---




SECURITIES AND EXCHANGE COMMISSION


WASHINGTON, D.C. 20549





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FORM 10-Q





|x |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- |  | ---------------------------------------------------------------------------------------




For the quarterly period ended September 29, 2002





Commission File Number 0-9286





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COCA-COLA BOTTLING CO. CONSOLIDATED


(Exact name of registrant as specified in its charter)





Delaware (State or other
jurisdiction of incorporation or organization)

56-0950585 (I.R.S. Employer
Identification No.)





4100 Coca-Cola Plaza, Charlotte, North Carolina 28211


(Address of principal executive offices) (Zip Code)





(704) 557-4400


(Registrants telephone number, including area code)





Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ̈





Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date.





Class



Outstanding at November 1, 2002Common Stock, $1.00 Par Value



6,642,477Class B Common Stock, $1.00 Par Value



2,380,852





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PART IFINANCIAL INFORMATION





Item l.Financial Statements





Coca-Cola Bottling Co. Consolidated


CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)


In Thousands (Except Per Share Data)





Third Quarter

First Nine Months2002


2001

2002


2001Net sales (includes sales to Piedmont of $20,591 and $54,545 in 2001)

$
333,047


$
258,600

$
957,364


$
744,638Cost of sales, excluding depreciation shown below (includes $14,535 and $40,224 related to sales to Piedmont in
2001)


179,129



142,645


509,193



407,853Gross margin


153,918



115,955


448,171



336,785Selling, general and administrative expenses, excluding depreciationshown below


102,961



76,377


306,465



226,701Depreciation expense


19,405



16,810


56,247



49,208Amortization of goodwill and intangibles


683



3,721


2,056



11,161Income from operations


30,869



19,047


83,403



49,715Interest expense


11,454



10,764


35,471



34,245Other income (expense), net


(221
)


88


(1,770
)


(1,765
)Minority interest


2,672






6,195Income before income taxes


16,522



8,371


39,967



13,705Federal and state income taxes


6,983



456


16,267



2,563Net income

$
9,539


$
7,915

$
23,700


$
11,142Basic net income per share

$
1.08


$
.90

$
2.69


$
1.27Diluted net income per share

$
1.07


$
.90

$
2.67


$
1.26Weighted average number of common shares outstanding


8,864



8,753


8,807



8,753Weighted average number of common shares outstandingassuming dilution


8,924



8,818


8,887



8,822Cash dividends per shareCommon Stock

$
.25


$
.25

$
.75


$
.75Class B Common Stock

$
.25


$
.25

$
.75


$
.75





See Accompanying Notes to Consolidated Financial Statements




2




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Coca-Cola Bottling Co. Consolidated


CONSOLIDATED BALANCE SHEETS (UNAUDITED)


In Thousands (Except Share Data)





Sept. 29, 2002

Dec. 30, 2001

Sept. 30, 2001ASSETSCurrent Assets:Cash

$
8,286

$
16,912

$
6,252Accounts receivable, trade, less allowance for doubtful accounts of $1,754,$1,863 and $950


84,365


63,974


63,762Accounts receivable from The Coca-Cola Company


19,965


3,935


7,860Accounts receivable, other


6,479


5,253


4,611Inventories


42,433


39,916


37,180Prepaid expenses and other current assets


16,812


13,379


14,688Total current assets


178,340


143,369


134,353Property, plant and equipment, net


467,281


457,306


465,838Leased property under capital leases, net


44,593


5,383


6,053Investment in Piedmont Coca-Cola Bottling Partnership





60,203


60,229Other assets


61,909


52,140


60,544Franchise rights and goodwill, net


607,007


335,662


338,549Other identifiable intangible assets, net


6,658


10,396


11,644Total

$
1,365,788

$
1,064,459

$
1,077,210





See Accompanying Notes to Consolidated Financial Statements




3




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Coca-Cola Bottling Co. Consolidated


CONSOLIDATED BALANCE SHEETS (UNAUDITED)


In Thousands (Except Share Data)





Sept. 29, 2002


Dec. 30, 2001


Sept. 30, 2001LIABILITIES AND STOCKHOLDERS EQUITYCurrent Liabilities:Portion of long-term debt payable within one year

$
154,731


$
56,708


$
56,891Current portion of obligations under capital leases


3,717



1,489



1,713Accounts payable, trade


35,238



28,370



31,163Accounts payable to The Coca-Cola Company


41,477



7,925



9,543Due to Piedmont Coca-Cola Bottling Partnership






24,682



23,746Accrued compensation


16,912



17,350



11,817Other accrued liabilities


66,985



49,169



44,453Accrued interest payable


16,179



11,878



13,310Total current liabilities


335,239



197,571



192,636Deferred income taxes


170,012



133,743



149,309Pension and retiree benefit obligations


31,603



37,203



24,950Other liabilities


61,782



57,770



51,170Obligations under capital leases


41,985



935



1,256Long-term debt


620,125



620,156



626,256Total liabilities


1,260,746



1,047,378



1,045,577Commitments and Contingencies (Note 11)Minority interest in Piedmont Coca-Cola Bottling Partnership


62,332Stockholders Equity:Common Stock, $1.00 par value:Authorized30,000,000 shares;Issued9,653,774, 9,454,651 and 9,454,651 shares


9,653



9,454



9,454Class B Common Stock, $1.00 par value:Authorized10,000,000 shares;Issued3,008,966, 2,989,166 and 2,989,166 shares


3,009



2,989



2,989Capital in excess of par value


94,209



91,004



93,192Retained earnings (accumulated deficit)


9,176



(12,307
)


(10,635
)Accumulated other comprehensive loss


(12,083
)


(12,805
)


(2,113
)103,964



78,335



92,887Less-Treasury stock, at cost:Common3,062,374 shares


60,845



60,845



60,845Class B Common628,114 shares


409



409



409Total stockholders equity


42,710



17,081



31,633Total

$
1,365,788


$
1,064,459


$
1,077,210





See Accompanying Notes to Consolidated Financial Statements




4




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Coca-Cola Bottling Co. Consolidated


CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY (UNAUDITED)


In Thousands





Common Stock

Class B Common Stock

Capital in Excess
of Par Value


Retained Earnings (Accum. Deficit)


Accumulated Other Comprehensive Loss


Treasury Stock


TotalBalance on December 31, 2000

$
9,454

$
2,969

$
99,020


$
(21,777
)

$



$
(61,254
)

$
28,412Comprehensive income:Net income












11,142











11,142Proportionate share of Piedmonts accum. other comprehensive loss at adoption of SFAS 133, net of tax
















(924
)






(924
)Change in proportionate share of Piedmonts accum. other comprehensive loss, net of tax
















(1,189
)






(1,189
)Total comprehensive income
























9,029Cash dividends paid








(6,565
)














(6,565
)Class B Common Stock issued related to stock award





20


737















757Balance on September 30, 2001

$
9,454

$
2,989

$
93,192


$
(10,635
)

$
(2,113
)

$
(61,254
)

$
31,633Balance on December 30, 2001

$
9,454

$
2,989

$
91,004


$
(12,307
)

$
(12,805
)

$
(61,254
)

$
17,081Comprehensive income:Net income












23,700











23,700Change in fair market value of cash flow hedges, net of tax
















(30
)






(30
)Change in proportionate share of Piedmonts accum. other comprehensive loss, net of tax
















752







752Total comprehensive income
























24,422Cash dividends paid








(4,388
)


(2,217
)










(6,605
)Class B Common Stock issued related to stock award





20


748















768Exercise of stock options


199





5,500















5,699Deferred tax adjustment related to exercise of stock options








1,345















1,345Balance on September 29, 2002

$
9,653

$
3,009

$
94,209


$
9,176


$
(12,083
)

$
(61,254
)

$
42,710





See Accompanying Notes to Consolidated Financial Statements




5




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Coca-Cola Bottling Co. Consolidated


CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)


In Thousands





First Nine Months2002


2001Cash Flows from Operating ActivitiesNet income

$
23,700


$
11,142Adjustments to reconcile net income to net cash provided by operating activities:Depreciation expense


56,247



49,208Amortization of goodwill and intangibles


2,056



11,161Deferred income taxes


16,267



5,413Losses on sale of property, plant and equipment


2,277



573Amortization of debt costs


526



625Amortization of deferred gains related to terminated interest rate swaps


(1,445
)


(775
)Undistributed losses of Piedmont Coca-Cola Bottling Partnership






(993
)Minority interest


6,195Decrease in current assets less current liabilities


33,485



25,786Increase in other noncurrent assets


(4,567
)


(291
)Decrease in other noncurrent liabilities


(5,232
)


(1,735
)Other


(343
)


605Total adjustments


105,466



89,577Net cash provided by operating activities


129,166



100,719Cash Flows from Financing ActivitiesRepayment of current portion of long-term debt


(154,208
)


(2,203
)Proceeds from lines of credit and revolving credit facility, net


57,200



(6,800
)Cash dividends paid


(6,605
)


(6,565
)Payments on capital lease obligations


(1,511
)


(2,347
)Proceeds from exercise of stock options


5,699Other


179



(848
)Net cash used in financing activities


(99,246
)


(18,763
)Cash Flows from Investing ActivitiesAdditions to property, plant and equipment


(34,900
)


(87,735
)Proceeds from the sale of property, plant and equipment


5,033



3,606Acquisition of additional interest in Piedmont Coca-Cola Bottling Partnership, net


(8,679
)Net cash used in investing activities


(38,546
)


(84,129
)Net decrease in cash


(8,626
)


(2,173
)Cash at beginning of period


16,912



8,425Cash at end of period

$
8,286


$
6,252Significant non-cash investing and financing activities:Issuance of Class B Common Stock related to stock award

$
768


$
757Capital lease obligations incurred


41,620





See Accompanying Notes to Consolidated Financial Statements




6




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Coca-Cola Bottling Co. Consolidated





Notes to Consolidated Financial Statements (Unaudited)





1.    Accounting Policies





The
consolidated financial statements include the accounts of Coca-Cola Bottling Co. Consolidated and its majority owned subsidiaries (the Company). All significant intercompany accounts and transactions have been eliminated.





The information contained in the financial statements is unaudited. The statements reflect all adjustments which, in the
opinion of management, are necessary for a fair statement of the results for the interim periods presented. All such adjustments are of a normal, recurring nature.





The 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 accounting policies followed in the presentation of interim financial results are the same
as those followed on an annual basis except for new accounting pronouncements adopted in 2002. See Note 15 for new accounting pronouncements. These accounting policies are presented in Note 1 to the Consolidated Financial Statements included in the
Companys Annual Report on Form 10-K for the year ended December 30, 2001 filed with the Securities and Exchange Commission.





Certain prior year amounts have been reclassified to conform to current year classifications.





2.    Piedmont Coca-Cola Bottling Partnership





On July 2, 1993, the
Company and The Coca-Cola Company formed Piedmont Coca-Cola Bottling Partnership (Piedmont) to distribute and market carbonated and noncarbonated beverages primarily in 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 to Piedmont at cost and receives a fee for managing the
business of Piedmont pursuant to a management agreement.





On January 2, 2002, the Company purchased an additional
4.651% interest in 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 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.





The following financial information includes the 2002 unaudited consolidated financial position and results of operations of the Company and includes the 2001 unaudited pro forma financial position and results of operations.
The 2001 unaudited pro forma financial information reflects the consolidation of Piedmonts financial position and results of operations with those of the Company as if the additional purchase had occurred at the beginning of 2001.




7




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Coca-Cola Bottling Co. Consolidated





Notes to Consolidated Financial Statements (Unaudited)







Note 2 continued





CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)





Third Quarter

First Nine MonthsPro forma




Pro forma2002


2001

2002


2001In Thousands (Except Per Share Data)Net sales

$
333,047


$
311,508

$
957,364


$
896,197Cost of sales, excluding depreciation shown below


179,129



168,415


509,193



481,518Gross margin


153,918



143,093


448,171



414,679Selling, general and administrative expenses, excluding depreciationshown below


102,961



95,650


306,465



283,589Depreciation expense


19,405



18,102


56,247



53,294Amortization of goodwill and intangibles


683



5,850


2,056



17,547Income from operations


30,869



23,491


83,403



60,249Interest expense


11,454



14,204


35,471



44,812Other income (expense), net


(221
)


246


(1,770
)


(1,304
)Minority interest


2,672



1,224


6,195



901Income before income taxes


16,522



8,309


39,967



13,232Federal and state income taxes


6,983



434


16,267



2,376Net income

$
9,539


$
7,875

$
23,700


$
10,856Basic net income per share

$
1.08


$
.90

$
2.69


$
1.24Diluted net income per share

$
1.07


$
.89

$
2.67


$
1.23Weighted average number of common shares outstanding


8,864



8,753


8,807



8,753Weighted average number of common shares outstandingassuming dilution


8,924



8,818


8,887



8,822




8




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Coca-Cola Bottling Co. Consolidated





Notes to Consolidated Financial Statements (Unaudited)




Note 2 continued





CONSOLIDATED BALANCE SHEETS (UNAUDITED)





Sept. 29, 2002

Pro forma Dec.
30, 2001

Pro forma Sept.
30, 2001In ThousandsASSETSCurrent Assets:Cash

$
8,286

$
18,210

$
7,902Accounts receivable, trade, net


84,365


84,384


83,760Accounts receivable from The Coca-Cola Company


19,965


5,004


9,601Accounts receivable, other


6,479


7,603


6,137Inventories


42,433


45,812


43,326Prepaid expenses and other current assets


16,812


13,522


14,993Total current assets


178,340


174,535


165,719Property, plant and equipment


834,968


822,095


824,936LessAccumulated depreciation and amortization


367,687


332,942


327,252Property, plant and equipment, net


467,281


489,153


497,684Leased property under capital leases


47,115


20,424


20,633LessAccumulated amortization


2,522


10,109


9,377Leased property under capital leases, net


44,593


10,315


11,256Other assets


61,909


57,756


66,087Franchise rights and goodwill, less accumulated amortization of $210,535,$210,535 and $205,417


607,007


604,651


609,665Other identifiable intangible assets, less accumulated amortization of$48,206, $60,784 and $59,536


6,658


10,396


11,644Total

$
1,365,788

$
1,346,806

$
1,362,055




9




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Coca-Cola Bottling Co. Consolidated





Notes to Consolidated Financial Statements (Unaudited)







Note 2 continued





CONSOLIDATED BALANCE SHEETS (UNAUDITED)





Sept. 29, 2002


Pro forma Dec.
30, 2001


Pro forma Sept.
30, 2001In ThousandsLIABILITIES AND STOCKHOLDERS EQUITYCurrent Liabilities:Portion of long-term debt payable within one year

$
154,731


$
154,208


$
154,391Current portion of obligations under capital leases


3,717



2,466



2,839Accounts payable, trade


35,238



34,214



36,620Accounts payable to The Coca-Cola Company


41,477



8,193



10,070Accrued compensation


16,912



17,350



12,201Other accrued liabilities


66,985



57,593



52,300Accrued interest payable


16,179



13,647



15,314Total current liabilities


335,239



287,671



283,735Deferred income taxes


170,012



157,739



173,432Pension and retiree benefit obligations


31,603



37,203



24,950Other liabilities


61,782



61,425



56,068Obligations under capital leases


41,985



4,033



4,465Long-term debt


620,125



727,657



733,756Total liabilities


1,260,746



1,275,728



1,276,406Minority interest in Piedmont


62,332



54,603



54,302Stockholders Equity:Common Stock


9,653



9,454



9,454Class B Common Stock


3,009



2,989



2,989Capital in excess of par value


94,209



91,004



93,192Retained earnings (accumulated deficit)


9,176



(12,743
)


(10,921
)Accumulated other comprehensive loss


(12,083
)


(12,975
)


(2,113
)103,964



77,729



92,601Less-Treasury stock, at cost:Common


60,845



60,845



60,845Class B Common


409



409



409Total stockholders equity


42,710



16,475



31,347Total

$
1,365,788


$
1,346,806


$
1,362,055




10




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Coca-Cola Bottling Co. Consolidated





Notes to Consolidated Financial Statements (Unaudited)







3.    Inventories





Inventories were summarized as follows:





Sept. 29, 2002

Dec. 30, 2001

Sept. 30, 2001In ThousandsFinished products

$
30,015

$
23,637

$
25,730Manufacturing materials


7,073


11,893


7,446Plastic pallets and other


5,345


4,386


4,004Total inventories

$
42,433

$
39,916

$
37,180





4.    Property, Plant and Equipment





The principal categories and estimated useful lives of property, plant and equipment were as follows:





Sept. 29, 2002

Dec. 30, 2001

Sept. 30, 2001

Estimated Useful LivesIn ThousandsLand

$
12,947

$
11,158

$
11,158Buildings


113,725


95,338


96,943

10-50 yearsMachinery and equipment


95,659


93,658


93,949

5-20 yearsTransportation equipment


140,891


130,016


132,864

4-13 yearsFurniture and fixtures


38,858


36,350


35,112

4-10 yearsVending equipment


358,721


334,975


335,246

6-13 yearsLeasehold and land improvements


46,594


40,969


40,307

5-20 yearsSoftware for internal use


24,043


21,850


20,135

3-7 yearsConstruction in progress


3,530


1,908


3,203Total property, plant and equipment, at cost


834,968


766,222


768,917Less: Accumulated depreciation and amortization


367,687


308,916


303,079Property, plant and equipment, net

$
467,281

$
457,306

$
465,838




11




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Coca-Cola Bottling Co. Consolidated





Notes to Consolidated Financial Statements (Unaudited)







5.    Leased Property Under Capital Leases





Sept. 29, 2002

Dec. 30, 2001

Sept. 30, 2001

Estimated Useful LivesIn ThousandsLeased property under capital leases


$47,115

$
12,265

$
12,442

1-29 yearsLess: Accumulated amortization


2,522


6,882


6,389Leased property under capital leases, net

$
44,593

$
5,383

$
6,053





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 the Companys 2001 Annual Report on


Form 10-K, this facility is leased from a related party. The lease obligation was capitalized as a result of the Companys decision in the first quarter to enter into renewal options that extend the expected term of this
lease.








6.    Franchise Rights and Goodwill





Sept. 29, 2002

Dec. 30, 2001

Sept. 30, 2001In ThousandsFranchise rights

$
662,350

$
353,388

$
353,388Goodwill


155,192


112,097


112,097Franchise rights and goodwill


817,542


465,485


465,485Less: Accumulated amortization


210,535


129,823


126,936Franchise rights and goodwill, net

$
607,007

$
335,662

$
338,549





The significant increase in franchise rights and goodwill in 2002
resulted primarily from the consolidation of Piedmont. Due to the implementation of new accounting pronouncements effective the first day of fiscal year 2002, goodwill and intangible assets with indefinite useful lives are no longer amortized but
instead are tested for impairment at least annually. See Note 15 for new accounting pronouncements.








7.    Other Identifiable Intangible Assets





The principal categories and estimated useful
lives of identifiable intangible assets were as follows:





Sept. 29, 2002

Dec. 30, 2001

Sept. 30, 2001

Estimated Useful LivesIn ThousandsCustomer lists

$
54,864

$
54,864

$
54,864

20 yearsOther





16,316


16,316Other identifiable intangible assets


54,864


71,180


71,180Less: Accumulated amortization


48,206


60,784


59,536Other identifiable intangible assets, net

$
6,658

$
10,396

$
11,644




12




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Coca-Cola Bottling Co. Consolidated





Notes to Consolidated Financial Statements (Unaudited)







8.    Long-Term Debt





Long-term debt was summarized as follows:





Maturity

Interest Rate


Interest Paid

Sept. 29, 2002

Dec. 30, 2001

Sept. 30, 2001In ThousandsLines of Credit

2002

2.39
%

Varies

$
7,200




$
6,100Revolving Credit

2002

2.03
%

Varies


50,000Term Loan Agreement

2004

2.58
%

Varies


85,000

$
85,000


85,000Term Loan Agreement

2005

2.58
%

Varies


85,000


85,000


85,000Term Loan Agreement

2003

2.31
%

Varies


97,500Medium-Term Notes

2002










47,000


47,000Debentures

2007

6.85
%

Semi-annually


100,000


100,000


100,000Debentures

2009

7.20
%

Semi-annually


100,000


100,000


100,000Debentures

2009

6.38
%

Semi-annually


250,000


250,000


256,221Other notes payable

2002-2006

5.75
%

Varies


156


9,864


10,047774,856


676,864


689,368Less: Portion of long-term debt payable within one year


154,731


56,708


56,891620,125


620,156


632,477Fair market value of interest rate swaps








(6,221
)Long-term debt

$
620,125

$
620,156

$
626,256




13




---



Coca-Cola Bottling Co. Consolidated





Notes to Consolidated Financial Statements (Unaudited)







Note 8 continued





The Company borrows periodically under its available lines of credit. These lines of credit, in the aggregate amount of $65 million at September 29, 2002, are made
available at the discretion of the two participating banks and may be withdrawn at any time by such banks. On September 29, 2002, $7.2 million was outstanding under these lines of credit.





The Company has a revolving credit facility for borrowings of up to $170 million that matures in December 2002. The agreement contains covenants which establish ratio
requirements related to debt, interest expense and cash flow. A facility fee of 1/8% per year on the
banks commitment is payable quarterly. On September 29, 2002, $50 million was outstanding under this facility. The Company intends to enter into a new revolving credit facility and expects to replace the current facility in early December
2002.





Piedmont, a subsidiary of the Company, obtained a term loan with a group of banks on May 28, 1996
for $195 million with interest payable at a floating rate of LIBOR plus 0.50%. One half or $97.5 million of the loan agreement matured on May 28, 2002 and the remaining half matures on May 28, 2003.





The Company financed the $97.5 million of debt that matured at Piedmont in May 2002 through its available credit facilities. The Company
loaned $97.5 million to Piedmont to repay the debt which matured in May 2002. Piedmont pays the Company interest based on a spread over the Companys average cost of funds plus 0.50%. The Company intends to provide future financing for Piedmont
in a similar manner, including the $97.5 million debt that matures at Piedmont in May 2003.





After taking into
account all of the interest rate hedging activities, the Company had a weighted average interest rate of 5.3%, 5.7% and 6.0% for the debt and capital lease portfolio as of September 29, 2002, December 30, 2001 and September 30, 2001, respectively.
The Companys overall weighted average borrowing rate on its debt and capital lease portfolio was 5.6% for the first nine months of 2002 compared to 6.6% for the first nine months of 2001.





As of September 29, 2002, approximately 45% of the total debt and capital lease portfolio was subject to changes in short-term interest rates. 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 portfolio increased by 1%, interest expense for the first nine months of 2002 would have increased by approximately $2.3
million and net income would have been reduced by approximately $1.4 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.




14




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Coca-Cola Bottling Co. Consolidated





Notes to Consolidated Financial Statements (Unaudited)







Note 8 continued





The interest rate on Piedmonts $97.5 million term loan is subject to increase in the event Piedmonts debt rating, as established by Standard & Poors,
declines, and is subject to acceleration if Piedmonts debt rating falls below investment grade for more than 40 days. The Company does not anticipate an acceleration of the maturity of Piedmonts term loan. The loan agreement
contains certain restrictions which include limitations on additional borrowings, new liens and dispositions of assets. The loan agreement also requires that The Coca-Cola Company continue to maintain at least a 40% voting and equity interest in
Piedmont and a 20% interest in the Common Stock of the Company.





In January 1999, the Company filed an $800
million shelf registration for debt and equity securities. The Company used this shelf registration to issue $250 million of long-term debentures in 1999. The Company anticipates issuing up to $150 million of


ten-year senior notes in the fourth quarter of 2002. If these senior notes are issued, the net proceeds will be used primarily to repay current maturities of long-term debt.








9.    Derivative Financial Instruments





The Company uses interest rate hedging products to modify risk from interest rate fluctuations in its underlying debt. The Company has historically used derivative
financial instruments from time to time to achieve a targeted fixed/floating rate mix. This target is based upon anticipated cash flows from operations relative to the Companys debt level and the potential impact of increases in interest rates
on the Companys overall financial condition.





The Company does not use derivative financial instruments for
trading or other speculative purposes nor does it use leveraged financial instruments. All of the Companys outstanding interest rate swap agreements are LIBOR-based.





Derivative financial instruments were summarized as follows:





September 29, 2002

December 30, 2001

September 30, 2001Notional Amount

Remaining Term

Notional Amount

Remaining Term

Notional Amount

Remaining TermIn ThousandsInterest rate swapsfloating











$
100,000

8.00 yearsInterest rate swapfixed

$
27,000

.21 years

$
27,000

.95 yearsInterest rate swapfixed


19,000

.21 years


19,000

.95 yearsInterest rate swapfixed


90,000

.75 years




15




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Coca-Cola Bottling Co. Consolidated





Notes to Consolidated Financial Statements (Unaudited)







10.    Fair Values of Financial Instruments





The following methods and assumptions were used by the Company in estimating the fair values of its financial instruments:





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 Variable Rate
Long-Term Debt





The carrying amounts of the Companys variable rate borrowings approximate their fair
values.





Non-Public Fixed Rate Long-Term Debt





The fair values of the Companys fixed rate long-term borrowings are estimated using discounted cash flow analyses based on the Companys current incremental
borrowing rates for similar types of borrowing arrangements.





Derivative Financial Instruments





Fair values for the Companys interest rate swaps are based on current settlement values.





The carrying amounts and fair values of the Companys long-term debt and derivative financial instruments were as follows:





September 29, 2002

December 30, 2001


September 30, 2001Carrying Amount

Fair Value

Carrying Amount


Fair Value


Carrying Amount


Fair ValueIn ThousandsPublic debt

$
450,000

$
487,715

$
497,000


$
493,993


$
503,221


$
503,252Non-public variable rate long-term debt


324,700


324,700


170,000



170,000



176,100



176,100Non-public fixed rate long-term debt


156


156


9,864



9,868



10,047



10,326Interest rate swaps


3,152


3,152


(7
)


(7
)


(6,221
)


(6,221
)





The fair values of the interest rate swaps at September 29, 2002
represent the estimated amount the Company would have paid upon termination of these agreements. The fair values of the interest rate swaps at December 30, 2001 and September 30, 2001 represent the estimated amounts the Company would have received
upon termination of these agreements.




16




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Coca-Cola Bottling Co. Consolidated





Notes to Consolidated Financial Statements (Unaudited)







11.    Commitments and Contingencies





The Company has guaranteed a portion of the debt for two cooperatives in which the Company is a member. 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. The Company also guarantees a portion of debt for SAC. The Company also guarantees a portion of debt for one cooperative from which the Company purchases plastic bottles. The amounts guaranteed were $33.9 million, $37.4
million and $36.7 million as of September 29, 2002, December 30, 2001 and September 30, 2001, respectively.





The
Company purchases certain computerized data management products and services related to inventory control and marketing program support from Data Ventures LLC (Data Ventures), a Delaware limited liability company in which the Company
holds a 31.25% equity interest. J. Frank Harrison, III, Chairman of the Board of Directors and Chief Executive Officer of the Company, holds a 32.5% equity interest in Data Ventures. Data Ventures was indebted to the Company for $3.6 million, $3.9
million and $3.6 million as of September 29, 2002, December 30, 2001 and September 30, 2001, respectively. The Company has a loan loss provision for $2.9 million, $2.4 million and $2.1 million as of September 29, 2002, December 30, 2001 and
September 30, 2001, respectively.





The Company is involved in various claims and legal proceedings which have
arisen in the ordinary course of business. Although it is difficult to predict the ultimate outcome of these cases, management believes, based on discussions with legal counsel, that the ultimate disposition of these claims will not have a material
adverse effect on the financial condition, cash flows or results of operations of the Company.




17




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Coca-Cola Bottling Co. Consolidated





Notes to Consolidated Financial Statements (Unaudited)







12.    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 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. Sales were subject to certain price restrictions and other contingencies established under the plans.
Under the plans, Mr. Harrison, Jr. could sell up to 100,000 shares of Common Stock over a period expiring March 7, 2004 and Mr. Harrison, III could sell up to 150,000 shares of Common Stock over a period expiring August 8, 2004. Through the third
quarter of 2002, 198,923 shares of Common Stock had been sold under the plans and the Company had received proceeds of approximately $5.7 million. The remaining shares under these plans were sold during October 2002 bringing the total number of
shares sold to 250,000. Total proceeds to the Company from the exercise of the stock options under the 10b5-1 plans were approximately $7.2 million.




18




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Coca-Cola Bottling Co. Consolidated





Notes to Consolidated Financial Statements (Unaudited)







13.    Earnings Per Share





The following table sets forth the computation of basic net income per share and diluted net income per share:





Third Quarter

First Nine Months2002

2001

2002

2001In Thousands (Except Per Share Data)Numerator:Numerator for basic net income per share and diluted net income per share

$
9,539

$
7,915

$
23,700

$
11,142Denominator:Denominator for basic net income per shareweighted average common shares


8,864


8,753


8,807


8,753Effect of dilutive securitiesstock options


60


65


80


69Denominator for diluted net income per shareadjusted weightedaverage common shares


8,924


8,818


8,887


8,822Basic net income per share

$
1.08

$
.90

$
2.69

$
1.27Diluted net income per share

$
1.07

$
.90

$
2.67

$
1.26




19




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Coca-Cola Bottling Co. Consolidated





Notes to Consolidated Financial Statements (Unaudited)







14.    Supplemental Disclosures of Cash Flow Information





Changes in current assets and current liabilities affecting cash, net of effect of consolidating Piedmont in 2002, were as follows:





First Nine Months2002


2001In ThousandsAccounts receivable, trade, net

$
19


$
(1,101
)Accounts receivable, The Coca-Cola Company


(14,961
)


(2,480
)Accounts receivable, other


1,124



3,636Inventories


3,379



3,322Prepaid expenses and other current assets


(3,290
)


(662
)Accounts payable, trade


1,024



9,686Accounts payable, The Coca-Cola Company


33,284



5,741Other accrued liabilities


9,392



(867
)Accrued compensation


330



(1,626
)Accrued interest payable


3,184



2,827Due to Piedmont






7,310Decrease in current assets less current liabilities

$
33,485


$
25,786




20




---



Coca-Cola Bottling Co. Consolidated





Notes to Consolidated Financial Statements (Unaudited)







15.    New Accounting Pronouncements





In June 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 141,
Business Combinations, (SFAS No. 141) and Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets, (SFAS No. 142). 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 at least annually. These standards provide guidelines for new
disclosure requirements and outline the criteria for initial recognition and measurement of intangibles, assignment of assets and liabilities including goodwill to reporting units and goodwill impairment testing. The provisions of SFAS No. 141 and
SFAS No. 142 apply to all business combinations consummated after June 30, 2001. The provisions of SFAS No. 142 for existing goodwill and other intangible assets have been implemented effective the first day of fiscal year 2002. Net income for
the third quarter and first nine months of 2002 was favorably impacted by the adoption of SFAS No. 142, which resulted in a reduction of amortization expense of $3.1 million and $9.2 million, net of tax effect, for the third quarter and first
nine months of 2002, respectively. The Company has updated its analysis of its goodwill and intangible assets with indefinite useful lives as of the end of the third quarter of 2002 and concluded that there is no impairment at this time.





In October 2001, the FASB issued Statement of Financial Accounting Standards No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, (SFAS No. 144). SFAS No. 144 supersedes Statement of Financial Accounting Standards No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of, but it retains many of the fundamental provisions of that Statement. SFAS No. 144 also extends the reporting requirements to report separately as discontinued operations components of an entity that have either been disposed of or
classified as held for sale. The provisions of SFAS No. 144 have been adopted as of the beginning of fiscal year 2002. The adoption of SFAS No. 144 did not have a material effect on the Companys operating results.





In April 2002, the FASB issued Statement of Financial Accounting Standards No. 145, Recission of FASB Statements
No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections as of April 2002, (SFAS No. 145). SFAS No. 145 contains a number of changes under existing generally accepted accounting
principles, including the elimination of extraordinary item classification of debt extinguishments that was previously required under SFAS No. 4. The provisions of this Statement related to the recission of Statement No. 4 shall be applied in
fiscal years beginning after May 15, 2002, with early adoption encouraged. The Company is currently evaluating the impact of SFAS No. 145 on its consolidated financial statements.





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 year results have been adjusted to reclassify these
expenses as a deduction to net sales for comparability with current year presentation. These expenses relate to payments to customers for certain marketing programs. The Company reclassified $7.8 million for the third quarter of 2001 and
$22.4 million for the first nine months of 2001 related to these expenses.




21




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Item 2.Managements Discussion and Analysis of Financial
Condition and Results of Operations





Introduction





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. The Company is also a partner with The Coca-Cola
Company in Piedmont Coca-Cola Bottling Partnership (Piedmont), a partnership that operates additional bottling territory in portions of North Carolina and South Carolina.





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 Companys investment in
Piedmont had been accounted for using the equity method for 2001 and prior years.





The Coca-Cola Company owns
approximately 30% of the Companys Common Stock and has approximately a 45% interest in Piedmont. In a filing with the Securities and Exchange Commission dated October 10, 2002, The Coca-Cola Company indicated they had authorized
representatives to negotiate a transaction to sell their remaining ownership interest in Piedmont to the Company. While the Company is considering this transaction, no decision has been made at this time.





Managements discussion and analysis should be read in conjunction with the Companys consolidated unaudited financial
statements and the accompanying footnotes along with the cautionary statements at the end of this section.





Basis of Presentation





The statement of operations and statement of cash flows for the third quarter and nine months ending
September 29, 2002 and the consolidated balance sheet as of September 29, 2002 include the combined operations of the Company and Piedmont, reflecting the acquisition of an additional interest in Piedmont as discussed above. Generally accepted
accounting principles require that results for the other periods presented, including results of operations and cash flows for the third quarter and nine months ended September 30, 2001 and the consolidated balance sheets as of December 30,
2001 and September 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 the third quarter and
first nine months of 2002 is based on the unaudited results for the




22




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respective periods compared to the pro forma consolidated results for the Company and Piedmont for the same period in the prior year. The 2001 pro forma consolidated results for the Company and
Piedmont are included in Note 2 to the financial statements.





New Accounting Pronouncements





In June 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 141,
Business Combinations, (SFAS No. 141) and Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets, (SFAS No. 142). 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 at least annually. These standards provide guidelines for new
disclosure requirements and outline the criteria for initial recognition and measurement of intangibles, assignment of assets and liabilities including goodwill to reporting units and goodwill impairment testing. The provisions of SFAS Nos. 141 and
142 apply to all business combinations consummated after June 30, 2001. The provisions of SFAS No. 142 for existing goodwill and other intangible assets have been implemented effective the beginning of fiscal year 2002. Net income for the third
quarter and first nine months of 2002 was favorably impacted by the adoption of SFAS No. 142, which resulted in a reduction of amortization expense of $3.1 million and $9.2 million, net of tax effect, for the third quarter and first nine months
of 2002, respectively. The Company has updated its analysis of its goodwill and intangible assets with indefinite useful lives as of the end of the third quarter of 2002 and concluded that there is no impairment at this time.





In October 2001, the FASB issued Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, (SFAS No. 144). SFAS No. 144 supersedes Statement of Financial Accounting Standards No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of, but it retains many of the fundamental provisions of that Statement. SFAS No. 144 also extends the reporting requirements to report separately as discontinued operations components of an entity that have either been disposed of or
classified as held for sale. The provisions of SFAS No. 144 have been adopted as of the beginning of fiscal year 2002. The adoption of SFAS No. 144 did not have a material effect on the Companys operating results.





In April 2002, the FASB issued Statement of Financial Accounting Standards No. 145, Recission of FASB Statements No. 4, 44
and 64, Amendment of FASB Statement No. 13, and Technical Corrections as of April 2002, (SFAS No. 145). SFAS No. 145 contains a number of changes under existing generally accepted accounting principles, including the
elimination of extraordinary item classification of debt extinguishments that was previously required under SFAS No. 4. The provisions of this Statement related to the recission of Statement No. 4 shall be applied in fiscal years beginning
after May 15, 2002, with early adoption encouraged. The Company is currently evaluating the impact of SFAS No. 145 on its consolidated financial statements.





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 year results have been adjusted to reclassify these
expenses as a deduction to net sales for comparability with current year presentation. These expenses relate to payments to customers for certain marketing programs. The Company reclassified $7.8 million for the third quarter of 2001 and
$22.4 million for the first nine months of 2001 related to these expenses.





Discussion of Critical Accounting Policies and
Critical Accounting Estimates





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 has included in its Annual Report on Form 10-K for the year ended




23




---

December 30, 2001 a discussion of 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. Except for the Companys adoption
of SFAS No. 142 and SFAS No. 144, the Company has not made any changes in any of these critical accounting policies during the first nine months of 2002, nor has it made any material changes in any of the critical accounting estimates underlying
these accounting policies during the first nine months of 2002.





Overview





The following discussion presents managements analysis of the results of operations for the third quarter and first nine months of 2002 compared to the pro forma
consolidated results for the same periods of 2001 and changes in financial condition from September 30, 2001 and December 30, 2001 (on a pro forma consolidated basis) to September 29, 2002. See Note 2 for 2001 unaudited pro forma consolidated
financial information. The results for interim periods are not necessarily indicative of the results to be expected for the year due to seasonal factors.





The Company reported net income of $9.5 million or $1.08 per share for the third quarter of 2002 compared with net income of $7.9 million or $.90 per share for the same period in 2001. For the first
nine months of 2002, net income was $23.7 million or $2.69 per share compared to net income of $10.9 million or $1.24 per share for the first nine months of 2001. Net income for the third quarter and first nine months of 2002 was favorably impacted
by the adoption of SFAS No. 142 which resulted in a reduction of amortization expense of $3.1 million and $9.2 million, net of tax effect, or approximately $.35 and $1.04 per share for the third quarter and first nine months of 2002, respectively.
Net income for the third quarter and first nine months of 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 during
the third quarter of 2001.





Operating results for the third quarter of 2002 included physical case volume growth
of 8% as compared to the same period in the prior year. Operating results for the first nine months of 2002 included physical case volume growth of approximately 6% and approximately flat net revenue per case. Lower interest rates and reduced debt
balances resulted in a decrease in interest expense from the third quarter and first nine months of 2001 of $2.8 million and $9.3 million, respectively. The Company continues to experience strong free cash flow as evidenced by outstanding debt which
declined to $774.9 million as of September 29, 2002 compared to $888.1 million as of September 30, 2001.





Results of Operations





During the first nine months of 2002, the Company experienced strong volume growth with physical case sales
increasing by 8% for the third quarter and approximately 6% for the first nine months compared to the corresponding periods in 2001. Net selling price per unit was flat for the first nine months of 2002 compared to the first nine months of 2001. The
increased sales volume in conjunction with higher sales to other Coca-Cola bottlers led to an increase in net sales of 7% for both the third quarter and the first nine months of the year over respective periods in the prior year.




24




---




Sales of carbonated beverages increased by 2% for the first nine months of 2002
over 2001. In addition, the Company continues to experience strong growth for its bottled water, Dasani. New packaging, including the Dasani Fridgepack  , and increased availability in retail outlets contributed to an increase in volume of 40% for Dasani over the first nine months of 2001. The Company introduced Vanilla Coke during the
second quarter of 2002. Sales results have been very positive for Vanilla Coke during the short time it has been in the Companys markets. This brand represents more than 3% of the Companys third quarter volume. The Company plans to
introduce diet Vanilla Coke during the fourth quarter of 2002. Fanta flavors and Minute Maid Lemonade, introduced in 2002, continue to favorably impact volume growth. The Company introduced pink Minute Maid Lemonade during the third quarter as an
additional offering in this growing category. POWERade continues to show strong growth with volume increasing by 20% over the first nine months of 2001. Noncarbonated beverages, which include bottled water, comprise approximately 11% of the
Companys total sales volume through the first nine months of 2002 as compared to 9% in the first nine months of 2001.





Cost of sales on a per unit basis decreased by 1% in the first nine months of 2002 compared to the same period in 2001. Packaging costs decreased slightly compared to the prior year. Increases in other raw material costs have been
offset primarily by a reduction in manufacturing labor and overhead costs. Gross margin increased by approximately 8% for the first nine months of 2002. Gross margin as a percentage of net sales was 46.8% in the first nine months of 2002 compared to
46.3% in the first nine months of 2001. The improvement in gross margin as a percentage of net sales reflects modest increases in selling prices in take-home channels offset by planned decreases in selling prices in immediate consumption packages in
several channels. These changes in selling prices have resulted in flat net revenue per case and have led to favorable shifts in channel mix, which combined with lower cost of sales on a per unit basis, have driven an increase in gross margin.





Selling, general and administrative expenses for the third quarter and first nine months of 2002 increased
approximately 8%, respectively, from the same periods in 2001. The increases in selling, general and administrative expenses were primarily attributable to increases in employee compensation and employee benefit plans (including costs related to the
Companys pension plans), increased insurance costs, increased marketing expenses and certain expenses related to the closing of sales distribution facilities. The Company anticipates that insurance costs will further increase in 2003. Based on
the performance of the Companys pension plan investments prior to 2002 and lower interest rates, pension expense will increase from approximately $2.0 million in 2001 to approximately $6.0 million in 2002. Due to continuing weakness in
the performance of pension plan investments and an anticipated reduction in the discount rate assumption, it is anticipated that pension expense will further increase in 2003 to approximately $9.0 million to $10.0 million. The Company has
closed eight sales distribution centers during the first nine months of 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.





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 concentrate, syrups and finished products to the Company make substantial advertising expenditures
to promote sales in the local territories served by the Company. The Company also benefits from national advertising programs conducted by The Coca-Cola Company and other beverage companies. Certain of the marketing expenditures by The


Coca-Cola Company and other beverage companies are made pursuant to annual arrangements. Although The Coca-Cola Company has advised the Company that it intends to provide




25




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marketing funding support in 2002, it is not obligated to do so under the Companys master bottle contract. Marketing funding support from The Coca-Cola Company and other beverage companies,
which include direct payments to the Company as well as payments to customers for marketing programs or for certain advertising on our behalf, was $62.7 million and $56.1 million in the first nine months of 2002 and 2001, respectively.





Depreciation expense increased by approximately $1.3 million or approximately 7% between the third quarter of 2002 and the
third quarter of 2001. The increase in depreciation in the third quarter was primarily related to amortization of a capital lease for the Companys Charlotte, North Carolina production/distribution center. The lease obligation was capitalized
as a result of the Companys decision in the first quarter of 2002 to enter into renewal options that extend the expected term of the lease. The lease was previously accounted for as an operating lease. Depreciation expense in the first nine
months of 2002 increased by $3.0 million or approximately 6% from the comparable period in the prior year. The increase in depreciation in the first nine months of 2002 was related to the amortization of the capital lease described above and the
purchase in May 2001 of approximately $49 million of previously leased equipment.





Interest expense for the third
quarter of 2002 of $11.5 million decreased by $2.8 million or 19% from the third quarter of 2001. Interest expense for the first nine months of 2002 decreased by $9.3 million or 21% from the same period in the prior year. The decrease in interest
expense is attributable to lower average interest rates on the Companys outstanding debt and lower debt balances. The Companys outstanding long-term debt declined to $774.9 million at September 29, 2002 from $888.1 million at September
30, 2001. The Companys overall weighted average interest rate decreased from an average of 6.6% during the first nine months of 2001 to an average of 5.6% during the first nine months of 2002.





The Companys effective income tax rates for the first nine months of 2002 and 2001 were 40.7% and 18.0%, respectively. The
Companys effective tax rate for interim periods in 2002 reflects expected fiscal year 2002 earnings. The Companys effective income tax rate for the remainder of 2002 is dependent upon operating results and may change if the results for
the year are different from current expectations. The Companys income tax rate for the third quarter and first nine months of 2001 was favorably impacted by the settlement of certain Federal income tax issues with the Internal Revenue Service
during the third quarter. As a result of the settlement, an adjustment of $2.9 million to the income tax provision was recorded, significantly reducing the effective income tax rate for both the third quarter and first nine months of 2001. Excluding
the effect of this adjustment, the effective income tax rate for the third quarter and first nine months of 2001 would have been approximately 39.5%.





Changes in Financial Condition





Working capital decreased $43.8 million from December 30,
2001 and $38.9 million from September 30, 2001 to September 29, 2002. A working capital deficit at September 29, 2002 of $156.9 million was partly due to the reclassification as a current liability of $154.7 million of the Companys debt
which matures in the next twelve months. Working capital decreased $43.8 million from December 30, 2001 to September 29, 2002 due primarily to an increase in accounts payable to The Coca-Cola Company and other accrued liabilities offset by an
increase in accounts receivable from The Coca-Cola Company. Working capital decreased $38.9 million from September 30, 2001 to September 29, 2002 due primarily to an increase in accounts payable to The Coca-Cola Company and other




26




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accrued liabilities, offset by an increase in accounts receivable from The Coca-Cola Company. The increase in accounts receivable from The Coca-Cola Company and the increase in accounts payable
to The Coca-Cola Company from September 30, 2001 and December 30, 2001 to September 29, 2002 resulted from differences in the timing of marketing program settlements.





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 the Companys 2001 Annual Report on


Form 10-K, this facility is leased from a related party. The lease obligation was capitalized as a
result of the Companys decision in the first quarter to enter into renewal options that extend the expected term of this lease.





Capital expenditures in the first nine months of 2002 were $34.9 million compared to $87.7 million in the first nine months of 2001. Expenditures in the first nine months of 2001 include the purchase of approximately $49
million of previously leased equipment, which purchase was completed during the second quarter of 2001. The Companys current plans for additions to property, plant and equipment in 2002 are in the range of $50 million to $55 million and the
Company expects additions will be financed primarily through cash flow from operations.





The Companys income
from operations for the first nine months of 2002 was more than 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.





Total debt, as of September 29, 2002, decreased by $113.2 million from September 30, 2001 and $107.0 million from December 30, 2001. As of September 29, 2002, the
Company had $50.0 million outstanding under its $170 million revolving credit facility and $7.2 million outstanding under its lines of credit. As of September 29, 2002, the Companys debt and capital lease portfolio had a weighted average
interest rate of approximately 5.3% and approximately 45% of the total debt and capital lease portfolio of $820.6 million was 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 portfolio increased by 1%, interest expense for the first nine months
of 2002 would have increased by approximately $2.3 million and net income would have been reduced by approximately $1.4 million.





With regard 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.





Piedmont obtained a term loan with a group of banks on May 28,
1996 for $195 million with interest payable at a floating rate of LIBOR plus 0.50%. One half or $97.5 million of the loan matured on May 28, 2002 and the remaining half matures on May 28, 2003. The interest rate on Piedmonts outstanding $97.5
million term loan is subject to increase in the event Piedmonts debt rating, as established by Standard & Poors, declines. The loan is also subject to acceleration if Piedmonts debt rating falls below investment grade for more
than 40 days. The Company does not anticipate an




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acceleration of the maturity of Piedmonts term loan. The loan agreement contains certain restrictions which include limitations on additional borrowings, new liens and dispositions of
assets. The loan agreement also requires that The Cola-Cola Company continue to maintain at least a 40% voting and equity interest in Piedmont and a 20% interest in the Common Stock of the Company.





The Company financed $97.5 million of debt that matured at Piedmont in May 2002 through the Companys available credit facilities.
The Company loaned $97.5 million to Piedmont to repay the maturing debt. Piedmont pays the Company interest on the Companys average cost of funds plus 0.50%. The Company intends to provide Piedmont with additional loans in the future,
including amounts necessary to refinance Piedmonts $97.5 million of debt that matures in May 2003.





In
January 1999, the Company filed a registration statement with the Securities and Exchange Commission pursuant to which it can issue up to $800 million of debt and equity securities. The Company used this shelf registration to issue $250 million of
long-term debentures in 1999. The Company intends to refinance its short-term debt maturities with currently available lines of credit and with availability under its shelf registration. The Company anticipates issuing up to $150 million of ten-year
senior notes in the fourth quarter of 2002. If these senior notes are issued, the net proceeds will be used primarily to repay current maturities of long-term debt.





The Company is currently negotiating a new revolving credit facility with a group of banks to replace the existing facility that matures in December 2002. The Company
anticipates finalizing the new revolving credit facility in early December 2002.





On May 13, 2002, the Company
announced that two of its directors, J. Frank Harrison, Jr., Chairman Emeritus, and J. Frank Harrison, III, Chairman 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. Sales were subject to certain price restrictions and other contingencies established under the plans. Under the plans, Mr. Harrison, Jr. could sell up to 100,000 shares of Common Stock over a period expiring March 7, 2004 and Mr.
Harrison, III could sell up to 150,000 shares of Common Stock over a period expiring August 8, 2004. Through the third quarter of 2002, 198,923 shares of Common Stock had been sold under the plans and the Company had received proceeds of
approximately $5.7 million. The remaining shares under these plans were sold during October 2002 bringing the total number of shares sold to 250,000. Total proceeds to the Company from the exercise of stock options under the 10b5-1 plans were
approximately $7.2 million.





Sources of capital for the Company include operating cash flows, bank borrowings,
issuance of public or private debt and the issuance of equity securities. Management believes that the Company, through these sources, has sufficient financial resources available to maintain its current operations and provide for its current
capital expenditure and working capital requirements, scheduled debt payments, interest and income tax liabilities and dividends for stockholders. 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.




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FORWARD-LOOKING STATEMENTS





This Quarterly Report on Form 10-Q, 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: plans to introduce diet Vanilla Coke in the fourth quarter of 2002; cost savings and asset productivity improvements in the future related to sales distribution facility
closings; the effects of the adoption of SFAS No. 142 and SFAS No. 144; anticipated increases in pension expense; potential marketing support from The Coca-Cola Company; the Companys effective tax rate for the remainder of 2002; sufficiency of
financial resources; additions to property, plant and equipment of $50 million to $55 million in 2002; the Companys intent to operate in a manner that will allow it to maintain its investment grade ratings; the amount and frequency of future
dividends; refinancing of short-term debt maturities; entering into a new revolving credit facility; refinancing of $97.5 million of debt at Piedmont that matures in May 2003; anticipated issuance of up to $150 million of ten-year senior notes in
the fourth quarter of 2002; anticipated increase in insurance costs in 2003; potential purchase of The Coca-Cola Companys remaining ownership interest in Piedmont; managements belief that a trigger event will not occur under the
Companys $170 million term loan agreement and managements belief that an acceleration under Piedmonts $97.5 million term loan will not occur. 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 support payments from The Coca-Cola Company; 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 fuel prices; unfavorable interest rate fluctuations and changes in financial markets which could impact the Companys ability to refinance its short-term debt maturities.




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Item 3.Quantitative and Qualitative Disclosure About Market
Risk.





Not applicable.





Item 4.Controls and Procedures.





Within the 90-day period prior to the date of this report, the Company carried out an evaluation, under the supervision and with the participation of the Companys management, including the Companys Chief
Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Companys disclosure controls and procedures pursuant to Rules 13a-14 and


15d-14 of the Securities Exchange Act of 1934 (the Exchange Act). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Companys disclosure controls and procedures
are effective in timely alerting them to material information relating to the Company (including its consolidated subsidiaries) required to be included in the Companys Exchange Act filings.





There have been no significant changes in the Companys internal controls or in other factors which could significantly affect internal controls subsequent to the
date the Company carried out its evaluation.




30




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PART IIOTHER INFORMATION





Item 6.Exhibits and Reports on Form 8-K





|(a) |  | Exhibits
|--- |  | --------




Exhibit Number

Description4.1

The Registrant, by signing this report, agrees to furnish the Securities and Exchange Commission, upon its request, a copy of any instrument which defines
the rights of holders of long-term debt of the Registrant and its subsidiaries for which consolidated financial statements are required to be filed, and which authorizes a total amount of securities not in excess of 10 percent of total assets of the
Registrant and its subsidiaries on a consolidated basis.99.1

Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.99.2

Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.





|(b) |  | Reports on Form 8-K
|--- |  | -------------------




On July 26, 2002, the Company filed a Current Report on Form 8-K relating to the announcement of the Companys financial results for the period ended June 30, 2002.





On October 30, 2002, the Company filed a Current Report on Form 8-K relating to the announcement of the Companys
financial results for the period ended September 29, 2002.




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SIGNATURES





Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.





COCA-COLA BOTTLING CO. CONSOLIDATED (REGISTRANT)By:

/s/    DAVID V.
SINGERDavid V. Singer Principal
Financial Officer of the Registrant and Executive Vice
President and Chief Financial Officer


Date:    November 8, 2002




32




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I, J. Frank Harrison, III, certify that:





| | 1. |  | I have reviewed this quarterly report on Form 10-Q of Coca-Cola Bottling Co. Consolidated;
| | -- |  | ------------------------------------------------------------------------------------------




| | 2. |  | Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | 3. |  | Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | 4. |  | The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
| | -- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | a) |  | designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | b) |  | evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly
report (the Evaluation Date); and
| | -- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | c) |  | presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | 5. |  | The registrants other certifying officers and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the equivalent function):
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | a) |  | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process,
summarize and report financial data and have identified for the registrants auditors any material weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | b) |  | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------




| | 6. |  | The registrants other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




Date: November 8, 2002





/s/    J. FRANK HARRISON,
IIIJ. Frank Harrison, III Chairman of the Board of Directors and Chief Executive Officer




33




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I, David V. Singer, certify that:





| | 1. |  | I have reviewed this quarterly report on Form 10-Q of Coca-Cola Bottling Co. Consolidated;
| | -- |  | ------------------------------------------------------------------------------------------




| | 2. |  | Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | 3. |  | Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | 4. |  | The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
| | -- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | a) |  | designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | b) |  | evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly
report (the Evaluation Date); and
| | -- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | c) |  | presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | 5. |  | The registrants other certifying officers and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the equivalent function):
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | a) |  | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process,
summarize and report financial data and have identified for the registrants auditors any material weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | b) |  | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------




| | 6. |  | The registrants other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




Date: November 8, 2002


/s/    DAVID V.
SINGERDavid V. Singer Executive Vice
President and Chief Financial Officer




34