UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 28, 1998
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 incorporation or (I.R.S. Employer
organization) Identification Number)
1900 REXFORD ROAD, CHARLOTTE, NORTH CAROLINA 28211
(Address of principal executive offices) (Zip Code)
(704) 551-4400
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at July 31, 1998
----- ----------------------------
Common Stock, $1 Par Value 7,045,047
Class B Common Stock, $1 Par Value 1,319,800
<PAGE>
PART I - FINANCIAL INFORMATION
Item l. Financial Statements
Coca-Cola Bottling Co. Consolidated
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
In Thousands (Except Share Data)
<TABLE>
<CAPTION>
<S> <C>
June 28, Dec. 28, June 29,
1998 1997 1997
---- ---- ----
ASSETS
- ------
Current Assets:
- ---------------
Cash $ 5,518 $ 4,427 $ 3,733
Accounts receivable, trade, less allowance for
doubtful accounts of $528, $513 and $420 62,320 55,258 52,097
Accounts receivable from The Coca-Cola Company 12,971 4,690 9,126
Due from Piedmont Coca-Cola Bottling Partnership 127 2,009 3,531
Accounts receivable, other 7,752 8,776 9,154
Inventories 46,536 38,738 37,265
Prepaid expenses and other current assets 15,821 12,674 9,732
-------- -------- --------
Total current assets 151,045 126,572 124,638
-------- -------- --------
Property, plant and equipment, less accumulated
depreciation of $186,444, $175,766 and $170,982 257,417 250,904 251,409
Investment in Piedmont Coca-Cola Bottling Partnership 62,999 63,326 64,399
Other assets 45,879 43,138 40,321
Identifiable intangible assets, less accumulated
amortization of $110,630, $105,334 and $100,365 257,757 231,034 235,890
Excess of cost over fair value of net assets of
businesses acquired, less accumulated
amortization of $29,705, $28,560 and $27,415 61,914 63,059 64,204
-------- -------- --------
Total $837,011 $778,033 $780,861
======== ======== ========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
<PAGE>
Coca-Cola Bottling Co. Consolidated
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
In Thousands (Except Share Data)
<TABLE>
<CAPTION>
<S> <C>
June 28, Dec. 28, June 29,
1998 1997 1997
---- ---- ----
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current Liabilities:
- --------------------
Portion of long-term debt payable within one year $ 60,884 $12,000 $ 12,135
Accounts payable and accrued liabilities 67,117 71,583 58,461
Accounts payable to The Coca-Cola Company 9,985 4,108 6,795
Accrued compensation 4,944 5,075 3,801
Accrued interest payable 14,273 14,038 11,097
--------- --------- ---------
Total current liabilities 157,203 106,804 92,289
Deferred income taxes 115,680 111,594 109,667
Deferred credits 5,968 7,139 8,592
Other liabilities 57,074 49,434 47,135
Long-term debt 489,068 493,789 515,847
--------- --------- ---------
Total liabilities 824,993 768,760 773,530
--------- --------- ---------
Shareholders' Equity:
- ---------------------
Convertible Preferred Stock, $100 par value:
Authorized-50,000 shares; Issued-None
Nonconvertible Preferred Stock, $100 par value:
Authorized-50,000 shares; Issued-None
Preferred Stock, $.01 par value:
Authorized-20,000,000 shares; Issued-None
Common Stock, $1 par value:
Authorized - 30,000,000 shares
Issued -10,107,421 shares 10,107 10,107 10,107
Class B Common Stock, $1 par value:
Authorized-10,000,000 shares
Issued - 1,947,914 shares 1,948 1,948 1,948
Class C Common Stock, $1 par value:
Authorized-20,000,000 shares; Issued-None
Capital in excess of par value 98,892 103,074 107,257
Accumulated deficit (37,675) (44,602) (50,623)
Minimum pension liability adjustment (104)
--------- --------- ---------
73,272 70,527 68,585
Less-Treasury stock, at cost:
Common-3,062,374 shares 60,845 60,845 60,845
Class B Common-628,114 shares 409 409 409
--------- --------- ---------
Total shareholders' equity 12,018 9,273 7,331
--------- --------- ---------
Total $ 837,011 $ 778,033 $ 780,861
========= ========= =========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
<PAGE>
Coca-Cola Bottling Co. Consolidated
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
In Thousands (Except Per Share Data)
<TABLE>
<CAPTION>
<S> <C>
Second Quarter First Half
-------------- ----------
1998 1997 1998 1997
---- ---- ---- ----
Net sales (includes sales to Piedmont of
$18,699, $15,485, $30,902 and $26,076) $ 241,415 $ 208,174 $ 444,746 $ 386,569
Cost of sales, excluding depreciation shown
below (includes $13,621, $11,407, $24,456
and $20,010 related to sales to Piedmont) 137,037 114,393 255,434 213,843
--------- --------- --------- ---------
Gross margin 104,378 93,781 189,312 172,726
--------- --------- --------- ---------
Selling expenses, excluding depreciation
shown below 49,048 43,314 99,746 87,378
General and administrative expenses 17,740 14,792 33,521 28,780
Depreciation expense 9,062 8,288 17,796 16,421
Amortization of goodwill and intangibles 3,316 3,091 6,537 6,155
--------- --------- --------- ---------
Income from operations 25,212 24,296 31,712 33,992
Interest expense 9,088 9,385 18,346 18,509
Other income (expense), net (1,196) (378) (2,353) (785)
--------- --------- --------- ---------
Income before income taxes 14,928 14,533 11,013 14,698
Federal and state income taxes 5,539 5,392 4,086 5,453
--------- --------- --------- ---------
Net income $ 9,389 $ 9,141 $ 6,927 $ 9,245
========= ========= ========= =========
Basic net income per share $ 1.12 $ 1.09 $ .83 $ 1.09
Diluted net income per share $ 1.11 $ 1.08 $ .82 $ 1.08
Weighted average number of common
shares outstanding 8,365 8,365 8,365 8,450
Weighted average number of common
shares outstanding - assuming dilution 8,496 8,448 8,495 8,536
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
<PAGE>
Coca-Cola Bottling Co. Consolidated
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)
In Thousands
<TABLE>
<CAPTION>
<S> <C>
Capital Minimum
Class B in Pension
Common Common Excess of Accumulated Liability Treasury
Stock Stock Par Value Deficit Adjustment Stock
----- ----- --------- ------- ---------- -----
Balance on
December 29, 1996 $ 10,107 $ 1,948 $111,439 $ (59,868) $ (104) $ 41,253
Net income 9,245
Cash dividends
paid: Common (4,182)
Purchase of
Common Stock 20,001
-------- -------- -------- ------------ -------- --------
Balance on
June 29, 1997 $ 10,107 $ 1,948 $107,257 $ (50,623) $ (104) $ 61,254
======== ======== ======== ============ ======== ========
Balance on
December 28, 1997 $10,107 $ 1,948 $103,074 $ (44,602) $ - $ 61,254
Net income 6,927
Cash dividends
paid: Common (4,182)
-------- -------- -------- ------------ -------- --------
Balance on
June 28, 1998 $ 10,107 $ 1,948 $ 98,892 $ (37,675) $ - $ 61,254
======== ======== ======== ============ ======== ========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
<PAGE>
Coca-Cola Bottling Co. Consolidated
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
In Thousands
<TABLE>
<CAPTION>
<S> <C>
First Half
----------
1998 1997
--------- ---------
Cash Flows from Operating Activities
Net income $ 6,927 $ 9,245
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation expense 17,796 16,421
Amortization of goodwill and intangibles 6,537 6,155
Deferred income taxes 4,086
Losses on sale of property, plant and equipment 1,445 838
Amortization of debt costs 297 280
Undistributed losses of Piedmont Coca-Cola Bottling Partnership 327 63
Increase in current assets less current liabilities (21,142) (12,679)
Increase in other noncurrent assets (2,968) (6,005)
Increase in other noncurrent liabilities 6,470 4,858
Other (5) 3,009
-------- --------
Total adjustments 12,843 12,940
-------- --------
Net cash provided by operating activities 19,770 22,185
-------- --------
Cash Flows from Financing Activities
Proceeds from the issuance of long-term debt 76,619
Increase in current portion of long-term debt 48,884 12,030
Payments on long-term debt (4,721) (226)
Purchase of Common Stock (20,001)
Cash dividends paid (4,182) (4,182)
Other (11) (352)
-------- --------
Net cash provided by financing activities 39,970 63,888
-------- --------
Cash Flows from Investing Activities
Additions to property, plant and equipment (24,511) (81,578)
Proceeds from the sale of property, plant and equipment 656 103
Acquisition of companies, net of cash acquired (34,794) (3,806)
-------- --------
Net cash used in investing activities (58,649) (85,281)
-------- --------
Net increase in cash 1,091 792
Cash at beginning of period 4,427 2,941
-------- --------
Cash at end of period $ 5,518 $ 3,733
======== ========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
<PAGE>
Coca-Cola Bottling Co. Consolidated
Notes to Consolidated Financial Statements (Unaudited)
1. Accounting Policies
The consolidated financial statements include the accounts of Coca-Cola Bottling
Co. Consolidated and its majority owned subsidiaries (the "Company"). All
significant intercompany accounts and transactions have been eliminated.
The information contained in the financial statements is unaudited. The
statements reflect all adjustments which, in the opinion of management, are
necessary for a fair statement of the results for the interim periods presented.
All such adjustments are of a normal, recurring nature.
The accounting policies followed in the presentation of interim financial
results are the same as those followed on an annual basis. These policies are
presented in Note 1 to the consolidated financial statements included in the
Company's Annual Report on Form 10-K for the year ended December 28, 1997 filed
with the Securities and Exchange Commission.
Certain prior year amounts have been reclassified to conform to current year
classifications.
<PAGE>
Coca-Cola Bottling Co. Consolidated
Notes to Consolidated Financial Statements (Unaudited)
2. Summarized Income Statement Data of Piedmont Coca-Cola Bottling Partnership
On July 2, 1993, the Company and The Coca-Cola Company formed Piedmont Coca-Cola
Bottling Partnership ("Piedmont") to distribute and market soft drink products
primarily in portions of North Carolina and South Carolina. The Company and The
Coca-Cola Company, through their respective subsidiaries, each beneficially own
a 50% interest in Piedmont. The Company provides a portion of the soft drink
products to Piedmont at cost and receives a fee for managing the business of
Piedmont pursuant to a management agreement. Summarized income statement data
for Piedmont is as follows:
Second Quarter First Half
-------------- ----------
In Thousands 1998 1997 1998 1997
- -----------------------------------------------------------------------------
Net sales $71,168 $63,037 $128,526 $115,868
Gross margin 31,541 28,218 56,266 51,946
Income from operations 5,862 4,535 5,643 5,919
Net income (loss) 2,796 1,508 (654) (126)
3. Inventories
Inventories are summarized as follows:
June 28, Dec. 28, June 29,
In Thousands 1998 1997 1997
- -------------------------------------------------------------------------------
Finished products $30,523 $21,542 $20,914
Manufacturing materials 12,545 14,171 10,394
Plastic pallets and other 3,468 3,025 5,957
-------- --------- ---------
Total inventories $46,536 $38,738 $37,265
======= ======= =======
The amounts included above for inventories valued by the LIFO method were
greater than replacement or current cost by approximately $2.7 million, $2.8
million and $2.1 million on June 28, 1998, December 28, 1997 and June 29, 1997,
respectively, as a result of inventory premiums associated with certain
acquisitions.
<PAGE>
Coca-Cola Bottling Co. Consolidated
Notes to Consolidated Financial Statements (Unaudited)
4. Long-Term Debt
Long-term debt is summarized as follows:
<TABLE>
<CAPTION>
<S> <C>
Fixed(F) or
Interest Variable Interest June 28, Dec. 28, June 29,
In Thousands Maturity Rate (V) Rate Paid 1998 1997 1997
- -------------------------------------------------------------------------------------------
Lines of Credit 2002 5.81%- V Varies $ 34,200 $ 10,300 $132,350
5.86%
Term Loan Agreement 2004 6.33% V Varies 85,000 85,000 170,000
Term Loan Agreement 2005 6.33% V Varies 85,000 85,000
Medium-Term Notes 1998 6.28% V Quarterly - 10,000 10,000
Medium-Term Notes 1998 10.05% F Semi- - 2,000 2,000
annually
Medium-Term Notes 1999 7.99% F Semi- 28,585 28,585 28,585
annually
Medium-Term Notes 2000 10.00% F Semi- 25,500 25,500 25,500
annually
Medium-Term Notes 2002 8.56% F Semi- 47,000 47,000 47,000
annually
Debentures 2007 6.85% F Semi- 100,000 100,000 100,000
annually
Debentures 2009 7.20% F Semi- 100,000 100,000
annually
Other notes payable 1998- 6.00%- F Varies 44,667 12,404 12,547
2001 10.00%
------- ------- -------
549,952 505,789 527,982
Less: Portion of long-
term debt payable
within one year 60,884 12,000 12,135
- -------------------------------------------------------------------------------------------
Long-term debt $489,068 $493,789 $515,847
- -------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Coca-Cola Bottling Co. Consolidated
Notes to Consolidated Financial Statements (Unaudited)
4. Long-Term Debt (cont.)
It is the Company's intent to renew its line of credit borrowings and
borrowings under the revolving credit facility as they mature. To the extent
that these borrowings do not exceed the amount available under the Company's
$170 million revolving credit facility, they are classified as noncurrent
liabilities.
On October 12, 1994, a $400 million shelf registration for debt and equity
securities filed with the Securities and Exchange Commission became effective
and the securities thereunder became available for issuance. On November 1,
1995, the Company issued $100 million of 6.85% debentures due 2007 pursuant
to such registration. In July 1997, the Company issued $100 million of 7.20%
debentures due 2009. The net proceeds from these issuances were used for
refinancing a portion of existing public debt with the remainder used to
repay other debt.
On November 20, 1995, the Company entered into a $170 million term loan
agreement with $85 million maturing in July 2004 and $85 million maturing in
July 2005. This loan was used to repay two $60 million loans previously
entered into by the Company and other bank debt.
The Company has guaranteed a portion of the debt for two cooperatives in
which the Company is a member. The amounts guaranteed were $30.7 million,
$31.1 million and $31.5 million as of June 28, 1998, December 28, 1997 and
June 29, 1997, respectively.
<PAGE>
Coca-Cola Bottling Co. Consolidated
Notes to Consolidated Financial Statements (Unaudited)
5. Derivative Financial Instruments
The Company uses derivative financial instruments to modify risk from
interest rate fluctuations in its underlying debt. The Company has
historically altered its fixed/floating interest rate mix based upon
anticipated operating cash flows of the Company relative to its debt level
and the Company's ability to absorb increases in interest rates. These
derivative financial instruments are not used for trading purposes.
The Company had weighted average interest rates for the debt portfolio of
approximately 7.1%, 7.1% and 6.8% as of June 28, 1998, December 28, 1997 and
June 29, 1997, respectively. The Company's overall weighted average interest
rate on its long-term debt increased from an average of 6.9% during the first
half of 1997 to an average of 7.1% during the first half of 1998. After
taking into account the effect of all of the interest rate swap activities,
approximately 28%, 50% and 59% of the total debt portfolio was subject to
changes in short-term interest rates as of June 28, 1998, December 28, 1997
and June 29, 1997, respectively.
A rate increase of 1% on the floating rate component of the Company's debt
would have increased interest expense for the first half of 1998 by
approximately $1.0 million and net income for the first six months ended June
28, 1998 would have been reduced by approximately $.6 million.
The Company currently has three interest rate swap agreements, including a
fixed rate interest swap for $50 million added in the first quarter of 1998.
Derivative financial instruments were as follows:
<TABLE>
<CAPTION>
<S> <C>
June 28, 1998 December 28, 1997 June 29, 1997
------------- ----------------- -------------
Remaining Remaining Remaining
In Thousands Amount Term Amount Term Amount Term
---------------------------------------------------------------------------------------------------
Interest rate swaps-floating $ 60,000 5.25 years $ 60,000 5.75 years $ 60,000 6.25 years
Interest rate swaps-floating 100,000 11.5 years
Interest rate swaps-fixed 60,000 5.25 years 60,000 5.75 years 60,000 6.25 years
Interest rate swaps-fixed 50,000 6.5 years
Interest rate cap 35,000 2.0 years 35,000 2.5 years
</TABLE>
In January 1998, the Company terminated two floating rate interest swaps with
a total notional amount of $100 million. The gain of $6.5 million resulting
from this termination will be amortized over 11.5 years, the remaining term
of the initial swap agreements.
<PAGE>
Coca-Cola Bottling Co. Consolidated
Notes to Consolidated Financial Statements (Unaudited)
5. Derivative Financial Instruments (cont.)
The carrying amounts and fair values of the Company's balance sheet and
off-balance-sheet instruments were as follows:
<TABLE>
<CAPTION>
<S> <C>
June 28, 1998 December 28, 1997 June 29, 1997
------------- ----------------- -------------
Carrying Fair Carrying Fair Carrying Fair
In Thousands Amount Value Amount Value Amount Value
- --------------------------------------------------------------------------------------------
Balance Sheet Instruments
- -------------------------
Public debt $301,085 $311,965 $313,085 $327,486 $213,085 $216,850
Non-public variable rate long-term
debt 204,200 204,200 180,300 180,300 302,350 302,350
Non-public fixed rate long-term
debt 44,667 45,429 12,404 13,297 12,547 13,334
Off-Balance-Sheet Instruments
- -----------------------------
Interest rate swaps (397) 1,854 (3,730)
Interest rate cap 18 80
</TABLE>
The fair values of the interest rate swaps at June 28, 1998 and June 29, 1997
represent the estimated amounts the Company would have had to pay to
terminate these agreements. The fair values of the interest rate cap and the
fair value of the interest rate swap at December 28, 1997 represent the
estimated amounts the Company would have received upon termination of these
agreements.
<PAGE>
Coca-Cola Bottling Co. Consolidated
Notes to Consolidated Financial Statements (Unaudited)
6. Supplemental Disclosures of Cash Flow Information
Changes in current assets and current liabilities affecting cash, net of effect
of acquisitions, were as follows:
First Half
----------
In Thousands 1998 1997
- ---------------------------------------------------------------------------
Accounts receivable, trade, net $ (6,444) $ (1,074)
Accounts receivable from The Coca-Cola Company (8,281) (5,366)
Due from Piedmont Coca-Cola Bottling Partnership 1,882 2,357
Accounts receivable, other 1,069 (2,020)
Inventories (7,610) (6,438)
Prepaid expenses and other current assets (3,058) (274)
Accounts payable and accrued liabilities (4,661) (1,913)
Accounts payable to The Coca-Cola Company 5,877 3,546
Accrued compensation (151) (1,482)
Accrued interest payable 235 (15)
-------- --------
Increase in current assets less current liabilities $(21,142) $(12,679)
======== ========
7. Acquisition
On January 21, 1998, the Company purchased the franchise rights and operating
assets of a Coca-Cola bottler located in Florence, Alabama for $33.6 million.
The bottling territory covers portions of northwest Alabama and South Central
Tennessee and is contiguous to the Company's Tennessee bottling territory. The
Company issued notes payable to the seller for approximately $32.1 million and
used the Company's existing lines of credit to fund the cash portion of the
acquisition. A portion of the notes payable issued is due on July 15, 1998 with
the remaining notes payable due on January 31, 1999. The interest rate for the
notes payable issued is 6.5%.
The acquisition was accounted for using the purchase method of accounting.
Accordingly, the Company's financial statements reflect the operating results
since the acquisition date. The results of operations for the periods presented
would not have been materially different had this acquisition taken place at the
beginning of the periods.
<PAGE>
Coca-Cola Bottling Co. Consolidated
Notes to Consolidated Financial Statements (Unaudited)
8. Estimates and Assumptions
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Introduction:
The following discussion presents management's analysis of the results of
operations for the second quarter and first six months of 1998 compared to the
second quarter and first six months of 1997 and changes in financial condition
from June 29, 1997 and December 28, 1997 to June 28, 1998.
The Company reported net income of $9.4 million or $1.12 per share for the
second quarter of 1998 compared with net income of $9.1 million or $1.09 per
share for the same period in 1997. For the first half of 1998, net income was
$6.9 million or $.83 per share compared to net income of $9.2 million or $1.09
per share for the first half of 1997. The second quarter of 1998 was highlighted
by strong volume growth across all significant market channels and improved net
selling prices as compared to the first quarter of 1998. Franchise bottle/can
volume increased by 12% in the second quarter and was up 13% for the first half
of 1998.
The Company purchased the franchise rights and operating assets of a Coca-Cola
bottler in Florence, Alabama in January 1998. The Company purchased St. Paul
Coca-Cola Bottling Company, Inc., a small Coca-Cola bottler in southwestern
Virginia, in June 1998.
In June 1998, the Financial Accounting Standards Board issued Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities", which is
required to be adopted in years beginning after June 15, 1999. The Statement
permits early adoption as of the beginning of any fiscal quarter after its
issuance. The Company has not determined at this time when Statement No. 133
will be adopted. The Statement will require the Company to recognize all
derivatives on the balance sheet at fair value. Derivatives that are not hedges
must be adjusted to fair value through income. If the derivative is a hedge,
depending on the nature of the hedge, changes in the fair value of derivatives
will either be offset against the change in fair value of the hedged assets,
liabilities or firm commitments through earnings or recognized in other
comprehensive income until the hedged item is recognized in earnings. The
ineffective portion of a derivative's change in fair value will be immediately
recognized in earnings. The Company has not yet determined what the effect of
adoption of Statement 133 will be on the earnings and financial position of the
Company.
The results for interim periods are not necessarily indicative of the results to
be expected for the year due to seasonal factors.
Results of Operations:
The Company continued its trend of strong volume growth in the second quarter
with an increase of over 12% in franchise volume. Net sales for the quarter
increased 16% over the same period in 1997. Franchise volume for the first six
months of 1998 increased by 13% over 1997. Net sales for the first half of 1998
increased by 15% over the first half of 1997. The volume and sales gains for
<PAGE>
the second quarter and first half of 1998 are being driven primarily by targeted
marketing programs with key accounts and the Company's significant investment in
cold drink equipment and infrastructure. Net selling prices were approximately
the same in the second quarter of 1998 versus the same period in 1997 reflecting
an improved pricing trend. For the first half of 1998, net selling prices were
down about 1% compared to the corresponding period in 1997. Volume growth was
strong across all significant channels. Also, fountain volume increased 19% for
the second quarter and 18% for the first six months of 1998.
The Company has enjoyed strong growth in its flagship brand, Coca-Cola classic,
with volume up over 7% for the first half of 1998. Volume in the citrus category
(Sprite, Mello Yello and Surge) increased 20% over the first half of the prior
year. The Company continues to expand its sales of noncarbonated products with
volume in the first half of 1998 more than doubling that of the first half of
1997. Noncarbonated products, including POWERaDE, Fruitopia, Cool from Nestea
and bottled water, now account for over 5% of the Company's franchise bottle/can
volume.
Gross margin as a percentage of sales decreased slightly for both the second
quarter and the first half of 1998. This was due primarily to net selling prices
which in a very competitive soft drink market, did not cover the increases in
cost of sales.
Selling expenses for the second quarter and first half of 1998 increased by 13%
and 14%, respectively, from 1997 levels. Increased selling expenses resulted
from higher sales volume, employment costs for additional sales personnel, a new
incentive program for certain employees, additional marketing expenses, higher
costs for sales development programs and increased lease expense for cold drink
equipment and vehicles, offset somewhat by increased marketing funding and
infrastructure support from The Coca-Cola Company. The Company has made a
significant investment in its sales force and anticipates that over time, the
increases in sales revenue from this investment will outpace the growth in
costs. The significant growth in selling expenses reflects the Company's
commitment to accelerated volume growth.
The Company relies extensively on advertising and sales promotion in the
marketing of its products. The Coca-Cola Company and other beverage companies
that supply concentrates, syrups and finished products to the Company make
substantial advertising expenditures to promote sales in the local territories
served by the Company. The Company also benefits from national advertising
programs conducted by The Coca-Cola Company and other beverage companies.
Certain of the marketing expenditures by The Coca-Cola Company and other
beverage companies are made pursuant to annual arrangements. Although The
Coca-Cola Company has advised the Company that it intends to provide marketing
funding support in 1998, it is not obligated to do so under the Company's Master
Bottle Contract. Also, The Coca-Cola Company has agreed to provide additional
marketing funding under a multi-year program to support the Company's cold drink
infrastructure. Total marketing funding and infrastructure support from The
Coca-Cola Company and other beverage companies in the first half of 1998 and
1997 was $25.8 million and $17.3 million, respectively. Total marketing funding
and infrastructure support in the second quarter of 1998 and 1997 was $16.2
million and $10.8 million, respectively.
<PAGE>
General and administrative expenses in the second quarter increased by 20% from
the second quarter of 1997. General and administrative expenses for the first
six months of 1998 increased by 16% over 1997 first half levels. The increase in
general and administrative was due to hiring of additional support personnel and
higher employment costs in certain of the Company's labor markets. The Company
has made an investment in additional administrative infrastructure to support
the projected accelerated growth of the Company.
Depreciation expense increased 9% and 8% between the second quarter and first
half of 1998 and the comparable periods in 1997. This increase was due to
significant ongoing capital investment, including over $100 million in 1997.
Interest expense during the second quarter declined 3% from the second quarter
of 1997 due to more favorable interest rates on the Company's floating rate
debt. Interest expense for the first half of 1998 was relatively unchanged from
the same period in 1997.
The Company's overall weighted average interest rate increased from an average
of 6.9% during the first half of 1997 to an average of 7.1% during the first
half of 1998.
Other expense for the first half of 1998 increased by $1.6 million over the same
period in 1997. The increase is due primarily to losses on the disposal of cold
drink equipment.
CHANGES IN FINANCIAL CONDITION:
Working capital decreased $25.9 million from December 28, 1997 and decreased
$38.5 million from June 29, 1997 to June 28, 1998. The decrease from December
28, 1997 is attributable to an increase in the current portion of long-term debt
of $48.9 million offset by increases in accounts receivable ($7.1 million),
accounts receivable from The Coca-Cola Company ($8.3 million) and inventory
($8.0 million). The increase in the current portion of long-term debt is due to
the maturing of $28.6 million of the Company's Medium-Term Notes in the first
quarter of 1999 and additional debt related to the acquisition of a Coca-Cola
bottler in northwest Alabama during the first quarter of 1998. The increase in
accounts receivable resulted primarily from the increase in sales over the prior
year. The increase in inventory is due to the previously discussed sales
increase and a greater number of stockkeeping units being sold. The increase in
accounts receivable from The Coca-Cola Company is due to higher levels of
marketing funding and infrastructure support in the current year. The decrease
in working capital of $38.5 million from June 29, 1997 is due to the
aforementioned increase in the current portion of long-term debt offset by an
increase in accounts receivable of $10.2 million.
Capital expenditures in the first half of 1998 were $24.5 million as compared to
$81.6 million in the first half of 1997. Capital expenditures for the first half
of 1997 included $66.3 million of previously leased equipment that was
purchased.
<PAGE>
Long-term debt decreased by $26.8 million from June 29, 1997 and decreased by
$4.7 million from December 28, 1997. The decrease from June 29, 1997 is
primarily due to the reclassification of $28.6 million of the Company's
Medium-Term Notes to current liabilities as of June 28, 1998. The Company
currently intends to use its informal lines of credit to refinance the
Medium-Term Notes as they come due.
It is the Company's intent to renew any borrowings under its $170 million
revolving credit facility and the informal line of credit borrowings as they
mature and, to the extent that any borrowings under the revolving credit
facility and the informal lines of credit do not exceed the amount available
under the Company's $170 million revolving credit facility, they are classified
as noncurrent liabilities. As of June 28, 1998, the Company had no borrowings
outstanding under the revolving credit facility and had approximately $34.2
million outstanding under the informal lines of credit.
As of June 28, 1998 the debt portfolio had a weighted average interest rate of
approximately 7.1% and approximately 28% of the total debt portfolio was subject
to changes in short-term interest rates.
Other liabilities increased from December 28, 1997 to June 28, 1998 by
approximately $7.6 million. This increase is primarily due to a $6.5 million
gain which resulted from the termination of two interest rate swaps in the first
quarter of 1998. The $6.5 million gain will be amortized over 11.5 years, the
remaining term of the initial swap agreements.
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.
YEAR 2000:
The Company uses software and other related technologies throughout its business
that will be affected by the date change in the year 2000. In general, the
Company has completed the assessment phase and is progressing with appropriate
modifications. Overall, the Company has targeted year 2000 remediation primarily
by the end of 1998, with certain applications targeted for completion by
mid-1999. While the Company's plans are underway, and the Company does not
anticipate such, the consequences of noncompliance by the Company, its customers
or its suppliers, could have a material adverse impact on the Company's
operations. The Company continues to incur expenses related to these efforts;
however, such expenses are not expected to have a material impact on the
Company's results of operations.
<PAGE>
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting of the Company's shareholders was held on May 13, 1998.
(b) The meeting was held to consider and vote upon (i) fixing the number of
the Company's directors at eleven, (ii) electing four directors, each for
a term of three years or until his successor shall be elected and shall
qualify, and (iii) approving the Company's new Long Term Incentive Plan in
order to permit bonuses paid thereunder to qualify as "performance based"
compensation within the meaning of Section 162(m) of the Internal Revenue
Code of 1986, as amended.
The votes cast on the question of fixing the number of directors at eleven
are summarized as follows:
For Against Abstain Total Votes
--- ------- ------- -----------
32,636,725 8,910 4,116 32,649,751
The votes cast with respect to each director are summarized as follows:
Director Name For Abstain Total Votes
------------- --- ------- -----------
J. Frank Harrison, Jr. 32,617,258 32,494 32,649,752
J. Frank Harrison, III 32,617,518 32,234 32,649,752
James L. Moore, Jr. 32,617,519 32,233 32,649,752
Ned R. McWherter 32,617,201 32,552 32,649,753
The votes cast for approving the Long Term Incentive Plan are summarized
as follows:
For Against Abstain Total Votes
--- ------- ------- -----------
32,562,454 75,812 11,486 32,649,752
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Description
27 Financial data schedule for period ended June 28, 1998.
(b) Reports on Form 8-K
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
COCA-COLA BOTTLING CO. CONSOLIDATED
(REGISTRANT)
Date: August 7, 1998 By: /s/ David V. Singer
-------------------
David V. Singer
Principal Financial Officer of the Registrant
and Vice President - Chief Financial Officer
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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This schedule contains summary financial information extracted from the
financial statements as of and for the six months ended June 28, 1998 and is
qualified in its entirety by reference to such financial statements.
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