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 3, 1999
Commission file number 0-9286
COCA-COLA BOTTLING CO. CONSOLIDATED
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(Exact name of Registrant as specified in its charter)
DELAWARE 56-0950585
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1900 REXFORD ROAD, CHARLOTTE, NORTH CAROLINA 28211
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(Address of principal executive offices) (Zip Code)
(704) 551-4400
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(Registrant's telephone number, including area code)
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
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(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 11, 1999
Common Stock, $l par value $222,731,080
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.
The Class B Common Stock is convertible into Common Stock on a share for share
basis at the option of the holder.
Indicate the number of shares outstanding of each of the Registrant's classes of
common stock, as of the latest practicable date.
CLASS OUTSTANDING AS OF MARCH 11, 1999
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Common Stock, $1 Par Value 6,023,739
Class B Common Stock, $1 Par Value 2,341,108
DOCUMENTS INCORPORATED BY REFERENCE
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Portions of Proxy Statement to be filed pursuant to Section 14 of the
Exchange Act with respect to the 1999 Annual Meeting of
Shareholders........................................Part III, Items 10-13
<PAGE>
PART I
ITEM 1 - BUSINESS
Introduction and Recent Developments
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Coca-Cola Bottling Co. Consolidated, a Delaware corporation (the "Company"), is
engaged in the production, marketing and distribution of carbonated and
noncarbonated beverages, primarily products of The Coca-Cola Company, Atlanta,
Georgia ("The Coca-Cola Company"). The Company has been in the soft drink
manufacturing business since 1902.
The Company has grown significantly since 1984. In 1984, net sales were
approximately $130 million. In 1998, net sales were approximately $929 million.
The Company's bottling territory was concentrated in North Carolina prior to
1984. A series of acquisitions since 1984 have significantly expanded the
Company's bottling territory. The most significant transactions were as follows:
o February 8, 1985 - Acquisition of various subsidiaries of Wometco Coca-Cola
Bottling Company which included territories in parts of Alabama, Tennessee
and Virginia. Other noncontiguous territories acquired in this acquisition
were subsequently sold.
o January 27, 1989 - Acquisition of all of the outstanding stock of The
Coca-Cola Bottling Company of West Virginia, Inc. which included territory
covering most of the state of West Virginia.
o December 20, 1991 - Acquisition of all of the outstanding capital stock of
Sunbelt Coca-Cola Bottling Company, Inc. ("Sunbelt") which included
territory covering parts of North Carolina and South Carolina.
o July 2, 1993 - Formation of Piedmont Coca-Cola Bottling Partnership
("Piedmont"). Piedmont is a joint venture owned equally by the Company and
The Coca-Cola Company through their respective subsidiaries. Piedmont
distributes and markets soft drink products, primarily in parts of North
Carolina and South Carolina. The Company sold and contributed certain
territories to Piedmont upon formation. The Company currently provides part
of the finished product requirements for Piedmont and receives a fee for
managing the operations of Piedmont pursuant to a management agreement.
o June 1, 1994 - The Company executed a management agreement with South
Atlantic Canners, Inc. ("SAC"), a manufacturing cooperative located in
Bishopville, South Carolina. The Company is a member of the cooperative and
receives a fee for managing the day-to-day operations of SAC pursuant to a
10-year management agreement. SAC significantly expanded its operations by
adding two PET bottling lines. These bottling lines supply a portion of the
Company's and Piedmont's volume requirements for finished product in PET
containers.
<PAGE>
ITEM 1 - BUSINESS (CONT.)
o January 21, 1998 - The Company purchased the bottling rights and operating
assets of a Coca-Cola bottler located in Florence, Alabama. This territory
is contiguous to the Company's Tennessee bottling territory.
These transactions, along with several smaller acquisitions of additional
bottling territory, have resulted in the Company becoming the second largest
Coca-Cola bottler in the United States.
The Company repurchased 929,440 shares of its Common Stock for $43.6 million in
a series of transactions between December 1996 and February 1997.
The Coca-Cola Company currently owns an economic interest of approximately 30%
and a voting interest of approximately 23% in the Company. The Coca-Cola
Company's economic interest was achieved through a series of transactions as
follows:
o June 1987 - The Company sold 1,355,033 shares of newly issued Common Stock
and 269,158 shares of Class B Common Stock to The Coca-Cola Company.
o January 1989 - The Company issued 1.1 million shares of Common Stock to The
Coca-Cola Company in exchange for all of the outstanding stock of The
Coca-Cola Bottling Company of West Virginia, Inc.
o June 1993 - The Company sold 33,464 shares of Common Stock to The Coca-Cola
Company pursuant to an agreement to maintain The Coca-Cola Company's voting
and equity interest within a prescribed range.
o February 1997 - The Company purchased 275,490 shares of its Common Stock for
$13.1 million from The Coca-Cola Company pursuant to an agreement to
maintain The Coca-Cola Company's voting and equity interest within a
prescribed range.
In addition, effective November 23, 1998, The Coca-Cola Company exchanged
228,512 shares of the Company's Common Stock which it held for 228,512 shares
of the Company's Class B Common Stock, pursuant to an agreement to maintain The
Coca-Cola Company's voting and equity interest within a prescribed range.
The Company considers acquisition opportunities for additional territories on an
ongoing basis. To achieve its goals, further purchases and sales of bottling
rights and entities possessing such rights and other related transactions
designed to facilitate such purchases and sales may occur.
<PAGE>
ITEM 1 - BUSINESS (CONT.)
General
In its soft drink operations, the Company holds Bottle Contracts and Allied
Bottle Contracts under which it produces and markets, in certain regions,
carbonated soft drink products of The Coca-Cola Company, including Coca-Cola
classic, caffeine free Coca-Cola classic, diet Coke, caffeine free diet Coke,
Cherry Coke, TAB, Sprite, diet Sprite, Surge, Citra, Mello Yello, diet Mello
Yello, Mr. PiBB, Barq's Root Beer, diet Barq's Root Beer, Fresca, Minute Maid
orange and diet Minute Maid orange sodas. The Company also distributes and
markets under Marketing and Distribution Agreements, POWERaDE, Cool from Nestea,
Fruitopia and Minute Maid Juices To Go in certain of its markets. Beginning in
April 1999, the Company plans to begin distributing Dasani bottled water,
another product from The Coca-Cola Company. The Company produces and markets Dr
Pepper in most of its regions. Various other products, including Seagrams'
products and Sundrop, are produced and marketed in one or more of the Company's
regions under agreements with the companies that manufacture the concentrate for
those beverages. In addition, the Company also produces soft drinks for other
Coca-Cola bottlers.
The Company's principal soft drink is Coca-Cola classic. During the last three
fiscal years, sales of products under the 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 89% of the Company's soft drink
sales during fiscal year 1998.
Beverage Agreements
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The Company holds contracts with The Coca-Cola Company which entitle the Company
to produce and market The Coca-Cola Company's soft drinks in bottles, cans and
five gallon, pressurized, pre-mix containers. The Company is one of many
companies holding such contracts. The Coca-Cola Company is the sole owner of the
secret formulas pursuant to which the primary components (either concentrates or
syrups) of Coca-Cola trademark beverages are manufactured. The concentrates,
when mixed with water and sweetener, produce syrup which, when mixed with
carbonated water, produce the soft drink known as "Coca-Cola classic" and other
soft drinks of The Coca-Cola Company which are manufactured and marketed by the
Company. The Company also purchases natural sweeteners from The Coca-Cola
Company. No royalty or other compensation is paid under the contracts with The
Coca-Cola Company for the Company's right to use in its territories the
tradenames and trademarks, such as "Coca-Cola classic" and their associated
patents, copyrights, designs and labels, all of which are owned by The Coca-Cola
Company. The Company has similar arrangements with Dr Pepper Company and other
beverage companies.
BOTTLE CONTRACTS. The Company is party to standard bottle contracts with
The Coca-Cola Company for each of its bottling territories (the "Bottle
Contracts") which provide that the Company will purchase its entire requirement
of concentrates and syrups for Coca-Cola, Coca-Cola classic, caffeine free
Coca-Cola classic, 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
<PAGE>
ITEM 1 - BUSINESS (CONT.)
currently used by the Company, which include cans and refillable and
non-refillable bottles. The Coca-Cola Company may determine from time to time
what containers of this type to authorize for use by the Company.
The price The Coca-Cola Company 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, stimulate and 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 financial capacity as may be reasonably
necessary to assure performance by the Company and its affiliates of their
obligations to The Coca-Cola Company.
The Bottle Contracts require the Company to submit to The Coca-Cola Company each
year its plans for marketing, management and advertising with respect to the
Coca-Cola Trademark Beverages for the ensuing year. Such plans must demonstrate
that the Company has the financial capacity to perform its duties and
obligations to The Coca-Cola Company under the Bottle Contracts. The Company
must obtain The Coca-Cola Company's approval of those plans, which approval may
not be unreasonably withheld, and if the Company carries out its plans in all
material respects, it will have satisfied its contractual obligations. Failure
to carry out such plans in all material respects would constitute an event of
default that, if not cured within 120 days of notice of such failure, would give
The Coca-Cola Company the right to terminate the Bottle Contracts. If the
Company at any time fails to carry out a plan in all material respects with
respect to any geographic segment (as defined by The Coca-Cola Company) of its
territory, and if that failure is not cured within six months of notice of such
failure, The Coca-Cola Company may reduce the territory covered by the
applicable Bottle Contract by eliminating the portion of the territory with
respect to which the failure has occurred.
The Coca-Cola Company has no obligation under the Bottle Contracts to
participate with the Company in expenditures for advertising and marketing. As
it has in the past, The Coca-Cola Company may contribute to such expenditures
and undertake independent advertising and marketing activities, as well as
cooperative advertising and sales promotion programs which require mutual
cooperation and financial support of the Company. The future levels of marketing
support and promotional funds provided by The Coca-Cola Company may vary
materially from the levels provided during the periods covered by the financial
information included in this report.
<PAGE>
ITEM 1 - BUSINESS (CONT.)
The Coca-Cola Company has the right to reformulate any of the Coca-Cola
Trademark Beverages and to discontinue any of the Coca-Cola Trademark Beverages,
subject to certain limitations, so long as all Coca-Cola Trademark Beverages are
not discontinued. The Coca-Cola Company may also introduce new beverages under
the trademarks "Coca-Cola" or "Coke" or any modification thereof, and in that
event the Company would be obligated to manufacture, package, distribute and
sell the new beverages with the same duties as exist under the Bottle Contracts
with respect to Coca-Cola Trademark Beverages.
If the Company acquires the right to manufacture and sell Coca-Cola Trademark
Beverages in any additional territory, the Company has agreed that such new
territory will be covered by a standard contract in the same form as the Bottle
Contracts and that any existing agreement with respect to the acquired territory
automatically shall be amended to conform to the terms of the Bottle Contracts.
In addition, if the Company acquires control, directly or indirectly, of any
bottler of Coca-Cola Trademark Beverages, or any party controlling a bottler of
Coca-Cola Trademark Beverages, the Company must cause the acquired bottler to
amend its franchises for the Coca-Cola Trademark Beverages to conform to the
terms of the Bottle Contracts.
The Bottle Contracts are perpetual, subject to termination by The Coca-Cola
Company in the event of default by the Company. Events of default by the Company
include (1) the Company's insolvency, bankruptcy, dissolution, receivership or
similar conditions; (2) the Company's disposition of any interest in the
securities of any bottling subsidiary without the consent of The Coca-Cola
Company; (3) termination of any agreement regarding the manufacture, packaging,
distribution or sale of Coca-Cola Trademark Beverages between The Coca-Cola
Company and any person that controls the Company; (4) any material breach of any
obligation occurring under the Bottle Contracts (including, without limitation,
failure to make timely payment for any syrup or concentrate or of any other debt
owing to The Coca-Cola Company, failure to meet sanitary or quality control
standards, failure to comply strictly with manufacturing standards and
instructions, failure to carry out an approved plan as described above, and
failure to cure a violation of the terms regarding imitation products), that
remains uncured for 120 days after notice by The Coca-Cola Company; or (5)
producing, manufacturing, selling or dealing in any "Cola Product," as defined,
or any concentrate or syrup which might be confused with those of The Coca-Cola
Company; or (6) selling any product under any trade dress, trademark or
tradename or in any container in which The Coca-Cola Company has a proprietary
interest; or (7) owning any equity interest in or controlling any entity which
performs any of the activities described in (5) or (6) above. In addition, upon
termination of the Bottle Contracts for any reason, The Coca-Cola Company, at
its discretion, may also terminate any other agreements with the Company
regarding the manufacture, packaging, distribution, sale or promotion of soft
drinks, including the Allied Bottle Contracts described elsewhere herein.
The Company is prohibited from assigning, transferring or pledging its Bottle
Contracts, or any interest therein, whether voluntarily or by operation of law,
without the prior consent of The Coca-Cola Company. Moreover, the Company may
not 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.
<PAGE>
ITEM 1 - BUSINESS (CONT.)
The Coca-Cola Company may automatically amend the Bottle Contracts if 80% of the
domestic bottlers who are parties to agreements with The Coca-Cola Company
containing substantially the same terms as the Bottle Contracts, which bottlers
purchased for their own account 80% of the syrup and equivalent gallons of
concentrate for Coca-Cola Trademark Beverages purchased for the account of all
such bottlers, agree that their bottle contracts shall be likewise amended.
SUPPLEMENTARY AGREEMENT. The Company and The Coca-Cola Company are also
parties to a Supplementary Agreement (the "Supplementary Agreement") that
modifies some of the provisions of the Bottle Contracts. The Supplementary
Agreement provides that The Coca-Cola Company will exercise good faith and fair
dealing in its relationship with the Company under the Bottle Contracts; offer
marketing support and exercise its rights under the Bottle Contracts in a manner
consistent with its dealings with comparable bottlers; offer to the Company any
written amendment to the Bottle Contracts (except amendments dealing with
transfer of ownership) which it offers to any other bottler in the United
States; and, subject to certain limited exceptions, sell syrups and concentrates
to the Company at prices no greater than those charged to other bottlers which
are parties to contracts substantially similar to the Bottle Contracts.
The Supplementary Agreement permits transfers of the Company's capital stock
that would otherwise be limited by the Bottle Contracts.
ALLIED BOTTLE CONTRACTS. Other contracts with The Coca-Cola Company (the
"Allied Bottle Contracts") grant similar exclusive rights to the Company with
respect to the distribution of Sprite, Mr. PiBB, Surge, Citra, Mello Yello, diet
Mello Yello, Fanta, TAB, diet Sprite, sugar free Mr. PiBB, Fresca, POWERaDE,
Minute Maid orange and diet Minute Maid orange sodas (the "Allied Beverages")
for sale in authorized containers in its territories. These contracts contain
provisions that are similar to those of the Bottle Contracts with respect to
pricing, authorized containers, planning, quality control, trademark and
transfer restrictions and related matters. Each Allied Bottle Contract has a
term of 10 years and is renewable by the Company for an additional 10 years at
the end of each 10 year period, but is subject to termination in the event of
(1) the Company's insolvency, bankruptcy, dissolution, receivership or similar
condition; (2) termination of the Company's Bottle Contract covering the same
territory by either party for any reason; and (3) any material breach of any
obligation of the Company under the Allied Bottle Contract that remains uncured
for 120 days after notice by The Coca-Cola Company.
The Coca-Cola Company purchased all rights of Barq's, Inc. under its Bottler's
Agreements with the Company. These contracts cover both Barq's Root Beer and
diet Barq's Root Beer and remain in effect unless terminated by The Coca-Cola
Company for breach by the Company of their terms, insolvency of the Company or
the failure of the Company to manufacture, bottle and sell the products for 15
consecutive days or to purchase extract for a period of 120 consecutive days.
POST-MIX RIGHTS. The Company also has the non-exclusive right to sell
Coca-Cola classic and other fountain syrups ("post-mix syrup") of The Coca-Cola
Company.
<PAGE>
ITEM 1 - BUSINESS (CONT.)
OTHER BOTTLING AGREEMENTS. The bottling agreements from most other soft
drink franchisers are similar to those described above in that they are
renewable at the option of the Company and the franchisers. The price the
franchisers may charge for syrup or concentrate is set by the franchisers from
time to time. They also contain similar restrictions on the use of trademarks,
approved bottles, cans and labels and sale of imitations or substitutes as well
as termination for cause provisions. Sales of beverages by the Company under
these agreements represented approximately 11% of the Company's sales for fiscal
year 1998.
The territories covered by the Allied Bottle Contracts and by bottling
agreements for products of franchisers other than The Coca-Cola Company in most
cases correspond with the territories covered by the Bottle Contracts. The
variations do not have a material effect on the business of the Company taken as
a whole.
Markets and Production and Distribution Facilities
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As of March 11, 1999, the Company held bottling rights from The
Coca-Cola Company covering the majority of central, northern and western North
Carolina, and portions of Alabama, Mississippi, Tennessee, Kentucky, Virginia,
West Virginia, Ohio, Pennsylvania, Georgia and Florida. The total population
within the Company's bottling territory is approximately 12.4 million.
As of March 11, 1999, 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
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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 5.4 million. Production/distribution
facilities are located in Charlotte and 15 other distribution facilities are
located in the region.
2. South Alabama. This region includes a portion of southwestern
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Alabama, including the area surrounding Mobile, and a portion of southeastern
Mississippi. The region has an estimated population of 900,000. A
production/distribution facility is located in Mobile, and five other
distribution facilities are located in the region.
3. South Georgia. This region includes a small portion of eastern
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Alabama, a portion of southwestern Georgia surrounding Columbus, Georgia, in
which a distribution facility is located, and a portion of the Florida
Panhandle. Four other distribution facilities are located in the region. This
region has an estimated population of 1.0 million.
4. Middle Tennessee. This region includes a portion of central
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Tennessee, including areas surrounding Nashville, a small portion of southern
Kentucky and a small portion of northwest Alabama. The region has an estimated
population of 1.8 million. A production/distribution facility is located in
Nashville and eight other distribution facilities are located in the region.
<PAGE>
ITEM 1 - BUSINESS (CONT.)
5. Western Virginia. This region includes most of southwestern Virginia,
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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 eight other
distribution facilities are located in the region.
6. West Virginia. This region includes most of the state of West
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Virginia, a portion of eastern Kentucky, a portion of eastern Ohio and a portion
of southwestern Pennsylvania. The region has an estimated population of 1.9
million. There are 11 distribution facilities located in the region.
The Company owns 100% of the operations in each of the regions previously
listed.
The Company sold the majority of its South Carolina bottling territory to
Piedmont in July 1993. Pursuant to a management agreement, the Company produces
a portion of the soft drink products for Piedmont. The Company currently owns a
50% interest in Piedmont. Piedmont's bottling territory covers parts of eastern
North Carolina and most of South Carolina. This region has an estimated
population of 4.2 million.
On June 1, 1994, the Company executed a management agreement with South Atlantic
Canners, Inc. ("SAC"), a manufacturing cooperative located in Bishopville, South
Carolina. The Company is a member of the cooperative and receives a fee for
managing the day-to-day operations of SAC pursuant to a 10-year management
agreement. Management fees from SAC were $1.2 million, $1.2 million and $1.4
million in 1998, 1997 and 1996, respectively. SAC has significantly expanded its
operations by adding two PET bottling lines. The bottling lines supply a portion
of the Company's and Piedmont's volume requirements for finished products in PET
containers. The Company executed member purchase agreements with SAC that
require minimum annual purchases of canned product, 20 ounce PET product, 2
liter PET product and 3 liter PET product by the Company of approximately $40
million.
In addition to producing bottled and canned soft drinks for the Company's
bottling territories, each production facility also produces some products for
sale by other Coca-Cola bottlers. With the exception of the Company's production
of soft drink products for Piedmont, this contract production is currently not
material in the Company's production centers.
Raw Materials
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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, cans and plastic bottles, the Company purchases its raw materials
from multiple suppliers.
<PAGE>
ITEM 1 - BUSINESS (CONT.)
The Company has supply agreements with its aluminum can suppliers which require
the Company to purchase the majority of its aluminum can requirements. These
agreements, which extend through the end of 2000 and 2001, also reduce the
variability of the cost of cans.
The Company purchases substantially all of its plastic bottles (20 ounce, 1
liter, 2 liter and 3 liter sizes) from manufacturing plants which are owned and
operated by two cooperatives of Coca-Cola bottlers, including the Company. 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
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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 1998, approximately
76% of the Company's physical case volume was in the take-home channel through
supermarkets, convenience stores, drug stores and other retail outlets. The
remaining volume was in the cold drink channel, primarily through dispensing
machines, owned either by the Company, retail outlets or third party vending
companies.
New product introductions, packaging changes and sales promotions have been the
major competitive techniques in the soft drink industry in recent years and have
required and are expected to continue to require substantial expenditures.
Product introductions in recent years include: caffeine free Coca-Cola classic;
caffeine free diet Coke; Cherry Coke; Surge; diet Mello Yello; Minute Maid
orange; diet Minute Maid orange; Cool from Nestea; Fruitopia; POWERaDE; Minute
Maid Juices To Go and Surge. New product introductions have entailed increased
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 primarily in non-refillable bottles, both glass and
plastic, and in cans, in varying proportions from market to market. There may be
as many as eleven different packages for Coca-Cola classic within a single
geographical area. Physical unit sales of soft drinks during fiscal year 1998
were approximately 51% cans, 47% non-refillable bottles and 2% pre-mix.
Advertising in various media, primarily television and radio, is relied upon
extensively in the marketing of the Company's soft drinks. The Coca-Cola Company
and Dr Pepper Company each have joined the Company in making substantial
expenditures in cooperative advertising in the Company's marketing areas.
<PAGE>
ITEM 1 - BUSINESS (CONT.)
The Company also benefits from national advertising programs conducted by The
Coca-Cola Company and Dr Pepper Company, respectively. In addition, the Company
expends substantial funds on its own behalf for extensive local sales promotions
of the Company's soft drink products. These expenses are partially offset by
marketing funds which the franchisers provide to the Company in support of a
variety of marketing programs, such as 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 marketing funding provided by The Coca-Cola Company for advertising or
marketing programs which benefit the Company could have a material effect on the
business and financial results of the Company.
Seasonality
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Sales are somewhat seasonal, with the highest sales volume occuring in May,
June, July and August. The Company has adequate production capacity to meet
sales demands during these peak periods.
Competition
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The soft drink industry is highly competitive. The Company's competitors include
several large soft drink manufacturers engaged in the distribution of nationally
advertised products, as well as similar companies which market lesser-known soft
drinks in limited geographical areas and manufacturers of private brand soft
drinks. In each region in which the Company operates, between 75% and 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 beverage
products also compete with, among others, noncarbonated beverages and citrus and
noncitrus fruit drinks.
The principal methods of competition in the soft drink industry are
point-of-sale merchandising, new product introductions, packaging changes, price
promotions, quality, frequency 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.
<PAGE>
ITEM 1 - BUSINESS (CONT.)
From time to time, legislation has been proposed in Congress and by certain
state and local governments which would prohibit the sale of soft drink products
in non-refillable bottles and cans or require a mandatory deposit as a means of
encouraging the return of such containers in an attempt to reduce solid waste
and litter. The Company is currently not impacted by this type of proposed
legislation.
Soft drink and similar-type taxes have been in place in North Carolina, South
Carolina, West Virginia and Tennessee for several years. To the Company's
knowledge, legislation has not been proposed or enacted to increase the tax in
West Virginia or Tennessee. The North Carolina soft drink tax was reduced by 25%
effective July 1, 1996. The North Carolina General Assembly also enacted a
measure repealing the soft drink tax in 25% increments over a three-year period,
such that it will be eliminated in 1999. The South Carolina soft drink tax has
been repealed and is being phased out ratably over a six-year period beginning
July 1, 1996.
Environmental Remediation
- -------------------------
The Company does not currently have any material capital expenditure commitments
for environmental remediation for any of its properties.
Employees
- ---------
As of March 11, 1999, the Company had a total of approximately 6,000 full-time
employees, of whom approximately 500 were union members. The total number of
employees is approximately 7,000. Management of the Company believes that the
Company's relations with its employees are generally good.
<PAGE>
ITEM 2 - PROPERTIES
The principal properties of the Company include its corporate headquarters, its
four production/distribution facilities and its 52 distribution centers, all of
which are owned by the Company except for its corporate headquarters offices,
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 10-year term beginning on December 1, 1992.
JFH Management, Inc., a North Carolina corporation of which J. Frank Harrison,
Jr. is the sole shareholder, serves as sole general partner of the limited
partnership that purchased the production center property. The sole limited
partner of the limited partnership is a trust as to which J. Frank Harrison, III
and Reid M. Henson are co-trustees, share investment powers, and as to which
they share voting power for purposes of this partnership interest. The
beneficiaries of this trust are J. Frank Harrison, Jr. and his descendants. 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 London Interbank Offered Rate
("LIBOR").
On June 1, 1993, the Company entered into a lease agreement with Beacon
Investment Corporation related to the Company's headquarters office building.
Beacon Investment Corporation's sole shareholder is J. Frank Harrison, III. On
January 5, 1999, the Company entered into a new 10-year lease agreement with
Beacon Investment Corporation which includes the Company's headquarters office
building and an adjacent office facility. The annual base rent the Company is
obligated to pay under this lease in 1999 is $2.8 million and is subject to
adjustment for increases in the Consumer Price Index and for increases or
decreases in interest rates, using the Adjusted Eurodollar Rate as the
measurement device.
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/distribution facilities
apart from the leased production/distribution facilities described above. The
current percentage utilization of the Company's production centers as of March
11, 1999 is approximately as indicated below:
<PAGE>
ITEM 2 - PROPERTIES (CONT.)
Production Facilities
---------------------
Location Percentage Utilization*
-------- -----------------------
Charlotte, North Carolina 62%
Mobile, Alabama 48%
Nashville, Tennessee 52%
Roanoke, Virginia 50%
*Estimated 1999 production divided by capacity (based on operations
of 6 days per week and 24 hours per day).
The Company currently has sufficient production capacity to meet its operational
requirements. In addition to the production facilities noted above, the Company
also has access to production capacity from South Atlantic Canners, Inc.
Bottled and canned soft drinks are transported to distribution centers for
storage pending sale. The number of distribution centers by market area as of
March 11, 1999 is as follows:
Distribution Centers
--------------------
Region Number of Centers
------ -----------------
North Carolina 16
South Alabama 6
South Georgia 5
Middle Tennessee 9
Western Virginia 9
West Virginia 11
The Company's distribution facilities are all in good condition and are adequate
for the Company's operations as presently conducted.
The Company also operates approximately 3,000 vehicles in the sale and
distribution of its soft drink products, of which approximately 1,500 are route
delivery trucks. In addition, the Company owns or leases approximately 156,000
soft drink dispensing and vending machines for the sale of its soft drink
products in its bottling territories.
<PAGE>
ITEM 3 - LEGAL PROCEEDINGS
The Company is involved in various claims and legal proceedings which have
arisen in the ordinary course of its business. The Company believes that the
ultimate disposition of these claims will not have a material adverse effect on
the financial condition, cash flows or results of operations of the Company.
<PAGE>
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 3, 1999.
<PAGE>
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 11, 1999, indicating all positions and offices with the
Registrant held by each such person. All officers have served in their present
capacities for the past five years except as otherwise stated.
J. FRANK HARRISON, III, age 44, is Chairman of the Board of Directors and Chief
Executive Officer of the Company. Mr. Harrison was appointed Chairman of the
Board of Directors in December 1996. Mr. Harrison served in the capacity of Vice
Chairman from November 1987 through December 1996 and was appointed as the
Company's Chief Executive Officer in May 1994. He was first employed by the
Company in 1977, and has served as a Division Sales Manager and as a Vice
President of the Company. Mr. Harrison, III is a Director of Wachovia Bank &
Trust Co., N.A., Southern Region Board. He is Vice Chairman of the Executive
Committee, Vice Chairman of the Finance Committee and a member of the Audit
Committee.
REID M. HENSON, age 59, has served as a Vice Chairman of the Board of Directors
of the Company since 1983. Prior to that time, Mr. Henson served as a consultant
for JTL Corporation, a management company, and later as President of JTL
Corporation. He has been a Director of the Company since 1979, is Chairman of
the Audit Committee, Vice Chairman of the Retirement Benefits Committee and a
member of the Executive Committee and the Finance Committee.
JAMES L. MOORE, JR., age 56, is President and Chief Operating Officer of the
Company. Prior to his election as President in March 1987, he served as
President and Chief Executive Officer of Atlantic Soft Drink Co., a soft drink
bottling subsidiary of Grand Metropolitan USA. 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 Retirement Benefits Committee.
ROBERT D. PETTUS, JR., age 54, is Executive Vice President and Assistant to the
Chairman, a position to which he was appointed in January 1997. Mr. Pettus was
previously Vice President, Human Resources, a position he held since September
1984. Prior to joining the Company, he was Director, Employee Relations for the
Texize Division of Morton-Thiokol for seven years.
DAVID V. SINGER, age 43, 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 Manufacturing
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.
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT (CONT.)
M. CRAIG AKINS, age 48, is Regional Vice President, Sales, a position he has
held since June 1996. He was previously Vice President, Cold Drink Market, a
position he was appointed to in 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.
JONATHON W. ALBRIGHT, age 31, is Vice President and Treasurer, a position he has
held since August 1998. Prior to joining the Company in 1998, he served as
Manager of Financial Analysis at Integon Corporation, Manager of Business
Analysis at Avery-Dennison Corporation's Soabar Products Group and Senior
Financial Analyst at American Express Company.
WILLIAM B. ELMORE, age 43, is Vice President, Business Systems, a position he
has held since May 1998. Previously, he was Vice President and Treasurer from
July 1996 to April 1998. He was Vice President, Regional Manager for the
Virginia Division, West Virginia Division and Tennessee Division, from November
1991 to June 1996. Mr. Elmore served as 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 43, is Vice President, Corporate Sales, a position he has
held since August 1998. Previously, he was Vice President, Sales for the
Carolinas South Region, a position he held beginning in 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.
UMESH M. KASBEKAR, age 41, is Vice President, Planning and Administration, a
position he has held since December 1994. He was Vice President, Planning from
December 1988 until December 1994. He was first employed by the Company in 1983
and held various other positions with the Company from 1983 to 1988.
R. PHILIP KENNY, age 53, is Vice President, Human Resources, a position he has
held since June 1997. Prior to joining the Company in 1997, he was employed by
BancOne Corporation, where he served as Director, Human Resources, Southwest
Region from 1995 through 1997 and also served as Manager, Change Management and
Employee Relations during the first half of 1997. From 1981 through 1995, Mr.
Kenny served as Director of Human Resources for BancOne, Texas, N.A.
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT (CONT.)
C. RAY MAYHALL, JR., age 51, is Regional Vice President, Sales, a position he
has held since November 1991. He served as Vice President, Division Manager of
the 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.
JAMES B. STUART, age 56, joined the Company in October 1990 as Vice President,
Marketing. 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. He had been Senior Vice
President, Sales and Marketing with JTL Corporation from 1980 until that company
was acquired by The Coca-Cola Company in 1986.
STEVEN D. WESTPHAL, age 44, 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.
<PAGE>
PART II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company has two classes of common stock outstanding, Common Stock and Class
B Common Stock. The Common Stock is traded on the Nasdaq National Market tier of
the Nasdaq Stock Market(R) under the symbol COKE. The table below sets forth for
the periods indicated the high and low reported sales prices per share of Common
Stock. There is no established public trading market for the Class B Common
Stock. Shares of Class B Common Stock are convertible on a share-for-share basis
into shares of Common Stock.
FISCAL YEAR
-----------
1998 1997
---- ----
High Low High Low
---- --- ---- ---
First quarter $69.75 $56.00 $50.50 $43.00
Second quarter 68.75 57.00 48.50 38.75
Third quarter 75.75 58.50 57.00 46.25
Fourth quarter 62.25 57.00 66.88 56.25
The quarterly dividend rate of $.25 per share on both Common Stock and Class B
Common Stock shares was maintained throughout 1996, 1997 and 1998.
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 amount and frequency of future dividends will be determined by the Company's
Board of Directors in light of the earnings and financial condition of the
Company at such time, and no assurance can be given that dividends will be
declared in the future.
The number of shareholders of record of the Common Stock and Class B Common
Stock, as of March 11, 1999, was 2,817 and 13, respectively.
<PAGE>
ITEM 6 - SELECTED FINANCIAL DATA
The following table sets forth certain selected financial data concerning the
Company for the five years ended January 3, 1999. The data for the five years
ended January 3, 1999 is unaudited but is derived from audited financial
statements of the Company. This information should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" set forth in Item 7 hereof and is qualified in its entirety by
reference to the more detailed financial statements and notes contained in Item
8 hereof. This information should also be read in conjunction with the
"Introduction and Recent Developments" section in Item 1 hereof which details
the Company's significant acquisitions and divestitures since 1984.
<PAGE>
SELECTED FINANCIAL DATA*
In Thousands (Except Per Share Data)
<TABLE>
<S> <C> <C> <C> <C> <C>
Fiscal Year
-----------------------------------------------------------------
Summary of Operations 1998 1997 1996 1995 1994
- ------------------------------------------------- --------- ---- ---- ---- ----
Net sales $928,502 $802,141 $773,763 $761,876 $723,896
- ------------------------------------------------- --------- -------- -------- -------- --------
Cost of sales 534,919 452,893 435,959 447,636 427,140
Selling expenses 207,244 183,125 177,734 158,831 149,992
General and administrative expenses 69,001 56,776 58,793 54,720 54,559
Depreciation expense 36,754 33,672 28,528 26,746 24,188
Amortization of goodwill and intangibles 13,294 12,332 12,238 12,230 12,309
- ------------------------------------------------- --------- -------- -------- -------- --------
Total costs and expenses 861,212 738,798 713,252 700,163 668,188
- ------------------------------------------------- --------- -------- -------- -------- --------
Income from operations 67,290 63,343 60,511 61,713 55,708
Interest expense 39,947 37,479 30,379 33,091 31,385
Other income (expense), net (4,098) (1,594) (4,433) (3,401) 63
- ------------------------------------------------- --------- -------- -------- -------- --------
Income before income taxes, extraordinary charge
and effect of accounting change 23,245 24,270 25,699 25,221 24,386
Income taxes 8,367 9,004 9,535 9,685 10,239
- ------------------------------------------------- --------- -------- -------- -------- --------
Income before extraordinary charge and effect of
accounting change 14,878 15,266 16,164 15,536 14,147
Extraordinary charge (5,016)
Effect of accounting change (2,211)
- ------------------------------------------------- --------- -------- -------- -------- --------
Net income 14,878 15,266 16,164 10,520 11,936
- ------------------------------------------------- --------- -------- -------- -------- --------
Basic net income per share:
Income before extraordinary charge and effect
of accounting change $ 1.78 $ 1.82 $ 1.74 $ 1.67 $ 1.52
Extraordinary charge ( .54)
Effect of accounting change ( .24)
- ------------------------------------------------- --------- -------- -------- -------- --------
Net income $ 1.78 $ 1.82 $ 1.74 $ 1.13 $ 1.28
- ------------------------------------------------- --------- -------- -------- -------- --------
Diluted net income per share:
Income before extraordinary charge and effect
of accounting change $ 1.75 $ 1.79 $ 1.73 $ 1.67 $ 1.52
Extraordinary change ( .54)
Effect of accounting change ( .24)
- ------------------------------------------------- --------- -------- -------- -------- --------
Net income $ 1.75 $ 1.79 $ 1.73 $ 1.13 $ 1.28
- ------------------------------------------------- --------- -------- -------- -------- --------
Cash dividends per share:
Common $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Class B Common $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Other Information
Weighted average number of common shares
outstanding 8,365 8,407 9,280 9,294 9,294
Weighted average number of common shares
outstanding -- assuming dilution 8,495 8,509 9,330 9,316 9,296
Year-End Financial Position
Total assets $825,228 $778,033 $702,396 $676,571 $664,159
- ------------------------------------------------- --------- -------- -------- -------- --------
Long-term debt 491,234 493,789 439,453 419,896 432,971
- ------------------------------------------------- --------- -------- -------- -------- --------
Shareholders' equity 15,786 9,273 22,269 38,972 33,981
- ------------------------------------------------- --------- -------- -------- -------- --------
</TABLE>
* All years presented are 52-week years except 1998 which is a 53-week year.
See Note 2 and Note 13 to the consolidated financial statements for
additional information about Piedmont Coca-Cola Bottling Partnership. In
1994, the Company changed its method of accounting for postemployment
benefits. In 1995, the Company recorded an extraordinary charge related to
the repurchase at a premium of a portion of the Company's long-term debt.
<PAGE>
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
Introduction
The Company
Coca-Cola Bottling Co. Consolidated ("the Company") is engaged in the
production, marketing and distribution of products of The Coca-Cola Company,
which include the most recognized and popular brands in the world. The Company
also distributes several other beverage brands. The Company's product offerings
include carbonated soft drinks, teas, juices, isotonics and bottled water.
Since 1984, the Company has expanded its bottling territory throughout the
southeastern region of the United States, primarily through acquisitions,
increasing its sales from $130 million in 1984 to $929 million in 1998. The
Company plans to grow through both internal opportunities and selected
acquisitions. The Company expanded its bottling territory during the year by
acquiring two Coca-Cola bottlers located in northwestern Alabama and
southwestern Virginia. The Company is currently the second largest bottler of
products of The Coca-Cola Company in the United States.
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 effect the
adoption of Statement No. 133 will have on the earnings and financial position
of the Company.
The Year in Review
The Company accelerated its rate of growth significantly in 1998 with
volume growth of more than 10%, three times the U.S. soft drink industry
average. Net sales grew by 16% in 1998, increasing to $929 million. Operating
cash flow (defined as income from operations plus non-cash charges for
depreciation and amortization) increased by 7% to a record level of $117
million. The Company continued its commitment to the cold drink market with the
placement of a record number of new pieces of cold drink equipment in 1998.
The accelerated volume growth in 1998 was across the Company's key market
channels. The volume gains in 1998 were driven by targeted marketing programs
with key customers and continued emphasis and investment in cold drink
equipment and infrastructure. As in 1997, per capita consumption in the
Company's franchise territory increased at a rate in excess of the average for
the Coca-Cola bottling system in the U.S. The increase in net sales in 1998 was
driven primarily by the accelerated volume growth, as well as a small increase
in net selling prices of 0.6% and the impact of a 53rd selling week in 1998.
The 1997 fiscal year had 52 weeks.
Net income for 1998 was down slightly at $14.9 million versus $15.3
million in 1997. During 1998, the Company continued to make significant
investments in cold drink equipment and infrastructure to support accelerated
growth. The increased equipment and infrastructure costs in 1998 were partially
offset by additional marketing funding support from The Coca-Cola Company. The
Company believes that these significant investments will help deliver long-term
shareholder value.
The Company continued its strong commitment to expanding its business
with capital expenditures of $46.8 million in 1998. The cold drink market
continues to be a point of emphasis as it generally provides a solid return on
investment and expands the availability of our products.
Our continued success is attributable to many factors including a strong
assortment of brands, a solid relationship with our strategic partner, The
Coca-Cola Company, acquisitions, strong internal growth, solid operating
performance and a work force of over 6,000 talented individuals working
together as a team. The Company continues to focus on its key long-term
objectives, including increasing per capita consumption, operating cash flow
and long-term shareholder value. We are committed to alignment with The
Coca-Cola Company to ensure that we fully utilize our joint resources to
maximize our full potential with our consumers and customers.
Our partnership with The Coca-Cola Company continues to provide our
customers and consumers with innovative products and packaging. In 1998, the
Company introduced new
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
and enhanced product lines, including expanded Minute Maid offerings and new
flavors of both Fruitopia and POWERaDE. Citra was introduced in the first
quarter of 1999. Some of the new packaging in 1998 included tie-ins with our
NASCAR sponsorship, which proved to be very popular with both customers and
consumers. The combination of the new products and packaging, along with our
core brands, provide the Company with a line-up of beverage offerings
unsurpassed in the industry.
Significant Events of Prior Years
The Company repurchased approximately 930,000 shares of its Common Stock
in three separate transactions between December 1996 and February 1997. The
repurchase of shares was a significant factor in increased earnings per share
in 1997 in spite of lower net earnings.
On June 1, 1994, the Company executed a management agreement with South
Atlantic Canners, Inc. ("SAC"), a manufacturing cooperative located in
Bishopville, South Carolina. The Company is a member of the cooperative and
receives a fee for managing the day-to-day operations of SAC pursuant to this
10-year management agreement. SAC significantly expanded its operations in 1994
by adding two PET bottling lines. These new bottling lines supply a portion of
the Company's volume requirements for finished product in PET containers.
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 a
portion of the soft drink products to Piedmont and receives a fee for managing
the business of Piedmont pursuant to a management agreement. The Company and
The Coca-Cola Company, through their respective subsidiaries, each beneficially
own a 50% interest in Piedmont. The Company is accounting for its investment in
Piedmont using the equity method of accounting.
RESULTS OF OPERATIONS
1998 Compared to 1997
Net Income
The Company reported net income of $14.9 million or basic net income per
share of $1.78 for fiscal year 1998 compared to $15.3 million or $1.82 basic
net income per share for fiscal year 1997. Diluted net income per share in 1998
was $1.75 compared to $1.79 in 1997. The decline in net income is primarily
attributable to expenses related to the Company's investment in the
infrastructure necessary to support accelerated, long-term growth, partially
offset by additional marketing funding support from The Coca-Cola Company.
Investments in additional personnel, information systems and cold drink
equipment resulted in cost increases. Management believes that these
infrastructure investments will enable the Company to generate accelerated
growth that should lead to enhanced shareholder value over time.
Net Sales
Net sales for 1998 grew by 16% to $929 million compared to $802 million
in 1997. The increase was due to broad-based volume growth across key sales
channels, an increase in net selling prices of 0.6%, acquisitions of additional
bottling territory in Alabama and Virginia and a 53rd week in the Company's
1998 fiscal year. The Company continued to experience strong growth from its
carbonated soft drinks with growth of approximately 9% in 1998. Newer products
such as SURGE, an expanded line-up of Minute Maid products as well as double-
digit growth for Sprite helped drive the growth in carbonated beverages. Sales
growth in non-carbonated beverages, including POWERaDE, Fruitopia, tea and
bottled water exceeded 70% in 1998. Non-carbonated products now account for 5%
of the Company's bottle and can volume.
Sales to other bottlers increased by 25% during 1998 over 1997 levels,
primarily due to additional sales to Piedmont, which experienced significant
sales volume growth in 1998. The Company sells finished products to Piedmont at
cost.
Cost of Sales and Operating Expenses
Cost of sales on a per case basis increased by 2.3% in 1998, primarily
due to increases in concentrate costs offset somewhat by lower packaging costs.
The Company has agreements with its aluminum can suppliers which require the
Company to purchase the majority of its aluminum can requirements. These
agreements, which extend through the end of 2000 and 2001, also reduce the
variability of the cost of cans.
Selling expenses increased by approximately $24 million or 13% in 1998
over 1997 levels. Increased selling costs resulted from higher sales volume,
employment costs for additional sales
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
personnel, a new incentive program for certain employees, additional marketing
expenses, higher costs for sales development programs and increased lease
expense for cold drink equipment and vehicles. The increase in selling expenses
was partially offset by increased marketing funding and infrastructure support
from The Coca-Cola Company. The Company has made a significant investment in
its sales and technical service infrastructure and anticipates that over time,
the increases in sales revenue from these investments will outpace the growth
in costs. Selling expenses on a per case basis for 1998 were relatively
unchanged from 1997.
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 bottling
territories served by the Company. The Company also benefits from national
advertising programs conducted by The Coca-Cola Company and other third party
licensors. 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 1999, 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 1998 and
1997 was approximately $61 million and $42 million, respectively. A portion of
the marketing funding and infrastructure support from The Coca-Cola Company is
subject to annual performance requirements. The Company was in compliance with
all such performance requirements in 1998.
General and administrative expenses increased by $12 million from 1997.
The increase in general and administrative expenses was due to the 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 accelerated growth of the Company.
Depreciation expense increased $3 million or 9%. The increase is due to
significant capital expenditures over the past several years, including $46.8
million in 1998.
Investment in Partnership
The Company's share of Piedmont's net loss of $.5 million was down from a
loss of $1.1 million in 1997. The reduction in Piedmont's net loss reflects
improved operating results from Piedmont.
Interest Costs
Interest expense increased by $2.5 million or 7% in 1998. The increase is
due to additional borrowings used to fund acquisitions and capital
expenditures. The Company's overall weighted average borrowing rate for 1998
was 7.1% compared to 7.0% in 1997.
Other Income/(Expense)
"Other income (expense), net" increased by $2.5 million in 1998. The
increase was due primarily to losses on the disposal of cold drink equipment.
Income Taxes
The effective tax rate for federal and state income taxes was
approximately 36% in 1998 versus approximately 37% in 1997. The difference
between the effective rate and the statutory rate in 1998 was due primarily to
amortization of nondeductible goodwill, state income taxes, nondeductible
premiums on officers' life insurance and other nondeductible expenses.
1997 Compared to 1996
Net Income
The Company reported net income of $15.3 million or basic net income per
share of $1.82 for fiscal year 1997 compared to $16.2 million or $1.74 basic
net income per share for fiscal year 1996. Diluted net income per share
increased from $1.73 in 1996 to $1.79 in 1997. The slight decrease in net
income was due to a 2.5% reduction in net selling prices and higher interest
costs associated with the Company's repurchase of its Common Stock. The
repurchase of Common Stock resulted in an increase in both basic and diluted
earnings per share, in spite of reduced net income.
Net Sales
The Company had sales in 1997 exceeding $800 million for the first time.
Net sales for 1997 increased 4%, reflecting a volume increase of 8% in
franchise sales offset by a 2.5% decline
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
in overall net selling prices and a reduction in sales to other bottlers. The
Company continued to see strong broad-based growth across most brands and
channels. Carbonated soft-drink brands including the flagship brand, Coca-Cola
classic, and diet Coke showed solid growth. Sprite volume increased by almost
15%, the fourth consecutive year of double-digit volume growth. The Company's
expanding non-carbonated beverage offerings also contributed to the solid
volume growth in 1997. Volume in Fruitopia, POWERaDE and Cool from Nestea
increased by more than 50% over the prior year.
Sales volume to other bottlers decreased by 11% during 1997 as compared
to 1996 primarily due to South Atlantic Canners, rather than the Company,
providing finished products to Piedmont. The Company sells finished products to
Piedmont at cost.
Cost of Sales and Operating Expenses
Cost of sales on a per case basis was virtually unchanged from 1996. The
Company benefited from decreases in costs for some of the key raw materials and
packaging materials used in its production process. The decreases were offset
by increased concentrate prices.
Selling expenses increased by approximately $5.4 million in 1997,
primarily as a result of the significant increase in volume. Selling expenses
on a per case basis declined by almost 5% during the year. The decline in
selling expenses on a per case basis is partially attributable to the buyout of
certain leased equipment in early 1997. The buyout of the leases reduced
selling expenses by approximately $4.0 million during the year. The Company
experienced a comparable increase in depreciation expense, which is reflected
separately.
General and administrative expenses decreased by $2.0 million in 1997. In
1996, the Company recorded a non-cash, pre-tax charge of approximately $4.4
million related to a retirement benefit awarded to J. Frank Harrison, Jr. This
retirement benefit was in recognition of his two decades of leadership as
Chairman of the Board of Directors.
Depreciation expense increased $5.1 million or 18% in 1997. The increase
was primarily attributable to the buyout of $66.3 million of leased vending
equipment in January 1997. The increase is also due to significant capital
expenditures over the past several years.
Investment in Partnership
The Company's share of Piedmont's net loss of $1.1 million was
approximately the same as 1996.
Interest Costs
Interest expense increased by $7.1 million or 23% in 1997. The
significant increase was due to increased levels of long-term debt as a result
of the buyout of equipment leases for $66.3 million in January 1997 and the
repurchase of approximately 930,000 shares of the Company's Common Stock for
$43.6 million in late 1996 and early 1997. The Company's overall weighted
average borrowing rate for 1997 was 7.0% compared to 7.1% in 1996.
Other Income/(Expense)
The decrease in "other income (expense), net" for 1997 was due primarily
to the termination of the Company's program to sell its trade accounts
receivable in late 1996. The discount on the sale of trade accounts receivable
was recorded as other expense in 1996. Other expense included $1.7 million in
1996 related to the discount on the sale of trade accounts receivable.
Income Taxes
The effective tax rate for federal and state income taxes was
approximately 37% in both 1997 and 1996. The difference between the effective
rate and the statutory rate was due primarily to amortization of nondeductible
goodwill, state income taxes, nondeductible premiums on officers' life
insurance and other nondeductible expenses.
FINANCIAL CONDITION
Working capital decreased by approximately $15.2 million to $4.6 million
at January 3, 1999 compared to $19.8 million at December 28, 1997. The change
in working capital is primarily due to an increase in the current portion of
long-term debt of $18.1 million and an increase in accrued compensation of $5.2
million, partially offset by an increase in accounts receivable from The
Coca-Cola Company. The increase in accounts receivable from The Coca-Cola
Company relates to additional marketing funding and infrastructure support in
1998. 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
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
first quarter of 1999. The increase in accrued compensation is due to the
adoption of new employee incentive programs in 1998.
Total long-term debt increased to $521.3 million at January 3, 1999
compared to $505.8 million at December 28, 1997. The increase in debt relates
to the acquisition of two Coca-Cola bottlers in 1998 for a total of $35.0
million, offset primarily by cash flow from operations.
LIQUIDITY AND CAPITAL RESOURCES
Capital Resources
Sources of capital for the Company include operating cash flows, bank
borrowings, issuance of public or private debt and the issuance of equity
securities. Management believes that the Company, through these sources, has
sufficient financial resources available to maintain its current operations and
provide for its current capital expenditure and working capital requirements,
scheduled debt payments, interest and income tax liabilities and dividends for
shareholders.
Investing Activities
Additions to property, plant and equipment during 1998 were $46.8
million. The Company acquired two Coca-Cola bottlers in northwestern Alabama
and southwestern Virginia during 1998 for a total of $35.0 million.
At the end of 1998, the Company had no material commitments for the
purchase of capital assets other than those related to the normal replacement
of equipment. The Company considers the acquisition of additional bottling
territories on an ongoing basis.
Financing Activities
The Company filed a $400 million shelf registration for debt and equity
securities that was effective in October 1994. On November 1, 1995, the Company
issued $100 million of 6.85% debentures due 2007 pursuant to this shelf
registration. The net proceeds from this issuance were used to repurchase $87
million of the Company's Medium-Term Notes due between 1997 and 2002 and to
repay other outstanding borrowings. In July 1997, the Company issued an
additional $100 million of 7.2% debentures due 2009 under this shelf
registration. The proceeds from this offering were used primarily to repay
amounts outstanding under the Company's lines of credit. The lines of credit
were used as interim financing for the repurchase of Company Common Stock and
the buyout of certain operating leases.
On January 22, 1999, the Company filed a new $800 million shelf
registration for debt and equity securities (which includes $200 million of
unused availability from the prior shelf registration). The Company has not
issued any securities under this shelf registration. The Company expects to use
the proceeds from any future offerings under this registration for general
corporate purposes, including repayment of debt, future acquisitions, capital
expenditures and/or working capital.
The Company borrows from time to time under informal lines of credit from
various banks. On January 3, 1999, the Company had $210 million available under
these lines, of which $36.4 million was outstanding. Loans under these lines
are made at the sole discretion of the banks at rates negotiated at the time of
borrowing.
In December 1997, the Company extended the maturity of a revolving credit
agreement totaling $170 million to December 2002. The agreement contains
several covenants that establish minimum ratio requirements related to debt and
cash flow. A commitment fee of 1/8% per year on the available amount of the
banks' commitment is payable quarterly. There were no amounts outstanding under
this facility as of January 3, 1999.
It is the Company's intent to renew any borrowings under the revolving
credit facility and the lines of credit as they mature. 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.
On January 15, 1999, the Company purchased approximately $155 million of
equipment (principally vehicles and vending equipment) previously leased under
various operating lease agreements. The assets purchased will continue to be
used in the distribution and sale of the Company's products and will be
depreciated over their remaining useful lives, which range from three years to
12.5 years. The Company used a combination of its revolving credit facility and
its informal lines of credit with certain banks to finance this purchase. As a
result of this purchase, the Company's total cost of ownership of this
equipment in the future is expected to be slightly lower.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
Interest Rate Hedging
The Company periodically uses interest rate hedging products to cost
effectively modify risk from interest rate fluctuations in its underlying debt.
The Company has historically altered its fixed/floating 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. Sensitivity
analyses are performed to review the impact on the Company's financial position
and coverage of various interest rate movements. The Company does not use
derivative financial instruments for trading purposes.
The weighted average interest rate of the debt portfolio as of January 3,
1999 was 7.3% compared to 7.1% at the end of 1997. The Company's overall
weighted average borrowing rate on its long-term debt was 7.1% in 1998 versus
7.0% in 1997. Approximately 23% of the Company's debt portfolio of $521.3
million was subject to changes in short-term interest rates as of January 3,
1999. See Notes 7 and 8 to the consolidated financial statements for more
information.
YEAR 2000
Since many computer systems and other equipment with embedded chips or
processors (collectively, "business systems") use only two digits to represent
the year, these business systems may be unable to process accurately certain
data before, during or after the year 2000. As a result, business and
governmental entities are at risk for possible miscalculations or systems
failures causing disruptions in their business operations. This is commonly
known as the Year 2000 issue. The Year 2000 issue can arise at any point in the
Company's supply, manufacturing, distribution and financial chains.
The Company began work on the Year 2000 issue in 1997. The scope of the
project includes: ensuring the compliance of all applications, operating
systems and hardware on mainframe, personal computer, local area network and
wide area network platforms; addressing issues related to non-IT embedded
software and equipment; and addressing the compliance and readiness of key
suppliers and customers. The project has four phases: assessment of systems and
equipment affected by the Year 2000 issue; definition of strategies to address
affected systems and equipment; remediation or replacement of affected systems
and equipment and testing that each is Year 2000 compliant.
With respect to ensuring the compliance of all applications, operating
systems and hardware on the Company's various computer platforms, the
assessment and definition of strategies phases have been completed. It is
estimated that 80% of the remediation or replacement phase has been completed
with the balance of this phase expected to be completed by the end of the
second quarter 1999. The testing phase has begun and is expected to be
completed by the end of the third quarter of 1999.
Approximately 80% of internal application development resources were
committed to Year 2000 remediation efforts in 1997 and 1998. The Company
expects that approximately 70% of its internal application development
resources will be committed to this effort in the first quarter of 1999. The
Company has also utilized contract programmers to identify Year 2000
noncompliance problems and modify code.
With respect to addressing issues related to non-IT embedded software and
equipment, which principally exists in the Company's four manufacturing plants,
the assessment and definition of strategies phases have been completed.
Approximately 50% of the remediation or replacement phase has been completed
with the balance of this phase expected to be completed by the middle of the
third quarter 1999. Testing is expected to be completed by the end of third
quarter 1999.
The Company relies on third party suppliers for raw materials, water,
utilities, transportation and other key services. Interruption of supplier
operations due to Year 2000 issues could affect Company operations. We have
initiated efforts to evaluate the status of our most critical suppliers'
progress. This process of evaluating our critical suppliers is scheduled for
completion by mid-1999. Options to reduce the risks of interruption due to
supplier failures include identification of alternate suppliers and
accumulation of inventory to assure production capability, where feasible or
warranted. These activities are intended to provide a means of managing and
mitigating risk, but cannot eliminate the potential for disruption due to third
party failure.
The Company is also dependent upon its customers for sales and cash flow.
Year 2000 interruptions in our customers' operations could result in reduced
sales, increased inventory or receivable levels and cash flow reductions. While
these events are possible, the Company's customer base is broad enough to
minimize somewhat the effects of a single occurrence. The Company is in the
assessment phase with respect to the evaluation
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
of critical customers' progress and is scheduled for completion by mid-1999.
The Company has begun the process of developing contingency plans for
those areas that are critical to our business. These contingency plans will be
designed to mitigate serious disruptions to our business flow beyond the end of
1999, where possible. The major efforts related to contingency planning will
occur in the first nine months of 1999.
It is currently estimated that the aggregate cost of the Company's Year
2000 efforts will be approximately $5 million to $6 million, of which
approximately $4 million has been spent to date. These costs are being expensed
as they are incurred and are being funded through operating cash flow. These
costs do not include any costs associated with the implementation of
contingency plans, which are in the process of being developed. The costs
associated with the replacement of computerized systems, hardware or equipment
(currently estimated to be $4 million), substantially all of which would be
capitalized, are not included in the above estimates.
The Company's Year 2000 program is an ongoing process and the estimates
of costs and completion dates for various components of the program described
above are subject to change.
The failure to correct a material Year 2000 problem could result in an
interruption in, or a failure of, certain normal business activities or
operations. Such failures could materially and adversely affect the Company's
results of operations, liquidity and financial condition. Due to the general
uncertainty inherent in the Year 2000 problem, resulting in part from the
uncertainty of the Year 2000 readiness of third-party suppliers and customers,
the Company is unable to determine at this time whether the consequences of
Year 2000 failures will have a material impact on the Company's results of
operations, liquidity or financial condition.
FORWARD-LOOKING STATEMENTS
This Annual Report to Shareholders, as well as information included in,
or incorporated by reference from, future filings by the Company with the
Securities and Exchange Commission and information contained in written
material, press releases and oral statements issued by or on behalf of the
Company, contains, or may contain, certain statements that may be deemed to be
"forward-looking statements" within the meaning of Section 27A of the
Securities Act and Section 21E of the Exchange Act. Such "forward-looking
statements" include information relating to, among other matters, the Company's
future prospects, developments and business strategies for its operations.
These forward-looking statements are identified by their use of terms and
phrases such as "expect", "estimate", "project", "believe" and similar terms
and phrases. Such forward-looking statements are contained in various sections
of this Annual Report. These statements are based on certain assumptions and
analyses made by the Company in light of its experience and perception of
historical trends, current conditions, expected future developments and other
factors they believe are appropriate under the circumstances, and involve risks
and uncertainties that may cause actual future activities and results of
operations to be materially different from that suggested or described in this
Annual Report to Shareholders or in such other documents. These risks include,
but are not limited to (A) risks associated with any changes in the historical
level of marketing funding support which the Company receives from The
Coca-Cola Company, (B) risks associated with interruptions in the Company's
business operations as a result of any failure to adequately correct the Year
2000 computer problem in any systems or equipment of the Company or one of its
major suppliers or customers and (C) other risks detailed from time to time in
the Company's filings with the Securities and Exchange Commission. You are
cautioned that any such statements are not guarantees of future performance.
Should one or more of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, actual results may vary from those
expected, estimated or projected.
<PAGE>
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Coca-Cola Bottling Co.
Consolidated
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of cash flows and of changes in
shareholders' equity present fairly, in all material respects, the financial
position of Coca-Cola Bottling Co. Consolidated and its subsidiaries ("the
Company") at January 3, 1999 and December 28, 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
January 3, 1999, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
PricewaterhouseCoopers LLP
Charlotte, North Carolina
February 11, 1999
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<S> <C> <C> <C>
Fiscal Year
------------------------------------------
In Thousands (Except Per Share Data) 1998 1997 1996
- -------------------------------------------------------------- --------- ---- ----
Net sales (includes sales to Piedmont of $69,552,
$54,155 and $61,565) $928,502 $802,141 $773,763
Cost of sales, excluding depreciation shown below (includes
$55,800, $42,581 and $51,295 related to sales to Piedmont) 534,919 452,893 435,959
- -------------------------------------------------------------- --------- -------- --------
Gross margin 393,583 349,248 337,804
- -------------------------------------------------------------- --------- -------- --------
Selling expenses, excluding depreciation shown below 207,244 183,125 177,734
General and administrative expenses 69,001 56,776 58,793
Depreciation expense 36,754 33,672 28,528
Amortization of goodwill and intangibles 13,294 12,332 12,238
- -------------------------------------------------------------- --------- -------- --------
Income from operations 67,290 63,343 60,511
- -------------------------------------------------------------- --------- -------- --------
Interest expense 39,947 37,479 30,379
Other income (expense), net (4,098) (1,594) (4,433)
- -------------------------------------------------------------- --------- -------- --------
Income before income taxes 23,245 24,270 25,699
Income taxes 8,367 9,004 9,535
- -------------------------------------------------------------- --------- -------- --------
Net income $ 14,878 $ 15,266 $ 16,164
- -------------------------------------------------------------- --------- -------- --------
Basic net income per share $ 1.78 $ 1.82 $ 1.74
- -------------------------------------------------------------- --------- -------- --------
Diluted net income per share $ 1.75 $ 1.79 $ 1.73
- -------------------------------------------------------------- --------- -------- --------
Weighted average number of common shares outstanding 8,365 8,407 9,280
Weighted average number of common shares
outstanding - assuming dilution 8,495 8,509 9,330
- -------------------------------------------------------------- --------- -------- --------
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
23
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<S> <C> <C>
ASSETS
Jan. 3, Dec. 28,
In Thousands (Except Share Data) 1999 1997
- --------------------------------------------------------------------- -------- --------
Current assets:
Cash $ 6,691 $ 4,427
Accounts receivable, trade, less allowance for
doubtful accounts of $600 and $513 57,217 55,258
Accounts receivable from The Coca-Cola Company 10,091 4,690
Due from Piedmont Coca-Cola Bottling Partnership 2,009
Accounts receivable, other 7,997 8,776
Inventories 41,010 38,738
Prepaid expenses and other current assets 15,545 12,674
- --------------------------------------------------------------------- --------- --------
Total current assets 138,551 126,572
- --------------------------------------------------------------------- --------- --------
Property, plant and equipment, net 258,329 250,904
Investment in Piedmont Coca-Cola Bottling Partnership 62,847 63,326
Other assets 51,576 43,138
Identifiable intangible assets, less accumulated
amortization of $116,015 and $105,334 253,156 231,034
Excess of cost over fair value of net assets of businesses acquired,
less accumulated amortization of $30,850 and $28,560 60,769 63,059
- --------------------------------------------------------------------- --------- --------
Total $825,228 $778,033
- --------------------------------------------------------------------- --------- --------
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
24
<PAGE>
<TABLE>
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Jan. 3, Dec. 28,
1999 1997
- ---------------------------------------------------------------------------- -------- --------
Current liabilities:
Portion of long-term debt payable within one year $ 30,115 $ 12,000
Accounts payable and accrued liabilities 72,623 71,583
Accounts payable to The Coca-Cola Company 5,194 4,108
Due to Piedmont Coca-Cola Bottling Partnership 435
Accrued compensation 10,239 5,075
Accrued interest payable 15,325 14,038
- ---------------------------------------------------------------------------- ---------- ---------
Total current liabilities 133,931 106,804
- ---------------------------------------------------------------------------- ---------- ---------
Deferred income taxes 120,659 111,594
Deferred credits 4,838 7,139
Other liabilities 58,780 49,434
Long-term debt 491,234 493,789
- ---------------------------------------------------------------------------- ---------- ---------
Total liabilities 809,442 768,760
- ---------------------------------------------------------------------------- ---------- ---------
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 - 9,086,113 and 10,107,421 shares 9,086 10,107
Class B Common Stock, $1 par value:
Authorized - 10,000,000 shares; Issued - 2,969,222 and 1,947,914 shares 2,969 1,948
Class C Common Stock, $1 par value:
Authorized - 20,000,000 shares; Issued - None
Capital in excess of par value 94,709 103,074
Accumulated deficit (29,724) (44,602)
- ---------------------------------------------------------------------------- ---------- ---------
77,040 70,527
---------- ---------
Less -- Treasury stock, at cost:
Common - 3,062,374 shares 60,845 60,845
Class B Common - 628,114 shares 409 409
- ---------------------------------------------------------------------------- ---------- ---------
Total shareholders' equity 15,786 9,273
- ---------------------------------------------------------------------------- ---------- ---------
Total $825,228 $778,033
- ---------------------------------------------------------------------------- ---------- ---------
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
25
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<S> <C> <C> <C>
Fiscal Year
---------------------------------------------
In Thousands 1998 1997 1996
- ---------------------------------------------------------------------------------- ------- -------- --------
Cash Flows from Operating Activities
Net income $ 14,878 $ 15,266 $ 16,164
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation expense 36,754 33,672 28,528
Amortization of goodwill and intangibles 13,294 12,332 12,238
Deferred income taxes 8,367 2,567 8,782
Losses on sale of property, plant and equipment 2,586 1,433 1,810
Amortization of debt costs 595 627 540
Amortization of deferred gain related to terminated interest rate swaps (563)
Undistributed loss of Piedmont Coca-Cola Bottling Partnership 479 1,136 1,162
(Increase) decrease in current assets less current liabilities 132 733 (43,632)
Increase in other noncurrent assets (9,127) (7,953) (994)
Increase in other noncurrent liabilities 2,180 5,784 18,597
Other 79 3,071 12
- ---------------------------------------------------------------------------------- ---------- ----------- ----------
Total adjustments 54,776 53,402 27,043
- ---------------------------------------------------------------------------------- ---------- ----------- ----------
Net cash provided by operating activities 69,654 68,668 43,207
- ---------------------------------------------------------------------------------- ---------- ----------- ----------
Cash Flows from Financing Activities
Proceeds from the issuance of long-term debt 54,561 19,557
Increase (decrease) in current portion of long-term debt 18,115 11,895 (15)
Payments on long-term debt (2,555) (226)
Purchase of Common Stock (20,001) (23,607)
Cash dividends paid (8,365) (8,365) (9,294)
Proceeds from interest rate swap termination 6,480
Debt fees paid (102) (1,226) (125)
Other (390) (1,020) (593)
- ---------------------------------------------------------------------------------- ---------- ----------- ----------
Net cash provided by (used in) financing activities 13,183 35,618 (14,077)
- ---------------------------------------------------------------------------------- ---------- ----------- ----------
Cash Flows from Investing Activities
Additions to property, plant and equipment (46,822) (100,105) (29,990)
Proceeds from the sale of property, plant and equipment 1,255 1,223 1,367
Acquisitions of companies, net of cash acquired (35,006) (3,918)
- ---------------------------------------------------------------------------------- ---------- ----------- ----------
Net cash used in investing activities (80,573) (102,800) (28,623)
- ---------------------------------------------------------------------------------- ---------- ----------- ----------
Net increase in cash 2,264 1,486 507
- ---------------------------------------------------------------------------------- ---------- ----------- ----------
Cash at beginning of year 4,427 2,941 2,434
- ---------------------------------------------------------------------------------- ---------- ----------- ----------
Cash at end of year $ 6,691 $ 4,427 $ 2,941
- ---------------------------------------------------------------------------------- ---------- ----------- ----------
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
26
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS' EQUITY
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Minimum
Class B Capital in Pension
Common Common Excess of Accumulated Liability Treasury
In Thousands Stock Stock Par Value Deficit Adjustment Stock
- ------------------------------------------------------------------------------------------------------------------
Balance on December 31, 1995 $ 10,090 $ 1,965 $ 120,733 $ (76,032) $ (138) $ 17,646
Net income 16,164
Cash dividends paid (9,294)
Minimum pension liability adjustment 34
Purchase of Common Stock 23,607
Exchange of Class B Common
Stock for Common Stock 17 (17)
- ------------------------------------------------------------------------------------------------------------------
Balance on December 29, 1996 10,107 1,948 111,439 (59,868) (104) 41,253
Net income 15,266
Cash dividends paid (8,365)
Purchase of Common Stock 20,001
Minimum pension liability adjustment 104
- ------------------------------------------------------------------------------------------------------------------
Balance on December 28, 1997 10,107 1,948 103,074 (44,602) 0 61,254
Net income 14,878
Cash dividends paid (8,365)
Exchange of Common Stock
for Class B Common Stock (1,021) 1,021
- ------------------------------------------------------------------------------------------------------------------
Balance on January 3, 1999 $ 9,086 $ 2,969 $ 94,709 $ (29,724) $ 0 $ 61,254
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
27
<PAGE>
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 carbonated and noncarbonated
beverages, primarily products of The Coca-Cola Company. The Company operates in
portions of 12 states, principally in the southeastern region of the United
States.
The consolidated financial statements include the accounts of the Company
and its majority owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated. Acquisitions recorded as purchases are
included in the statement of operations from the date of acquisition.
The fiscal years presented are the 53-week period ended January 3, 1999
and the 52-week periods ended December 28, 1997 and December 29, 1996. The
Company's fiscal year ends on the Sunday closest to December 31.
Certain prior year amounts have been reclassified to conform to current
year classifications.
The Company's more significant accounting policies are as follows:
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, cash in banks and cash
equivalents, which are highly liquid debt instruments with maturities of less
than 90 days.
Inventories
Inventories are stated at the lower of cost, primarily determined on the
last-in, first-out method ("LIFO"), or market.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost and depreciated using
the straight-line method over the estimated useful lives of the assets.
Additions and major replacements or betterments are added to the assets at
cost. Maintenance and repair costs and minor replacements are charged to
expense when incurred. When assets are replaced or otherwise disposed of, the
cost and accumulated depreciation are removed from the accounts, and the gains
or losses, if any, are reflected in income.
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 2 and Note 13 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.
28
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Amounts recorded for benefit plans reflect estimates related to future
interest rates, investment returns, employee turnover, wage increases and
health care costs. The Company reviews all assumptions and estimates on an
ongoing basis.
Effective January 3, 1999, the Company adopted SFAS No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits". The provisions
of SFAS No. 132 revise employers' disclosures about pensions and other
postretirement benefit plans. It does not change the measurement or recognition
of amounts under these plans. See Note 12 for additional information.
Intangible Assets and Excess of Cost Over Fair Value of Net Assets of
Businesses Acquired
Identifiable intangible assets resulting from the acquisition of Coca-Cola
bottling franchises are being amortized on a straight-line basis over periods
ranging from 17 to 40 years. The excess of cost over fair value of net assets
of businesses acquired is being amortized on a straight-line basis over 40
years.
The Company continually monitors conditions that may affect the carrying
value of its intangible assets. When conditions indicate potential impairment
of an intangible asset, the Company will undertake necessary market studies and
reevaluate projected future cash flows associated with the intangible asset.
When projected future cash flows, not discounted for the time value of money,
are less than the carrying value of the intangible asset, the impaired asset is
written down to its net realizable value.
Net Income Per Share
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, Earnings per Share ("SFAS
128"). SFAS 128 requires disclosure in annual financial statements for periods
ending after December 15, 1997 of basic earnings per share ("EPS") and diluted
EPS. Basic EPS excludes dilution and is computed by dividing net income
available for common shareholders by the weighted average number of Common and
Class B Common shares outstanding. Diluted EPS gives effect to all securities
representing potential common shares that were dilutive and outstanding during
the period. In the calculation of diluted EPS, the denominator includes the
number of additional common shares that would have been outstanding if the
Company's outstanding stock options had been exercised.
Derivative Financial Instruments
The Company uses financial instruments to manage its exposure to movements
in interest rates. The use of these financial instruments modifies the exposure
of these risks with the intent to reduce the risk to the Company. The Company
does not use financial instruments for trading purposes, nor does it use
leveraged financial instruments.
Deferred gains or losses on interest rate swap terminations are amortized
over the lives of the initial agreements as an adjustment to interest expense.
Amounts receivable or payable under interest rate swap agreements are included
in other assets or other liabilities. Amounts paid or received under interest
rate swap agreements during their lives are recorded as adjustments to interest
expense.
Premiums paid for interest rate cap agreements are amortized to interest
expense over the terms of the agreements. Amounts receivable or payable under
interest rate cap agreements are included in other assets or other liabilities.
Insurance Programs
In general, the Company is self-insured for costs of workers'
compensation, casualty and health claims. The Company uses commercial insurance
for casualty, workers' compensation and health claims as a risk reduction
strategy to minimize catastrophic losses. Workers' compensation and casualty
losses are provided for using actuarial assumptions and procedures followed in
the insurance industry, adjusted for company-specific history and expectations.
29
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Significant Accounting Policies (continued)
Marketing Costs and Support Arrangements
The Company directs various advertising and marketing programs supported
by The Coca-Cola Company or other franchisers. Under these programs, certain
costs incurred by the Company are reimbursed by the applicable franchiser.
Franchiser funding is recognized when performance measures are met or as funded
costs are incurred.
2. Investment in Piedmont Coca-Cola Bottling Partnership
On July 2, 1993, the Company and The Coca-Cola Company formed Piedmont to
distribute and market soft drink products primarily in certain portions of
North Carolina and South Carolina. The Company and The Coca-Cola Company,
through their respective subsidiaries, each beneficially own a 50% interest in
Piedmont. The Company provides a portion of the soft drink products for
Piedmont at cost and receives a fee for managing the operations of Piedmont
pursuant to a management agreement.
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, North Carolina and Greenville and Beaufort, South Carolina 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. Assets were sold or contributed at their approximate carrying values.
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:
<TABLE>
<S> <C> <C>
Jan. 3, Dec. 28,
In Thousands 1999 1997
- ---------------------------------------- -------- --------
Current assets $30,350 $ 27,088
Noncurrent assets 336,505 340,555
- ---------------------------------------- --------- --------
Total assets $366,855 $367,643
- ---------------------------------------- --------- --------
Current liabilities $ 14,705 $ 16,147
Noncurrent liabilities 226,456 224,844
- ---------------------------------------- --------- --------
Total liabilities 241,161 240,991
Partners' equity 125,694 126,652
- ---------------------------------------- --------- --------
Total liabilities and partners' equity $366,855 $367,643
- ---------------------------------------- --------- --------
Company's equity investment $ 62,847 $ 63,326
- ---------------------------------------- --------- --------
</TABLE>
<TABLE>
<S> <C> <C> <C>
Fiscal Year
------------------------------------------
In Thousands 1998 1997 1996
- -------------------------- -------- -------- --------
Net sales $269,312 $237,964 $223,834
Cost of sales 151,480 134,344 129,059
- -------------------------- --------- --------- ---------
Gross margin 117,832 103,620 94,775
Income from operations 11,974 9,606 6,533
Net loss $ (958) $ (2,272) $ (2,324)
- -------------------------- --------- --------- ---------
Company's equity in loss $ (479) $ (1,136) $ (1,162)
- -------------------------- --------- --------- ---------
</TABLE>
30
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. Inventories
Inventories are summarized as follows:
<TABLE>
<S> <C> <C>
Jan. 3, Dec. 28,
In Thousands 1999 1997
- --------------------------- ------- -------
Finished products $26,300 $21,542
Manufacturing materials 10,382 14,171
Plastic pallets and other 4,328 3,025
- --------------------------- ------- -------
Total inventories $41,010 $38,738
- --------------------------- ------- -------
</TABLE>
Substantially all merchandise inventories are valued by the LIFO method.
The amounts included above for inventories valued by the LIFO method were
greater than replacement or current cost by approximately $3.2 million and $2.8
million on January 3, 1999 and December 28, 1997, respectively, as a result of
inventory premiums associated with certain acquisitions.
4. Property, Plant and Equipment
The principal categories and estimated useful lives of property, plant and
equipment were as follows:
<TABLE>
<S> <C> <C> <C>
Jan. 3, Dec. 28, Estimated
In Thousands 1999 1997 Useful Lives
- ---------------------------------------------- -------- -------- -------------
Land $11,781 $ 9,672
Buildings 81,527 79,394 10-50 years
Machinery and equipment 84,047 79,546 5-20 years
Transportation equipment 60,620 56,136 4-10 years
Furniture and fixtures 26,395 24,880 7-10 years
Vending equipment 152,163 144,916 6-13 years
Leasehold and land improvements 33,894 30,185 5-20 years
Construction in progress 4,532 1,941
- ---------------------------------------------- --------- --------
Total property, plant and equipment, at cost 454,959 426,670
Less: Accumulated depreciation 196,630 175,766
- ---------------------------------------------- --------- --------
Property, plant and equipment, net $258,329 $250,904
- ---------------------------------------------- --------- --------
</TABLE>
On January 15, 1999, the Company purchased approximately $155 million of
equipment (principally vehicles and vending equipment) previously leased under
various operating lease agreements. The assets purchased will continue to be
used in the distribution and sale of the Company's products and will be
depreciated over their remaining useful lives, which range from three years to
12.5 years. The Company used a combination of its revolving credit facility and
its informal lines of credit with certain banks to finance this purchase.
31
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. Identifiable Intangible Assets
The principal categories and estimated useful lives of identifiable
intangible assets, net of accumulated amortization, were as follows:
<TABLE>
<S> <C> <C> <C>
Jan. 3, Dec. 28, Estimated
In Thousands 1999 1997 Useful Lives
- -------------------------------------- -------- -------- -------------
Franchise rights $232,334 $206,875 40 years
Customer lists 17,212 19,941 17-23 years
Advertising savings 3,224 3,737 17-23 years
Other 386 481 17-18 years
- -------------------------------------- -------- -------- -------------
Total identifiable intangible assets $253,156 $231,034
- -------------------------------------- -------- --------
</TABLE>
6. Long-Term Debt
Long-term debt is summarized as follows:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Fixed(F) or
Interest Variable(V) Interest Jan. 3, Dec. 28,
In Thousands Maturity Rate Rate Paid 1999 1997
- --------------------- ---- ----- ------------- --------------- -------- --------
Lines of Credit 2002 5.45%- V Varies $36,400 $ 10,300
7.45%
Term Loan Agreement 2004 6.39% V Varies 85,000 85,000
Term Loan Agreement 2005 6.39% V Varies 85,000 85,000
Medium-Term Notes 1998 6.62% V Quarterly 10,000
Medium-Term Notes 1998 10.05% F Semi-annually 2,000
Medium-Term Notes 1999 7.99% F Semi-annually 28,585 28,585
Medium-Term Notes 2000 10.00% F Semi-annually 25,500 25,500
Medium-Term Notes 2002 8.56% F Semi-annually 47,000 47,000
Debentures 2007 6.85% F Semi-annually 100,000 100,000
Debentures 2009 7.20% F Semi-annually 100,000 100,000
Other notes payable 1999- 6.50%- F Varies 13,864 12,404
2001 10.00%
-------------------------------------------------------------------------------------
521,349 505,789
Less: Portion of long-term debt payable within one year 30,115 12,000
- ------------------------------------------------------- --------- --------
Long-term debt $491,234 $493,789
- --------------------- --------- --------
</TABLE>
32
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The principal maturities of long-term debt outstanding on January 3, 1999
were as follows:
<TABLE>
<S> <C>
In Thousands
- ----------------------------------
1999 $ 30,115
- ----------------------------------
2000 27,651
- ----------------------------------
2001 10,183
- ----------------------------------
2002 83,400
- ----------------------------------
2003 --
- ----------------------------------
Thereafter 370,000
- ----------------------------------
Total long-term debt $521,349
- ----------------------------------
</TABLE>
In December 1997, the Company extended the maturity date of the revolving
credit agreement, totaling $170 million, to December 2002. The agreement
contains several covenants which establish ratio requirements related to debt,
interest expense and cash flow. A facility fee of 1/8% per year on the banks'
commitment is payable quarterly. There was no outstanding balance under this
facility as of January 3, 1999.
The Company borrows from time to time under informal lines of credit from
various banks. On January 3, 1999, the Company had approximately $210 million
of credit available under these lines, of which $36.4 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 and the
borrowings under the revolving credit facility described above do not exceed
the amount available under the Company's $170 million revolving credit
facility, they are classified as noncurrent liabilities.
On November 20, 1995, the Company entered into a $170 million term loan
agreement with $85 million maturing in November 2002 and $85 million maturing
in November 2003. This loan was used to repay two $60 million loans and other
bank debt. This agreement was amended in July 1997 to extend the loan maturity
dates to July 2004 and July 2005, respectively.
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 July 7, 1997
the Company issued $100 million of 7.20% debentures due in 2009. The net
proceeds from this issuance were used principally for refinancing existing
indebtedness with the remainder used to repay other bank debt. On November 1,
1995, the Company issued $100 million of 6.85% debentures due 2007 pursuant to
such registration. The net proceeds from this issuance were used to repurchase
$87 million of the Company's Medium-Term Notes with the remainder used to repay
other bank debt.
On January 22, 1999, the Company filed a new $800 million shelf
registration for debt and equity securities (which includes $200 million of
unused availability from the prior shelf registration). The Company has not
issued any securities under this shelf registration. The Company expects to use
the proceeds from any future offerings under this registration for general
corporate purposes, including repayment of debt, future acquisitions, capital
expenditures and/or working capital.
Prior to 1997, the Company had an arrangement under which it had the right
to sell an undivided interest in a designated pool of trade accounts receivable
for up to a maximum of $40 million. This arrangement was suspended during the
fourth quarter of 1996. The discount on sales of trade accounts receivable was
$1.7 million in 1996, and is included in "other income (expense), net."
After taking into account all of the interest rate hedging activities, the
Company has a weighted average interest rate of 7.3% for the debt portfolio as
of January 3, 1999 compared to 7.1% at December 28, 1997, respectively. The
Company's overall weighted average borrowing rate on its long-term debt was
7.1%, 7.0% and 7.1% for 1998, 1997 and 1996, respectively.
As of January 3, 1999, after taking into account all of the interest rate
hedging activities, approximately $121.5 million or 23.3% of the total debt
portfolio was subject to changes in short-term interest rates.
33
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. Long-Term Debt (continued)
If average interest rates for the Company's debt portfolio increased by
1%, annual interest expense would have increased by approximately $1.9 million
and net income for the year ended January 3, 1999 would have been reduced by
approximately $1.2 million.
7. Derivative Financial Instruments
The Company uses interest rate hedging products to modify risk from
interest rate fluctuations in its underlying debt. The Company has historically
used derivative financial instruments from time to time to achieve a targeted
fixed/floating rate mix. This target is 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.
The Company does not use derivative financial instruments for trading or
other speculative purposes nor does it use leveraged financial instruments. All
of the Company's outstanding interest rate swap agreements are LIBOR-based.
Derivative financial instruments are summarized as follows:
<TABLE>
<S> <C> <C> <C> <C>
January 3, 1999 December 28, 1997
------------------------- ---------------------------
Remaining Remaining
In Thousands Amount Term Amount Term
- ------------------------------ ------- ------------ ------- -----------
Interest rate swaps-floating $60,000 4.75 years $ 60,000 5.75 years
Interest rate swaps-floating 100,000 11.5 years
Interest rate swaps-fixed 60,000 4.75 years 60,000 5.75 years
Interest rate swaps-fixed 50,000 6 years
Interest rate cap 35,000 1.5 years 35,000 2.5 years
</TABLE>
The Company had four interest rate swaps with a notional amount of $170
million at January 3, 1999, compared to $220 million as of December 28, 1997.
There was one new interest rate swap transaction during 1998. In October 1997,
the Company added a $35 million interest rate cap with a strike rate of 7%. The
counterparties to these contractual arrangements are a group of major financial
institutions with which the Company also has other financial relationships. The
Company is exposed to credit loss in the event of nonperformance by these
counterparties. However, the Company does not anticipate nonperformance by the
other parties.
In January 1998, the Company terminated two interest rate swaps with a
total notional amount of $100 million. The gain of $6.5 million resulting from
this termination (which is recorded in "other liabilities") will be amortized
over 11.5 years, the remaining term of the initial swap agreement.
8. Fair Values of Financial Instruments
The following methods and assumptions were used by the Company in
estimating the fair values of its financial instruments:
Public Debt
The fair values of the Company's public debt are based on estimated market
prices.
Non-Public Variable Rate Long-Term Debt
The carrying amounts of the Company's variable rate borrowings approximate
their fair values.
Non-Public Fixed Rate Long-Term Debt
The fair values of the Company's fixed rate long-term borrowings are
estimated using discounted cash flow analyses based on the Company's current
incremental borrowing rates for similar types of borrowing arrangements.
34
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Derivative Financial Instruments
Fair values for the Company's interest rate swaps are based on current
settlement values. The carrying amounts and fair values of the Company's
balance sheet and off-balance-sheet instruments were as follows:
<TABLE>
<S> <C> <C> <C> <C>
January 3, 1999 December 28, 1997
------------------------- ------------------------
Carrying Fair Carrying Fair
In Thousands Amount Value Amount Value
- --------------------------------------------------------------------------------------------------
Balance Sheet Instruments
Public debt $ 301,085 $312,118 $ 313,085 $327,486
Non-public variable rate long-term debt 206,400 206,400 180,300 180,300
Non-public fixed rate long-term debt 13,864 14,476 12,404 13,297
Off-Balance-Sheet Instruments
Interest rate swaps (2,030) 1,854
Interest rate cap 10 80
</TABLE>
The fair values of the interest rate swaps at January 3, 1999 represent
the estimated amounts the Company would have had to pay to terminate these
agreements. The fair values of the interest rate swaps at December 28, 1997 and
the fair values of the interest rate cap at January 3, 1999 and December 28,
1997 represent the estimated amounts the Company would have received upon
termination of these agreements.
9. Commitments and Contingencies
Operating lease payments are charged to expense as incurred. Such rental
expenses included in the consolidated statements of operations were $28.9
million, $23.0 million and $27.0 million for 1998, 1997 and 1996, respectively.
The following is a summary of future minimum lease payments for all
operating leases as of January 3, 1999:
<TABLE>
<S> <C>
In Thousands
- ------------------------------
1999 $ 29,464
- ------------------------------
2000 26,223
- ------------------------------
2001 23,086
- ------------------------------
2002 20,623
- ------------------------------
2003 14,749
- ------------------------------
Thereafter 29,910
- ------------------------------ --------
Total minimum lease payments $144,055
- ------------------------------ --------
</TABLE>
On January 15, 1999, the Company purchased approximately $155 million of
equipment (principally vehicles and vending equipment) previously leased under
various operating lease agreements. The cost of the equipment purchased
approximated its guaranteed residual value as of January 3, 1999. The assets
purchased will continue to be used in the distribution and sale of the
Company's products.
The Company is a member of a cooperative from which it is obligated to
purchase a specified number of cases of finished product on an annual basis.
The current annual purchase commitment under this agreement is approximately
$40 million.
The Company guarantees a portion of the debt for one cooperative from
which the Company purchases plastic bottles. The Company also guarantees a
portion of debt for South Atlantic Canners, Inc., a manufacturing cooperative
that is being managed by
35
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. Commitments and Contingencies (continued)
the Company. See Note 13 to the consolidated financial statements for
additional information concerning these financial guarantees. The total debt
guarantees on January 3, 1999 and December 28, 1997 were $30.7 million and
$31.1 million, respectively.
The Company has entered into purchase agreements for aluminum cans on an
annual basis through 2000 and 2001. The annual purchase commitment under these
agreements for 1999 is approximately $80 million.
The Company is involved in various claims and legal proceedings which have
arisen in the ordinary course of its business. The Company believes that the
ultimate disposition of these claims will not have a material adverse effect on
the financial condition, cash flows or results of operations of the Company.
10. Income Taxes
The provision for income taxes on income before income taxes consisted of
the following:
<TABLE>
<S> <C> <C> <C>
Fiscal Year
-------------------------------
In Thousands 1998 1997 1996
- -------------------------------------------------- ------ ------ ------
Current:
Federal $ -- $6,437 $ 753
- -------------------------------------------------- ------- ------- --------
Total current provision -- 6,437 753
- -------------------------------------------------- ------- ------- --------
Deferred:
Federal 6,378 1,346 6,798
State 1,989 1,282 2,009
Expense of minimum pension liability adjustment (61) (25)
- -------------------------------------------------- ------- ------- --------
Total deferred provision 8,367 2,567 8,782
- -------------------------------------------------- ------- ------- --------
Income tax expense $8,367 $9,004 $9,535
- -------------------------------------------------- ------- ------- --------
</TABLE>
Deferred income taxes are recorded based upon differences between the
financial statement and tax bases of assets and liabilities and available tax
credit carry forwards. Temporary differences and carryforwards that comprised
deferred income tax assets and liabilities were as follows:
<TABLE>
<S> <C> <C>
Jan. 3, Dec. 28,
In Thousands 1999 1997
- --------------------------------------- -------- --------
Intangible assets $ 93,292 $ 96,477
Depreciation 17,627 31,002
Investment in Piedmont 23,931 22,761
Lease obligations 47,483
Other 22,479 15,471
- --------------------------------------- ---------- ---------
Gross deferred income tax liabilities 204,812 165,711
- --------------------------------------- ---------- ---------
Net operating loss carryforwards (25,461) (20,087)
Leased assets (22,385)
AMT Credit (9,978)
Other (33,181) (40,184)
- --------------------------------------- ---------- ---------
Gross deferred income tax assets (91,005) (60,271)
- --------------------------------------- ---------- ---------
Deferred income tax liability $113,807 $105,440
- --------------------------------------- ---------- ---------
</TABLE>
36
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Net current deferred tax assets of $6.9 million and $6.2 million were
included in prepaid expenses and other current assets on January 3, 1999 and
December 28, 1997, respectively.
Reported income tax expense is reconciled to the amount computed on the
basis of income before income taxes at the statutory rate as follows:
<TABLE>
<S> <C> <C> <C>
Fiscal Year
------------------------------------
In Thousands 1998 1997 1996
- -------------------------------------------------- ------ ------ ------
Statutory expense $8,135 $8,495 $8,994
Amortization of franchise and goodwill assets 369 364 364
State income taxes, net of federal benefit 463 696 618
Cash surrender value of officers' life insurance (565) 16 144
Postretirement benefits (762) (762) (762)
Meals and entertainment 271 372 306
Lease inclusion related to fleet 22 18 12
Other 434 (195) (141)
- -------------------------------------------------- ------- ------- -------
Income tax expense $8,367 $9,004 $9,535
- -------------------------------------------------- ------- ------- -------
</TABLE>
The Company had $3.5 million of investment tax credits available to reduce
future income tax payments for federal income tax purposes on January 3, 1999.
These credits expire in varying amounts through 2001.
On January 3, 1999, the Company had $62 million and $80 million of federal
and state net operating losses, respectively, available to reduce future income
taxes. The net operating loss carryforwards expire in varying amounts through
2008.
11. Capital Transactions
Shareholders with Class B Common Stock are entitled to 20 votes per share
compared to one vote per share on the Common Stock. Dividends on the Class B
Common Stock are permitted to equal, but not exceed, dividends on the Common
Stock.
The Company repurchased 929,440 shares of its Common Stock for $43.6
million in a series of transactions between December 1996 and February 1997.
The share repurchases included repurchase of 275,490 shares of Common Stock for
approximately $13.1 million from The Coca-Cola Company under a contractual
arrangement to maintain The Coca-Cola Company's equity ownership at a
prescribed level.
On March 8, 1989, the Company granted J. Frank Harrison, Jr. an option for
the purchase of 100,000 shares of Common Stock exercisable at the closing
market price of the stock on the day of grant. The closing market price of the
stock on March 8, 1989 was $27.00 per share. The option is exercisable, in
whole or in part, at any time at the election of Mr. Harrison, Jr. over a
period of 15 years from the date of grant. This option has not been exercised
with respect to any such shares.
On August 9, 1989, the Company granted J. Frank Harrison, III an option
for the purchase of 150,000 shares of Common Stock exercisable at the closing
market price of the stock on the day of grant. The closing market price of the
stock on August 9, 1989 was $29.75 per share. The option may be exercised, in
whole or in part, during a period of 15 years beginning on the date of grant.
This option has not been exercised with respect to any such shares.
Effective November 23, 1998, J. Frank Harrison, Jr. exchanged 792,796
shares of the Company's Common Stock for 792,796 shares of Class B Common Stock
in a transaction previously approved by the Company's Board of Directors (the
"Harrison Exchange"). Mr. Harrison already owned the shares of Common Stock
used to make this exchange. This exchange took place in connection with a
series of simultaneous transactions related to Mr. Harrison Jr.'s personal
estate planning, the net effect of which was to transfer the entire ownership
interest in the Company previously held by Mr. Harrison and certain Harrison
family trusts into three Harrison
37
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. Capital Transactions (continued)
family limited partnerships. J. Frank Harrison, Jr., in his capacity of Manager
for J. Frank Harrison Family, LLC (the general partner of the three family
limited partnerships), exercises sole voting and investment power with respect
to the shares of the Company's Common Stock and Class B Common Stock held by
the family limited partnerships.
Pursuant to a Stock Rights and Restriction Agreement dated January 27,
1989, between the Company and The Coca-Cola Company, in the event that the
Company issues new shares of Class B Common Stock upon the exchange or
exercise of any security, warrant or option of the Company which results in The
Coca-Cola Company owning less than 20% of the outstanding shares of Class B
Common Stock and less than 20% of the total votes of all outstanding shares of
all classes of the Company, The Coca-Cola Company has the right, under the
Stock Rights and Restrictions Agreement, to exchange shares of Common Stock for
shares of Class B Common Stock in order to maintain its ownership of 20% of the
outstanding shares of Class B Common Stock and 20% of the total votes of all
outstanding shares of all classes of the Company. Under the Stock Rights and
Restrictions Agreement, The Coca-Cola Company also has 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. Effective November 23, 1998, in connection with the
Harrison Exchange and the related Harrison family limited partnership
transactions, The Coca-Cola Company, in the exercise of its rights under the
Stock Rights and Restrictions Agreement, exchanged 228,512 shares of the
Company's Common Stock which it held for 228,512 shares of the Company's Class
B Common Stock.
12. Benefit Plans
Retirement benefits under the Company's principal pension plan are based
on the employee's length of service, average compensation over the five
consecutive years which gives the highest average compensation and the average
of the Social Security taxable wage base during the 35-year period before a
participant reaches Social Security retirement age. Contributions to the plan
are based on the projected unit credit actuarial funding method and are limited
to the amounts that are currently deductible for tax purposes.
The following tables set forth a reconciliation of the beginning and
ending balances of the projected benefit obligation, a reconciliation of
beginning and ending balances of the fair value of plan assets and funded
status of the two Company-sponsored pension plans:
38
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C> <C>
Fiscal Year
-----------------------
In Thousands 1998 1997
- --------------------------------------------------- -------- --------
Projected benefit obligation at beginning of year $67,001 $56,212
Service cost 2,586 2,158
Interest cost 4,934 4,543
Actuarial loss 10,763 6,557
Benefits paid (2,515) (2,469)
Changes in plan provisions 129
- --------------------------------------------------- -------- --------
Projected benefit obligation at end of year $82,898 $67,001
- --------------------------------------------------- -------- --------
Fair value of plan assets at beginning of year $70,876 $56,488
Actual return on plan assets 4,257 13,455
Employer contributions 2,006 3,402
Benefits paid (2,515) (2,469)
- --------------------------------------------------- -------- --------
Fair value of plan assets at end of year $74,624 $70,876
- --------------------------------------------------- -------- --------
Jan. 3, Dec. 28,
1999 1997
- --------------------------------------------------- -------- --------
Funded status of the plans $(8,274) $ 3,875
Unrecognized transition asset (70)
Unrecognized prior service cost (626) (912)
Unrecognized net loss 16,975 4,179
- --------------------------------------------------- -------- --------
Prepaid pension cost $ 8,075 $ 7,072
- --------------------------------------------------- -------- --------
</TABLE>
Net periodic pension cost for the Company-sponsored pension plans included
the following:
<TABLE>
<S> <C> <C> <C>
Fiscal Year
--------------------------------------
In Thousands 1998 1997 1996
- -------------------------------------------------- ------ ------ ------
Service cost $ 2,586 $ 2,158 $ 2,218
Interest cost 4,934 4,543 4,288
Estimated return on plan assets (6,303) (5,006) (4,589)
Amortization of unrecognized transitional assets (70) (70) (70)
Amortization of prior service cost (150) (150) (145)
Recognized net actuarial loss 7 48 679
- -------------------------------------------------- --------- --------- ---------
Net periodic pension cost $ 1,004 $ 1,523 $ 2,381
- -------------------------------------------------- --------- --------- ---------
</TABLE>
The weighted average rate assumptions used in determining pension costs
and the projected benefit obligation were:
<TABLE>
<S> <C> <C>
1998 1997
- ------------------------------------------------------------------------- ---- ----
Weighted average discount rate used in determining the actuarial present
value of the projected benefit obligation 6.75% 7.50%
Weighted average expected long-term rate of return on plan assets 9.00% 9.00%
Weighted average rate of compensation increase 4.00% 4.00%
</TABLE>
39
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. Benefit Plans (continued)
The Company provides a 401(k) Savings Plan for substantially all of its
nonunion employees. Under provisions of the Savings Plan, an employee is vested
with respect to Company contributions upon the completion of two years of
service with the Company. The total cost for this benefit in 1998, 1997 and
1996 was $2.0 million, $1.7 million and $1.8 million, respectively.
The Company currently provides employee leasing and management services to
employees of Piedmont. Piedmont employees participate in the Company's employee
benefit plans. During 1996, the obligation for postretirement benefits payable
by Piedmont of $5.8 million was transferred to the Company in exchange for a
note receivable from Piedmont. The transfer was made to facilitate
administration of the payment of postretirement liabilities.
The Company provides postretirement benefits for substantially all of its
nonunion employees. The Company recognizes the cost of postretirement benefits,
which consist principally of medical benefits, during employees' periods of
active service. The Company does not pre-fund these benefits and has the right
to modify or terminate certain of these plans in the future.
The following tables set forth a reconciliation of the beginning and
ending balances of the benefit obligation, a reconciliation of the beginning
and ending balances of fair value of plan assets and funded status of the
Company's postretirement plan:
<TABLE>
<S> <C> <C>
Fiscal Year
---------------------------
In Thousands 1998 1997
- ------------------------------------------------ -------- --------
Benefit obligation at beginning of year $ 32,460 $ 28,881
Service cost 604 446
Interest cost 2,350 2,289
Plan participants' contributions 628 651
Actuarial loss 6,562 2,607
Benefits paid (2,825) (2,414)
- ------------------------------------------------ --------- ---------
Benefit obligation at end of year $ 39,779 $ 32,460
- ------------------------------------------------ --------- ---------
Fair value of plan assets at beginning of year $ -- $ --
Employer contributions 2,197 1,763
Plan participants' contributions 628 651
Benefits paid (2,825) (2,414)
- ------------------------------------------------ --------- ---------
Fair value of plan assets at end of year $ -- $ --
- ------------------------------------------------ --------- ---------
</TABLE>
<TABLE>
<S> <C> <C>
Jan. 3, Dec. 28,
1999 1997
- ------------------------------------------------------------ -------- --------
Funded status of the plan $(39,779) $(32,460)
Unrecognized net loss 17,395 11,254
Unrecognized prior service cost (320) (344)
Contributions between measurement date and fiscal year end 474 404
- ------------------------------------------------------------ -------- --------
Accrued liability $(22,230) $(21,146)
- ------------------------------------------------------------ -------- --------
</TABLE>
40
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The components of net periodic postretirement benefit cost were as
follows:
<TABLE>
<S> <C> <C> <C>
Fiscal Year
----------------------------------
In Thousands 1998 1997 1996
- -------------------------------------------------- ------ ------ ------
Service cost $ 604 $ 446 $ 402
Interest cost 2,350 2,290 1,259
Amortization of unrecognized transitional assets (25) (25) (25)
Recognized net actuarial loss 422 320 54
- -------------------------------------------------- -------- -------- --------
Net periodic postretirement benefit cost $3,351 $3,031 $1,690
- -------------------------------------------------- -------- -------- --------
</TABLE>
The weighted average discount rates used to estimate the postretirement
benefit obligation were 6.75% and 7.50% as of January 3, 1999 and December 28,
1997, respectively.
The weighted average health care cost trend used in measuring the
postretirement benefit expense was 6.0% in 1998, declining to 5.25% in 1999 and
remaining at that level thereafter. A 1% increase or decrease in this annual
cost trend would have impacted the postretirement benefit obligation and net
periodic postretirement benefit cost as follows:
<TABLE>
<S> <C> <C>
In Thousands
-----------------------------
Impact on 1% Increase 1% Decrease
- ------------------------------------------------------ ------------- -------------
Postretirement benefit obligation at January 3, 1999 $5,873 $(4,782)
Net periodic postretirement benefit cost in 1998 686 (540)
</TABLE>
13. Related Party Transactions
The Company's business consists primarily of the production, marketing and
distribution of soft drink products of The Coca-Cola Company, which is the sole
owner of the secret formulas under which the primary components (either
concentrates or syrups) of its soft drink products are manufactured.
Accordingly, the Company purchases a substantial majority of its requirements of
concentrates and syrups from The Coca-Cola Company in the ordinary course of its
business. The Company paid The Coca-Cola Company approximately $225 million,
$198 million and $185 million in 1998, 1997 and 1996, respectively, for
sweetener, syrup, concentrate and other miscellaneous purchases. Additionally,
the Company engages in a variety of marketing programs, local media advertising
and similar arrangements to promote the sale of products of The Coca-Cola
Company in bottling territories operated by the Company. Direct marketing
funding support provided to the Company by The Coca-Cola Company was
approximately $52 million, $41 million and $36 million in 1998, 1997 and 1996,
respectively. Additionally, the Company earned approximately $16 million and $6
million in 1998 and 1997, respectively, related to cold drink infrastructure
support. The marketing funding related to cold drink infrastructure support is
covered under a multi-year agreement which includes certain annual performance
requirements, the most significant of which relates to machine placements and
case sales volume. The Company was in compliance with all such performance
requirements in 1998. In addition, the Company paid approximately $28 million,
$25 million and $20 million in 1998, 1997 and 1996, respectively, for local
media and marketing program expense pursuant to cooperative advertising and
cooperative marketing arrangements with The Coca-Cola Company.
The Company has a production arrangement with Coca-Cola Enterprises Inc.
("CCE") to buy and sell finished product at cost. The Coca-Cola Company has
significant equity interests in the Company and CCE. Also, CCE has a 5.8%
equity interest in the Company's Common Stock. Sales to CCE under this
agreement were $24.0 million, $22.0 million and $21.5 million in 1998, 1997 and
1996, respectively. Purchases from CCE under this arrangement were $15.3
million, $15.3 million and $14.8 million in 1998, 1997 and 1996, respectively.
In December 1996, the Board of Directors awarded a retirement benefit to
J. Frank Harrison, Jr. for among other things, his past service to the Company.
The Company recorded a non-cash, after-tax charge of $2.7 million in the fourth
quarter of 1996
41
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. Related Party Transactions (continued)
related to this agreement. Additionally, the Company entered into an agreement
for consulting services with J. Frank Harrison, Jr. beginning in 1997. Payments
in 1998 and 1997 related to the consulting services agreement totaled $200,000
each year.
On July 2, 1993, the Company and The Coca-Cola Company formed Piedmont.
The Company and The Coca-Cola Company, through their respective subsidiaries,
each beneficially own a 50% interest in Piedmont. The Company provides a
portion of the soft drink products for Piedmont at cost and receives a fee for
managing the operations of Piedmont pursuant to a management agreement. The
Company sold product to Piedmont during 1998, 1997 and 1996 at cost, totaling
$55.8 million, $42.6 million and $51.3 million, respectively. The Company
received $14.2 million, $12.7 million and $11.4 million for management services
pursuant to its management agreement with Piedmont for 1998, 1997 and 1996,
respectively.
Also, the Company subleased various fleet and vending equipment to
Piedmont at cost. These sublease rentals amounted to approximately $7.1
million, $2.7 million and $1.5 million in 1998, 1997 and 1996, respectively. In
addition, Piedmont subleased various fleet and vending equipment to the Company
at cost. These sublease rentals amounted to approximately $1.6 million, $.9
million and $.6 million in 1998, 1997 and 1996, respectively.
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 pursuant to which
the Company leased the property for a 10-year term beginning on December 1,
1992. A North Carolina corporation owned entirely by J. Frank Harrison, Jr.
serves as sole general partner of the limited partnership. The sole limited
partner of this limited partnership is a trust as to which J. Frank Harrison,
III and Reid M. Henson are co-trustees. The annual base rent the Company is
obligated to pay for its lease of the Snyder Production Center is subject to
adjustment for increases in the Consumer Price Index and for increases or
decreases in interest rates, using LIBOR as the measurement device. Rent
expense under this lease totaled $2.7 million, $2.6 million and $2.6 million in
1998, 1997 and 1996, respectively.
On June 1, 1993, the Company entered into a lease agreement with Beacon
Investment Corporation related to the Company's headquarters office building.
Beacon Investment Corporation's sole shareholder is J. Frank Harrison, III.
Rent expense under this lease totaled $2.1 million, $2.1 million and $1.9
million in 1998, 1997 and 1996, respectively. On January 5, 1999, the Company
entered into a new 10-year lease agreement with Beacon Investment Corporation
which includes the Company's headquarters office building and an adjacent
office facility. The annual base rent the Company is obligated to pay under
this lease in 1999 is $2.8 million and is subject to adjustment for increases
in the Consumer Price Index and for increases or decreases in interest rates,
using the Adjusted Eurodollar Rate as the measurement device.
The Company is a shareholder in two entities from which it purchases
substantially all its requirements for plastic bottles. Net purchases from
these entities were approximately $50 million, $43 million and $46 million in
1998, 1997 and 1996, respectively. In connection with its participation in one
of these cooperatives, the Company has guaranteed a portion of the
cooperative's debt. On January 3, 1999 and December 28, 1997, such guarantee
amounted to approximately $20.0 million.
The Company is a member of South Atlantic Canners, Inc., ("SAC"), a
manufacturing cooperative. SAC sells finished products to the Company and
Piedmont at cost. The Company also manages the operations of SAC pursuant to a
management agreement. Management fees from SAC were $1.2 million, $1.2 million
and $1.4 million in 1998, 1997 and 1996, respectively. Also, the Company has
guaranteed a portion of debt for SAC. Such guarantees were approximately $10.7
million and $10.5 million as of January 3, 1999 and December 28, 1997,
respectively.
The Company previously leased vending equipment from Coca-Cola Financial
Corporation ("CCFC"), a subsidiary of The Coca-Cola Company. During 1996, the
Company made lease payments to CCFC totaling $6.9 million. On January 14, 1997,
the Company purchased all of the equipment under leases with CCFC for
approximately $66.3 million.
42
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company purchases certain computerized data management products and
services related to inventory control and marketing program support from Data
Ventures LLC ("Data Ventures"), a Delaware limited liability company in which
the Company holds a 31.25% equity interest. Also, J. Frank Harrison, III,
Chairman of the Board of Directors and Chief Executive Officer of the Company,
holds a 32.5% equity interest in Data Ventures. On September 30, 1997, Data
Ventures obtained a $1.9 million unsecured line of credit from the Company,
which expires in September 1999. Data Ventures was indebted to the Company for
$1.2 million and $1.0 million as of January 3, 1999 and December 28, 1997,
respectively. The Company purchased products and services from Data Ventures
for approximately $237,000 and $253,000 in 1998 and 1997, respectively.
14. Earnings Per Share
The following table sets forth the computation of basic net income per
share and diluted net income per share:
<TABLE>
<S> <C> <C> <C>
In Thousands (Except Per Share Data) 1998 1997 1996
- --------------------------------------------------------------------------------- ---- ---- ----
Numerator:
Numerator for basic net income and diluted net income $ 14,878 $ 15,266 $ 16,164
================================================================================= ======== ======== ========
Denominator:
Denominator for basic net income per share -- weighted average common shares 8,365 8,407 9,280
Effect of dilutive securities -- Stock options 130 102 50
- --------------------------------------------------------------------------------- -------- -------- --------
Denominator for diluted net income per share -- adjusted weighted average common
shares 8,495 8,509 9,330
================================================================================= ======== ======== ========
Basic net income per share $ 1.78 $ 1.82 $ 1.74
================================================================================= ======== ======== ========
Diluted net income per share $ 1.75 $ 1.79 $ 1.73
================================================================================= ======== ======== ========
</TABLE>
15. Risks and Uncertainties
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.
Approximately 90% of the Company's sales are products of The Coca-Cola
Company, which is the sole supplier of the concentrate required to manufacture
these products. Additionally, the Company purchases virtually all of its
requirements for sweetener from The Coca-Cola Company. The remaining 10% of the
Company's sales are products of various other beverage companies. The Company
has franchise contracts under which it has various requirements to meet.
Failure to meet the requirements of these franchise contracts could result in
the loss of distribution rights for the respective product.
The Company currently obtains all of its aluminum cans from two domestic
suppliers. The Company currently obtains all of its PET bottles from two
domestic cooperatives. The inability of either of these aluminum can or PET
bottle suppliers to meet the Company's requirement for containers could result
in short-term shortages until alternative sources of supply could be located.
Certain liabilities of the Company are subject to risk of changes in both
long-term and short-term interest rates. These liabilities include floating
rate debt, leases with payments determined on floating interest rates,
postretirement benefit obligations and the Company's nonunion pension
liability.
Less than 10% of the Company's labor force is currently covered by
collective bargaining agreements. One collective bargaining contract expires
during 1999.
Material changes in the performance requirements or decreases in levels of
marketing funding historically provided under our marketing programs with The
Coca-Cola Company and other franchisers, or our inability to meet the
performance requirements
43
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. Risks and Uncertainties (continued)
for the anticipated levels of such marketing funding support payments, would
adversely affect future earnings. The Coca-Cola Company is under no obligation
to continue marketing funding at past levels.
16. Supplemental Disclosures of Cash Flow Information
Changes in current assets and current liabilities affecting cash, net of
effects of acquisitions, were as follows:
<TABLE>
<S> <C> <C> <C>
Fiscal Year
------------------------------------------
In Thousands 1998 1997 1996
- ---------------------------------------------------------------- ---------- ---------- ------------
Accounts receivable, trade, net $ (1,304) $ (4,234) $ (38,820)
Accounts receivable from The Coca-Cola Company (5,401) (1,779) 5,691
Accounts receivable, other 862 (793) (82)
Inventories (2,050) (7,910) (2,798)
Prepaid expenses and other assets (2,778) (3,216) (2,518)
Accounts payable and accrued liabilities 841 11,208 (7,534)
Accounts payable to The Coca-Cola Company 1,086 859 (387)
Accrued compensation 5,145 (207) 226
Accrued interest payable 1,287 2,926 3,894
Due to (from) Piedmont Coca-Cola Bottling Partnership 2,444 3,879 (1,304)
- ---------------------------------------------------------------- ---------- ---------- -----------
(Increase) decrease in current assets less current liabilities $ 132 $ 733 $ (43,632)
- ---------------------------------------------------------------- ---------- ---------- -----------
</TABLE>
Cash payments for interest and income taxes were as follows:
<TABLE>
<S> <C> <C> <C>
Fiscal Year
-----------------------------------
In Thousands 1998 1997 1996
- ------------------------------- ------- ------- -------
Interest $38,046 $23,908 $25,945
Income taxes (net of refunds) 1,925 8,366 5,465
</TABLE>
44
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17. Quarterly Financial Data (Unaudited)
Set forth below are unaudited quarterly financial data for the fiscal
years ended January 3, 1999 and December 28, 1997.
<TABLE>
<S> <C> <C> <C> <C>
Quarter
In Thousands (Except Per Share Data) -----------------------------------------------------
Year Ended January 3, 1999 1 2 3 4
- --------------------------------------------------------------------------------------------------------------
Net sales $203,331 $ 241,415 $248,533 $235,223
Gross margin 84,934 104,378 105,452 98,819
Net income (loss) (2,462) 9,389 6,995 956
Basic net income (loss) per share (.29) 1.12 .84 .11
Diluted net income (loss) per share (.29) 1.11 .82 .11
Weighted average number of common shares outstanding 8,365 8,365 8,365 8,365
Weighted average number of common shares
outstanding -- assuming dilution 8,493 8,496 8,499 8,491
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
Quarter
In Thousands (Except Per Share Data) ----------------------------------------------------
Year Ended December 28, 1997 1 2 3 4
- --------------------------------------------------------------------------------------------------------------
Net sales $178,395 $ 208,174 $219,079 $196,493
Gross margin 78,945 93,781 94,113 82,409
Net income (loss) 104 9,141 6,637 (616)
Basic net income (loss) per share .01 1.09 .79 (.07)
Diluted net income (loss) per share .01 1.08 .78 (.07)
Weighted average number of common shares outstanding 8,535 8,365 8,365 8,365
Weighted average number of common shares
outstanding -- assuming dilution 8,624 8,448 8,467 8,489
</TABLE>
45
<PAGE>
The financial statement schedule required by Regulation S-X is set forth in
response to Item 14 below.
The supplementary data required by Item 302 of Regulation S-K is set forth in
Note 17 to the financial statements.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
Not applicable.
<PAGE>
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
For information with respect to the executive officers of the Company, see
"Executive Officers of the Registrant" at the end of Part I of this Report. For
information with respect to the Directors of the Company, see the "Election of
Directors" and "Certain Transactions" sections of the Proxy Statement for the
1999 Annual Meeting of Shareholders to be filed with the Securities and Exchange
Commission, which is incorporated herein by reference. For information with
respect to Section 16 reports for directors and executive officers of the
Company, see the "Election of Directors - Section 16(a) Beneficial Ownership
Reporting Compliance" section of the Proxy Statement for the 1999 Annual Meeting
of Shareholders.
ITEM 11 - EXECUTIVE COMPENSATION
For information with respect to executive compensation, see the "Executive
Compensation" section of the Proxy Statement for the 1999 Annual Meeting of
Shareholders to be filed with the Securities and Exchange Commission, which is
incorporated herein by reference (other than the subsections entitled "Report of
the Compensation Committee on Annual Compensation of Executive Officers" and
"Common Stock Performance," which are specifically excluded from such
incorporation).
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
For information with respect to security ownership of certain beneficial owners
and management, see the "Principal Shareholders" and "Election of Directors -
Beneficial Ownership of Management" sections of the Proxy Statement for the 1999
Annual Meeting of Shareholders to be filed with the Securities and Exchange
Commission, which is incorporated herein by reference.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For information with respect to certain relationships and related transactions,
see the "Certain Transactions" and "Compensation Committee Interlocks and
Insider Participation" sections of the Proxy Statement for the 1999 Annual
Meeting of Shareholders to be filed with the Securities and Exchange Commission,
which are incorporated herein by reference.
<PAGE>
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
A. List of Documents filed as part of this report.
1. Financial Statements
Report of Independent Accountants
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Cash Flows
Consolidated Statements of Changes in Shareholders' Equity
Notes to Consolidated Financial Statements
2. Financial Statement Schedule
Schedule II - Valuation and Qualifying Accounts and Reserves
All other financial statements and schedules not listed have been
omitted because the required information is included in the
consolidated financial statements or the notes thereto, or is not
applicable or required.
<PAGE>
3. Listing of Exhibits:
Exhibit Index
- -------------
<TABLE>
Incorporated by Reference
Number Description or Filed Herewith
- ------ ----------- -------------------------
<S> <C> <C>
(1.1) Underwriting Agreement dated November 1, 1995, Exhibit 1.1 to the Company's
among the Company, Citicorp Securities, Inc. and Quarterly Report on Form 10-Q for
Salomon Brothers, Inc. the quarter ended October 1, 1995.
(1.2) Underwriting Agreement dated July 1, 1997 among Exhibit 1.1 to the Company's
the Company, Citicorp Securities, Inc. and Quarterly Report on Form 10-Q for
BancAmerica Securities, Inc. the quarter ended June 29, 1997.
(3.1) Bylaws of the Company, as amended. Exhibit 3.2 to theCompany's
Registration Statement
(No. 33-54657) on Form S-3.
(3.2) Restated Certificate of Incorporation of the Company. Exhibit 3.1 to the Company's
Registration Statement
(No. 33-54657) on Form S-3.
(4.1) Specimen of Common Stock Certificate. Exhibit 4.1 to the Company's
Registration Statement
(No. 2-97822) on Form S-1.
(4.2) Specimen Fixed Rate Note under the Company's Medium- Exhibit 4.1 to the Company's
Term Note Program, pursuant to which it may issue, Current Report on Form 8-K dated
from time to time, up to $200 million aggregate February 14, 1990.
principal amount of its Medium-Term Notes, Series A.
.
(4.3) Specimen Floating Rate Note under the Company's Exhibit 4.2 to the Company's
Medium-Term Note Program, pursuant to which it may Current Report on Form 8-K
issue, from time to time, up to $200 million aggregate dated February 14, 1990.
principal amount of its Medium-Term Notes, Series A.
(4.4) Indenture dated as of October 15, 1989 between the Exhibit 4. to the Company's
Company and Manufacturers Hanover Trust Company Registration Statement
of California, as Trustee, in connection with the (No. 33-31784) on Form S-3
Company's $200 million shelf registration of its Medium- as filed on February 14, 1990.
Term Notes, Series A, due from nine months to 30 years
from date of issue.
<PAGE>
(4.5) Selling Agency Agreement, dated as of February 14, Exhibit 1.2 to the Company's
1990, between the Company and Salomon Brothers and Registration Statement
Goldman Sachs, as Agents, in connection with the (No. 33-31784) on Form S-3
Company's $200 million Medium-Term Notes, Series A, as filed on February 14, 1990.
due from nine months to 30 years from date of issue.
(4.6) Form of Debenture issued by the Company to two Exhibit 4.04 to the Company's
shareholders of Sunbelt Coca-Cola Bottling Company, Current Report on Form 8-K
Inc. dated as of December 19, 1991. dated December 19, 1991.
(4.7) Commercial Paper Dealer Agreement, dated as of Exhibit 4.14 to the Company's
February 11, 1993, between the Company and Citicorp Annual Report on Form 10-K for
Securities Markets, Inc., as co-agent. the fiscal year ended January 3,
1993.
(4.8) Amended and restated commercial paper agreement, Exhibit 4.13 to the Company's
dated as of November 14, 1994, between the Company Annual Report on Form 10-K for
and Goldman Sachs Money Markets, L.P. the fiscal year ended January 1,
1995.
(4.9) Supplemental Indenture, dated as of March 3, 1995, Exhibit 4.15 to the Company's
between the Company and NationsBank of Georgia, Annual Report, as amended, on
National Association, as Trustee. Form 10-K/A-2 for the fiscal
year ended January 1, 1995.
(4.10) First Omnibus Amendment to Purchase Agreements, Exhibit 4.1 to the Company's
dated as of June 26, 1995, by and among the Company, Quarterly Report on Form 10-Q for
as Seller, Corporate Receivables Corporation, as the the quarter ended July 2, 1995.
Investor, and Citicorp North America, Inc., individually
and as agent.
(4.11) Form of the Company's 6.85% Debentures due 2007. Exhibit 4.1 to the Company's
Quarterly Report on Form 10-Q for
the quarter ended October 1, 1995.
(4.12) The Registrant, by signing this report, agrees to furnish the
Securities and Exchange Commission, upon its request, a copy of any
instrument which defines the rights of holders of long-term debt of
the Registrant and its subsidiaries for which consolidated
financial statements are required to be filed, and which authorizes
a total amount of securities not in excess of 10 percent of total
assets of the Registrant and its subsidiaries on a consolidated
basis.
<PAGE>
(4.13) Loan Agreement dated as of November 20, 1995 Exhibit 4.13 to the Company's
between the Company and LTCB Trust Company, as Annual Report on Form 10-K for
Agent, and other banks named therein. the fiscal year ended December 31,
1995.
(4.14) Amended and Restated Credit Agreement dated as of Exhibit 4.14 to the Company's
December 21, 1995 between the Company and Annual Report on Form 10-K
NationsBank, N.A., Bank of America National Trust for the fiscal year ended
and Savings Association and other banks named therein. December 31, 1995.
(4.15) Amendment, dated as of July 22, 1997, to Loan Exhibit 4.1 to the Company's
Agreement dated November 20, 1995, between the Quarterly Report on Form 10-Q
Company and LTCB Trust Company, as Agent, and for the quarter ended June 29,
other banks named therein. 1997.
(4.16) Form of the Company's 7.20% Debentures Due 2009. Exhibit 4.2 to the
Company's Quarterly
Report on Form 10-Q for
the quarter ended June 29, 1997.
(10.1) Employment Agreement of James L. Moore, Jr. dated as Exhibit 10.2 to the Company's
of March 16, 1987. * * Annual Report on Form 10-K for
the fiscal year ended December 31,
1986.
(10.2) Amendment, dated as of May 18, 1994, to Employment Exhibit 10.84 to the Company's
Agreement designated as Exhibit 10.1. * * Annual Report on Form 10-K for
the fiscal year ended January 1,
1995.
(10.3) Stock Rights and Restrictions Agreement by and Exhibit 28.01 to the Company's
between Coca-Cola Bottling Co. Consolidated and Current Report on Form 8-K
The Coca-Cola Company dated January 27, 1989. dated January 27, 1989.
(10.4) Description and examples of bottling franchise Exhibit 10.20 to the Company's
agreements between the Company and The Coca-Cola Annual Report on Form 10-K for
Company. the fiscal year ended December 31,
1988.
(10.5) Lease, dated as of December 11, 1974, by and between Exhibit 19.6 to the Company's
the Company and the Ragland Corporation, related to the Annual Report on Form 10-K for
production/ distribution facility in Nashville, the fiscal year ended December 31,
Tennessee. 1988.
<PAGE>
(10.6) Amendment to Lease Agreement designated as Exhibit 19.7 to the Company's
Exhibit 10.5. Annual Report on Form 10-K
for the fiscal year ended
December 31, 1988.
(10.7) Second Amendment to Lease Agreement designated as Exhibit 19.8 to the Company's
Exhibit 10.5. Annual Report on Form 10-K
for the fiscal year ended
December 31, 1988.
(10.8) Supplemental Savings Incentive Plan, dated as of April 1, Exhibit 10.36 to the Company's
1990 between certain Eligible Employees of the Company Annual Report on Form 10-K for
and the Company. * * the fiscal year ended December 30,
1990.
(10.9) Description and example of Deferred Compensation Exhibit 19.1 to the Company's
Agreement, dated as of October 1, 1987, between Eligible Annual Report on Form 10-K for
Employees of the Company and the Company under the fiscal year ended December 30,
the Officer's Split-Dollar Life Insurance Plan. * * 1990.
(10.10) Consolidated/Sunbelt Acquisition Agreement, dated as of Exhibit 2.01 to the Company's
December 19, 1991, by and among the Company and the Current Report on Form 8-K
shareholders of Sunbelt Coca-Cola Bottling Company, Inc. dated December 19, 1991.
(10.11) Officer Retention Plan, dated as of January 1, 1991, Exhibit 10.47 to the Company's
between certain Eligible Officers of the Company and the Annual Report on Form 10-K
Company. * * for the fiscal year ended
December 29, 1991.
(10.12) Acquisition Agreement, by and among Sunbelt Coca-Cola Exhibit 10.50 to the Company's
Bottling Company, Inc., Sunbelt Carolina Acquisition Annual Report on Form 10-K
Company Inc., certain of the common stockholders of for the fiscal year ended
Coca-Cola Bottling Co. Affiliated, Inc., and the stock- December 29, 1991.
holders of TRNH, Inc., dated as of November 7, 1989.
(10.13) Amendment Number One to the Sunbelt/Affiliated Exhibit 10.04 to the Company's
Acquisition Agreement, dated as of December 29, 1989, Quarterly Report on Form 10-Q
between Sunbelt Coca-Cola Bottling Company, Inc., for the quarter ended March 29,
Sunbelt Carolina Acquisition Company, Inc., certain 1992.
of the common stockholders of Coca-Cola Bottling Co.
Affiliated, Inc. and the stockholders of TRNH, Inc.
<PAGE>
(10.14) Amendment Number Two to the Sunbelt/Affiliated Exhibit 10.05 to the Company's
Acquisition Agreement, dated as of December 29, 1989, Quarterly Report on Form 10-Q
between Sunbelt Coca-Cola Bottling Company, Inc., for the quarter ended March 29,
Sunbelt Carolina Acquisition Company, Inc., certain of 1992.
the common stockholders of Coca-Cola Bottling Co.
Affiliated, Inc. and the stockholders of TRNH, Inc.
(10.15) Amendment Number Three to the Sunbelt/Affiliated Exhibit 10.06 to the Company's
Acquisition Agreement, dated as of December 29, 1989, Quarterly Report on Form 10-Q
between Sunbelt Coca-Cola Bottling Company, Inc., for the quarter ended March 29,
Sunbelt Carolina Acquisition Company, Inc., certain of 1992.
the common stockholders of Coca-Cola Bottling Co.
Affiliated, Inc. and the stockholders of TRNH, Inc.
(10.16) Lease Agreement, dated as of November 30, 1992, Exhibit 10.38 to the Company's
between the Company and Harrison Limited Annual Report on Form 10-K
Partnership One, related to the Snyder Production for the fiscal year ended
Center in Charlotte, North Carolina. January 3, 1993.
(10.17) Termination and Release Agreement dated as of Exhibit 10.43 to the Company's
March 27, 1992 by and among Sunbelt Coca-Cola Annual Report on Form 10-K
Bottling Company, Coca-Cola Bottling Co. Affiliated, for the fiscal year ended
Inc., the agent for holders of certain debentures of January 3,1993.
Sunbelt issued pursuant to a certain Indenture dated as
of January 11, 1990, as amended, and Wilmington Trust
Company which acted as trustee under the Indenture.
(10.18) Reorganization Plan and Agreement by and among Exhibit 10.03 to the Company's
Coca-Cola Bottling Co. Consolidated, Chopper Quarterly Report on Form 10-Q for
Acquisitions, Inc., Whirl-i-Bird, Inc. and the quarter ended April 4, 1993.
J. Frank Harrison, Jr.
(10.19) Partnership Agreement of Carolina Coca-Cola Bottling Exhibit 2.01 to the Company's
Partnership,* dated as of July 2, 1993, by and among Current Report on Form 8-K
Carolina Coca-Cola Bottling Investments, Inc., Coca-Cola dated July 2, 1993.
Ventures, Inc., Coca-Cola Bottling Co. Affiliated, Inc.,
Fayetteville Coca-Cola Bottling Company and Palmetto
Bottling Company.
(10.20) Asset Purchase Agreement, dated as of July 2, 1993, by Exhibit 2.02 to the Company's
and among Carolina Coca-Cola Bottling Partnership,* Current Report on Form 8-K
Coca-Cola Bottling Co. Affiliated, Inc. and Coca-Cola dated July 2, 1993.
Bottling Co. Consolidated.
<PAGE>
(10.21) Asset Purchase Agreement, dated as of July 2, 1993, by Exhibit 2.03 to the Company's
and among Carolina Coca-Cola Bottling Partnership,* Current Report on Form 8-K
Fayetteville Coca-Cola Bottling Company and Coca-Cola dated July 2, 1993.
Bottling Co. Consolidated.
(10.22) Asset Purchase Agreement, dated as of July 2, 1993, by Exhibit 2.04 to the Company's
and among Carolina Coca-Cola Bottling Partnership,* Current Report on Form 8-K
Palmetto Bottling Company and Coca-Cola Bottling Co. dated July 2, 1993.
Consolidated.
(10.23) Definition and Adjustment Agreement, dated July 2, 1993, Exhibit 2.05 to the Company's
by and among Carolina Coca-Cola Bottling Partnership,* Current Report on Form 8-K
Coca-Cola Ventures, Inc., Coca-Cola Bottling Co. dated July 2, 1993.
Consolidated, CCBC of Wilmington, Inc., Carolina
Coca-Cola Bottling Investments, Inc., The Coca-Cola
Company, Carolina Coca-Cola Holding Company, The
Coastal Coca-Cola Bottling Company, Eastern Carolina
Coca-Cola Bottling Company, Inc., Coca-Cola Bottling Co.
Affiliated, Inc., Fayetteville Coca-Cola Bottling Company
and Palmetto Bottling Company.
(10.24) Management Agreement, dated as of July 2, 1993, by and Exhibit 10.01 to the Company's
among Coca-Cola Bottling Co. Consolidated, Carolina Current Report on Form 8-K
Coca-Cola Bottling Partnership,* CCBC of Wilmington, dated July 2, 1993.
Inc., Carolina Coca-Cola Bottling Investments, Inc.,
Coca-Cola Ventures, Inc. and Palmetto Bottling Company.
(10.25) Post-Retirement Medical and Life Insurance Benefit Exhibit 10.02 to the Company's
Reimbursement Agreement, dated July 2, 1993, by and Current Report on Form 8-K
between Carolina Coca-Cola Bottling Partnership* and dated July 2, 1993.
Coca-Cola Bottling Co. Consolidated.
(10.26) Aiken Asset Purchase Agreement, dated as of August 6, Exhibit 2.01 to the Company's
1993 by and among Carolina Coca-Cola Bottling Quarterly Report on Form 10-Q
Partnership,* Palmetto Bottling Company and Coca-Cola for the quarter ended July 4,
Bottling Co. Consolidated. 1993.
(10.27) Aiken Definition and Adjustment Agreement, dated as of Exhibit 2.02 to the Company's
August 6, 1993, by and among Carolina Coca-Cola Quarterly Report on Form 10-Q
Bottling Partnership, Coca-Cola Ventures, Inc., Coca-Cola for the quarter ended July 4, 1993.
Bottling Co. Consolidated, Carolina Coca-Cola Bottling
Investments, Inc., The Coca-Cola Company and Palmetto
Bottling Company.
<PAGE>
(10.28) Amended and Restated Guaranty Agreement, dated as of Exhibit 10.06 to the Company's
July 15, 1993 re: Southeastern Container, Inc. Quarterly Report on Form 10-Q
for the quarter ended July 4, 1993.
(10.29) Agreement, dated as of December 23, 1993, between Exhibit 10.1 to the Company's
the Company and Western Container Corporation Quarterly Report on Form 10-Q for
covering purchase of PET bottles. the quarter ended October 2, 1994.
(10.30) Management Agreement, dated as of June 1, 1994, by Exhibit 10.6 to the Company's
and among Coca-Cola Bottling Co. Consolidated and Quarterly Report on Form 10-Q for
South Atlantic Canners, Inc. the quarter ended July 3, 1994.
(10.31) Guaranty Agreement, dated as of July 22, 1994, between Exhibit 10.7 to the Company's
Coca-Cola Bottling Co. Consolidated and Wachovia Quarterly Report on Form 10-Q
Bank of North Carolina, N.A. for the quarter ended July 3, 1994.
(10.32) Selling Agency Agreement, dated as of March 3, 1995, Exhibit 10.83 to the Company's
between the Company, Salomon Brothers Inc. and Annual Report on Form 10-K
Citicorp Securities, Inc. for the fiscal year ended
January 1, 1995.
(10.33) Agreement, dated as of March 1, 1994, between the Exhibit 10.85 to the Company's
Company and South Atlantic Canners, Inc. Annual Report on Form 10-K for the
fiscal year ended January 1, 1995.
(10.34) Stock Option Agreement, dated as of March 8, 1989, Exhibit 10.86 to the Company's
of J. Frank Harrison, Jr. * * Annual Report on Form 10-K for the
fiscal year ended January 1, 1995.
(10.35) Stock Option Agreement, dated as of August 9, 1989, Exhibit 10.87 to the Company's
of J. Frank Harrison, III. * * Annual Report on Form 10-K for the
fiscal year ended January 1, 1995.
(10.36) First Amendment to Credit Agreement, Line of Credit Exhibit 10.8 to the Company's
Note and Mortgage, and Reaffirmation of Term Note, Quarterly Report on Form 10-Q
Security Agreement, Guaranty Agreement and Addendum for the quarter ended April 2, 1995.
to Guaranty Agreement, dated as of March 31, 1995, by
and among the Company, South Atlantic Canners, Inc.
and Wachovia Bank of North Carolina, N.A.
(10.37) Guaranty Agreement and Addendum, dated as of Exhibit 10.9 to the Company's
March 31, 1995, between the Company and Wachovia Quarterly Report on Form 10-Q for
Bank of North Carolina, N.A. the quarter ended April 2, 1995.
<PAGE>
(10.38) Can Supply Agreement, dated November 7, 1995, between Exhibit 10.16 to the Company's
the Company and American National Can Company. Quarterly Report on Form 10-Q for
the quarter ended October 1, 1995.
(10.39) Lease Agreement, dated as of July 17, 1988, between the Exhibit 19.4 to the Company's
Company and GE Capital Fleet Services covering Quarterly Report on Form 10-Q for
various vehicles. the quarter ended March 31, 1990.
(10.40) Master Motor Vehicle Lease Agreement, dated as of Exhibit 19.5 to the Company's
December 15, 1988, between the Company and Quarterly Report on Form 10-Q for
Citicorp North America, Inc. covering various vehicles. the quarter ended March 31, 1990.
(10.41) Master Lease Agreement, beginning on April 12, 1989, Exhibit 19.6 to the Company's
between the Company and Citicorp North America, Quarterly Report on Form 10-Q for
Inc. covering various equipment. the quarter ended March 31, 1990.
(10.42) Master Lease Agreement, dated as of January 7, 1992 Exhibit 10.01 to the Company's
between the Company and Signet Leasing and Financial Quarterly Report on Form 10-Q for
Corporation covering various vehicles. the quarter ended March 29, 1992.
(10.43) Master Equipment Lease, dated as of February 9, 1993, Exhibit 10.37 to the Company's
between the Company and Coca-Cola Financial Annual Report on Form 10-K for the
Corporation covering various vending machines. fiscal year ended January 3, 1993.
(10.44) Motor Vehicle Lease Agreement No. 790855, dated as of Exhibit 10.39 to the Company's
December 31, 1992, between the Company and Citicorp Annual Report on Form 10-K for the
Leasing, Inc. covering various vehicles. fiscal year ended January 3, 1993.
(10.45) Master Lease Agreement, dated as of February 18, 1992, Exhibit 10.69 to the Company's
between the Company and Citicorp Leasing, Inc. Annual Report on Form 10-K for the
covering various equipment. fiscal year ended January 2, 1994.
(10.46) Lease Agreement dated as of December 15, 1994 between Exhibit 10.1 to the Company's
the Company and BA Leasing & Capital Corporation. Quarterly Report on Form 10-Q for
the quarter ended April 2, 1995.
(10.47) Beverage Can and End Agreement dated November 9, Exhibit 10.48 to the Company's
1995 between the Company and Ball Metal Beverage Annual Report on Form 10-K for the
Container Group. fiscal year ended December 31, 1995.
(10.48) Member Purchase Agreement, dated as of August 1, Exhibit 10.49 to the Company's
1994, between the Company and South Atlantic Annual Report on Form 10-K
Canners, Inc., regarding minimum annual purchase for the fiscal year ended
requirements of canned product by the Company. December 31, 1995.
<PAGE>
(10.49) Member Purchase Agreement, dated as of August 1, Exhibit 10.50 to
the Company's 1994, between the Company and South Annual Report on Form 10-K
Atlantic Canners, Inc., regarding minimum annual for the fiscal year ended
purchase requirements of 20 ounce PET product by December 31,1995.
by the Company.
(10.50) Member Purchase Agreement, dated as of August 1, Exhibit 10.51 to the Company's
1994, between the Company and South Atlantic Annual Report on Form 10-K
Canners, Inc., regarding minimum annual purchase for the fiscal year ended
requirements of 2 Liter PET product by the Company. December 31, 1995.
(10.51) Member Purchase Agreement, dated as of August 1, Exhibit 10.52 to the Company's
1994, between the Company and South Atlantic Annual Report on Form 10-K
Canners, Inc., regarding minimum annual purchase for the fiscal year ended
requirements of 3 Liter PET product by the Company. December 31, 1995.
(10.52) Description of the Company's 1999 Bonus Plan for Exhibit included in this filing.
officers. * *
(10.53) Agreement for Consultation and Services between Exhibit 10.54 to the Company's
the Company and J. Frank Harrison, Jr. * * Annual Report on Form 10-K for the
fiscal year ended December 29, 1996.
(10.54) Agreement to assume liability for postretirement benefits Exhibit 10.55 to the Company's
between the Company and Piedmont Coca-Cola Annual Report on Form 10-K for
Bottling Partnership. the fiscal year ended December 29,
1996.
(10.55) Participation Agreement (Coca-Cola Trust No. 97-1) Exhibit 10.1 to the Company's
dated as of April 10, 1997 between the Company (as Quarterly Report on Form 10-Q
Lessee), First Security Bank, National Association for the quarter ended March 30,
(solely as Owner Trustee under Coca-Cola Trust No. 97-1) 1997.
and the other financial institutions listed therein.
(10.56) Master Equipment Lease Agreement (Coca-Cola Trust Exhibit 10.2 to the Company's
No. 97-1) dated as of April 10, 1997 between the Quarterly Report on Form 10-Q
Company (as Lessee) and First Security Bank, National for the quarter ended March 30,
Association (solely as Owner Trustee under Coca-Cola 1997.
Trust No. 97-1).
(10.57) Franchise Asset Purchase Agreement, dated as of Exhibit 10.58 to the Company's
January 21, 1998, by and among Coca-Cola Bottling Annual Report on Form 10-K for
Company Southeast, Incorporated, as Seller, NABC, the fiscal year ended December 28,
Inc., an indirect wholly-owned subsidiary of 1997.
Guarantor, as Buyer, and Coca-Cola Bottling Co.
Consolidated, as Guarantor.
<PAGE>
(10.58) Operating Asset Purchase Agreement, dated as of Exhibit 10.59 to the Company's
January 21, 1998, by and among Coca-Cola Bottling Annual Report on Form 10-K for
Company Southeast, Incorporated, as Seller, CCBC of the fiscal year ended December 28,
Nashville, L.P., an indirect wholly-owned subsidiary of 1997.
Guarantor, as Buyer, and Coca-Cola Bottling Co.
Consolidated, as Guarantor.
(10.59) Master Equipment Lease Agreement (1998 Transaction) Exhibit 10.60 to the Company's
(Coca-Cola Trust No. 97-1) dated as of January 14, Annual Report on Form 10-K for
1998 between the Company (as Lessee) and First the fiscal year ended December 28,
Security Bank, National Association (solely as Owner 1997.
Trustee under Coca-Cola Trust No. 97-1).
(10.60) Participation Agreement (1998 Transaction) (Coca-Cola Exhibit 10.61 to the Company's
Trust No. 97-1) dated as of January 14, 1998 between Annual Report on Form 10-K for
the Company (as Lessee) and First Security Bank, the fiscal year ended December 28,
National Association (solely as OwnerTrustee under 1997.
Coca-Cola Trust No. 97-1) and other financial institutions
listed herein.
(10.61) Lease Agreement, dated as of January 5, 1999, between Exhibit included in this filing.
the Company and Beacon Investment Corporation,
related to the Company's corporate headquarters and an
adjacent office building in Charlotte, North Carolina.
(10.62) Coca-Cola Bottling Co. Consolidated Director Deferral Exhibit 10.1 to the Company's
Plan, dated as of January 1, 1998. Quarterly Report on Form 10-Q
for the quarter ended March 29,
1998.
(10.63) Soft Toll Agreement for Aluminum Can Stock among Exhibit included in this filing.
the Company, The Coca-Cola Trading Company
and Aluminum Company of America, dated as of
December 22, 1998.
(21.1) List of subsidiaries. Exhibit included in this filing.
(23.1) Consent of Independent Accountants to Incorporation by Exhibit included in this filing.
Reference into Form S-3 (Registration No. 33-4325) and
Form S-3 (Registration No. 33-54657).
(27.1) Financial data schedule for period ended January 3,1999. Exhibit included in this filing.
</TABLE>
<PAGE>
* Carolina Coca-Cola Bottling Partnership's name was changed to Piedmont
Coca-Cola Bottling Partnership.
* * Management contracts and compensatory plans and arrangements required to be
filed as exhibits to this form pursuant to Item 14(c) of this report.
B. Reports on Form 8-K
A current report on Form 8-K was filed on February 19, 1999 related to the
Company's purchase of equipment previously leased under various operating
lease agreements.
<PAGE>
Schedule II
COCA-COLA BOTTLING CO. CONSOLIDATED
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(IN THOUSANDS)
<TABLE>
Additions
Balance at Charged to Balance
Beginning Costs and at End
Description of Year Expenses Deductions of Year
- ----------- -------- -------- ---------- -------
Allowance for doubtful accounts:
- ---------------------------------
<S> <C> <C> <C> <C> <C>
Fiscal year ended January 3, 1999 $ 513 $ 426 $ 339 $ 600
======= ======= ====== =======
Fiscal year ended December 28, 1997 $ 410 $ 492 $ 389 $ 513
======= ======= ====== =======
Fiscal year ended December 29, 1996 $ 406 $ 436 $ 432 $ 410
======= ======= ====== =======
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) 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)
<TABLE>
Date: March 31, 1999 By: /s/ J. Frank Harrison, III
--------------------------------------------
J. FRANK HARRISON, III
CHAIRMAN OF THE BOARD OF DIRECTORS
AND CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
<S> <C>
By: /s/ J. Frank Harrison, Jr. Chairman Emeritus of the Board of March 31,1999
---------------------------- Directors and Director
J. FRANK HARRISON, JR.
By: /s/ J. Frank Harrison, III Chairman of the Board of Directors March 31,1999
---------------------------- Chief Executive Officer and Directo
J. FRANK HARRISON, III
By: /s/ James L. Moore, Jr. President and Chief Operating March 31,1999
---------------------------- Officer and Director
JAMES L. MOORE, JR.
By: /s/ Reid M. Henson Vice Chairman of the Board of March 31,1999
---------------------------- Directors and Director
REID M. HENSON
By: /s/ H. W. McKay Belk Director March 31,1999
----------------------------
H. W. MCKAY BELK
By: /s/ John M. Belk Director March 31,1999
----------------------------
JOHN M. BELK
<PAGE>
By: /s/ Evander Holyfield Director March 31,1999
----------------------------
EVANDER HOLYFIELD
By: /s/ H. Reid Jones Director March 31,1999
----------------------------
H. REID JONES
By: /s/ Ned R. McWherter Director March 31,1999
----------------------------
NED R. MCWHERTER
By: /s/ John W. Murrey, III Director March 31,1999
----------------------------
JOHN W. MURREY, III
By: /s/ Charles L. Wallace Director March 31,1999
----------------------------
CHARLES L. WALLACE
By: /s/ David V. Singer Vice President and March 31,1999
----------------------------
DAVID V. SINGER Chief Financial Officer
By: /s/ Steven D. Westphal Vice President and March 31,1999
----------------------------
STEVEN D. WESTPHAL Chief Accounting Officer
</TABLE>
COCA-COLA BOTTLING CO. CONSOLIDATED
ANNUAL BONUS PLAN
PURPOSE
The purpose of this Annual Bonus Plan (the "PLAN") is to promote the best
interests of the Company and its Shareholders by providing key management
employees with additional incentives to assist the Company in meeting and
exceeding its business goals.
PLAN ADMINISTRATION
The Plan will be administered by the Compensation Committee as elected by the
Board of Directors; PROVIDED THAT, so long as the Company and the Plan are
subject to the provisions of Section 162(m) of the Internal Revenue Code of
1986, as amended ("SECTION 162(M)"), either the Compensation Committee shall be
composed solely of two or more directors who qualify as "outside directors"
under Section 162(m) or, if for any reason one or more members of the
Compensation Committee cannot qualify as "outside directors," the Board shall
appoint a separate Bonus Plan Committee composed of two or more "outside
directors" which shall have all of the powers otherwise granted to the
Compensation Committee to administer the Plan. All references herein to the
"COMMITTEE" shall be deemed to refer to either the Compensation Committee or to
the Bonus Plan Committee, as applicable at any given time. The Committee is
authorized to establish new
1
<PAGE>
guidelines for administration of the Plan, delegate certain tasks to management,
make determinations and interpretations under the Plan, and to make awards
pursuant to the Plan; PROVIDED, HOWEVER, that the Committee shall at all times
be required to exercise these discretionary powers in a manner, and subject to
such limitations, as will permit all payments under the Plan to "covered
employees" (as defined in Section 162(m)) to continue to qualify as
"performance-based compensation" for purposes of Section 162(m), and any action
taken by the Committee shall automatically be deemed null and void to the extent
(if any) that it would have the effect of destroying such qualification. Subject
to the foregoing, all determinations and interpretations of the Committee will
be binding upon the Company and each participant.
PLAN GUIDELINES
ELIGIBILITY: The Committee is authorized to grant cash awards to any officer,
including officers who are directors and to other employees of the Company and
its affiliates in key positions.
PARTICIPATION: Management will recommend annually key positions which should
qualify for awards under the Plan. The Committee has full and final authority in
its discretion to select the key positions eligible for awards. Management will
inform individuals in selected key positions of their participation in the Plan.
2
<PAGE>
QUALIFICATION AND AMOUNT OF AWARD:
1. Participants will qualify for awards under the Plan based on:
(a) Corporate goals set for the fiscal year.
(b) Division/Manufacturing Center goals or
individual goals set for the fiscal year.
(c) The Committee may, in its sole discretion,
eliminate any individual award, or reduce (but not increase) the
amount of compensation payable with respect to any individual
award.
2. The total cash award to the participant will be computed as follows:
Gross Cash Award = Base Salary X Approved Bonus % Factor X Indexed
Performance Factor X Overall Goal Achievement Factor.
Notwithstanding the above formula, the maximum cash award that may be
made to any individual participant based upon performance for any fiscal
year period shall be $1,000,000.
3. The Base Salary is the participant's base salary level set for the
fiscal year. The Approved Bonus % Factor is a number set by the
Committee (maximum = 100%) to reflect each participant's relative
responsibility and the contribution to Company performance attributed to
each participant's position with the Company.
4. The Indexed Performance Factor is determined by the Committee prior to
making payments of awards for each fiscal
3
<PAGE>
year, based on each individual's performance during such fiscal year.
Since the Committee is necessarily required to evaluate subjective
factors related to each individual's performance in order to arrive at
this number, and since such evaluations cannot be made until after the
close of the fiscal year to which the award relates, the Indexed
Performance Factor will automatically be set at 1.2 for all participants
who are "covered employees" (as defined in Section 162(m)), in order to
allow awards to such participants to qualify as "performance-based
compensation" that is not subject to the deduction limits of Section
162(m).
5. The Overall Goal Achievement Factor used in calculating the Gross Cash
Award for each participant will be determined on the basis of
multiplying the weightage factor specified in ANNEX A attached hereto
for each of the six performance criteria specified therein (Operating
Cash Flow (as defined in ANNEX A), Free Cash Flow (as defined in ANNEX
A), Net Income, Unit Volume, Market Share, and an overall Value Measure
(as defined in ANNEX A)) by the percentage specified in the following
table for the level of performance achieved with respect to each such
goal:
4
<PAGE>
Goal Achievement Amount of Award
(in percent) (as a % of max.)
------------ ----------------
89.0 or less 0
89.1-94 80
94.1-97 90
97.1-100 100
100.1-105 110
105.1-110 120
6. The Committee will review and approve all awards. The Committee has full
and final authority in its discretion to adjust the Gross Cash Award
determined in accordance with the formula described above in arriving at
the actual gross amount of the award to be paid to any participant;
subject, however, to the limitation that such authority may be exercised
in a manner which reduces (by using lower numbers for the Indexed
Performance Factor or otherwise), but not in a manner which increases,
the Gross Cash Award calculated in accordance with the formula
prescribed in Paragraph 2 above. The gross amount will be subject to all
local, state and federal minimum tax withholding requirements.
7. Participant must be an employee of the Company on the date of payment to
qualify for an award. Any participant who leaves the employ of the
Company, voluntarily or involuntarily, prior to the payment date, is
ineligible for any bonus. An employee who assumes a key position during
the fiscal year may be eligible for a pro-rated award at the option of
the Committee, provided the participant has been
5
<PAGE>
employed a minimum of three (3) months during the calendar year.
8. Awards under the bonus program will not be made if any material aspects
of the bottle contracts with The Coca-Cola Company are violated.
PAYMENT DATE: Awards shall be paid upon determination (and certification by the
Committee, as provided below) of the results under each of the performance
criteria specified in Paragraph 5 above following the closing of the Company's
books for the fiscal year to which such awards relate; PROVIDED, HOWEVER, that
the Committee shall have discretion to delay its certification and payment of
awards for any fiscal year until following notification from the Company's
independent auditors of the final audited results of operations for the fiscal
year. In any event, the Committee shall provide written certification that the
annual performance goals have been attained, as required by Section 162(m),
prior to any payments being made for any fiscal year.
AMENDMENTS, MODIFICATIONS AND TERMINATION
The Committee is authorized to amend, modify or terminate the Plan retroactively
at any time, in part or in whole; PROVIDED, HOWEVER, that any such amendment may
not cause payments to "covered employees" under the Plan to cease to qualify as
"performance-based compensation" under Section 162(m) unless such
6
<PAGE>
amendment has been approved by the full Board of Directors of the Company.
SHAREHOLDER APPROVAL REQUIREMENT
So long as the Company and the Plan are subject to the provisions of Section
162(m), no awards shall be paid to any participants under the Plan unless the
performance goals under the Plan (including any subsequent Plan amendments as
contemplated above) shall have received any approval of the Company's
shareholders required in order for all such payments to "covered employees" to
qualify as "performance-based compensation" under Section 162(m).
7
<PAGE>
ANNEX A
APPROVED PERFORMANCE CRITERIA FOR
AWARDING BONUS PAYMENTS
CORPORATE GOALS
WEIGHTAGE
PERFORMANCE INDICATOR FACTOR* GOAL
--------------------- ------- ----
1. Cash Flow:
Operating Cash Flow (A) Approved Plan Approved Budget
Free Cash Flow (B) Approved Plan Approved Budget
2. Net Income Approved Plan Approved Budget
3. Unit Volume Approved Plan Approved Budget
4. Market Share Approved Plan Approved Plan
5. Value Measure Approved Plan Approved Budget
(9 X OCF - Debt)
Total 100%
* To be set as Part of Approved Plan
NOTES:
1. A. Operating cash flow is defined as income from operations before
depreciation and amortization of goodwill and intangibles.
1. B. Free cash flow is defined as the net cash available for debt paydown
after considering non-cash charges, capital expenditures, taxes and
adjustments for changes in assets and liabilities, but before payment of
cash dividends. Specifically excluded would be acquisitions and capital
expenditures made because of acquisitions. Specifically excluded from
free cash flow are net proceeds from:
- Sales of franchise territories
<PAGE>
- Sales of real estate
- Sales of other assets
- Other items as defined by the Committee.
2. Net Income is defined as the after-tax reported earnings of the Company.
3. Unit Volume is defined as bottle, can and pre-mix cases, converted to 8
oz. cases.
4. If, and to the extent that, excluding any of the following items
increases the level of goal achievement with respect to any of the
performance indicators, then such item shall be excluded from
determination of the level of goal achievement:
- Unbudgeted events of more than $50,000.
- Impact of non-budgeted acquisition or joint venture transactions
occurring after the commencement of the fiscal year performance
period.
- Adjustments required to implement unbudgeted changes in
accounting principles (I.E., new FASB rulings).
- Unbudgeted changes in depreciation and amortization schedules.
- Unbudgeted premiums paid or received due to the retirement of
refinancing of debt or hedging vehicles.
The Committee shall, however, have discretion to include any of these
specifically excluded items, but
<PAGE>
only to the extent that the exercise of such discretion would reduce
(but not increase) the amount of any award otherwise payable under the
Plan.
5. Bonus program will not be in force if any material aspects of the Bottle
Contracts with TCCC are violated.
6. For purposes of determining incentive compensation, accounting practices
and principles used to calculate "actual" results will be consistent
with those used in calculating the budget.
<PAGE>
ANNEX A FOR 1999
APPROVED PERFORMANCE CRITERIA FOR
AWARDING BONUS PAYMENTS
CORPORATE GOALS
WEIGHTAGE
PERFORMANCE INDICATOR FACTOR* GOAL
--------------------- ------- ----
1. Cash Flow:
Operating Cash Flow (A) 30% Approved Budget
Free Cash Flow (B) 15% Approved Budget
2. Net Income 10% Approved Budget
3. Unit Volume 30% Approved Budget
4. Market Share - Nielsen 5% Positive Share Swing
5. Value Measure 10% Approved Budget
(9 X OCF - Debt)
Total 100%
* Set as Part of Approved Plan
NOTES:
1. A. Operating cash flow is defined as income from operations before
depreciation and amortization of goodwill and intangibles.
1. B. Free cash flow is defined as the net cash available for debt paydown
after considering non-cash charges, capital expenditures, taxes and
adjustments for changes in assets and liabilities, but before payment of
cash dividends. Specifically excluded would be acquisitions and capital
expenditures made because of acquisitions. Specifically excluded from free
cash flow are net proceeds from:
- Sales of franchise territories
- Sales of real estate
- Sales of other assets
- Other items as defined by the Committee.
<PAGE>
2. Net Income is defined as the after-tax reported earnings of the Company.
3. Unit Volume is defined as bottle, can and pre-mix cases, converted to 8
oz. cases.
4. If, and to the extent that, excluding any of the following items increases
the level of goal achievement with respect to any of the performance
indicators, then such item shall be excluded from determination of the
level of goal achievement:
- Unbudgeted events of more than $50,000.
- Impact of non-budgeted acquisition or joint venture transactions
occurring after the commencement of the fiscal year performance
period.
- Adjustments required to implement unbudgeted changes in
accounting principles (I.E., new FASB rulings).
- Unbudgeted changes in depreciation and amortization schedules.
- Unbudgeted premiums paid or received due to the retirement of
refinancing of debt or hedging vehicles.
The Committee shall, however, have discretion to include any of these
specifically excluded items, but only to the extent that the exercise of
such discretion would reduce (but not increase) the amount of any award
otherwise payable under the Plan.
5. Bonus program will not be in force if any material aspects of the Bottle
Contracts with TCCC are violated.
6. For purposes of determining incentive compensation, accounting practices
and principles used to calculate "actual" results will be consistent
with those used in calculating the budget.
<PAGE>
1999 VOLUME GOALS
<TABLE>
<CAPTION>
VOLUME % BONUS PAYMENT
- ----------------------------------- ----------------
<S> <C>
U.S. Coca-Cola Average to 6.50% 80%
6.51% to 7.50% 90%
7.51% to 8.50% 100%
8.51% to 10% 110%
10.1% to 12% 120%
12.1% and up 150%
</TABLE>
STATE OF NORTH CAROLINA
COUNTY OF MECKLENBURG LEASE
THIS LEASE, made and entered into this the 5th day of January,1999, by
and between BEACON INVESTMENT CORPORATION, a North Carolina corporation,
hereinafter called "LANDLORD," and COCA-COLA BOTTLING CO. CONSOLIDATED, a
Delaware corporation, hereinafter called "TENANT";
WITNESSETH:
THAT for and in consideration of the mutual agreements of the parties,
including the rental agreed to be paid by Tenant to Landlord, Landlord hereby
leases to Tenant, and Tenant leases and rents from Landlord the following
described premises on the terms and conditions hereinafter set forth, to wit:
ARTICLE I
BASIC LEASE TERMS
Section 1. Commencement, Termination and Base Rent.
<TABLE>
<CAPTION>
<S> <C>
Buildings: 1900 Rexford Road (the "REXFORD BUILDING")
6301 Morrison Boulevard (the "MORRISON BUILDING")
Location of Premises: See Exhibit B attached hereto.
Rentable Area of Building: Rexford Building: 108,668 square feet
Morrison Building: 65,000 square feet
Rentable Area of Premises: See Exhibit B attached hereto.
Lease Term:
Commencement Date: January 5, 1999
Termination Date: December 31, 2008
Base Rent:
Initial Annual Base Rent: $2,794,620.00
Initial Quarterly Base Rent: $698,655.00
</TABLE>
<PAGE>
Section 2. Address of Landlord and Tenant; Notices.
Rental and Other Payments To: Beacon Investment Corporation
Attn: Ms. Karen D'Eredita
1900 Rexford Rd.
Charlotte, NC 28211
Correspondence To: Beacon Investment Corp.
Attn: J. Frank Harrison, III
P.O. Box 31487
Charlotte, NC 28231
Address of Tenant: Coca-Cola Bottling Co. Consolidated
Attn: Mr. Mike Perkis
1900 Rexford Rd.
Charlotte, NC 28211
All sums of money to be paid to Tenant by Landlord and all written
notices by Landlord to Tenant shall be delivered to the address for the Premises
(as hereinafter defined) as set forth above unless a different address for
Tenant is set forth above.
All sums of money to be paid to Landlord by Tenant and all written
notices by Tenant to Landlord shall be delivered to the respective addresses of
Landlord as set forth above.
All notices required or permitted under this Lease shall be in writing,
signed by the party giving such notice and transmitted by certified mail,
postage prepaid, and shall be deemed given when deposited in an official
depository of the United States Mails. Either party may change the address to
which money due or notices shall be sent by giving the other party written
notice of such change of address.
Tenant hereby appoints as its agent for service of process in all
dispossessory, distraint and summary ejectment proceedings which may be brought
against it by Landlord, any person occupying the Premises, provided that if no
person is occupying the Premises, then Tenant agrees that such service may be
made by attachment thereof to the main entrance to the Premises; provided,
Landlord additionally delivers a copy of such service of process to the Tenant
at the address set forth above.
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<PAGE>
ARTICLE II
LEASED PREMISES
Section 1. Description of Premises. The Premises this day leased and
demised (hereinafter called the "PREMISES") are to be located within the
Buildings identified in Article I (hereinafter called the "BUILDINGS"; each a
"BUILDING") which are located on the real property described in Exhibit A
attached hereto and incorporated herein by reference (said land and the
buildings and improvements thereon being herein called the "PROPERTY"). The
Premises are shown as outlined on the floor plans of the Buildings attached
hereto as Exhibit B and incorporated herein by reference. In addition, the
Landlord shall make available to Tenant an area of space located on the first
floor entrance area of each Building suitable for placement of a receptionist
for Tenant, and Tenant shall be entitled to place a sign identifying the
Tenant's corporate name and products in each such receptionist's area.
Section 2. Tenant's Acceptance of Property. Except as specifically
provided to the contrary in Exhibit C attached to this Lease, Tenant shall
accept the Premises in "as is" condition and Landlord shall have no obligation
to upfit the same. Except as expressly set forth herein, neither Landlord nor
its agents have made any representations with respect to the Premises, the
Buildings or the Property and no rights, easements or licenses are acquired by
the Tenant by implication or otherwise. The taking of possession of the Premises
by Tenant shall be conclusive that the Premises and the Buildings were in
satisfactory condition at the time possession was taken. In the event that
someone other than Landlord constructs any improvements to the Premises, then
those improvements must be constructed using, at least, finishes which are
standard to the Buildings and according to plans and specifications approved by
Landlord in advance, and Tenant will furnish Landlord with a complete set of
as-built plans and specifications within sixty (60) days of the completion of
these improvements. In all cases, Tenant's mechanical and electrical work, and
any penetration of floors, must be performed by Landlord's contractors and
subcontractors.
Section 3. Common Areas. Tenant and its employees, agents, invitees and
licensees are granted the right, in common with others and subject to the
exclusive control and management thereof at all times by Landlord, to the
non-exclusive use of such of the areas as are from time to time designated as
common areas by Landlord (the "COMMON AREAS"). These areas shall include the
facilities in the Buildings which are designated for the general use, in common,
of the occupants of the Buildings, and, to the extent the same are provided, the
parking areas, sidewalks, roadways, loading platforms, restrooms, ramps,
maintenance and mechanical areas, lobbies, corridors, elevators, stairwells and
landscaped areas.
Section 4. Quiet Enjoyment. The Landlord agrees that the Tenant, on
paying the stipulated rental and keeping and performing the agreements and
covenants herein contained, shall hold and enjoy the Premises for the term
aforesaid, subject, however, to the terms of this Lease.
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ARTICLE III
LEASE TERM
Section 1. Term. The term of this Lease shall commence and end on the
Commencement Date and Termination Date, respectively, set forth in Article I,
subject to any termination right granted herein. However, if due to causes
beyond Landlord's reasonable control, including without limitation, the
inability of Landlord, despite due diligence, to complete any work that it is
obligated to perform in the Premises or to obtain possession of the Premises
because of a holdover tenant therein, Landlord is unable to deliver the Premises
to Tenant by the Commencement Date, then in such case the Commencement Date and
Termination Date shall be deferred by the number of days of such delays.
At any time prior to said Commencement Date, Tenant shall have the
right, at its own risk, to enter upon the Premises for any reasonable purpose
expressly permitted by Landlord; provided, however, that such entry shall not
interfere with any work being done by or on behalf of Landlord therein, and
Tenant shall indemnify Landlord against any loss or liability arising from such
entry.
Section 2. Holding Over. If Tenant continues to occupy the Premises
after the last day of the term hereof or after the last day of any renewal or
extension of the term hereof and if Landlord elects to accept rent, a monthly
tenancy terminable at will by either party be created which shall be on the same
conditions as those herein specified, except Tenant shall pay double the monthly
rent paid for the last full month of the lease term for each month or partial
month during which Tenant retains possession of the Premises and after such
expiration of termination date. Tenant shall indemnify Landlord against all
liabilities and damages sustained by Landlord by reason of such retention of
possession. The provisions of this section shall not constitute a waiver by
Landlord of any reentry rights available under this lease or by law.
ARTICLE IV
RENTAL
Section 1. Base Rental. The Tenant covenants and agrees to pay to
Landlord as rental for the Premises the Initial Quarterly Base Rent set forth in
Article I, adjusted as hereinafter provided, on or before the first day of each
quarter, in advance, without demand during the term of this Lease at the address
set forth in Article I, Section 2; provided, however, that if the term of this
Lease does not begin on the first day or end on the last day of a month, the
Rental for that partial quarter shall be prorated by multiplying the Quarterly
Base Rent by a fraction, the numerator of which is the number of days of the
partial quarter included in the term and the denominator of which is the total
number of days in the full calendar quarter that is being prorated.
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<PAGE>
Section 2. Adjustment of Annual and Quarterly Base Rent. On each
anniversary of the Commencement Date, the Annual Base Rent shall be adjusted to
an increased amount that may result from multiplying the Annual Base Rent, as
set forth in Article I, Section 1, by a fraction whose numerator shall be the
Consumer Price Index for the month during which such anniversary of the
Commencement Date occurs and whose denominator shall be the Consumer Price Index
for the month during which the Commencement Date occurs (the annual base rent as
increased shall be referred to as the "CPI RENT"). Notwithstanding any term or
provision in this Lease to the contrary, in no event shall the Annual or
Quarterly Base Rent be less than the Annual or Quarterly Base Rent stated in
Article I, Section 1. The Landlord shall notify the Tenant in writing of any
adjusted Annual and Quarterly Base Rent and such notice shall include a detailed
computation of the new Annual and Quarterly Base Rent.
For the purpose of this paragraph, "CPI" shall mean Consumer Price Index
published monthly for All Urban Consumers, U.S. City Average, Base Year 1982-84
= 100 issued by the Bureau of Labor Statistics of the United States Department
of Labor, or in the event such index is no longer published, then such other
index as shall be generally acceptable as being comparable thereto.
Section 3. Additional Rent. The additional annual rent to be paid by
Tenant during the Term shall be based upon changes in the Adjusted Eurodollar
Rate (as defined hereinafter) (the "ADDITIONAL RENT") and shall be calculated as
provided in this section. For the duration of the Term, for each basis point
change in the Adjusted Eurodollar Rate from 5.3125, the Additional Rent shall
increase or decrease in the direction corresponding to the Adjusted Eurodollar
Rate change, by the amount of $1,900.00 per annum.
"ADJUSTED EURODOLLAR RATE" as used herein shall mean the Adjusted
Eurodollar Rate as defined in Exhibit H for any of the normal time periods (30,
60, 90, or 180 days) for which such rates are made available to qualified
borrowers and which shall be mutually agreed to by Landlord and Tenant. If as a
result of any government regulations eurodollar loans are unavailable, then the
additional annual rent shall be based on a floating rate offered by NationsBank,
N.A., in Charlotte, North Carolina, which is acceptable to both parties.
Exhibit I illustrates computations of the combined annual CPI Rent and
Additional Rent at various Adjusted Eurodollar Rates based upon CPI increases of
2% and 1.5% annually. Exhibit I is intended for illustration purposes only; the
CPI Rent and Additional Rent payable by Tenant shall be calculated in the manner
described in this Lease by applying actual changes in the CPI and the Adjusted
Eurodollar Rate.
Section 4. Adjustment to Rent for Increases in Landlord's Operating
Cost. Landlord and Tenant agree that $456,052.00 of the Annual Base Rent
represents Landlord's projection of its expenses to operate the Premises during
the first year of the Term. Landlord and Tenant further agree that the rent
payable hereunder has been calculated in part upon agreed-to service levels and
Landlord's current and projected costs to operate the Buildings and the
Premises. In the event Landlord's Operating Cost (as defined hereinafter)
increase at a rate in excess of the CPI,
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<PAGE>
Landlord will provide written notice to Tenant together with documentation of
such increases, and Tenant agrees to increase its rent payments in amounts
sufficient to cover such increases in Operating Cost.
The term "Operating Cost" shall mean and include all costs, expenses,
and disbursements of every kind and nature which Landlord shall pay or become
obligated to pay in connection with the management, operation, maintenance,
replacement and repair of all building systems, components and appurtenances
according to first class management principles for a building located in
Charlotte, North Carolina and according to what is best for the Buildings in the
Landlord's judgment. Such costs will include, but will not be limited to,
maintenance, operation, and repair of personal property, fixtures, machinery,
equipment systems and apparatus used in connection with the Buildings; cleaning;
insurance; security; any assessments that may be payable to any Owners' or
Merchants' Association on the same basis as other buildings in the area in which
the Buildings are located; management fees; utilities; seasonal decorations,
redecoration of public areas; contract services; amortization of non-permanent
equipment (example: trash containers) which otherwise might be leased; and those
items listed on Exhibit D which are not identified in this paragraph.
Operating Cost shall not include costs for tenant improvements, interest
and principal payments on loans for the Building, salaries and other
compensation for executive officers of the Landlord or Manager; expenditures for
which the Landlord has been reimbursed (other than pursuant to Additional Rent
provisions in tenant leases); expenses incurred in enforcing obligations of
other tenants; ad valorem personal and real property taxes associated with the
ownership and operation of the Building; and capital expenditures or capital
leases (except as otherwise provided herein and except for costs associated with
capital expenditures or capital leases by Landlord which are the purpose of
reducing Operating Cost).
Section 5. Payment of Annual Base Rent and CPI Rent. Tenant shall pay
the Annual Base Rent and CPI Rent in quarterly installments in advance without
demand on the first day of each and every quarter during the Term. Due to the
delay in the publication of the CPI after its calculation, the amount of the
quarterly installments of CPI Rent payable prior to the publication of the CPI
during each 12-month period of the Term beginning on the first 12-month
anniversary of the Commencement Date shall be based upon the annualized change
determined from the CPI most recently published prior to the beginning of the
applicable 12-month period. After the CPI for each 12-month period of the Term
is published, Landlord shall calculate any adjustment to the CPI Rent needed as
a result of such publication, and any amount due Landlord shall be paid by
Tenant with the next quarterly installment of CPI Rent. Any amount due Tenant as
a result of such an adjustment shall be paid by Landlord within 30 days of the
adjustment.
Section 6. Payment of Additional Rent. Tenant shall pay the Additional
Rent in quarterly installments in advance without demand on the first day of
each and every quarter during the Term. Each installment of the Additional Rent
payable on the first day of each quarter of the Term as provided herein shall be
adjusted retroactively at the expiration of each quarter to reflect changes in
the Adjusted Eurodollar Rate, as determined pursuant to Section 3
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<PAGE>
hereof, during such quarter. Upon such adjustment, Landlord shall refund to
Tenant or Tenant shall pay to Landlord, as appropriate, within ten days of
demand therefor, such sums as are necessary for Tenant to have paid the
installment of the Additional Rent, as adjusted, which was owed by it for the
preceding quarter.
Section 7. Adjustments to Rent for Lease of Additional Areas of the
Building. Should Tenant desire to lease any areas of the Buildings which are not
part of the Premises and should such additional areas be available for lease or
when such areas become so available, Landlord, upon written notice from Tenant,
agrees to lease such areas to Tenant on the same terms and conditions provided
in this lease, and such additional areas shall become part of the Premises
leased and demised hereunder. The Base Rent then in effect shall be increased by
an amount equal to the product of the then existing Base Rent per square foot of
the Premises multiplied by the square footage of the additional areas of the
Building which Tenant is to lease.
Section 8. Tenant Services; Adjustments to Rent. Landlord acknowledges
that Tenant desires to assume direct responsibility for maintaining, cleaning
and insuring certain portions of the Property. In this regard, provided Landlord
has approved in writing all contracts for the providing of such services and
insurance, Tenant shall be entitled to receive a credit against Annual Base Rent
for the providing of such services and insurance in an amount equal to
$199,612.87 (the "Rental Credit"). Provided, however, on each anniversary of the
Commencement Date, the Rental Credit shall be adjusted to an increased amount
that may result from multiplying the Rental Credit, as set forth in the
immediately preceding sentence, by a fraction whose numerator shall be the
Consumer Price Index for the month during which such anniversary of the
Commencement Date occurs and whose denominator shall be the Consumer Price Index
for the month during which the Commencement Date occurs. If, at any time during
the Lease Term, Tenant desires to assume direct responsibility for providing any
additional services for or to the Property, Tenant shall notify Landlord in
writing. Provided Landlord agrees to allow Tenant to assume direct
responsibility for providing such additional services and provided Landlord
approves in writing all contracts for the providing of such services, as
reimbursement to Tenant for providing such services, the Rental Credit shall be
increased at such time by an amount determined by Landlord. Notwithstanding the
foregoing, Landlord may, at any time during the Lease Term, revoke Tenant's
right to provide certain services and/or insurance for or to the Property
pursuant to this Section 8, whereupon the Rental Credit shall be decreased by an
amount determined by Landlord.
Section 9. Late Payment. If rent or any other payment due hereunder from
Tenant to Landlord remains unpaid ten (10) days after said payment is due, the
amount of such unpaid rent or other payment shall be increased by a late charge
to be paid to Landlord by Tenant in an amount equal to five percent (5%) of the
amount of the delinquent rent or other payment. The amount of the late charge to
be paid for such month shall be computed on the aggregate amount of delinquent
rent and other payment then outstanding for such month. Landlord and Tenant
agree that such late charge shall not be deemed to be a penalty, it being
understood between the parties that late payments by Tenant shall result in
additional administrative expense to Landlord
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which is difficult and impractical to ascertain and that such late charge is a
reasonable estimate of the loss and expense to be suffered by Landlord as a
result of such late payment by Tenant.
If rent or any other sums due Landlord by Tenant hereunder shall not be
paid within thirty (30) days of its due date, then in such case in addition to
the late charge provided for herein above, such rent or other sum shall bear
interest beginning on the thirty-first (31st) day after its due date at the rate
of eighteen percent (18%) per annum (or, if less, the highest rate allowed by
law).
If rent or any other sums due Landlord by Tenant hereunder is collected
by or through an attorney at law, Tenant agrees to pay Landlord's actual and
reasonable attorneys' fees incurred with respect thereto not in excess of
fifteen percent (15%) of the total sums due, or if the laws of the State of
North Carolina in effect at the time of such collection limit the amount so
payable as attorneys' fees, then the maximum percentage not in excess of fifteen
percent (15%) allowed by such laws, of the amount so collected.
Nothing herein shall relieve Tenant of the obligation to pay rent or any
other payment on or before the date on which any such payment is due, nor in any
way limit Landlord's remedies under this Lease or at law in the event said rent
or other payment is unpaid after it is due. Amounts due hereunder shall be
deemed to be additional rent and the failure to pay the same within ten (10)
days after they are due shall constitute a default of this Lease.
Section 10. Application of Payments Received from Tenant. Landlord,
acting in its sole discretion, shall have the right to apply any payments made
by Tenant to the satisfaction of any debt or obligation of Tenant to Landlord
regardless of the instructions of Tenant as to application of any sum whether
such instructions be endorsed upon Tenant's check or otherwise, unless otherwise
agreed upon by both parties in writing. The acceptance by Landlord of a check or
checks drawn by anyone other than Tenant shall in no way effect Tenant's
liability hereunder nor shall it be deemed an approval of any assignment of this
Lease by Tenant.
ARTICLE V
UTILITIES, SERVICES AND MAINTENANCE
Section 1. Landlord's Services and Maintenance. Unless otherwise
provided by Tenant pursuant to Article IV, Section 8 hereof, Landlord shall
provide the following services: (1) maintain a heating and air conditioning unit
or units in good condition and repair in the Premises; (2) city water from the
Buildings' fixtures for drinking, lavatory and toilet purposes; (3) customary
cleaning and janitorial services in the Premises Monday through Friday,
excluding Federal holidays in accordance with the janitorial specifications
attached hereto as Exhibit G; (4) customary cleaning, mowing, grounds keeping,
snow removal and trash removal in the areas of the Buildings; (5) window washing
in the Premises, inside and outside, at reasonable intervals; (6) adequate
passenger elevator service in common with other tenants of the Buildings; (7)
customary security services consistent with first-class office buildings in
Charlotte, North
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Carolina comparable to the Buildings; (8) heating, air conditioning, customary
cleaning and janitorial services, and electricity for the Common Areas in the
Buildings; (9) replacement of lamps (both fluorescent and incandescent) only in
the Buildings with standard lighting fixtures as specified by Landlord for the
Premises and Common Areas of the Buildings (any lamps for non-Building standard
lighting fixtures shall be Tenant's responsibility); and (10) keep the Buildings
open to guests, invitees, employees and customers of Tenant Monday through
Friday from 8:00 a.m. until 6:00 p.m., excluding federal holidays.
Landlord shall not be obligated to furnish any services or utilities,
other than those stated above. If Landlord elects to furnish services or
utilities requested by Tenant, in addition to those listed above or at times
other than those stated above, Tenant shall pay to Landlord the prevailing
charges for such services and utilities within thirty (30) days after billing.
If Tenant fails to make any such payment, Landlord may, without notice to Tenant
and in addition to Landlord's other remedies under this Lease, discontinue any
or all of such additional or after-hours services. No such discontinuance of any
service shall result in any liability of Landlord to Tenant or be considered an
eviction or a disturbance of Tenant's use of the Premises.
Landlord shall have no liability or responsibility to Tenant for loss or
damage should the furnishing of any of the utilities and services as herein
provided be prohibited or stopped for repairs, alterations or improvements or by
reason of causes beyond Landlord's control including, without limitation,
accidents, strikes, storms, Acts of God, labor trouble or disturbances, lockouts
or orders or regulations of the federal, state or municipal government.
The cost of Landlord's performing any maintenance, repair or replacement
caused by the negligence of Tenant, its employees, agents, servants, licensees,
subtenants, contractors or invitees, or the failure of Tenant to perform its
obligations under this Lease shall be paid by Tenant, except to the extent of
insurance proceeds, if any, actually collected by Landlord with regard to the
damage necessitating such repairs.
Section 2. Tenant's Services and Maintenance. Tenant shall make
arrangements directly with the public utility electric company serving the
Buildings for all electric power or current required by Tenant in the Premises,
including the provision of electric power for heat and air conditioning, and
directly with the telephone company or companies for all telephone service
required by Tenant. Tenant shall pay for all electric and telephone service used
or consumed in the Premises, including the cost of installation of any separate
meters.
Landlord shall not be responsible for the maintenance, repair or
replacement of any systems which are located within the Premises and are
supplemental or special to the standard systems of either Building, whether
installed pursuant to a work letter or otherwise, for any lamps (whether
fluorescent or incandescent) for any special or non-Building standard lighting
fixtures, or for any floor or wall coverings in the Premises. Tenant shall be
responsible for all services; maintenance and repairs not specifically delegated
to Landlord hereunder which are required to keep the interior of the Premises in
good condition and repair.
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If heat generating machines or equipment are used in the Premises by
Tenant which affect the temperature otherwise maintained by the heating and air
conditioning systems of either Building, Landlord shall have the right to
install supplemental air conditioning units in the Premises and the cost of the
units, and the cost of installation, operation and maintenance thereof, shall be
paid by Tenant to Landlord within thirty (30) days of demand by Landlord.
Section 3. Extra Services. Whenever Landlord knows that any tenant
(including Tenant) is using extra services because of either non-business hour's
use or high consumption, Landlord may directly charge that tenant for the extra
use and exclude those charges from Operating Cost. Extra services include:
(i) Non-Business Use. Landlord provided utilities and services required
by Tenant during non business hours shall be supplied upon reasonable advance
verbal notice. If more than one tenant directly benefits from these services
then the cost shall be allocated proportionately between or among the benefiting
tenants based upon the amount of time each tenant benefits and the square
footage of each leases.
(ii) Excess Utility Use. Tenant shall not place or operate in the
Premises any electrically operated equipment or other machinery, other than
typewriters, personal computers, adding machines, reproduction machines, and
other machinery and equipment normally used in offices, which will overload the
electrical systems of either Building. If Tenant uses any Landlord provided
service or utility in excess of that reasonably required for normal office use,
Landlord may require payment for such extra use.
(iii) Payment. Tenant's charges for the utilities and services provided
under (i) and (ii) above shall be one hundred and ten percent (110%) of
Landlord's actual cost of labor and utilities.
Tenant's failure to pay the charges in (i) and (ii) above within thirty
(30) days of receiving a proper and correct invoice shall entitle Landlord to
the same remedies it has upon Tenant's failure to pay Base Rent, Additional
Rent, or any other charges due under this Lease.
ARTICLE VI
ALTERATIONS, REPAIRS AND MAINTENANCE
Section 1. Alterations. Tenant agrees that it will make no alterations,
additions or improvements to the Premises without the prior written consent of
the Landlord and that all alterations, additions or improvements made by or for
the Tenant, including, without limitation, any and all subdividing partitions,
walls or railings of whatever type, material or height, excepting movable office
furniture installed at the expense of Tenant, shall, when made, become the
property of the Landlord and shall remain upon and be surrendered with the
Premises as a part thereof at the end of the Lease term, unless Landlord shall
notify Tenant to remove same, in which latter event Tenant shall comply to the
end that the Premises shall be restored to the same
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condition in which they were found prior to the Commencement Date, normal wear
and tear excepted. Tenant shall not core drill or in any other manner attempt to
penetrate or penetrate the floors of the Buildings without obtaining permission
of Landlord.
In the event that Tenant constructs any improvements to the Premises,
then those improvements must be constructed (a) using, at least, finishes which
are standard to the Buildings and according to plans and specifications and
using only contractors and subcontractors approved by Landlord in advance, and
(b) in compliance with all applicable laws, ordinances, rules, building codes,
and regulations of Federal, State, municipal and county authorities, including
without limitation, the procurement of a building permit, and (c) in a diligent,
good and workmanlike manner. Tenant shall obtain a Builders' Risk Insurance
Policy in such amount as is reasonably requested by Landlord, naming Landlord as
an additional insured and providing that it will not be canceled without giving
Landlord at least 15 days prior written notice thereof. Any mechanical or
electrical work and any penetration of floors must be performed by Landlord's
contractors and subcontractors. Upon completion of any such construction by
Tenant, Tenant must furnish Landlord with a complete set of as-built plans and
specifications for the same. Tenant will not permit and will indemnify Landlord
and hold it harmless from any mechanic's or materialmen's liens against the
Premises, in connection with any such improvements.
Section 2. Right of Entry. The Tenant agrees that Landlord shall have
the right to enter and to grant licenses to enter the Premises at any time (a)
to examine the Premises, (b) to make alterations and repairs to the Premises or
to the Buildings (including the right, during the progress of such alterations
or repairs, to keep and store within the Premises all necessary materials, tools
and equipment) or (c) to exhibit the Premises to prospective purchasers or
tenants and that no such entry shall render the Landlord liable to any claim or
cause of action for loss of or damage to property of the Tenant by reason
thereof, nor in any manner affect the obligations and covenants of this Lease.
Section 3. Tenant's Care of Premises. Tenant shall:
(i) keep the Premises and fixtures in good order, including, without
limitation, maintenance and repair, including replacement if necessary, of all
doors (exterior and interior), all interior plate glass and window glass, and
all wall and floor coverings, effecting all such maintenance and repairs at its
own expense and employing materials and labor of a kind and quality equal to the
original installations;
(ii) make repairs and replacements to the Premises or Buildings needed
because of Tenant's misuse or primary negligence, or as provided in any other
provision of this Lease including, without limitation, Section 5 of this Article
VI;
(iii) repair and replace special equipment or decorative treatments
above Building standard installed by or at Tenant's request and that serve the
Premises only, or any trade fixtures of Tenant, except to the extent the repairs
or replacements are needed because of Landlord's
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misuse or primary negligence, and are not covered by Tenant's insurance or the
insurance Tenant is required to carry under Article VIII, Section 2, whichever
is greater.
(iv) if Tenant fails to replace or repair equipment or other
installations in or about the Premises as above provided, then immediately after
advising Tenant in writing as to the necessity therefore, Landlord may
accomplish the required work and add the cost thereof to the next due Quarterly
Base Rent, but Tenant shall not be liable to Landlord for any failure to fulfill
the obligations of this Section until such time as the Tenant shall be notified,
as aforesaid, in writing of the requirements therefor.
Section 4. Landlord's Repairs. Landlord shall make the repairs and
replacements to the Buildings, other than the repair obligations of Tenant
outlined in Section 3 and in Article IV, Section 8 hereof, including to the
roof, foundation, exterior walls, interior structural walls, all structural
components, and all systems, such as mechanical, electrical, HVAC, and plumbing.
Section 5. Time for Repairs. Repairs or replacements required hereunder
shall be made within a reasonable time (depending on the nature of the repair or
replacement needed) after receiving notice or having actual knowledge of the
need for a repair or replacement.
Section 6. Surrendering the Premises. Upon the Termination Date or the
date the last extension term, if any, ends, whichever is later, Tenant shall
surrender the Premises to Landlord in the same broom clean condition that the
Premises were in on the Commencement Date except for:
(i) ordinary wear and tear;
(ii) damage by the elements, fire, and other casualty unless Tenant
would be required to repair under Section 3;
(iii) condemnation;
(iv) damage arising from any cause not required to be repaired or
replaced by Tenant; and
(v) alterations as permitted by this Lease unless consent was
conditioned on their removal.
On surrender, Tenant shall remove from the Premises its personal
property, trade fixtures, and any alterations required to be removed under
Section 1 and repair any damage to the Premises caused by the removal. Any items
not removed by Tenant as required above shall be considered abandoned. Landlord
may dispose of abandoned items as Landlord chooses and bill Tenant for the cost
of their disposal, minus any revenues received by Landlord for their disposal.
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ARTICLE VII
USE AND COVENANTS
Section 1. Use and Occupancy. Tenant agrees that the Premises will be
used only for general office purposes, that no unlawful use of the Premises will
be made, that no sign, name, legend, notice or advertisement of any kind will be
fixed, printed, painted or displayed on any part of the Buildings without the
prior written approval of Landlord, except that the name and suite number of the
Tenant may be displayed in a manner prescribed by Landlord and except as may be
provided in Article II, Section 1 hereof.
Section 2. Parking. Tenant agrees for itself, its employees, agents and
invitees to comply with the parking rules contained in the Parking Rules and
Regulations attached hereto as Exhibit E together with all reasonable
modifications and additions thereto which Landlord may from time to time make.
Tenant shall use parking spaces only in a manner which is compatible with the
day-to-day general use of the Buildings by its employees, visitors, customers,
invitees, guests and other tenants in the Buildings. Tenant agrees that Landlord
shall have the right to tow vehicles of Tenant and its employees, agents, guests
and visitors that are parked in such a way as to be in violation of the Parking
Rules and Regulations.
Landlord reserves the right from time to time without notice to Tenant
to (a) change the location or configuration of the parking areas of the
Buildings (the "Parking Areas"), or any portion thereof; (b) change the number
of parking spaces located within the Parking Areas, or any portion thereof; (c)
install systems to control and monitor parking in the Parking Areas, or any
portions thereof, including without limitation, a parking gate and
identification card system; (d) utilize parking guards or attendants to
supervise and control parking within the Parking Areas and to enforce the
parking rules; (e) have full access to the Parking Areas (including the right to
close or alter the means of access to the Parking Areas, or portions thereof) to
make repairs and alterations thereto, to prevent a taking by adverse possession
or prescription or to comply with applicable legal and governmental
requirements; (f) modify the parking rules; (g) tow motor vehicles parked in
violation of the parking rules; and (h) enforce the parking rules by appropriate
legal action.
Section 3. Rules and Regulations of the Buildings. The Tenant has read
the rules and regulations attached hereto as Exhibit F and made a part hereof
and hereby agrees to abide by and conform to the same and to such further
reasonable rules and regulations as the Landlord may from time to time make or
adopt for the care, protection and benefit of the Buildings or the general
comfort and welfare of the Buildings' occupants. The Tenant further agrees that
the Landlord shall have the right to waive any and all of such rules in the case
of any one or more tenants without affecting the Tenant's obligations under this
Lease and that the Landlord shall not be responsible to the Tenant for the
nonconformance by any other tenant to any rules or regulations.
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ARTICLE VIII
INSURANCE AND INDEMNITY
Section 1. Landlord's Insurance. Landlord shall keep the Buildings
insured against damage and destruction by fire, earthquake, vandalism, and other
perils in the amount of at least 80% of the collective replacement value of the
Buildings, as said collective value may exist from time to time. In addition,
Landlord shall maintain a policy of commercial general public liability
insurance with respect to the Common Areas, covering bodily injury, death and
property damage, with a contractual liability endorsement, in the amount of at
least ($1,000,000.00) per occurrence and with an aggregate limit of at least One
Million Dollars ($1,000,000.00). Landlord's responsibility to insure its
Buildings shall not obligate Landlord to insure fixtures or other property of
Tenant.
Section 2. Tenant's Insurance. Tenant shall keep in force, during the
full term of this Lease or any renewal or extension thereof, workmen's
compensation insurance and public liability insurance issued by a nationally
recognized insurance company, with such limits as may be reasonably requested by
Landlord from time to time, but with minimum limits not less than $1,000,000.00
in the aggregate on account of bodily injury, including death, or property
damage, or both, in any one occurrence. Said policy shall name Landlord as an
additional insured and provide that it shall not be canceled for any reason
unless and until Landlord is given fifteen (15) days' notice in writing by the
insurance company. The insurance policy or other evidence of coverage
satisfactory to Landlord shall be deposited with Landlord upon occupancy of
Premises by Tenant.
Section 3. Insurance Criteria. Insurance policies required by this Lease
shall:
(i) be issued by insurance companies licensed to do business in the
state of North Carolina with general policyholder's ratings of at least A and
the financial rating of at least XI in the most current Best's Insurance Reports
available on the Commencement Date. If the Best's ratings are changed or
discontinued, the parties shall agree to an equivalent method of rating
insurance companies.
(ii) be primary policies - not as contributing with, or in excess of,
the coverage that the other party may carry;
(iii) be permitted to be carried through a "blanket policy" or
"umbrella" coverage; and
(iv) be maintained during the entire Term and any extension Terms.
Section 4. Increase in Insurance Premium. If, because of anything done,
caused to be done, permitted or omitted by the Tenant, the premium rate for any
kind of insurance affecting the Buildings shall be raised, the Tenant agrees
that the amount of the increase in premium which the Landlord shall thereby be
obligated to pay for such insurance shall be paid by the
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Tenant to the Landlord, on demand, and that if the Landlord shall demand that
the Tenant remedy the condition which caused the increase in the insurance
premium rate, the Tenant will remedy such condition within thirty (30) days
after such demand. The Tenant agrees that it shall not do or cause to be done or
permit on the Premises, anything deemed more hazardous than use as a normal
business office.
Section 5. Tenant's Indemnity. The Tenant agrees to defend the Landlord
and the officers directors, agents, servants and employees of the Landlord
against and from any and all claims asserted by or on behalf of any person, firm
or corporation arising by reason of injury to any person or property occurring
in or about the Premises or the Buildings, occasioned in whole or in part by any
act or omission on the part of the Tenant or any employee (whether or not acting
within the scope of employment), agent, visitor, licensee, invitees, contractor,
subcontractor, assignee or tenant of the Tenant, or by reason or nonperformance
of any covenant in this Lease on the part of the Tenant and also for any matter
or thing growing out of the occupancy or use of the Premises by the Tenant or
anyone holding or claiming to hold through or under the Tenant and to indemnify
and hold Landlord harmless from any costs, damages or expenses, including
reasonable attorney's fees, resulting from such claims. Tenant agrees to pay for
all damage to the Buildings, as well as all damage to tenants or occupants
thereof, caused by the misuse or neglect of said Premises, its apparatus or
appurtenances by Tenant or any employee (whether or not acting within the scope
of employment), agent, visitor, licensee, invitees, contractor, subcontractor,
assignee or tenant of the Tenant. Landlord shall not be liable to Tenant for any
damage by or from any act or negligence of any co-tenant or other occupant of
the Buildings or by any owner or occupant of adjoining or contiguous property or
by any employee, agent, visitor, licensee, invitees, contractor, subcontractor,
assignee or tenant of any such co-tenant or other occupant.
Section 6. Landlord's Indemnity. Subject to Section 7 below and to any
other exclusions from liability contained herein or incorporated herein by
reference, the Landlord agrees to indemnify and save harmless the Tenant and the
agents, servants and employees of the Tenant from any and all claims for
personal injury or death or property damage resulting from incidents occurring
in or about the Premises or the Buildings and caused by the negligence or
willful misconduct of Landlord, its agents, employees (whether or not acting
within the scope of employment).
Section 7. Tenant's Personal Property. Tenant shall keep its personal
property and trade fixtures in the Premises and the Buildings insured with "all
risks" insurance in an amount to cover one hundred percent (100%) of the
replacement cost of the said property and fixtures. Tenant shall also keep any
non-Building standard improvements made to the Premises at Tenant's request
insured to the same degree as Tenant's personal property. Notwithstanding any
other provision of this Agreement, Tenant agrees that all personal property in
the Premises shall be and remain at Tenant's sole risk, and Landlord shall not
be liable for any damage to, theft of, or loss of such personal property arising
from any acts of negligence of any persons or from fire or from the leaking of
the roof or from the bursting, leaking, or overflowing of water, sewer or
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steam pipes or from any other cause whatsoever; Tenant expressly agrees to
indemnify and save Landlord harmless in all such cases.
Section 8. Waiver of Subrogation. Each party waives claims arising in
any manner in its (injured party's) favor and against the other party for loss
or damage to injured party's property located within or constituting a part or
all of the Buildings. This waiver applies to the extent the loss or damage is
covered by the injured party's insurance or the insurance the injured party is
required to carry under this Article VIII, whichever is greater. The waiver also
applies to each party's directors, officers, employees, shareholders, and
agents. The waiver does not apply to claims caused by a party's willful
misconduct.
If despite a party's best efforts it cannot find an insurance company
meeting the criteria in Section 3 that will give the waiver at reasonable
commercial rates, then it shall give notice to the other party within thirty
(30) days after the Lease's Commencement Date. The other party shall then have
thirty (30) days to find an insurance company that will issue the waiver. If the
other party also cannot find such an insurance company, then both parties shall
be released from their obligation to obtain the waiver.
If an insurance company is found but it will give the waiver only at
rates greater than reasonable commercial rates, then the parties can agree to
pay for the waiver under any agreement they can negotiate. If the parties cannot
in good faith negotiate an agreement, then both parties shall be released from
their obligation to obtain the waiver.
ARTICLE IX
DAMAGE TO PREMISES
Section 1. Definition. "Relevant Space" means:
(i) the Premises as defined in Article II, excluding Tenant's
non-Building standard fixtures;
(ii) access to the Premises; and
(iii) any part of the Buildings that provide essential services to the
Premises.
Section 2. Repair of Damage. Subject to Section 5 of this Article IX, if
the Relevant Space is damaged in part or whole from any cause and the Relevant
Space can be substantially repaired and restored within one hundred and eighty
(180) days from the date of the damage using standard working methods and
procedures, Landlord shall at its expense promptly and diligently repair and
restore the Relevant Space to substantially the same condition as existed before
the damage. This repair and restoration shall be made within one hundred and
eighty (180) days from the date of the damage unless the delay is due to causes
beyond Landlord's reasonable control.
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If the Relevant Space cannot be repaired and restored within the one
hundred and eighty (180) day period, then either party may, within ten (10) days
after determining that the repairs and restoration cannot be made within one
hundred and eighty (180) days, cancel the Lease by giving notice to the other
party. Nevertheless, if the Relevant Space is not repaired and restored within
one hundred and eighty (180) days from the date of the damage, then Tenant may
cancel the Lease at any time after the one hundred and eightieth (180th) day and
before the two hundred and tenth (210th) day following the date of damage.
Tenant shall not be able to cancel this Lease if its willful misconduct caused
the damage unless Landlord is not promptly and diligently repairing and
restoring the Relevant Space.
Section 3. Abatement. Unless the damage is caused by Tenant's willful
misconduct, the Base Rent and Additional Rent shall abate in proportion to that
part of the Premises that is unfit for use in Tenant's business. The abatement
shall consider the nature and extent of interference to Tenant's ability to
conduct business in the Premises and the need for access and essential services.
The abatement shall continue from the date the damage occurred until ten (10)
business days after Landlord completes the repairs and restoration to the
Relevant Space or the part rendered unusable and notice to Tenant that the
repairs and restoration are completed, or until Tenant again uses the Premises
or the part rendered unusable, whichever is first. In the event of a full
abatement of rent as aforesaid, the term of this Lease shall be extended
automatically for a period equal to the period of such abatement.
Section 4. Tenant's Property. Notwithstanding anything contained in
Section 1, Landlord is not obligated to repair or restore damage to Tenant's
trade fixtures, furniture, equipment, or other personal property, or any Tenant
improvements.
Section 5. Damage to Building. If:
(i) more than forty percent (40%) of either Building is damaged and the
Landlord decides not to repair and restore such Building;
(ii) any mortgagee of either Building shall not allow adequate insurance
proceeds for repair and restoration;
(iii) the damage is not covered by Landlord's insurance required by
Article VIII, Section 1; or
(iv) the Lease is in the last twelve (12) months of its term;
then Landlord may cancel this Lease. To cancel, Landlord must give notice to
Tenant within thirty (30) days after the Landlord knows of the damage. The
notice must specify the cancellation date, which shall be at least thirty (30)
but not more than sixty (60) days after the date notice is given.
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Section 6. Cancellation. If either party cancels this Lease as permitted
by this Article, then this Lease shall end on the day specified in the
cancellation notice. The Base Rent, Additional Rent, and other charges shall be
payable up to the cancellation date and shall account for any abatement.
Landlord shall promptly refund to Tenant any prepaid, unaccrued Rent and
Additional Rent, accounting for any abatement, plus security deposit, if any,
less any sum then owing by Tenant to Landlord.
ARTICLE X
EMINENT DOMAIN
If more than twenty percent (20%) of the floor area of the Premises is
taken for any public or quasi-public use under any governmental law, ordinance
or regulation or by right of eminent domain or by private purchase in lieu
thereof, then either party hereto shall have the right to terminate this lease
effective on the date physical possession is taken by the condemning authority
or private purchaser.
If less than twenty percent (20%) of the floor area of the Premises is
taken for any public or quasi-public use in said manner, this Lease shall not
terminate. However, in the event any portion of the Premises is taken and the
Lease not terminated, the rental specified herein shall be reduced during the
unexpired term of this Lease in proportion to the area of the area of the
Premises so taken and the reduction shall be effective on the date physical
possession is taken by the condemning authority or private purchaser.
Any election to terminate this Lease following condemnation shall be
evidenced only by written notice of termination delivered to the other party not
later than fifteen (15) days after the date on which physical possession is
taken by the condemning authority or private purchaser and shall be deemed
effective as of the date of said taking. If, however, the Lease is not
terminated following a partial condemnation, Landlord shall promptly make all
necessary repairs or alterations to the Building(s) and Premises which are
required to make the Building(s) usable by Tenant subsequent to such taking.
All compensation awarded for any taking (or the proceeds of private sale
in lieu thereof), whether for the whole or a part of the Premises, shall be the
property of the Landlord whether such award is compensation for damages to
Landlord's or Tenant's interest, provided Landlord shall have no interest in any
award made to Tenant for loss of business or for the taking of Tenant's fixtures
and other property within the Premises if a separate award for such items is
made to Tenant.
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ARTICLE XI
DEFAULT AND WAIVER
Section 1. Tenant's Default. Each of the following constitutes a
default:
(i) Tenant's failure to pay Base Rent, Additional Rent or any other sum
due hereunder, or to procure or maintain insurance as required under Article
VIII within five (5) days after Tenant receives notice from Landlord of Tenant's
failure to pay Base Rent, Additional Rent, or such other sum or to procure or
maintain insurance;
(ii) Tenant's failure to pay Base Rent or Additional Rent by the due
date, at any time during a calendar year in which Tenant has already received
two notices of its failure to pay Base Rent or Additional Rent by the due date;
(iii) Tenant's failure to perform or observe any other Tenant
obligation, except the obligation to procure and maintain insurance pursuant to
Article VIII, after a period of thirty (30) days or the additional time, if any,
that is reasonably necessary to promptly and diligently cure the failure, after
it receives notice from Landlord setting forth in reasonable detail the nature
and extent of the failure and identifying the applicable Lease provision;
(iv) Tenant's abandoning or vacating the Premises if Tenant fails to
timely pay the Base Rent, Additional Rent, and other charges due under the Lease
by the due date;
(v) Tenant's failure to vacate or stay any of the following within
thirty (30) days after they occur:
A. a petition in bankruptcy is filed by or against Tenant;
B. Tenant is adjudicated as bankrupt or insolvent;
C. a receiver, trustee, or liquidator is appointed for all or a
substantial part of Tenant's property; or
D. Tenant makes an assignment for the benefit of creditors.
Section 2. Landlord's Remedies.
(i) Landlord, in addition to the remedies given in this Lease or under
the law, may do one or more of the following if Tenant commits a default under
Section 1:
A. end this Lease, and Tenant shall then surrender the Premises to
Landlord;
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B. enter and take possession of the Premises either with or without
process of law and remove Tenant, with or without having ended the Lease; and
C. alter locks and other security devices at the Premises.
Tenant waives claims for damages by reason of Landlord's reentry,
repossession, or alteration of locks or other security devices and for damages
by reason of any legal process.
(ii) Landlord's exercise of any of its remedies or its receipt of
Tenant's keys shall not be considered an acceptance of surrender or a surrender
of the Premises by Tenant. A surrender must be agreed to in writing by Landlord.
(iii) If Landlord ends this Lease or ends Tenant's right to possess the
Premises because of a default, Landlord may hold Tenant liable for Base Rent,
Additional Rent, and other indebtedness accrued to the date the Lease ends.
Tenant shall also be liable for the Base Rent, Additional Rent and other
indebtedness that otherwise would have been payable by Tenant during the
remainder of the term had there been no default, reduced by any sums Landlord
receives by reletting the Premises during the term. If Landlord is able to relet
the Premises during any part of the remainder of the term, at a rental in excess
of that provided for under this Lease, Tenant shall not be entitled to any such
excess rental and Tenant waives any claim thereto.
(iv) Tenant shall also be liable for that part of the following sums
paid by Landlord and attributable to that part of the term ended due to Tenant's
default:
A. reasonable broker's fees incurred by Landlord for reletting part or
all of the Premises prorated for the part of the reletting term ending
concurrently with the then current term of this Lease;
B. the cost of removing and storing Tenant's property;
C. the cost of minor repairs, alterations, and remodeling necessary to
put the Premises in a condition reasonably acceptable to a new tenant; and
D. other necessary and reasonable expenses incurred by Landlord in
enforcing its remedies.
(v) Landlord may sue and take any other action provided by law to
collect the amounts due hereunder at any time and from time to time without
waiving its rights to sue for and collect further amounts due from Tenant
hereunder.
Section 3. Waiver. The waiver by Landlord of any breach of any covenant
or agreement herein contained shall not be deemed to be waiver of such covenant
or agreement or any subsequent breach of the same or any other covenant or
agreement herein contained. The
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subsequent acceptance of rent or of any other payment or charge hereunder by
Landlord shall not be deemed to be a waiver of any breach by Tenant of any
covenant or agreement of this Lease, other than the failure of Tenant to pay the
particular rental so accepted, regardless of Landlord's knowledge of such breach
at the time of acceptance of such rent.
Section 4. Landlord's Default. Landlord's failure to perform or observe
any of its Lease obligations after a period of thirty (30) days or the
additional time, if any, that is reasonably necessary promptly and diligently to
cure or to commence the cure such failure after receiving notice from Tenant, is
a default. The notice shall be in writing and give in reasonable detail the
nature and extent of the failure and identify the Lease provisions(s) containing
the obligations(s). If Landlord commits a default, Tenant may pursue any
remedies given to Tenant in this Lease or under the law.
Section 5. Survival. The remedies provided in this Article XI and the
indemnities provided in Article VIII, Sections 5 and 6 shall survive the ending
of this Lease. Any other provision of this Lease which by its nature would
require the survival of the ending of this Lease, shall also survive the ending
of this Lease.
ARTICLE XII
ASSIGNMENT AND SUBLETTING
Section 1. Consent Required. Tenant shall not transfer, mortgage,
encumber, assign, or sublease all or part of the Premises without Landlord's
advance written consent. Landlord's consent to any assignment or sublease shall
not be unreasonably withheld or unduly delayed.
Section 2. Reasonableness. Landlord's consent shall not be considered
unreasonably withheld if:
(i) the proposed subtenant's or assignee's financial responsibility does
not meet the same criteria Landlord uses to select comparable tenants for the
Buildings;
(ii) the proposed subtenant's or assignee's business is not suitable for
the Buildings considering the business of the other tenants and the prestige of
the Buildings; or
(iii) the proposed use is inconsistent with the use permitted by Article
VII, Section 1.
Section 3. Procedure. Tenant must provide Landlord in writing:
(i) the name and address of the proposed subtenant or assignee;
(ii) the nature of the proposed subtenant's or assignee's business it
will operate in the Premises;
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(iii) the terms of the proposed sublease or assignment; and
(iv) reasonable financial information so that Landlord can evaluate the
proposed subtenant or assignee under this paragraph.
Landlord shall, within thirty (30) days after receiving the information
required under this Article, give notice to Tenant to permit or deny the
proposed sublease or assignment. If Landlord denies consent, it must explain the
reasons for the denial. If Landlord does not give notice within the thirty (30)
day period, then Tenant may sublease or assign part or all of the Premises upon
the terms Tenant gave in the information under this Article.
Section 4. Conditions. Subleases and assignments by Tenant are also
subject to:
(i) The terms of this Lease;
(ii) The term shall not extend beyond the Lease term;
(iii) Tenant shall remain liable for all Lease obligations;
(iv) Consent to one sublease or assignment does not waive the consent
requirements for future assignments or subleases; and
(v) Fifty (50%) percent of the consideration ("Excess Consideration")
received by Tenant from an assignment or sublease that exceeds the amount Tenant
must pay Landlord, which amount is to be prorated where a part of the Premises
is subleased or assigned, shall also be paid to Landlord. Excess Consideration
shall exclude reasonable leasing commissions paid by Tenant, payments
attributable to the amortization of the cost of Tenant improvements made to the
Premises at Tenant's cost for the assignee or sublessee, and other reasonable,
out-of-pocket costs paid by Tenant, such as attorney's fees directly related to
Tenant's obtaining an assignee or sublessee. Tenant shall pay this Excess
Consideration to Landlord at the end of each calendar year during which tenant
collects any Excess Consideration. Each payment shall be sent with a detailed
statement showing:
A. The total consideration paid by the subtenant or assignee and
B. Any exclusions from the consideration permitted by this paragraph.
Landlord shall have the right to audit Tenant's books and records to
verify the accuracy of the detailed statement.
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ARTICLE XIII
SUBORDINATION
Tenant shall, upon request by Landlord, subject and subordinate all or
any of its rights under this Lease to any and all mortgages and deeds of trust
now existing or hereafter placed on either Building; provided, however, that
Tenant will not be disturbed in the use or enjoyment of the Premises so long as
it is not in default hereunder. Tenant agrees that this Lease shall remain in
full force and effect notwithstanding any default or foreclosure under any such
mortgage or deed of trust and that it will attorn to the mortgagee, trustee or
beneficiary of such mortgage or deed of trust, and the successor or assign of
any of them, and to the purchaser or assignee under any foreclosure. Tenant
will, upon request by Landlord, execute and deliver to Landlord, or to any other
person designated by Landlord, any instrument or instruments, including, but not
limited to, such subordination, attornment and nondisturbance agreement as may
be required by the beneficiary in any deed of trust on the property required to
given effect to the provisions of this paragraph and shall execute and deliver
to Landlord such amendments to this Lease as may be required by a proposed
beneficiary in a deed of trust on the Property; provided, however, that such
amendments do not materially increase the obligations and duties of Tenant
hereunder.
ARTICLE XIV
GENERAL PROVISIONS
Section 1. Transfer of Landlord's Interest. The term "Landlord" as used
in this Lease means only the owner or the mortgagee in possession for the time
being of the Buildings or Property or the owner of the Lease of the Buildings or
Property so that in the event of any sale of said Buildings or Property or said
Lease, or in the event of a lease of said Buildings, Landlord shall be and
hereby is entirely freed and relieved of all covenants and obligations of
Landlord hereunder, and it shall be deemed and construed without further
agreement between the parties or their successors in interest or between the
parties and the purchaser at any such sale or lease of the Buildings or
Property, that the purchaser or the lessee of the Buildings or Property has
assumed and agreed to carry out any and all covenants and obligations of
Landlord hereunder.
Notwithstanding anything to the contrary contained in this Lease, it is
specifically understood and agreed that the liability of the Landlord hereunder
shall be limited to the equity of the Landlord in the Property in the event of a
breach or the failure of Landlord to perform any of the terms, covenants,
conditions and agreements of this Lease to be performed by Landlord. In
furtherance of the foregoing, the Tenant hereby agrees that any judgment it may
obtain against Landlord as a result of the breach of this Lease as aforesaid
shall be enforceable solely against the Landlord's interest in the Property. It
is further agreed that none of the stockholders, officers, directors or heirs of
stockholders, officers or directors of Tenant shall be personally liable with
respect to any covenants or conditions of this Lease.
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Any security given by Tenant to Landlord to secure performance of
Tenant's obligations hereunder may be assigned and transferred by Landlord to
the successor in interest to Landlord; and, upon acknowledgement by such
successor of receipt of such security and its express assumption of the
obligation to account to Tenant for such security in accordance with the terms
of this Lease, Landlord shall thereby be discharged of any further obligation
relating thereto.
Landlord's assignment, sale or transfer of the Lease or of any or all of
its rights herein shall in no manner affect Tenant's obligations hereunder.
Tenant shall thereafter attorn and look to such assignee as Landlord; provided,
Tenant first has written notice of such assignment of Landlord's interest.
Section 2. Landlord Not Partner. It is expressly understood and agreed
that the Landlord is a not a partner, joint venturer or associate of Tenant in
the conduct of Tenant's business, that the provisions of this Lease with respect
to the payment by Tenant of rent are not sharing of profits and that the
relationship between the parties hereby is and shall remain at all times that of
landlord and tenant.
No provision of this Lease shall be construed to impose upon the parties
hereto any obligation or restriction not expressly set forth herein.
Section 3. Recording. The recording of this Lease is prohibited except
as allowed in this section. However, at the request of either party, the parties
shall promptly execute and record, at the cost of the requesting party, a short
form memorandum describing the Premises and stating the term of this Lease, its
Commencement and Termination Dates, and any other information the parties agree
to include.
Section 4. Additional Instruments. The parties agree to execute and
deliver any instruments in writing necessary to carry out any agreement, terms,
condition or assurance in this Lease whenever occasion shall arise and
reasonable request for such instrument shall be made.
Section 5. Lease Not an Offer. Landlord has given this Lease to Tenant
for review. It is not an offer to lease. This Lease shall not be binding unless
signed by both parties.
Section 6. Pronouns. All pronouns and any variations thereof shall be
deemed to refer to the masculine, feminine, neuter, singular or plural, as the
identity of the person(s), firm(s), or corporation(s) may require.
Section 7. Counterparts. This Lease may be executed in counterparts, all
of which taken together, shall be deemed one original.
Section 8. Amendment and Modification. This Lease embodies the full
agreement of the parties and supersedes any and all prior understandings or
commitments concerning the subject matter of this Lease. Any modification or
amendment must be in writing and signed by both parties.
24
<PAGE>
Section 9. Binding Effect. This Lease shall be binding upon and inure to
the benefit of the parties hereto, their assigns, administrators, successors,
estates, heirs and legatees respectively, except as herein provided to the
contrary.
Section 10. Controlling Law. This Lease and the rights of the Landlord
and Tenant hereunder shall be construed and enforced in accordance with the law
of the State of North Carolina.
Section 11. Partial Invalidity. In the event that any part or provision
of this Lease shall be determined to be invalid or unenforceable, the remaining
parts and provisions of said Lease which can be separate from the invalid,
unenforceable provision shall continue in full force and effect.
Section 12. Captions. The section titles, numbers and captions contained
in this Lease are inserted only as a matter of convenience and for reference,
and in no way define, limit, extend, modify, or describe the scope or intent of
this Lease nor any provision herein.
Section 13. Relocation. In the event Tenant occupies office space
amounting to less than fifty percent (50%) of the total area of any floor of
either Building, the Landlord shall have the right to relocate the Tenant to
another location within such Building. Landlord will pay all actual costs of the
relocation. Such a relocation is to be preceded by the Landlord's giving the
Tenant thirty (30) days written notice of such a move.
Section 14. Right of First Refusal. Landlord agrees that if it receives
a bona fide offer (the "OFFER") to rent any areas of the Buildings, which Offer
Landlord intends to accept, Landlord will offer to lease said area to Tenant on
the same terms and conditions as those specified in the Offer. Tenant shall then
have the right within five (5) days to accept Landlord's Offer and enter into a
lease for the additional area. If Tenant shall not accept Landlord's Offer
within the same period, Landlord may then lease the area on the terms and
conditions set forth in the Offer. Landlord shall be obligated to make Offers to
Tenant during the term or extension of this Lease, unless Tenant has notified
Landlord that it intends to vacate the Premises at the end of the term or
applicable extension.
Section 15. Time of Essence. Time is of the essence in the performance
of the provisions of this Lease.
Section 16. Warranties. Tenant warrants that it has had no dealing with
any broker or agent in connection with the negotiation or execution of this
Lease and Tenant agrees to indemnify and hold Landlord harmless from and against
any claims by any other broker, agent or other person claiming a commission or
other form of compensation by virtue of having dealt with Tenant with regard to
this leasing transaction.
25
<PAGE>
Section 17. Authority of Parties. Each party warrants that it is
authorized to enter into this Lease, that the person signing on its behalf is
duly authorized to execute the Lease, and that no other signatures are
necessary.
Section 18. Termination of Existing Lease. Effective as of the
Commencement Date hereunder, Landlord and Tenant acknowledge and agree that the
Lease entered into between Landlord and Tenant dated June 1, 1993, related to
the lease by Tenant from Landlord of a portion of the Premises shall
automatically and immediately terminate and be of no further force and effect.
IN WITNESS WHEREOF, the parties hereto have caused these presents to be
executed under seal the date and year first above written.
ATTEST: LANDLORD:
BEACON INVESTMENT CORPORATION
/s/ Karen D'Eredita /s/ Umesh Kasbekar
___________________________ By_____________________________
Asst. Vice
_____________ Secretary ________________ President
[CORPORATE SEAL]
ATTEST: TENANT:
COCA-COLA BOTTLING CO. CONSOLIDATED
/s/ Patricia Gill /s/ David V. Singer
___________________________ By_____________________________
Asst. Vice
______________ Secretary _________________ President
[CORPORATE SEAL]
26
SOFT TOLL AGREEMENT
FOR ALUMINUM CAN STOCK
AMONG
COCA-COLA BOTTLING CO. CONSOLIDATED
AND
THE COCA-COLA TRADING COMPANY
AND
ALUMINUM COMPANY OF AMERICA
<PAGE>
THIS SOFT TOLL AGREEMENT FOR ALUMINUM CAN STOCK (hereinafter referred to as the
"Agreement") is effective as of the date of last signature of CCBCC, TCCTC, and
Alcoa,
Among COCA-COLA BOTTLING CO. CONSOLIDATED
a _______________________ corporation
having a place of business at:
_____________________________________
_____________________________________
(hereinafter referred to as "CCBCC")
And THE COCA-COLA TRADING COMPANY a Delaware
corporation having a place of business at: One
Coca-Cola Plaza, N.W., Atlanta,Georgia 30313
U.S.A. (hereinafter referred to as "TCCTC")
And ALUMINUM COMPANY OF AMERICA
a Pennsylvania corporation having a place of
business at 1100 Riverview Plaza, Knoxville,
PA 37902 U.S.A. (hereinafter referred to as
"Alcoa")
<PAGE>
RECITALS:
A. TCCTC is a direct, wholly-owned subsidiary of The Coca-Cola Company
("TCCC") and is engaged in providing services in respect of the supply
of aluminum can sheet for fabrication into can bodies and ends to be
used by TCCC, its subsidiaries and participating bottlers, canners, and
other companies authorized by TCCC to package, distribute and/or sell
beverages under the trademarks of TCCC, including CCBCC.
B. Alcoa is a producer of aluminum can sheet and desires to avail itself of
services provided by TCCTC to have CCBCC designate Alcoa as a supplier
of aluminum can sheet for can bodies and ends to be used by CCBCC or its
Affiliates.
C. CCBCC, TCCTC, and Alcoa have reached agreement on the terms and
conditions necessary for implementation.
NOW, THEREFORE, IN CONSIDERATION of the promises and obligations of the parties
contained in this Agreement, the parties agree as follows:
1. DEFINITIONS
1.1 ALUMINUM CAN STOCK
"ALUMINUM CAN STOCK" means aluminum beverage can body, end and
tab stock that complies with TCCC's and its qualified can
supplier's standards and specifications, applied in a consistent
manner to all its aluminum can stock suppliers.
1.2 CAN MANUFACTURER
"CAN MANUFACTURER ('CM')" means Ball Corporation, Crown Cork &
Seal Company, Inc., American National Can Company, and any
current U.S. supplier to CCBCC of aluminum can bodies and/or
ends that will use Aluminum Can Stock supplied hereunder.
1.3 AFFILIATES
"Affiliates" shall mean, as to any entity, any other entity
which is controlled by, controls, or is under common control
with such entity. The term "control" (including the terms
"controlled," "controlled by," and "under common control with")
shall mean the possession, direct or indirect, of the power to
direct or cause the direction of the management and policies of
an entity.
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<PAGE>
1.4 DELIVERY TERMS
"FOB" shall mean "Free on Board" as more fully defined by
INCOTERMS 1990.
1.5 GROSS WEIGHT AND NET WEIGHT
The term "Gross Weight" means the input weight of Aluminum Can
Stock used to make a given number of can bodies and ends. The
term "Net Weight" means the Gross Weight minus the weight of
scrap generated in making the given number of can bodies and
ends.
1.6 TERM
This Agreement will be effective with shipments of Aluminum Can
Stock beginning January 1, 1999 and will terminate on December
31, 2000, unless sooner terminated as provided herein.
2. CAN MANUFACTURERS' COOPERATION
2.1 CMS' COOPERATION
TCCTC and CCBCC agree to use commercially reasonable efforts to
secure the cooperation of the CMs in implementing the structure
contemplated hereunder. If that cooperation cannot be achieved,
then the parties to this Agreement shall meet to discuss issues
that prevent the parties from achieving the objectives of this
Agreement, and, appropriately modify this Agreement by mutual
agreement.
2.2 AGREEMENTS WITH CMS
If, by December 31, 1998, agreements with respect to the use of
the Aluminum Can Stock to be purchased by CMs as contemplated by
this Agreement for can bodies and ends are not in place between
CCBCC and its CMs, and which include those commitments by the
CMs that are required under this Agreement, and which include
commitments by the CMs to directly purchase all Aluminum Can
Stock committed hereunder, and which are otherwise satisfactory
to CCBCC, then CCBCC may terminate this Agreement with respect
to the affected commitments.
CCBCC will use commercially reasonable efforts to include, in
those conversion agreements with the CMs, obligations on the CMs
to (1) report to Alcoa the gross and net amounts of Aluminum Can
Stock used hereunder by product and the net amount of Aluminum
Can Stock used hereunder per thousand can bodies and ends, (2)
accept Aluminum Can Stock committed hereunder at CCBCC's
designated CM plants or other plants acceptable to
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<PAGE>
Alcoa, (3) return class scrap to Alcoa on terms and conditions
to be negotiated between the CM and Alcoa, and (4) to provide
quarterly status reports to Alcoa, CCBCC, and TCCTC.
3. QUALITY AND DELIVERY
3.1 WARRANTIES
Alcoa warrants to TCCTC, CCBCC, and TCCC that all Aluminum Can
Stock delivered under the Agreement (i) is merchantable and is
fit for its intended purpose, in both cases, for making aluminum
cans that meet the standards of TCCC and CM in effect on the
date hereof, and (ii) meets or exceeds TCCC's and its qualified
CMs' standards for Aluminum Can Stock to be used to manufacture
can bodies and ends to meet TCCC's performance criteria and
standards for aluminum can bodies and ends, which are being
reasonably applied in a consistent manner to all such CM's
Aluminum Can Stock suppliers, as they may change from time to
time; provided, however, that Alcoa has agreed to such changes,
and (iii) does not infringe the intellectual property rights of
third parties.
3.2 CMS TO LOOK TO ALCOA
CCBCC will use good faith efforts to cause the CMs to look
directly and exclusively to Alcoa for remedies for any quality
or delivery problems with Aluminum Can Stock purchased under
this Agreement, whether the CMs buy directly from Alcoa or
through CCBCC. Alcoa agrees to directly provide, and to be
solely responsible for providing, such remedies to the CMs. Any
limitations on Alcoa's liability for quality or delivery
problems will be determined between each CM and Alcoa. However,
Alcoa will not limit its liability for quality or delivery
problems with each CM for Aluminum Can Stock purchased under
this Agreement more than it limits its liability with that CM
for Aluminum Can Stock not purchased hereunder, and in any case
no more than it limits it liability with that CM as of the last
signing date of this Agreement. Alcoa shall not be responsible
to TCCTC, CCBCC or TCCC for their incidental or consequential
damages arising hereunder.
3.3 INDEMNIFICATION
Alcoa shall indemnify and hold harmless TCCTC, TCCC, and CCBCC,
and all of their subsidiaries, officers, agents, and employees,
collectively referred to as the "indemnified parties," against
all claims, costs (including, without limitation, reasonable
attorneys' fees, and full goods replacement and recall costs)
and damages to the extent that they arise because of the
Aluminum Can Stock supplied by Alcoa under this Agreement. The
limitations on damages set forth in Section 3.2 above apply to
this Section 3.3 except in the case of third party beverage
consumer (other than CMs) and other beverage filler
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<PAGE>
claims arising against the indemnified parties to the extent due
to the Aluminum Can Stock supplied hereunder.
3.4 DISQUALIFICATION
TCCC or CCBCC may, without waiving other rights for failing to
meet these warranties, disqualify Alcoa if its Aluminum Can
Stock fails to meet these warranties, or if Alcoa repeatedly
fails to provide timely delivery. Rejection or revocation of
acceptance of Aluminum Can Stock may be made by the selected CM,
and Alcoa shall work expeditiously, while coordinating with
CCBCC and the CM, to replace such Aluminum Can Stock.
In the event that Alcoa is disqualified or unable to be
qualified at a CCBCC selected CM's plant, CCBCC will work with
the CM and Alcoa to requalify or qualify. Until Alcoa is
requalified or qualified, CCBCC shall be free to make
alternative arrangements for its Aluminum Can Stock
requirements. Alcoa shall pay to CCBCC any additional, direct,
reasonable costs associated with rolling forward its aluminum
metal hedge position with Alcoa or taking or transferring a
metal position to another supplier resulting from those
alternative arrangements. Until Alcoa is requalified or
qualified, CCBCC is relieved of the affected volume commitments
under this Agreement.
4. PURCHASE AND SALE OF ALUMINUM CAN STOCK
4.1 VOLUME COMMITMENT
4.1.1 NO TCCTC COMMITMENT
The Aluminum Can Stock commitments hereunder are made by
CCBCC alone, and TCCTC has no liability for the
commitments of CCBCC.
4.1.2 COMMITMENT FOR CCBCC'S VOLUME
During the term of this Agreement, CCBCC will require
its CMs to purchase, from Alcoa, one hundred percent
(100%) of CCBCC's requirements for Aluminum Can Stock
for can bodies and ends used at CCBCC's Nashville,
Tennessee and Roanoke, Virginia can filling lines. Such
purchases shall be in addition to any other purchase
commitments any CM has with Alcoa, and shall in no event
be a deduction or set off from any contractual
commitment between such CM and Alcoa. However, if
purchases hereunder are not in addition to any other
purchase commitments any CM has with Alcoa, or are a
deduction or set off from any contractual commitment
between such CM and Alcoa, then Alcoa may terminate this
Agreement, and CCBCC and TCCTC will have no liability,
financial or otherwise as a result of such termination
other than CCBCC's for any direct, reasonable Alcoa cost
or expense incurred with respect to Aluminum Can Stock
which has already been priced. It is estimated
-5-
<PAGE>
that these two filling locations will use approximately
500 million can bodies and ends per year (this estimate
is not a commitment to purchase).
4.1.3 ALCOA OBLIGATED TO SUPPLY
Alcoa will supply the amounts committed by CCBCC under
this Agreement to the designated CMs for CCBCC's needs,
and time is of the essence in all orders.
4.2 PURCHASES BY CCBCC
The parties contemplate that actual purchases of the Aluminum
Can Stock committed hereunder will be made by CCBCC's CMs, as
outlined below under Section 6.2. However, CCBCC may, with
Alcoa's consent, purchase the Aluminum Can Stock.
5. SCRAP PURCHASE
Alcoa will work individually with CCBCC's CMs to handle scrap generated
in the use of Aluminum Can Stock purchased hereunder.
6. ALUMINUM CAN STOCK PRICING AND INVOICING
6.1 PRICING
Prices applicable hereunder are provided in the Pricing
Schedule (Exhibit 1).
6.2 INVOICING
Except with respect to Aluminum Can Stock sold to CCBCC as
provided in Section 4.2, Alcoa shall invoice (the "Alcoa
invoices") the CM selected by CCBCC at the price of Section 1 of
the Pricing Schedule.
Any positive difference between the price invoiced under the
Alcoa invoices and the CCBCC price under Section 2 price of the
Pricing Schedule shall be paid by Alcoa to CCBCC, each calendar
quarter, for each pound to which the prices correspond. If the
CCBCC price under Section 2 of the Pricing Schedule is higher
than that of the Alcoa invoices for particular pounds, then
Alcoa shall issue to CCBCC, each calendar quarter, an invoice
(payable net 30 days) for that difference. All invoicing
hereunder shall be netted.
When Alcoa invoices the CM, the CMs are the purchasers of the
Aluminum Can Stock, and therefore own and have title to the
Aluminum Can Stock.
-6-
<PAGE>
7. ALCOA OPTION TO MEET ALCAN OFFERS
7.1 ALCOA'S OPTION
Alcoa is to remain competitive with offers received from Alcan
Aluminum Corporation ("Alcan"), as described below in this
Section 7.1. For Aluminum Can Stock that has not yet been priced
by CCBCC under Section 3 of the Pricing Schedule, Alcoa has the
option to meet the terms and conditions of any Alcan competitive
offer(s) on conversion fees up to the aggregate volume not yet
priced hereunder. If Alcoa does not meet the competitive offer
on all of CCBCC's volume not yet priced hereunder, then CCBCC is
free to accept it and is relieved of as much of the volume
commitments under this Agreement as CCBCC so chooses, except to
the extent it would relieve CCBCC of volume already priced under
Section 3 of the Pricing Schedule.
7.2 CERTIFICATION BY CCBCC'S CFO
If CCBCC cannot provide to Alcoa a copy of a competitive offer
under Section 7.1, Alcoa may request CCBCC's CFO to provide a
representation letter to Alcoa certifying the competitive offer.
If requested by and paid for by Alcoa, CCBCC's outside auditor
will also certify that CCBCC is complying with this Section 7.
In no way will these audit rights jeopardize the confidentiality
of other CCBCC suppliers or provide Alcoa with competitive
information.
8. MOST FAVORED NATION
8.1 ALCOA SALES
If Alcoa, or any Alcoa Affiliate, agrees to supply aluminum can
sheet directly to any (a) U.S. soft drink maker or (b) CM at a
price which includes a metal component price having a ceiling of
less than $0.85 per pound, the parties will meet as soon as
practicable for the purpose of revising this Agreement to
reflect the implications of such a lower ceiling price level, if
any.
Except as provided below, if, taking into account, without
limitation, all incentives, promotional activities, discounts,
rebates, credits, subsidies for hedging costs, and the like,
whether or not denominated as related to conversion, Alcoa, or
any Alcoa Affiliate, is selling aluminum can sheet at a price
which has a conversion fee component which is lower than that
hereunder (whether or not such sale was initiated by Alcoa or
was made in response to a request, initiative, or counter of
another purchaser) directly to any (a) U.S. soft drink maker or
(b) CM, then such lower fee shall be substituted for the
conversion cost/lb. hereunder, during the same delivery period
and on
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<PAGE>
the same quantity as it is effective for such can maker. For
purposes of determining conversion fees hereunder, the following
shall be excluded from consideration:
o Any systems savings programs between Alcoa and a U.S.
canmaker;
o Any promotional prices or toll fees in connection with the
promotion of new products;
o Spot pricing or toll fees for incremental business; and
o Annual or multi-year toll fee arrangements; provided, however,
that within 5 business days of entering into such an
arrangement with a CM which has a conversion fee lower than
that provided hereunder, Alcoa shall give CCBCC notice of the
material terms thereof, and CCBCC shall, within 10 business
days of receipt of such notice, advise Alcoa of its interest
in pursuing a similar arrangement and Alcoa will offer such
similar arrangement with respect to the same quantity of
Aluminum Can Stock, up to the quantity of volume unpriced for
the delivery period in question.
8.2 CERTIFICATION BY CFO
If requested by CCBCC, Alcoa will certify, by letter from
Alcoa's Rigid Packaging Division's Chief Financial Officer, that
it is complying with this Section 8. If requested by and paid
for by CCBCC, Alcoa's outside auditor will also certify that
Alcoa is complying with this Section 8. In no way will these
audit rights jeopardize confidentiality of other Alcoa customers
or provide CCBCC with competitive information.
9. CAN PROMOTION
Alcoa shall pay to CCBCC, quarterly, a can promotion allowance of
$0.90/thousand cans produced out of Aluminum Can Stock purchased under
this Agreement. Alcoa may request CCBCC's CFO to provide a
representation letter to Alcoa certifying the number of cans so
produced.
10. CHANGES IN INDUSTRY PRICING
If pricing structures in the industry (such as the formula pricing of
adding a metal component (including the midwest premium) and a
conversion fee) change, then the parties shall meet to discuss
appropriate modifications that may be necessary to achieve the
objectives of the parties.
11. CHANGES IN CAN STOCK SPECIFICATIONS
The parties anticipate that changes in Aluminum Can Stock specifications
will occur over time, and that Alcoa will be able to supply such
Aluminum Can Stock. If Alcoa is unable to supply
-8-
<PAGE>
such Aluminum Can Stock in the necessary quantities and it is otherwise
available, the parties shall meet to discuss and appropriately agree
upon modification or termination of this Agreement to ensure CCBCC
receives appropriate Aluminum Can Stock.
12. COST AND QUALITY INITIATIVES
Alcoa and CCBCC will work together to lower system costs wherever
possible without injury or hardship to each other. Alcoa and CCBCC will
work together to improve system quality and service.
13. FORCE MAJEURE
The obligations of each party hereunder shall be excused to the extent
that party's performance, or the performance of another party obligated
to that party, is prevented or substantially impeded by strikes, work
stoppages and slowdowns, war, insurrection, government action,
(including levies, etc.), casualty (including without limitation, fire,
flood, accident and explosion), acts of God and any other or different
circumstances beyond the reasonable control of such party (any of the
foregoing events being referred to as an event of"Force Majeure"). The
party affected by an event of Force Majeure shall promptly notify the
other party, identifying the event and estimated duration. The parties
shall take reasonable steps to limit the consequences hereunder of any
Force Majeure events.
14. CONFIDENTIALITY
Except to the extent that disclosures to other persons of confidential
information relating to this Agreement may be required by law or such
confidential information becomes public through no fault of the
appropriate party, TCCTC, TCCC, CCBCC and Alcoa agree not to disclose,
and to cause their Affiliates not to disclose, to any person any pricing
or cost information, or any other terms of this Agreement, or any other
confidential or proprietary information provided pursuant to this
Agreement. However, after consultation with the other parties, a party
may provide, but only on a need to know basis and only to the extent
necessary, such information, in confidence, to financial, tax, and legal
advisors.
15. ENTIRE AGREEMENT
This Agreement and its Exhibits constitute the entire agreement between
the parties with respect to the subject matter hereof, and supersede all
prior oral or written agreements between the parties concerning the
subject matter hereof.
16. AMENDMENT
No amendment to this Agreement shall be binding unless it is in writing
and signed by all parties.
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<PAGE>
17. WAIVER
No waiver by any party of any breach of any provision of this Agreement
shall constitute a waiver of any other breach of that or any other
provision of this Agreement.
18. SEVERABILITY
In the event that any of the provisions of this Agreement are held to be
unenforceable the remaining provisions of this Agreement shall remain in
full force and effect, except to the extent that the objectives of the
parties are frustrated.
19. ASSIGNMENT
19.1 IN GENERAL
Except as otherwise provided herein, no party shall assign any
rights or delegate any duties under this Agreement without the
prior written approval of the other parties.
19.2 TO AFFILIATES
Any party may assign this Agreement to an Affiliate provided
that such assignee shall agree in writing to be bound by all
terms of this Agreement in the same manner and to the same
extent as the party is bound.
19.3 CHANGE OF CONTROL
If a sale or other transfer, to an entity or Affiliate of an
entity substantially involved in the manufacture, sale,
marketing or distribution of non-alcoholic beverages, of a
controlling interest in Alcoa or a controlling Affiliate is
concluded, or a sale or other transfer, to an entity or
Affiliate of an entity substantially involved in the
manufacture, sale, marketing or distribution of non-alcoholic
beverages, of substantially all of the assets of Alcoa or a
controlling Affiliate is concluded, then CCBCC may terminate
this Agreement.
19.4 TO CCBCC SUCCESSORS
In addition, should a sale or other transfer of a controlling
interest in CCBCC be concluded, or a sale or other transfer of
substantially all of the assets of CCBCC be concluded, then,
with Alcoa's agreement, CCBCC shall assign and delegate its
respective rights and duties under this Agreement to the
successor entity, and the successor entity must agree to be
bound in writing to the same extent as the assigning and
delegating party. If Alcoa withholds agreement to such sale or
transfer, then CCBCC may terminate this Agreement.
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<PAGE>
20. APPLICABLE LAW
The validity, interpretation and performance of this Agreement shall be
governed by the laws applicable to contracts to be performed in the State of
Georgia without giving effect to the conflict of law or choice of law rules
thereof.
AGREED:
COCA-COLA BOTTLING CO. ALUMINUM COMPANY OF AMERICA,
CONSOLIDATED RIGID PACKAGING DIVISION
By: /s/ James L. Moore By: /s/ Michael Coleman
------------------------------------- ----------------------------
------------------------------------- ----------------------------
President and Chief Operating Officer President
Date: 1/5/99 Date: 12/22/98
------------------------------------- --------------------------
THE COCA-COLA TRADING COMPANY
By: Kenneth L. Carty
----------------------------
Kenneth L. Carty
Vice President
Date: 1/8/99
----------------------------
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<PAGE>
EXHIBIT 1
PRICING SCHEDULE
1. PRICING TO CMS
THE FOLLOWING IS A GENERIC DESCRIPTION OF ALCOA'S CURRENT PRICING
PRACTICES FOR ALUMINUM CAN SHEET FOR SALES TO ITS U.S. CAN MAKER
CUSTOMERS.
1.1 EFFECTIVE AND PRICING PERIODS FOR CM PRICING
Throughout the term of this Agreement, prices to be charged by Alcoa to
the CMs are calculated in Pricing Periods and then apply during Effective
Periods, as follows:
Pricing Period Effective Period
- -------------- ----------------
3/1/1998 - 8/31/1998 1/1/1999 - 3/31/1999
9/1/1998 - 2/28/1999 4/1/1999 - 9/30/1999
3/1/1999 - 8/31/1999 10/1/1999 - 3/31/2000
9/1/1999 - 2/28/2000 4/1/2000 - 9/30/2000
3/1/2000 - 8/31/2000 10/1/2000- 12/31/2000.
1.2 CM PRICING
The price per pound of Aluminum Can Stock charged by Alcoa to the CMs hereunder
is equal to the sum of a "CM Metal Component" and a "CM Conversion Fee." All
prices for Aluminum Can Stock are FOB the CM's plant.
1.2.1 CM METAL COMPONENT
The CM Metal Component equals "CM Metal Cost" plus the "CM Midwest
Premium," defined as follows:
"CM Metal Cost" during an Effective Period is the average of the daily
per pound cash settlement London Metal Exchange price for aluminum, as
published in PLATT'S METAL WEEK during a corresponding six month
"Pricing Period."
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<PAGE>
"CM Midwest Premium" during an Effective Period is the average of the
weekly per pound closing Midwest Premium for aluminum, as published in
PLATT'S METAL WEEK, during a corresponding six month "Pricing Period."
1.2.2 CM CONVERSION FEE
The "CM Conversion Fee" for Aluminum Can Stock for can bodies, ends, and
tab are listed in Alcoa's published price schedule dated 1997 February
28, attached hereto as Exhibit 2, as revised from time to time during
the term hereof and subject to annual adjustments on each of April 1,
1999 and April 1, 2000, at one-half (1/2) of the year over year change
in the Producer Price Index for Intermediate Materials, Supplies and
Components, as published monthly by the U.S. Department of Commerce.
2. CCBCC PRICING
The CCBCC price per pound of Aluminum Can Stock purchased hereunder is equal to
the sum of a "CCBCC Metal Component" and a "CCBCC Conversion Fee." All prices
for Aluminum Can Stock are FOB the CM's plant.
2.1 CCBCC METAL COMPONENT
The CCBCC Metal Component equals "CCBCC Metal Cost" plus the "CCBCC
Midwest Premium," defined as follows:
"CCBCC Metal Cost" during a calendar month is the average of the
daily per pound cash settlement London Metal Exchange price for
aluminum for the immediately preceding calendar month, as
published in PLATT'S METAL WEEK. For example, the CCBCC Metal
Cost during March, 1999 is equal to the average of the daily per
pound cash settlement London Metal Exchange price for aluminum
for February, 1999.
"CCBCC Midwest Premium" during a calendar month is the average
of the weekly per pound closing Midwest Premium for aluminum for
the immediately preceding calendar month, as published in
PLATT'S METAL WEEK.
However, the "CCBCC Metal Cost" component may be changed by CCBCC as
provided in Section 3 below.
2.2 CCBCC CONVERSION FEE
The "CCBCC Conversion Fee" for Aluminum Can Stock for can
bodies, ends, and tab are listed in Alcoa's published price
schedule dated 1997 February 28, subject to annual adjustments
on each of April 1, 1999 and April 1, 2000, at one-half (1/2) of
the year over year change in the Producer Price Index for
Intermediate Materials, Supplies and Components, as published
monthly by the
-13-
<PAGE>
U.S. Department of Commerce ("PPI"), or alternate agreed index
if this PPI is no longer calculated. For example, the 2000 CCBCC
Conversion Fee will be equal to the 1999 one plus (the 1999
conversion fee x (0.5 x ((1999 PPI - 1998 PPI)/ 1998 PPI))). If
the PPI decreases, the CCBCC Conversion Fee will not be changed
for the appropriate year. (In the event of extraordinary
increases in cost items which were not included in, or a
component of, the change in the PPI, the parties agree to review
and if mutually agreeable, to make appropriate modifications.)
However, CCBCC Conversion Fee is subject to the meeting
competition and most favored nations provisions of the
Agreement.
3. ALTERNATIVE PRICING OF THE CCBCC METAL COST
As an alternative to Section 2.1 above, CCBCC may establish a price for the
CCBCC Metal Cost for particular volumes by requesting Alcoa to (1) make spot
metal purchases, (2) fix a metal price forward, (3) establish a minimum and
maximum metal price band, or (4) establish a ceiling metal price. In such
cases, Alcoa and CCBCC wi11 negotiate a charge, if any, to establish such
pricing, and agree upon any timing or related pricing issues. Alcoa will issue
an invoice to CCBCC for any such agreed upon charge, to be netted quarterly
with the invoicing of Section 6.2 and the can promotion of Section 9 of the
Agreement. The charge, if any, shall reflect the cost of establishing the price
requested by CCBCC.
Once a volume of Aluminum Can Stock has been priced, it cannot be repriced.
Furthermore, this Section 3 can only be used to price the Net Weight of
Aluminum Can Stock. Once Aluminum Can Stock has been priced under this Section
3, CCBCC must take that volume of Aluminum Can Stock in the agreed periods, or
pay Alcoa to the extent Alcoa is directly and actually harmed by a canceled
order or deferred delivery date, unless such cancellation or deferrals are due
to disqualification..
-14-
LIST OF SUBSIDIARIES
<TABLE>
<CAPTION>
STATE/DATE PERCENT
INVESTMENT IN INCORPORATION OWNED BY OWNERSHIP
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
C C Beverage Packing, Inc. Delaware Consolidated 100%
3/15/88
Case Advertising, Inc. Delaware Consolidated 100%
2/18/88
Category Management Consulting, LLC North Carolina Consolidated/Roanoke 100%
6/29/95
CCBC of Nashville, LP Tennessee CCBC of Tennessee, LLC / 100%
12/20/96 Consolidated Volunteer
CCBCC, Inc. Delaware Consolidated 100%
12/20/93
Chesapeake Treatment Company, LLC North Carolina Consolidated/Case Adv. 100%
6/5/95
COBC, Inc. Delaware Columbus Coca-Cola 100%
11/23/93 Bottling Company
Coca-Cola Bottling Co. Affiliated, Inc. Delaware Consolidated 100%
4/18/35
Coca-Cola Bottling Co. of Roanoke, Inc. Delaware Consolidated 100%
2/5/85
Coca-Cola Bottling Company of North Carolina Consolidated / Affiliated 100%
North Carolina, LLC 12/18/95
Coca-Cola Bottling Company of Alabama CCBC of Alabama, LLC / 100%
Mobile, LLC 12/20/96 CC Beverage
Coca-Cola Bottling Company of Delaware CC Beverage/ 100%
Alabama, LLC 12/17/96 Consolidated
Coca-Cola Bottling Company of Tennessee CCBC of Roanoke/ 100%
Tennessee, LLC 12/12/96 Consolidated
</TABLE>
<PAGE>
LIST OF SUBSIDIARIES (CONT.)
<TABLE>
<CAPTION>
STATE/DATE PERCENT
INVESTMENT IN INCORPORATION OWNED BY OWNERSHIP
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Coca-Cola Ventures, Inc. Delaware Coca-Cola Bottling Co. 100%
6/17/93 Affiliated, Inc.
Columbus Coca-Cola Bottling Company Delaware Consolidated 100%
7/10/84
Consolidated Leasing, LLC North Carolina Consolidated/CCBC of WV 100%
1/14/97
Consolidated Volunteer, Inc. Delaware Consolidated 100%
12/11/96
ECBC, Inc. Delaware Coca-Cola Bottling Co. 100%
11/23/93 Affiliated, Inc.
Jackson Acquisitions, Inc. Delaware Consolidated 100%
1/24/90
Metrolina Bottling Company Delaware Consolidated 100%
5/21/93
MOBC, Inc. Delaware CC Beverage Packing, Inc. 100%
11/23/93
NABC, Inc. Delaware Consolidated Volunteer, Inc. 100%
11/23/93
Panama City Coca-Cola Bottling Company Florida Columbus CCBC, Inc. 100%
10/5/31
PCBC, Inc. Delaware Panama City Coca-Cola 100%
Bottling Company
ROBC, Inc. Delaware Coca-Cola Bottling Co. of 100%
Roanoke, Inc.
St. Paul Coca-Cola Bottling Company, Virginia Consolidated 100%
Incorporated 7/24/14
</TABLE>
<PAGE>
LIST OF SUBSIDIARIES (CONT.)
<TABLE>
<CAPTION>
STATE/DATE PERCENT
INVESTMENT IN INCORPORATION OWNED BY OWNERSHIP
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Tennessee Soft Drink Production Company Tennessee Consolidated Volunteer, Inc. 100%
12/22/88
The Coca-Cola Bottling Company of West West Virginia Consolidated 100%
Virginia, Inc. 12/28/92
Thomasville Acquisitions, Inc. Delaware Consolidated 100%
1/8/97
Thomasville Coca-Cola Bottling Co. North Carolina Consolidated 100%
6/3/32
TOBC, Inc. Delaware Thomasville CCBC 100%
3/24/97
WCBC, Inc. Delaware Coca-Cola Bottling Co. 100%
11/23/93 Affiliated, Inc.
Whirl-i-Bird, Inc. Tennessee Consolidated 100%
11/3/86
WVBC, Inc. Delaware The Coca-Cola Bottling 100%
11/23/93 Company of West
Virginia, Inc.
</TABLE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statement on Form S-3 (No. 33-4325),
Registration Statement on Form S-3 (No. 33-54657) and Registration Statement on
Form S-3 (No. 333-71003) of Coca-Cola Bottling Co. Consolidated of our report
dated February 11, 1999 appearing in this Form 10-K.
PRICEWATERHOUSECOOPERS LLP
Charlotte, North Carolina
March 31, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements as of and for the year ended January 3, 1999 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000317540
<NAME> Coca-Cola Bottling Co. Consolidated
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> JAN-03-1999
<PERIOD-START> DEC-29-1997
<PERIOD-END> JAN-03-1999
<EXCHANGE-RATE> 1
<CASH> 6,691
<SECURITIES> 0
<RECEIVABLES> 57,817
<ALLOWANCES> 600
<INVENTORY> 41,010
<CURRENT-ASSETS> 138,551
<PP&E> 454,959
<DEPRECIATION> 196,630
<TOTAL-ASSETS> 825,228
<CURRENT-LIABILITIES> 133,931
<BONDS> 491,234
<COMMON> 12,055
0
0
<OTHER-SE> 3,731
<TOTAL-LIABILITY-AND-EQUITY> 825,228
<SALES> 928,502
<TOTAL-REVENUES> 928,502
<CGS> 534,919
<TOTAL-COSTS> 534,919
<OTHER-EXPENSES> 326,293
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 39,947
<INCOME-PRETAX> 23,245
<INCOME-TAX> 8,367
<INCOME-CONTINUING> 14,878
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,878
<EPS-PRIMARY> 1.78
<EPS-DILUTED> 1.75
</TABLE>
