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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, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
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
incorporation or organization) Identification Number)
1900 REXFORD ROAD
CHARLOTTE, NORTH CAROLINA 282LL
(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 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.
State the aggregate market value of voting stock held by non-affiliates of the
Registrant.
MARKET VALUE AS OF MARCH 25, 1994
Common Stock, $l par value $208,357,000
Class B Common Stock, $l 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.
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 25, 1994
Common Stock, $1 Par Value 7,958,059
Class B Common Stock, $1 Par Value 1,336,362
DOCUMENTS INCORPORATED BY REFERENCE
Proxy Statement to be filed pursuant to Section 14 of the Exchange Act with respect
to the 1994 Annual Meeting of Shareholders.......................................................... Part III, Items 10-13
PART I
ITEM 1 -- BUSINESS
INTRODUCTION AND RECENT DEVELOPMENTS
Coca-Cola Bottling Co. Consolidated ("the Company"), a Delaware
corporation, is engaged in the production, marketing and distribution of
carbonated soft drinks, primarily products of The Coca-Cola Company, Atlanta,
Georgia ("The
Coca-Cola Company"). The Company has been in the soft drink manufacturing
business since 1902.
Prior to 1984, the Company's business was concentrated in North Carolina.
In 1984, the Company undertook a major expansion program, primarily through
acquisitions. The following information summarizes significant acquisitions from
1984 through 1993, as well as other major developments.
On July 16, 1984, the Company acquired Federal Coca-Cola Bottling Company
of Columbus, Georgia; on October 19, 1984, it acquired the Pageland Coca-Cola
Bottling Works; and on December 31, 1984, it acquired the Waycross-Douglas
Bottling Company.
On February 8, 1985, the Company acquired the bottling subsidiaries of
Wometco Coca-Cola Bottling Company which gave the Company franchise rights to
produce, market and distribute soft drink products principally in parts of
Tennessee, Virginia and Alabama.
On January 9, 1986, the Company acquired eight bottlers of Coca-Cola
located in South Georgia, known collectively as the Haley Group. Additionally,
on February 24, 1986, the Company acquired the bottling operations of Panama
City
Coca-Cola Bottling Company and Quincy Coca-Cola Bottling Company, each of which
is located in Florida. On March 3, 1986, the Company sold Waycross-Douglas
Coca-Cola Bottling Company and McRae Coca-Cola Bottling Company.
In 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. The
proceeds from the sale were used to repay debt. On July 15, 1987, the Company
sold its Canadian subsidiary located in Vancouver, British Columbia. Net
proceeds from the sale were used to repay debt.
On January 27, 1989, the Company acquired all of the outstanding capital
stock of The Coca-Cola Bottling Company of West Virginia, Inc. from The
Coca-Cola Company in exchange for 1.1 million shares of the Company's Common
Stock and approximately $4 million in cash, as adjusted. Following this
transaction, The Coca-Cola Company now owns approximately a 30% economic
interest and a 23% voting interest in the Company. The acquired West Virginia
franchise areas include warehouses in Bluefield, Charleston, Craigsville, Logan,
Clarksburg, Morgantown, Huntington and Parkersburg, West
Virginia and Pikeville, Kentucky.
On January 27, 1989, the Company executed new Bottle Contracts, Allied
Bottle Contracts and a Supplementary Agreement with The Coca-Cola Company, as
further detailed below in Item 1.
On April 20, 1990, the Company acquired all of the outstanding capital
stock of Coca-Cola Bottling Works of Jackson, Incorporated and Jackson Coca-Cola
Bottling Company, Inc. (collectively "Jackson") in Jackson, Tennessee pursuant
to a merger of Jackson into a wholly owned subsidiary of the Company.
On December 20, 1991, the Company acquired all of the outstanding capital
stock of Sunbelt Coca-Cola Bottling Company, Inc. ("Sunbelt") for approximately
$15.2 million in cash and Company debt. In connection with this acquisition,
Sunbelt repaid approximately $202.5 million of its outstanding indebtedness with
funds supplied by the Company. In connection with the Sunbelt acquisition, total
assets acquired were approximately $304 million.
On July 2, 1993, the Company and The Coca-Cola Company formed Piedmont
Coca-Cola Bottling Partnership
("Piedmont") to distribute and market soft drink products primarily in 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 substantially all of the soft drink
products for Piedmont and manages the operations of Piedmont pursuant to a
Management Agreement. The term of the Management Agreement is 25 years, subject
to early termination in the event of a "Change in Control" as defined therein, a
termination of the Partnership or a material default by either party. The
Partnership has an initial term of 25 years subject to early termination as a
result of any Dissolving Event, as defined in the Partnership Agreement. Each
Partner's Partnership Interest is subject to certain limitations on transfers,
rights of first refusal and other purchase rights upon the occurrence of certain
events. Subsidiaries of the Company made an initial capital contribution to
Piedmont of $70 million in the aggregate. The capital contribution made by such
subsidiaries was composed of approximately $21.7 million in cash and of bottling
operations and certain assets used in connection with the
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Company's Wilson, NC and Greenville and Beaufort, SC territories. The cash
contributed to Piedmont by the Company's subsidiaries was provided from the
Company's available credit facilities. The Company sold other territories to
Piedmont for an aggregate purchase price of approximately $118 million. Proceeds
from the sale of territories to Piedmont, net of the Company's cash
contribution, totaled approximately $96 million and were used to reduce the
Company's long-term debt.
The Company considers acquisition opportunities for additional territories
on an ongoing basis. To achieve its goals, further purchases and sales of
franchise 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 franchises under which it
produces and markets, in certain regions, carbonated soft drink products of The
Coca-Cola Company, including Coca-Cola, Coca-Cola classic, caffeine free
Coca-Cola classic, diet Coke, caffeine free diet Coke, cherry Coke, TAB, Sprite,
diet Sprite, Mello Yello, diet Mello Yello, Mr. PiBB, Minute Maid orange and
diet Minute Maid orange sodas. The Company also distributes and markets PowerAde
in certain of its markets. The Company produces and markets Dr Pepper in most of
its regions. Various other products, including Welch's flavors, Seagrams'
products, Barq's Root Beer and Sundrop are produced and marketed in one or more
of the Company's regions under franchise agreements with the companies that
manufacture the concentrate for those beverages. In addition, the Company also
produces soft drinks for other bottlers of Coca-Cola.
The Company's principal soft drink is Coca-Cola classic. During the last
three fiscal years, sales of products under the trademark Coca-Cola 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 85% of the
Company's soft drink sales during fiscal 1993.
FRANCHISES
The Company's franchises from The Coca-Cola Company entitle the Company to
produce and market The Coca-Cola Company's soft drinks in bottles, cans and five
gallon pressurized premix containers. The Company is one of many companies
holding such franchises from The Coca-Cola Company. The Coca-Cola Company is the
sole owner of the secret formulas pursuant to which the primary components
(either concentrates or syrups) of its soft drinks are manufactured. The
concentrates, when mixed with water and sweetener, produce syrup which, when
mixed with carbonated water, produce the soft drinks known as "Coca-Cola,"
"Coca-Cola classic" or "Coke." Similar processes are used to produce the other
soft drinks marketed and distributed by the Company. With limited exceptions,
the Company purchases concentrates and syrups from The Coca-Cola Company and
natural sweeteners from other sources. No royalty or other compensation is paid
under the franchise agreements to The Coca-Cola Company for the Company's right
to use in its territories the trade names and trademarks "Coca-Cola," "Coca-Cola
classic" and "Coke" and associated patents, copyrights, designs and labels, all
of which are owned by The Coca-Cola Company.
BOTTLE CONTRACTS. The Company is party to bottle contracts with The
Coca-Cola Company (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, cherry Coke, diet Coke,
caffeine free diet 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
returnable and non-returnable 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 may charge 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, to stimulate, and to satisfy fully the demand for Coca-Cola
Trademark Beverages and to use all approved means, and to spend such funds on
advertising and other forms of marketing, as may be reasonably required to meet
that objective; and to maintain such sound
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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 plan 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, such territory automatically
will be deemed to be included in the territories covered by the existing Bottle
Contracts, and any existing agreement with respect to the acquired territory
automatically shall be amended to conform to the terms of the existing 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; (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) disposition of voting securities of any
subsidiary without the consent of The Coca-Cola Company. 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 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
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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, Mello Yello, diet Mello Yello,
Fanta, TAB, diet Sprite, sugar free Mr. PiBB, Fresca, 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 ten years and is
renewable by the Company for an additional ten years at the end of each ten 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.
POST-MIX RIGHTS. The Company also has the non-exclusive right to sell
Coca-Cola and other fountain syrups ("post-mix syrup") of The Coca-Cola Company.
OTHER BOTTLING AGREEMENTS. The bottling agreements from most other soft
drink franchisors are similar to those described above in that they are
renewable at the option of the Company and the franchisors at prices
unilaterally fixed by the franchisors. 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 soft drinks
by the Company under these agreements represented approximately 15% of the
Company's sales for fiscal 1993.
The territories covered by the Allied Bottle Contracts and by bottling
agreements for products of franchisors 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 business of the Company taken as
a whole.
MARKETS AND PRODUCTION AND DISTRIBUTION FACILITIES
As of March 15, 1994, the Company held franchises covering the majority of
central, northern and western North Carolina, and portions of Alabama,
Mississippi, Tennessee, Kentucky, Virginia, West Virginia, Ohio, Pennsylvania,
Georgia and Florida. The total population within the Company's Coca-Cola
franchise area is approximately 11.5 million.
As of March 15, 1994, the Company operated in six principal geographical
regions. Certain information regarding each of these markets follows:
1. NORTH 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. The
region has an estimated population of 5.1 million. Production/distribution
facilities are located in Charlotte and eighteen other distribution facilities
are located in the region.
2. SOUTH ALABAMA. This region includes a portion of southwestern Alabama,
including the area surrounding Mobile, and a portion of southeastern
Mississippi. The region has an estimated population of 800,000. 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 surrounding Columbus, Georgia, in which a
distribution facility is located, and a portion of the Florida Panhandle,
including Panama
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City and Quincy. Four other distribution facilities are located in the region.
This region has an estimated population of 900,000.
4. MIDDLE TENNESSEE. This region includes a portion of central Tennessee,
including areas surrounding Nashville, and a small portion of southern Kentucky.
The region has an estimated population of 1.5 million. A production/distribution
facility is located in Nashville and seven other distribution facilities are
located in the region.
5. WESTERN VIRGINIA. This region includes most of southwestern Virginia,
including areas surrounding Roanoke, 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 1.4 million. A
production/distribution facility is located in Roanoke and seven 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 1.8
million. There are eleven distribution facilities located in the region.
The Company owns 100% of the operations in each of the regions listed.
The Company sold the majority of its South Carolina franchise territory to
Piedmont in July 1993. Pursuant to a management agreement, the Company produces
substantially all of the soft drink products for Piedmont.
During the past several years, the Company has made an effort to
concentrate its soft drink production into fewer facilities for efficiency.
Since May 1984, four major production centers have been closed, one in the North
Carolina region, one in the Western Virginia region and two in the South Georgia
region. A new production center in Roanoke became fully operational in December
1985. As a result of the Sunbelt acquisition, the Company acquired a production
center in Morganton, North Carolina. This production center was closed in April
1992. Additional changes in the number and location of production and
distribution facilities may be desirable in the future in response to changing
market conditions and changes in the Company's franchise territories.
In addition to producing bottled and canned soft drinks for their own
franchise 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
material in the Company's production centers.
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, glass and 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 and plastic bottles, the Company purchases its raw
materials from multiple suppliers.
The Company purchases substantially all of its plastic bottles (20 ounce,
one liter, two liter and three liter sizes) from manufacturing plants which are
owned and operated by two cooperatives of southern Coca-Cola bottlers, including
the Company. The Company joined the southwest cooperative in February 1985
following its acquisition of the bottling subsidiaries of Wometco Coca-Cola
Bottling Company. The Company joined the southeast cooperative in 1984.
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 1993, approximately
75% of the Company's total sales were made in the take-home channel through
supermarkets, convenience stores and other retail outlets. The remaining sales
were made 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
major competitive techniques in the soft drink industry in recent years and have
required and are expected to continue to require substantial expenditures. New
product introductions in recent years include: caffeine free Coca-Cola classic;
caffeine free diet Coke; cherry Coke; diet Mello Yello; Minute Maid orange; diet
Minute Maid orange; and PowerAde. New product introductions have entailed
increased
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operating costs for the Company resulting from special marketing efforts,
obsolescence of replaced items and occasionally higher raw materials costs.
After several new package introductions in recent years, the Company now
sells its soft drink products in a variety of returnable and non-returnable
bottles, both glass and plastic, and in cans, in varying proportions from market
to market. There may be as many as eight or more different packages for
Coca-Cola classic, in addition to pre-mix containers and post-mix syrup
packages, within a single geographical area. Excluding post-mix syrup sales,
physical unit sales of soft drinks during fiscal year 1993 were approximately
52% cans, 45% non-returnable bottles, 2% pre-mix and 1% returnable bottles.
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 have joined the Company in making substantial
expenditures in cooperative advertising in the Company's marketing areas. The
Company also benefits from national ad-vertising programs conducted by The
Coca-Cola Company and Dr Pepper Company. 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 concentrate companies provide to the Company in support of a
variety of marketing programs, such as price promotions, merchandising programs
and point-of-sale displays.
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 funding provided by The Coca-Cola Company for advertising or
marketing programs which benefit the Company could have a materially adverse
effect on the business of the Company.
SEASONALITY
A larger than average percentage of the Company's total sales occurs during
peak periods, which are normally 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
chain store private brand soft drinks. In each region in which the Company
operates, between 75% and 95% 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 soft drink products also compete with, among others,
noncarbonated soft drinks 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, quality of distribution and advertising.
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.
No reformulation of the Company's products is presently required by any
rule or regulation, but there can be no assurance that future government
regulations will not require reformulation of the Company's products.
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-returnable 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.
Soft drink and similar-type taxes have been in place in North Carolina,
South Carolina, West Virginia and Tennessee for several years. Similar tax
legislation was recently enacted in Ohio, beginning in February 1993. To the
Company's knowledge, legislation has not been proposed or enacted to increase
the tax in any of these states.
ENVIRONMENTAL REMEDIATION
The Company does not currently have any material capital expenditure
commitments for environmental remediation for any of its properties.
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EMPLOYEES
As of March 15, 1994, the Company had a total of approximately 5,000
full-time employees, of whom approximately 450 were union members.
ITEM 2 -- PROPERTIES
The principal properties of the Company include its corporate headquarters,
its four production facilities and its 57 distribution centers, all of which are
owned by the Company except for its corporate headquarters, two
production/distribution facilities and nine distribution centers.
On November 30, 1992, the Company and the owner of the Company's Snyder
Production Center in Charlotte, North Carolina agreed to the early termination
of the Company's lease. Harrison Limited Partnership One purchased the property
contemporaneously with the termination of the lease, and the Company and
Harrison Limited Partnership One entered into an agreement under which the
Company leased the property for a ten-year term beginning on December 1, 1992.
The annual base rent the Company is obligated to pay under the lease agreement
is subject to adjustment for increases in the Consumer Price Index and for
increases or decreases in interest rates based on LIBOR.
On June 1, 1993, Beacon Investment Corporation, a North Carolina
corporation of which J. Frank Harrison, III is sole shareholder, purchased the
office building located on Rexford Road in Charlotte, North Carolina, in which
the Company leases its executive offices. Contemporaneously, the Company entered
into a ten-year lease commencing June 1, 1993 with Beacon Investment Corporation
for office space within the building.
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 two soft drink production facilities apart from the leased
facilities described above. The current percentage utilization of the Company's
production centers as of March 15, 1994 is approximately as indicated below:
PRODUCTION FACILITIES
PERCENTAGE
LOCATION UTILIZATION*
Charlotte, North Carolina................................................................ 86%
Mobile, Alabama.......................................................................... 77%
Nashville, Tennessee..................................................................... 67%
Roanoke, Virginia........................................................................ 98%
* Estimated 1994 production divided by capacity (based on 80 hours of operations
per week). Because of the seasonality of the Company's soft drink business,
the Company uses considerably more of its capacity for production during peak
periods, normally May, June, July and August.
Of the production facilities described above, the Roanoke production
facility is subject to an encumbrance as follows:
The Roanoke production facilities, constructed at a cost of approximately
$24 million, are subject to a deed of trust securing the payment of an aggregate
of $2.8 million principal amount industrial development bonds which will be
released upon payment of the bonds, as scheduled, in October 1994.
Bottled and canned soft drinks are transported to distribution centers for
storage pending sale. The number of centers by market area as of March 15, 1994
is as follows:
DISTRIBUTION CENTERS
NUMBER OF
REGION CENTERS
North Carolina............................................................................ 19
South Alabama............................................................................. 6
South Georgia............................................................................. 5
Middle Tennessee.......................................................................... 8
Western Virginia.......................................................................... 8
West Virginia............................................................................. 11
7
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 2,400 vehicles in the sale and
distribution of its soft drink products, of which approximately 1,200 are
delivery trucks. In addition, the Company owns or leases approximately 100,000
soft drink dispensing and vending machines.
ITEM 3 -- LEGAL PROCEEDINGS
On February 11, 1991, a Complaint was filed against the Company and two
Company employees in the matter of JEFF HALLUMS V. COCA-COLA BOTTLING CO.
CONSOLIDATED, ET AL., File No. 8108 in the Chancery Court for Wilson County,
Tennessee as previously reported in the Company's Annual Report on Form 10-K for
the fiscal year ended January 3, 1993. This suit by a visually handicapped
former truck driver for Coca-Cola Bottling Company of Nashville, Inc., a wholly
owned subsidiary of the Company, alleges liability under various Tennessee
common law misrepresentation principles and under the employee discrimination
provision of the Tennessee Human Rights Act. Plaintiff was terminated because he
did not meet federal standards for commercial truck drivers. Plaintiff seeks
damages in the amount of $750,000. On October 13, 1993, the Tennessee Court of
Appeals, on an interlocutory appeal, reversed the trial court's denial of the
Company's motion for summary judgment with respect to plaintiff's handicap
discrimination claim. The appellate court remanded the case for trial of
plaintiff's common law tort claims. On February 28, 1994, the Tennessee Supreme
Court denied plaintiff's application for permission to appeal, leaving the order
of the Court of Appeals intact. Plaintiff's suit is now limited to common law
tort claims in the trial court. The Company does not believe it has liability
and is defending the case vigorously.
On March 4, 1993, a Complaint was filed against the Company, the
predecessor bottling company for the Laurel, Mississippi territory and other
unnamed parties in the matter of MRS. ELSIE LANGLEY, ADMINISTRATRIX OF THE
ESTATE OF WALTER
LANGLEY V. COCA-COLA BOTTLING CO. CONSOLIDATED, ET AL., Cause No. 93-3-30 in the
Circuit Court of the Second Judicial District for Jones County, Mississippi.
This suit by the testatrix spouse of a deceased former employee of the
predecessor bottler alleges misrepresentation and fraud in connection with the
severance package offered to employees terminated by the predecessor bottler in
connection with the acquisition of the Laurel franchise subsidiary of the
Company. Plaintiff claims that the former employee was led to believe that the
severance package was to include continuation of health insurance by the
Company. Plaintiff seeks damages in an amount up to $18 million in compensatory
and punitive damages. The Company does not believe it has liability and is
defending the case vigorously.
The Company has owned and operated production, distribution and warehouse
facilities for many years and has acquired certain facilities that have been in
operation for many years. Federal and state authorities have adopted various
laws relating to environmental matters in recent years that have caused or will
cause the Company to incur costs related to environmental conditions presently
existing at its facilities and could possibly, prior to remediation, subject the
Company to fines for temporary failure to meet certain technical requirements.
Furthermore, the Company anticipates that future federal and state legislation
or regulations will impact the Company and its operations in various ways.
However, the Company is not currently aware of any pending or threatened
proceeding pursuant to which fines may be imposed upon 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, 1994.
8
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 in lieu of being
included in the Proxy Statement for the Annual Meeting of Shareholders to be
filed.
The following is a list of names and ages of all the executive officers of
the Registrant as of March 1, 1994, 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, JR., age 63, is Chairman of the Board of Directors of
the Company and has served the Company in that capacity since 1977. Mr.
Harrison, Jr. served as Chief Executive Officer of the Company from August 1980
until April 1983. He has previously served the Company as Vice Chairman of the
Board of Directors. He has been a Director of the Company since 1973. Mr.
Harrison, Jr. presently is a Director of Dixie Yarns, Inc. Mr. Harrison, Jr. is
Chairman of the Executive Committee and the Finance Committee and is a member of
the Compensation Committee.
J. FRANK HARRISON, III, age 39, is a Vice Chairman of the Board of
Directors of the Company, a position to which he was elected in November 1987.
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 Chairman of the
Compensation Committee and is a member of the Executive Committee, the Audit
Committee and the Finance Committee.
REID M. HENSON, age 54, 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 and is a member of the Executive Committee, the Pension
Committee and the Finance Committee.
JAMES L. MOORE, JR., age 51, is President and Chief Executive Officer of
the Company. Prior to his election as President and Chief Executive Officer in
March 1987, he served as Vice President and later as President and Chief
Executive Officer of Atlantic Soft Drink Co., a soft drink bottling subsidiary
of Grand Metropolitan USA. Since February 1991, Mr. Moore has served as a
Director of Park Meridian Bank. Mr. Moore has been a Director of the Company
since March 1987. He is a member of the Executive Committee and is Chairman of
the Pension Committee.
DAVID V. SINGER, age 38, is Vice President and Chief Financial Officer. In
addition to his Finance duties, Mr. Singer has overall responsibility for the
Company's Purchasing/Materials Management function as well as the Distribution,
Fleet and Transport function. He served as Vice President, Chief Financial
Officer and Treasurer from October 1987 through May 1992; prior to that he was
Vice President and Treasurer. Prior to joining the Company in March 1986, Mr.
Singer was a Vice President of Corporate Banking for Mellon Bank, N.A.
MILES C. AKINS, age 43, is Vice President, Cold Drink Market, a position he
has held since October 1993. He was Vice President, Division Manager of the
Tennessee Division from 1989-1993. From 1987 through 1988, he was General
Manager of the Nashville, TN sales center. From 1985 through 1986, he was Trade
Development Director of the Tennessee Division. Prior to joining the Company in
1985, he was a Regional Trade Development Manager for Coca-Cola USA.
STEVEN D. CALDWELL, age 44, joined the Company in April 1987 as Vice
President, Business Systems and Services. Since May 1992, Mr. Caldwell has had
overall responsibility for the Company's manufacturing function as well as
Business Systems and Services. Prior to joining the Company, he was Director of
MIS at Atlantic Soft Drink Co., a soft drink bottling subsidiary of Grand
Metropolitan USA for four years.
WILLIAM B. ELMORE, age 38, is Vice President, Regional Manager for the
Virginia/West Virginia/Georgia/Tennessee Division, a position he has held since
November 1991. He was Vice President, Division Manager of the West Virginia
Division from 1989-1991. He was Senior Director, Corporate Marketing from
1988-1989. Preceding that, he held various positions in sales and marketing in
the Charlotte Division from 1985-1988. Before joining the Company in 1985, he
was employed by Coca-Cola USA for seven years where he held several positions in
their field sales organization.
NORMAN C. GEORGE, age 38, is Vice President, Regional Manager for the
Carolinas South Region, a position he has held since November 1991. He served as
Vice President, Division Manager of the Southern Division from 1988-1991. He
served as Vice President, Division Manager of the Alabama Division from
1986-1988. From 1982-1986, he served as Director of Sales and Operations in the
Northern Division. Prior to joining the Company in 1982, he was Sales Manager of
the Dallas-Fort Worth Dr Pepper Bottling Company in Irving, Texas.
9
BRENDA B. JACKSON, age 33, is Vice President and Treasurer, a position she
has held since January 1993. From February 1992 until her promotion, she served
as Assistant Treasurer. Mrs. Jackson joined the Company in March 1989 as
Director of Finance.
C. RAY MAYHALL, age 46, is Vice President, Regional Manager for the
Carolinas North Region, a position he has held since November 1991. He served as
Vice President, Division Manager of Northern Division from 1989-1991. Before
joining the Company in 1989, he was Vice President, Sales and Marketing of
Florida Coca-Cola Bottling Company, a position he had held since 1987. Prior to
1987, he was Division Manager of the Central Florida Division of Florida
Coca-Cola Bottling Company for six years.
ROBERT D. PETTUS, JR., age 49, is Vice President, Human Resources, a
position he has held since September 1984. Prior to joining the Company, he was
Director, Employee Relations for the Texize Division of Morton-Thiokol for seven
years.
JAMES B. STUART, age 51, joined the Company in October 1990 as Vice
President, Marketing. Mr. Stuart had been Senior Vice President, Sales and
Marketing with JTL Corporation from 1980 until such company was acquired by The
Coca-Cola Company in 1986. From 1987 until joining the Company in 1990, Mr.
Stuart formed his own marketing company, serving a number of clients inside and
outside the soft drink industry. During this period, he worked almost
exclusively with the International Business Sector of The Coca-Cola Company.
STEVEN D. WESTPHAL, age 39, is Vice President and Controller of the
Company, a position he has held since November 1987. Prior to joining the
Company, he was Vice President-Finance for Joyce Beverages, an independent
bottler, beginning in January 1985. Prior to working for Joyce Beverages, he was
Director of Corporate Planning for Mid-Atlantic Coca-Cola Bottling Company, Inc.
from December 1981 to December 1984.
10
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 in the over-the-counter market
and is quoted on the NASDAQ National Market System 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
1993
HIGH LOW
First quarter.............................................................................. $ 20 1/4 $ 17
Second quarter............................................................................. 27 3/4 17 3/4
Third quarter.............................................................................. 35 1/2 26 1/4
Fourth quarter............................................................................. 41 1/2 33 1/4
1992
HIGH LOW
First quarter.............................................................................. $ 20 3/4 $ 17 1/2
Second quarter............................................................................. 20 1/4 17 1/2
Third quarter.............................................................................. 19 16 1/2
Fourth quarter............................................................................. 18 15 1/4
The quarterly dividends declared by the Company per share of Common Stock
and Class B Common Stock for the fiscal years ended January 2, 1994 and January
3, 1993 are presented below.
FISCAL YEAR
1993 1992
COMMON CLASS B COMMON CLASS B
First quarter......................................................................... $ .22 $ .13 $ .22 $ .13
Second quarter........................................................................ .22 .13 .22 .13
Third quarter......................................................................... .22 .13 .22 .13
Fourth quarter........................................................................ .22 .13 .22 .13
Total cash dividends declared per share............................................... $ .88 $ .52 $ .88 $ .52
Total cash dividends declared (in thousands).......................................... $6,970 $ 695 $6,903 $ 695
Dividends on the Class B Common Stock are permitted to equal, but not
exceed, dividends on the Common Stock. At its December 8, 1993 meeting, the
Board of Directors stated its intention to increase and equalize dividends on
the Company's two classes of stock, subject to the Company's overall financial
condition.
On February 8, 1994, the Board of Directors declared an increase in the
first quarter 1994 dividends. Shareholders of record as of February 24, 1994
received $.25 per share on both their Common Stock and Class B Common Stock
shares, payable on March 10, 1994.
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.
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. Reference should be made to Article Fourth of the
Company's Certificate of Incorporation for additional provisions relating to the
relative dividend rights of holders of Common Stock and Class B Common Stock.
The number of shareholders of record of the Common Stock and Class B Common
Stock, as of March 15, 1994, was 1,166 and 15, 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, 1994. The data for the five
years ended January 2, 1994 is unaudited but is derived from audited 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.
11
COCA COLA BOTTLING CO. CONSOLIDATED
SELECTED FINANCIAL DATA*
IN THOUSANDS (EXCEPT PER SHARE DATA)
FISCAL YEAR
SUMMARY OF OPERATIONS 1993 1992 1991 1990 1989
Net sales....................................................... $686,960 $ 655,778 $464,733 $436,086 $388,876
Cost of products sold........................................... 396,077 372,865 262,887 245,890 224,925
Selling expenses................................................ 144,411 151,382 107,266 95,934 83,094
General and administrative expenses............................. 51,125 47,154 37,995 35,008 29,567
Depreciation expense............................................ 23,284 22,217 18,785 18,814 17,448
Amortization of goodwill and intangibles........................ 14,784 18,326 10,884 10,700 10,077
Total costs and expenses........................................ 629,681 611,944 437,817 406,346 365,111
Income from operations.......................................... 57,279 43,834 26,916 29,740 23,765
Interest expense................................................ 30,994 36,862 21,556 24,087 24,703
Other expense, net.............................................. 2,270 2,121 2,404 3,448 1,536
Income (loss) before income taxes, extraordinary items and
effect of accounting changes.................................. 24,015 4,851 2,956 2,205 (2,474)
Federal and state income taxes.................................. 9,182 2,768 20 1,976 475
Income (loss) before extraordinary items and effect of
accounting changes............................................ 14,833 2,083 2,936 229 (2,949)
Extraordinary (charge) credit................................... 1,975 (6,239)
Effect of accounting changes.................................... (116,199)
Net income (loss)............................................... 14,833 (114,116) 2,936 2,204 (9,188)
Preferred stock dividends....................................... 4,195 728 448
Net income (loss) applicable to common shareholders............. $ 14,833 $(118,311) $ 2,208 $ 1,756 $ (9,188)
Income (loss) per share:
Income (loss) before extraordinary items and effect of
accounting changes, less preferred stock dividends......... $ 1.60 $ (.23) $ .24 $ (.02) $ (.32)
Extraordinary (charge) credit................................. .21 (.69)
Effect of accounting changes.................................. (12.66)
Net income (loss) applicable to common shareholders........... $ 1.60 $ (12.89) $ .24 $ .19 $ (1.01)
Cash dividends per share:
Common........................................................ $ .88 $ .88 $ .88 $ .88 $ .88
Class B Common................................................ $ .52 $ .52 $ .52 $ .52 $ .52
YEAR-END FINANCIAL POSITION
Total assets.................................................... $648,449 $ 785,871 $785,196 $467,972 $450,108
Long-term debt.................................................. 434,358 555,126 479,414 237,564 229,952
Redeemable preferred stock...................................... 7,280 7,280
Shareholders' equity............................................ 29,629 25,806 205,426 160,815 166,656
OTHER INFORMATION
Weighted average number of Common and Class B Common shares
outstanding................................................... 9,258 9,181 9,181 9,181 9,103
* Various acquisitions have been consummated during this five year period, most
of which were not significant enough to require a report on Form 8-K. See Note
2 to the consolidated financial statements for information concerning the
Sunbelt acquisition in December 1991 and Note 3 for information concerning the
Company's investment in Piedmont Coca-Cola Bottling Partnership. During 1992,
the Company changed its method of accounting for income taxes and for
postretirement benefits other than pensions, as described in Notes 11 and 14.
12
ITEM 7 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
INTRODUCTION
Coca-Cola Bottling Co. Consolidated ("the Company") is engaged in the
production, marketing and distribution of soft drinks, primarily products of The
Coca-Cola Company. Since 1984, the Company has expanded its franchise territory
throughout the Southeast, primarily through acquisitions.
On July 2, 1993, the Company and The Coca-Cola Company formed Piedmont
Coca-Cola Bottling Partnership ("Piedmont") to distribute and market soft drink
products of The Coca-Cola Company and other third party licensors, primarily in
certain portions of North Carolina and South Carolina. The Company provides
substantially all of the soft drink products to Piedmont and manages 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. Subsidiaries of the Company made an initial capital
contribution to Piedmont of $70 million in the aggregate. The Company's capital
contribution was composed of approximately $21.7 million in cash and of bottling
operations and certain assets used in connection with the Company's Wilson, NC
and Greenville and Beaufort, SC territories. The cash contributed to Piedmont by
the Company's subsidiaries was provided from the Company's available credit
facilities. The Company sold other territories to Piedmont for an aggregate
purchase price of approximately $118 million. Proceeds from the sale of
territories to Piedmont, net of the Company's cash contribution, totaled
approximately $96 million and were used to reduce the Company's long-term debt.
The Company is accounting for its investment in Piedmont using the equity method
of accounting.
On December 20, 1991, the Company acquired all of the outstanding capital
stock of Sunbelt Coca-Cola Bottling Company, Inc. ("Sunbelt") for approximately
$15.2 million in cash and Company debt. In addition, the majority of the Sunbelt
indebtedness as of December 20, 1991 was refinanced by the Company. The Company
borrowed $152.5 million under a $230 million bridge facility provided by
Coca-Cola Financial Corporation ("CCFC"), a wholly owned subsidiary of The
Coca-Cola Company. The Company also issued $50 million of Series B
Nonconvertible Preferred Stock to CCFC. The acquisition did not have a
significant impact on 1991 operations.
In the first quarter of 1992, $133 million of seven-and ten-year medium
term notes were issued, the Company entered into a $60 million five-year term
loan and the existing revolving credit agreement was increased by $30 million to
a total commitment of $170 million. These transactions enabled the Company to
repay the $230 million bridge facility obtained from CCFC. The Series B
Nonconvertible Preferred Stock was redeemed in October 1992 using funds from a
three-year bank term loan.
RESULTS OF OPERATIONS
1993 COMPARED TO 1992
The Company reported net income applicable to common shareholders of $14.8
million or $1.60 per share for fiscal 1993. This compares with 1992's net loss
applicable to common shareholders of $2.1 million or $.23 per share before the
effect of accounting changes related to the adoption of SFAS 106, "Employers'
Accounting for Postretirement Benefits Other than Pensions," and SFAS 109,
"Accounting for Income Taxes." For 1992, the reported net loss applicable to
common shareholders was $118.3 million or $12.89 per share. The 1992 results
included $116.2 million of noncash charges associated with the adoption of SFAS
109 and SFAS 106.
The record 1993 results were due to increased net selling prices, slightly
higher volume, lower packaging costs, lower financing costs, a lower effective
tax rate and the formation of Piedmont. The reduction of one work-week in fiscal
1993 and the formation of Piedmont on July 2, 1993 make reported results less
comparable.
Reported net sales increased by approximately 5% from 1992 to 1993. On a
comparable franchise territory and fiscal period basis, net franchise sales for
1993 increased by more than 4%, reflecting higher net selling prices and
slightly higher case volume. Sales to other bottlers increased by $58.8 million
in 1993 primarily due to the sale of soft drink products to Piedmont. Pursuant
to the management agreement with Piedmont, soft drink products are sold to
Piedmont at cost.
Gross margin as reported increased by approximately 3%. When adjusted for
comparable franchise territory and fiscal days, franchise gross margin increased
by approximately 11% due to increased net selling prices and lower packaging
costs. Management believes that overall packaging costs will continue to decline
in 1994. Sweetener costs are expected to increase significantly in 1994.
13
Selling expenses decreased by 4.6% and declined as a percentage of net
sales due primarily to reductions in operating costs resulting from the
elimination of expenses associated with territories sold to Piedmont.
General and administrative expenses increased by 8.4% as a result of
increased employment costs. A special Company contribution to the 401(k) Savings
Plan of approximately $750,000 was included in 1993 expense. The Board of
Directors authorized this award in recognition of the employees' contribution to
the significant improvement in the Company's financial performance.
Depreciation expense increased by 4.8% during 1993. The sale and
contribution of certain fixed assets to Piedmont and normal retirements were
more than offset by additions to property, plant and equipment.
Amortization of goodwill and intangibles declined 19.3% primarily due to
the sale and contribution of franchise territories to Piedmont.
Financing costs declined in 1993 as compared to 1992 due to lower interest
rates and a reduction in long-term debt primarily resulting from the use of
proceeds from the sale of territories to Piedmont. During the fourth quarter of
1992, the Company redeemed all outstanding shares of preferred stock. Dividends
of $4.2 million were paid in 1992 on these preferred shares.
Reported income tax expense differs from the amount computed at the
statutory rate primarily due to amortization of certain nondeductible goodwill,
state income taxes and the effect of the change in statutory rates on the
deferred tax liability as of the beginning of the year. As a result of the
enactment of the Omnibus Budget Reconciliation Act of 1993, the Company recorded
an additional income tax charge of approximately $2.1 million to reflect the
change in the maximum federal corporate tax rate from 34% to 35%. Due to the
Company's restructuring related to the formation of Piedmont and a significant
increase in profitability, the Company reduced a valuation allowance that had
been recorded due to restrictions on the use of certain net operating losses.
In November 1992, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 112, "Employers' Accounting for
Postemployment Benefits" ("SFAS 112"). SFAS 112 requires the accrual, during the
years that employees render service, of the expected cost of providing
postemployment benefits if certain criteria are met. SFAS 112 is effective for
fiscal years beginning after December 15, 1993. Any accrual required to be
recorded by SFAS 112 must be recognized initially as the effect of a change in
accounting principle. The Company intends to adopt the provisions of SFAS 112 in
the first quarter of 1994, effective January 3, 1994. The adoption of SFAS 112
will require an estimated one-time, after-tax charge between $1.5 million and
$2.5 million.
1992 COMPARED TO 1991
The Company reported a net loss, excluding the effect of accounting
changes, of $2.1 million or $.23 per share for 1992 as compared to net income
applicable to common shareholders of $2.2 million or $.24 per share in 1991. For
1992, the Company's reported net loss applicable to common shareholders was
$118.3 million or $12.89 per share.
The results for 1992 included noncash charges of $116.2 million related to
the Company's adoption of SFAS 109 and SFAS 106. The 1991 results reflected a
reduction in income tax expense of approximately $2 million due to a settlement
with the Internal Revenue Service relating to the deductibility of franchise
amortization.
Primarily as a result of the Sunbelt acquisition, net sales for 1992 as
compared to 1991 increased by 41.1%, gross margin increased by 40.2% and income
from operations increased by 62.9%. In 1992, the Company recorded certain one-
time transition costs associated with the Sunbelt acquisition.
Excluding Sunbelt, net sales for the Company were $485.1 million in 1992,
an increase of $20.4 million or 4.4% from 1991 net sales of $464.7 million. This
increase resulted principally from growth above industry averages in equivalent
case sales volume and three extra working days in fiscal 1992.
Excluding the results of Sunbelt, gross margin increased in 1992 by $10.9
million or 5.4% primarily due to continued improvements in manufacturing
productivity, declining raw material costs and modest growth in equivalent case
sales.
Selling expenses for the Company, excluding Sunbelt, increased in 1992 by
$2.2 million or 2.0%, principally as a result of wage rate increases.
Excluding the results of Sunbelt, general and administrative costs
increased in 1992 by $4.0 million or 10.5%. This increase was principally
associated with wage rate increases and additional staff to support the growth
of the Company.
14
Interest expense for the Company, excluding Sunbelt, in 1992 was $18.8
million as compared to $21.6 million in 1991. The decrease was primarily due to
a continued overall reduction in average interest rates.
Income tax expense in 1992 was $2.8 million compared to $20,000 in 1991. In
1992, the Company adopted SFAS 109. As a result, the Company recorded a charge
of approximately $109.1 million or $11.88 per share. This charge resulted
primarily from a difference between the financial statement basis and the tax
basis of intangible assets related to the Sunbelt acquisition.
The Company also adopted SFAS 106 in 1992, changing to the accrual method
of accounting for postretirement benefits other than pensions. A pretax charge
of $11.6 million ($7.1 million after taxes or $.77 per share) was recorded as
the effect of this accounting change.
In connection with the acquisition of Coca-Cola Bottling Works of Jackson,
Incorporated and Jackson Coca-Cola Bottling Company, Inc. (collectively
"Jackson") in 1990 and the Sunbelt acquisition in 1991, the Company issued
preferred stock. All outstanding shares of preferred stock were redeemed in the
fourth quarter of 1992. Preferred dividends of $4.2 million and $.7 million were
paid in 1992 and 1991, respectively.
FINANCIAL CONDITION
Working capital decreased from a deficit of $16.8 million on January 3,
1993 to a deficit of $23.5 million on January 2, 1994. The decrease in working
capital was primarily due to the sale and contribution of assets to Piedmont and
a reduction in the Company's sale of trade accounts receivable. The working
capital deficit is a result of the Company's sale of its trade accounts
receivable of $33 million and $40 million as of January 2, 1994 and January 3,
1993, respectively. The Company used the proceeds from the sale of its trade
accounts receivable to reduce its outstanding bank loans.
Additions to property, plant and equipment of $28.8 million more than
offset normal retirements and the sale and contribution of certain fixed assets
to Piedmont.
The initial capital contribution made to Piedmont by the Company was $70
million. The Company's share of Piedmont's loss for the period since July 2,
1993 reduced this investment from $70 million to $68.4 million.
Identifiable intangible assets declined from January 3, 1993 to January 2,
1994 primarily as a result of the sale and contribution of certain franchise
territories to Piedmont. As a result of the formation of Piedmont, the Company
will use net operating losses of Sunbelt to offset taxable gains resulting from
the sale of certain assets to Piedmont. A valuation allowance had previously
been recorded for these net operating losses due to restrictions on their use.
The use of the net operating losses resulted in a reduction of the Company's
deferred income tax liability and a corresponding reduction in recorded
franchise value of approximately $36 million.
Other liabilities declined by $6.5 million from January 3, 1993 to January
2, 1994 primarily due to the assumption by Piedmont of postretirement benefit
obligations for certain former employees of Sunbelt.
The Company's long-term debt decreased by $121 million due to the use of
the net sale proceeds of approximately $96 million from the Piedmont transaction
and cash provided by operations.
Shareholders' equity increased overall by $3.8 million during 1993. An
adjustment, net of income taxes, of $5.6 million was charged directly to
shareholders' equity. This adjustment represented the excess of accumulated
pension benefit obligations over plan assets and was primarily a result of
changes in certain actuarial assumptions.
The issuance of new shares of Common Stock increased shareholders' equity
by $2.3 million. On April 9, 1993, the Company acquired all of the outstanding
stock of Whirl-i-Bird, Inc. in exchange for 80,000 shares of the Company's
Common Stock valued at $1.6 million based on the closing market price of $20 per
share on March 17, 1993. On June 25, 1993, the Company issued 33,464 shares of
its Common Stock to The Coca-Cola Company at a price of $20 per share. These
shares were issued pursuant to a Stock Rights and Restrictions Agreement dated
January 27, 1989 that provided The Coca-Cola Company a preemptive right to
purchase a percentage of any newly issued shares of any class as necessary to
allow it to maintain ownership of both 29.67% of the outstanding shares of
common stock of all classes and 22.59% of the total votes of all outstanding
shares of all classes.
LIQUIDITY AND CAPITAL RESOURCES
On March 17, 1992, the Company entered into a revolving credit agreement
totaling $170 million that eliminated the term loan portion of the facility and
extended the revolving credit maturity date to March 1997. The agreement
contains
15
several covenants that establish minimum ratio requirements related to debt and
cash flow. A commitment fee of 1/5% per year on the average daily unused amount
of the banks' commitment is payable quarterly. On January 2, 1994, there were no
borrowings outstanding under the revolving credit facility.
The Company borrows from time to time under informal lines of credit from
various banks. On January 2, 1994, the Company had $175 million available under
these lines, of which $18 million was outstanding. Loans under these lines are
made at the sole discretion of the banks at rates negotiated at the time of
borrowing.
A $100 million commercial paper program was established in January 1990 for
general corporate purposes. On January 2, 1994, there were no borrowings
outstanding under this program.
It is the Company's intent to renew any borrowings under the revolving
credit facility and the informal lines of credit as they mature and, to the
extent that any borrowings under the revolving credit facility, the informal
lines of credit and commercial paper program do not exceed the amount available
under the Company's $170 million revolving credit facility, they are classified
as noncurrent liabilities.
On February 12, 1990, a $200 million shelf registration for debt securities
filed with the Securities and Exchange Commission became effective and available
for the issuance of medium-term notes ("MTNs"). As of February 19, 1992, all
$200 million of MTNs had been issued for terms of seven, eight and ten years.
On June 28, 1990, the Company entered into an eight-year, $60 million loan
agreement. The Company amended the agreement in October 1993, extending the
maturity date to October 28, 2001.
On February 20, 1992, the Company entered into a five-year, $60 million
loan agreement. The proceeds from the loan agreement were used to repay portions
of a bridge facility from Coca-Cola Financial Corporation and other senior debt.
In October 1993, the Company amended the agreement, extending the maturity date
to October 28, 2000.
On June 26, 1992, the Company entered into a three-year arrangement under
which it has the right to sell an undivided interest in a designated pool of
trade accounts receivable for up to a maximum of $40 million. On January 2,
1994, the Company had sold $33 million of its trade accounts receivable and used
the proceeds to reduce its outstanding bank loans. It is the Company's intent to
continue to sell its trade accounts receivable in the future.
On October 30, 1992, the Company entered into a three-year, $50 million
loan agreement. This agreement was amended November 30, 1992 to increase the
facility by $25 million to a total of $75 million. The proceeds from the loan
agreement were used primarily to redeem the Company's outstanding preferred
stock.
As of January 2, 1994, the Company was in compliance with the covenants
contained in its various borrowing agreements. None of these covenants is
presently expected to constrain the Company.
The Company actively manages its interest rate risk using a variety of rate
hedging agreements. As of January 2, 1994, approximately 43% of the total debt
portfolio was subject to changes in short-term interest rates.
During 1993, the Company spent $28.8 million for capital additions compared
to $32.9 million in 1992. The higher spending in 1992 was attributable primarily
to building improvements in the Sunbelt locations.
As a result of the Company's tax loss carryforward position, leasing has
continued to be used to lower the Company's overall cost for certain capital
equipment purchases. Total lease expense in 1993 was $17.3 million as compared
to $17.8 million in 1992. The Company plans to lease the majority of its vending
requirements in 1994.
In February 1994, the Board of Directors approved an increase in the
dividend for the first quarter. The first quarter 1994 dividend, payable on
March 10, 1994, was increased for Common and Class B Common shareholders from
$.22 per share and $.13 per share, respectively, to $.25 per share per quarter
for both classes of stock. If the Company continues to pay quarterly dividends
of $.25 per share for both classes of common stock, annual dividend payments
will increase from $7.7 million in 1993 to $9.3 million in 1994.
At the end of 1993, the Company had no material commitments for the
purchase of capital assets other than those related to normal replacement of
equipment.
Management believes that the Company, through the generation of cash flow
from operations and the utilization of unused borrowing capacity, has sufficient
financial resources available to maintain its current operations and provide for
its current capital expenditure requirements. The Company considers the
acquisition of additional franchise territories on an ongoing basis.
16
ITEM 8 -- FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
COCA-COLA BOTTLING CO. CONSOLIDATED
CONSOLIDATED STATEMENTS OF OPERATIONS
IN THOUSANDS (EXCEPT PER SHARE DATA)
FISCAL YEAR
1993 1992 1991
NET SALES (includes sales to Piedmont of $42,183 in 1993)................................ $686,960 $ 655,778 $464,733
Cost of products sold (includes $38,944 related to sales
to Piedmont in 1993)................................................................... 396,077 372,865 262,887
GROSS MARGIN............................................................................. 290,883 282,913 201,846
Selling expenses......................................................................... 144,411 151,382 107,266
General and administrative expenses...................................................... 51,125 47,154 37,995
Depreciation expense..................................................................... 23,284 22,217 18,785
Amortization of goodwill and intangibles................................................. 14,784 18,326 10,884
INCOME FROM OPERATIONS................................................................... 57,279 43,834 26,916
Interest expense......................................................................... 30,994 36,862 21,556
Other expense, net....................................................................... 2,270 2,121 2,404
Income before income taxes and effect of accounting changes.............................. 24,015 4,851 2,956
Federal and state income taxes:
Current................................................................................ 1,921 48 45
Deferred............................................................................... 7,261 2,720 (25)
Total federal and state income taxes..................................................... 9,182 2,768 20
Income before effect of accounting changes............................................... 14,833 2,083 2,936
Effect of accounting changes............................................................. (116,199)
Net income (loss)........................................................................ 14,833 (114,116) 2,936
Preferred stock dividends................................................................ 4,195 728
NET INCOME (LOSS) APPLICABLE TO COMMON SHAREHOLDERS...................................... $ 14,833 $(118,311) $ 2,208
Income (loss) per share:
Income (loss) before effect of accounting changes,
less preferred stock dividends...................................................... $ 1.60 $ (.23) $ .24
Effect of accounting changes........................................................... (12.66)
NET INCOME (LOSS) APPLICABLE TO COMMON SHAREHOLDERS.................................... $ 1.60 $ (12.89) $ .24
Cash dividends per share:
Common Stock........................................................................... $ .88 $ .88 $ .88
Class B Common Stock................................................................... .52 .52 .52
Weighted average number of Common and Class B
Common shares outstanding.............................................................. 9,258 9,181 9,181
See Accompanying Notes to Consolidated Financial Statements.
17
COCA-COLA BOTTLING CO. CONSOLIDATED
CONSOLIDATED BALANCE SHEETS
IN THOUSANDS (EXCEPT SHARE DATA)
JAN. 2, JAN. 3,
1994 1993
ASSETS
CURRENT ASSETS:
Cash............................................................................................... $ 1,262 $ 1,414
Accounts receivable, trade, less allowance for doubtful accounts of $425 and $400.................. 4,960 3,796
Accounts receivable from The Coca-Cola Company..................................................... 6,698 4,054
Due from Piedmont Coca-Cola Bottling Partnership................................................... 2,454
Accounts receivable, other......................................................................... 10,758 10,036
Inventories........................................................................................ 27,533 26,635
Prepaid expenses and other current assets.......................................................... 4,734 3,311
Total current assets............................................................................. 58,399 49,246
PROPERTY, PLANT AND EQUIPMENT, at cost............................................................. 297,561 293,476
Less -- Accumulated depreciation and amortization.................................................. 134,546 122,799
Property, plant and equipment, net............................................................... 163,015 170,677
INVESTMENT IN PIEDMONT COCA-COLA BOTTLING PARTNERSHIP.............................................. 68,400
OTHER ASSETS....................................................................................... 18,700 20,527
IDENTIFIABLE INTANGIBLE ASSETS, less accumulated amortization of $65,803 and $59,787............... 267,715 470,910
EXCESS OF COST OVER FAIR VALUE OF NET ASSETS OF BUSINESSES ACQUIRED, less accumulated amortization
of $19,399 and $17,108........................................................................... 72,220 74,511
Total............................................................................................ $648,449 $785,871
See Accompanying Notes to Consolidated Financial Statements.
18
JAN. 2, JAN. 3,
1994 1993
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Portion of long-term debt payable within one year.................................................. $ 711 $ 1,178
Accounts payable and accrued liabilities........................................................... 69,232 52,073
Accounts payable to The Coca-Cola Company.......................................................... 1,876 1,796
Accrued interest payable........................................................................... 10,108 11,042
Total current liabilities........................................................................ 81,927 66,089
DEFERRED INCOME TAXES.............................................................................. 80,065 109,906
OTHER LIABILITIES.................................................................................. 22,470 28,944
SENIOR LONG-TERM DEBT.............................................................................. 434,358 555,126
Total liabilities................................................................................ 618,820 760,065
SHAREHOLDERS' EQUITY:
Convertible Preferred Stock, $100 par value: Authorized-50,000 shares; Issued-None
Nonconvertible Preferred Stock, $100 par value: Authorized-50,000 shares; Issued-None
Preferred Stock, $.01 par value: Authorized-20,000,000 shares; Issued-None
Common Stock, $1 par value: Authorized-30,000,000 shares; Issued-10,090,859 and 9,977,395 shares... 10,090 9,977
Class B Common Stock, $1 par value: Authorized-10,000,000 shares; Issued-1,964,476 shares.......... 1,965 1,965
Class C Common Stock, $1 par value: Authorized-20,000,000 shares; Issued-None
Capital in excess of par value..................................................................... 139,322 144,831
Accumulated deficit................................................................................ (98,488) (113,321)
Minimum pension liability adjustment............................................................... (5,614)
47,275 43,452
Less-Treasury stock, at cost:
Common-2,132,800 shares.......................................................................... 17,237 17,237
Class B Common-628,114 shares.................................................................... 409 409
Total shareholders' equity....................................................................... 29,629 25,806
Total............................................................................................ $648,449 $785,871
See Accompanying Notes to Consolidated Financial Statements.
19
COCA-COLA BOTTLING CO. CONSOLIDATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
IN THOUSANDS
FISCAL YEAR
1993 1992 1991
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)....................................................................... $ 14,833 $(114,116) $ 2,936
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Effect of accounting changes.......................................................... 116,199
Depreciation expense.................................................................. 23,284 22,217 18,785
Amortization of goodwill and intangibles.............................................. 14,784 18,326 10,884
Deferred income taxes................................................................. 7,261 2,720 (25)
Losses on sale of property, plant and equipment....................................... 1,148 574 278
Amortization of debt costs............................................................ 511 676 720
Undistributed loss of Piedmont Coca-Cola
Bottling Partnership............................................................... 1,600
(Increase) decrease in current assets less current
liabilities........................................................................ (30) 4,218 7,945
Increase in other noncurrent assets................................................... (3,571) (4,351) (826)
Increase (decrease) in other noncurrent liabilities................................... (25) (7,049) 3,138
Other................................................................................. 25 33 756
Total adjustments....................................................................... 44,987 153,563 41,655
Net cash provided by operating activities............................................... 59,820 39,447 44,591
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from the issuance of long-term debt............................................ 80,109
Payments on long-term debt.............................................................. (120,768) (4,397) (35,132)
Issuance of common stock................................................................ 2,269
Issuance of preferred stock............................................................. 50,000
Redemption of preferred stock and redeemable
preferred stock....................................................................... (60,991)
Cash dividends paid..................................................................... (7,665) (11,793) (14,925)
Other................................................................................... (1,376) 4,695 (74)
Net cash provided by (used in) financing activities..................................... (127,540) 7,623 (131)
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment.............................................. (28,786) (32,887) (24,360)
Proceeds from the sale of property, plant and equipment................................. 1,908 2,931 2,338
Acquisitions of companies, net of cash acquired......................................... (1,488) (16,699) (24,614)
Net proceeds from sale and contribution of assets to Piedmont Coca-Cola Bottling
Partnership........................................................................... 95,934
Net cash provided by (used in) investing activities..................................... 67,568 (46,655) (46,636)
NET INCREASE (DECREASE) IN CASH......................................................... (152) 415 (2,176)
CASH AT BEGINNING OF YEAR............................................................... 1,414 999 3,175
CASH AT END OF YEAR..................................................................... $ 1,262 $ 1,414 $ 999
See Accompanying Notes to Consolidated Financial Statements.
20
COCA-COLA BOTTLING CO. CONSOLIDATED
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
IN THOUSANDS
CLASS CAPITAL MINIMUM
B IN EXCESS PENSION
PREFERRED COMMON COMMON OF PAR ACCUMULATED LIABILITY TREASURY
STOCK STOCK STOCK VALUE DEFICIT ADJUSTMENT STOCK
Balance on December 30, 1990.............. $ 9,976 $1,966 $ 167,314 $ (795) $ 17,646
Net income................................ 2,936
Cash dividends declared:
Common.................................. (6,615) (982)
Preferred............................... (364) (364)
Issuance of Preferred Stock............... $ 50,000
Balance on December 29, 1991.............. 50,000 9,976 1,966 160,335 795 17,646
Net loss.................................. (114,116)
Cash dividends declared:
Common.................................. (7,598)
Preferred............................... (4,195)
Redemption of Preferred Stock............. (50,000)
Premium on Preferred Stock
redeemed................................ (3,711)
Conversion of Class B Common Stock into
Common Stock............................ 1 (1 )
Balance on January 3, 1993................ 0 9,977 1,965 144,831 (113,321) 17,646
Net income................................ 14,833
Cash dividends declared:
Common.................................. (7,665)
Issuance of Common Stock.................. 113 2,156
Minimum pension liability
adjustment.............................. $ (5,614)
BALANCE ON JANUARY 2, 1994................ $ 0 $10,090 $1,965 $ 139,322 $ (98,488) $ (5,614) $ 17,646
See Accompanying Notes to Consolidated Financial Statements.
21
COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
Coca-Cola Bottling Co. Consolidated ("the Company") is engaged in the
production, marketing and distribution of soft drinks, primarily products of The
Coca-Cola Company.
The consolidated financial statements include the accounts of the Company
and its majority owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
The fiscal years presented are the 52-week period ended January 2, 1994,
the 53-week period ended January 3, 1993 and the 52-week period ended December
29, 1991.
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 includes 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 basis, 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 gain or loss, if
any, is reflected in income.
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 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 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.
INTANGIBLE ASSETS
Identifiable intangible assets resulting from the acquisition of Coca-Cola
bottling franchises are being amortized on a straight-line basis over periods
ranging from four to forty years.
22
COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
EXCESS OF COST OVER FAIR VALUE OF NET ASSETS OF BUSINESSES ACQUIRED
The excess of cost over fair value of net assets of businesses acquired is
being amortized on a straight-line basis over forty years.
PER SHARE AMOUNTS
Per share amounts are calculated based on the weighted average number of
Common and Class B Common shares outstanding.
POSTEMPLOYMENT BENEFITS
In November 1992, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 112, "Employers' Accounting for
Postemployment Benefits" ("SFAS 112"). SFAS 112 requires the accrual, during the
years that employees render service, of the expected cost of providing
postemployment benefits if certain criteria are met. Postemployment benefits
encompass various types of employer-provided benefits including, but not limited
to, the following: workers' compensation, disability-related benefits and
severance benefits. SFAS 112 is effective for fiscal years beginning after
December 15, 1993, although earlier adoption is permitted. Any accrual required
to be recorded by SFAS 112 must be recognized initially as the effect of a
change in accounting principle. The Company intends to adopt the provisions of
SFAS 112 in the first quarter of 1994, effective January 3, 1994.
FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
Costs associated with interest rate swaps, forward interest rate agreements
and interest rate caps are recorded over the lives of the agreements as an
adjustment to interest expense.
2. ACQUISITIONS
On December 20, 1991, the Company acquired all of the outstanding capital
stock of Sunbelt Coca-Cola Bottling Company, Inc. ("Sunbelt") for approximately
$15.2 million. Approximately $4.4 million of the purchase price was paid in cash
to The Coca-Cola Company and one of its affiliates (former shareholders of
Sunbelt) and the balance of the purchase price was paid to the remaining
shareholders through the issuance of Company debt. Funds used for the cash
portion of the acquisition were obtained from the Company's existing lines of
credit. Total assets acquired as a result of the Sunbelt acquisition were
approximately $304 million. The acquisition was accounted for under the purchase
method of accounting.
The following unaudited pro forma combined summary results of operations
for the year ended December 29, 1991 gives effect to the acquisition as though
it had occurred at the beginning of the period presented. The pro forma earnings
are not necessarily indicative of the results of operations had the acquisition
actually occurred at the beginning of the period presented, nor are they
necessarily indicative of the results of future operations.
UNAUDITED,
IN THOUSANDS (EXCEPT PER SHARE DATA) PRO FORMA
YEAR ENDED DECEMBER 29, 1991
Net sales....................................................................................................... $632,717
Costs and expenses.............................................................................................. 589,588
Income from operations.......................................................................................... 43,129
Net loss........................................................................................................ (645)
Preferred dividends............................................................................................. 4,728
Net loss applicable to common shareholders...................................................................... (5,373)
Net loss applicable to common shareholders, per share........................................................... $ (.59)
23
COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. INVESTMENT IN PIEDMONT COCA-COLA BOTTLING PARTNERSHIP
On July 2, 1993, the Company and The Coca-Cola Company formed Piedmont
Coca-Cola Bottling Partnership ("Piedmont") to distribute and market soft drink
products primarily in 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 substantially
all of the soft drink products for Piedmont and manages the operations of
Piedmont pursuant to a management agreement.
Subsidiaries of the Company made an initial capital contribution to
Piedmont of $70 million in the aggregate. The capital contribution made by such
subsidiaries was composed of approximately $21.7 million in cash and of bottling
operations and certain assets used in connection with the Company's Wilson, NC
and Greenville and Beaufort, SC territories. The cash contributed to Piedmont by
the Company's subsidiaries was provided from the Company's available credit
facilities. The Company sold other territories to Piedmont for an aggregate
purchase price of approximately $118 million. Proceeds from the sale of
territories to Piedmont, net of the Company's cash contribution, totaled
approximately $96 million and were used to reduce the Company's long-term debt.
Summarized financial information for Piedmont is as follows:
IN THOUSANDS JAN. 2, 1994
Current assets................................................................................................... $ 18,408
Noncurrent assets................................................................................................ 362,923
Total assets..................................................................................................... $381,331
Current liabilities.............................................................................................. $ 9,867
Noncurrent liabilities........................................................................................... 234,664
Total liabilities................................................................................................ 244,531
Partners' equity................................................................................................. 136,800
Total liabilities and partners' equity........................................................................... $381,331
Company equity investment........................................................................................ $ 68,400
FOR THE
PERIOD
JULY 2, 1993
THROUGH
JANUARY 2,
IN THOUSANDS 1994
Net sales........................................................................................................ $ 91,259
Cost of products sold............................................................................................ 52,535
Gross margin..................................................................................................... 38,724
Income from operations........................................................................................... 1,209
Net loss......................................................................................................... $ (3,200)
Company equity in loss........................................................................................... $ (1,600)
24
COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. INVENTORIES
Inventories are summarized as follows:
IN THOUSANDS JAN. 2, 1994 JAN. 3, 1993
Finished products.................................................................................. $ 16,622 $ 17,134
Manufacturing materials............................................................................ 9,498 8,163
Used bottles and cases............................................................................. 1,413 1,338
Total inventories.................................................................................. $ 27,533 $ 26,635
The amounts included above for inventories valued by the LIFO method were
greater than replacement or current cost by approximately $2.5 million and $2.6
million on January 2, 1994 and January 3, 1993, respectively, as a result of
inventory premiums associated with certain acquisitions.
5. PROPERTY, PLANT AND EQUIPMENT
The principal categories and estimated useful lives of property, plant and
equipment were as follows:
JAN. 2, JAN. 3, ESTIMATED
IN THOUSANDS 1994 1993 USEFUL LIVES
Land.................................................................... $ 10,851 $ 12,101
Buildings............................................................... 60,907 62,394 10-50 years
Machinery and equipment................................................. 65,945 66,804 5-20 years
Transportation equipment................................................ 33,246 32,125 4-10 years
Furniture and fixtures.................................................. 18,437 17,744 7-10 years
Vending equipment....................................................... 89,280 85,900 6-13 years
Leasehold and land improvements......................................... 12,619 12,953 5-20 years
Construction in progress................................................ 6,276 3,455
Total property, plant and equipment, at cost............................ $297,561 $293,476
The slight increase in property, plant and equipment resulted from capital
additions in 1993 exceeding normal retirements and the sale and contribution of
certain fixed assets to Piedmont.
6. IDENTIFIABLE INTANGIBLE ASSETS
The principal categories and estimated useful lives of identifiable
intangible assets, net of accumulated amortization, were as follows:
JAN. 2, JAN. 3, ESTIMATED
IN THOUSANDS 1994 1993 USEFUL LIVES
Franchise rights........................................................... $230,205 $430,058 40 years
Customer lists............................................................. 30,858 33,587 20-23 years
Advertising savings........................................................ 5,792 6,309 7-23 years
Other...................................................................... 860 956 4-18 years
Total identifiable intangible assets....................................... $267,715 $470,910
The decrease in identifiable intangible assets resulted primarily from the
sale and contribution of certain franchise
territories to Piedmont.
25
COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. LONG-TERM DEBT
Long-term debt is summarized as follows:
FIXED(F)
OR
INTEREST VARIABLE(V) INTEREST JAN. 2, JAN. 3,
IN THOUSANDS MATURITY RATE RATE PAID 1994 1993
Lines of Credit..................................... 1997 3.50% V Varies $ 18,335 $ 94,301
Revolving Credit.................................... 1997
V Varies 40,000
Term Loan Agreement................................. 1995 3.77% V Monthly 75,000 75,000
Term Loan Agreement................................. 2000 4.00% V Semi- 60,000 60,000
annually
Term Loan Agreement................................. 2001 4.00% V Semi- 60,000 60,000
annually
Medium-Term Notes................................... 1998 3.93% V Quarterly 10,000 10,000
Medium-Term Notes................................... 1999 7.99% F Semi- 66,500 66,500
annually
Medium-Term Notes................................... 2000 10.05% F Semi- 57,000 57,000
annually
Medium-Term Notes................................... 2002 8.56% F Semi- 66,500 66,500
annually
Notes acquired in
Sunbelt acquisition............................... 2001 8.00% F Quarterly 5,442 6,000
Other notes payable................................. 1994- 6.85%- F Varies 16,217 16,984
2001 12.00%
Capital leases...................................... 1994- 8.00%- F Monthly 75 4,019
1995 12.00%
435,069 556,304
Less: Portion of long-term debt payable within one
year.............................................. 711 1,178
Senior long-term debt...............................
$434,358 $555,126
The principal maturities of long-term debt outstanding on January 2, 1994
were as follows:
IN THOUSANDS
1995.............................................................................................................. $ 75,229
1996.............................................................................................................. 120
1997.............................................................................................................. 18,490
1998.............................................................................................................. 12,050
Thereafter........................................................................................................ 328,469
Total long-term debt.............................................................................................. $434,358
On March 17, 1992, the Company entered into a revolving credit agreement
totaling $170 million which eliminated the term loan portion of the facility and
extended the revolving credit maturity date to March 1997. The agreement
contains several covenants which establish minimum ratio requirements related to
debt and cash flow. A commitment fee of 1/5% per year on the average daily
unused amount of the banks' commitment is payable quarterly. There were no
borrowings outstanding under this facility as of January 2, 1994.
A $100 million commercial paper program was established in January 1990 for
general corporate purposes. On
January 2, 1994, there were no borrowings outstanding under this program.
26
COCA-COLA BOTTLING CO. CONSOLIDATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company borrows from time to time under informal lines of credit from
various banks. On January 2, 1994, the Company had $175 million of credit
available under these lines, of which $18.3 million was outstanding. Loans under
these lines are made at the sole discretion of the banks at rates negotiated at
the time of borrowing. It is the Company's intent to renew such borrowings as
they mature. To the extent that these borrowings, the borrowings under the
revolving credit facility described above, and outstanding commercial paper do
not exceed the amount available under the Company's $170 million revolving
credit facility, they are classified as noncurrent liabilities.
On February 12, 1990, a $200 million shelf registration for debt securities
filed with the Securities and Exchange Commission became effective and available
for the issuance of medium-term notes ("MTNs"). As of December 30, 1990, $67
million of eight-and ten-year MTNs had been issued. On February 19, 1992, the
Company issued $133 million of seven-and ten-year MTNs, the proceeds of which
were used to repay a portion of a bridge facility from Coca-Cola Financial
Corporation ("CCFC"). As of Febr