 1998 versus approximately 37% in 1997. The difference between the
effective rate and the statutory rate was due primarily to amortization of
nondeductible goodwill, state income taxes, nondeductible premiums on officers'
life insurance and other nondeductible expenses.
FINANCIAL CONDITION
Total assets increased from $825 million at January 3, 1999 to $1.1 billion
at January 2, 2000. The increase was primarily due to an increase of $200
million in property, plant and equipment, net and acquisitions of other
Coca-Cola bottlers for approximately $66 million. A significant portion of the
increase in property, plant and equipment resulted from the purchase in January
1999 of $155 million of assets that had previously been leased.
Working capital decreased by $8.3 million to a deficit of $3.7 million at
January 2, 2000 compared to $4.6 million at January 3, 1999. The change in
working capital is primarily due to an increase in accounts payable and accrued
liabilities of $16.2 million, partially offset by an increase in other accounts
receivable of $5.9 million.
Total long-term debt increased to $753 million at January 2, 2000 compared
to $521 million at January 3, 1999. The increase in debt relates to the purchase
of equipment that was previously leased for $155 million, acquisitions of three
Coca-Cola bottlers, of which approximately $44 million was financed with debt,
and additional capital expenditures during the year.
LIQUIDITY AND CAPITAL RESOURCES
CAPITAL RESOURCES
Sources of capital for the Company primarily 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, dividends for stockholders and other cash needs.
INVESTING ACTIVITIES
Additions to property plant and equipment during 1999 were $256.6 million.
Also, the Company acquired three Coca-Cola bottlers during 1999 for
approximately $66 million. The Company used debt financing, installment notes
and issuance of the Company's Common Stock to fund these transactions.
Leasing is used for certain capital additions when considered cost
effective related to other sources of capital. The Company utilized lease
financing of $50 million for substantially all of its cold drink equipment
additions in 1999. Total lease expense in 1999 was $12.3 million compared to
$26.1 million in 1998. The decrease in lease expense in 1999 was attributable
primarily to the purchase of $155 million of equipment which had previously been
leased.
In 2000, the Company expects its capital spending to be less than 50% of
its 1999 capital additions.
At the end of 1999, the Company had no material commitments for the
purchase of capital assets other than those related to normal replacement of
equipment. The Company considers the acquisition of bottling territories on an
ongoing basis.
FINANCING ACTIVITIES
In January 1999, the Company filed a new $800 million shelf registration
for debt and equity securities. This new shelf registration includes $200
million of unused availability from a $400 million shelf registration filed in
October 1994.
16
In April 1999, the Company issued $250 million of 10-year debentures at a
fixed rate of 6.375% under its shelf registration filed in January 1999. The
Company subsequently entered into interest rate swap agreements totaling $100
million related to these debentures. The net proceeds from the issuance of these
debentures were used to refinance borrowings related to the $155 million
purchase of assets previously leased, refinance certain maturing Medium-Term
Notes and repay other corporate borrowings.
In May 1999, the Company acquired substantially all of the outstanding
capital stock of Carolina in exchange for 368,482 shares of the Company's Common
Stock, installment notes and cash. The purchase price of Carolina was
approximately $37 million, as adjusted for shareholders' equity of Carolina, as
of the acquisition date. The Company completed two additional acquisitions
during 1999 whose aggregate purchase price totaled approximately $29 million.
The Company used its informal lines of credit for the cash portion of these
acquisitions.
The Company borrows from time to time under informal lines of credit from
various banks. On January 2, 2000, the Company had $165 million available under
these lines, of which $46.6 million was outstanding. Loans under these lines are
made at the sole discretion of the banks at rates negotiated at the time of
borrowing.
In December 1997, the Company extended the maturity of a revolving credit
facility to December 2002 for borrowings of up to $170 million. There were no
amounts outstanding under this facility as of January 2, 2000.
INTEREST RATE HEDGING
The Company periodically uses interest rate hedging products to modify risk
from interest rate fluctuations in its underlying debt. The Company has
historically altered its fixed/floating rate mix based upon anticipated cash
flows from operations relative to the Company's debt level and the potential
impact of increases in interest rates on the Company's overall financial
condition. Sensitivity analyses are performed to review the impact on the
Company's financial position and coverage of various interest rate movements.
The Company does not use derivative financial instruments for trading purposes.
The weighted average interest rate of the debt portfolio as of January 2,
2000 was 7.0% compared to 7.3% at the end of 1998. The Company's overall
weighted average borrowing rate on its long-term debt in 1999 declined to 6.8%
from 7.1% in 1998. Approximately 35% of the Company's debt portfolio of $752.6
million was subject to changes in short-term interest rates as of January 2,
2000.
YEAR 2000
In preparation for the rollover to the year 2000, the Company initiated a
project in 1997, the scope of which included the following steps: ensuring the
compliance of all applications, operating systems and hardware on mainframe,
personal computer, local area network and wide area network platforms;
addressing issues related to non-IT imbedded software and equipment; and
addressing the compliance of key suppliers and customers.
The Company did not experience any significant malfunctions or errors in
its operating or business systems when the date changed from 1999 to 2000. Based
on operations since January 1, 2000, the Company does not expect any significant
impact to its ongoing business operations as a result of the Year 2000 issue.
However, Year 2000 compliance has many elements and potential consequences, some
of which may not be foreseeable or may be realized in future periods.
Consequently, there can be no assurance that unforeseen circumstances may not
arise, or that the Company will not in the future identify equipment or systems
which are not Year 2000 compliant. The Company is currently not aware of any
significant Year 2000 or similar problem that may have arisen with its key
customers, suppliers or other significant third parties.
As of January 2, 2000, the Company's incremental costs of addressing Year
2000 issues are estimated to be approximately $5 million. These costs were
expensed as they were incurred and were funded through cash flow from
operations.
The additional costs associated with the replacement of computerized
systems, hardware or equipment of approximately $4 million were capitalized and
are not included in the aforementioned Year 2000 expenses.
FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K, 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; our belief that selling
17
expenses will increase in 2000 at a slower rate than in 1999; the sufficiency of
our financial resources to fund our operations and capital expenditure
requirements; 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.
ITEM 7A -- QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to certain market risks that are inherent in the
Company's financial instruments, which arise in the ordinary course of business.
The Company may enter into derivative financial instrument transactions to
manage or reduce market risk. The Company does not enter into derivative
financial instrument transactions for trading purposes. A discussion of the
Company's primary market risk exposure in financial instruments is presented
below.
LONG-TERM DEBT
The Company is subject to interest rate risk on its long-term fixed
interest rate debt. Borrowings under informal lines of credit and other variable
rate long-term debt do not give rise to significant interest rate risk because
these borrowings either have maturities of less than three months or have
variable interest rates. All other things being equal, the fair market value of
the Company's debt with a fixed interest rate will increase as interest rates
decline and, the fair market value of the Company's debt will decrease as
interest rates rise. This exposure to interest rate risk is generally managed by
borrowing funds with a variable interest rate or using interest rate swaps to
effectively change fixed interest rate borrowings to variable interest rate
borrowings. The Company generally maintains between 30% and 50% of total
borrowings at variable interest rates, after taking into account all of the
interest rate hedging activities.
As it relates to the Company's variable rate debt, if market interest rates
average 1% more in 2000 than the rates of January 2, 2000, interest expense for
2000 would increase by $2.6 million. If market interest rates had averaged 1%
more in 1999 than the rates at January 3, 1999, interest expense for 1999 would
have increased by $1.4 million. These amounts were determined by calculating the
effect of the hypothetical interest rate on our variable rate debt, after giving
consideration to all our interest rate hedging activities. This sensitivity
analysis does not assume changes in the Company's financial structure.
The Company is subject to commodity price risk arising from price movements
for certain commodities included as part of its raw materials. The Company
generally manages this risk by entering into long-term contracts with adjustable
prices. The Company has not used derivative commodity instruments in the
management of this risk.
18
ITEM 8 -- FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
COCA-COLA BOTTLING CO. CONSOLIDATED
CONSOLIDATED STATEMENTS OF OPERATIONS
FISCAL YEAR
-----------------------------------
1999 1998 1997
----------- ----------- -----------
IN THOUSANDS (EXCEPT PER SHARE DATA)
NET SALES (includes sales to Piedmont of $68,046,
$69,552 and $54,155)..................................................... $972,551 $928,502 $802,141
Cost of sales, excluding depreciation shown below (includes
$56,439, $55,800 and $42,581 related to sales to Piedmont)............... 543,113 534,919 452,893
-------- -------- --------
GROSS MARGIN ............................................................. 429,438 393,583 349,248
-------- -------- --------
Selling expenses, excluding depreciation shown below ..................... 219,360 207,244 183,125
General and administrative expenses, excluding depreciation shown below .. 72,547 69,001 56,776
Depreciation expense ..................................................... 60,567 37,076 33,783
Amortization of goodwill and intangibles ................................. 13,734 12,972 12,221
Restructuring expense .................................................... 2,232
-------- -------- --------
INCOME FROM OPERATIONS ................................................... 60,998 67,290 63,343
-------- -------- --------
Interest expense ......................................................... 50,581 39,947 37,479
Other income (expense), net .............................................. (5,431) (4,098) (1,594)
-------- -------- --------
Income before income taxes ............................................... 4,986 23,245 24,270
Income taxes ............................................................. 1,745 8,367 9,004
-------- -------- --------
NET INCOME ............................................................... $ 3,241 $ 14,878 $ 15,266
-------- -------- --------
BASIC NET INCOME PER SHARE ............................................... $ .38 $ 1.78 $ 1.82
-------- -------- --------
DILUTED NET INCOME PER SHARE ............................................. $ .37 $ 1.75 $ 1.79
-------- -------- --------
Weighted average number of common shares outstanding ..................... 8,588 8,365 8,407
Weighted average number of common shares
outstanding -- assuming dilution ........................................ 8,649 8,495 8,509
See Accompanying Notes to Consolidated Financial Statements.
19
COCA-COLA BOTTLING CO. CONSOLIDATED
CONSOLIDATED BALANCE SHEETS
JAN. 2, JAN. 3,
2000 1999
------------- ----------
IN THOUSANDS (EXCEPT PER SHARE DATA)
ASSETS
CURRENT ASSETS:
Cash ................................................................. $ 9,050 $ 6,691
Accounts receivable, trade, less allowance for
doubtful accounts of $850 and $600.................................. 60,367 57,217
Accounts receivable from The Coca-Cola Company ....................... 6,018 10,091
Accounts receivable, other ........................................... 13,938 7,997
Inventories .......................................................... 44,736 41,010
Prepaid expenses and other current assets ............................ 13,275 15,545
---------- --------
Total current assets ............................................... 147,384 138,551
---------- --------
PROPERTY, PLANT AND EQUIPMENT, net ................................... 458,799 258,329
LEASED PROPERTY UNDER CAPITAL LEASES, net ............................ 10,785
INVESTMENT IN PIEDMONT COCA-COLA BOTTLING PARTNERSHIP ................ 60,216 62,847
OTHER ASSETS ......................................................... 69,824 51,576
IDENTIFIABLE INTANGIBLE ASSETS, less accumulated
amortization of $127,459 and $116,015............................... 305,432 253,156
EXCESS OF COST OVER FAIR VALUE OF NET ASSETS OF BUSINESSES ACQUIRED,
less accumulated amortization of $33,141 and $30,850................ 58,478 60,769
---------- --------
Total .............................................................. $1,110,918 $825,228
========== ========
See Accompanying Notes to Consolidated Financial Statements.
20
COCA-COLA BOTTLING CO. CONSOLIDATED
CONSOLIDATED BALANCE SHEETS
JAN. 2, JAN. 3,
2000 1999
-------------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Portion of long-term debt payable within one year ............................. $ 28,635 $ 30,115
Current portion of obligations under capital leases ........................... 4,483
Accounts payable and accrued liabilities ...................................... 88,848 72,623
Accounts payable to The Coca-Cola Company ..................................... 2,346 5,194
Due to Piedmont Coca-Cola Bottling Partnership ................................ 2,736 435
Accrued compensation .......................................................... 7,160 10,239
Accrued interest payable ...................................................... 16,830 15,325
---------- ---------
Total current liabilities ................................................... 151,038 133,931
---------- ---------
DEFERRED INCOME TAXES ......................................................... 125,109 120,659
DEFERRED CREDITS .............................................................. 4,135 4,838
OTHER LIABILITIES ............................................................. 69,765 58,780
OBLIGATIONS UNDER CAPITAL LEASES .............................................. 4,468
LONG-TERM DEBT ................................................................ 723,964 491,234
---------- ---------
Total liabilities ........................................................... 1,078,479 809,442
---------- ---------
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 and 9,086,113 shares ..... 9,454 9,086
Class B Common Stock, $1 par value:
Authorized - 10,000,000 shares; Issued - 2,969,191 and 2,969,222 shares ..... 2,969 2,969
Class C Common Stock, $1 par value:
Authorized - 20,000,000 shares; Issued - None ...............................
Capital in excess of par value ................................................ 107,753 94,709
Accumulated deficit ........................................................... (26,483) (29,724)
---------- ---------
93,693 77,040
---------- ---------
Less -- Treasury stock, at cost:
Common -- 3,062,374 shares .................................................. 60,845 60,845
Class B Common -- 628,114 shares ............................................ 409 409
---------- ---------
Total stockholders' equity .................................................. 32,439 15,786
---------- ---------
Total ....................................................................... $1,110,918 $ 825,228
---------- ---------
See Accompanying Notes to Consolidated Financial Statements.
21
COCA-COLA BOTTLING CO. CONSOLIDATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
FISCAL YEAR
------------------------------------------
1999 1998 1997
------------ ------------ ------------
IN THOUSANDS
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ..................................................................... $ 3,241 $ 14,878 $ 15,266
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation expense ........................................................ 60,567 37,076 33,783
Amortization of goodwill and intangibles .................................... 13,734 12,972 12,221
Deferred income taxes ....................................................... 1,745 8,367 2,567
Losses on sale of property, plant and equipment ............................. 2,755 2,586 1,433
Amortization of debt costs .................................................. 836 595 627
Amortization of deferred gain related to terminated interest rate swaps ..... (563) (563)
Undistributed loss of Piedmont Coca-Cola Bottling Partnership ............... 2,631 479 1,136
Decrease in current assets less current liabilities ......................... 9,521 132 733
Increase in other noncurrent assets ......................................... (15,911) (9,127) (7,953)
Increase in other noncurrent liabilities .................................... 9,702 2,180 5,784
Other ....................................................................... 334 79 3,071
---------- --------- ----------
Total adjustments .............................................................. 85,351 54,776 53,402
---------- --------- ----------
Net cash provided by operating activities ...................................... 88,592 69,654 68,668
---------- --------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from the issuance of long-term debt ................................... 234,686 54,561
Increase (decrease) in current portion of long-term debt ....................... (1,480) 18,115 11,895
Payments on long-term debt ..................................................... (1,956) (2,555) (226)
Purchase of Common Stock ....................................................... (20,001)
Cash dividends paid ............................................................ (8,549) (8,365) (8,365)
Payments on capital lease obligations .......................................... (4,938)
Proceeds from interest rate swap termination ................................... 6,480
Debt fees paid ................................................................. (3,266) (102) (1,226)
Other .......................................................................... (468) (390) (1,020)
---------- --------- ----------
Net cash provided by financing activities ...................................... 214,029 13,183 35,618
---------- --------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment ..................................... (256,561) (46,822) (100,105)
Proceeds from the sale of property, plant and equipment ........................ 753 1,255 1,223
Acquisitions of companies, net of cash acquired ................................ (44,454) (35,006) (3,918)
---------- --------- ----------
Net cash used in investing activities .......................................... (300,262) (80,573) (102,800)
---------- --------- ----------
NET INCREASE IN CASH ........................................................... 2,359 2,264 1,486
---------- --------- ----------
CASH AT BEGINNING OF YEAR ...................................................... 6,691 4,427 2,941
---------- --------- ----------
CASH AT END OF YEAR ............................................................ $ 9,050 $ 6,691 $ 4,427
---------- --------- ----------
Significant non-cash investing and financing activities
Issuance of Common Stock in connection with acquisition ....................... $ 21,961
Capital lease obligations incurred ............................................ 14,225
See Accompanying Notes to Consolidated Financial Statements.
22
COCA-COLA BOTTLING CO. CONSOLIDATED
CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS' EQUITY
MINIMUM
CLASS B CAPITAL IN PENSION
COMMON COMMON EXCESS OF ACCUMULATED LIABILITY TREASURY
STOCK STOCK PAR VALUE DEFICIT ADJUSTMENT STOCK
----- ----- --------- ------- ---------- -----
IN THOUSANDS
Balance on December 29, 1996 ............... $ 10,107 $1,948 $111,439 $ (59,868) $ (104) $41,253
Net income ................................. 15,266
Cash dividends paid ........................ (8,365)
Purchase of Common Stock ................... 20,001
Minimum pension liability adjustment ....... 104
----- ----- --------- ------- ---------- -----
Balance on December 28, 1997 ............... 10,107 1,948 103,074 (44,602) 0 61,254
Net income ................................. 14,878
Cash dividends paid ........................ (8,365)
Exchange of Common Stock for Class B Common
Stock .................................... (1,021) 1,021
----- ----- --------- ------- ---------- -----
Balance on January 3, 1999 ................. 9,086 2,969 94,709 (29,724) 0 61,254
Net income ................................. 3,241
Cash dividends paid ........................ (8,549)
Issuance of Common Stock in connection with
acquisition .............................. 368 21,593
----- ----- --------- ------- ---------- -----
BALANCE ON JANUARY 2, 2000 ................. $ 9,454 $2,969 $107,753 $ (26,483) $ 0 $61,254
----- ----- --------- ------- ---------- -----
See Accompanying Notes to Consolidated Financial Statements.
23
COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
Coca-Cola Bottling Co. Consolidated ("Company") is engaged in the
production, marketing and distribution of carbonated and noncarbonated
beverages, primarily products of The Coca-Cola Company. The Company operates in
portions of 12 states, principally in the southeastern region of the United
States.
The consolidated financial statements include the accounts of the Company
and its majority owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated. Acquisitions recorded as purchases are
included in the statement of operations from the date of acquisition.
The fiscal years presented are the 52-week period ended January 2, 2000,
the 53-week period ended January 3, 1999 and the 52-week period ended December
28, 1997. The Company's fiscal year ends on the Sunday closest to December 31.
Certain prior year amounts have been reclassified to conform to current
year classifications.
The Company's more significant accounting policies are as follows:
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand, cash in banks and cash
equivalents, which are highly liquid debt instruments with maturities of less
than 90 days.
INVENTORIES
Inventories are stated at the lower of cost, primarily determined on the
last-in, first-out method ("LIFO"), or market.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost and depreciated using
the straight-line method over the estimated useful lives of the assets.
Additions and major replacements or betterments are added to the assets at cost.
Maintenance and repair costs and minor replacements are charged to expense when
incurred. When assets are replaced or otherwise disposed of, the cost and
accumulated depreciation are removed from the accounts, and the gains or losses,
if any, are reflected in income.
SOFTWARE
The Company adopted the provisions of the American Institute of Certified
Public Accountants' Statement of Position 98-1, "Accounting for the Cost of
Computer Software Developed or Obtained for Internal Use" in the first quarter
of 1999. This statement requires capitalization of certain costs incurred in the
development of internal-use software. Software is amortized using the
straight-line method over its estimated useful life.
INVESTMENT IN PIEDMONT COCA-COLA BOTTLING PARTNERSHIP
The Company beneficially owns a 50% interest in Piedmont Coca-Cola Bottling
Partnership ("Piedmont"). The Company accounts for its interest in Piedmont
using the equity method of accounting.
With respect to Piedmont, sales of soft drink products at cost, management
fee revenue and the Company's share of Piedmont's results from operations are
included in "Net sales." See Note 3 and Note 15 for additional information.
INCOME TAXES
The Company provides deferred income taxes for the tax effects of temporary
differences between the financial reporting and income tax bases of the
Company's assets and liabilities.
BENEFIT PLANS
The Company has a noncontributory pension plan covering substantially all
nonunion employees and one noncontributory pension plan covering certain union
employees. Costs of the plans are charged to current operations and consist of
several components of net periodic pension cost based on various actuarial
assumptions regarding future experience of the
24
COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
plans. In addition, certain other union employees are covered by plans provided
by their respective union organizations. The Company expenses amounts as paid in
accordance with union agreements. The Company recognizes the cost of
postretirement benefits, which consist principally of medical benefits, during
employees' periods of active service.
Amounts recorded for benefit plans reflect estimates related to future
interest rates, investment returns, employee turnover, wage increases and health
care costs. The Company reviews all assumptions and estimates on an ongoing
basis.
INTANGIBLE ASSETS AND EXCESS OF COST OVER FAIR VALUE OF NET ASSETS OF
BUSINESSES ACQUIRED
Identifiable intangible assets resulting from the acquisition of Coca-Cola
bottling franchises are being amortized on a straight-line basis over periods
ranging from 17 to 40 years. The excess of cost over fair value of net assets of
businesses acquired is being amortized on a straight-line basis over 40 years.
The Company continually monitors conditions that may affect the carrying
value of its intangible assets. When conditions indicate potential impairment of
an intangible asset, the Company will undertake necessary market studies and
reevaluate projected future cash flows associated with the intangible asset.
When projected future cash flows, not discounted for the time value of money,
are less than the carrying value of the intangible asset, the impaired asset
would be written down to its estimated net realizable value.
NET INCOME PER SHARE
The Company follows Financial Accounting Standards Board Statement of
Financial Accounting Standards No. 128, Earnings per Share ("SFAS 128") which
requires disclosure of basic earnings per share ("EPS") and diluted EPS. Basic
EPS excludes dilution and is computed by dividing net income available for
common stockholders by the weighted average number of Common and Class B Common
shares outstanding. Diluted EPS gives effect to all securities representing
potential common shares that were dilutive and outstanding during the period. In
the calculation of diluted EPS, the denominator includes the number of
additional common shares that would have been outstanding if the Company's
outstanding stock options had been exercised.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company uses financial instruments to manage its exposure to movements
in interest rates. The use of these financial instruments modifies the exposure
of these risks with the intent to reduce the risk to the Company. The Company
does not use financial instruments for trading purposes, nor does it use
leveraged financial instruments.
Amounts receivable or payable under interest rate swap agreements are
included in other assets or other liabilities. Amounts paid or received under
interest rate swap agreements during their lives are recorded as adjustments to
interest expense. Deferred gains or losses on interest rate swap terminations
are amortized over the lives of the initial agreements as an adjustment to
interest expense.
Premiums paid for interest rate cap agreements are amortized to interest
expense over the terms of the agreements. Amounts receivable or payable under
interest rate cap agreements are included in other assets or other liabilities.
INSURANCE PROGRAMS
In general, the Company is self-insured for costs of workers' compensation,
casualty claims and medical claims. The Company uses commercial insurance for
workers' compensation, casualty claims and medical claims as a risk reduction
strategy to minimize catastrophic losses. Workers' compensation and casualty
losses are provided for using actuarial assumptions and procedures followed in
the insurance industry, adjusted for company-specific history and expectations.
MARKETING COSTS AND SUPPORT ARRANGEMENTS
The Company directs various advertising and marketing programs supported by
The Coca-Cola Company or other franchisers. Under these programs, certain costs
incurred by the Company are reimbursed by the applicable franchiser. Franchiser
funding is recognized when performance measures are met or as funded costs are
incurred.
25
COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. ACQUISITIONS
On May 28, 1999, the Company acquired substantially all of the outstanding
capital stock of Carolina Coca-Cola Bottling Company, Inc. ("Carolina") in
exchange for 368,482 shares of the Company's Common Stock, installment notes and
cash. The total purchase price was approximately $37 million, as adjusted for
required shareholders' equity of Carolina, as of the acquisition date. Carolina
was a Coca-Cola bottler with operations in central South Carolina.
On October 29, 1999, the Company acquired substantially all of the
outstanding capital stock of Lynchburg Coca-Cola Bottling Company, Inc.
("Lynchburg") for approximately $24 million, as adjusted for net working capital
of Lynchburg, as of the acquisition date. Lynchburg was a Coca-Cola bottler with
operations in central Virginia.
The Company also purchased the bottling rights and operating assets of a
small Coca-Cola bottler in north central North Carolina in May 1999. The
purchase price of this acquisition was not material.
In 1998, the Company expanded its bottling territory by acquiring two
Coca-Cola bottlers, one in northwestern Alabama and one in southwestern
Virginia. The total purchase price for these acquisitions was approximately $35
million.
In 1997, the Company acquired a Coca-Cola bottler in central North
Carolina. The purchase price of this acquisition was not material.
The Company used its informal lines of credit for the cash portion of the
acquisitions described above. These acquisitions have been accounted for under
the purchase method of accounting.
3. INVESTMENT IN PIEDMONT COCA-COLA BOTTLING PARTNERSHIP
On July 2, 1993, the Company and The Coca-Cola Company formed Piedmont to
distribute and market soft drink products primarily in certain 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 for Piedmont at cost
and receives a fee for managing the operations of Piedmont pursuant to a
management agreement.
Summarized financial information for Piedmont is as follows:
JAN. 2, JAN. 3,
2000 1999
---------- ----------
IN THOUSANDS
Current assets ................................. $ 31,094 $ 30,350
Noncurrent assets .............................. 331,979 336,505
-------- --------
Total assets ................................... $363,073 $366,855
-------- --------
Current liabilities ............................ $ 15,370 $ 14,705
Noncurrent liabilities ......................... 227,271 226,456
-------- --------
Total liabilities .............................. 242,641 241,161
Partners' equity ............................... 120,432 125,694
-------- --------
Total liabilities and partners' equity ......... $363,073 $366,855
-------- --------
Company's equity investment .................... $ 60,216 $ 62,847
-------- --------
26
COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEAR
-----------------------------------
1999 1998 1997
----------- ----------- -----------
IN THOUSANDS
Net sales ........................ $278,202 $269,312 $237,964
Cost of sales .................... 152,042 151,480 134,344
-------- -------- --------
Gross margin ..................... 126,160 117,832 103,620
Income from operations ........... 7,803 11,974 9,606
Net loss ......................... $ (5,262) $ (958) $ (2,272)
-------- -------- --------
Company's equity in loss ......... $ (2,631) $ (479) $ (1,136)
-------- -------- --------
4. INVENTORIES
Inventories are summarized as follows:
JAN. 2, JAN. 3,
2000 1999
---------- ----------
IN THOUSANDS
Finished products ................. $28,618 $26,300
Manufacturing materials ........... 11,424 10,382
Plastic pallets and other ......... 4,694 4,328
------- -------
Total inventories ................. $44,736 $41,010
------- -------
Finished products and manufacturing materials are valued by the LIFO
method. The amounts included above for inventories valued by the LIFO method
were greater than replacement or current cost by approximately $3.3 million and
$3.2 million on January 2, 2000 and January 3, 1999, respectively, as a result
of inventory premiums associated with certain acquisitions. Plastic pallets and
other inventories are valued by the first in, first out method.
5. PROPERTY, PLANT AND EQUIPM