2 0 0 2
A
N
N
U
A
L
R
E
P O
R
T
THE
FIRST
100
YEARS
Coca-Cola Bottling Co. Consolidated (CCBCC) is the second largest
Coca-Cola bottler in the United States. The Company is a leader in
the manufacturing, marketing and distribution of soft drinks. With
corporate offices in Charlotte, N.C., the Company does business in 11
states, primarily in the Southeast. The Company has one of the high-
est per capita soft drink consumption rates in the world and manages
bottling territories with a consumer base of close to 18 million people.
Coca-Cola Bottling Co. Consolidated is listed on the NASDAQ
National Market System under the symbol COKE.
This annual report is printed on recycled paper.
FINANCIAL SUMMARY
In Thousands (Except Per Share Data)
Fiscal Year*
2002
2001
2000
Net sales
$1,246,591
$989,188
$969,937
Gross margin
579,331
444,660
449,337
Income before income taxes
38,070
11,696
9,835
Net income
22,823
9,470
6,294
Average Common and Class B
Common shares outstanding 8,861
8,753
8,733
Basic net income per share
$2.58
$1.08
$.72
*
On January 2, 2002, the Company purchased an additional interest in
Piedmont Coca-Cola Bottling Partnership (“Piedmont”) from The Coca-Cola
Company, increasing the Company’s ownership in Piedmont to more than
50 percent. Due to the increase in ownership, the results of operations,
financial position and cash flows of Piedmont have been consolidated with
those of the Company beginning in the first quarter of 2002. The Company’s
investment in Piedmont had been accounted for using the equity method for
2001 and prior years.
BOTTLING CO.
CONSOLIDATED
2 0 0 2
1 9 0 2
LETTER TO SHAREHOLDERS
L
ast year was a significant one for Coca-Cola Bottling Co. Consolidated as we
celebrated our centennial anniversary as a Company, generated record sales and produced
solid earnings. Sadly, we also lost our former chairman.
Founded by Coca-Cola pioneer J.B. Harrison in 1902, our Company has grown from
a small local bottler in North Carolina to its position today as the second largest
Coca-Cola bottler in the United States. For the last 30 years, one of the principal archi-
tects of the Company’s growth and success was J. Frank Harrison, Jr., our former chairman
of the board. Mr. Harrison passed away in November, and his wisdom and insight are
missed by all of us.
One of the many lessons we learned from Mr. Harrison was to focus on growing
long-term shareholder value over time and managing the Company accordingly. In 2002,
we delivered against that objective.
Record sales and strong growth in earnings per share — which increased by 139
percent on a reported basis to $2.58 per share — helped make 2002 a successful year. Net
income for 2002 reflects a $12.6 million pre-tax reduction in amortization expense associ-
ated with the adoption of a new accounting pronouncement, while net income in 2001
benefited from a favorable income tax settlement. On a comparable basis, earnings per
share increased by 60 percent in 2002.
We experienced very strong volume growth through our first three quarters of the
year. However, volume and net pricing were down slightly in the fourth quarter due to
unusually cool and wet weather in October and November and an ice storm in December
that left more than 1 million homes and businesses in our territory without power for
several days. The Company continued to generate strong cash flow in 2002. Over the past
three years, the Company has generated almost $200 million of cash flow that has been
used to reduce capital debt and lease obligations, thereby strengthening the Company’s
2
100 YEARS ...
OF DELIVERING GREAT
PRODUCT
From painstakingly
delivering product with
a horse and buggy to the
new and innovative
“side-loader” delivery
truck, we’ve come a long
way. But, our dedication
to getting product into
consumers’ hands
hasn’t wavered.
LETTER TO SHAREHOLDERS
financial position. Our success during 2002 was achieved in a difficult, competitive
environment that included continued consolidation among retailers, changing strategies
of our customers and slower growth in the overall U.S. economy.
Continued innovation in packaging and the introduction of new products helped fuel
strong volume growth during much of the year, particularly in our important immediate
consumption channel. We’re grateful for our partnership with The Coca-Cola Company, as
working closely with them is central to our success. In 2002, they provided us with strong
brand innovation, including Vanilla Coke, diet Vanilla Coke, Fanta flavors and Minute
Maid Pink Lemonade. And, in addition to these innovative new brands, Coca-Cola
Bottling Co. Consolidated started producing and selling diet Cherry Coke, which has
created strong consumer interest. The Fridge PackTM, the innovative 12-can package we
introduced in 2001, continued to be popular with retailers and consumers. During the
second quarter, the Company became the first bottler to introduce a Fridge Pack for
12-ounce Dasani recyclable plastic bottles. The addition of the Dasani Fridge Pack
contributed to our volume growth in the water category of more than 40 percent during
the year.
The Company has effectively responded to ongoing changes in our markets and in
our consumers’ tastes. Increased demand and product offerings in the noncarbonated
category of our business have resulted in this category comprising 10 percent of our total
business, up from about 8 percent in 2001. Our line-up of noncarbonated beverages
includes bottled water, isotonics, lemonade and fruit drinks. While this category is grow-
ing faster than the carbonated soft drink (CSD) category, we remain committed to long-
term profitable growth of our CSD products. To underline this point, for the period of time
last year following its introduction, Vanilla Coke contributed more to our growth in 2002
than isotonics, lemonade and fruit drinks combined.
4
100 YEARS ...
OF HIGH-QUALITY BRANDS
By the 1970s, our family of
products (represented
in part on the left)
included a wide variety
of brands. Today, the
Coca-Cola system is
still innovating great
new brands — like
Vanilla Coke — to
satisfy consumers’
changing tastes.
LETTER TO SHAREHOLDERS
The Company’s ongoing commitment to quality was rewarded by The Coca-Cola
Company with the 2002 President’s Award for Quality Excellence. This award is given in
recognition of outstanding performance in manufacturing and in the management of our
products in retail locations. This is the second straight year the Company has won this award,
which reflects our commitment to providing the highest quality products to our consumers.
We remain committed to becoming more efficient and to increasing productivity. We
are working with other Coca-Cola bottlers to coordinate manufacturing and purchasing,
thereby reducing our operating costs. Coca-Cola bottlers across the country recently formed
Coca-Cola Bottlers Sales and Service Company, designed to coordinate and leverage the
procurement of key raw materials and cold drink equipment. We believe this organization will
significantly reduce our costs over time.
Our 100th year was a very successful one for Coca-Cola Bottling Co. Consolidated. The
year ahead will present a number of challenges for the Company, including rising insurance
and employee benefit costs, plastic bottle cost increases well above inflation, a highly
competitive sales environment and an uncertain economy. We believe that our commitment
over the past few years to enhancing our financial strength, through
solid operating performance and the reduction of our debt, will help
us mitigate these challenges. We are optimistic about the future of
our business and the Company. With the combination of
great people, great products, the right strategy and
excellent execution, your Company is poised for
continued success in the next 100 years — and beyond.
J. Frank Harrison, III
Chairman of the Board and
Chief Executive Officer
William B. Elmore
President and
Chief Operating Officer
6
100 YEARS ...
OF EFFECTIVE MARKETING
At CCBCC, we’ve always
worked hard to make a
positive impact in our
communities. Today, in
addition to having a
presence at local events,
we’re reaching out to
specific markets with
Community Connection
and other minority-based
initiatives.
OUR BUSINESS
L
ast year was a very good year for the
Company, as we had solid growth in sales,
variety of refreshment products. Our bottled
water, Dasani, grew by more than 40 percent
earnings, volume and free cash flow. Our
in 2002 following growth of more than 50
performance was driven by new brands and
percent in 2001. New products, including
packages, increased productivity and out-
Vanilla Coke, diet Vanilla Coke and Minute
standing execution by our more than 5,500
Maid Lemonades, also drove growth in 2002.
employees. A discussion of our strategic
While the Company’s volume increase was
priorities follows.
driven by new products and noncarbonated
■ ■ ■ Profitable Growth Driven by Innovation
beverages during 2002, we are committed to
Our industry has historically been
presented with the challenge of trying to
grow volume and profits simultaneously. At
different points in time, the industry has
our core brands, especially Coca-Cola, diet
Coke and Sprite. Working with The
Coca-Cola Company, these brands will receive
renewed emphasis during 2003.
pursued one goal at the expense of the other.
■ ■ ■ Productivity and Efficiency Driven by
Your Company has taken a balanced and
Supply Chain and Distribution Changes
disciplined approach to the price/volume
As we begin 2003, we now sell more
equation with the goal of sustainable growth
than 50 percent more SKUs than just three
in both over time. Our volume grew by 3.4
years ago. The addition of these new products
percent during 2002, while net income on a
would not have been possible without contin-
comparable basis grew by 63 percent. Con-
ued improvements in our operations. Over the
tinued packaging innovation and new prod-
past several years, the Company has worked
ucts helped our growth. During 2002, we
extensively on its supply chain. We are now
introduced numerous new products or
enjoying the benefits of our hard work,
packages in our markets, constantly working
evidenced by dramatic productivity increases
to provide our consumers with a wide
and significantly lower costs. All of this was
8
100 YEARS ...
OF INNOVATION
In the 1940s, we
introduced the 12-bottle
carton. Today, we have the
sleek Dasani Fridge PackTM.
We’re proud of our efforts
to continually develop
new and better
packaging to meet
consumers’ needs.
OUR BUSINESS
accomplished at the same time our quality
ated cash flow of almost $200 million that was
scores were at their highest levels ever. Our
used to reduce long-term debt and lease
supply chain process improvements have
liabilities. Interest expense for the Company,
allowed us to reduce inventory levels from
including Piedmont Coca-Cola Bottling Part-
their peak by almost 30 percent, despite the
nership, has declined from $67 million in
significant growth in the number of items
2000 to $49 million in 2002. We anticipate
we sell. The Company is also focused on
the Company will continue to benefit from
driving greater efficiency in our distribu-
further reductions in interest expense in the
tion system. We are transitioning to a pre-
coming year.
sell distribution system that will allow for
■ ■ ■ Information Systems
continued growth and management of new
products and packages within the current
operating framework. The changes we are
making will allow our delivery personnel to
be more efficient and ensure they have what
they need on their trucks to better serve
our customers. In addition, the Company
has reduced its distribution locations by
more than 20 percent over the past several
years, thereby increasing efficiency and
reducing fixed costs.
In 2003, the Company is beginning a
multi-year effort to revamp and improve
information systems. As demonstrated by the
changes in our supply chain and distribution
systems, our business has changed signifi-
cantly over the past few years. Spurred by the
competitive realities of the marketplace, we
have innovated and improved quality and
service while lowering costs. Our information
systems in the future will be more integrated
across functions and will provide more real-
■ ■ ■ Company Financial Strength
time information. These improvements in our
Three years ago, the Company com-
systems should allow us to respond more quickly
mitted to improving its financial strength.
and easily to changes in the workplace and
From 2000 to 2002, the Company gener-
improve our overall decision-making capabilities.
10
100 YEARS ...
OF POWERFUL
PARTNERSHIPS
Strong partnerships — with
businesses, retailers, schools
and other outlets in the
community — have always
been important to our success.
On the right, product is
delivered to Virginia Tech, one
of our college partners. On the
left, the sign atop the globe
aptly reads, “Coca-Cola had to
be good to get where it is.”
A TRIBUTE
J. Frank Harrison, Jr. 1930-2002
Mr. Harrison was born in Chatta-
nooga, Tenn. He served his country in the
U.S. Marine Corps and then began a very
successful career which included leader-
ship in such companies as Chattanooga
Glass Company, Dorsey Corporation,
Sewell Plastics and, of course, Coca-Cola
Consolidated.
In addition to his many business
successes, Mr. Harrison was committed
to his faith, his family and his community.
He contributed generously to Christian
organizations and to a wide variety of
worthwhile charitable organizations.
C
oca-Cola Bottling Co. Consolidated
would not be the thriving Company it is
today had it not been for the vision and
guiding hand of J. Frank Harrison, Jr. for the
last 30 years. The grandson of Coca-Cola
Mr. Harrison’s strong belief in God
pioneer and Company founder, J.B. Harrison,
was a centerpiece of his life. He would
Mr. Harrison led the growth of Coca-Cola
often say that Coca-Cola Consolidated
Consolidated from a small, local bottler to
was God’s Company.
the second largest Coca-Cola bottler in the
nation.
Mr. Harrison was an inspiration to
all of us at Coca-Cola Consolidated. His
Mr. Harrison served the Company as
knowledge of the soft drink industry, his
its chairman of the board from 1977 to 1996.
business acumen and common sense
After passing the chairmanship to his son,
judgment are sorely missed. We are
J. Frank Harrison, III, Mr. Harrison contin-
thankful that he shared so much of
ued to provide his leadership and wisdom
himself in making Coca-Cola
as chairman emeritus, a position he held
Consolidated into the Company
until his death in November.
it is today.
12
TABLE OF CONTENTS
Management’s Discussion and Analysis . . . . . . . . . . . . . . . . . . . . . . . . 14
Report of Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Report of Independent Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Consolidated Statements of Operations . . . . . . . . . . . . . . . . . . . . . . . . 31
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . 34
Consolidated Statements of Changes in Stockholders’ Equity . . . . . . 35
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . 36
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Summary of Quarterly Stock Prices . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Board of Directors and Executive Officers . . . . . . . . . . . . . . . . . . . . . . 64
Corporate Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Inside Cover
13
Management’s
Discussion and Analysis
INTRODUCTION
The Company
Coca-Cola Bottling Co. Consolidated (the
“Company”) produces, markets and distributes
carbonated and noncarbonated beverages, primarily
products of The Coca-Cola Company, which include
some of the most recognized and popular beverage
brands in the world. The Company is currently the
second largest bottler of products of The Coca-Cola
Company in the United States, operating in eleven
states, primarily in the Southeast. The Company also
distributes several other beverage brands. The
Company’s product offerings include carbonated soft
drinks, bottled water, teas, juices, isotonics and
energy drinks. Over the past several years, the
Company has expanded its bottling territory
primarily throughout the southeastern region of the
United States via acquisitions and, combined with
internally generated growth, had net sales of over
$1.2 billion in 2002.
Acquisitions and Divestitures
On January 2, 2002, the Company purchased an
additional 4.651% interest in Piedmont Coca-Cola
Bottling Partnership (“Piedmont”) from The
Coca-Cola Company for $10.0 million, increasing the
Company’s ownership in Piedmont to 54.651%.
Due to the increase in ownership, the results of
operations, financial position and cash flows of
Piedmont have been consolidated with those of the
Company beginning in the first quarter of 2002. The
Company’s investment in Piedmont had been
accounted for using the equity method for 2001 and
prior years.
As of December 29, 2002, The Coca-Cola Company
owned 27.5% of the Company’s Common Stock and
Class B Common Stock on a combined basis and had
a 45.349% interest in Piedmont. On March 5, 2003,
the Company’s Board of Directors authorized the
purchase of 50% of The Coca-Cola Company’s
remaining interest in Piedmont for approximately
$53.5 million, subject to the completion of a
definitive purchase agreement and regulatory
approval. This transaction, which is anticipated to
close on March 31, 2003, would increase the
Company’s ownership interest in Piedmont from
54.651% to slightly more than 77%.
During 2000, the Company sold most of its bottling
territory in Kentucky and Ohio to Coca-Cola
Enterprises Inc., another Coca-Cola bottler. The
territory sold represented approximately 3% of the
Company’s 2000 annual sales volume.
New Accounting Pronouncements
Emerging Issues Task Force No. 01-09 “Accounting
for Consideration Given by a Vendor to a Customer
or Reseller of the Vendor’s Products” was effective for
the Company beginning January 1, 2002, requiring
14
MANAGEMENT’S DISCUSSION AND ANALYSIS
certain expenses previously classified as selling,
general and administrative (“S,G&A”) expenses to be
reclassified as deductions from net sales. Prior years’
results have been adjusted to reclassify these expenses
as a deduction to net sales for comparability with
current year presentation. These expenses relate
primarily to payments to customers for certain
marketing programs. The Company reclassified
$22.5 million and $15.6 million for 2001 and 2000,
respectively, related to these expenses.
In November 2002, the Financial Accounting
Standards Board (“FASB”) issued Financial
Interpretation No. 45 “Guarantor’s Accounting and
Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others,”
(“FIN 45”). This interpretation requires additional
disclosure for current guarantees and requires that
certain guarantees entered into or modified
subsequent to December 31, 2002 be reflected in the
guarantor’s balance sheet. The Company adopted the
provisions of FIN 45 for its fiscal year ended
December 29, 2002.
In January 2003, the FASB issued Financial
Interpretation No. 46 “Consolidation of Variable
Interest Entities,” (“FIN 46”). This interpretation
addresses consolidation by business enterprises of
variable interest entities with certain defined
characteristics. This interpretation applies to the first
fiscal year or interim period beginning after June 15,
2003, to variable interest entities in which an
enterprise holds a variable interest that it acquired
before February 1, 2003. The Company has not yet
determined what effect, if any, the adoption of
FIN 46 will have on the results of operations and
financial position of the Company.
Basis of Presentation
The statement of operations and statement of cash
flows for the year ended December 29, 2002 and the
consolidated balance sheet as of December 29, 2002
include the combined operations of the Company and
Piedmont, reflecting the acquisition of an additional
interest in Piedmont as previously discussed.
Generally accepted accounting principles require that
results for the other years presented, including results
of operations and cash flows for the fiscal years ended
December 30, 2001 and December 31, 2000 and the
consolidated balance sheet as of December 30, 2001
be presented on a historical basis with the Company’s
investment in Piedmont accounted for under the
equity method of accounting. The following
management’s discussion and analysis for 2002
compared to 2001 is based on the results for 2002
compared to the comparable consolidated results for
the Company and Piedmont for 2001. The 2001
comparable consolidated results for the Company and
Piedmont are included in Note 3 to the consolidated
financial statements. Comparisons of 2001 to 2000
operating results and financial position are on a
historical basis with the Company’s investment in
Piedmont accounted for as an equity investment for
both years.
The Year in Review
The Company had a very successful year in 2002 with
an increase in physical case volume of 3.4%, the
introduction of several new products and packages,
growth in operating cash flow of approximately 5%
and another year of strong cash flow that resulted in
debt repayment of approximately $66 million.
15
MANAGEMENT’S DISCUSSION AND ANALYSIS
Income from operations is reconciled to operating cash flow as follows:
In Thousands
Income from operations
Amortization of goodwill and intangibles
Depreciation expense
Operating cash flow
The Company believes that operating cash flow is a
useful measurement tool that is commonly used in
evaluating the financial performance and in business
valuation of soft drink bottlers by investors.
Volume growth of 3.4% during 2002 was driven by
continued sales growth of Dasani bottled water, the
success of our Fridge Pack™ twelve-pack, the
introduction of Vanilla Coke, diet Vanilla Coke, diet
Cherry Coke, Minute Maid Pink Lemonade and the
rollout of Fanta flavors across our territory. This
increase in volume for 2002 comes on top of volume
growth of 4% in 2001. Net selling price per case
increased by slightly less than 1% for the year. The
Company’s results in the fourth quarter were not as
strong as experienced during the first three quarters
of 2002. Unseasonably cold and wet weather
throughout much of October and November, a winter
ice storm in December that left over a million homes
and businesses in our North Carolina and South
Carolina territory without power for several days and
decreased promotion of our products by two of our
largest retail customers negatively impacted fourth
quarter volume and operating results.
The Company reported basic net income of $22.8
million or $2.58 per share for 2002 compared with
basic net income of $9.0 million or $1.03 per share
for 2001. Net income for 2002 was impacted
favorably by a $21.0 million pre-tax reduction in
amortization expense associated with the adoption of
the Statement of Financial Accounting Standards No.
2002
Unaudited
2001
$ 96,266
$ 71,474
2,796
76,075
23,810
71,542
$175,137
$166,826
142, “Goodwill and Other Intangible Assets,” (“SFAS
No. 142”) and the elimination of an accrual of $2.3
million, net of tax, related to a retirement benefit
payable to J. Frank Harrison, Jr., the former
Chairman of the Company, who passed away in
November 2002. Net income for 2002 was reduced
during the fourth quarter by a $1.3 million expense,
net of tax, related to the termination of two interest
rate hedging agreements. Net income for 2001 was
favorably impacted by an income tax benefit of $2.9
million, which resulted from the settlement of certain
income tax matters with the Internal Revenue Service.
The Company continued to benefit from declining
interest rates and lower debt levels over the course of
2002. The combination of lower interest rates and
reduced long-term debt balances contributed to a
decline in interest expense of $8.7 million from 2001.
Over the past three years, the Company has reduced
its debt and capital lease obligations by almost $200
million. The Company recorded a capital lease of
$41.6 million at the end of the first quarter of 2002
related to its production/distribution center located in
Charlotte, North Carolina. The lease obligation was
capitalized as the Company received a renewal option
to extend the term of the lease, which it expects to
exercise. Excluding the impact of the capitalization of
this lease, the Company reduced its total debt and
capital lease obligations by approximately $66 million
during 2002.
16
MANAGEMENT’S DISCUSSION AND ANALYSIS
Significant Events of Prior Years
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 cooperative consists
solely of Coca-Cola bottlers. SAC produces bottle and
can product for its members. The Company is a
member of the cooperative and receives a fee for
managing the day-to-day operations of SAC pursuant
to a ten-year management agreement.
On July 2, 1993, the Company and The Coca-Cola
Company formed Piedmont to distribute and market
soft drink products of The Coca-Cola Company and
other third party licensors, primarily in certain
portions of North Carolina and South Carolina. The
Company provides a portion of the soft drink
products to Piedmont and receives a fee for managing
the business of Piedmont pursuant to a management
agreement. The Company and The Coca-Cola
Company, through their respective subsidiaries, each
beneficially owned a 50% interest in Piedmont at
December 30, 2001. As previously noted, on January 2,
2002, the Company increased its ownership interest
in Piedmont to 54.651% and The Coca-Cola
Company’s ownership in Piedmont was reduced to
45.349%. The results of operations, financial position
and cash flows of Piedmont have been consolidated
with those of the Company beginning in the first
quarter of 2002.
DISCUSSION OF CRITICAL ACCOUNTING POLICIES
In the ordinary course of business, the Company has
made a number of estimates and assumptions relating
to the reporting of results of operations and financial
position in the preparation of its financial statements
in conformity with accounting principles generally
accepted in the United States of America. Actual
results could differ significantly from those estimates
under different assumptions and conditions. The
Company believes that the following discussion
addresses the Company’s most critical accounting
policies, which are those that are most important to
the portrayal of the Company’s financial condition
and results of operations and require management’s
most difficult, subjective and complex judgments,
often as a result of the need to make estimates about
the effect of matters that are inherently uncertain.
Allowance for Doubtful Accounts
The Company evaluates the collectibility of its trade
accounts receivable based on a number of factors. In
circumstances where the Company becomes aware of
a specific customer’s inability to meet its financial
obligations to the Company, a specific reserve for bad
debts is estimated and recorded which reduces the
recognized receivable to the estimated amount the
17
Company believes will ultimately be collected. In
addition to specific customer identification of
potential bad debts, bad debt charges are recorded
based on the Company’s recent past loss history and
an overall assessment of past due trade accounts
receivable amounts outstanding.
Property, Plant and Equipment
Property, plant and equipment is recorded at cost
and is depreciated on a straight-line basis over the
estimated useful lives of such assets. Changes in
circumstances such as technological advances,
changes to the Company’s business model or changes
in the Company’s capital strategy could result in the
actual useful lives differing from the Company’s
current estimates. In those cases where the Company
determines that the useful life of property, plant and
equipment should be shortened, the Company would
depreciate the net book value in excess of the
estimated salvage value over its revised remaining
useful life. Factors such as changes in the planned use
of manufacturing equipment, vending equipment,
transportation equipment, warehouse facilities or
software could also result in shortened useful lives.
MANAGEMENT’S DISCUSSION AND ANALYSIS
The Company evaluates long-lived assets and certain
identifiable intangibles for impairment whenever
events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable.
When undiscounted future cash flows will not be
sufficient to recover an asset’s carrying amount, the
asset is written down to its fair value. Long-lived
assets to be disposed of other than by sale are
classified as held and used until they are disposed of.
Long-lived assets to be disposed of by sale are
classified as held for sale and are reported at the
lower of carrying amount or fair value less cost to
sell, and depreciation is ceased.
Goodwill and Other Intangible Assets
During 2002, the Company adopted the provisions of
Statement of Financial Accounting Standards No.
141, “Business Combinations,” and SFAS No. 142.
Adoption of SFAS No. 142 resulted in a reduction of
amortization expense in 2002 by approximately
$21.0 million on a pre-tax basis for the Company and
Piedmont on a comparable basis. As of the beginning
of fiscal year 2002, the Company performed an
impairment test of its goodwill and intangible assets
with indefinite useful lives and concluded that
current fair values for recorded goodwill and
intangible assets with indefinite lives exceed their
respective carrying values. In the future the Company
will perform an annual impairment test in the third
quarter of each year or earlier if significant
impairment indicators arise.
Deferred Tax Assets
The Company records a valuation allowance to
reduce the carrying value of its deferred tax assets to
an amount that is more likely than not to be realized.
While the Company has considered future taxable
income and prudent and feasible tax planning
strategies in assessing the need for the valuation
allowance, should the Company determine that it
would not be able to realize all or part of its net
deferred tax assets in the future, an adjustment to the
valuation allowance would be charged to income in
the period in which such determination was made. A
reduction in the valuation allowance and
corresponding credit to income may be required if the
likelihood of realizing existing deferred tax assets
were to increase.
Pension and Postretirement Benefits
Obligations
The Company sponsors pension plans covering
substantially all full-time nonunion employees who
meet eligibility requirements. Several statistical and
other factors, which attempt to anticipate future
events, are used in calculating the expense and
liability related to the plans. These factors include
assumptions about the discount rate, expected return
on plan assets, employee turnover, age at retirement
and rate of future compensation increases as
determined by the Company, within certain
guidelines. In addition, the Company’s actuarial
consultants also use subjective factors such as
withdrawal and mortality rates to estimate the
projected benefit obligation. The actuarial
assumptions used by the Company may differ
materially from actual results due to changing market
and economic conditions, higher or lower withdrawal
rates or longer or shorter life spans of participants.
These differences may result in a significant impact to
the amount of pension expense recorded by the
Company in future periods. In 2002, the discount
rate used in determining the actuarial present value of
the projected benefit obligation for the Company’s
nonunion pension plans decreased to 7.00% from
7.25% in 2001 due to declining interest rates for
long-term bonds.
The Company sponsors a postretirement health care
plan for employees meeting specified qualifying
criteria. Several statistical and other factors, which
attempt to anticipate future events, are used in
calculating the expense and liability for this plan.
These factors include assumptions about the discount
rate and the expected growth rate for the cost of
health care benefits. In addition, the Company’s
actuarial consultants also use subjective factors such
18
MANAGEMENT’S DISCUSSION AND ANALYSIS
as withdrawal and mortality rates to estimate the
projected liability under this plan. The actuarial
assumptions used by the Company may differ
materially from actual results due to changing market
and economic conditions, higher or lower withdrawal
rates or longer or shorter life spans of participants.
These differences may result in a significant impact to
the amount of expense recorded by the Company in
future periods. In 2002, the discount rate used in the
actuarial estimates for the Company’s postretirement
health care plan decreased to 6.75% from 7.25% in
2001 due to declining interest rates for long-term
bonds.
RESULTS OF OPERATIONS
2002 COMPARED TO 2001
Net Income
The Company reported basic net income of $22.8
million or $2.58 per share for the fiscal year 2002
compared with basic net income of $9.0 million or
$1.03 per share for the fiscal year 2001. Net income for
2002 was impacted favorably by a $21.0 million pre-tax
reduction in amortization expense associated with the
adoption of SFAS No. 142 and the elimination of an
accrual of $2.3 million, net of tax, related to a retirement
benefit payable to J. Frank Harrison, Jr., the former
Chairman of the Company, who passed away in
November 2002. Net income for 2002 was reduced
during the fourth quarter by a $1.3 million expense, net
of tax, related to the termination of two interest rate
hedging agreements. Net income for 2001 was favorably
impacted by an income tax benefit of approximately
$2.9 million, which resulted from the settlement of
certain income tax matters with the Internal Revenue
Service.
Net Sales and Gross Margin
The Company’s net sales for 2002 were $1.25 billion, an
increase of 4.8% compared to 2001. The increase in net
sales was due to an increase in physical case volume of
3.4%, higher sales to other Coca-Cola bottlers and an
increase of slightly less than 1% in net selling price per
unit compared to 2001. Sales volume of carbonated
beverages increased by 2.1% for 2002 over 2001. In
addition, the Company continued to experience strong
volume growth for its bottled water, Dasani. New
packaging, including the Dasani Fridge Pack™, and
19
increased availability in retail outlets contributed to an
increase in volume of more than 40% for Dasani during
2002. The Company introduced Vanilla Coke during
the second quarter of 2002 and sales results have been
very positive. The Company introduced diet Vanilla
Coke and diet Cherry Coke during the fourth quarter of
2002. The introduction of these additional options in
the cola category led to an increase in total cola
volume of approximately 1% in 2002 compared to
approximately 3% in 2001. Fanta flavors and Minute
Maid Lemonade, introduced in 2002, continued to
favorably impact volume growth. The Company
introduced Minute Maid Pink Lemonade during the
third quarter. POWERade continues to show solid
growth with volume increasing by approximately 22%
over 2001. Noncarbonated beverages, which include
bottled water, juices and isotonics, comprised
approximately 10% of the Company’s total sales volume
in 2002 compared to approximately 8% in 2001.
The Company’s products are sold and distributed
directly by its employees to retail stores and other
outlets. During 2002, approximately 79% of the
Company’s physical case volume was sold for future
consumption through supermarkets, convenience
stores, drug stores and mass merchandisers. The
remaining 21% of the Company’s volume was sold for
immediate consumption through various cold drink
channels. The Company’s largest customer accounted
for approximately 10% of the Company’s total sales
volume in 2002.
MANAGEMENT’S DISCUSSION AND ANALYSIS
Gross margin increased by 5.7% for 2002. Gross
margin as a percentage of net sales increased from
46.1% in 2001 to 46.5% in 2002. The improvement in
gross margin as a percentage of net sales reflects
modest increases in selling prices in future
consumption packages offset by planned decreases in
selling prices in immediate consumption packages in
certain channels. These changes in selling prices have
resulted in growth in revenue per case of slightly less
than 1% for the year and have led to favorable shifts
in channel mix, which combined with lower cost of
sales on a per unit basis, have driven the increase in
gross margin.
The Company relies extensively on advertising and
sales promotion in the marketing of its products. The
Coca-Cola Company and other beverage companies
that supply concentrates, syrups and finished
products to the Company make substantial marketing
and advertising expenditures to promote sales in the
local territories served by the Company. The
Company also benefits from national advertising
programs conducted by The Coca-Cola Company and
other beverage companies. Certain of the marketing
expenditures by The Coca-Cola Company and other
beverage companies are made pursuant to annual
arrangements. Although The Coca-Cola Company has
advised the Company that it intends to provide
marketing funding support in 2003, it is not obligated
to do so under the Company’s master bottle contract.
Significant decreases in marketing support from The
Coca-Cola Company or other beverage companies
could adversely impact operating results of the
Company. Marketing funding support includes direct
payments to the Company from The Coca-Cola
Company and other beverage companies, as well as
payments to customers for marketing programs. Total
direct payments to the Company combined with
payments to customers for marketing programs were
$64.1 million in 2002 versus $65.3 million in 2001.
In 2002, The Coca-Cola Company offered through its
Strategic Growth Initiative an opportunity for the
Company to receive additional marketing funding
subject to meeting certain volume performance
requirements. Under this program, the Company
could have received $6.3 million in incremental
funding in 2002 as a result of its volume
performance. Instead, the Company requested The
Coca-Cola Company reinvest $4.0 million of this
funding in additional local media and the balance of
the funding, or $2.3 million, was received by the
Company in cash.
Cost of Sales and Operating Expenses
Cost of sales on a per unit basis decreased by less
than 1% in 2002 compared to 2001. Packaging costs
decreased slightly compared to the prior year.
Increases in other raw material costs have been offset
largely by productivity improvements. The Company
anticipates that the cost of plastic bottle containers
will increase at a rate well above inflation in 2003.
S,G&A expenses for 2002 increased 6.0% from 2001.
The increase in S,G&A expenses was primarily
attributable to increases in employee compensation
and employee benefit plans (including costs related to
the Company’s pension plans), increases in insurance
costs, increases in marketing expenses and certain
expenses related to the closing of sales distribution
facilities. Nonhealth related insurance costs increased
by $4.0 million or 37% during 2002. The Company
anticipates that due to current market conditions, its
costs associated with nonhealth related insurance will
increase by approximately 12% in 2003. Costs related
to the stock grant award for the Company’s Chairman
increased from $1.4 million in 2001 to $2.3 million in
2002, due to the increased price of the Company’s
stock during 2002.
Based on the performance of the overall equity
markets in 2001 and lower interest rates, pension
expense increased from $2.0 million in 2001 to
$6.2 million in 2002. Due to continuing weakness in
the equity markets in 2002 and a reduction in the
anticipated future return on pension plan
investments, pension expense will further increase in
2003 to approximately $9.5 million. Claim costs
related to the Company’s health care insurance
program increased by $3.1 million or 14.1% during
20
MANAGEMENT’S DISCUSSION AND ANALYSIS
2002. The Company closed eight sales distribution
centers during 2002. The Company believes that
these distribution center closings will reduce overall
costs and improve asset productivity in the future.
The Company will continue to evaluate its
distribution system in an effort to optimize the
process of distributing products to customers.
Depreciation expense in 2002 increased $4.5 million
or 6.3% from 2001. The increase was due to
amortization of a capital lease for the Company’s
Charlotte, North Carolina production/distribution
center and the purchase during the second quarter of
2001 of approximately $49 million of cold drink
equipment that had previously been leased. The
production/distribution center lease obligation was
capitalized at the end of the first quarter of 2002 as
the Company received a renewal option to extend the
term of the lease, which it expects to exercise. The
production/distribution lease was previously
accounted for as an operating lease. Lease expense in
2002 related to the production/distribution center
was $2.9 million. Capital expenditures during 2002
amounted to $57.3 million compared to $101.6
million in 2001. Capital expenditures during 2001
included the purchase of approximately $49 million
of leased equipment as previously discussed.
Interest Expense
Interest expense for 2002 of $49.1 million decreased
by $8.7 million or 15.0% from 2001. The decrease in
interest expense was primarily attributable to lower
average interest rates on the Company’s outstanding
debt and lower debt balances. Interest expense during
the fourth quarter of 2002 included $2.2 million due
to the termination of interest rate hedging agreements
related to the Company’s long-term debt that was
retired early. The Company’s overall weighted
average interest rate decreased from an average of
6.5% during 2001 to an average of 5.6% during 2002.
Debt and capital lease obligations decreased from
$878.4 million at December 30, 2001 to
$853.8 million at December 29, 2002. Debt and
capital lease obligations at December 29, 2002
include $41.3 million attributable to a lease that was
capitalized during the first quarter of 2002.
Excluding the impact of the capitalization of this
lease, strong cash flow enabled the Company to repay
approximately $66 million in debt and capital lease
obligations during 2002.
Other Income (Expense)
Other expense for 2002 was $3.1 million compared to
$2.3 million in 2001. The change in other expense
from 2001 is primarily due to increased losses on the
sale of property, plant and equipment in 2002. The
Company recorded a provision for impairment of
certain real estate of $.9 million in the fourth quarter
of 2001. The impairment charge reflected an
adjustment to estimated net realizable value of real
estate which was no longer required for the Company’s
ongoing operations. Also in 2001, the Company
recorded a gain of $1.1 million on the sale of certain
corporate transportation equipment and a loan loss
provision of $1.6 million related to an outstanding
loan of its equity investee, Data Ventures, LLC.
Minority Interest
The Company recorded minority interest of
$6.0 million in 2002 compared to $.4 million in
2001 related to the portion of Piedmont owned by
The Coca-Cola Company. The increased amount in
2002 was due to improved operating results at
Piedmont. Piedmont’s operating results were
favorably impacted by the reduction in amortization
expense associated with the adoption of SFAS No.
142. Amortization expense decreased at Piedmont by
$8.4 million in 2002 compared to 2001.
Income Taxes
The effective tax rate for federal and state income
taxes was approximately 40% in 2002 versus
approximately 19% in 2001. The Company’s income
tax rate for 2001 was favorably impacted by the
$2.9 million settlement of certain income tax issues
with the Internal Revenue Service. The Company
anticipates that in future years, its income tax
payments will increase significantly.
21
MANAGEMENT’S DISCUSSION AND ANALYSIS
2001 COMPARED TO 2000
Net Income
The Company reported basic net income of
$9.5 million or $1.08 per share for fiscal year 2001
compared with basic net income of $6.3 million or
$.72 per share for fiscal year 2000. Diluted net
income per share for 2001 was $1.07 compared to
$.71 in 2000. Net income for 2001 was favorably
impacted by an income tax benefit of $2.9 million,
which resulted from the settlement of certain income
tax issues with the Internal Revenue Service during
the year. Operating results for 2000 included
nonrecurring items that increased net income for the
year by $3.6 million. The nonrecurring income items
in 2000 included a $5.6 million gain, net of tax, on
the sale of bottling territory in Kentucky and Ohio
offset partially by a provision for impairment of
certain fixed assets of $2.0 million, net of tax.
Net Sales and Gross Margin
The Company’s net sales for 2001 were $1.0 billion,
an increase of 2.0% compared to 2000. On a constant
territory basis, net sales increased by approximately
4% in 2001 due to an increase in physical case
volume of 4% with net selling price relatively
unchanged compared to 2000. The growth in the
Company’s constant territory physical case volume
was attributable to several different items. Sales of
carbonated soft drinks were positively impacted by
the introduction of new packaging for twelve-pack
cans called Fridge Pack™ and line extensions for
Mello Yello and diet Coke. On a constant territory
basis, volume for the Company’s three largest selling
brands, Coca-Cola classic, Sprite and diet Coke,
increased during 2001 after volume declines during
2000.
Sales of the Company’s noncarbonated beverages
comprised approximately 8% of the Company’s total
sales volume in 2001 compared to approximately 6%
in 2000. The Company experienced strong volume
growth in its bottled water, Dasani. New packaging,
including twelve-ounce bottles and multi-packs,
contributed to an increase in volume of 52% for
Dasani on a constant territory basis over 2000. New
packages for POWERade, including twelve-ounce
bottles, helped increase volume by 30% over prior
year volume.
While the Company’s gross margin as a percentage of
net sales declined in 2001 compared to 2000, it was
1.5% higher in 2001 than in 1999. Gross margin as a
percentage of net sales increased from 43.5% in 1999
to 46.3% in 2000 and declined to 45.0% in 2001. The
decline in the gross margin percentage in 2001 as
compared to 2000 was attributable to an increase in
cost of sales as a result of higher raw material costs
and brand mix.
Marketing funding support, which includes direct
payments to the Company from The Coca-Cola
Company and other beverage companies as well as
payments to customers for marketing programs, was
$49.4 million in 2001 as compared to $49.1 million
in 2000.
Cost of Sales and Operating Expenses
Cost of sales on a per unit basis increased .9% for the
year 2001 compared to 2000. Increases in raw
material costs were partially offset by a package mix
shift from bottles to cans and improvements in
productivity.
S,G&A expenses for 2001 increased by 1.4% over the
prior year on a constant territory basis. The increase
in S,G&A expenses for 2001 was due primarily to
higher employee compensation costs and an increase
in sales development costs, offset by a reduction in
lease expense resulting from the Company’s purchase
of certain assets that were previously leased and
increased productivity. S,G&A expenses included an
increase in the Company’s allowance for doubtful
accounts due to the bankruptcy filing of a large retail
customer shortly after the end of fiscal year 2001. The
22
MANAGEMENT’S DISCUSSION AND ANALYSIS
Company produced, sold and delivered 4% more
physical cases with 4% fewer employees in 2001.
Depreciation expense in 2001 increased $1.4 million
or 2.1% on a reported basis and $1.8 million or 2.7%
on a constant territory basis from 2000. The increase
was due primarily to the purchase during the second
quarter of 2001 of approximately $49 million of cold
drink equipment that had previously been leased.
This purchase was financed with the Company’s lines
of credit. Capital expenditures in 2001 totaled
$96.7 million, which included the purchase of
approximately $49 million of previously leased
equipment as discussed above.
Investment in Piedmont
The Company’s share of Piedmont’s net income in
2001 was $.4 million compared to $2.5 million in
2000. The decrease in income from Piedmont of
$2.1 million resulted primarily from an increase in
operating expenses. Piedmont’s operating expenses
increased by $10.4 million in 2001 due to higher
employee compensation costs, an increase in sales
development costs and an increase in management
fees paid to the Company.
Interest Expense
Interest expense for 2001 of $44.3 million decreased
by $9.0 million or approximately 17% from 2000.
The decrease in interest expense was attributable to
FINANCIAL CONDITION
lower average interest rates on the Company’s
outstanding debt and lower debt balances. The
Company’s overall weighted average interest rate
decreased from an average of 7.3% during 2000 to an
average of 6.5% during 2001. Debt and capital lease
obligations decreased from $697.2 million at
December 31, 2000 to $679.3 million at December
30, 2001. Strong cash flow from operations enabled
the Company to repay approximately $18 million in
debt and purchase approximately $49 million of
equipment previously leased.
Other Income (Expense)
Other expense for 2001 was $2.6 million compared to
other income of $3.5 million in 2000. The change in
other income (expense) from 2000 was primarily due
to nonrecurring items in 2000 that included a gain on
the sale of bottling territory of $8.8 million, offset
partially by a provision for impairment of certain
fixed assets of $3.1 million.
Income Taxes
The effective tax rate for federal and state income
taxes was approximately 19% in 2001 versus
approximately 36% in 2000. The Company’s income
tax rate for 2001 was favorably impacted by the
$2.9 million settlement of certain income tax issues
with the Internal Revenue Service.
Total assets increased slightly from $1.347 billion at
December 30, 2001 to $1.354 billion at December 29,
2002.
Net working capital, defined as current assets less
current liabilities, increased by $138.5 million to
$15.1 million at December 29, 2002 from a deficit of
$123.4 million at December 30, 2001. The change in
working capital was primarily due to a decrease in the
current portion of long-term debt of $154.2 million.
The Company refinanced its current debt maturities
during 2002 with the issuance of senior notes and
with borrowings from its revolving credit facility.
Other changes in working capital included a decrease
in accounts receivable, trade of $4.8 million and a
decrease in inventory of $7.2 million, offset by an
increase in accounts receivable from The Coca-Cola
Company of $8.0 million and an increase in other
accounts receivable of $9.4 million. The decrease in
accounts receivable, trade resulted from an
improvement in the Company’s accounts receivable
23
MANAGEMENT’S DISCUSSION AND ANALYSIS
collections performance combined with lower net
sales in the month of December. The increase in
accounts receivable from The Coca-Cola Company
resulted from a difference in the timing of marketing
program settlements. The reduction in inventory
levels is primarily due to the focused work on our
supply chain. Inventory balances declined in 2002
despite the introduction of several new products and
packages. Significant changes in current liabilities
included an increase of $4.1 million in accounts
payable, trade and an increase in other accrued
liabilities of $15.6 million. The increase in other
accrued liabilities relates primarily to the timing of
customer marketing payments and an increase in the
current portion of the Company’s pension liability.
The Company recorded a capital lease of $41.6
million at the end of the first quarter of 2002 related
to its production/distribution center located in
Charlotte, North Carolina. As disclosed in Note 16 to
the consolidated financial statements, this facility is
leased from a related party. The lease obligation was
capitalized as the Company received a renewal option
to extend the term of the lease, which it expects to
exercise.
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 payments and
dividends for stockholders. The amount and
frequency of future dividends will be determined by
Debt and capital lease obligations decreased from
$878.4 million at December 30, 2001 to $853.8
million at December 29, 2002. Excluding the impact
of the capitalization of the lease in the first quarter of
2002, cash flow enabled the Company to repay
approximately $66 million in debt and capital lease
obligations. The Company has reduced its debt and
capital lease obligations by approximately
$200 million over the past three years.
The Company recorded a minimum pension liability
adjustment of $11.0 million, net of tax, in the fourth
quarter of 2001 to reflect the difference between the
fair market value of the Company’s nonunion pension
plan assets and the accumulated benefit obligation of
the plan. The Company recorded an additional
adjustment of $9.6 million, net of tax, during 2002
resulting in a cumulative charge to equity of $20.6
million as of December 29, 2002. Contributions to
the Company’s pension plans increased from
$.3 million in 2001 to $13.5 million in 2002. The
Company anticipates contributing approximately
$8 million to $10 million to its nonunion pension
plans during 2003.
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.
If the Company completes the purchase of half of The
Coca-Cola Company’s remaining interest in Piedmont
for approximately $53.5 million, available sources of
financing for this transaction may include the
Company’s available lines of credit, its revolving
credit facility or public debt.
24
MANAGEMENT’S DISCUSSION AND ANALYSIS
The following table summarizes the Company’s contractual obligations and commercial commitments as of
December 29, 2002:
In Thousands
Contractual obligations
Long-term debt
Capital lease obligations (1)
Operating leases (1)
Total contractual obligations
Other commercial commitments
Guarantees (1)
Standby letters of credit (1)
Sponsorship commitments (1)
Total commercial commitments
Payments Due by Period
Total
Next 12
Months
Years
2 and 3
Years
4 and 5
After 5
Years
$807,756
$
31
$207,645
$100,080
$500,000
46,026
1,120
1,847
1,633
41,426
38,044
$891,826
6,944
$ 8,095
12,125
$221,617
10,198
$111,911
8,777
$550,203
$ 34,946
$34,946
8,910
8,910
20,914
$ 64,770
3,090
$46,946
$
$
—
—
5,805
5,805
$
$
—
—
5,020
5,020
$
$
—
—
6,999
6,999
(1) See Note 12 to the consolidated financial statements for additional information.
Investing Activities
Additions to property, plant and equipment during
2002 were $57.3 million. Capital expenditures during
2002 were funded with cash flow from operations and
from borrowings under the Company’s available lines
of credit. Leasing is used for certain capital additions
when considered cost effective relative to other
sources of capital. The Company currently leases two
production facilities and several distribution and
administrative facilities.
At the end of 2002, the Company had no material
commitments for the purchase of capital assets other
than those related to normal replacement of
equipment. The Company considers the acquisition
of bottling territories on an ongoing basis. The
Company anticipates that additions to property, plant
and equipment in 2003 will be in the range of
$70 million to $75 million and plans to fund such
additions through cash flows from operations and its
available lines of credit. The Company is in the
process of initiating an upgrade of its Enterprise
Resource Planning (ERP) computer software systems,
which is anticipated will take four to five years to
complete.
Financing Activities
In November 2002, the Company issued $150 million
of ten-year senior notes at a coupon rate of 5.00%.
The proceeds from this issuance were used to repay
borrowings under the Company’s revolving credit
facility and lines of credit, and to repay a $97.5
million term loan for Piedmont. The Company filed
an $800 million shelf registration for debt and equity
securities in January 1999. The Company has used
this shelf registration to issue $250 million of long-
term debentures in 1999 and $150 million of senior
notes in 2002 as discussed above. The Company
currently has $400 million available for use under
this shelf registration.
In December 2002, the Company entered into a new
three-year, $125 million revolving credit facility. This
facility includes an option to extend the term for an
additional year at the participating banks’ discretion.
The revolving credit facility bears interest at a floating
25
MANAGEMENT’S DISCUSSION AND ANALYSIS
rate of LIBOR plus an interest rate spread of .60%. In
addition, there is a facility fee of .15% required for
this revolving credit facility. Both the interest rate
spread and the facility fee are determined from a
commonly used pricing grid based on the Company’s
long-term senior unsecured noncredit-enhanced debt
rating. This new revolving credit facility replaced the
Company’s $170 million facility that expired in
December 2002. The new facility contains covenants
which establish ratio requirements related to debt,
interest expense and cash flow. On December 29,
2002, there were no amounts outstanding under this
new facility.
The Company also borrows periodically under its
available lines of credit. These lines of credit, in the
aggregate amount of $65 million at December 29,
2002, are made available at the discretion of the two
participating banks and may be withdrawn at any
time by such banks. The Company can utilize its
$125 million revolving credit facility in the event the
lines of credit are not available. The Company had
borrowed $37.6 million under its lines of credit as of
December 29, 2002. The lines of credit as of
December 29, 2002 bore an interest rate of 1.85%.
During 2002, Piedmont refinanced a $195 million
term loan using the proceeds from a loan from the
Company. The Company’s source of funds for this
loan to Piedmont included the issuance of $150
million of senior notes, its lines of credit, its revolving
credit facility and available cash flow. Piedmont pays
the Company interest on the loan at the Company’s
average cost of funds plus .50%. The Company plans
to provide for Piedmont’s future financing
requirements under these terms.
On May 13, 2002, the Company announced that two
of its directors, J. Frank Harrison, Jr., Chairman
Emeritus, and J. Frank Harrison, III, Chairman of the
Board of Directors and Chief Executive Officer, had
entered into plans providing for sales of up to an
aggregate total of 250,000 shares of the Company’s
Common Stock in accordance with Securities and
Exchange Commission Rule 10b5-1. Shares sold
26
under the plans were issuable to Mr. Harrison, Jr. and
Mr. Harrison, III under stock option agreements that
were granted in 1989 as long-term incentives. All
250,000 shares of Common Stock exercisable under
the options were sold under the plans and the
Company received proceeds of $7.2 million.
The Company’s income from operations for 2002 was
almost two times interest expense. This interest
coverage coupled with the stability of the Company’s
operating cash flows are two of the key reasons the
Company has been rated investment grade by both
Moody’s and Standard & Poor’s. It is the Company’s
intent to operate in a manner that will allow it to
maintain its investment grade ratings.
At December 29, 2002, the Company’s debt ratings
were as follows:
Standard and Poor’s
Moody’s
Long-Term
Debt
BBB
Baa
There were no changes in these debt ratings from the
prior year.
With regards to the Company’s $170 million term
loan agreement, the Company must maintain its
public debt ratings at investment grade as determined
by both Moody’s and Standard & Poor’s. If the
Company’s public debt ratings fall below investment
grade within 90 days after the public announcement
of certain designated events and such ratings stay
below investment grade for an additional 40 days, a
trigger event resulting in a default occurs. The
Company does not anticipate a trigger event will
occur.
Off-Balance Sheet Arrangements
See Note 12 to the consolidated financial statements
for details of the Company’s off-balance sheet
arrangements.
MANAGEMENT’S DISCUSSION AND ANALYSIS
Interest Rate Hedging
The Company periodically uses interest rate hedging
products to modify risk from interest rate
fluctuations. The Company has historically altered its
fixed/floating rate mix based upon anticipated cash
flows from operations relative to the Company’s debt
level and the potential impact of changes in interest
rates on the Company’s overall financial condition.
Sensitivity analyses are performed to review the
impact on the Company’s financial position and
coverage of various interest rate movements. The
Company does not use derivative financial
instruments for trading purposes nor does it use
leveraged financial instruments.
During the fourth quarter of 2002, the Company
terminated two interest rate swap agreements related
to long- term debt that was retired early. These swap
agreements were accounted for as cash flow hedges.
The Company recorded interest expense in the fourth
quarter of $2.2 million related to the amounts paid
upon termination of these interest rate hedging
agreements.
During November 2002, the Company entered into
three interest rate swap agreements in conjunction
with the issuance of $150 million of senior notes and
the refinancing of other Company debt as previously
discussed. The new interest rate swap agreements
effectively convert $150 million of the Company’s
debt from a fixed rate to a floating rate in conjunction
with its stated strategy. During December 2002, the
Company entered into four forward rate agreements,
which fix short-term rates on certain components of
the Company’s floating rate debt for periods ranging
from three to twelve months. One of these forward
rate agreements was accounted for as a cash flow
hedge. Three of these forward rate agreements do not
meet the criteria set forth in Statement of Financial
Accounting Standards No. 133, “Accounting for
Derivative Instruments and Hedging Activities,” as
amended, for hedge accounting and have been
accounted for on a mark-to-market basis. The
mark-to-market adjustment for these forward rate
agreements is included as an adjustment to interest
expense and was not material in 2002. The Company
entered into an additional $50 million, one-year
forward rate agreement subsequent to fiscal year end.
In October 2001, the Company terminated two
interest rate swaps with a total notional amount of
$100 million. The gain of $6.7 million from the
termination of these swaps is being amortized as an
adjustment to interest expense over the remaining
term of the related debt instrument that was being
hedged.
During 2002, interest expense was $1.9 million lower
due to amortization of the deferred gains on
previously terminated interest rate swap agreements.
Interest expense will be reduced by the amortization
of these deferred gains in 2003 through 2009 as
follows: $1.9 million, $1.7 million, $1.5 million, $1.5
million, $1.5 million, $1.5 million and $.6 million,
respectively.
The weighted average interest rate of the Company’s
debt and capital lease obligations as of December 29,
2002 was 5.0% compared to 5.7% at the end of 2001.
The Company’s overall weighted average interest rate
on its debt and capital lease obligations in 2002
decreased to 5.6% from 6.5% in 2001. Before giving
effect to forward rate agreements, approximately 47%
of the Company’s debt and capital lease obligations
of $853.8 million as of December 29, 2002 was
maintained on a floating rate basis and was subject to
changes in short-term interest rates. As a result of
the aforementioned forward rate agreements, the
Company’s exposure to interest rate movements has
been significantly reduced for 2003 and the Company
estimates that interest expense for 2003 will
approximate $43 million, a reduction of over
$6 million from 2002.
An increase in interest rates of 1% in 2002 would
have resulted in an increase in interest expense of
approximately $2 million on a pre-tax basis.
27
MANAGEMENT’S DISCUSSION AND ANALYSIS
FORWARD-LOOKING STATEMENTS
This Annual Report to Stockholders, as well as
information included in 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, several forward-looking management
comments and other statements that reflect
management’s current outlook for future periods.
These statements include, among others, statements
relating to: the consolidation of results of operations,
financial position and cash flows of Piedmont with
those of the Company; the Company’s anticipated
purchase of half of The Coca-Cola Company’s
remaining interest in Piedmont and financing thereof;
increases in pension expense; anticipated return on
pension plan investments; the Company’s estimate of
interest expense for 2003; anticipated costs associated
with nonhealth and health related insurance; the
Company’s ability to utilize net operating loss
carryforwards; the Company’s belief that other parties
to certain contractual arrangements will perform their
obligations; potential marketing funding support
from The Coca-Cola Company; the Company’s belief
that the risk of loss with respect to funds deposited
with banks is minimal; sufficiency of financial
resources; anticipated additions to property, plant
and equipment; expectations regarding future income
tax payments; estimated annual purchases under the
Company’s aluminum can agreement; the Company’s
belief that disposition of certain litigation and claims
will not have a material adverse effect; the Company’s
expectation of exercising its option to extend certain
lease obligations; effects of closing of distribution
centers; the Company’s intention to continue to
evaluate its distribution system in an effort to
optimize the process of distributing products; the
effects of the upgrade of ERP systems; management’s
belief that the Company has sufficient financial
resources to maintain current operations and provide
for its current capital expenditures and working
capital requirements, scheduled debt payments,
interest and income tax payments and dividends for
stockholders; the Company’s intention to operate in a
manner to maintain its investment grade ratings; the
Company’s belief that neither SAC or Southeastern
Container will fail to fulfill their commitments under
their respective debt and lease agreements; providing
for Piedmont’s future financing requirements and
management’s belief that a trigger event will not
occur under the Company’s $170 million term loan
agreement. These statements and expectations are
based on the current available competitive, financial
and economic data along with the Company’s
operating plans, and are subject to future events and
uncertainties. Among the events or uncertainties
which could adversely affect future periods are: lower
than expected net pricing resulting from increased
marketplace competition; changes in how significant
customers market our products; an inability to meet
performance requirements for expected levels of
marketing funding support payments from The
Coca-Cola Company or other beverage companies;
reduced marketing and advertising spending by The
Coca-Cola Company or other beverage companies; an
inability to meet requirements under bottling
contracts; the inability of our aluminum can or PET
bottle suppliers to meet our demand; material
changes from expectations in the cost of raw
materials; higher than expected insurance premiums;
lower than anticipated return on pension plan assets;
higher than anticipated health care costs; higher than
expected fuel prices; unfavorable interest rate
fluctuations; terrorist attacks, war or other civil
disturbances; changes in financial markets and an
inability to meet projections in acquired bottling
territories.
28
REPORT OF MANAGEMENT
The management of Coca-Cola Bottling Co. Consolidated (the “Company”) is responsible for the preparation and
integrity of the consolidated financial statements of the Company. The financial statements and notes have been
prepared by the Company in accordance with generally accepted accounting principles and, in the judgment of
management, present fairly the Company’s financial position and results of operations. The financial information
contained elsewhere in this annual report is consistent with that in the financial statements. The financial
statements and other financial information in this annual report include amounts that are based on management’s
best estimates and judgments and give due consideration to materiality.
The Company maintains a system of internal accounting controls to provide reasonable assurance that assets are
safeguarded and that transactions are executed in accordance with management’s authorization and recorded
properly to permit the preparation of financial statements in accordance with generally accepted accounting
principles.
The Internal Audit Department of the Company reviews, evaluates, monitors and makes recommendations on
both administrative and accounting controls, and acts as an integral, but independent, part of the system of
internal controls.
The Company’s independent accountants were engaged to perform an audit of the consolidated financial
statements. This audit provides an objective outside review of management’s responsibility to report operating
results and financial condition. Working with the Company’s internal auditors, the independent accountants
perform tests, as appropriate, of the data included in the financial statements.
The Board of Directors discharges its responsibility for the Company’s financial statements primarily through its
Audit Committee. The Audit Committee meets periodically with the independent accountants, internal auditors
and management. Both the independent accountants and internal auditors have direct access to the Audit
Committee to discuss the scope and results of their work, the adequacy of internal accounting controls and the
quality of financial reporting.
William B. Elmore
President and Chief Operating Officer
David V. Singer
Executive Vice President and Chief Financial Officer
29
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders 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 stockholders’ equity present fairly, in all material respects, the
financial position of Coca-Cola Bottling Co. Consolidated and its subsidiaries (the “Company”) at December 29,
2002 and December 30, 2001, and the results of their operations and their cash flows for each of the three years
in the period ended December 29, 2002 in conformity with accounting principles generally accepted in the
United States of America. 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 auditing standards generally accepted in the United States of
America, 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 our opinion.
As discussed in Note 7 to these consolidated financial statements, the Company changed its accounting for
goodwill and other intangible assets in 2002.
Charlotte, North Carolina
February 13, 2003
30
CONSOLIDATED STATEMENTS OF OPERATIONS
Fiscal Year
In Thousands (Except Per Share Data)
2002
2001
2000
Net sales (includes sales to Piedmont of $71,170
and $69,539 in 2001 and 2000)
$1,246,591
$989,188
$969,937
Cost of sales, excluding depreciation shown below (includes $53,033
and $53,463 in 2001 and 2000 related to sales to Piedmont)
Gross margin
Selling, general and administrative expenses, excluding
depreciation shown below
Depreciation expense
Amortization of goodwill and intangibles
Income from operations
Interest expense
Other income (expense), net
Minority interest
Income before income taxes
Income taxes
Net income
Basic net income per share
Diluted net income per share
Weighted average number of common shares outstanding
Weighted average number of common shares outstanding—
667,260
579,331
544,528
444,660
520,600
449,337
404,194
304,565
310,215
76,075
2,796
96,266
49,120
(3,084)
5,992
38,070
15,247
22,823
2.58
2.56
8,861
66,134
15,296
58,665
44,322
(2,647)
11,696
2,226
9,470
1.08
1.07
8,753
$
$
$
64,751
14,712
59,659
53,346
3,522
9,835
3,541
6,294
.72
.71
8,733
$
$
$
$
$
$
assuming dilution
8,921
8,821
8,822
See Accompanying Notes to Consolidated Financial Statements.
31
CONSOLIDATED BALANCE SHEETS
In Thousands (Except Share Data)
ASSETS
Current assets:
Cash
Accounts receivable, trade, less allowance for doubtful accounts
of $1,676 and $1,863
Accounts receivable from The Coca-Cola Company
Accounts receivable, other
Inventories
Prepaid expenses and other current assets
Total current assets
Property, plant and equipment, net
Leased property under capital leases, net
Investment in Piedmont Coca-Cola Bottling Partnership
Other assets
Franchise rights, net
Goodwill, net
Other identifiable intangible assets, net
Total
Dec. 29,
2002
Dec. 30,
2001
$
18,193
$
16,912
79,548
12,992
17,001
38,648
4,588
170,970
466,840
44,623
58,167
504,374
101,754
63,974
3,935
5,253
39,916
3,068
133,058
457,306
5,383
60,203
62,451
261,969
75,376
6,797
$1,353,525
8,713
$1,064,459
See Accompanying Notes to Consolidated Financial Statements.
32
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Portion of long-term debt payable within one year
Current portion of obligations under capital leases
Accounts payable, trade
Accounts payable to The Coca-Cola Company
Other accrued liabilities
Due to Piedmont Coca-Cola Bottling Partnership
Accrued compensation
Accrued interest payable
Total current liabilities
Deferred income taxes
Pension and postretirement benefit obligations
Other liabilities
Obligations under capital leases
Long-term debt
Total liabilities
Commitments and Contingencies (Note 12)
Minority interest
Stockholders’ Equity:
Convertible Preferred Stock, $100.00 par value:
Authorized-50,000 shares; Issued-None
Nonconvertible Preferred Stock, $100.00 par value:
Authorized-50,000 shares; Issued-None
Preferred Stock, $.01 par value:
Authorized-20,000,000 shares; Issued-None
Common Stock, $1.00 par value:
Authorized-30,000,000 shares; Issued-9,704,851 and 9,454,651 shares
Class B Common Stock, $1.00 par value:
Authorized-10,000,000 shares; Issued-3,008,966 and 2,989,166 shares
Class C Common Stock, $1.00 par value:
Authorized-20,000,000 shares; Issued-None
Capital in excess of par value
Retained earnings (accumulated deficit)
Accumulated other comprehensive loss
Less-Treasury stock, at cost:
Common-3,062,374 shares
Class B Common-628,114 shares
Total stockholders’ equity
Total
Dec. 29,
2002
Dec. 30,
2001
$
56,708
1,489
28,370
7,925
49,169
24,682
17,350
11,878
197,571
133,743
37,203
57,770
935
620,156
1,047,378
$
31
3,960
38,303
9,823
72,647
20,462
10,649
155,875
155,964
37,227
58,261
42,066
807,725
1,257,118
63,540
9,704
3,009
95,986
6,043
(20,621)
94,121
9,454
2,989
91,004
(12,307)
(12,805)
78,335
60,845
409
32,867
$1,353,525
60,845
409
17,081
$1,064,459
See Accompanying Notes to Consolidated Financial Statements.
33
CONSOLIDATED STATEMENTS OF CASH FLOWS
In Thousands
Cash Flows from Operating Activities
Net income
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation expense
Amortization of goodwill and intangibles
Deferred income taxes
Gain on sale of bottling territory
Provision for impairment of property, plant and equipment
Losses on sale of property, plant and equipment
Amortization of debt costs
Amortization of deferred gain related to terminated interest rate swaps
Undistributed earnings of Piedmont
Minority interest
(Increase) decrease in current assets less current liabilities
(Increase) decrease in other noncurrent assets
Increase (decrease) in other noncurrent liabilities
Other
Total adjustments
Net cash provided by operating activities
Cash Flows from Financing Activities
Proceeds from the issuance of long-term debt
Repayment of current portion of long-term debt
Proceeds from (repayment of) lines of credit, net
Cash dividends paid
Principal payments on capital lease obligations
Termination of interest rate swap agreements
Debt issuance costs paid
Proceeds from exercise of stock options
Other
Net cash used in financing activities
Cash Flows from Investing Activities
Additions to property, plant and equipment
Proceeds from the sale of property, plant and equipment
Acquisitions of companies, net of cash acquired
Proceeds from sale of bottling territory
Net cash used in investing activities
Net increase (decrease) in cash
Cash at beginning of year
Cash at end of year
Fiscal Year
2002
2001
2000
$ 22,823
$
9,470
$ 6,294
76,075
2,796
14,953
3,381
809
(1,927)
5,992
(5,832)
12,700
545
(357)
109,135
131,958
150,000
(251,708)
37,600
(8,861)
(1,748)
(2,229)
(3,617)
7,162
1,214
66,134
15,296
888
947
1,297
830
(1,183)
(417)
44,418
(9,809)
(6,010)
82
112,473
121,943
(2,385)
(12,900)
(8,753)
(2,868)
6,704
64,751
14,712
1,319
(8,829)
3,066
2,284
938
(819)
(2,514)
(10,002)
9,164
3,868
58
77,996
84,290
(26,750)
(33,700)
(8,733)
(4,528)
(292)
(230)
(387)
(72,187)
(20,432)
(74,390)
(57,317)
7,506
(8,679)
(96,684)
3,660
(58,490)
(93,024)
1,281
16,912
8,487
8,425
(49,168)
16,366
(723)
23,000
(10,525)
(625)
9,050
$ 18,193
$ 16,912
$ 8,425
Significant non-cash investing and financing activities
Capital lease obligations incurred
Issuance of Class B Common Stock in connection with stock award
$ 42,180
768
$
456
757
$ 1,313
See Accompanying Notes to Consolidated Financial Statements.
34
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
In Thousands
Balance on January 2, 2000
Net income
Cash dividends paid
Common
Stock
$ 9,454
Class B
Common
Stock
$ 2,969
Capital in
Excess of
Par Value
$107,753
(8,733)
Retained
Earnings
(Accum.
Deficit)
$(28,071)
6,294
Accumulated
Other
Comprehensive
Loss
Treasury
Stock
$ —
$ (61,254)
Balance on December 31, 2000
$ 9,454
$ 2,969
$ 99,020
$(21,777)
$ —
$ (61,254)
Total
$ 30,851
6,294
(8,733)
$ 28,412
9,470
4
9,470
4
Comprehensive income (loss):
Net income
Change in fair market value of
cash flow hedges, net of tax
Proportionate share of
Piedmont’s accum. other
comprehensive loss at
adoption of SFAS 133, net of
tax
Change in proportionate share
of Piedmont’s accum. other
comprehensive loss, net of
tax
Minimum pension liability
adjustment, net of tax
Total comprehensive income
(loss)
Cash dividend paid
Issuance of Class B Common
Stock
(947)
(947)
(878)
(10,984)
(878)
(10,984)
(3,335)
(8,753)
757
(8,753)
20
737
Balance on December 30, 2001
$ 9,454
$ 2,989
$ 91,004
$(12,307)
$ (12,805)
$ (61,254)
$ 17,081
Comprehensive income (loss):
Net income
Change in fair market value of
cash flow hedges, net of tax
Change in proportionate share
of Piedmont’s accum. other
comprehensive loss, net of
tax
Minimum pension liability
adjustment, net of tax
Total comprehensive income
(loss)
Cash dividends paid
Issuance of Class B Common
Stock
Exercise of stock options
Tax adjustment related to stock
250
options
22,823
(4)
1,825
(9,637)
(4,388)
(4,473)
20
748
6,912
1,710
Balance on December 29, 2002
$9,704
$3,009
$ 95,986
$ 6,043
$(20,621)
$(61,254)
22,823
(4)
1,825
(9,637)
15,007
(8,861)
768
7,162
1,710
$32,867
See Accompanying Notes to Consolidated Financial Statements.
35
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 11
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 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.
The fiscal years presented are the 52-week periods
ended December 29, 2002, December 30, 2001 and
December 31, 2000. The Company’s fiscal year ends
on the Sunday closest to December 31.
On January 2, 2002, the Company purchased an
additional interest in Piedmont Coca-Cola Bottling
Partnership (“Piedmont”) from The Coca-Cola
Company, increasing the Company’s ownership in
Piedmont to more than 50%. Due to the increase in
ownership, the results of operations, financial
position and cash flows of Piedmont have been
consolidated with those of the Company beginning in
the first quarter of 2002. The Company’s investment
in Piedmont had been accounted for using the equity
method for 2001 and prior years.
Certain prior year amounts have been reclassified to
conform to current year classifications.
36
The Company’s 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. The Company maintains cash deposits with
major banks which from time to time may exceed
federally insured limits. The Company periodically
assesses the financial condition of the institutions and
believes that the risk of any loss is minimal.
Credit Risk of Trade Accounts Receivable
The Company sells its products to large retail chain
stores and other customers and extends credit,
generally without requiring collateral, based on an
ongoing evaluation of the customer’s business
prospects and financial condition. The Company
monitors its exposure to losses on trade accounts
receivable and maintains an allowance for potential
losses or adjustments. The Company’s trade accounts
receivable are typically collected within
approximately 30 days from the date of sale.
Inventories
Inventories are stated at the lower of cost, determined
on the first-in, first-out method 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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Software
Certain costs incurred in the development of internal-
use software are capitalized. Software is amortized
using the straight-line method over its estimated
useful life.
Investment in Piedmont Coca-Cola Bottling
Partnership
Prior to January 2, 2002, the Company beneficially
owned a 50% interest in Piedmont. The Company
accounted 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 were included in
“Net sales” for 2001 and 2000. See Note 3 and Note
16 to the consolidated financial statements for
additional information.
On January 2, 2002, the Company purchased an
additional 4.651% interest in Piedmont from The
Coca-Cola Company, increasing the Company’s
ownership to 54.651%. As a result of the increase in
ownership, the results of operations, financial
position and cash flows of Piedmont are consolidated
with those of the Company beginning in the first
quarter of 2002. See Note 3 to the consolidated
financial statements for additional information.
Revenue Recognition
Revenues are recognized when finished products are
delivered to customers and both title and the risks
and rewards of ownership are transferred.
Appropriate provision is made for uncollectible
accounts.
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. The Company
records a valuation allowance to reduce the carrying
value of its deferred tax assets to an amount that is
more likely than not to be realized.
37
Pension and Postretirement 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.
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.
The Company records an additional minimum
pension liability, when necessary, for the amount of
underfunded pension obligations in excess of accrued
pension costs.
Franchise Rights and Goodwill
The Company adopted the provisions of Statement of
Financial Accounting Standards No. 141, “Business
Combinations,” and Statement of Financial
Accounting Standards No. 142, “Goodwill and Other
Intangible Assets,” (“SFAS No. 142”) at the beginning
of 2002. These standards require that all business
combinations be accounted for using the purchase
method and that goodwill and intangible assets with
indefinite useful lives not be amortized but instead be
tested for impairment annually.
Other Identifiable Intangible Assets
Other identifiable intangible assets include customer
lists and are amortized on a straight-line basis over
their estimated useful lives.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Impairment of Long-lived Assets
The Company evaluates long-lived assets and certain
identifiable intangibles for impairment whenever
events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable.
When undiscounted future cash flows will not be
sufficient to recover an asset’s carrying amount, the
asset is written down to its fair value. Long-lived
assets to be disposed of other than by sale are
classified as held and used until they are disposed of.
Long-lived assets to be disposed of by sale are
classified as held for sale and are reported at the
lower of carrying amount or fair value less cost to
sell, and depreciation is ceased.
Net Income Per Share
Basic earnings per share (“EPS”) excludes dilution
and is computed by dividing net income available for
common stockholders by the weighted average
number of Common and Class B Common shares
outstanding. Diluted EPS gives effect to all securities
representing potential common shares that were
dilutive and outstanding during the period.
Derivative Financial Instruments
On January 1, 2001, the Company adopted Statement
of Financial Accounting Standards No. 133,
“Accounting for Derivative Instruments and Hedging
Activities,” as amended (“SFAS No. 133”), which
requires that all derivative instruments be recognized
in the financial statements at fair value. The adoption
of SFAS No. 133 did not have a significant impact on
the results of operations, financial position or cash
flows during 2001.
The Company uses derivative 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. Credit risk
related to the derivative financial instruments is
considered minimal and is managed by requiring high
credit standards for its counterparties and periodic
settlements.
Changes in fair value of derivative financial
instruments are recorded as adjustments to the assets
or liabilities being hedged in the statement of
operations or in accumulated other comprehensive
income (loss), depending on whether the derivative is
designated and qualifies for hedge accounting, the
type of hedge transaction represented and the
effectiveness of the hedge.
The Company discontinues hedge accounting
prospectively when (1) it determines that the
derivative instrument is no longer effective in
offsetting changes in the fair value or cash flows of
the underlying exposure being hedged; (2) the
derivative instrument expires or is sold, terminated or
exercised; or (3) the Company determines that
designating the derivative instrument as a hedge is no
longer appropriate.
Insurance Programs
In general, the Company is self-insured for costs of
casualty claims and medical claims. The Company
uses commercial insurance for casualty claims and
medical claims as a risk reduction strategy to
minimize catastrophic losses. Casualty losses are
provided for using actuarial assumptions and
procedures followed in the insurance industry,
adjusted for company-specific history and
expectations.
Marketing Funding Support
The Company directs various 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 received by
the Company is recognized when performance
measures are met or as funded costs are incurred.
38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. ACQUISITIONS AND DIVESTITURES
On September 29, 2000, the Company sold
substantially all of its bottling territory in the states of
Kentucky and Ohio to Coca-Cola Enterprises Inc.
(“CCE”). The Company received cash proceeds of
$23.0 million related to the sale of this territory and
certain other operating assets. The Company
recorded a pre-tax gain of $8.8 million as a result of
this sale. The bottling territory sold represented
approximately 3% of the Company’s 2000 annual
sales volume.
3.
INVESTMENT IN PIEDMONT COCA-COLA BOTTLING PARTNERSHIP
On July 2, 1993, the Company and The Coca-Cola
Company formed Piedmont to distribute and market
carbonated and noncarbonated beverages primarily in
certain portions of North Carolina and South
Carolina. Prior to January 2, 2002, the Company and
The Coca-Cola Company, through their respective
subsidiaries, each beneficially owned 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.
On January 2, 2002, the Company purchased for
$10.0 million an additional 4.651% interest in
Piedmont from The Coca-Cola Company, increasing
the Company’s ownership in Piedmont to 54.651%.
Due to the increase in ownership, the results of
operations, financial position and cash flows of
Piedmont have been consolidated with those of the
Company beginning in the first quarter of 2002. The
excess of the purchase price over the net book value
of the interest of Piedmont acquired was $4.4 million
and has been recorded principally as an addition to
franchise rights. The Company’s investment in
Piedmont had been accounted for using the equity
method in 2001 and prior years.
Summarized financial information for Piedmont was as follows:
In Thousands
Current assets
Noncurrent assets
Total assets
Current liabilities
Noncurrent liabilities
Total liabilities
Partners’ equity
Accumulated other comprehensive loss
Total liabilities and partners’ equity
Company’s equity investment
39
Dec. 29,
2002
Dec. 30,
2001
$ 31,571
$ 31,116
310,128
$341,699
$ 23,757
178,434
202,191
139,508
$341,699
309,664
$340,780
$114,132
106,242
220,374
126,294
(5,888)
$340,780
$ 60,203
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3.
INVESTMENT IN PIEDMONT COCA-COLA BOTTLING PARTNERSHIP (Continued)
In Thousands
Net sales
Cost of sales
Gross margin
Amortization of goodwill and intangibles
Income from operations
Net income
Company’s equity in net income
Fiscal Year
2002
2001
2000
$301,333
$282,957
$277,217
156,244
145,089
149,999
132,958
8,410
144,170
133,047
8,410
24,359
13,330
18,948
$ 13,214
$
$
834
417
$
$
5,028
2,514
40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following financial
information includes the
2002 consolidated financial position and results of
operations of
the
comparable 2001 consolidated financial position and
results of operations. The 2001 comparable financial
the Company and includes
information reflects the consolidation of Piedmont’s
financial position and results of operations with those
of the Company as if the purchase of the additional
interest in Piedmont for $10 million had occurred at
the beginning of 2001.
Consolidated Statements of Operations
In Thousands (Except Per Share Data)
Net sales
Cost of sales, excluding depreciation shown below
Gross margin
Selling, general and administrative expenses, excluding depreciation shown below
Depreciation expense
Amortization of goodwill and intangibles
Income from operations
Interest expense
Other income (expense), net
Minority interest
Income before income taxes
Federal and state income taxes
Net income
Basic net income per share
Diluted net income per share
Weighted average number of common shares outstanding
Weighted average number of common shares outstanding—assuming dilution
Fiscal Year
2002
Unaudited
2001*
$1,246,591
$1,189,577
667,260
579,331
404,194
76,075
2,796
96,266
49,120
(3,084)
5,992
38,070
15,247
22,823
2.58
2.56
8,861
8,921
$
$
$
641,494
548,083
381,257
71,542
23,810
71,474
57,802
(2,313)
378
10,981
1,947
9,034
1.03
1.02
8,753
8,821
$
$
$
*
Certain prior year amounts have been reclassified to conform to current year classifications and include the
results of operations of Piedmont as if it were consolidated with that of the Company beginning January 1,
2001.
41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3.
INVESTMENT IN PIEDMONT COCA-COLA BOTTLING PARTNERSHIP (Continued)
Consolidated Balance Sheets
Assets
In Thousands
Current Assets:
Cash
Accounts receivable, trade, net
Accounts receivable from The Coca-Cola Company
Accounts receivable, other
Inventories
Prepaid expenses and other current assets
Total current assets
Property, plant and equipment
Less-Accumulated depreciation and amortization
Property, plant and equipment, net
Leased property under capital leases
Less-Accumulated amortization
Leased property under capital leases, net
Other assets
Franchise rights, less accumulated amortization
of $156,097 and $156,097
Goodwill, less accumulated amortization
of $54,438 and $54,438
Other identifiable intangible assets, less accumulated amortization
of $48,946 and $46,151
Total
Dec. 29,
2002
Unaudited
Dec. 30,
2001*
$
18,193
$
18,210
79,548
12,992
17,001
38,648
4,588
170,970
842,994
376,154
466,840
47,618
2,995
44,623
58,167
84,384
5,004
7,603
45,812
3,211
164,224
822,096
332,942
489,154
20,424
10,109
10,315
68,067
505,374
505,938
100,754
100,395
6,797
$1,353,525
8,713
$1,346,806
*
Certain prior year amounts have been reclassified to conform to current year classifications and include the
financial position of Piedmont as if it were consolidated with that of the Company beginning January 1,
2001.
42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Liabilities and Stockholders’ Equity
In Thousands
Current Liabilities:
Portion of long-term debt payable within one year
Current portion of obligations under capital leases
Accounts payable, trade
Accounts payable to The Coca-Cola Company
Other accrued liabilities
Accrued compensation
Accrued interest payable
Total current liabilities
Deferred income taxes
Pension and postretirement benefit obligations
Other liabilities
Obligations under capital leases
Long-term debt
Total liabilities
Minority interest
Stockholders’ Equity:
Common Stock
Class B Common Stock
Capital in excess of par value
Retained earnings (accumulated deficit)
Accumulated other comprehensive loss
Less-Treasury stock, at cost:
Common
Class B Common
Total stockholders’ equity
Total
43
Dec. 29,
2002
Unaudited
Dec. 30,
2001*
$
31
$ 154,208
3,960
38,303
9,823
72,647
20,462
10,649
155,875
155,964
37,227
58,261
42,066
2,466
34,214
8,193
56,998
17,946
13,646
287,671
157,739
34,862
63,767
4,033
807,725
1,257,118
727,656
1,275,728
63,540
54,603
9,704
3,009
95,986
6,043
(20,621)
94,121
9,454
2,989
91,004
(12,743)
(12,975)
77,729
60,845
60,845
409
32,867
$1,353,525
409
16,475
$1,346,806
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4.
INVENTORIES
Inventories were summarized as follows:
In Thousands
Finished products
Manufacturing materials
Plastic pallets and other
Total inventories
Dec. 29,
2002
Dec. 30,
2001
$23,207
$23,637
10,609
4,832
$38,648
11,893
4,386
$39,916
5. PROPERTY, PLANT AND EQUIPMENT
The principal categories and estimated useful lives of property, plant and equipment were as follows:
In Thousands
Land
Buildings
Machinery and equipment
Transportation equipment
Furniture and fixtures
Vending equipment
Leasehold and land improvements
Software for internal use
Construction in progress
Total property, plant and equipment, at cost
Less: Accumulated depreciation and amortization
Property, plant and equipment, net
Dec. 29,
2002
Dec. 30,
2001
Estimated
Useful Lives
10-50 years
5-20 years
4-13 years
4-10 years
6-13 years
5-20 years
3-7 years
$ 12,670
$ 11,158
113,234
96,080
95,338
93,658
143,932
130,016
39,222
36,350
362,689
334,975
47,312
24,439
3,416
842,994
40,969
21,850
1,908
766,222
376,154
$466,840
308,916
$457,306
In the fourth quarter of 2001, the Company recorded
a provision for impairment of certain real estate for
$.9 million, which was classified in “Other income
(expense), net.” The impairment charge reflects an
adjustment to estimated net realizable value of certain
real estate, which was no longer required for the
Company’s ongoing operations.
44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. LEASED PROPERTY UNDER CAPITAL LEASES
In Thousands
Leased property under capital leases
Less: Accumulated amortization
Leased property under capital leases, net
Dec 29,
2002
$47,618
2,995
$44,623
Dec 30,
2001
$12,265
6,882
$ 5,383
Estimated
Useful Lives
1-29 years
The Company recorded a capital lease of $41.6 million
at the end of the first quarter of 2002 related to its
production/distribution center located in Charlotte,
North Carolina. As disclosed in Note 16 to the
consolidated financial statements, this facility is leased
from a related party. The lease obligation was capitalized
as the Company received a renewal option to extend the
term of the lease, which it expects to exercise.
7. FRANCHISE RIGHTS AND GOODWILL
In Thousands
Franchise rights
Goodwill
Franchise rights and goodwill
Less: Accumulated amortization
Franchise rights and goodwill, net
Dec. 29,
2002
Dec. 30,
2001
$661,471
$353,388
155,192
816,663
210,535
$606,128
123,094
476,482
139,137
$337,345
The Company adopted the provisions of SFAS No.
142 at the beginning of 2002, which resulted in
goodwill and intangible assets with indefinite useful
lives no longer being amortized. As a result of this
adoption, amortization expense in 2002 decreased by
$12.6 million. If SFAS No. 142 had been in effect at
the beginning of 2000, amortization expense would
have decreased by $12.6 million and $12.0 million in
2001 and 2000, respectively.
The significant increase in franchise rights and
goodwill in 2002 relates primarily to the
consolidation of Piedmont’s financial position with
that of the Company beginning in the first quarter
of 2002.
8. OTHER IDENTIFIABLE INTANGIBLE ASSETS
In Thousands
Customer lists
Less: Accumulated amortization
Other identifiable intangible assets, net
Dec. 29,
2002
$55,743
48,946
$ 6,797
Dec. 30,
2001
$54,864
46,151
$ 8,713
Estimated
Useful Lives
3-20 years
Amortization expense related to customer lists was
$2.8 million, $3.0 million and $2.7 million for 2002,
2001 and 2000, respectively. Amortization expense of
customer lists in future years based upon recorded
values as of December 29, 2002 will be $2.8 million,
$2.7 million, $.5 million, $.2 million and $.1 million
for 2003 through 2007, respectively.
45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. LONG-TERM DEBT
Long-term debt was summarized as follows:
In Thousands
Lines of Credit
Term Loan Agreement
Term Loan Agreement
Medium-Term Notes
Debentures
Debentures
Debentures
Senior Notes
Other notes payable
2003-2006
Less: Portion of long-term debt payable within one year
Long-term debt
The principal maturities of long-term debt
outstanding on December 29, 2002 were as follows:
In Thousands
2003
2004
2005
2006
2007
Thereafter
Total long-term debt
$
31
85,025
122,620
80
100,000
500,000
$807,756
The Company borrows periodically under its
available lines of credit. These lines of credit, in the
aggregate amount of $65 million at December 29,
2002, are made available at the discretion of the two
participating banks at rates negotiated at the time of
borrowing and may be withdrawn at any time by such
banks. The Company intends to renew such
borrowings as they mature. To the extent these
borrowings and borrowings under the revolving
credit facility do not exceed the amount available
under the Company’s $125 million revolving credit
facility, they are classified as noncurrent liabilities.
46
Maturity
Interest
Rate
Interest Paid
2005
2004
2005
2002
2007
2009
2009
2012
1.85%
1.95%
1.95%
6.85%
7.20%
6.38%
5.00%
5.75%
Varies
Varies
Varies
Semi-annually
Semi-annually
Semi-annually
Semi-annually
Quarterly
Dec. 29,
2002
Dec. 30,
2001
$ 37,600
$
85,000
85,000
100,000
100,000
250,000
150,000
156
807,756
31
$807,725
85,000
85,000
47,000
100,000
100,000
250,000
9,864
676,864
56,708
$620,156
On December 29, 2002, $37.6 million was
outstanding under these lines of credit. The Company
intends to refinance short-term debt maturities with
currently available lines of credit.
In December 2002, the Company entered into a new
three-year $125 million revolving credit facility. This
facility includes an option to extend the term for an
additional year at the participating banks’ discretion.
The revolving credit facility bears interest at a floating
rate of LIBOR plus an interest rate spread of .60%. In
addition, there is a facility fee of .15% required for
this revolving credit facility. Both the interest rate
spread and the facility fee are determined from a
commonly used pricing grid based on the Company’s
long-term senior unsecured noncredit-enhanced debt
rating. This new revolving credit facility replaced the
Company’s $170 million facility that expired in
December 2002. The new agreement contains
covenants which establish ratio requirements related
to debt, interest expense and cash flow. On
December 29, 2002, there were no amounts
outstanding under this new facility.
On November 21, 2002, the Company issued $150
million of senior notes maturing November 15, 2012
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
bearing interest at a rate of 5.00% per annum. The
Company used the proceeds from this issuance to
repay borrowings outstanding under its lines of credit
and the Company’s $170 million revolving credit
facility, as well as to repay a term loan on behalf of
Piedmont.
During 2002, Piedmont refinanced a $195 million
term loan using the proceeds from a loan from the
Company. The Company’s source of funds for this
loan to Piedmont included the issuance of
$150 million of senior notes, its lines of credit, the
revolving credit facility and available cash flow.
Piedmont pays the Company interest on the loan at
the Company’s average cost of funds plus 0.50%. The
Company plans to provide for Piedmont’s future
financing requirements under these terms.
The Company filed an $800 million shelf registration
for debt and equity securities in January 1999. The
Company used this shelf registration to issue
$250 million of long-term debentures in 1999 and
$150 million of senior notes in 2002 as previously
discussed. The Company currently has $400 million
available for use under this shelf registration.
After taking into account all of the interest rate
hedging activities, the Company had a weighted
average interest rate of 5.0% for its debt and capital
lease obligations as of December 29, 2002 compared
to 5.7% at December 30, 2001. The Company’s
overall weighted average interest rate on its debt and
capital lease obligations was 5.6%, 6.5% and 7.3% for
2002, 2001 and 2000, respectively.
10. DERIVATIVE FINANCIAL INSTRUMENTS
The Company periodically uses interest rate hedging
products to modify risk from interest rate
fluctuations. The Company has historically altered its
fixed/floating rate mix based upon anticipated cash
flows from operations relative to the Company’s debt
level and the potential impact of changes in interest
rates on the Company’s overall financial condition.
Sensitivity analyses are performed to review the
As of December 29, 2002, before giving effect to
forward rate agreements, approximately 47% of its
debt and capital lease obligations was subject to
changes in short-term interest rates. As a result of the
forward rate agreements discussed in Note 10 to the
consolidated financial statements, the Company’s
exposure to interest rate movements has been
significantly reduced for 2003. The Company
considers all floating rate debt and fixed rate debt
with a maturity of less than one year to be subject to
changes in short-term interest rates.
If average interest rates for the floating rate
component of the Company’s debt and capital lease
obligations increased by 1%, annual interest expense
for the year ended December 29, 2002 would have
increased by approximately $2 million and net
income would have been reduced by approximately
$1.2 million.
With regards to the Company’s $170 million term
loan agreement, the Company must maintain its
public debt ratings at investment grade as determined
by both Moody’s and Standard & Poor’s. If the
Company’s public debt ratings fall below investment
grade within 90 days after the public announcement
of certain designated events and such ratings stay
below investment grade for an additional 40 days, a
trigger event resulting in a default occurs. The
Company does not anticipate a trigger event will
occur in the foreseeable future.
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 nor does it use
leveraged financial instruments. All of the Company’s
outstanding interest rate swap agreements and
forward rate agreements are LIBOR-based.
47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Derivative financial instruments were summarized as follows:
December 29, 2002
December 30, 2001
In Thousands
Interest rate swaps-fixed
Interest rate swaps-fixed
Interest rate swaps-floating
Interest rate swaps-floating
Interest rate swaps-floating
In Thousands
Forward rate agreement-fixed
Forward rate agreement-fixed
Forward rate agreement-fixed
Forward rate agreement-fixed
Notional
Amount
Remaining
Term
Notional
Amount
$27,000
19,000
Remaining
Term
.95 years
.95 years
$50,000
50,000
50,000
Notional
Amount
$50,000
50,000
50,000
50,000
4.92 years
6.58 years
9.92 years
December 29, 2002
Start Date
1/02/03
5/01/03
5/15/03
5/30/03
Length of
Term
1 year
1 year
1 year
.25 years
During November 2002, the Company entered into
three interest rate swap agreements in conjunction
with the issuance of $150 million of senior notes and
the refinancing of other Company debt as previously
discussed. The new interest rate swap agreements
effectively convert $150 million of the Company’s
debt from a fixed rate to a floating rate in conjunction
with its ongoing debt management strategy. These
swap agreements were accounted for as fair value
hedges.
During December 2002, the Company entered into a
$50 million, three-month forward rate agreement that
fixed short-term rates on a portion of the Company’s
$170 million term loan. This forward rate agreement
was accounted for as a cash flow hedge.
During December 2002, the Company entered into
three one-year forward rate agreements which fix
short-term rates on certain components of the
Company’s floating rate debt for periods of twelve
months. The three forward rate agreements as of
December 29, 2002 do not meet the criteria set forth
in SFAS No. 133 for hedge accounting and have been
accounted for on a mark-to-market basis. The mark-
to-market adjustment for the forward rate agreements
is included as an adjustment to interest expense and
was not material for 2002.
The Company entered into an additional $50 million,
one-year forward rate agreement subsequent to the
end of 2002.
In October 2001, the Company terminated two
interest rate swaps with a total notional amount of
$100 million. These swap agreements were accounted
for as fair value hedges. The gain of $6.7 million from
the termination of these swaps is being amortized as
an adjustment to interest expense over the remaining
term of the related debt instrument that was being
hedged.
In December 2001, two interest rate swap agreements
were entered into with the total notional amount of
$46 million. These swap agreements were accounted
for as cash flow hedges and expired in December
2002.
48
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In 2002 the Company amortized deferred gains
related to previously terminated interest rate swap
agreements which reduced interest expense by
$1.9 million. Interest expense will be reduced by the
amortization of these deferred gains in 2003 through
2009 as follows: $1.9 million, $1.7 million,
$1.5 million, $1.5 million, $1.5 million, $1.5 million
and $.6 million, respectively.
During the fourth quarter of 2002, the Company
terminated two interest rate swap agreements related
to certain long-term debt that was retired early. These
swap agreements were accounted for as cash flow
hedges. As a result of this termination, the Company
recorded additional interest expense of $2.2 million.
The counterparties to these contractual arrangements
are 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.
11. FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used
by the Company in estimating the fair values of its
financial instruments:
Non-Public Variable Rate Long-Term Debt
The carrying amounts of the Company’s variable rate
borrowings approximate their fair values.
Cash, Accounts Receivable and Accounts
Payable
The fair values of cash, accounts receivable and
accounts payable approximate carrying values due to
the short maturity of these financial instruments.
Public Debt
The fair values of the Company’s public debt are
based on estimated market prices.
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.
Derivative Financial Instruments
Fair values for the Company’s interest rate swaps and
forward rate agreements are based on current
settlement values.
The carrying amounts and fair values of the Company’s long-term debt and derivative financial instruments were
as follows:
In Thousands
Public debt
December 29, 2002
December 30, 2001
Carrying
Amount
Fair
Value
Carrying
Amount
Fair
Value
$600,000
$634,150
$497,000
$493,993
Non-public variable rate long-term debt
207,600
207,600
170,000
170,000
Non-public fixed rate long-term debt
156
156
Interest rate swaps and forward rate agreement
(2,023)
(2,023)
9,864
(7)
9,868
(7)
The fair values of the interest rate swaps and forward rate agreement at December 29, 2002 and December 30,
2001 represent the estimated amounts the Company would have received upon termination of these agreements.
49
12. COMMITMENTS AND CONTINGENCIES
Operating lease payments are charged to expense as
incurred. Such rental expenses included in the
consolidated statements of operations were
$7.4 million, $12.4 million and $15.7 million for
2002, 2001 and 2000, respectively. Amortization of
assets recorded under capital leases was included in
depreciation expense.
The following is a summary of future minimum lease payments for all capital and operating leases as of
December 29, 2002.
In Thousands
Capital Leases
Operating Leases
Total
2003
2004
2005
2006
2007
Thereafter
Total minimum lease payments
Less: Amounts representing interest
Present value of minimum lease payments
Less: Current portion of obligations under capital leases
Long-term portion of obligations under capital leases
$
5,327
5,275
5,069
5,178
5,132
149,724
$175,705
129,679
46,026
3,960
$ 42,066
$ 6,944
6,243
5,882
5,118
5,080
8,777
$38,044
$ 12,271
11,518
10,951
10,296
10,212
158,501
$213,749
The Company is a member of South Atlantic Canners,
Inc. (“SAC”), a manufacturing cooperative, from
which it is obligated to purchase a specified number
of cases of finished product on an annual basis. The
contractual minimum annual purchases required
from SAC are approximately $40 million. See Note 16
to the consolidated financial statements for additional
information concerning SAC.
The Company is also a member of Southeastern
Container (“SEC”), a plastic bottle manufacturing
cooperative, from which it is obligated to purchase at
least 80% of its requirements of plastic bottles for
certain designated territories. See Note 16 to the
consolidated financial statements for additional
information concerning SEC.
The Company guarantees a portion of SAC’s and
SEC’s debt and lease obligations. On December 29,
2002, these debt and lease guarantees were
$34.8 million. The guarantees relate to debt and lease
obligations, which resulted primarily from the
purchase of production equipment and facilities. Both
cooperatives consist solely of Coca-Cola bottlers. In
the event either of these cooperatives fail to fulfill
their commitments under the related debt and lease
obligations, the Company would be responsible for
payments to the lenders up to the level of the
guarantees. If these cooperatives had borrowed up to
their maximum borrowing capacity, the Company’s
maximum potential amount of payments under these
guarantees on December 29, 2002 would have been
$60.1 million. The Company does not anticipate that
either of these cooperatives will fail to fulfill their
commitments under these agreements. The Company
believes that each of these cooperatives has sufficient
assets, including production equipment, facilities and
working capital, to adequately mitigate the risk of
material loss.
The Company has standby letters of credit, primarily
related to its casualty insurance program. On
December 29, 2002, these letters of credit totaled
$8.9 million.
50
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company also has sponsorship commitments for
certain prestige properties. The future payments
related to these sponsorship commitments as of
December 29, 2002 amount to $20.9 million and
expire in 2012.
The Company previously entered into a multi-year
purchase agreement for its requirements of aluminum
cans that expires at the end of 2003. The estimated
annual purchases under this agreement are
approximately $100 million for 2003.
On August 3, 1999, North American Container, Inc.
filed a complaint in the United States District Court
for the Northern District of Texas against the
Company and 44 other defendants. By its First
Amended Complaint filed in April 2000, the plaintiff
seeks to enforce United States Reissue Patent No. RIE
36,639 and alleges that the plastic containers used by
the Company in connection with the distribution of
soft drinks and other products infringe the patent.
The Company has notified its suppliers of the lawsuit
and has asserted indemnification claims against them.
The Company’s suppliers have assumed the defense
of the claim pursuant to a written agreement
providing for indemnification. The Company’s
suppliers are vigorously defending the claim and the
Company believes it has meritorious defenses against
the imposition of any liability in this action.
The Company is involved in other various claims and
legal proceedings which have arisen in the ordinary
course of its business. The Company believes that the
ultimate disposition of the above noted litigation and
its other claims and legal proceedings will not have a
material adverse effect on the financial condition,
cash flows or results of operations of the Company.
13.
INCOME TAXES
The provision for income taxes consisted of the following:
In Thousands
Current:
Federal
State
Fiscal Year
2002
2001
2000
$
294
$1,338
$ 2,222
Total current provision
294
1,338
2,222
Deferred:
Federal
State
Total deferred provision
Income tax expense
13,829
1,124
14,953
$15,247
(447)
(1,357)
1,335
888
$2,226
2,676
1,319
$ 3,541
51
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Current tax expense represents alternative minimum tax (“AMT”). Deferred income taxes are recorded based
upon differences between the financial statement and tax bases of assets and liabilities and available net operating
loss and tax credit carryforwards. Temporary differences and carryforwards that comprised deferred income tax
assets and liabilities were as follows:
In Thousands
Intangible assets
Depreciation
Investment in Piedmont
Other
Gross deferred income tax liabilities
Net operating loss carryforwards
AMT credits
Deferred compensation
Postretirement benefits
Interest rate swap terminations
Gross deferred income tax assets
Valuation allowance for deferred tax assets
Net deferred income tax liabilities
Tax benefit of minimum pension liability adjustment
Dec. 29,
2002
Dec. 30,
2001
$ 103,877
$ 80,506
100,030
25,006
4,453
233,366
(53,190)
(15,844)
(18,550)
(12,171)
(3,884)
(103,639)
39,945
169,672
(13,708)
94,955
25,202
18,543
219,206
(60,334)
(17,562)
(17,393)
(12,101)
(4,748)
(112,138)
34,526
141,594
(6,732)
Tax benefit related to Piedmont’s accumulated other comprehensive loss
Deferred income tax liability
$ 155,964
(1,119)
$ 133,743
Except for amounts for which a valuation allowance
has been provided, the Company believes the other
deferred tax assets will be realized primarily through
the reversal of existing temporary differences. The
valuation allowance of $39.9 million and $34.5
million as of December 29, 2002 and December 30,
2001, respectively, relates to state net operating loss
carryforwards.
Reported income tax expense is reconciled to the amount computed on the basis of income before income taxes
at the statutory rate as follows:
In Thousands
Statutory expense
Amortization of franchise and goodwill assets
State income taxes, net of federal benefit
Valuation allowance change
Favorable tax settlement
Other
Income tax expense
52
Fiscal Year
2002
2001
2000
$13,300
$ 4,094
$3,442
735
3,308
(2,096)
$15,247
486
307
418
548
(522)
(539)
(2,850)
711
$ 2,226
(328)
$3,541
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On December 29, 2002, the Company had $12.5
million of federal net operating losses and $15.8
million of AMT credit carryforwards available to
reduce future income taxes. The net operating loss
carryforwards expire in varying amounts through
2022 while the AMT credit carryforwards have no
expiration date.
14. CAPITAL TRANSACTIONS
On May 13, 2002, the Company announced that two
of its directors, J. Frank Harrison, Jr., Chairman
Emeritus, and J. Frank Harrison, III, Chairman of the
Board of Directors and Chief Executive Officer, had
entered into plans providing for sales of up to an
aggregate total of 250,000 shares of the Company’s
Common Stock in accordance with Securities and
Exchange Commission Rule 10b5-1. Shares sold
under the plans were issuable to Mr. Harrison, Jr. and
Mr. Harrison, III under stock option agreements that
were granted in 1989 as long-term incentives. During
2002, all 250,000 shares of Common Stock
exercisable under the options were sold under the
plans. Total proceeds to the Company from the
exercise of the stock options under the plans were
$7.2 million.
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 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.
On May 12, 1999, the stockholders of the Company
approved a restricted stock award for J. Frank
Harrison, III, the Company’s Chairman of the Board
of Directors and Chief Executive Officer, consisting
of 200,000 shares of the Company’s Class B Common
Stock. The award provides that the shares of
restricted stock vest at the rate of 20,000 shares per
year over a ten-year period. The vesting of each
annual installment is contingent upon the Company
achieving at least 80% of the Overall Goal
Achievement Factor for the six selected performance
indicators used in determining bonuses for all officers
under the Company’s Annual Bonus Plan. The
Company achieved more than 80% of the Overall
Goal Achievement factor in 2002, 2001 and 2000,
resulting in compensation expense of $2.3 million,
$1.4 million and $1.4 million, respectively.
Shares of Class B Common Stock are convertible on a
share-for-share basis into shares of Common Stock.
There is no trading market for the Company’s Class B
Common Stock.
53
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. 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
income 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:
In Thousands
Projected benefit obligation at
beginning of year
Service cost
Interest cost
Actuarial loss
Benefits paid
Other
Projected benefit obligation at
end of year
Fair value of plan assets at
beginning of year
Actual return on plan assets
Employer contributions
Benefits paid
Fair value of plan assets at end
Fiscal Year
2002
2001
$102,327
4,006
7,305
7,485
(3,282)
$ 86,353
3,290
6,578
8,894
(2,999)
211
$117,841
$102,327
$ 80,572
(6,697)
13,493
(3,282)
$ 87,723
(4,461)
309
(2,999)
of year
$ 84,086
$ 80,572
In Thousands
Funded status of the plans
Unrecognized prior service cost
Unrecognized net loss
Net amount recognized
Accrued benefit liability
Prepaid pension cost
Accumulated other
comprehensive income
Net amount recognized in the
Dec. 29,
2002
$ (33,755)
109
48,339
$ 14,693
$ (19,745)
109
Dec. 30,
2001
$ (21,755)
21
29,116
$ 7,382
$ (10,334)
34,329
17,716
balance sheet
$ 14,693
$ 7,382
54
Net periodic pension cost for the Company-
sponsored pension plans included the following:
In Thousands
Service cost
Interest cost
Expected return on
plan assets
Amortization of prior
service cost
Recognized net
actuarial loss
Net periodic pension
cost
2002
$ 4,006
7,305
Fiscal Year
2001
$ 3,290
6,578
2000
$ 3,606
6,180
(7,139)
(7,763)
(7,963)
(88)
(135)
(133)
2,098
15
$ 6,182
$ 1,985
$ 1,690
The following table presents significant assumptions
used:
Weighted average discount
rate used in determining net
periodic pension cost
Weighted average discount
rate used in determining the
actuarial present value of
the projected benefit
obligation
Weighted average expected
long-term rate of return on
plan assets
Weighted average rate of
compensation increase
Measurement date
2002
2001
7.25%
7.75%
7.00%
7.25%
8.00%
9.00%
4.00%
Nov. 2002
4.00%
Nov. 2001
The Company also participates in various multi-
employer pension plans covering certain employees
who are part of collective bargaining agreements.
Total pension expense for multi-employer plans was
$1.3 million, $1.2 million and $1.1 million in 2002,
2001 and 2000, respectively.
The Company provides a 401(k) Savings Plan for
substantially all of its employees who are not part of
collective bargaining agreements. 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 2002, 2001 and 2000 was $3.8
million, $2.8 million and $3.1 million, respectively.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The components of net periodic postretirement
benefit cost were as follows:
In Thousands
Service cost
Interest cost
Amortization of
unrecognized
transitional assets
Recognized net actuarial
loss
Amortization of prior
service cost
Net periodic
postretirement benefit
cost
Fiscal Year
2001
$ 331
3,253
2002
$ 403
3,238
2000
$ 852
2,816
(25)
(25)
1,155
1,106
(271)
(271)
(25)
493
$4,500
$4,394
$4,136
The weighted average discount rate used to estimate
the postretirement benefit obligation was 6.75% and
7.25% as of December 29, 2002 and December 30,
2001, respectively. The measurement dates were
September 30, 2002 and September 30, 2001,
respectively.
The weighted average health care cost trend used in
measuring the postretirement benefit expense in 2002
was 11% graded down 1% per year to an ultimate rate
of 5%. The weighted average health care cost trend
used in measuring the postretirement benefit expense
in 2001 was 12% graded down 1% per year to an
ultimate rate of 5%.
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:
In Thousands
Impact on
Postretirement benefit
obligation at December
29, 2002
Net periodic postretirement
benefit cost in 2002
1% Increase
1% Decrease
$7,377
$(7,843)
659
(671)
The Company currently provides employee leasing
and management services to SAC. SAC employees
participate in the Company’s employee benefit plans.
The Company provides postretirement benefits for
substantially all of its current 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 benefits in
the future. The Company amended certain provisions
of this postretirement benefit plan in 2001 and 2002.
Under the amended plan, qualifying active employees
will be eligible for coverage upon retirement until they
become eligible for Medicare (normally age 65), at
which time coverage under the plan will cease.
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 the fair value of plan assets and
funded status of the Company’s postretirement plan:
In Thousands
Benefit obligation at beginning
of year
Service cost
Interest cost
Plan participants’ contributions
Actuarial loss
Benefits paid
Change in plan provisions
Benefit obligation at end of year
Fair value of plan assets at
beginning of year
Employer contributions
Plan participants’ contributions
Benefits paid
Fair value of plan assets at end
Fiscal Year
2002
2001
$ 46,060
403
3,238
575
779
(2,784)
$ 48,271
$
—
2,209
575
(2,784)
$ 47,960
331
3,253
675
252
(3,423)
(2,988)
$ 46,060
$ —
2,748
675
(3,423)
of year
$
—
$ —
In Thousands
Funded status of the plan
Unrecognized net loss
Unrecognized prior service cost
Contributions between measurement
Dec. 29,
2002
$(48,271)
20,183
(2,666)
Dec. 30,
2001
$(46,060)
20,559
(2,962)
date and fiscal year-end 663
$(30,091)
Accrued liability
738
$(27,725)
55
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
16. 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 concentrate or syrup)
of its soft drink products are manufactured. As of
December 29, 2002, The Coca-Cola Company had a
27.5% interest in the Company’s total outstanding
Common Stock and Class B Common Stock on a
combined basis.
The following table summarizes the significant transactions between the Company and The Coca-Cola Company:
In Millions
2002
2001
2000
Payments by the Company for concentrate, syrup,
sweetener and other miscellaneous purchases
Payments by the Company for customer marketing programs
Marketing funding support payments to the Company
Payments by the Company for local media
$292.0
$241.1
$237.3
50.2
56.0
—
22.8
22.3
4.4
21.5
23.3
4.8
Local media and presence marketing support provided by The Coca-Cola
Company on the Company’s behalf
17.7
6.9
7.4
The significant changes in payments to and from The
Coca-Cola Company relate primarily to the
consolidation of Piedmont in 2002 and changes in the
administration of customer marketing programs, local
media and marketing funding support by The
Coca-Cola Company.
The Company has a production arrangement with
CCE to buy and sell finished products at cost. Sales to
CCE under this agreement were $23.6 million,
$21.0 million and $20.0 million in 2002, 2001 and
2000, respectively. Purchases from CCE under this
arrangement were $20.3 million, $21.0 million and
$15.0 million in 2002, 2001 and 2000, respectively.
The Coca-Cola Company has significant equity
interests in the Company and CCE. As of December
29, 2002, CCE held 10.5% of the Company’s
outstanding Common Stock but held no shares of the
Company’s Class B Common Stock, giving CCE a
7.7% equity interest in the Company’s total
outstanding Common Stock and Class B Common
Stock on a combined basis.
Along with a number of other Coca-Cola bottlers, the
Company has become a member in Coca-Cola
Bottlers’ Sales & Services Company LLC, (the “Sales
and Services Company”), which was recently formed
for the purposes of facilitating various procurement
functions and distributing certain specified beverage
products of The Coca-Cola Company with the
intention of enhancing the efficiency and
competitiveness of the Coca-Cola bottling system in
the United States. CCE is also a member in the Sales
and Services Company.
The Company entered into an agreement for
consulting services with J. Frank Harrison, Jr., the
former Chairman of the Board of Directors of the
Company, beginning in 1997. Payments related to the
consulting services agreement totaled $183,333,
$200,000 and $200,000 in 2002, 2001 and 2000,
respectively. J. Frank Harrison, Jr. passed away in
November 2002. An accrual of $3.8 million related to
a retirement benefit payable to Mr. Harrison, Jr. was
eliminated in the fourth quarter of 2002.
On July 2, 1993, the Company and The Coca-Cola
Company formed Piedmont. Prior to January 2, 2002,
the Company and The Coca-Cola Company, through
their respective subsidiaries, each beneficially owned
a 50% interest in Piedmont. On January 2, 2002, the
Company purchased an additional 4.651% interest in
56
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Piedmont from The Coca-Cola Company, increasing
the Company’s ownership in Piedmont to 54.651%.
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
at cost to Piedmont during 2002, 2001 and 2000
totaling $55.4 million, $53.0 million and
$53.5 million, respectively. The Company received
$17.9 million, $17.8 million and $13.6 million for
management services pursuant to its management
agreement with Piedmont for 2002, 2001 and 2000,
respectively.
During 2002, Piedmont refinanced a $195 million
term loan using the proceeds from a loan from the
Company. The Company’s source of funds for this
loan to Piedmont included the issuance of $150
million of senior notes, its lines of credit, the
revolving credit facility and available cash flow.
Piedmont pays the Company interest on the loan at
the Company’s average cost of funds plus 0.50%. As
of December 29, 2002, the Company had loaned
$151.8 million to Piedmont. The Company plans to
provide for Piedmont’s future financing requirements
under these terms.
The Company also subleases various fleet and
vending equipment to Piedmont at cost. These
sublease rentals amounted to $8.7 million, $11.2
million and $11.0 million in 2002, 2001 and 2000,
respectively. In addition, Piedmont subleases various
fleet and vending equipment to the Company at cost.
These sublease rentals amounted to $.2 million each
year for all periods presented.
On November 30, 1992, the Company and the
previous owner of the Company’s Snyder Production
Center in Charlotte, North Carolina, who was
unaffiliated with the Company, agreed to the early
termination of the Company’s lease. Harrison Limited
Partnership One (“HLP”) purchased the property
contemporaneously with the termination of the lease,
and the Company leased its Snyder Production
Center from HLP pursuant to a ten-year lease that
was to expire on November 30, 2002. HLP’s sole
general partner is a corporation of which the estate of
J. Frank Harrison, Jr. is the sole shareholder. HLP’s
sole limited partner is a trust of which J. Frank
Harrison, III, Chairman of the Board of Directors and
Chief Executive Officer of the Company, and Reid M.
Henson, Director of the Company, are co-trustees. On
August 9, 2000, a Special Committee of the Board of
Directors approved the sale by the Company of
property and improvements adjacent to the Snyder
Production Center to HLP and a new lease of both the
conveyed property and the Snyder Production Center
from HLP, which expires on December 31, 2010. The
sale closed on December 15, 2000 at a price of
$10.5 million. The annual base rent the Company
was obligated to pay for its lease of this property is
subject to adjustment for an inflation factor and for
increases or decreases in interest rates, using LIBOR
as the measurement device. Rental payments for these
properties totaled $2.9 million, $3.3 million and
$2.9 million in 2002, 2001 and 2000, respectively.
In May 2000, the Company entered into a five-year
consulting agreement with Reid M. Henson. Mr.
Henson served as a Vice Chairman of the Board of
Directors from 1983 to May 2000. Payments in 2002,
2001 and 2000 related to the consulting agreement
totaled $350,000, $350,000 and $204,000,
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. On January 5,
1999, the Company entered into a new ten-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 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. Rental payments under this
57
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
lease totaled $2.8 million, $3.3 million and
$3.6 million in 2002, 2001 and 2000, respectively.
The Company is a shareholder in two cooperatives
from which it purchases substantially all its
requirements for plastic bottles. Net purchases from
these entities were approximately $45 million,
$50 million and $49 million in 2002, 2001 and 2000,
respectively. In connection with its participation in one
of these cooperatives, the Company has guaranteed a
portion of the cooperative’s debt. Such guarantee
amounted to $14.7 million as of December 29, 2002.
The Company is a member of SAC, a manufacturing
cooperative. SAC sells finished products to the
Company and Piedmont at cost. Purchases from SAC
by the Company and Piedmont for finished products
were $110 million each year in 2002, 2001 and 2000,
respectively. The Company also manages the
operations of SAC pursuant to a management
agreement. Management fees from SAC were
$1.3 million, $1.2 million and $1.0 million in 2002,
2001 and 2000, respectively. Also, the Company has
guaranteed a portion of debt for SAC. Such guarantee
was $20.1 million as of December 29, 2002.
The Company purchases certain computerized data
management products and services related to
17. EARNINGS PER SHARE
inventory control and marketing program support
from Data Ventures LLC (“Data Ventures”), a
Delaware limited liability company. In December
2002, J. Frank Harrison, III contributed his interest in
Data Ventures to the Company for no consideration.
As a result of this transaction, the Company now
holds a 63.75% equity interest in Data Ventures as of
December 29, 2002. On September 30, 1997, Data
Ventures obtained a $1.9 million unsecured line of
credit from the Company. In December 1999, this
line of credit was increased to $3.0 million. In July
2001, this line of credit was increased to $4.5 million.
Data Ventures was indebted to the Company for $4.0
million and $3.9 million as of December 29, 2002 and
December 30, 2001, respectively. The Company
recorded a loan loss provision of $.5 million, $1.6
million and $.2 million in 2002, 2001 and 2000,
respectively, related to its outstanding loan to Data
Ventures. The total loan loss provision was $2.9
million and $2.4 million as of December 29, 2002 and
December 30, 2001, respectively. The Company
purchased products and services from Data Ventures
for $523,000, $435,000 and $414,000 in 2002, 2001
and 2000, respectively. The results of operations and
financial position of Data Ventures were not material
to the Company’s consolidated financial statements.
The following table sets forth the computation of basic net income per share and diluted net income per share:
Fiscal Year
In Thousands (Except Per Share Data)
2002
2001
2000
Numerator:
Numerator for basic net income and diluted net income per share
Denominator:
Denominator for basic net income per share—weighted average common
shares
Effect of dilutive securities
Denominator for diluted net income per share—adjusted weighted average
common shares
Basic net income per share
Diluted net income per share
$22,823
$9,470
$6,294
8,861
8,753
8,733
60
68
89
8,921
$ 2.58
$ 2.56
8,821
$ 1.08
$ 1.07
8,822
.72
.71
$
$
58
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
18. RISKS AND UNCERTAINTIES
Approximately 91% of the Company’s sales are
products of The Coca-Cola Company, which is the
sole supplier of the concentrates or syrups required to
manufacture these products. The remaining 9% of the
Company’s sales are products of other beverage
companies. The Company has bottling contracts
under which it has various requirements to meet.
Failure to meet the requirements of these bottling
contracts could result in the loss of distribution rights
for the respective product.
The Company currently obtains all of its aluminum
cans from one domestic supplier. 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. The Company attempts to
mitigate these risks by working closely with key
suppliers and by purchasing business interruption
insurance where appropriate. In addition, the cost of
aluminum cans and PET bottle containers are subject
to change. Material increases in the cost of these
containers may result in a reduction in earnings to
the extent the Company is not able to increase its
selling prices to offset an increase in container costs.
The Company’s products are sold and distributed
directly by its employees to retail stores and other
outlets. During 2002, approximately 79% of the
Company’s physical case volume was sold for future
consumption through supermarkets, convenience
stores, drug stores and mass merchandisers. The
remaining 21% of the Company’s volume was sold for
immediate consumption through various cold drink
channels. The Company’s largest customer accounted
for approximately 10% of the Company’s total sales
volume during 2002.
The Company makes significant expenditures each
year on fuel for product delivery. Material increases
59
in the cost of fuel may result in a reduction in
earnings to the extent the Company is not able to
increase its selling prices to offset an increase in fuel
costs.
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
covering less than 1% of the Company’s employees
expires during 2003.
Material changes in the performance requirements or
decreases in levels of marketing funding historically
provided under marketing programs with The
Coca-Cola Company and other franchisers, or the
Company’s inability to meet the performance
requirements 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.
Changes in the market value of assets in the
Company’s pension plan as well as material changes
in interest rates may result in significant changes in
net periodic pension cost and the Company
contributions to the plan.
Changes in the health care cost trend as well as
material changes in interest rates may result in
significant changes in postretirement benefit cost.
Changes in the insurance markets may significantly
impact insurance premiums, or in certain situations,
may impact the Company’s ability to secure insurance
coverages.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
19. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Changes in current assets and current liabilities affecting cash, net of effects of acquisitions and divestitures, were
as follows:
In Thousands
Accounts receivable, trade, net
Accounts receivable from The Coca-Cola Company
Accounts receivable, other
Inventories
Prepaid expenses and other assets
Accounts payable, trade
Accounts payable to The Coca-Cola Company
Other accrued liabilities
Accrued compensation
Accrued interest payable
Fiscal Year
2002
2001
2000
$ 4,836
$ (1,313)
$ (2,294)
(7,988)
(9,398)
7,164
1,445
2,994
586
638
5,691
712
(1,377)
10,958
(10,427)
4,089
1,630
(6,321)
3,880
(2,347)
6,893
4,123
5,185
3,906
1,395
(249)
1,456
(19,923)
7,041
(6,347)
Due to Piedmont
(Increase) decrease in current assets less current liabilities
$ (5,832)
8,246
$44,418
13,700
$(10,002)
Cash payments for interest and income taxes were as follows:
In Thousands
Interest
Income taxes (net of refunds)
Fiscal Year
2002
2001
2000
$52,572
$42,084
$ 58,736
3,138
2,673
2,830
20. NEW ACCOUNTING PRONOUNCEMENTS
Emerging Issues Task Force No. 01-09 “Accounting
for Consideration Given by a Vendor to a Customer
or Reseller of the Vendor’s Products” was effective for
the Company beginning January 1, 2002, requiring
certain expenses previously classified as selling,
general and administrative expenses to be reclassified
as deductions from net sales. Prior years’ results have
been adjusted to reclassify these expenses as a
deduction to net sales for comparability with current
year presentation. These expenses relate primarily to
payments to customers for certain marketing
programs. The Company reclassified $22.5 million
and $15.6 million for 2001 and 2000, respectively,
related to these expenses.
In November 2002, the Financial Accounting
Standards Board (FASB) issued Financial
Interpretation No. 45, “Guarantor’s Accounting and
Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others,”
(“FIN 45”). This interpretation requires additional
disclosure for current guarantees and requires that
certain guarantees entered into or modified
subsequent to December 31, 2002 be reflected in the
guarantor’s balance sheet. The Company adopted the
60
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
provisions of FIN 45 for its fiscal year ended
December 29, 2002.
In January 2003, the FASB issued Financial
Interpretation No. 46, “Consolidation of Variable
Interest Entities,” (“FIN 46”). This interpretation
addresses consolidation by business enterprises of
variable interest entities with certain defined
21. SUBSEQUENT EVENT
characteristics. This interpretation applies to the first
fiscal year or interim period beginning after June 15,
2003, to variable interest entities in which an
enterprise holds a variable interest that it acquired
before February 1, 2003. The Company has not yet
determined what effect, if any, the adoption of
FIN 46 will have on the results of operations and
financial position of the Company.
On March 5, 2003, the Board of Directors of the
Company authorized the purchase of half of The
Coca-Cola Company’s remaining interest in Piedmont
for approximately $53.5 million, subject to the
completion of a definitive purchase agreement and
regulatory approval. This transaction, which is
anticipated to close on March 31, 2003, would increase
the Company’s ownership interest in Piedmont from
54.651% to slightly more than 77%. Available sources
of financing this transaction may include the
Company’s lines of credit, its revolving credit facility or
public debt.
22. QUARTERLY FINANCIAL DATA (UNAUDITED)
Set forth below are unaudited quarterly financial data for the fiscal years ended December 29, 2002 and
December 30, 2001.
In Thousands (Except Per Share Data)
Quarter
Year Ended December 29, 2002
1
2
3
4
Net sales
Gross margin
Net income (loss)
Basic net income (loss) per share
Diluted net income (loss) per share
$283,198
$341,119
$333,047
$289,227
134,582
159,671
153,918
131,160
3,378
10,783
.39
.38
1.23
1.21
9,539
1.08
1.07
(877)
(.10)
(.10)
In Thousands (Except Per Share Data)
Quarter
Year Ended December 30, 2001
1
2
3
4
Net sales
Gross margin
Net income (loss)
Basic net income (loss) per share
Diluted net income (loss) per share
$ 223,700
$ 262,338
$ 258,600
$ 244,550
102,899
117,931
115,955
107,875
(1,782)
5,009
7,915
(1,672)
(.20)
(.20)
.57
.57
.90
.90
(.19)
(.19)
61
SELECTED FINANCIAL DATA*
In Thousands (Except Per Share Data)
Fiscal Year **
Summary of Operations
Net sales
2002***
2001
2000 ****
1999
1998
$1,246,591
$ 989,188
$ 969,937
$ 945,607
$907,575
Cost of sales
Selling, general and administrative expenses
Depreciation expense
Amortization of goodwill and intangibles
Restructuring expense
Total costs and expenses
Income from operations
Interest expense
Other income (expense), net
Minority interest
Income before income taxes
Income taxes
Net income
Basic net income per share
Diluted net income per share
Cash dividends per share:
Common
Class B Common
Other Information
Weighted average number of common
shares outstanding
Weighted average number of common
shares outstanding—assuming dilution
Year-End Financial Position
Total assets
Portion of long-term debt payable
within one year
Current portion of obligations
under capital leases
Long-term debt
Obligations under capital leases
Stockholders’ equity
667,260
404,194
76,075
2,796
544,528
304,565
66,134
15,296
520,600
310,215
64,751
14,712
1,150,325
930,523
910,278
96,266
49,120
(3,084)
5,992
38,070
15,247
22,823
2.58
2.56
1.00
1.00
8,861
8,921
$
$
$
$
$
58,665
44,322
(2,647)
11,696
2,226
9,470
1.08
1.07
1.00
1.00
8,753
8,821
$
$
$
$
$
59,659
53,346
3,522
9,835
3,541
6,294
.72
.71
1.00
1.00
8,733
8,822
$
$
$
$
$
534,459
275,620
60,567
13,734
2,232
886,612
58,995
50,581
(3,428)
4,986
1,745
3,241
.38
.37
1.00
1.00
8,588
8,708
$
$
$
$
$
527,565
264,177
37,076
12,972
841,790
65,785
39,947
(2,593)
23,245
8,367
$ 14,878
$
$
$
$
1.78
1.75
1.00
1.00
8,365
8,495
$1,353,525
$1,064,459
$1,062,097
$1,108,392
$822,702
31
56,708
9,904
28,635
30,115
3,960
807,725
42,066
32,867
1,489
620,156
935
17,081
3,325
682,246
1,774
28,412
4,483
723,964
491,234
4,468
30,851
14,198
*
See Management’s Discussion and Analysis and accompanying notes to consolidated financial statements for additional
information.
All years presented are 52-week years except 1998 which is a 53-week year.
**
*** On January 2, 2002, the Company purchased an additional interest in Piedmont Coca-Cola Bottling Partnership
(“Piedmont”) from The Coca-Cola Company, increasing the Company’s ownership in Piedmont to more than 50%. Due
to the increase in ownership, the results of operations, financial position and cash flows of Piedmont have been
consolidated with those of the Company beginning in the first quarter of 2002. The Company’s investment in Piedmont
had been accounted for using the equity method for 2001 and prior years.
**** In September 2000, the Company sold a bottling territory which represented approximately 3% of the Company’s 2000
sales volume.
62
SUMMARY OF QUARTERLY STOCK PRICES
Fiscal Year
2002 Sales Price
2001 Sales Price
High
Low
Period
End
High
Low
Period
End
$50.10
$37.24
$49.00
$45.13
$36.50
$40.44
52.09
52.05
63.06
42.30
41.30
46.02
43.00
47.50
62.71
41.00
42.24
40.95
38.06
36.17
36.09
39.35
37.75
38.41
First quarter
Second quarter
Third quarter
Fourth quarter
The Company’s Common Stock trades on the
Nasdaq National Market tier of The Nasdaq Stock
Market® under the symbol COKE. The table above
sets forth for the periods indicated the high, low and
period end reported sales prices per share of
Common Stock. There is no trading market for the
Company’s Class B Common Stock. Shares of Class B
Common Stock are convertible on a share-for-share
basis into shares of Common Stock.
The quarterly dividend rate of $.25 per share on both
Common Stock and Class B Common Stock shares
was maintained throughout 2002, 2001 and 2000.
The amount and frequency of future dividends will
be determined by the Company’s Board of Directors
in light of the earnings and financial condition of the
Company at such time, and no assurance can be
given that dividends will be declared in the future.
The number of stockholders of record of Common
Stock and Class B Common Stock, as of March 10,
2003, was 3,476 and 12, respectively.
63
BOARD OF DIRECTORS
EXECUTIVE OFFICERS
J. Frank Harrison, III
Chairman of the Board of Directors and
Chief Executive Officer
William B. Elmore
President and Chief Operating Officer
James L. Moore, Jr.
Vice Chairman of the Board of Directors
Robert D. Pettus, Jr.
Executive Vice President and Assistant to
the Chairman
David V. Singer
Executive Vice President and Chief Financial Officer
Norman C. George
Senior Vice President, Chief Marketing and
Customer Officer
C. Ray Mayhall, Jr.
Senior Vice President, Sales
Clifford M. Deal, III
Vice President, Treasurer
Ronald J. Hammond
Vice President, Supply Chain
Kevin A. Henry
Vice President, Human Resources
Umesh M. Kasbekar
Vice President, Planning and Administration
Lauren C. Steele
Vice President, Corporate Affairs
Steven D. Westphal
Vice President, Controller
Jolanta T. Zwirek
Vice President, Chief Information Officer
J. Frank Harrison, III
Chairman of the Board of Directors and
Chief Executive Officer
Coca-Cola Bottling Co. Consolidated
H. W. McKay Belk
President, Merchandising and Marketing
Belk, Inc.
Sharon A. Decker
President
Doncaster, a division of the Tanner Companies
William B. Elmore
President and Chief Operating Officer
Coca-Cola Bottling Co. Consolidated
Reid M. Henson
Retired Vice Chairman of the Board of
Directors
Coca-Cola Bottling Co. Consolidated
Ned R. McWherter
Chairman of the Board of Directors
Volunteer Distributing Company, Inc. and
Eagle Distributors, Inc.
Former Governor of the State of Tennessee
James L. Moore, Jr.
Vice Chairman of the Board of Directors
Coca-Cola Bottling Co. Consolidated
John W. Murrey, III
Private Attorney
Carl Ware
Retired Executive Vice President
Public Affairs and Administration
The Coca-Cola Company
Dennis A. Wicker
Partner
Helms Mulliss and Wicker, PLLC
Attorneys at Law
Former Lieutenant Governor of
the State of North Carolina
64
CORPORATE INFORMATION
TRANSFER AGENT AND DIVIDEND
DISBURSING AGENT
The Company’s transfer agent is responsible for
stockholder records, issuance of stock certificates and
distribution of dividend payments and IRS Form
1099s. The transfer agent also administers plans for
dividend reinvestment and direct deposit.
Stockholder requests and inquiries concerning these
matters are most efficiently answered by
corresponding directly with Wachovia Bank, N.A.,
Attention: Corporate Trust Client Services NC-1153,
1525 West W. T. Harris Blvd. 3C3, Charlotte, North
Carolina 28288-1153. Communication may also be
made by calling Toll Free (800) 829-8432,
Local (704) 590-7375 or Fax (704) 590-7598.
STOCK LISTING
Nasdaq National Market System
Nasdaq Symbol – COKE
COMPANY WEBSITE
www.cokeconsolidated.com
CORPORATE OFFICE
The corporate office is located at 4100 Coca-Cola
Plaza, Charlotte, North Carolina 28211. The mailing
address is Coca-Cola Bottling Co. Consolidated,
P.O. Box 31487, Charlotte, North Carolina 28231.
ANNUAL MEETING
The Annual Meeting of Stockholders of Coca-Cola
Bottling Co. Consolidated will be held at Snyder
Production Center, 4901 Chesapeake Drive,
Charlotte, North Carolina 28216, on May 7, 2003, at
10:00 a.m. local time.
FORM 10-K
A copy of the Company’s annual report to the
Securities and Exchange Commission (Form 10-K)
is available to stockholders without charge upon
written request to David V. Singer, Executive Vice
President and Chief Financial Officer, Coca-Cola
Bottling Co. Consolidated, P.O. Box 31487,
Charlotte, North Carolina 28231.
Produced by Crown Communications Š Art Direction by Johnston Design
Color photography by Donna Bise Š Historical photography from CCBCC archives
Production by Donnelley Financial and Belk Printing Technologies
BOTTLING CO.
CONSOLIDATED
CONSOLIDATED
2 0 0 2
1 9 0 2
4100 Coca-Cola Plaza • Charlotte, North Carolina 28211
Mailing Address: Post Office Box 31487 • Charlotte, NC 28231 • 704.557.4400